Valley Systems, Inc.
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<PAGE>
VALLEY SYSTEMS, INC.
Canal Fulton, Ohio
------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
to be held
January 18, 1999
To the Stockholders:
The Annual Meeting of Stockholders of Valley Systems, Inc., a Delaware
corporation (the "Company"), will be held at the Terrace Garden Hotel -
Buckhead, 3405 Lenox Road NE, Atlanta, Georgia, on Monday, January 18, 1999, at
8:00 A.M., for the purpose of considering and acting upon the following:
1. The election of two directors to the Board of Directors;
2. The approval of the appointment of PricewaterhouseCoopers LLP
as independent auditors to audit the financial statements of
the Company and its subsidiaries for fiscal year 1999; and
3. To transact such other business as may properly come before
the Annual Meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on November 23,
1998 as the record date for determination of stockholders of the Company
entitled to receive notice of and to vote at the Annual Meeting or any
adjournments thereof.
By Order of the Board of Directors
\s\ Dennis D. Sheets
Secretary
Canal Fulton, Ohio
November 25, 1998
YOUR VOTE IS IMPORTANT
Whether you expect to attend the meeting or not, please date, sign,
complete, and return the accompanying proxy in the enclosed self addressed
envelope as promptly as possible.
<PAGE>
VALLEY SYSTEMS, INC.
11580 Lafayette Drive, NW
Canal Fulton, Ohio 44614
PROXY STATEMENT
GENERAL INFORMATION CONCERNING SOLICITATION
This proxy statement is furnished in connection with the solicitation
of proxies by and on behalf of the Board of Directors of Valley Systems, Inc.
(the "Company"), for its Annual Meeting of Stockholders (the "Meeting") to be
held on the 18th day of January 1999, or any adjournments thereof. Shares cannot
be voted at the meeting unless their owner is present in person or represented
by proxy. On or about November 25, 1998, copies of this proxy statement and the
accompanying form of proxy shall be mailed to the stockholders of record of the
Company as of November 23, 1998, accompanied by a copy of the Annual Report on
Form 10-K of the Company containing financial statements as of and for the
fiscal year ended June 30, 1998. The principal executive offices of the Company
are located at the address indicated above.
If a proxy is properly executed and returned, the shares represented
thereby will be voted in accordance with the specifications made, or if no
specification is made, the shares will be voted to approve each proposal and to
elect each nominee for director identified on the Proxy. A stockholder may,
without affecting any vote previously taken, revoke a proxy previously given by
a later proxy received by the Company, or by giving notice to the Secretary of
the Company either in writing or at the Meeting.
All expenses in connection with the solicitation of proxies, including
the cost of preparing, handling, printing and mailing the Notice of Annual
Meeting, Proxies and Proxy Statements will be borne by the Company. Directors,
officers and regular employees of the Company, who will receive no additional
compensation therefor, may solicit proxies by telephone or personal call, the
cost of which will be nominal and will be borne by the Company. In addition, the
Company will reimburse brokerage houses and other institutions and fiduciaries
for their expenses in forwarding proxies and proxy soliciting material to their
principals.
At the close of business on October 21, 1998 there were outstanding
7,906,617 shares of Common Stock of the Company (Common Stock) and 55,000 shares
of Series C Preferred Stock (Preferred Stock), which constituted all of the
voting securities of the Company. Each stockholder is entitled to cast one vote
for each share of Common Stock and each share of Preferred Stock held by him or
her who is present at the Meeting either in person or by proxy. Only holders of
record of the Common Stock and Preferred Stock at the close of business on
November 23, 1998 will be entitled to receive notice of and to vote at the
Meeting.
PROPOSED SALE OF SUBSTANTIALLY ALL OF THE COMPANY'S ASSETS TO
HYROCHEM INDUSTRIAL SERVICES, INC.
