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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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SCHEDULE 14D-9
Solicitation/Recommendation Statement Pursuant to
Section 14(d)(4) of the Securities Exchange Act of 1934
VALLEN CORPORATION
(Name of Subject Company)
VALLEN CORPORATION
(Name of Person(s) Filing Statement)
Common Stock, par value $.50 per share
(Title of Class of Securities)
919260109
(CUSIP Number of Class of Securities)
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James W. Thompson
Chief Executive Officer
Vallen Corporation
13333 Northwest Freeway
Houston, Texas 77040
(713) 462-8700
(Name, address and telephone number of person authorized to receive notice and
communications on behalf of the person(s) filing statement)
with copies to:
John B. Clutterbuck
Mayor, Day, Caldwell & Keeton, L.L.P.
700 Louisiana, Suite 1900
Houston, Texas 77002-2778
(713) 225-7000
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Item 1. Security and Subject Company
The name of the subject company is Vallen Corporation, a Texas corporation
(the "Company"), and the address of the principal executive offices of the
Company is 13333 Northwest Freeway, Houston, Texas 77040. The title of the
class of equity securities to which this statement relates is the common
stock, par value $.50 per share, of the Company (the "Common Stock" or the
"Shares").
Item 2. Tender Offer of the Bidder
This statement relates to the tender offer by Shield Acquisition Corp., a
Texas corporation ("Purchaser"), a wholly owned subsidiary of Hagemeyer P.P.S.
North America, Inc., a Delaware corporation ("Parent"), disclosed in a Tender
Offer Statement on Schedule 14D-1, dated November 19, 1999 (the "Schedule
14D-1") and filed with the Securities and Exchange Commission (the
"Commission"), to acquire all of the outstanding Shares, at a price of $25 per
Share (the "Offer Price"), net to the seller in cash, upon the terms and subject
to the conditions set forth in the Offer to Purchase, dated November 19, 1999
(the "Offer to Purchase"), and the related letter of transmittal (the "Letter of
Transmittal"). The Offer to Purchase and the Letter of Transmittal are filed
with the Commission as exhibits to the Schedule 14D-1 and together constitute
the "Offer."
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER A NUMBER OF
SHARES WHICH, TOGETHER WITH ANY SHARES BENEFICIALLY OWNED BY PARENT AND ITS
AFFILIATES, CONSTITUTES AT LEAST TWO THIRDS OF THE SHARES OF COMMON STOCK
OUTSTANDING ON A FULLY-DILUTED BASIS (THE "MINIMUM CONDITION").
The Company has represented and warranted to Purchaser and Parent in the
Merger Agreement (as defined below) that, as of November 12, 1999 there were
(i) 7,192,264 Shares issued and outstanding, (ii) 2,575,881 Shares held in
treasury; and (iii) 443,003 Shares issuable pursuant to the exercise of
options. Based on the foregoing, the Minimum Condition will be satisfied if at
least 5,090,178 of the outstanding Shares are validly tendered and not
withdrawn prior to expiration of the Offer. Holders of 4,067,412
(approximately 56%) of the outstanding Shares and have agreed to tender their
Shares pursuant to the Offer pursuant to the Shareholders' Agreement described
below.
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of November 14, 1999 (the "Merger Agreement"), by and among Parent,
Purchaser and the Company. The Merger Agreement provides, among other things,
that, as soon as practicable after the satisfaction or waiver of the
conditions set forth in the Merger Agreement, Purchaser will be merged with
and into the Company (the "Merger"), and the Company will continue as the
surviving corporation (the "Surviving Corporation"). The full text of the
Merger Agreement is incorporated by reference herein. See Item 3.
Consummation of the Merger is conditioned upon, among other things, the
approval and adoption of the Merger Agreement by the requisite vote of
shareholders of the Company, if required by the TBCA. Under the TBCA and
pursuant to the Company's Articles of Incorporation, the affirmative vote of
the holders of two thirds of the outstanding Shares is the only vote of any
class or series of the Company's capital stock that would be necessary to
approve the Merger Agreement and the Merger at any required meeting of the
Company's shareholders. IF THE MINIMUM CONDITION IS SATISFIED, AS A RESULT OF
THE PURCHASE OF SHARES BY PURCHASER PURSUANT TO THE OFFER, PURCHASER AND ITS
AFFILIATES WILL OWN AT LEAST TWO THIRDS OF THE OUTSTANDING SHARES AND
PURCHASER WILL BE ABLE TO EFFECT THE MERGER WITHOUT THE AFFIRMATIVE VOTE OF
ANY OTHER SHAREHOLDER. The Merger Agreement is more fully described in
Sections 11 and 14 of the Offer to Purchase, incorporated herein by reference.
Under Article 5.16 of the TBCA, if a corporation owns at least 90% of the
outstanding shares of each class of stock of a subsidiary corporation, the
corporation holding such stock may merge such subsidiary into itself, or
itself into such subsidiary, without any action or vote on the part of the
board of directors or the shareholders of
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such other corporation (a "short-form merger"). Pursuant to the Merger
Agreement, in the event that Purchaser acquires at least 90% of the
outstanding Shares in the Offer, Purchaser and Parent shall take all necessary
actions to cause the Merger to become effective, as soon as practicable after
the expiration of the Offer, without a meeting of the shareholders of the
Company. Even if Purchaser does not own 90% of the outstanding Shares
following consummation of the Offer, Parent or Purchaser could seek to
purchase additional Shares in the open market or otherwise, or may exercise
the option described below, in order to reach the 90% threshold and to effect
a short-form merger. The consideration per Share paid for any Shares acquired
in open market purchases may be greater or less than the Offer Price. Parent
currently intends to effect a short-form merger of Purchaser into the Company,
if permitted to do so under the TBCA. See Section 12 of the Offer to Purchase,
incorporated herein by reference.
In connection with the Merger Agreement, Parent, Purchaser and the Company
entered into an Option Agreement dated as of November 14, 1999 (the "Option
Agreement"), pursuant to which the Company granted to Purchaser an irrevocable
option to purchase from the Company, at the Offer Price, newly issued Shares
in an amount equal to the number of Shares (up to a maximum of 10% of the
number of Shares outstanding) that, when added to the number of Shares owned
by Purchaser and its affiliates immediately following consummation of the
Offer, constitutes 90% of the Shares then outstanding on a fully diluted basis
(giving effect to the issuance of such Shares). The option is exercisable at
any time during the two business days following the acceptance for payment by
Purchaser of all Shares purchasable pursuant to the Offer (including under any
extension of the Offer). The Option Agreement is described more fully in
Section 11 of the Offer to Purchase, incorporated herein by reference.
As a condition and an inducement to Parent's entering into the Merger
Agreement, Mr. Leonard J. Bruce, Bruce Partners, Ltd., and Bruce Interests
(both of which entities include Mr. Robert W. Bruce as a partner) (each, a
"Shareholder" and collectively, the "Shareholders"), who collectively are the
beneficial owners of 4,067,412 Shares (approximately 56% of the total
outstanding Shares), concurrently with the execution and delivery of the
Merger Agreement entered into a Shareholders' Agreement dated as of November
14, 1999 (the "Shareholders' Agreement") with Parent and Purchaser pursuant to
which they have agreed, among other things, to tender all of their Shares
pursuant to the Offer. The Shareholders' Agreement is described more fully in
Section 11 of the Offer to Purchase, incorporated herein by reference.
Pursuant to the Merger Agreement, following the purchase of Shares in the
Offer, Parent has the right to designate directors on the Company's Board of
Directors (the "Company Board"). See Schedule I to the Offer to Purchase,
incorporated herein by reference. See also the Company's Information Statement
(the "Information Statement") pursuant to Section 14(f) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations promulgated thereunder, which is attached as Annex A hereto and
incorporated herein by reference.
According to the Schedule 14D-1, the principal office of the Parent and
Purchaser is located at 100 Galleria Parkway, Suite 1120, Atlanta, Georgia
30339.
Item 3. Identity and Background
(a) The name and address of the Company, which is the person filing this
statement, are set forth in Item 1 above.
(b) Except as set forth in this Item 3(b), to the knowledge of the
Company, there are no material contracts, agreements, arrangements or
understandings and no actual or potential conflicts of interest between the
Company or its affiliates and (i) the Company's executive officers, directors
or affiliates or (ii) Parent or Purchaser or their respective executive
officers, directors or affiliates.
Agreements with Parent and Purchaser
Summaries of the material provisions of the Merger Agreement, the
Shareholders' Agreement, the Option Agreement, the Guarantee dated November
14, 1999 by Hagemeyer N.V. (Purchaser's ultimate parent) of Purchaser's and
Parent's obligations in connection with the Offer, the Merger and the Merger
Agreement (the "Guarantee"), and the Confidentiality Agreement dated September
9, 1999 between an affiliate of Parent and
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the Company (the "Confidentiality Agreement") are included in Sections 11 and
14 of the Offer to Purchase. The Offer to Purchase is included as an exhibit
to the Schedule 14D-1 and is incorporated herein by reference. Such summaries
do not purport to be complete and are qualified in their entirety by reference
to the complete texts of the Merger Agreement, the Shareholders' Agreement,
the Option Agreement, the Guarantee and the Confidentiality Agreement, copies
of which have been filed as exhibits to the Schedule 14D-1 and are
incorporated herein by reference.
Agreements with Directors and Executive Officers
Certain information with respect to certain contracts, agreements,
arrangements and understandings between the Company and certain of its
executive officers, directors and affiliates is set forth in the attached
Annex A, which is incorporated herein by reference.
Immediately prior to the effective time of the Merger (the "Effective
Time"), each then outstanding and exercisable option to purchase shares of
Common Stock (other than options granted under the Company's Employee Stock
Purchase Plan, a "Company Option") is to be canceled by the Company and in
consideration of such cancellation, the Company will pay to the holders of
Company Options an amount in respect thereof equal to the product of (A) the
excess, if any, of (i) the Merger Consideration over (ii) the exercise price
per share of Common Stock subject to the unexercised portion of such Company
Option immediately prior to its cancellation and (B) the number of shares of
Common Stock subject to the unexercised portion of such Company Option
immediately prior to its cancellation. Each payment will be less any required
withholding taxes and without interest. The Company has agreed to use its
commercially reasonable best efforts to obtain the consent of each holder of
Company Options to such cancellation if such consent is required under the
terms thereof. By resolution of the Compensation Committee of the Company
Board on September 2, 1999, all Company Options granted through September 30,
1998 that have not expired or been exercised on the date that a Change in
Control (as defined in the resolutions) occurs shall automatically become
fully vested and exercisable. The following six directors or executive
officers will have certain of their unexercisable Company Options become fully
vested as a result of the transactions contemplated in the Merger Agreement:
Leonard J. Bruce, David H. Dewey, David G. Key, John T. Myser, Leighton J.
Stephenson and James W. Thompson.
Immediately prior to the Effective Time, each outstanding share of
restricted stock that is not vested will be canceled by the Company without
any consideration whatsoever. Except as otherwise agreed to by the Company and
Parent, the Company will use its reasonable best efforts to ensure that all
plans, programs or arrangements providing for the issuance or grant of any
interest in respect of the capital stock of the Company or any of its
subsidiaries terminate as of the Effective Time (including the Employee Stock
Purchase Plan). Prior to the consummation of the Offer, the Company has
agreed, if necessary, to amend the terms of the applicable plans, programs and
arrangements to give effect to these provisions.
