<PAGE>
SCHEDULE 14A
(RULE 14A-101)
INVORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
PALEX, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
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<PAGE>
[LETTERHEAD OF PALEX APPEARS HERE]
Dear Stockholder:
You are cordially invited to attend the 1998 Annual Meeting of Stockholders
(the "Annual Meeting") of PalEx, Inc. (the "Company"), which will be held on
Thursday, August 6, 1998, beginning at 10:00 a.m. local time, at the
Doubletree Hotel at Post Oak, located at 2001 Post Oak Blvd., Houston, Texas
77056.
The official Notice of Annual Meeting of Stockholders, Proxy Statement, form
of proxy and the Company's 1997 Annual Report are included with this letter.
The matters listed on the Notice of Annual Meeting are described in detail in
the Proxy Statement.
Whether or not you plan to attend the meeting in person, it is important
that your shares be represented and voted. Accordingly, after reading the
enclosed Notice of Annual Meeting and Proxy Statement, you are urged to sign
and date the enclosed proxy and return it in the enclosed addressed and
stamped envelope at your earliest convenience.
Very truly yours,
/s/ VANCE K. MAULTSBY, JR.
Vance K. Maultsby, Jr.
President and Chief Executive
Officer
Houston, Texas
July 13, 1998
<PAGE>
PALEX, INC.
1360 POST OAK BLVD., SUITE 800
HOUSTON, TEXAS 77056
----------------
NOTICE OF
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST 6, 1998
----------------
The 1998 Annual Meeting of Stockholders (the "Annual Meeting") of PalEx,
Inc., a Delaware corporation (the "Company"), will be held at the Doubletree
Hotel at Post Oak, 2001 Post Oak Blvd., Houston, Texas 77056, on Thursday,
August 6, 1998, beginning at 10:00 a.m. local time, to consider and act upon
the following matters:
1. the election of eight directors to serve until the next Annual Meeting
of Stockholders to be held in 1999;
2. the ratification of the appointment of Arthur Andersen LLP as
independent public accountants for the Company for 1998; and
3. the transaction of such other business as may properly come before the
Annual Meeting or any adjournment or postponement thereof.
Only holders of record of the Common Stock of the Company at the close of
business on June 22, 1998 are entitled to notice of, and to vote at, the
Annual Meeting or any adjournments thereof. A list of stockholders entitled to
vote will be available at the Annual Meeting for examination by any
stockholder.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, IT IS REQUESTED THAT
THE ENCLOSED FORM OF PROXY BE PROPERLY EXECUTED AND PROMPTLY RETURNED TO THE
COMPANY IN THE ENCLOSED ADDRESSED AND STAMPED ENVELOPE. You may revoke the
proxy at any time before the proxy is exercised by delivering written notice
of revocation to the Secretary of the Company, by delivering a subsequently
dated proxy or by attending the Annual Meeting and withdrawing the proxy.
By Order of the Board of Directors,
/s/ CASEY A. FLETCHER
Casey A. Fletcher
Secretary
Houston, Texas
July 13, 1998
<PAGE>
PALEX, INC.
----------------
PROXY STATEMENT
----------------
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST 6, 1998
----------------
GENERAL INFORMATION
This Proxy Statement is furnished to stockholders of PalEx, Inc., a Delaware
corporation ("PalEx" or the "Company"), in connection with the solicitation of
proxies to be used at the Company's Annual Meeting (the "Annual Meeting") to
be held on Thursday, August 6, 1998 beginning at 10:00 a.m. local time at the
Doubletree Hotel at Post Oak, 2001 Post Oak Blvd., Houston, Texas 77056, or at
any adjournment or postponement thereof. Only holders of PalEx Common Stock,
$0.01 par value per share (the "Common Stock"), of record at the close of
business on June 22, 1998 (the "Record Date") are entitled to notice of, and
to vote at, the Annual Meeting. As of the Record Date, there were 18,937,620
shares of Common Stock outstanding and entitled to vote. Each share of Common
Stock is entitled to one vote on each matter properly brought before the
Annual Meeting.
The accompanying proxy is being solicited by the Board of Directors of the
Company (the "Board"). The cost of soliciting your proxy will be borne
entirely by the Company and no other person or persons will bear such costs
either directly or indirectly. In addition to the use of the mails, proxies
may be solicited by personal interview, telephone and telegram by directors
and regular officers and employees of the Company.
This Proxy Statement and the enclosed proxy form are first being sent to
stockholders of the Company on or about July 13, 1998.
Voting of Proxies
Proxies in the form enclosed will be voted at the Annual Meeting if properly
executed, returned to the Company before the Annual Meeting and not revoked.
When stockholders have appropriately specified how their proxies should be
voted, the proxies will be voted accordingly. Unless the stockholder otherwise
specifies therein, the accompanying proxy will be voted (i) FOR the election
as directors of the nominees listed under "Election of Directors," (ii) FOR
the ratification of the appointment of Arthur Andersen LLP as independent
public accountants for the Company for 1998, and (iii) at the discretion of
the proxy holders, either FOR or AGAINST any other matter or business that may
properly come before the meeting. The Board does not know of any such other
matter or business.