The Company has entered into an Asset Purchase Agreement with HydroChem
Industrial Services, Inc. ("HydroChem") pursuant to which the Company will sell
substantially all of its assets to HydroChem and HydroChem will assume
substantially all of the Company's liabilities (the "Sale"). The Sale was
approved by the Company's Board of Directors on September 8, 1998 and by the
Company's largest common stockholder and its sole preferred stockholder on
<PAGE>
November 23, 1998. The Sale and information pertinent thereto are described in
detail in the Company's Information Statement mailed to its stockholders
concurrently with the mailing of this Proxy Statement. All Company stockholders
are advised to review the Information Statement in full prior to executing and
returning the enclosed form of proxy.
BENEFICIAL OWNERSHIP OF VOTING SECURITIES
The following table sets forth certain information as of October 1,
1998 with respect to the beneficial ownership of the Common Stock and Preferred
Stock of the Company by each beneficial owner of more than 5% of the outstanding
shares of each class. In addition, this table includes the outstanding voting
securities beneficially owned by the executive officers listed in the Summary
Compensation Table, Directors and Director nominees, and the number of shares
owned by Directors and executive officers as a group. Unless otherwise
indicated, the owners have sole voting and investment power with respect to
their respective shares.
Percentage
Name and Address Number of Shares of Class
of Beneficial Owner Position Beneficially Owned Owned
COMMON STOCK:
Rollins Investment Fund (1) Stockholder 8,003,945 (2)(3) 75.3%
R. Randall Rollins (1) Stockholder 8,003,945 (2)(3) 75.3%
Gary W. Rollins (1) Stockholder 8,003,945 (2)(3) 75.3%
Ed Strickland (4)(8) President/CEO 192,000 1.8%
Dennis D. Sheets (4)(9) Vice President/CFO 50,000 (5)
Joe M. Young (1) (6)(10) Director 24,000 (5)
Allen O. Kinzer (4)(11) Director 17,800 (5)
All officers and directors
as a group (4 persons) 8,287,745 (2)(3)(6) 78.1%
SERIES C PREFERRED STOCK:
Rollins Holding Company,
Inc. (1)(7) Stockholder 55,000 100.0%
(1) Addresses are c/o Rollins Investment Fund, P.O. Box 647, Atlanta, Georgia
30301.
(2) Includes 2,314,000 shares that are subject to outstanding warrants currently
exercisable by Rollins Investment Fund (RIF).
(3) RIF beneficially owns an aggregate 8,003,945 shares (including the 2,314,000
shares subject to outstanding warrants currently exercisable by RIF) of the
Company's Common Stock with respect to which RIF has sole voting and
dispositive power. Given his respective interest in RIF as a general partner
thereof, as co-executor of the Estate of O. Wayne Rollins (Estate) (with the
power to control the Estate in its entirety), and as sole trustee of five
trusts of which his five children are beneficiaries, R. Randall Rollins has
shared voting and dispositive power with respect to the entire 8,003,945
shares held by RIF.Given his respective interest in RIF as a general partner
thereof, as co-executor of the Estate (with the power to control the Estate
in its entirety), and as sole trustee of four trusts of which his four
children are beneficiaries, Gary W.Rollins has shared voting and dispositive
power with respect to the entire 8,003,945 shares held by RIF. Given each
individual's ability to influence the disposition of all of RIF's holdings,
they have deemed it appropriate to report beneficial ownership on a shared
basis for the entire number of shares held by RIF.
<PAGE>
(4) Addresses are c/o Valley Systems, Inc., P.O. Box 603, Canal Fulton, Ohio,
44614.
(5) Owns less than 1% of the Company's Common Stock.
(6) Joe M. Young, presently a director of the Company, and a nominee for
director of the Company, is General Manager of RIF and was appointed to the
Board of Directors of the Company pursuant to a right guaranteed to RIF in
connection with it purchase of Common Stock of the Company in December
1991. Mr. Young disclaims beneficial ownership of the shares held by RIF,
although due to his affiliation with RIF, and RIF's right to name a director
of the Company, those shares are included in the total reported for all
officers and directors as a group.
(7) Rollins Holding Company, Inc. is an affiliate of RIF.
(8) Includes 80,000 shares subject to options that are presently exercisable or
will become exercisable within 60 days after the date of this Proxy
Statement. Excludes 20,000 shares subject to options that are not presently
exercisable and will not become exercisable within 60 days after the date of
this Proxy Statement.