The Company Board has terminated the Company's Employee Stock Purchase
Plan, effective November 15, 1999 but subject to consummation of the Offer,
and no further contributions to purchase Shares or issuances of Shares under
the Employee Stock Purchase Plan will be permitted. Each participant in the
Employee Stock Purchase Plan will, in consideration for the termination of the
right to purchase Shares thereunder, receive upon consummation of the Merger
(or as soon as practicable thereafter) from the Company in lieu of each Share
that could have been purchased under the Employee Stock Purchase Plan had the
then applicable Plan Year (as defined in the Employee Stock Purchase Plan)
ended on the date of consummation of the Merger, an amount in cash equal to
the difference between the Merger Consideration and the Issue Price (as
defined in the Employee Stock Purchase Plan) determined with reference to the
first business day of the applicable Plan Year (as defined in the Employee
Stock Purchase Plan), to the extent such difference is a positive number. The
Issue Price will be $16.47. All funds contributed to the Employee Stock
Purchase Plan which have not been used to purchase Common Stock as of the
termination date will be returned, in cash, without interest, to participants
of the Employee Stock Purchase Plan. The following four directors or executive
officers of the Company participate in the Employee Stock Purchase Plan:
Robert W. Bruce, David G. Key, Leighton J. Stephenson and James W. Thompson.
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For additional information regarding outstanding Company Options and
outstanding rights to receive Shares under the Employee Stock Purchase Plan,
see Annex A.
By resolution of the Compensation Committee of the Company Board on
September 2, 1999, and by unanimous written consent of the Company Board on
October 20, 1999, the Company granted Retention and Transition Awards in the
aggregate amount of $1,427,025 to be paid to 13 specified key employees upon a
Change in Control (as defined in the resolutions adopted by the Compensation
Committee on September 2, 1999). Of the thirteen employees awarded Retention
and Transition Awards, four were directors or executive officers of the
Company. Their names and the amounts of Retention and Transition Awards to
which they are entitled (as a result of the transactions contemplated in the
Merger Agreement) are listed below:
<TABLE>
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Robert W. Bruce................................................. $125,000
David G. Key.................................................... 125,000
Leighton J. Stephenson.......................................... 125,000
James W. Thompson............................................... 250,000
</TABLE>
By action of the Compensation Committee on October 20, 1999, the Company
adopted a Tenured Employee Severance Program (the "Employee Severance
Program") for all Company employees who did not receive a Retention and
Transition Award and who had been employed with the Company for at least ten
years. Under the Employee Severance Program, eligible employees are entitled
to a severance payment (the size of which varies with the employee's length of
tenure) if they are terminated without Cause or resign for Good Reason during
a Change in Control Period (as such terms are defined in the Employee
Severance Program). Only one director or executive officer of the Company is
eligible to participate in Employee Severance Program: David H. Dewey. Under
the terms of the Employee Severance Program, Mr. Dewey would be entitled to a
lump-sum severance payment equal to 15 months of his annual salary.
James W. Thompson is serving as President and Chief Executive Officer of
the Company pursuant to the terms of an Employment Agreement dated June 6,
1994, which was subsequently amended by the First Amendment to the Employment
Agreement, approved on September 9, 1998 by the Compensation Committee (as
amended, the "Employment Agreement"). Mr. Thompson's base salary under the
Employment Agreement is $250,000. Under the terms of the Employment Agreement,
Mr. Thompson is entitled to a severance payment of: (i) $250,000 if he resigns
for Good Reason (as defined in the Employment Agreement); or (ii) $500,000 if
his employment is terminated in a Change of Control Termination (as defined in
the Employment Agreement). Under the terms of the Employment Agreement, Mr.
Thompson was granted options to purchase 100,000 Shares of Common Stock at an
exercise price of $12.75/share. These options vest upon a Change in Control or
a Change in Control Termination (as defined in the Employment Agreement). As a
result of the transactions contemplated in the Merger Agreement, Mr. Thompson
will be entitled to an amount per option share equal to the difference between
the exercise price and the Offer Price. By resolution of the Compensation
Committee on September 9, 1998, Mr. Thompson was also awarded options to
purchase an additional 33,000 Shares of Common Stock at an exercise price of
$18.75 per share. As a result of the transactions contemplated in the Merger
Agreement, Mr. Thompson will be entitled to an amount per option share equal
to the difference between the exercise price and the Offer Price. A restricted
stock grant of 20,000 shares of Common Stock, awarded to Mr. Thompson by
resolution of the Compensation Committee on September 9, 1998 will lapse
(without any consideration being paid to him) as a result of the transactions
contemplated in the Merger Agreement.
In order to draw upon the industry knowledge and experience of the
Company's founder and Chairman of the Board, Leonard J. Bruce, Purchaser has
proposed to enter into a three-year consulting agreement that would provide
him with: an office and secretarial and support services, a leased car,
continued health and medical insurance and related health care benefits for
himself and his wife, and a consulting fee of $25,000 per year.
Operations Following Consummation of the Offer
Purchaser's plans regarding operations of the Company after consummation of
the Offer are described in Sections 11 and 12 of the Offer to Purchase,
incorporated herein by reference.
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Appraisal Rights
The Company's shareholders have no dissenters' rights of appraisal with
regard to the Offer, but could have such rights with regard to the Merger if
they do not accept the Offer. The rights of holders of shares of Common Stock
to dissent from the Merger are governed by Sections 5.11-5.13 and 5.16 of the
TBCA. Under the statute, a holder of Common Stock as of the record date for
determination of shareholders entitled to notice of the Merger (or the meeting
to vote on the Merger, if applicable), who files a written objection to the
Merger, who has not voted in favor of the Merger, and who has made a demand
for compensation within the specified period applicable under the TBCA, could
be entitled, as an alternative to receiving the consideration offered in the
Merger for Common Stock, to a judicial determination of the fair value of the
holder's Common Stock. In order to obtain such a judicial determination, a
dissenting shareholder would also, if the Surviving Corporation did not do so,
be required to file the required petition in a court of competent jurisdiction
in the county in which the principal office of the Company is located, asking
for a finding and determination of the fair value of the dissenting
shareholder's shares of Common Stock. After a hearing on the petition, the
court would determine the dissenting shareholders who have complied with the
provisions of the TBCA relating to dissenters' rights and have become entitled
to the valuation of and payment for their shares of Common Stock, and would
appoint one or more qualified appraisers to determine that value.
After receipt of the appraiser's report, the court would determine the fair
value of the shares of Common Stock held by the dissenting shareholders
entitled to payment and would direct the payment of that value by the Company,
as the surviving corporation in the Merger. Upon payment of the judgment to
the dissenting shareholders, the dissenting shareholders would cease to have
any interest in their shares. In the absence of fraud in the transaction, the
remedy provided by the provisions of TBCA relating to dissenters' rights of a
shareholder objecting to the Merger would be the exclusive remedy for the
value of shares of Common Stock or money damages to such shareholder with
respect to the Merger.
THE FOREGOING SUMMARY OF THE RIGHTS OF DISSENTING SHAREHOLDERS IS NOT A
COMPLETE STATEMENT OF THE PROCEDURES TO BE FOLLOWED BY SHAREHOLDERS DESIRING
TO EXERCISE ANY AVAILABLE DISSENTERS' RIGHTS. THE PRESERVATION AND EXERCISE OF
DISSENTERS' RIGHTS REQUIRE STRICT ADHERENCE TO THE APPLICABLE PROVISIONS OF
THE TBCA. FAILURE TO FOLLOW THE PROCEDURES SET FORTH IN SUCH PROVISIONS MAY
RESULT IN A LOSS OF SUCH RIGHTS.
The foregoing description of certain provisions of TBCA is not complete and
is qualified in its entirety by reference to the TBCA.
Going Private Transactions
The Commission has adopted Rule 13e-3 under the Exchange Act which is
applicable to certain "going private" transactions and which may under certain
circumstances be applicable to the Merger. However, Rule 13e-3 would be
inapplicable if (a) the Shares are deregistered under the Exchange Act prior
to the Merger or (b) such Merger is consummated within one year after the
purchase of the Shares pursuant to the Offer and such Merger provided for
shareholders to receive cash for their Shares in an amount at least equal to
the Offer Consideration. If applicable, Rule 13e-3 requires, among other
things, that certain financial information concerning the fairness of the
proposed transaction and the consideration offered to minority shareholders in
such transaction be filed with the Commission and disclosed to shareholders
prior to the consummation of the Merger.
Item 4. The Solicitation or Recommendation
Recommendation of the Board of Directors
At a meeting of the Board of Directors of the Company held on November 14,
1999, the Company Board, based upon and subject to the terms and conditions
set forth in the Merger Agreement, unanimously (i) determined that the Merger
Agreement and the transactions contemplated thereby, including the Offer and
the Merger, are fair to and in the best interests of the shareholders of the
Company, (ii) approved the Merger
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Agreement and the transactions contemplated thereby, including the Offer and
the Merger, and (iii) recommended that shareholders of the Company accept the
Offer, tender their Shares to the Purchaser pursuant to the Offer and, if
required by the TBCA, approve and adopt the transactions contemplated by the
Merger Agreement.
A press release announcing the Offer, the Merger and the Merger Agreement
was released jointly by the Company and Parent on November 15, 1999.
Background; Reasons for the Board's Recommendation
Background
During the course of 1998, the Company Board became concerned that the
trading price of the Common Stock had fallen from its historic high and that
the public markets did not accurately reflect the full value of the Company.
The Company Board began to discuss steps that might be taken to address the
price of the Common Stock and generally to enhance shareholder value. In
addition, in separate meetings during October 1998 the Company informally
discussed ways to enhance shareholder value with Salomon Smith Barney Inc.
("Salomon Smith Barney") and William Blair & Company, L.L.C ("William Blair"
and, together with Salomon Smith Barney, the "Company Financial Advisors").
At a Company Board meeting on October 13, 1998, the Company Board reviewed
with outside legal counsel a number of strategic alternatives that could be
pursued by the Company in order to enhance shareholder value. The Company
Board authorized management and the Company's legal counsel to interview
potential financial advisors qualified to assist the Company Board in
exploring such strategic alternatives in more detail.
From October 1998 through January 1999, management of the Company, assisted
by legal counsel, contacted and discussed with the Company Financial Advisors
and other investment banking firms their qualifications and levels of interest
in assisting the Company, continued to review the Company's position in the
public markets and strategic objectives, and discussed various strategic
alternatives available to the Company, including a possible business
combination. In March 1999, the Company Board engaged the Company Financial
Advisors to assist the Company in pursuing strategic alternatives, including a
possible acquisition of the Company.
During the period from June 1999 to August 1999, the Company Board,
together with management and the Company's legal counsel and the Company
Financial Advisors, met several times to discuss and evaluate alternative
strategies available to the Company and tentative timetables and process
mechanics for a possible transaction.
At a Company Board meeting on August 20th, the Company Board reviewed with
the Company Financial Advisors the Company's strategic position, the current
merger and acquisition environment and valuation considerations. The Company
Board authorized the Company Financial Advisors to pursue a possible
acquisition of the Company and reviewed with the Company Financial Advisors
several groups of potential purchasers who might be interested in such an
acquisition. The Company Board also discussed alternative approaches to the
process, which ranged from conducting a confidential process in which a
selected number of potential bidders would be contacted to conducting a
publicly-announced auction of the Company. In order to avoid negative impacts
on the Company's ongoing operations, the Company Board decided to pursue a
confidential process that would nevertheless include the greatest number of
potential purchasers.
In September, the Company's outside legal counsel distributed to each
member of the Company Board a privileged and confidential memorandum
summarizing the Company Board's fiduciary duties with respect to the process
being undertaken by the Company.
In September, 12 potential purchasers were selected by the Company Board
with the assistance of management and the Company Financial Advisors. These
potential purchasers included parties who had from
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time to time in the past approached the Company about a possible transaction
and other parties who were otherwise believed to be potentially interested in
pursuing discussions with the Company and who had sufficient resources to
complete a transaction successfully.
During September and October, at the direction of the Company, the Company
Financial Advisors pursued discussions with each of the 12 potential
purchasers to determine their levels of interest in an acquisition of the
Company. The Company Financial Advisors assisted the Company in entering into
confidentiality agreements with eight of these prospective purchasers who
expressed interest, including an affiliate of Parent, and delivered to such
parties a confidential memorandum describing the Company and its operations.
The other four potential purchasers declined to enter into confidentiality
agreements and declined to pursue discussions regarding a possible acquisition
of the Company.
Also during October, several potential purchasers, including Parent, met
with and received presentations from executive officers and other management
of the Company and reviewed certain materials on the Company.