Any proxy received by the Company may be subsequently revoked at any time
before it is actually voted. Proxies may be revoked by any of the following
actions: (i) filing a written notice of revocation bearing a date later than
the proxy with the Secretary of the Company at or before the Annual Meeting,
but in any event prior to the vote on the matter as to which revocation is
sought; (ii) duly executing and submitting, prior to the Annual Meeting, a
subsequent proxy relating to the Annual Meeting; or (iii) voting in person at
the Annual Meeting (although attendance at the Annual Meeting will not, in and
of itself, constitute a revocation of a proxy). Any written notice revoking a
proxy should be sent to the Secretary of the Company at the Company's
executive offices, 1360 Post Oak Blvd., Suite 800, Houston, Texas 77056.
Votes Required
In accordance with the Bylaws of the Company, the presence in person or by
proxy of the holders of a majority of the issued and outstanding shares of
Common Stock is necessary to constitute a quorum at the Annual Meeting. In
accordance with Delaware law and the Bylaws of the Company, a plurality of the
votes cast at a
1
<PAGE>
meeting at which there exists a quorum is required for the election of
directors. Accordingly, the eight director nominees receiving the most votes
will be elected at the Annual Meeting. On any matter other than the election
of directors, the Bylaws of the Company provide that action on such matter
shall be approved if the votes cast by holders of shares of Common Stock
present and entitled to vote on such matter at a meeting at which there exists
a quorum in favor of the matter exceed the votes cast opposing the matter. If
any other matter should be properly presented at the Annual Meeting upon which
a vote may be taken, it is intended that shares of Common Stock represented by
Proxies in the accompanying form will be voted with respect thereto in
accordance with the judgment of the person or persons voting such shares.
Vance K. Maultsby, Jr. and Edward E. Rhyne, or either of them, each with full
power of substitution, have been designated as proxies to vote the shares of
Common Stock solicited hereby. Under Delaware law, there are no rights of
appraisal or similar rights of dissenters with respect to the matters under
consideration at the Annual Meeting.
A broker non-vote occurs when a nominee holding shares of Common Stock for a
beneficial owner does not vote on a particular proposal because the nominee
does not have discretionary voting power with respect to the particular item
under consideration and has not received instructions from the beneficial
owner. Under Delaware law, abstaining votes (votes withheld by stockholders
who are present and entitled to vote) and broker non-votes are deemed to be
present for purposes of determining whether a quorum is present at a meeting.
While abstentions and broker non-votes are not deemed to be votes duly cast,
abstaining votes are deemed to be entitled to vote while broker non-votes are
not deemed to be entitled to vote. Abstentions and broker non-votes will not
be included in the tabulation of the voting results with respect to the
election of directors and therefore will not have any effect on such vote.
With respect to the ratification of the independent public accountants of the
Company and any other matter properly brought before the Annual Meeting,
abstentions and broker non-votes will have no effect on the outcome of the
vote.
ELECTION OF DIRECTORS
The Amended and Restated Certificate of Incorporation of the Company
authorizes the Board to fix the number of directors from time to time. The
number of directors is currently established at eight. All directors are
elected at each Annual Meeting of Stockholders of the Company for a term that
expires at the next Annual Meeting of Stockholders. All of the current
directors of the Company whose terms expire on the date of the Annual Meeting
have been nominated for re-election. If for any reason any of the nominees for
election at the Annual Meeting becomes unable or is unwilling to serve at the
time of the meeting, the persons named in the enclosed proxy card will have
discretionary authority to vote for a substitute nominee or nominees. It is
not currently anticipated that any nominee will be unavailable for election.
The following sets forth information as to each nominee for election at the
Annual Meeting, all of whom are currently serving as directors of the Company:
Tucker S. Bridwell, 46, became a director of the Company in March 1997, upon
the closing of the initial public offering of the Company (the "Offering").
Since October 1997, Mr. Bridwell has been President of Mansefeldt Investment
Corporation, a private investment firm. Mr. Bridwell is also the President of
Topaz Exploration Company, an oil and gas exploration company, a position he
has held since 1980. From 1992 until October 1997, Mr. Bridwell was the
President of Fred Hughes Motors, Inc., which owned ten new-car franchises in
the Abilene, Texas area. From 1985 to 1992, Mr. Bridwell was President of Ard
Drilling Company, an oilfield drilling company, and served as President of
Texzona Corporation, a private investment company, from 1979 to 1980. From
1976 to 1979, Mr. Bridwell was Tax Manager with Condley & Company and was an
accountant with Price Waterhouse from 1974 to 1976. Mr. Bridwell is a
Certified Public Accountant. Mr. Bridwell is a member of the Board's
Acquisition Committee, Audit Committee and Compensation Committee.
A. Joseph Cruz, 51, became President of PalEx Container Systems, Inc., a
wholly owned subsidiary of the Company ("PalEx Container Systems"), after the
Company acquired Consolidated Drum Reconditioning, Inc. ("CDR") in February
1998. Prior to the acquisition, Mr. Cruz was a 50% owner of CDR and its Chief
Executive Officer since its acquisition by Mr. Cruz and a partner in 1986.