(9) Includes 20,000 shares subject to options that are presently exercisable or
will become exercisable within 60 days after the date of this Proxy
Statement. Excludes 50,000 shares subject to options that are not presently
exercisable and will not become exercisable within 60 days after the date of
this Proxy Statement.
(10)Includes 24,000 shares subject to options that are presently exercisable or
will become exercisable within 60 days after the date of this Proxy
Statement. Excludes 6,000 shares subject to options that are not presently
exercisable and will not become exercisable within 60 days after the date of
this Proxy Statement.
(11)Includes 16,000 shares subject to options that are presently exercisable or
will become exercisable within 60 days after the date of this Proxy
Statement. Excludes 4,000 shares subject to options that are not presently
exercisable and will not become exercisable within 60 days after the date of
this Proxy Statement.
ELECTION OF DIRECTORS
At the Meeting, it is intended to elect a Board of two Directors, each
to hold office until the next Annual Meeting of Stockholders or until their
respective successors are elected and qualified. The nominees are presently
serving as Directors of the Company. Each of the nominees listed below has
consented to serve as a Director if elected. Unless authority to vote for one or
more nominees is withheld, it is intended that shares represented by proxies in
the accompanying form will be voted for the election of the following nominees.
The following table is based in part on information received from the
respective nominees and in part on the records of the Company and sets forth
certain information regarding each nominee as of October 1, 1998.
Director Principal Occupation During
Name Age Since Last Five Years
Allen O. Kinzer 58 1991 President of BMW Manufacturing Corp.
Joe M. Young 69 1992 General Manager of Rollins Investment Fund
The Board of Directors of the Company recommends that stockholders vote
in favor of both nominees for Director.
<PAGE>
COMMITTEES AND MEETINGS OF THE BOARD
At present, the Board of Directors has provided for three committees,
the Audit Committee, the Stock Option Committee, and the Compensation Committee.
However, the Board as a whole now performs the functions of these three
committees. The function of the Audit Committee includes the recommendation of
the independent auditors to be engaged to audit the Company's financial
statements, and also generally monitoring the audit of the Company's financial
statements. The function of the Stock Option Committee includes responsibility
for the granting of stock options under all of the Company's employee stock
option plans that may exist and be in effect from time to time. The function of
the Compensation Committee includes the setting of the compensation levels for
the Company's officers. During the fiscal year ended June 30, 1998 the Board of
Directors met three times, including actions taken by unanimous written consent
of the directors. All of the Company's current Directors attended 100% of the
meetings of the Board during fiscal year 1998.
Each non-employee Director receives $1,000 for each Board meeting
actually attended, plus reimbursement for actual expenses of such attendance.
Messrs. Kinzer and Young have received options to purchase 20,000 and 30,000
shares of Common Stock, respectively. The options were granted on October 5,
1994 at an exercise price of $1.50 per share, market value on that date. The
options are exercisable as to 20% of the total on or after each of the first
five anniversary dates of the grants, and terminate on the tenth anniversary of
the grants. The options are fully vested and exercisable upon a change in
control of the Company.
VOTING PROCEDURES AND VOTE REQUIRED
The Board of Directors of the Company will select an Inspector of the
Election, to determine the eligibility of persons present at the Meeting to vote
and to determine whether the name signed on each proxy card corresponds to the
name of a stockholder of the Company. The Inspector shall also determine whether
or not a quorum of the shares of the Company (consisting of a majority of the
votes entitled to be cast at the Meeting) exists at the Meeting. A majority of
the outstanding shares will constitute a quorum at the meeting. Abstentions and
broker non-votes are counted for purposes of determining the presence or absence
of a quorum for the transaction of business. If a quorum exists and a vote is
taken at the meeting, the Inspector shall tabulate (a) the votes cast for or
against each proposal and (b) the abstentions in respect of each proposal.