On October 11th, four of the potential purchasers who signed
confidentiality agreements submitted preliminary indications of interest.
Based on the levels of interest indicated, the Company Financial Advisors were
instructed by the Company Board to hold discussions with three of the
potential purchasers, including Parent. Parent initially indicated on October
11th that it might be willing to pay $22.00 per Share and, after further
discussions, increased its preliminary valuation on October 15th to $24.00 per
Share. A fifth party continued discussions with management from time to time,
but never submitted a preliminary indication of interest and was unable to
devote the resources to a due diligence investigation of the Company.
At a Company Board meeting on October 19th, the Company Board reviewed with
the Company Financial Advisors the developments that had occurred in the
process and authorized management and the Company Financial Advisors to
continue discussions with each of the remaining potential purchasers,
including furnishing detailed due diligence materials.
As authorized by the Company Board, during October, the Company organized a
data room containing detailed confidential due diligence materials. Thereafter
and continuing through early November, representatives of Parent and one other
potential purchaser, and their respective outside legal counsel, independent
accountants and financial advisors, reviewed due diligence materials and held
discussions with management of the Company. The third potential purchaser
informed the Company Financial Advisors that it was unable to continue with
the process and did not undertake a detailed due diligence review.
On November 4th, Parent informed the Company Financial Advisors that it had
substantially completed its due diligence investigation and had been
authorized by Hagemeyer N.V. to increase its offer to $25.00 per Share if the
Company could facilitate closing the transaction as soon as practicable and,
if possible, by December 31, 1999. In order to meet this timetable, Parent
expressed a desire and willingness to begin negotiations with the Company on
transaction documents during the week of November 8th, even though Parent was
aware that the Company was still having, and would continue to pursue,
discussions with other potential purchasers that might result in the Company
rejecting Parent's offer.
At a Company Board meeting on November 8th, the Company Board reviewed with
the Company Financial Advisors the developments that had occurred with each of
the potential purchasers since the last Company Board meeting. The Company
Financial Advisors described Parent's proposed $25.00 offer and related
matters and informed the Company Board that the other potential purchaser was
continuing its due diligence investigation, which was expected to be completed
by the end of the day on November 12th. The Company Board authorized the
Company's legal counsel to distribute draft transaction documents prepared by
the Company's legal counsel to both Parent and the other potential purchaser
and to begin negotiations with Parent and the other potential purchaser. The
Company Financial Advisors were instructed to inform both Parent and the other
potential purchaser that the deadline for delivering final offers and comments
on the Company's proposed transaction documents would be the end of the day on
November 12th. The Company Board also directed that Parent be
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informed that additional bidders had not yet completed their due diligence or
made final offers and that the Company's negotiations with Parent were being
undertaken to facilitate a potential closing before year-end but did not
constitute any commitment to Parent or agreement to its proposed $25.00 per
Share offer or year-end timetable.
The Company's legal counsel delivered its form of draft transaction
documents to Parent and the other potential purchaser on November 8th, and the
Company Financial Advisors conveyed the Company Board's timetable to both
parties.
On November 10th, Parent delivered its initial comments to the transaction
documents, and during the subsequent four days representatives of the Company
and Parent exchanged drafts and discussed and negotiated the terms and
provisions of the transaction documents.
On November 12th, the other potential purchaser submitted both an offer and
comments to the draft transaction documents. Although Parent had presented the
Company with a higher offer, at the direction of the Company, the Company
Financial Advisors contacted the other potential purchaser to inquire whether
its offer might be increased. The response was negative. Therefore,
representatives of the Company continued their negotiations with
representatives of Parent.
In the course of negotiations on November 13th and 14th, representatives of
the Company and Parent finalized the drafts of the Merger Agreement and
related documents on terms that were agreed upon by Parent and that were
considered by the Company's representatives satisfactory to present to the
Company Board.
At a Company Board meeting on November 14th, drafts of the proposed Merger
Agreement and related documents were distributed to the Company Board. The
Company Board met with management, outside legal counsel and the Company
Financial Advisors and conducted a thorough discussion of the Merger
Agreement, related documents and other relevant issues. The Company Financial
Advisors rendered to the Company Board separate oral opinions (subsequently
confirmed by delivery of separate written opinions dated November 14, 1999) as
to the fairness, from a financial point of view, to the holders of Shares
(other than Parent and its affiliates) of the $25.00 per Share cash
consideration to be received in the Offer and the Merger, taken as a whole.
The Company Financial Advisors also reviewed with the Company Board the
financial analyses performed in connection with their respective opinions.
After full discussion, the Company Board approved the Merger Agreement and the
related transaction documents, which were executed and delivered by the
parties shortly after the meeting.
On November 15th, prior to commencement of trading of the Shares on the
Nasdaq Stock Market, the Company and Parent issued a joint public announcement
of the execution of the Merger Agreement and related documents and of the
terms of the Offer and the Merger.
Reasons for the Board's Recommendation
In approving the Offer, the Merger, the Merger Agreement and the
transactions contemplated thereby, and recommending that shareholders accept
the Offer and vote for adoption of the Merger Agreement and approval of the
transactions contemplated thereby, the Company Board discussed the proposed
transaction and consulted with the Company's management, outside legal counsel
and the Company Financial Advisors. The following are material factors
considered by the Board in rendering its recommendation:
9
<PAGE>
. The fact that the $25.00 Offer Price represents a premium of
. approximately 66% over the average closing sale price of $15.02
per Share for the 30 calendar days through November 12, 1999, the
last trading date prior to the date (the "Announcement Date") the
Company first publicly announced it had executed the Merger
Agreement; and
. approximately 27% over the closing sale price of $19.75 per Share
on November 12, 1999, the last trading day prior to the
Announcement Date.
. The historical market prices and trading activity of the Shares and
the Company's historical financial results.
. A review of the strategic alternatives available to the Company,
none of which the Company Board believed to be as favorable to the
Company's shareholders as the Offer and the Merger.
. A review of the extended process through which the Company, with the
assistance of its outside legal counsel and the Company Financial
Advisors, had investigated and approached potential purchasers of
the Company.
. The separate opinions to the Company Board of Salomon Smith Barney
and William Blair, each dated November 14, 1999, to the effect that,
as of such date and based upon and subject to certain matters stated
in their respective opinions, the $25.00 per Share cash
consideration to be received in the Offer and the Merger, taken as a
whole, by holders of Shares (other than Parent and its affiliates)
was fair, from a financial point of view, to such holders. The
written opinions dated November 14, 1999 of Salomon Smith Barney and
William Blair, which set forth the assumptions made, matters
considered and limitations on the review undertaken, are attached
hereto as Annex B and Annex C, respectively, and are incorporated
herein by reference. These opinions are directed only to the
fairness, from a financial point of view, of the $25.00 per Share
cash consideration to be received in the Offer and the Merger by
holders of Shares (other than Parent and its affiliates) and are not
intended to constitute, and do not constitute, recommendations as to
whether any shareholder should tender Shares pursuant to the Offer.
Holders of Shares are urged to read these opinions carefully in
their entirety.
. The fact that the Offer provides for a prompt cash tender offer for
all Shares, thereby enabling shareholders of the Company to receive
cash in exchange for their Shares at the earliest possible time.
. The likelihood that the Offer and the Merger would be consummated,
including the ability and guarantee of Hagemeyer to cause Parent and
Purchaser to meet their financial and other obligations of the Offer
and the Merger Agreement, as well as the effects on the Company's
business, operations and financial condition should it not be
possible to consummate the Merger following public announcement that
the Merger Agreement had been entered into.
. The fact that Parent was willing and able to consummate the Offer
and Merger by December 31, 1999 but did not make closing by year-end
a condition to its obligations under the Merger Agreement.
. The terms and conditions of the Offer, the Merger, the Merger
Agreement and the transactions contemplated thereby, which were the
product of arm's-length negotiations, including the parties'
representations, warranties and covenants, the conditions to their
respective obligations, and the limited ability of Parent and
Purchaser to terminate the Offer or the Merger Agreement.
10
<PAGE>
. The provisions of the Merger Agreement relating to potential
competing transactions, including the ability of the Company to
entertain unsolicited competing bids, to provide information to such
competing bidders, to negotiate with such competing bidders, to
withdraw its recommendation with respect to the Offer and the
Merger, and to terminate the Merger Agreement in favor of a
transaction with a competing bidder upon payment of the Termination
Fee.
The foregoing discussion of factors considered by the Company Board is not
intended to be exhaustive. In view of the wide variety of factors considered
in connection with its evaluation of the Offer and the Merger, the Company
Board did not find it practicable to, and did not, quantify or otherwise
attempt to assign relative weights to the specific factors considered in
reaching its determinations. Rather, the Company Board made its determination
based on the total mix of information available to it, and the judgments of
individual directors may have been influenced to a greater or lesser degree by
differing factors.
Item 5. Persons Retained, Employed or to be Compensated
The Company has retained Salomon Smith Barney and William Blair to act as
its financial advisors in connection with the Offer and the Merger. Pursuant
to the terms of the Company Financial Advisors' engagements, the Company has
agreed to pay the Company Financial Advisors an aggregate financial advisory
fee equal to 1.2% of the total consideration, including liabilities assumed,
payable in the Offer and the Merger. The Company also has agreed to reimburse
the Company Financial Advisors for reasonable travel and other out-of-pocket
expenses, including the reasonable fees and disbursements of its legal
counsel, and to indemnify the Company Financial Advisors and related parties
against certain liabilities, including liabilities under the federal
securities laws, arising out of the Company Financial Advisors' engagements.
In the ordinary course of business, the Company Financial Advisors and their
affiliates (including, with respect to Salomon Smith Barney, Citigroup Inc.
and its affiliates) may actively trade or hold the securities of the Company
and affiliates of Parent for their own account or for the account of customers
and, accordingly, may at any time hold a long or short position in such
securities.
Item 6. Recent Transactions and Intent with Respect to Securities
(a) No transactions in the Shares have been affected during the past 60
days by the Company or, to the best of the Company's knowledge, by any
executive officer, director, affiliate or subsidiary of the Company.
(b) Mr. Leonard Bruce and family partnerships (which include Mr. Robert
Bruce) have entered into the Shareholders' Agreement and thereby have agreed
to tender their Shares in the Offer. In addition to Messrs. Leonard Bruce and
Robert Bruce, the Company's other directors have confirmed to the Company
their intentions to tender Shares, if any, held by them in the Offer. The
Company does not know the extent to which its other executive officers plan to
tender pursuant to the Offer or hold any Shares beneficially owned by them,
nor does the Company know of any current intention by its executive officers
or directors otherwise to dispose of such Shares.
Item 7. Certain Negotiations and Transactions by the Subject Company
(a) Except as described in this Schedule 14D-9, or as set forth in the
Offer to Purchase, no negotiation is being undertaken or is under way by the
Company in response to the Offer which relates to or would result in: (i) an
extraordinary transaction such as a merger or reorganization, involving the
Company or any subsidiary of the Company, (ii) a purchase, sale or transfer of
a material amount of assets by the Company or any subsidiary of the Company,
(iii) a tender offer for or other acquisition of securities by or of the
Company or (iv) any material change in the present capitalization or dividend
policy of the Company.
(b) Except as described in this Schedule 14D-9, there is no transaction,
Company Board resolution, agreement in principle, or signed contract in
response to the Offer, which relates to or would result in one or more of the
matters referred to in Item 7(a).
11
<PAGE>
Item 8. Additional Information to be Furnished
The Information Statement attached as Annex A hereto is being furnished in
connection with the possible designation by Purchaser, pursuant to the Merger
Agreement, of certain persons to be appointed to the Company Board other than
at a meeting of the Company's shareholders. The information contained in all
the Exhibits referred to in Item 9 below is incorporated herein by reference.