2
<PAGE>
John E. Drury, 54, became a director of the Company in March 1997, upon the
closing of the Offering. Mr. Drury is the Chairman and Chief Executive Officer
of USA Waste Services, Inc. ("USA Waste"), the third largest solid waste
company in North America. Mr. Drury has held these positions since May 1994,
when USA Waste and Envirofil, Inc. ("Envirofil") completed their merger. From
February 1991 through April 1994, Mr. Drury was a Managing Director of Sanders
Morris Mundy, Inc., an investment banking firm. From 1982 through January
1991, Mr. Drury was President and Chief Operating Officer of Browning-Ferris
Industries, Inc. ("BFI"), where he was responsible for the worldwide
operations of BFI. Mr. Drury is a partner in Main Street Merchant Partners II,
L.P.("Main Street"), a merchant banking firm. Mr. Drury is a member of the
Board's Audit Committee and Compensation Committee.
Troy L. Fraser, 49, became Chief Development Officer and a director of the
Company in March 1997 upon the closing of the Offering and the Company's
acquisition of Fraser Industries, Inc. ("Fraser"). He became President of
Fraser in 1975, when he purchased the business with his two brothers from his
father. In 1988, Mr. Fraser was elected to the Texas House of Representatives
where he served three terms, and was named the National Republican Legislator
of the Year in 1991. In November 1996, Mr. Fraser was elected to the Texas
State Senate. In 1996, Mr. Fraser served as Vice President of the National
Wooden Pallet and Container Association ("NWPCA") and has served for two terms
on the NWPCA's Board of Directors. Mr. Fraser is a member of the Board's
Acquisition Committee.
A. E. Holland, Jr., 50, became Chief Operating Officer and a director of the
Company in March 1997, upon the closing of the Offering and the Company's
acquisition of Ridge Pallets, Inc. ("Ridge"). Mr. Holland has over 25 years of
experience in the pallet industry. Mr. Holland has been associated with Ridge
since 1969 and has served as President of Ridge since 1980. Mr. Holland has
served on the Board of Directors of the NWPCA and was President of NWPCA from
1990 to 1991. Mr. Holland has served the Florida Chamber of Commerce as
Treasurer, Chairman of the Finance Committee and member of the State Strategic
Planning Committee. Mr. Holland is a member of the Board's Acquisition
Committee.
Sam W. Humphreys, 38, has been a director of the Company since January 1996
and became non-executive Chairman of the Board in March 1997, upon the closing
of the Offering. Mr. Humphreys is a Managing Director of Main Street, a
merchant banking firm. From April 1994 until March 1997, Mr. Humphreys held
various executive positions with U.S. Delivery Systems, Inc. ("U.S.
Delivery"), the largest same-day local delivery company in the U.S., serving
as Vice Chairman until shortly prior to the Offering. Prior to joining U.S.
Delivery, Mr. Humphreys served from May 1993 until April 1994 as Senior Vice
President and General Counsel of Envirofil, which merged with USA Waste in
April 1994. Prior thereto, Mr. Humphreys was a partner at Andrews & Kurth
L.L.P., where he was engaged in the private practice of law for more than five
years. Mr. Humphreys is also a director of Aviation Sales Company, one of the
world's largest providers of aircraft spare parts. Mr. Humphreys is a member
of the Board's Acquisition Committee, Audit Committee and Compensation
Committee.
Elliot S. Pearlman, 57, became Chief Executive Officer of PalEx Container
Systems when the Company acquired Acme Barrel Company, Inc. ("Acme") in
February 1998. Mr. Pearlman served as Acme's President and Chief Executive
Officer and was a principal stockholder of Acme from 1992 until its
acquisition by the Company. Mr. Pearlman serves as a director of the
Association of Container Reconditioners and served as its chairman in 1996 and
1997.
Stephen C. Sykes, 53, became a director of the Company in March 1997, upon
the closing of the Offering and the Company's acquisition of Interstate Pallet
Co., Inc. ("Interstate"). Mr. Sykes founded Interstate in 1979 and has served
as its President and Chief Executive Officer from its inception. From 1974 to
1979, Mr. Sykes was the Director of Transportation for the Virginia Division
of Holly Farms Poultry. Mr. Sykes has been an active member of the NWPCA since
1981 and served as its President from 1992 to 1993. Mr. Sykes is a member of
the Board's Acquisition Committee.
BOARD OF DIRECTORS AND COMMITTEES
The business of the Company is managed under the direction of the Board of
Directors. The Board meets during the Company's fiscal year to review
significant developments affecting the Company and to act on matters requiring
board approval. The Board of Directors of the Company met three times during
the fiscal year ended December 28, 1997. Each director attended at least 75%
of these meetings.
3
<PAGE>
The Board currently has appointed three committees, the Acquisition
Committee, the Audit Committee and the Compensation Committee, to devote
attention to specific subjects and to assist the Board in the discharge of its
responsibilities. The functions of these committees and their current members
are described below.
Acquisition Committee. The Acquisition Committee is composed of Messrs.
Bridwell, Fraser, Holland, Humphreys and Sykes, with Mr. Humphreys serving as
Chairman. The Acquisition Committee is responsible for reviewing and
monitoring the strategic direction of the Company's acquisition program. The
Acquisition Committee has authority to approve acquisitions within certain
size parameters, the management structure of acquired businesses and other
matters relating to the acquisition of businesses by the Company. The
Acquisition Committee did not meet during the fiscal year ended December 28,
1997.