In accordance with the Delaware General Corporation Law, the election
of the nominees named herein as directors will require the affirmative vote of a
plurality of the votes cast by the Common Stockholders and Series C Preferred
Stockholders of the Company entitled to vote in the election, voting together
and not as separate classes, provided that a quorum is present at the Meeting.
Each share of common stock and Series C Preferred Stock will have one vote. In
the case of a plurality vote requirement (as in the election of directors),
where no particular percentage vote is required, the outcome is solely a matter
of determining the two individuals who receive the most votes, and hence only
votes for or against the proposal (and not abstentions or broker non-votes) are
relevant to the outcome.
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information with respect to the Chief
Executive Officer of the Company at June 30, 1998 and the other executive
officer at the end of the 1998 fiscal year whose total compensation exceeded
$100,000 for that year.
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
------------------- ----------------------
Awards Payouts
------ -------
Securities
Other Under- All
Name and Annual lying LTIP Other
Principal Salary Bonus Compens- Options Payouts Compens-
Position Year ($) ($) ation($) /SARs(#) ($) ation($)
- -------- ---- --- --- -------- -------- --- --------
Ed Strickland (1) 1998 40,000 -0- -0- -0- -0- -0-
President and Chief 1997 40,000 -0- -0- -0- -0- -0-
Executive Officer 1996 40,000 -0- -0- -0- -0- -0-
Dennis D. Sheets (2) 1998 128,654 15,000 -0- -0- -0- -0-
Vice President and 1997 117,885 30,000 -0- -0- -0- -0-
Chief Financial 1996 107,885 10,000 -0- -0- -0- -0-
Officer
(1) Mr. Strickland, age 51, was appointed President and Chief Executive Officer
in October 1993. He is also an officer of LOR, Inc., which is owned by RIF,
the majority owner of the Common Stock of the Company, and has held this
position for the past five years. Mr. Strickland manages several other
companies for LOR, Inc. The Company does not pay RIF or LOR, Inc. a
management fee for his services.
(2) Mr. Sheets, age 43, joined the Company in April 1993 as Controller.
Previously, he served as Chief Financial Officer for Hyper Shoppes, Inc.
Mr. Sheets was appointed Vice President, Treasurer, and Chief Financial
Officer of the Company in July 1993, and Secretary in September 1994.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
There were no option/SAR grants made during the 1998 fiscal year to the
named executives.
AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTIONS/SAR VALUES
There were no option/SAR exercises in the 1998 fiscal year. The
following table summarizes the number and value of unexercised options/SAR's
held by the named executives at June 30, 1998:
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Shares Options/SARs at Options/SARs
Acquired Value Fiscal Year-end(#) at Fiscal Year-End($)
on Exercise Realized Exercisable (E) Exercisable (E)
Name (#) ($) Unexercisable (U) Unexercisable (U)
---- --- --- ----------------- -----------------
Ed Strickland -0- -0- 60,000 E -0- E
40,000 U -0- U
Dennis D. Sheets -0- -0- 15,000 E -0- E
10,000 U -0- U
<PAGE>
LONG TERM INCENTIVE PLANS AND RETIREMENT PLANS
The Company has never had any long term incentive plans or retirement
plans.
JOINT REPORT OF THE BOARD OF DIRECTORS AND STOCK OPTION COMMITTEE
ON EXECUTIVE COMPENSATION
The Board of Directors as a whole performed the functions of the
Compensation Committee throughout the 1998 fiscal year. The Company's overall
executive compensation policy is as follows:
o Attract and retain quality talent, which is critical to both the short
term and long term success of the Company.
o Create a mutuality of interest between executive officers and
shareholders through compensation structures that share the rewards and
risks of strategic decision-making.
The Board has made subjective salary decisions in an annual review.
This annual review considers the decision-making responsibilities of each
position, the Company's revenues and net earnings, and the experience, work
performance, and team-building skills of position incumbents. The Board
subjectively views work performance and Company revenues and net earnings as the
most important measurement factors. The remaining measurement factors,
decision-making responsibilities, experience and team-building skills, are
weighted equally.