Item 9. Material to be Filed as Exhibits
<TABLE>
<CAPTION>
Exhibit No. Document
----------- --------
<C> <S>
(a)(1) Offer to Purchase (incorporated by reference to Exhibit (a)(1) to
the Tender Offer Statement on Schedule 14D-1, filed with the
Commission by Parent and Purchaser on November 19, 1999 (the
"Schedule 14D-1")).*
(a)(2) Letter of Transmittal (incorporated by reference to Exhibit (a)(2)
to the Schedule 14D-1).*
(a)(3) Notice of Guaranteed Delivery (incorporated by reference to
Exhibit (a)(3) to the Schedule 14D-1).*
(a)(4) Letter to Brokers, Dealers, Commercial Banks, Trust Companies and
Other Nominees (incorporated by reference as Exhibit (a)(4) to the
Schedule 14D-1).
(a)(5) Letter to Clients (incorporated by reference to Exhibit (a)(5) to
the Schedule 14D-1).*
(a)(6) Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9 (incorporated by reference to Exhibit (a)(6)
to the Schedule 14D-1).*
(a)(7) Letter to Company Shareholders, dated November 19, 1999.*
(a)(8) Form of Summary Advertisement (incorporated by reference to
Exhibit (a)(7) to the Schedule 14D-1).
(a)(9) Opinion of Salomon Smith Barney Inc. dated November 14, 1999
(included as Annex B to the Company's Solicitation/Recommendation
Statement on Schedule 14D-9).*
(a)(10) Opinion of William Blair & Company, L.L.C. dated November 14, 1999
(included as Annex C to the Company's Solicitation/Recommendation
Statement on Schedule 14D-9).*
(b) Not applicable.
(c)(1) Agreement and Plan of Merger, dated as of November 14, 1999, among
Parent, Purchaser and the Company (incorporated by reference to
Exhibit (c)(1) to the Schedule 14D-1).
(c)(2) Confidentiality Agreement, dated as of September 9, 1999, between
the Company and an affiliate of Parent (incorporated by reference
to Exhibit (c)(2) to the Schedule 14D-1).
(c)(3) Guarantee dated November 14, 1999 by Parent (incorporated by
reference to Exhibit (c)(3) to the Schedule 14D-1).
(c)(4) Shareholders' Agreement, dated November 14, 1999, among Parent and
Leonard J. Bruce, Bruce Partners, Ltd. and Bruce Interests
(incorporated by reference to Exhibit (c)(4) to the Schedule
14D-1).
(c)(5) Option Agreement, dated November 14, 1999, among Parent, Purchaser
and the Company (incorporated by reference to Exhibit (c)(5) to
the Schedule 14D-1).
(c)(6) Agreement, dated June 6, 1994, between the Company and James W.
Thompson (incorporated by reference to Exhibit 10f to the
Company's Form 10-K filed with the Commission on August 17, 1994).
(c)(7) First Amendment to Employment Agreement, effective as of September
10, 1998, between the Company and James W. Thompson (incorporated
by reference to Exhibit 10-1 to the Company's Form 10-Q filed with
the Commission on October 9, 1998).
(c)(8) Restricted Stock Agreement, effective as of September 10, 1998,
between the Company and James W. Thompson (incorporated by
reference to Exhibit 10-2 to the Company's Form 10-Q filed with
the Commission on October 9, 1998).
(c)(9) Excerpts from Minutes of the September 2, 1999 meeting of the
Compensation Committee of the Company's Board of Directors.
(c)(10) Excerpts from Unanimous Consent of the Compensation Committee of
the Company's Board of Directors, dated October 20, 1999.
(c)(11) Tenured Employee Severance Program adopted by the Compensation
Committee of the Company's Board of Directors on October 20, 1999.
</TABLE>
- --------
* Included in documents mailed to shareholders.
12
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
VALLEN CORPORATION
/s/ Leighton J. Stephenson
-------------------------------
Leighton J. Stephenson,
Vice President-Finance
Dated: November 19, 1999
13
<PAGE>
ANNEX A
VALLEN CORPORATION
13333 Northwest Freeway
Houston, Texas 77040
----------------
INFORMATION STATEMENT PURSUANT TO SECTION 14(f)
OF THE SECURITIES EXCHANGE ACT OF 1934
AND RULE 14f-1 THEREUNDER
----------------
NO VOTE OR OTHER ACTION OF THE COMPANY'S SHAREHOLDERS
IS REQUIRED IN CONNECTION WITH THIS INFORMATION STATEMENT.
NO PROXIES ARE BEING SOLICITED AND
YOU ARE REQUESTED NOT TO SEND THE COMPANY A PROXY.
This Information Statement is being provided to the stockholders of Vallen
Corporation (the "Company") pursuant to Section 14(f) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and Rule 14f-1
thereunder in connection with an Agreement and Plan of Merger (the "Merger
Agreement") entered into November 14, 1999 by and among the Company, Hagemeyer
P.P.S. North America, Inc., a Delaware corporation ("Parent"), and Shield
Acquisition Corp., a Delaware corporation and wholly owned subsidiary of Parent
(the "Purchaser").
Pursuant to the Merger Agreement, the Purchaser is making a cash tender
offer (the "Offer") to purchase all of the outstanding common stock, $.50 par
value per share, of the Company ("Common Stock" or "Shares") for $25.00 per
share, net to the seller in cash, as described in the Purchaser's Offer to
Purchase dated November 19, 1999 and related Letter of Transmittal (which Offer
to Purchase and related Letter of Transmittal together constitute the "Offer
Documents"). The Offer will expire December 17, 1999, unless extended.
The terms of the Merger Agreement, a summary of the events leading up to the
execution of the Merger Agreement and Offer, and other information concerning
the Offer and the merger to be effected under the Merger Agreement (the
"Merger") are contained in the Offer to Purchase and in the
Solicitation/Recommendation Statement on Schedule 14D-9 of the Company (the
"Schedule 14D-9") with respect to the Offer. This Information Statement is
being delivered to holders of Shares contemporaneously with the Purchaser's
Offer materials and the Company's Schedule 14D-9, to which this Information
Statement is attached as Schedule I. Certain documents (including the Offer
Documents and the Merger Agreement) have been filed with the Securities and
Exchange Commission as exhibits to the Schedule 14D-9 or as exhibits to the
Tender Offer Statement on Schedule 14D-1 of the Purchaser and (the "Schedule
14D-1"), and all such exhibits are incorporated herein by reference.
Pursuant to Section 1.4 of the Merger Agreement, promptly after the
consummation of the Offer, the Purchaser will be entitled, subject to
compliance with Section 14(f) of the Exchange Act, to designate that number
(rounded down to the next greatest whole number) of directors to the Company's
board of directors (the "Company Board") that is equal to the product of the
total number of directors on the Company Board multiplied by the percentage
that the aggregate number of shares of Common Stock owned by the Purchaser or
any affiliate of Purchaser (including such shares of Company Common Stock as
are accepted for payment pursuant to the offer but excluding shares of Common
Stock held by the Company or any Company Subsidiaries) bears to the number of
shares of Common Stock outstanding. The Company will cause (i) each committee
of the Company Board, (ii) the board of directors of each Company Subsidiary,
and (iii) each committee of such Company subsidiary board to include persons
designated by Purchaser constituting the same percentage of each such committee
or board as Purchaser's designees are of the Company Board. The Company will,
upon Purchaser's request, promptly increase the size of the Company Board
and/or exercise its best efforts to secure the resignations of such number of
directors as necessary to enable Purchaser designees to be elected to the
Company Board and to cause Purchaser's designees to be elected.
A-1
<PAGE>
Following the time that Purchaser's designees constitute a majority of the
Company Board, any action on the part of the Company with respect to the
Merger Agreement or any of the transactions contemplated thereby will require
the vote of a majority of the members of the Company Board who are not
designees of Purchaser.
No action is required by the shareholders of the Company in connection with
the election of the Purchaser's designees to the Company Board. However,
Section 14(f) of the Securities Exchange Act of 1934, as amended, requires the
mailing to the Company's shareholders of the information set forth in this
Information Statement prior to a change in the majority of the Company Board
otherwise than at a meeting of the Company's shareholders.
PURCHASER'S DESIGNEES
The Purchaser has designated 4 persons (the "Designees") to be elected as
members of the Company Board pursuant to terms of the Merger Agreement. The
following information concerning the Designees is based upon data provided by
the Purchaser. The following table sets forth the name and present principal
occupation or employment, and material occupations, positions, offices or
employments for the past five years, of each person who the Purchaser intends
to designate for election to the Company Board if the Minimum Condition is
satisfied. Unless otherwise indicated, each such person is a citizen of the
Netherlands, and the business address of each such person is c/o Hagemeyer
N.V., Rijksweg 69, 1410 AC Naarden, the Netherlands. Unless otherwise
indicated, each such person has held his or her present occupation as set
forth below, or has been an executive officer at the organization indicated,
for the past five years.
<TABLE>
<CAPTION>
Present Principal Occupation or Employment; Material
Name Positions Held During the Past Five Years
---- -------------------------------------------------------
<C> <S>
Richard J. Higgerson.. Mr. Higgerson has been a member of the Board of
Directors of Purchaser since November 1999 and has been
Chairman of the Board of Directors of Parent since
October 1999. Mr. Higgerson was appointed to the Board
of Management of Hagemeyer in April 1994. In April
1999, he retired as a member of the Board of Management
and returned to his home country of the United States
of America where he continues to assist Hagemeyer in a
non-executive capacity.
David G. Gundling..... Mr. Gundling has been a member of the Board of
Directors, President and Chief Executive Officer of
Purchaser since its organization in November 1999. Mr.
Gundling has been a member of the Board of Directors,
President and Chief Executive Officer of Parent since
October 1999. He has also served as President and Chief
Executive Officer of Hagemeyer Holdings, Inc. since May
1999 and Hagemeyer Electrical and Electronics Supply
Company, Inc. since November 1999. Mr. Gundling also
serves as a member of the Board of Directors of
Hagemeyer Holdings, Inc. Prior to serving in these
positions, Mr. Gundling served as President and Chief
Executive Officer of Hagemeyer Foods (N.A.), Inc.
beginning in February 1997. Prior to joining Hagemeyer,
Mr. Gundling was the President and Chief Operating
Officer for Super Rite Foods, Inc. and he served as a
member of the Board of Directors of Super Rite
Corporation until 1995. Mr. Gundling is a U.S. citizen
and his business address is c/o Hagemeyer P.P.S. North
America, Inc., 100 Galleria Parkway, Suite 1120,
Atlanta, Georgia 30339.
Peter Th. M. Koomen... Mr. Koomen has served as a member of the Board of
Directors of Hagemeyer Holdings, Inc. since May 1999.
Mr. Koomen has been a member of the Board of Directors
of Stichting Pensionfund Sagittarius, the Hagemeyer
Company Pensionfund, since January 1998. He has also
been Group Tax Director of Hagemeyer N.V. since April
of 1995. Prior to joining Hagemeyer in 1995 Mr. Koomen
was General Tax Counsel of Group 4 Securitas
International B.V.
Allen D. Altman....... Mr. Altman is a founding shareholder of Altman, Kritzer
& Levick, P.C., an Atlanta-based law firm established
in 1974. Mr. Altman is a U.S. citizen and his business
address is c/o Altman, Kritzer & Levick, P.C., 6400
Powers Ferry Road, N.W., Suite 224, Atlanta, Georgia
30339.
</TABLE>
A-2
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
Generally
The Company Board consists of six members, all of whom stand for re-
election at each annual meeting. Directors are elected by a plurality vote of
the shares of Common Stock represented at the annual meeting and entitled to
vote. Each director holds office until the next annual meeting of shareholders
and until his successor is duly elected and qualified.
Current Directors
The following table provides certain information with respect to current
directors.
<TABLE>
<CAPTION>
Other Positions and Offices
Currently Held
With the Company (and Other
Term will Director Current
Name Age Expire Since Principal Occupation, If Different)
---- --- --------- -------- ----------------------------------
<C> <C> <C> <C> <S>
Leonard J. Bruce... 79 2000 1960 Chairman of the Board; Member,
Compensation Committee
James W. Thompson.. 48 2000 1994 President and Chief Executive
Officer
Robert W. Bruce.... 43 2000 1998 Director, Vallen Knowledge Systems
Group
Kirby Attwell...... 63 2000 1978 Member, Audit and Compensation
Committees (Vice-President of
Travis International, Inc.)