Audit Committee. The Audit Committee is composed of Messrs. Bridwell, Drury
and Humphreys, with Mr. Humphreys serving as Chairman. The Audit Committee is
responsible for (a) reviewing the scope of, and the fees for, the annual
audit, (b) reviewing the Company's accounting practices and policies with the
independent auditors, (c) reviewing with the independent auditors their final
report, (d) reviewing overall accounting and financial controls with the
independent auditors and (e) being available to the independent auditors for
consultation purposes. The Audit Committee met one time during the fiscal year
ended December 28, 1997.
Compensation Committee. The Compensation Committee is composed of Messrs.
Bridwell, Drury and Humphreys, with Mr. Drury serving as Chairman. The
Compensation Committee determines the compensation of the officers of the
Company, administers the Company's 1996 Stock Option Plan and performs other
similar functions. The Compensation Committee met one time during the fiscal
year ended December 28, 1997.
COMPENSATION OF DIRECTORS
Directors who are employees of the Company do not receive additional
compensation for serving as directors. Each director who is not an employee of
the Company receives a fee of $1,000 for attendance at each Board meeting and
$500 for each committee meeting (unless held on the same day as a Board
meeting). Directors of the Company are reimbursed for out-of-pocket expenses
incurred in attending meetings of the Board or committees thereof, and for
other expenses incurred in their capacity as directors of the Company. Each
non-employee director receives stock options to purchase 20,000 shares of
Common Stock upon election to the Board and an annual grant of 5,000 options.
These options vest and become fully exercisable six months after the date of
grant.
4
<PAGE>
SECURITY OWNERSHIP OF OFFICERS AND DIRECTORS
The record date for stockholders entitled to notice of, and to vote at, the
Annual Meeting is June 22, 1998. At the close of business on that date, the
Company had 18,937,620 shares of Common Stock issued and outstanding and
entitled to vote at the Annual Meeting. The following table sets forth certain
information as of June 30, 1998 with respect to the beneficial ownership of
the Common Stock, which constitutes the Company's only outstanding class of
voting securities, by (i) each person who, to the knowledge of the Company,
beneficially owned more than 5% of the Common Stock, (ii) each director of the
Company, (iii) the Named Executive Officers (as hereinafter defined) and (iv)
all executive officers and directors of the Company as a group. Except as
indicated, beneficial ownership includes the sole power to vote and to dispose
of the securities in question, and no director or executive officer of the
Company owned any other equity securities of the Company.
<TABLE>
<CAPTION>
NAME OF BENEFICIAL OWNER OR GROUP SHARES(1) PERCENT
--------------------------------- --------- -------
<S> <C> <C>
Tucker S. Bridwell (2)....................................... 45,000 *
A. Joseph Cruz (3)........................................... 530,766 2.8
John E. Drury (4)............................................ 93,227 *
Casey A. Fletcher (5)........................................ 321,683 1.7
Troy L. Fraser............................................... 1,410,415 7.5
A. E. Holland, Jr............................................ 318,583 1.7
Sam W. Humphreys............................................. 450,000 2.4
Vance K. Maultsby, Jr. (6)................................... 100,000 *
Elliott S. Pearlman (7)...................................... 1,132,767 6.0
Edward E. Rhyne (8).......................................... 16,250 *
Stephen C. Sykes............................................. 374,528 2.0
All directors and executive officers as a group (9) (11
persons).................................................... 4,796,519 26.0
</TABLE>
- --------
(1) If a person has the right to acquire beneficial ownership of any shares by
exercise of options within 60 days after June 30, 1998, such shares are
deemed beneficially owned by such person and are deemed to be outstanding
solely for the purpose of determining the percentage of the Common Stock
that such person owns. Such shares are not included in the computations
for any other person.
(2) Includes options to purchase 40,000 shares which were exercisable on June
30, 1998 or that become exercisable within 60 days of such date.
(3) Includes 530,766 shares owned by CDRCO NW, L.L.C., a limited liability
company in which Mr. Cruz holds a 50% ownership interest.
(4) Includes options to purchase 20,000 shares which were exercisable on June
30, 1998 or that become exercisable within 60 days of such date.
(5) Includes 2,200 shares which are owned by Mr. Fletcher's two sons. Mr.
Fletcher disclaims beneficial ownership of such shares.
(6) Includes options to purchase 50,000 shares which were exercisable on June
30, 1998 or that become exercisable within 60 days of such date. Mr.
Maultsby also holds options to purchase an additional 150,000 shares which
were not exercisable at June 30, 1998 or within 60 days thereof.
(7) Includes 867,802 shares and 156,869 shares owned by the Elliot S. Pearlman
Living Trust dated August 7, 1992 and the Elliot S. Pearlman Living Trust
dated July 2, 1996, respectively.
(8) Includes options to purchase 16,250 shares which were exercisable on June
30, 1998 or that become exercisable within 60 days of such date. Mr. Rhyne
also holds options to purchase an additional 83,750 shares which were not
exercisable at June 30, 1998 or within 60 days thereof.
(9) Excludes shares underlying options that were not exercisable as of June
30, 1998 or within 60 days of such date. See Footnotes above.
5
<PAGE>
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board, upon recommendation of the Audit Committee, has appointed Arthur
Andersen LLP, as independent public accountants, to audit the consolidated
financial statements of the Company for the current fiscal year. Arthur
Andersen LLP has served as independent public accountants for the Company
since its organization.