CEO Compensation - The Company's total compensation program for the CEO
and the other executive officers is determined in accordance with the prior
paragraph. Mr. Strickland was named CEO in October 1993. Previously, the
position was vacant. The Company did not compensate Mr. Strickland for his
services in Fiscal 1994. Beginning in October 1994, Mr. Strickland began drawing
a nominal salary. In accordance with the above policy, the Board determined that
the bulk of his compensation would be in the form of stock options, which were
granted at market price in 1994 and vest over five years.
BOARD OF DIRECTORS
Joe M. Young, Member
Allen O. Kinzer, Member
STOCK PERFORMANCE GRAPH
The following graph sets forth the cumulative stockholder return to the
Company's stockholders during the five years ended June 30, 1998, as well as an
overall stock market index (CRSP Total Return Index for The Nasdaq Stock Market:
US Companies) and the Company's peer group index (CRSP Total Return Index for
The Nasdaq Stock Market: Non-Financial Stocks). The stock performance graph
assumes $100 was invested on June 30, 1993 and reinvestment of all dividends.
<PAGE>
Valley Systems, CRSP Total Return CRSP Total Return
Inc. Index: US Companies Index: Non-Financial
Stocks
July 1, 1993 100.0000 100.0000 100.0000
June 30, 1994 57.1429 100.9615 97.5408
June 30, 1995 32.1429 134.7850 134.0464
June 30, 1996 32.1429 173.0351 170.1772
June 30, 1997 46.4286 210.3582 199.9808
June 30, 1998 29.4571 277.5587 262.2153
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
At the closing of the Sale, approximately $8.3 million of debt of the
Company which is currently guaranteed by Rollins Investment Fund, the Company's
largest common stockholder, will be repaid by HydroChem and Rollins Investment
Fund will be released from its guarantee.
Following the closing of the Sale, the Company intends to repurchase
all of the outstanding Series C Preferred Stock from Rollins Holding Company,
Inc. for a purchase price equal to $5.5 million (the liquidation preference of
the Series C Preferred Stock) plus accrued, unpaid dividends thereon, estimated
to be approximately $96,250, assuming a closing date of December 31, 1998.
Also, following the Sale, the executive officers and directors of the
Company will have their outstanding options to purchase Company Common Stock (an
aggregate of 175,000 shares) redeemed by the Company at a price determined by
the Company's Board of Directors to be the fair market value of such options
less the exercise price thereof ($1.50 per share in each instance) and will also
<PAGE>
receive a termination bonus, with the aggregate of the redemption payment and
bonus to each individual expected to be $3.00 for each option held, less the
$1.50 exercise price thereof.
As of the date hereof, the Company's executive officers and directors
owned options to purchase Common stock as set forth below:
Ed Strickland, President and Chief Executive Officer 100,000 shares
Dennis D. Sheets, Vice President and Chief Financial Officer 25,000 shares
Joe M. Young, Director 30,000 shares
Allen O. Kinzer, Director 20,000 shares
APPROVAL OF THE APPOINTMENT OF INDEPENDENT AUDITORS
FOR THE FISCAL YEAR ENDING JUNE 30, 1999
Subject to stockholder approval, the Board of Directors has appointed
the firm of PricewaterhouseCoopers L.L.P., Certified Public Accountants, as
independent auditors to make an examination of the financial statements of the
Company for the fiscal year ending June 30, 1999. Representatives of
PricewaterhouseCoopers L.L.P. will not be present at the Annual Meeting of
Stockholders.
The Board of Directors of the Company believes the appointment of
PricewaterhouseCoopers LLP for the 1999 fiscal year to be in the best interest
of the Company and recommends that it be approved. If the stockholders do not
approve this appointment, the Board will appoint other certified public
accountants.
OTHER BUSINESS
While management of the Company does not know of any matters that may
be brought before the Meeting, other than as set forth in the Notice of Meeting,
the proxy confers discretionary authority with respect to the transaction of any
other business. It is expected that the proxies will be voted in support of
management on any question that may properly be submitted to the Meeting.