John T. Myser...... 64 2000 1997 Member, Compensation Committee
(Retired Group Vice President, 3M
Company)
Darvin M. Winick... 69 2000 1984 Member, Audit and Compensation
Committees (President of Winick
Consultants)
</TABLE>
Mr. Leonard J. Bruce, who has 51 years of experience in safety equipment
distribution, founded the Company in 1947. He has been Chairman of the Board
of Directors since 1960. Mr. Bruce is the father of Robert W. Bruce, Director
of the Vallen Knowledge Systems Group and a member of the Company Board.
Mr. Thompson joined the Company in June of 1994 as President and Chief
Operating Officer of Vallen Safety Supply Company. He was named President and
Chief Executive Officer in January of 1995. He was formerly employed by
Westburne Supply Company of Naperville, Illinois as Senior Group Vice
President, and prior to that he was with Westinghouse Electric Supply Company
for 18 years.
Mr. Robert W. Bruce was appointed as a director by action of the Board
effective August 19, 1998. He is currently the director of the Vallen
Knowledge Systems Group of Vallen Safety Supply Company and has been employed
in various capacities by the Company since 1978. He is the son of Leonard J.
Bruce, Chairman of the Company Board.
Mr. Attwell is Vice-President of Travis International, Inc., a holding
company for industrial distribution operations, where he has been a senior
executive since January 1987.
Mr. Myser was appointed as a director by action of the Board effective
December 18, 1997. He is currently an Executive Fellow at the University of
St. Thomas, Minneapolis, MN, and is a retired group vice president at 3M
Company, where his career covered 35 years.
Dr. Winick has been President of Winick Consultants, or its related
management consulting firms, since 1981.
Standing Committees
The Company Board has a Compensation Committee and an Audit Committee. The
Compensation Committee, which administers the Company's employee stock option
plan, the employee stock purchase plan and the annual incentive compensation
plan, and which makes base salary and bonus incentive recommendations,
A-3
<PAGE>
met one time during the year ended May 31, 1999. The Audit Committee reviews
the reports of the Company's independent auditors and met once during the year
ended May 31, 1999. The current members of the Compensation Committee are
Messrs. Attwell, Leonard Bruce, Myser and Winick, and the members of the Audit
Committee are Messrs. Attwell and Winick.
Meetings of the Board of Directors
The Company Board held six meetings during the fiscal year ended May 31,
1999. During the last fiscal year, no incumbent director attended fewer than
75% of the total number of meetings of the Company Board or committees on
which he served during the period for which he was a director or committee
member.
Compensation of Directors
Each non-employee director of the Company is entitled to receive an annual
retainer of $20,000 plus $1,500 for each board and committee meeting attended
which is not on the same date as the annual shareholders' meeting. Outside
directors also receive options under the 1993 Non-Employee Director Stock
Option Plan. On the date of each annual meeting of the shareholders of the
Company, each outside director then in office who did not previously receive a
grant of options under the Director Plan is automatically granted options to
purchase 5,001 shares of Common Stock, with such options vesting and becoming
exercisable as to 1,667 shares on each annual anniversary of the grant date.
The exercise price of each option is the average last reported sales price of
the Common Stock on the Nasdaq Stock Market for the last five trading days (on
which sales have occurred) preceding and including the date of grant.
Executive Officers
The following table provides information as of November 19, 1999 regarding
each of Vallen's executive officers:
<TABLE>
<CAPTION>
Executive
Name Age Position With the Company Officer Since
---- --- ------------------------- -------------
<C> <C> <S> <C>
Leonard J. Bruce........ 79 Chairman of the Board and 1960
Director
James W. Thompson....... 48 President, C.E.O. and Director 1994
Leighton J. Stephenson.. 51 Vice President--Finance, 1993
Secretary and Treasurer
David G. Key............ 43 Vice President and General 1996
Manager Encon Safety Products,
Inc.
David H. Dewey.......... 49 Vice President 1998
</TABLE>
The terms of each officer will expire at the next annual meeting of
directors or when his successor is elected and qualified.
Mr. Bruce, who has over 50 years of experience in safety equipment
distribution, founded the company in 1947. He has been Chairman of the Board
of Directors since 1960.
Mr. Thompson joined the Company in June 1994 as President and Chief
Operating Officer of Vallen Safety Supply Company. He was named President and
Chief Executive Officer of Vallen Corporation in December 1994. He was
formerly with Westburne Supply Company and Westinghouse Electric Supply
Company. Mr. Thompson was elected to the Board of Directors in June 1994.
Mr. Stephenson has been employed with the Company since December 1993.
Before joining Vallen, he was with United Artists Entertainment and worked six
years with the audit firm of Coopers & Lybrand.
Mr. Key joined the Company in March 1996 as General Manager of Encon Safety
Products, Inc., the Company's manufacturing subsidiary. He was previously with
3M.
Mr. Dewey has been with the company since 1972. He has served in a variety
of sales and staff positions including Manager of the Southwest Region. He was
named Vice President in 1998.
A-4
<PAGE>
MANAGEMENT COMPENSATION AND BENEFITS
Summary Compensation Table
The Summary Compensation Table includes individual compensation information
on the Chief Executive Officer and the five other most highly paid executive
officers for each of the years in the three-year period ended May 31, 1999.
Mr. Robert W. Bruce was not an executive officer of the Company at the end of
the 1999 fiscal year; however, he was elected to the Company Board in 1998.
<TABLE>
<CAPTION>
Long Term
Annual Compensation(1) Compensation
----------------------------------- ------------
Securities
Name and Principal Other Annual Underlying All Other
Position Year Salary Bonus Compensation Options Compensation(2)
----------------------- ---- -------- -------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Leonard J. Bruce....... 1999 $300,000 $ -- $ 681 $ 7,174
Chairman of the Board 1998 265,000 149,279 4,846 12,919
1997 253,750 19,693 5,229 18,000 10,742
James W. Thompson...... 1999 $250,000 $ -- $2,663 33,000 $ 6,575
President and Chief 1998 207,584 149,279 3,002 9,804
Executive Officer 1997 203,000 25,267 2,615 8,364
Robin R. Hutton(3)..... 1999 $100,000 $ -- $4,198 $ 4,624
Executive Vice 1998 122,850 13,008 2,794 6,675
President, Sales 1997 145,700 11,947 2,030 7,101
David G. Key........... 1999 $148,220 $ 26,717 $1,908 9,000 $ 5,539
Vice President and 1998 135,000 56,700 2,250 --
General Manager, 1997 127,940 2,906 2,417 15,000 --
Encon Safety Products
Company
Leighton J.
Stephenson............ 1999 $122,917 $ -- $ -- 5,000 $ 3,537
Vice President, 1998 110,156 57,302 -- 5,183
Secretary 1997 107,265 8,736 -- 3,930
and Treasurer
David H. Dewey(4)...... 1999 $110,250 $ -- $1,908 5,000 $ 5,539
Vice President 1998 100,000 21,000 2,067 5,360
1997 99,392 15,236 1,960 6,136
</TABLE>
- --------
(1) For each year, the incremental cost to the Company of personal benefits
provided to each of the executive officers did not exceed the lesser of
$50,000 or 10% of aggregate salary and bonus.
(2) The amounts shown were accrued in respect of the Company's payments to its
profit-sharing plan and the Company's contributory funding of the related
401(k) Plan, in which most Company employees are eligible to participate.
(3) Mr. Hutton has ceased to be an executive officer of the Company, but
remains employed by the Company.
(4) Mr. Dewey became Vice President of the Company effective April 9, 1998.
Employment Agreement
Effective January 1, 1995, Mr. James W. Thompson was named President and
Chief Executive Officer of Vallen Corporation. When Mr. Thompson was named
President and Chief Operating Officer of Vallen Safety Supply Company in June
1994, he entered into an employment agreement that, as amended, provides for a
minimum base salary, inclusion in the Company's incentive plans, and an option
to purchase 100,000 shares of Common Stock at an exercise price of $12.75 (the
closing stock price on June 6, 1994 was $11.75). The agreement also contains
provisions regarding termination of employment conditions which could result
in acceleration of the vesting of the 100,000 options and Mr. Thompson's being
paid a severance amount equal to his annual base salary, or twice his annual
base salary, depending upon the conditions of termination. In
A-5
<PAGE>
September 1998, the Company and Mr. Thompson amended the employment agreement
to provide for a minimum base salary of $250,000 (effective June 1, 1998), to
include "Change in Control," termination by the Company without "Cause" or
termination by Mr. Thompson for "Good Reason" (all as defined therein) as
events that accelerate the vesting of his initial 100,000 options, and to
include termination of the agreement by Mr. Thompson for "Good Reason" as an
event that triggers a severance payment. "Good Reason" was defined to allow
Mr. Thompson to terminate his employment at any time within the six months
following the 1999 annual meeting of shareholders; provided that he gives
notice to the Company and continues to perform his duties for up to six months
as a transition period following such notice. As of the date of this
statement, the Company has not received any such notice.
Stock Option Grants, Exercises and Holdings
As discussed below under "--Report of the Compensation Committee," in
September 1998, the Compensation Committee and the Company Board approved
certain changes to the compensation arrangements for both the Company's CEO,
Mr. Thompson, and other key employees. In connection with these changes, Mr.
Thompson was granted options under the 1985 Stock Option Plan for Key
Employees for 33,000 shares of Common Stock at an exercise price of $18.75 per
share (the mean between the highest and lowest sales price on the date of
grant), with vesting of one-third of such options on June 1 of each of 2001,
2002 and 2003. These options have a 10-year term, and vesting is accelerated
upon a "Change in Control" (as defined therein).
Certain other key employees of the Company (excluding Mr. Leonard J. Bruce)
were also granted options under the plan for an aggregate of 33,000 shares of
Common Stock on the same terms as Mr. Thompson's grant.
Options granted in prior years have vesting terms based upon the attainment
of specified fiscal year net earnings per share levels achieved. As of May 31,
1998, vesting was achieved for two-thirds of such options granted to Executive
Officers, based upon a level of $1.41 (basic) earnings per share level
achieved for the year. No vesting of additional options occurred for fiscal
1999, as the Company did not meet the level of (basic) earnings per share that
would trigger such vesting. All options remaining outstanding to Executive
Officers as of February 19, 2003 will vest and become exercisable whether or
not the specified goals are attained, provided such optionees are then
currently employed by the Company.
Stock Option Grants, Exercises and Holdings
Stock options to purchase 86,000 shares of Common Stock were granted to
management level employees under the 1985 Stock Option Plan for Key Employees
during the year ended May 31, 1999. Vesting of 66,000 of the options granted
will be effective one-third each on June 1, 2001, 2002 and 2003. Vesting of
20,000 of the options granted is dependent upon the attainment of specific
fiscal year net earnings per share levels. If the specified earning per share
levels are not met at the end of ten years following the date of grant, they
will lapse, and would not be exercisable thereafter.
A-6
<PAGE>
Set forth below is information relating to stock options granted the
executive officers during the 1999 fiscal year.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Potential
Individual Grants(1) Realizable Value
------------------------------------------------- At Assumed
Percent of Annual Rates of
Number of Total Stock Price
Securities Options/SARs Appreciation for
Underlying Granted to Exercise Option Term
Options/SAR's Employee in of Base Expiration -----------------
Granted(#) Fiscal Year Price($/Sh) Date 5%(5) 10%(5)
------------- ------------ ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Leonard J. Bruce........ -- -- $18.75 -- -- --
James W. Thompson....... 33,000 38.4% -- 9/10/08 $389,070 $986,040
Robin R. Hutton......... -- -- $18.75 -- -- --
David G. Key............ 9,000 10.5% $18.75 9/10/08 106,110 268,920
Leighton J. Stephenson.. 5,000 5.8% $18.75 9/10/08 58,950 149,400
David H. Dewey.......... 5,000 5.8% $18.75 9/10/08 58,950 149,400
</TABLE>
- --------
(1) 20,000 of the options granted in the fiscal year beginning with 1999 as
follows:
(a) if the 1999 (basic) earnings per common share (adjusted if necessary to
exclude and sales of assets not in the ordinary course of business) of
at least $1.61.