A proposal will be presented at the Annual Meeting to ratify the appointment
of Arthur Andersen LLP as the Company's independent public accountants, which
will require a number of votes cast by holders of shares of Common Stock
present and entitled to vote on this matter that exceeds the votes cast
opposing the matter. If the stockholders do not ratify this appointment, other
independent public accountants will be considered by the Board upon
recommendation of the Audit Committee.
A representative of Arthur Andersen LLP is expected to be present at the
Annual Meeting and will have the opportunity to make a statement. The
representative will be available to answer appropriate stockholder questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" RATIFICATION OF THE
APPOINTMENT OF ARTHUR ANDERSEN LLP AS THE INDEPENDENT PUBLIC ACCOUNTANTS OF
THE COMPANY.
6
<PAGE>
EXECUTIVE COMPENSATION
EXECUTIVE OFFICERS
The following table sets forth certain information regarding the executive
officers of the Company as of the date hereof:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Vance K. Maultsby, Jr............ 45 President and Chief Executive Officer
A. E. Holland, Jr................ 50 Chief Operating Officer
Troy L. Fraser................... 49 Chief Development Officer
Casey A. Fletcher................ 43 Chief Accounting Officer and Secretary
Edward E. Rhyne.................. 38 Vice President and General Counsel
Stephen C. Sykes................. 53 President--Interstate Pallet Co., Inc.
Elliot S. Pearlman............... 57 Chief Executive Officer--PalEx
Container Systems, Inc.
A. Joseph Cruz................... 51 President--PalEx Container Systems,
Inc.
</TABLE>
Vance K. Maultsby, Jr. became President and Chief Executive Officer of the
Company in December 1996. From 1993 to 1996, Mr. Maultsby was a partner with
Ernst & Young LLP in Dallas, Texas, where he managed the Dallas office of its
Corporate Finance Group. From 1989 to 1992, Mr. Maultsby was chief executive
officer of Alemar Financial Company (later Alemar Cost Reduction, Inc.), which
provided financial advisory services to a variety of industries. From 1985 to
1989, Mr. Maultsby was an officer in the Corporate Finance Group for Stephens
Inc., an investment banking firm. Prior thereto, Mr. Maultsby was a partner
with KPMG Peat Marwick, served as the National Director of its Petroleum
Industry Practice, was co-director of its Southwest Area Mergers and
Acquisitions Advisory Practice and practiced public accounting for more than
five years. Mr. Maultsby is a Certified Public Accountant.
A. E. Holland, Jr. became Chief Operating Officer and a director of the
Company in March 1997, upon the closing of the Offering. See "Election of
Directors."
Troy L. Fraser became Chief Development Officer and a director of the
Company in March 1997 upon the closing of the Offering. See "Election of
Directors."
Casey A. Fletcher became Chief Accounting Officer and Secretary of the
Company in March 1997, upon the closing of the Offering. From 1983 until the
Offering and the Company's acquisition of Ridge, Mr. Fletcher was Ridge's
Controller and Chief Financial Officer. Prior to his employment with Ridge,
Mr. Fletcher was associated with Arthur Young from 1976 to 1979. From 1980 to
1983, he was in private industry as an accountant. Mr. Fletcher is a Certified
Public Accountant.
Edward E. Rhyne became Vice President and General Counsel of the Company in
June 1997. Prior to his employment with the Company, Mr. Rhyne was a partner
at Gardere & Wynne, L.L.P., where he was engaged in the private practice of
law for more than five years.
Stephen C. Sykes became a director of the Company in March 1997, upon the
closing of the Offering. See "Election of Directors."
Elliot S. Pearlman became Chief Executive Officer of PalEx Container Systems
when the Company acquired Acme in February 1998. See "Election of Directors."
A. Joseph Cruz became President of PalEx Container Systems, Inc. after the
Company acquired CDR in February 1998. See "Election of Directors."
7
<PAGE>
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding compensation
paid to the Company's President and Chief Executive Officer and each of the
Company's five other most highly compensated executive officers (collectively,
the "Named Executive Officers") as of the end of the fiscal year ended
December 28, 1997 for services rendered to the Company during that fiscal
year.
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
------------ ------------
SECURITIES
UNDERLYING ALL OTHER
OPTIONS/SARS COMPENSATION
NAME YEAR SALARY ($) (#)(1) ($) (2)
---- ---- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Vance K. Maultsby, Jr........... 1997 138,542 200,000 --
Chief Executive Officer and
President
Edward E. Rhyne................. 1997 89,017 90,000(3) --
Vice President and General
Counsel
A. E. Holland, Jr............... 1997 96,234 -- 1,925
Chief Operating Officer and
Director
Casey A. Fletcher............... 1997 94,650 -- 1,893
Chief Accounting Officer and
Secretary
Troy L. Fraser.................. 1997 98,234 -- 1,667
Chief Development Officer and
Director
Stephen C. Sykes................ 1997 89,236 -- --
President--Interstate Pallets
and Director
</TABLE>
- --------
(1) Options to acquire shares of Common Stock under the Company's 1996 Stock
Option Plan.
(2) Consists of the Company's matching contribution under its 401(k) Plan.
(3) On December 31, 1997, after the end of the fiscal year, an option was
granted to Mr. Rhyne for 10,000 shares at an exercise price of $11.875 and
with an expiration date of December 31, 2007.