STOCKHOLDER PROPOSALS
Appropriate proposals of stockholders intended to be presented at the
Company's 1999 Annual Meeting of Stockholders pursuant to Rule 14a-8 promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), must
be received by the Company by July 28, 1999 for inclusion in its Proxy Statement
and form of proxy relating to that meeting. If the date of the 1999 Annual
Meeting is subsequently advanced or delayed by more than 30 calendar days from
the date of the 1998 Annual Meeting, the Company shall, in a timely manner,
inform its stockholders of the change and the date by which such proposals of
stockholders must be received.
In addition, all stockholder proposals submitted outside of the
stockholder proposal rules promulgated pursuant to Rule 14a-8 under the Exchange
Act must be received by the Company by October 11, 1999 in order to be
considered timely. If such stockholder proposals are not timely received, proxy
holders will have discretionary voting authority with regard to any such
stockholder proposals which may come before the Annual Meeting. With regard to
such stockholder proposals, if the date of the 1999 Annual Meeting is
subsequently advanced or delayed by more than 30 calendar days from the date of
<PAGE>
the 1998 Annual Meeting to which this Proxy Statement relates, the Company
shall, in a timely manner, inform stockholders of the change and the date by
which proposals must be received.
SECTION 16 COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers and directors, and persons who beneficially own
more than ten percent of the Company's stock, to file initial reports of
ownership and reports of changes in ownership with the Securities and Exchange
Commission ("SEC"). Executive officers, directors and greater than ten percent
beneficial owners are required by SEC regulations to furnish the Company with
copies of all Section 16(a) forms they file.
Based solely on a review of the copies of reports furnished to the
Company and written representations that no other reports were required, the
Company believes that during the fiscal year ended June 30, 1998 all of such
filing requirements were timely satisfied.
ANNUAL REPORT ON FORM 10-K
The Annual Report on Form 10-K for the fiscal year ended June 30, 1998
is being mailed to each stockholder of record together with this Notice of
Annual Meeting of Stockholders, Proxy Statement and Proxy on or about November
25, 1998.
By Order of the Board of Directors
\s\ Dennis D. Sheets
Secretary
Canal Fulton, Ohio
November 25, 1998
<PAGE>
APPENDIX
(Side one of proxy card)
VALLEY SYSTEMS, INC.
Proxy Solicited on Behalf of the Board of Directors
The undersigned appoints Ed Strickland and Dennis D. Sheets, and each
of them, as true and lawful proxies with full power of substitution, to vote and
act for the undersigned at the annual meeting of stockholders of VALLEY SYSTEMS,
INC. to be held at the Terrace Garden Hotel - Buckhead, 3405 Lenox Road NE,
Atlanta, Georgia, on Monday, January 18, 1999, at 8:00 A.M., and at any
adjournment thereof, as fully as the undersigned could vote and act if
personally present on the matters set forth on the reverse hereof, and , in
their discretion on such other matters as set forth on the reverse hereof, and
in their discretion on such other matters as may properly come before the
meeting.
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
_________________________________
Signature of Stockholder
_________________________________
Signature if held jointly
___________________________, 1998
Please sign exactly as your name
appears to the left. If voting
shares are held jointly, each
stockholder named should sign.
Executors, administrators,
trustees, etc., should so
indicate when signing. If the
signer is a corporation, please
sign full corporate name by duly
authorized officer.
(Side two of proxy card)
This proxy, when properly executed, will be voted in the manner
directed herein by the stockholder named on the reverse side hereof. If no
direction is made, this proxy will be voted for election of all nominees listed
below and "FOR" all other items.
The Board of directors recommends a vote FOR these items:
ITEM
1. Elect Joe M. Young and Allen O. Kinzer as directors of Valley Systems, Inc.
(Company) for terms expiring at the next Annual Meeting or until their
successors shall be elected and qualified.
__ FOR ALL NOMINEES __ WITHHOLD FOR ALL NOMINEES
(except as withheld in the space provided)
To withhold authority for any individual nominee, write name of nominee here
----------------------------------------------
2. Approve the appointment of PricewaterhouseCoopers LLC as the independent
auditors for the Company for the fiscal year ended June 30, 1999.
__ FOR __ AGAINST __ ABSTAIN
<PAGE>