(b) should the Company not attain the 1999 (basic) earnings per share (as
adjusted) level noted above, then if the 2000 fiscal year (basic)
earnings per share added to the 1999 fiscal year (basic) earnings per
share cumulatively equal $3.46.
(c) should the Company not attain the cumulative 1999 and 2000 (basic)
earnings per share (as adjusted) level noted in (b) above, then if the
2001 fiscal year (basic) earnings per share added to the combined 1999
and 2000 fiscal years basic earnings per share cumulatively equal
$5.59.
Option Exercises
Set forth below is information relating to stock options exercised by the
executive officers during the fiscal year and the number of shares of Common
Stock covered by, and the value of outstanding stock options held by them at
May 31, 1999.
<TABLE>
<CAPTION>
Shares Covered by Value of Unexercised
Shares Unexercised Options at In-The-Money Options at
Acquired May 31, 1999 May 31, 1999(1)
on Value ------------------------- -------------------------
Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
-------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Leonard J. Bruce........ -- -- 12,000 6,000 $ 0 $ 0
James W. Thompson....... -- -- 66,666 66,334 266,664 0
Robin R. Hutton......... -- -- 14,000 7,000 7,000 0
David G. Key............ -- -- 10,000 14,000 0 0
Leighton J. Stephenson.. -- -- 6,666 8,334 3,333 0
David H. Dewey.......... -- -- 6,000 8,000 3,000 0
</TABLE>
- --------
(1) The amounts shown on the differences between the per share stock option
exercise prices and the closing price of Company common stock on May 28,
1999 (last trading date in fiscal 1999) of $16.25 per share as reported by
the Nasdaq Stock Market, multiplied by the number of shares covered by the
unexercised stock options.
Report of the Compensation Committee
The Compensation Committee of the Company Board is composed of three
outside directors and the Company's Chairman and majority shareholder. The
Compensation Committee establishes compensation policies for its executive
officers, and the three outside directors grant and set the terms of awards
under the Company's stock option plan.
A-7
<PAGE>
The Company seeks to offer competitive compensation programs that retain,
motivate and reward executives and which are focused toward achievement of
increased shareholder value and Company performance objectives. During each
fiscal year, the executive compensation program consists of base salary, an
annual bonus incentive plan based upon Company financial performance and a
Company stock options program designed to provide long-term incentives.
Bonuses for executives and certain key employees are awarded taking into
consideration the Company's overall performance for the year, including return
on average shareholder equity, increase in net sales, gross profit margins and
increase in earnings per common share. The Compensation Committee does not
assign specific weights to any of the factors it considers when determining
the Company's overall performance for the year.
The Compensation Committee takes into account various quantitative and
qualitative indicators of corporate and individual performance in determining
the level of compensation of its executive officers. While the Compensation
Committee considers such corporate performance measures as net income,
earnings per common share, return on average common shareholders' equity and
return on average total assets, the Compensation Committee does not apply any
specific, quantitative formula in making decisions as to base compensation.
Increases in the base compensation of particular executive officers may vary
within a target range as defined for specific positions, or may, on occasion,
be outside the target range, depending upon the Compensation Committee's
evaluations of the individual's work performance.
The Committee made limited discretionary bonus awards to executive officers
other than Mr. Thompson for fiscal 1999. For fiscal 2000, the Committee has
established a formula whereby executive officers can earn up to 100% of their
base salary as a bonus should the Company attain certain internal targets
related to (basic) earnings per share and return on equity.
The Compensation Committee believes that the grant of stock options to its
executives aligns the interests of the executives with the interests of the
shareholders by providing a direct correlation between an increase in
shareholder value and executive compensation. The Compensation Committee
periodically grants and sets the terms of stock option awards. Options were
granted during the year ended May 31, 1999. As described above under "--Stock
Option Grants, Exercises and Holdings," the Compensation Committee and Company
Board made certain option grants in September 1998 representing an aggregate
of 66,000 shares of Common Stock.
Chief Executive Officer Compensation
In September 1998, the Compensation Committee (with ratification and
approval by the Company Board) approved certain changes to Mr. Thompson's
compensation. In recognition of the Company's improved operating performance
in the 1998 fiscal year, his minimum base salary pursuant to his employment
agreement was increased to $250,000 from $210,000. In order to ensure his
continued service to the Company over the next several years and to provide
incentives for his actions to continually improve the Company's performance,
Mr. Thompson was granted additional equity interests in the Company. A
restricted stock grant of 20,000 shares of Common Stock provides for such
shares to vest on the earlier of June 1, 2003 or the termination of
Mr. Thompson's employment agreement by the Company without "Cause" or by him
for "Good Reason" (both as defined in the agreement). Mr. Thompson was also
granted options under the 1985 Stock Option Plan for Key Employees for 33,000
shares of Common Stock, all as described above under "--Stock Option Grants,
Exercises and Holdings." As described above under "--Employment Agreement,"
certain provisions of Mr. Thompson's employment agreement were amended in
connection with the changes in his compensation structure.
The Committee has established a bonus formula for Mr. Thompson, based upon
achieving minimum levels of (basic) earnings per share and return on equity,
but no bonus award was made to Mr. Thompson for fiscal year 1999 because such
targets were not met. If the Company's internal targets are achieved for
fiscal 2000, Mr. Thompson's bonus would equal 100% of his salary.
THE COMPENSATION COMMITTEE
Darvin Winick, Chairman
Kirby Attwell
Leonard J. Bruce
John T. Myser
A-8
<PAGE>
Compensation Committee Interlocks and Insider Participation
Mr. Leonard J. Bruce, who is a member of the Compensation Committee, is the
Company's Chairman of the Board.
PERFORMANCE GRAPH
COMPARISON OF CUMULATIVE TOTAL RETURN OF COMPANY,
INDUSTRY INDEX AND BROAD MARKET
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Fiscal Year Ending
---------------------------------------
Company 1994 1995 1996 1997 1998 1999
- ------- ---- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Vallen Corporation..................... 100 140.43 172.34 155.32 176.60 138.30
Industry Index (SIC Code #508)*........ 100 98.71 138.00 146.15 167.61 105.04
Broad Market (Russell 2000 Index)**.... 100 110.30 150.04 160.49 194.55 187.80
Broad Market (Media General Index)**... 100 113.95 147.59 180.48 233.61 271.43
</TABLE>
ASSUMES $100 INVESTED ON JUNE 1, 1994
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING MAY 31, 1999
* This index consists of machinery, equipment and supplies distributors from
Standard Industry Classification (SIC) Code #508.
** The Russell 2000 Index is a broad market index of Nasdaq, NYSE and AMEX
issues for companies with market capitalizations in a range that includes
Vallen Corporation. Last year's proxy statement presented the Media General
Composite Index, a broad market index of 8,000 Nasdaq, NYSE and AMEX issues
that includes many companies with much larger market capitalizations than
Vallen Corporation. The trend line for this index is included for
comparison purposes.
A-9
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
General
The Common Stock is the only outstanding class of equity securities of the
Company. As November 19, 1999, the Company had 7,192,264 Shares outstanding.
Each share is entitled to one vote on all matters submitted to a vote of the
shareholders of the Company.
Principal Stockholders
The following table sets forth information regarding the ownership of the
Company's Common Stock as of November 19, 1999 by (i) each person who was
known by the Company to own beneficially more than 5% of the outstanding
shares of Common Stock, (ii) by each of the Company's directors, (iii) by each
of the executive officers named in the Summary Compensation Table and (iv) by
all directors and executive officers as a group. All outstanding stock options
are assumed to be exercisable within 60 days as a result of the transactions
contemplated by the Merger Agreement. Each of the persons listed is believed
to have sole power to vote and dispose of the shares shown below, unless
otherwise noted.
<TABLE>
<CAPTION>
Beneficial
Ownership(1)
------------------------
Number of Percentage
Beneficial Owner Shares of Total
---------------- --------- ----------
<S> <C> <C>
Leonard J. Bruce.................................... 3,968,412(2) 55.0%
13333 Northwest Freeway
Houston, Texas 77040
Royce & Associates, Inc./Royce Management Company... 766,020(3) 10.5%
1414 Avenue of the Americas
New York, New York 10019
Dimensional Fund Advisors, Inc...................... 500,200(3) 6.8%
10 S. Wacker Drive
Chicago, Illinois 60606
James W. Thompson................................... 137,965(4) 1.9%
Robin R. Hutton..................................... 56,214(5) *
David G. Key........................................ 24,738(6) *
Leighton J. Stephenson.............................. 16,481(7) *
David Dewey......................................... 17,000(8) *
Kirby Attwell....................................... 7,251(9) *
John T. Myser....................................... 8,118(9) *
Robert W. Bruce..................................... 4,060,838(10) 56.5%
Darvin M. Winick.................................... 5,901(9) *
Directors and Executive Officers as a Group
(9 persons)........................................ 4,359,253 58.7%
</TABLE>
- --------
*Less than 1% of the outstanding common stock.
(1) Determined on the basis of 7,192,264 shares outstanding, except that
shares underlying options are deemed outstanding for purposes of listing
the number of shares owned by the above persons and calculating the
percentage owned by holders thereof. Shares subject to such unexercised
options were 5,001, 5,001, 5,001 and 240,003, respectively, for Messrs.
Attwell, Winick, Myser and directors and executive officers as a group.
(2) Includes 3,943,665 shares held by Bruce Partners, Ltd., a Texas limited
partnership of which Mr. Bruce is a general partner (and as to which he
shares voting control with Mr. Robert Bruce), and 18,000 shares
purchasable upon the exercise of outstanding options exercisable within
60 days.
(3) Information based on the most recent Schedule 13G report.
(4) Includes 133,000 shares purchasable upon the exercise of outstanding
options.
A-10
<PAGE>
(5) Includes 21,000 shares purchasable upon the exercise of outstanding
options.
(6) Includes 24,000 shares purchasable upon the exercise of outstanding
options.
(7) Includes 15,000 shares purchasable upon the exercise of outstanding
options.
(8) Includes 14,000 shares purchasable upon the exercise of outstanding
options.
(9) Includes 5,001 shares purchasable upon the exercise of outstanding
options.
(10) Includes 3,943,665 shares held by Bruce Partners, Ltd., a Texas limited
partnership of which Mr. Bruce is a general partner (and as to which he
shares voting control with Mr. Leonard Bruce), and 117,000 shares held by
Bruce Interests, a Texas general partnership of which Mr. Bruce owns 20%
(and as to which he shares voting and dispositive control with his four
siblings, who are also partners).
Changes in Control
To the knowledge of the Company, no change in control of the Company has
occurred since the beginning of its last fiscal year. However, upon successful
completion of the Offer, the Purchaser will have acquired at least a majority
of the outstanding Shares and will effectively control the Company. Pursuant
to the Merger Agreement, the Purchaser will have paid $25.00 per share in cash
for all shares purchased in the Offer and will thereupon consummate the Merger
and will acquire the entire equity interest in the Company.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Company believes that all directors, officers and ten percent holders
of outstanding Common Stock filed all beneficial ownership reports on a timely
basis during fiscal 1999, except that Mr. Robert Bruce and Mr. Myser,
directors of the Company, and Mr. Dewey and Mr. Key, executive officers, each
filed his initial report after the due date.
A-11
<PAGE>
ANNEX B
[LETTERHEAD OF SALOMON SMITH BARNEY INC.]