OPTION GRANTS DURING 1997 FISCAL YEAR
The following table sets forth the options granted during the fiscal year
ended December 28, 1997 to the Named Executive Officers pursuant to the
Company's 1996 Stock Option Plan (the "Stock Option Plan"). The Company did
not grant any stock appreciation rights during the fiscal year ended December
28, 1997. Options granted under the Stock Option Plan in fiscal 1997 vest and
become exercisable at the rate of 25% per year over a four-year period.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT ASSUMED ANNUAL
RATES OF STOCK
PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM(1)
----------------------------------------------- -----------------
PERCENT OF
NUMBER OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED EXERCISE
OPTIONS TO EMPLOYEES PRICE EXPIRATION
NAME GRANTED (#) IN FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
---- ---------- -------------- --------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Vance K. Maultsby, Jr... 200,000 15.1 7.50 3/20/07 943,300 2,390,600
Edward E. Rhyne(2)...... 65,000 5.0 8.88 4/24/07 362,800 919,400
25,000 2.0 11.38 12/10/07 178,850 453,200
</TABLE>
- --------
(1) The potential realizable values were determined based upon assumed
prescribed rates of appreciation and are not intended to forecast the
possible future appreciation, if any, of the value of the Common Stock.
(2) On December 31, 1997, after the end of the fiscal year, an option was
granted to Mr. Rhyne for 10,000 shares at an exercise price of $11.875 and
with an expiration date of December 31, 2007.
8
<PAGE>
OPTION EXERCISES DURING 1997 FISCAL YEAR AND FISCAL YEAR END OPTION VALUES
The following table provides information related to options exercised by the
Named Executive Officers during the fiscal year ended December 28, 1997 and
the number and value of options held at fiscal year end. The Company does not
have any outstanding stock appreciation rights.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-
OPTIONS AT FISCAL YEAR- THE-MONEY OPTIONS AT
SHARES VALUE END (#) FISCAL YEAR-END ($)
ACQUIRED ON REALIZED ------------------------- -------------------------
NAME EXERCISE (#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Vance K. Maultsby, Jr... -- -- 50,000 150,000 225,000 675,000
Edward E. Rhyne......... -- -- 0 90,000 0 218,750
</TABLE>
- --------
(1) Value is calculated on the basis of the difference between the option
exercise price and the market value of the Common Stock on December 26,
1997, the last trading day in the Company's 1997 fiscal year ($12 per
share).
(2) On December 31, 1997, after the end of the fiscal year, an option was
granted to Mr. Rhyne to purchase 10,000 shares at $11.875 with an
expiration date of December 31, 2007.
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with each of the Named
Executive Officers which prohibits such individual from disclosing the
Company's confidential information and trade secrets and generally restricts
these individuals from competing with the Company. Each of the agreements has
an initial term of between one and three years and provides for an automatic
annual extension at the end of its initial term and is terminable by the
Company for "cause" upon ten days' written notice and without "cause" by
either party upon thirty days' written notice. All such employment agreements
provide that if the officer's employment is terminated by the Company without
"cause," such officer will be entitled to receive a lump-sum severance payment
at the effective time of termination equal to the base salary at the rate then
in effect for the greater of (i) the time period remaining under the initial
term of the agreement or (ii) one year. In addition, such employment
agreements provide that in the event of termination without "cause," the time
period during which such officer is restricted from competing with the Company
will be shortened to one year following such termination.
The employment agreements of the Named Executive Officers and certain other
employees contain certain provisions concerning a change-in-control of the
Company, including the following: (i) in the event five days' advance notice
of the transaction giving rise to the change in control is not received by the
Company and such officer, the change in control will be deemed a termination
of the employment agreement by the Company without "cause," and the provisions
of the employment agreement governing the same will apply, except that the
severance amount otherwise payable (discussed in the preceding paragraph)
shall be tripled and the provisions which restrict competition with the
Company shall not apply; (ii) in any change-of-control situation, such officer
may elect to terminate his employment by giving five days' written notice
prior to the anticipated closing of the transaction giving rise to the change-
in-control, which will be deemed a termination of the employment agreement by
the Company without "cause," and the provisions of the employment agreement
governing the same will apply, except that the severance amount otherwise
payable shall be doubled and the time period during which such officer is
restricted from competing with the Company will be shortened to two years; and
(iii) the officer must be given sufficient time and opportunity to elect
whether to exercise all or any of his options to purchase Common Stock,
including any options with accelerated vesting under the provisions of the
Stock Option Plan, such that the officer may acquire the Common Stock at or
prior to the closing of the transaction giving rise to the change-in-control,
if he so desires.
EMPLOYEE BENEFIT PLANS
The Board has adopted, and the stockholders of the Company have approved,
the Stock Option Plan. The purpose of the Stock Option Plan is to provide
directors, officers, key employees and certain other
9
<PAGE>
persons who will be instrumental in the success of the Company or its
subsidiaries with additional incentives by increasing their proprietary
interest in the Company. The aggregate amount of Common Stock with respect to
which options may be granted may not exceed 15% of the outstanding Common
Stock, as determined on each date an option is granted.