November 14, 1999
The Board of Directors
Vallen Corporation
13333 Northwest Freeway
Houston, Texas 77040-6086
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of the common stock of Vallen Corporation ("Vallen") of
the consideration to be received by such holders pursuant to the terms and
subject to the conditions set forth in the Agreement and Plan of Merger, dated
as of November 14, 1999 (the "Merger Agreement"), among Hagemeyer P.P.S. North
America, Inc. ("Hagemeyer"), Shield Acquisition Corp., a wholly owned subsidiary
of Hagemeyer ("Sub"), and Vallen. As more fully described in the Merger
Agreement, (i) Hagemeyer will cause Sub to commence a tender offer to purchase
all outstanding shares of the common stock, no par value, of Vallen (the
"Vallen Common Stock") at a purchase price of $25.00 per share, net to the
seller in cash (the "Cash Consideration" and, such tender offer, the "Tender
Offer") and (ii) subsequent to the Tender Offer, Sub will be merged with and
into Vallen (the "Merger" and, together with the Tender Offer, the
"Transaction") and each outstanding share of Vallen Common Stock not
previously tendered will be converted into the right to receive the Cash
Consideration.
In arriving at our opinion, we reviewed the Merger Agreement and held
discussions with certain senior officers, directors and other representatives
and advisors of Vallen and certain senior officers and other representatives
and advisors of Hagemeyer concerning the business, operations and prospects of
Vallen. We examined certain publicly available business and financial
information relating to Vallen as well as certain financial forecasts and
other information and data for Vallen which were provided to or otherwise
discussed with us by the management of Vallen. We reviewed the financial terms
of the Transaction as set forth in the Merger Agreement in relation to, among
other things: current and historical market prices and trading volumes of
Vallen Common Stock; the historical and projected earnings and other operating
data of Vallen; and the capitalization and financial condition of Vallen. We
considered, to the extent publicly available, the financial terms of certain
other similar transactions recently effected which we considered relevant in
evaluating the Transaction and analyzed certain financial, stock market and
other publicly available information relating to the businesses of other
companies whose operations we considered relevant in evaluating those of
Vallen. In connection with our engagement, we were requested to approach, and
we held discussions with, third parties to solicit indications of interest in
the possible acquisition of Vallen. In addition to the foregoing, we conducted
such other analyses and examinations and considered such other information and
financial, economic and market criteria as we deemed appropriate in arriving
at our opinion.
In rendering our opinion, we have assumed and relied, without independent
verification, upon the accuracy and completeness of all financial and other
information and data publicly available or furnished to or otherwise reviewed
by or discussed with us. With respect to financial forecasts and other
information and data provided to or otherwise reviewed by or discussed with
us, we have been advised by the management of Vallen that such forecasts and
other information and data were reasonably prepared on bases reflecting the
best currently available estimates and judgments of the management of Vallen
as to the future financial performance of Vallen. We have not made or been
provided with an independent evaluation or appraisal of the assets or
liabilities (contingent or otherwise) of Vallen nor have we made any physical
inspection of the properties or assets of Vallen. We express no view as to,
and our opinion does not address, the relative merits of the Transaction as
compared to any alternative business strategies that might exist for Vallen or
the effect of any other transaction in which Vallen might engage. Our opinion
is necessarily based upon information available to us, and financial, stock
market and other conditions and circumstances existing and disclosed to us, as
of the date hereof.
B-1
<PAGE>
The Board of Directors
Vallen Corporation
November 14, 1999
Page 2
Salomon Smith Barney Inc. has acted as financial advisor to Vallen in
connection with the proposed Transaction and will receive a fee for such
services, a significant portion of which is contingent upon the consummation
of the Transaction. In the ordinary course of our business, we and our
affiliates may actively trade or hold the securities of Vallen and affiliates
of Hagemeyer for our own account or for the account of our customers and,
accordingly, may at any time hold a long or short position in such securities.
In addition, we and our affiliates (including Citigroup Inc. and its
affiliates) may maintain relationships with Vallen, Hagemeyer and their
respective affiliates.
Our advisory services and the opinion expressed herein are provided for the
information of the Board of Directors of Vallen in its evaluation of the
proposed Transaction, and our opinion is not intended to be and does not
constitute a recommendation to any stockholder as to whether such stockholder
should tender shares of Vallen Common Stock in the Tender Offer or how such
stockholder should vote on any matters relating to the proposed Transaction.
Based upon and subject to the foregoing, our experience as investment bankers,
our work as described above and other factors we deemed relevant, we are of
the opinion that, as of the date hereof, the Cash Consideration to be received
in the Transaction by the holders of Vallen Common Stock (other than Hagemeyer
and its affiliates) is fair, from a financial point of view, to such holders.
Very truly yours,
/s/ SALOMON SMITH BARNEY INC.
- ---------------------------------
SALOMON SMITH BARNEY INC.
B-2
<PAGE>
ANNEX C
[LETTERHEAD OF WILLIAM BLAIR & COMPANY, L.L.C.]
November 14, 1999
Board of Directors
Vallen Corporation
13333 Northwest Freeway
Houston, TX 77040
Dear Directors:
You have requested our opinion as to the fairness, from a financial point of
view, to the shareholders (the "Shareholders") of Vallen Corporation (the
"Company") of the consideration to be received pursuant to the terms of the
Agreement and Plan of Merger dated as of November 14, 1999 (the "Merger
Agreement") by and among the Company and Shield Acquisition Corp., a wholly-
owned subsidiary of Hagemeyer PPS North America, Inc. ("Purchaser").
Pursuant to the terms of, and subject to the conditions of, the Merger
Agreement, the Purchaser will merge with and into the Company in a merger in
which each of the outstanding shares of common stock of the Company will be
converted into a right for the Shareholders to receive $25.00 per share of
common stock in cash (the "Transaction").
We have acted as financial advisor to the Company in connection with the
Transaction. In connection with our review of the Transaction and the
preparation of our opinion herein, we have: (a) reviewed the terms and
conditions of the Merger Agreement and the financial terms of the Transaction
as set forth in the Merger Agreement; (b) analyzed the historical revenue,
operating earnings, net income, dividend capacity and capitalization of both
the Company and certain other publicly held companies in businesses we believe
to be comparable to the Company; (c) analyzed certain financial and other
information relating to the prospects of the Company provided to us by the
Company's management; (d) discussed the past and current operations and
financial condition and prospects of the Company with senior executives of the
Company; (e) reviewed the historical market prices and trading volume of the
common stock of the Company; (f) reviewed the financial terms, to the extent
publicly available, of selected actual business combinations we believe to be
relevant; and (g) performed such other analyses as we have deemed appropriate.
In connection with our engagement, we were not requested to approach, and we
did not hold discussions with, third parties to solicit indications of
interest in a possible acquisition of the Company.
We have assumed the accuracy and completeness of all such information and have
not attempted to verify independently any of such information, nor have we
made or obtained an independent valuation or appraisal of any of the assets or
liabilities of the Company. With respect to financial forecasts, we have
assumed that they have been reasonably prepared on bases reflecting the best
currently available estimates and judgments of the Company's management. We
assume no responsibility for, and express no view as to, such forecasts or the
assumptions on which they are based. Our opinion is necessarily based solely
upon information available to us and business, market, economic and other
conditions as they exist on, and can be evaluated as of, the date hereof. It
should be understood that, although subsequent developments may affect this
opinion, we do not have any obligation to update, revise or reaffirm this
opinion (except as provided in the Merger Agreement).
In rendering our opinion, we have assumed that the Transaction will be
consummated on the terms described in the Merger Agreement, without any waiver
of any material terms or conditions by the Company and that obtaining the
necessary regulatory approvals for the Transaction will not have an adverse
effect on the Company.
C-1
<PAGE>
Vallen Coporation November 14, 1999
William Blair & Company has been engaged in the investment banking business
since 1935. We undertake the valuation of investment securities in connection
with public offerings, private placements, business combinations, estate and
gift tax valuations and similar transactions. For our services, including the
rendering of this opinion, the Company will pay us a fee, a significant
portion of which is contingent upon consummation of the Merger, and indemnify
us against certain liabilities.
Our engagement and the opinion expressed herein are solely for the benefit of
the Company's Board of Directors and are not on behalf of, and are not
intended to confer rights or remedies upon the Company, Shareholders of the
Company or any other person. It is understood that this letter may not be
disclosed or otherwise referred to without our prior written consent, except
that this opinion may be included in a proxy statement mailed to Shareholders
by the Company in connection with the Transaction.
Based upon and subject to the foregoing, it is our opinion as investment
bankers that, as of November 14, 1999, the consideration to be received by the
Shareholders of the Company in the Merger pursuant to the Merger Agreement is
fair, from a financial point of view, to such Shareholders.
Very truly yours,
/s/ William Blair & Company
WILLIAM BLAIR & COMPANY, L.L.C.
C-2
<PAGE>
EXHIBIT (a)(7)
[LETTERHEAD OF VALLEN APPEARS HERE]
November 19, 1999
Dear Vallen Shareholder:
I am pleased to inform you that Vallen Corporation has entered into an
Agreement and Plan of Merger with Hagemeyer P.P.S. North America, Inc., a
subsidiary of Hagemeyer N.V., providing for the acquisition of all of the
issued and outstanding shares of Vallen Common Stock at a price of $25.00 per
share, net to the shareholder in cash.
Enclosed is an Offer to Purchase and related Letter of Transmittal
reflecting the terms of Hagemeyer's tender offer for Vallen's Common Stock.
Hagemeyer's tender offer is conditioned upon, among other things, Hagemeyer's
acquiring at least two thirds of the total number of shares of Vallen Common
Stock outstanding (on a fully diluted basis). The Agreement and Plan of Merger
provides that, promptly after consummation of Hagemeyer's tender offer, all
Vallen shares that are not tendered through the tender offer will be acquired
through a merger at the same price per share as in the tender offer.
Vallen's Board of Directors has, in light of and subject to the terms and
conditions set forth in the Agreement and Plan of Merger, determined that the
tender offer and merger are fair to, and in the best interests of, the
shareholders of Vallen. Vallen's Board of Directors has unanimously approved
the tender offer and the merger and recommends that shareholders ACCEPT the
tender offer and tender their shares.
Attached is a copy of Vallen's Schedule 14D-9 relating to the tender offer,
which is being filed today with the Securities and Exchange Commission. This
document should be read carefully. In particular, I call your attention to Item
4, which describes, among other things, matters considered by the Board of
Directors in connection with its unanimous recommendation of the tender offer
and the merger.
Sincerely,
/s/ LEONARD J. BRUCE
----------------------------
Leonard J. Bruce
Chairman of the Board of Directors
<PAGE>
EXHIBIT (c)(9)
EXCERPTS FROM
VALLEN CORPORATION
MINUTES OF MEETING OF
COMPENSATION COMMITTEE OF BOARD OF DIRECTORS
September 2, 1999
Retention and Transition Awards
- -------------------------------
RESOLVED, that the Company grant to [ ] specified key personnel awards in
amounts to be recommended by the Chief Executive Officer and approved by the
Committee, to be paid to them if: a) such person's performance remains
satisfactory; b) a "Change in Control" occurs prior to May 30, 2000; and c) such
person agrees to continue employment and support transition efforts for up to 90
days after closing.
RESOLVED, that such awards shall be paid by the Company simultaneously with
the closing of any transaction that effects a "Change in Control" and, if
requested for transition, execution by the employee of a letter agreeing to the
terms of item (c) above.
RESOLVED, that "Change in Control" for purposes of all actions taken herein
shall mean and shall be deemed to have occurred, in the event that (X) Leonard
J. Bruce, together with his affiliates and associates (as such terms are defined
in Rule 12b-2 under the Securities Exchange Act of 1934, as amended) and all of
their respective executors, administrators, heirs and devisees, cease to own or
hold voting securities of Vallen Corporation entitling the holder thereof to
cast at least 50% of all votes cast in the election of directors (giving
proportional effect to any voting rights in the election of directors held by
any classes or series of stock) and (Y) any holder of such voting securities
other than holders specified in the preceding clause (X) owns or holds, together
with such other holder's affiliates and associates, and persons acting in
concert with such other holder or acting as part of a group with such holder, a
greater percentage of such voting securities (determined in the same manner as
for purposes of such clause (X).
<PAGE>
Specified Key Personnel
- -----------------------
RESOLVED, that the persons eligible for the Retention and Transition Pool
. . . are:
Key, David
Stephenson, Leighton
Stock Option Vesting
- --------------------
RESOLVED, that all stock options granted under the 1985 Stock Option Plan
or otherwise through September 30, 1998 that have not expired or been exercised
on the date that a "Change of Control" occurs shall automatically become fully
vested and exercisable if a "Change of Control" occurs prior to May 30, 2000.
RESOLVED, that future stock options not yet granted, including those
contemplated by the Committee at its September 9, 1998 meeting, will remain
available and be considered for future grants at the discretion of the
Committee.
2
<PAGE>
EXHIBIT (c)(10)
EXCERPTS FROM
VALLEN CORPORATION
UNANIMOUS CONSENT OF
COMPENSATION COMMITTEE OF BOARD OF DIRECTORS
IN LIEU OF A MEETING
October 20, 1999
Retention and Transition Awards
- -------------------------------
WHEREAS, the Committee has previously on September 2, 1999 resolved to make
awards to . . . specified key personnel in the event of a change in control
prior to May 30, 2000; and the Committee wishes to increase the number of
specified key personnel . . . by adding Jim Thompson and Robert Bruce; and the
Committee finds it to be in the best interests of the Company to specify and
approve the amounts to be awarded to each of the employees under the Retention
and Transition Awards;
RESOLVED, that the following persons shall, subject to the terms of the
Retention and Transition Awards as previously established by the Committee, be
granted awards in the amounts set forth below:
<TABLE>
<S> <C>
Bruce, Robert $125,000
Key, David 125,000
Stephenson, Leighton 125,000
Thompson, Jim 250,000
</TABLE>
<PAGE>
EXHIBIT (C)(11)
VALLEN CORPORATION
TENURED EMPLOYEE SEVERANCE PROGRAM
This VALLEN CORPORATION TENURED EMPLOYEE SEVERANCE PROGRAM (the "Plan") has
been adopted as of the date reflected below by Vallen Corporation, a Texas
corporation, for itself and its wholly-owned subsidiaries Vallen Safety Supply
Company and Encon Safety Products, Inc., both Delaware corporations
(collectively, the "Company").
1. Eligibility and Employment Relationship. Each full-time Employee
---------------------------------------
(full-time Employee shall be defined herein as a Company employee working 25
hours or greater per work week) of the Company, as of the date of adoption of
the Plan, who has been employed by the Company for at least ten years and who
does not receive a "Retention and Transition Award" as established by the
Compensation Committee of the Board of Directors of the Company on October 20,
1999 shall be entitled to benefits under the Plan, subject to the terms and
conditions set forth herein. The Employee's employment is "at will" in nature
and the Company has the right to terminate employment at any time, with or
without cause. This Plan does not alter the employment relationship between the
Company and Employee nor does it create a contract for employment. The purpose
of this Plan is solely to define the Employee's benefits in the event a Change
in Control (as defined below) adversely affects Employee's employment
relationship with the Company and the conditions set forth herein are met. This
Plan shall not affect any other aspects of Employee's terms of employment.
2. Change in Control Termination Benefits.
--------------------------------------
(a) Termination Without Cause and Resignation for Good Reason During
----------------------------------------------------------------
Change in Control. If during the Change in Control Period (as defined
-----------------
below) Employee's employment is terminated either by the Company without
Cause (as defined below) or by the Employee due to the occurrence of an
event of Good Reason (as defined below), then the Company shall pay to
Employee a lump sum severance payment, the size of which varies based on
the length of the Employee's employment:
(1) For Employees who have been employed by the Company for a term
of 10 years or greater, but less than 15 years, the lump sum severance
payment shall be equal to 3 months of the Employee's annual salary;
(2) For Employees who have been employed by the Company for a term
of 15 years or greater, but less than 20 years, the lump sum severance
payment shall be equal to 6 months of the Employee's annual salary.
(3) For Employees who have been employed by the Company for a term
of 20 years or greater, but less than 25 years, the lump sum
<PAGE>
severance payment shall be equal to 9 months of the Employee's annual
salary.
(4) For Employees who have been employed continuously by the
Company for a term of 25 years or greater, the lump sum severance payment
shall be equal to 15 months of the Employee's annual salary.
To obtain a severance payment, the Employee is not required to mitigate
damages by seeking employment elsewhere.
(b) Termination for Cause, Resignation Without Good Reason, and
-----------------------------------------------------------
Termination or Resignation Outside Change in Control Period. If Employee's
-----------------------------------------------------------
employment terminates prior to or after the Change in Control Period, or if
Employee is terminated during the Change in Control Period by the Company
with Cause, or Employee resigns during the Change in Control Period without
Good Reason, Employee will not be entitled to any benefits under this Plan.
Rather, Employee's termination or resignation will be handled in accordance
with the then existing policies of Company and in accordance with the terms
and conditions of Company's plans and programs in effect at the time.
3. Certain Definitions.
-------------------
(a) Cause. "Cause" means: (1) the Employee has committed a willful
-----
serious act, such as fraud, embezzlement or theft; (2) the Employee has
been convicted of a felony (or entered a plea of nolo contendre to a felony
charge); (3) the Employee has engaged in willful or negligent conduct that
has caused demonstrable injury, monetary or otherwise, to the Company; or
(4) the Employee, in carrying out his or her duties, has been guilty of
gross neglect or gross misconduct.
(b) Good Reason. "Good Reason" shall mean the occurrence of any one or
-----------
more of the following (i) a material reduction by the Company in the total
compensation package of Employee, (ii) a material reduction by the Company
in the level of Employee's job responsibilities; or (iii) the relocation of
the Employee to a facility or a location more than fifty (50) miles from
the Employee's then present location without the Employee's express written
consent.
Notwithstanding the foregoing, after the Change in Control, the
Company may propose to the Employee a new or continued position, perhaps
with different duties and forms of compensation. If the Company proposes
changes to Employee, which Employee accepts in writing, "Good Reason" shall
not exist as to any accepted different position, duties, compensation, or
location. Thereafter, "Good Reason" may arise again as defined in the
preceding paragraph but shall be measured against the changed position,
duties, compensation, benefits or location which Employee has accepted.
2
<PAGE>
(c) Change in Control. A "Change in Control" shall mean and shall be
-----------------
deemed to have occurred, in the event that (X) Leonard J. Bruce, together
with his affiliates and associates (as such terms are defined in Rule 12b-2
under the Securities Exchange Act of 1934, as amended) and all of their
respective executors, administrators, heirs and devisees, cease to own or
hold voting securities of Vallen Corporation entitling the holder thereof
to cast at least 50% of all votes cast in the election of directors (giving
proportional effect to any voting rights in the election of directors held
by any classes or series of stock) and (Y) any holder of such voting
securities other than holders specified in the preceding clause (X) owns or
holds, together with such other holder's affiliates and associates, and
persons acting in concert with such other holder or acting as part of a
group with such holder, a greater percentage of such voting securities
(determined in the same manner as for purposes of such clause (X).
(d) Change in Control Period. The "Change in Control Period" commences
------------------------
on the Change in Control and remains in effect for twelve (12) months
thereafter.
4. Administration and Amendment. The Plan shall be administered by the
----------------------------
chief executive officer of the Company or such other officers to whom
appropriate authority has been delegated. All questions or interpretations and
applications of the Plan shall be subject to the determination of the officer(s)
administering the Plan. The Board of Directors of the Company may amend or
terminate the Plan in their discretion; provided, however, that no such
amendment or termination may adversely affect the rights of any Employee without
the prior written consent of such Employee.
5. Notices. All notices, requests, demands and other communications given
-------
under or by reason of this Plan must be in writing and will be deemed given when
delivered in person or when mailed, by certified mail (return receipt
requested), postage prepaid, addressed as follows (or to such other address as a
party may specify by notice pursuant to this provision):
If to the Company:
Vallen Corporation
13333 Northwest Freeway
Houston, TX 77040-608
Facsimile: (713) 462-7634
If to the Employee: at the address set forth in the current
records of the Company.
6. Governing Law. This Plan will be governed by and construed in
-------------
accordance with the substantive laws of the State of Texas.
7. Disputes. Any disputes under this Plan between the parties hereto
--------
shall be settled by arbitration in Houston, Texas under the auspices of, and in
accordance with the rules of the American Arbitration Association by an
arbitrator who is mutually agreeable to the parties hereto, or, if the Company
and Employee cannot agree on the selection of the arbitrator, then
3
<PAGE>
before three arbitrators, one of which shall be appointed by Employee, one of
which shall be appointed by the Company, and the third of which shall be chosen
by the American Arbitration Association (such arbitrator or arbitrators
hereinafter referred to as the "Arbitrator,). The decision in such arbitration
shall be final and binding on the parties, and judgment upon such decision may
be entered in any court having jurisdiction thereof. The parties hereby agree
that the Arbitrator shall be empowered to enter an equitable decree mandating
specific enforcement of the terms of this Plan. The Company and Employee shall
share equally all expenses of the Arbitrator incurred in any arbitration
hereunder, provided, however that the Company or Employee, as the case may be,
shall bear all expenses of the Arbitrator and all of the legal fees and out-of-
pocket expenses of the other party if the Arbitrator determines that the claim
or position of such party was without reasonable foundation.
8. Set-Off; Mitigation; Legal Fees; Expenses.
-----------------------------------------
(a) Set-Off and Mitigation. The following items will be deducted from
----------------------
any severance payments provided for in this Plan: (a) all federal, state,
and local taxes that the company determines must be deducted or withheld by
the Company; (b) to the extent permitted by law, any amounts the Employee
owes to the Company; and (c) any amount of garnished earnings which would
have been withheld from the Employee's pay, if the Company has been
garnishing the Employee's earnings pursuant to an order of garnishment,
child support lien, or tax lien. For purposes of receiving benefits under
this Plan, Employee shall have no duty to mitigate damages by seeking other
employment and, should Employee actually receive compensation from any such
other employment, the payments required hereunder shall not be reduced or
offset by any such compensation.
(b) Legal Fees and Expenses. It is the intent of the Company that the
-----------------------
Employee not be required to incur legal fees and the related expenses
associated with the interpretation, enforcement or defense of the
Employee's rights under this Plan by arbitration, litigation or otherwise
because the cost and expense thereof would detract from the benefits
intended to be extended to the Employee hereunder. Therefore, in the event
that the Employee prevails, in whole or in part, in connection with any of
the foregoing, the Company will pay and be solely financially responsible
for any and all attorneys' fees and related expenses incurred by the
Employee in connection with any of the foregoing.
9. Additional Instruments. The Employee and the Company will execute and
----------------------
deliver any and all additional instruments and agreements that may be necessary
or proper to carry out the purposes of this Plan.
10. Entire Plan. This Plan contains the entire Plan of the Employee and
-----------
the Company relating to the matters contained herein and supersedes all prior
Plans and understandings, oral or written, between the Employee and the Company
with respect to the subject matter hereof.
4
<PAGE>
11. Tax Withholding. Notwithstanding any other provision hereof, the
---------------
Company may withhold from amounts payable hereunder all federal, state, local
and foreign taxes that are required to be withheld by applicable laws or
regulations.
12. Separability. If any provision of this Plan is rendered or declared
------------
illegal, invalid or unenforceable by reason of any existing or subsequently
enacted legislation or by the final judgment of any court of competent
jurisdiction, the Employee and the Company will promptly meet and negotiate
substitute provisions for those rendered or declared illegal or unenforceable to
preserve the original intent of this Plan to the extent legally possible, but
all other provisions of this Plan shall remain in full force and effect.
13. Assignment. Neither party may assign this Plan to any other person or
----------
entity without the written consent of the other party.
14. Execution. This Plan may be executed in multiple counterparts, each
---------
of which will be deemed an original and all of which will constitute one and the
same Plan.
15. Waiver of Breach. The waiver by either party to this Plan of a breach
----------------
of any provision of the Plan by the other party will not operate or be construed
as a waiver by the waiving party of any subsequent breach by the other party.
Adopted by action of the Compensation
Committee of the Board of Directors on
October 20, 1999
---------------------------------------
Darvin Winick, Chairman
5