The Stock Option Plan is administered by the Compensation Committee of the
Board, which is composed of non-employee directors (the "Compensation
Committee"). Subject to the terms of the Stock Option Plan, the Compensation
Committee generally determines to whom options will be granted and the terms
and conditions of option grants. Options granted under the Stock Option Plan
may be either non-qualified stock options or may qualify as incentive stock
options.
The exercise price of any option may not be less than the fair market value
of the underlying Common Stock as of the date of grant and no consultant may
receive an option in any year to purchase more than 51,000 shares of Common
Stock. The Compensation Committee determines the period over which options
become exercisable, provided that all options become immediately exercisable
upon death of the grantee or upon a change-in-control (as defined in the Stock
Option Plan) of the Company.
The Stock Option Plan also provides for automatic option grants to directors
who are not otherwise employed by the Company or its subsidiaries. Upon
commencement of service, a non-employee director will receive a non-qualified
option to purchase 20,000 shares of Common Stock, and continuing annually non-
employee directors will receive options to purchase 5,000 shares of Common
Stock. Options granted to non-employee directors are fully exercisable
following the expiration of six months from the date of grant.
Mr. Maultsby has been granted options to purchase 200,000 shares of Common
Stock under the Stock Option Plan all of which have an exercise price of $7.50
per share. Mr. Maultsby's options vest annually in 25% increments beginning in
November 1997. Mr. Rhyne has been granted options to purchase 65,000, 25,000
and 10,000 shares of Common Stock under the Stock Option Plan at a per share
exercise price of $8.875, $11.375 and $11.875, respectively. Mr. Rhyne's
options vest annually in 25% increments beginning in April 1998 as to 65,000
shares subject to such options and December 1998 as to his remaining options.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended December 28, 1997, the Compensation Committee
consisted of Messrs. Bridwell, Drury and Humphreys. Each of these individuals
is an independent director. See "Certain Relationships and Related
Transactions" for a discussion regarding certain relationships between members
of the Compensation Committee and the Company.
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee reviews and approves the Company's total
compensation philosophy and programs covering executive officers and key
management employees. The Compensation Committee reviews the performance
levels of executive officers and determines the annual base salaries and
incentive awards to be paid. The Compensation Committee currently consists of
three members, none of whom is a current or former employee or officer of the
Company.
10
<PAGE>
With the exception of Messrs. Maultsby and Rhyne, the Company's executive
officers were significant stockholders and officers of Fraser, Interstate or
Ridge, the three companies that were acquired by the Company contemporaneous
with the closing of the Offering. Since the Offering, it has been the
Company's belief that these executive officers have significant stakes in the
Company through their ownership of Common Stock and that their Common Stock
holdings ensure continuing high levels of performance. Accordingly, it has
been the Company's policy since the Offering that these individuals receive
annual salaries of not more than $125,000 and that they not be granted stock
options as part of their compensation packages.
The Company's plan for compensating its other executive officers is intended
to attract, motivate and retain the executive resources the Company needs in
order to maximize its return to stockholders. Specifically, the Company's goal
is to structure the compensation for these other executives to:
1. align compensation with stock price performance;
2. provide compensation that is consistent with competitive market norms
for companies similar in size, activity and complexity to the Company; and
3. achieve a balance between incentives for short-term and long-term
performance.
The principal elements of compensation have consisted of base salary and
stock option grants, with lower than market salaries and relatively large
grants of stock options, which the Compensation Committee believes is the most
effective means of achieving the goals outlined above.
Base Salary. Salaries for executive officers other than prior owners of
acquired companies have been negotiated individually with each officer in
connection with his employment by the Company. These salaries are based on
each such executive's level of responsibility, experience and expertise. The
Compensation Committee does not apply a specific formula or assign a weight to
each factor considered.
Stock Option Plan. Each executive officer other than prior owners of
acquired companies has received, and may periodically receive in the future,
grants of stock options with exercise prices equal to the fair market value of
the Common Stock on the date of grant. Stock options are designed to focus
executives on the long-term performance of the Company by enabling executives
to share in any increases in the value of the Common Stock. Accordingly, the
Compensation Committee believes that the grant of stock options is the
principal method of aligning management's long-term interests with those of
the stockholders of the Company.
Chief Executive Officer Compensation. In connection with the commencement of
his employment by the Company, Mr. Maultsby, the President and Chief Executive
Officer of the Company, entered into an employment agreement with the Company,
the terms of which were negotiated at arms'-length. Pursuant to this
employment agreement, Mr. Maultsby's annual base salary in 1997 was $175,000,
which salary is subject to increase at the discretion of the Board. In
addition, at the commencement of his employment with the Company, Mr. Maultsby
also acquired 50,000 shares of Common Stock for nominal consideration and was
granted options to purchase 200,000 shares of Common Stock at the initial
offering price of $7.50 per share, 50,000 of which are currently exercisable
and the remainder of which become exercisable at the rate of 50,000 per year
over the next three years. As a result of the stock option and Common Stock
components of Mr. Maultsby's compensation package in relation to his cash
salary, the Compensation Committee believes that Mr. Maultsby's compensation
is directly related to the performance of the Company.
This report is submitted by the members of the Compensation Committee.
TUCKER S. BRIDWELL
JOHN E. DRURY
SAM W. HUMPHREYS
11
<PAGE>
STOCK PERFORMANCE CHART
Set forth below is a graph comparing the cumulative total returns (assuming
an investment of $100 on March 20, 1997, the date of the Offering, and
reinvestment of dividends) of the Company, the Standard and Poor's 500
Composite Stock Index (the "S&P 500 Index") and a Company-determined peer
group index, which consists of six publicly-traded companies that were formed
to consolidate fragmented businesses within particular industries and that
completed their initial public offerings between January 1, 1996 and March 20,
1997 (the "Peer Group"). The Peer Group is comprised of F.Y.I. Incorporated,
The Fortress Group, Inc., Coinmach Laundry, Telespectrum Worldwide, StaffMark,
Inc. and Medical Manager Corp.
COMPARISON OF
CUMULATIVE TOTAL RETURNS
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN
PERFORMANCE GRAPH FOR PALEX INC.
03/20/97 04/30/97 06/30/97 08/29/97 10/31/97 12/26/97
-------- -------- -------- -------- -------- --------
PalEx, Inc. 100.0 105.7 117.1 138.6 151.4 135.7
S&P 500 Stocks 100.0 102.6 113.7 116.1 118.3 121.4
Self-Determined 100.0 93.9 119.7 123.6 126.9 127.7
Peer Group
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In August 1994, Ridge purchased its pallet and box manufacturing business in
a management buyout from Ridge's predecessor company ("Resources"), which
company was owned by A.E. Holland, Jr., the Company's Chief Operating Officer
and a director, and two other employees of Ridge. As consideration for this
purchase, Ridge issued promissory notes for a total of approximately $12.6
million (the "Ridge Notes") to Resources and assumed approximately $1.8
million of Resources liabilities. Resources subsequently distributed an
interest in a portion of the Ridge Notes directly to Mr. Holland and the other
two stockholders. The Ridge Notes had a maturity date of January 2000 and
accrued interest at the prime rate. Following the Offering, the Company repaid
the Ridge Notes, with $2.25 million being paid to Resources and $2.25 million
being paid each to Mr. Holland and the other two stockholders.
Prior to the Offering, Fraser had notes outstanding to certain of its
affiliates in the total amount of approximately $105,000. Two of the notes in
the aggregate amount of $60,000 accrued interest at 14% per annum and matured
in January 2005. A third note in the amount of $45,000 accrued interest at 8%
per annum and matured in December 1997. Following the Offering, the Company
prepaid each of these notes.
In addition, at the time of the Offering, Interstate had a note outstanding
to its stockholder in the amount of approximately $343,000, which note was
non-interest bearing and payable on demand. Following the Offering, the
Company repaid this note.
12
<PAGE>
Troy L. Fraser, the Company's Chief Development Officer and a director,
purchased an airplane from Fraser for its net book value of $203,000 prior to
the Offering.
Main Street Capital Partners, L.P., a limited partnership in which Sam W.
Humphreys (a director of the Company) was a general partner and John E. Drury
(a director of the Company) was a special limited partner, paid $1.25 million
of the Company's expenses, including legal and accounting fees, incurred in
connection with the Offering and the Company's acquisitions of Fraser,
Interstate and Ridge.
In connection with the Company's acquisitions of Ridge, Fraser and
Interstate, the Company issued 82,500, 50,000 and 10,000 shares of its Common
Stock to the Ridge Pallets, Inc. Profit Sharing Plan, the Fraser Industries,
Inc. Profit Sharing Plan and the Interstate Pallet Co., Inc. Profit Sharing
Plan (collectively, the "Founding Company Plans"), respectively. Following the
Offering, the Founding Company Plans were consolidated into the PalEx, Inc.
Retirement Savings Plan. Certain officers and directors of the Company were
participants in the Founding Company Plans and benefit from the contribution
of the Common Stock under the terms of such plans.
In fiscal 1997, Ridge sold approximately $490,000 of lumber to Sunbelt
Forest Products Corporation ("Sunbelt"), a chemical wood preserving company
that is owned by Mr. Holland and two other employees of Ridge. The sales
prices charged Sunbelt were competitive with those charged unaffiliated third
parties. In addition, Ridge provided certain accounting, human resource and
managerial services to Sunbelt until July 1997 and received $29,000 as payment
therefor. If the Company transacts business with Sunbelt in the future it will
be on terms that are comparable to those that would be applicable in
transactions with unaffiliated third parties.
Tucker S. Bridwell, a director of the Company, received a payment from the
Company of $50,000 and options to purchase 20,000 shares of Common Stock,
exercisable at $7.50 per share pursuant to the Stock Option Plan, for
providing advice to Fraser in connection with its acquisition by the Company.
Mr. Bridwell also received options to purchase 20,000 shares of Common Stock,
exercisable at $7.50 per share pursuant to the Stock Option Plan, in
connection with his election to the Company's Board of Directors.
Prior to the Offering, Interstate leased certain equipment from Stephen C.
Sykes, the President of Interstate and a director of the Company. The Company
purchased this equipment from Mr. Sykes after the Offering for its fair market
value of approximately $88,000. Prior to the Offering and through June 1998,
Interstate leased its operating facilities from Mr. Sykes and paid rent of
approximately $93,000 for the lease of this facility in fiscal 1997. In
connection with the Company's acquisition of Interstate, Mr. Sykes had the
right to require the Company to purchase this facility from him at its
appraised value. Mr. Sykes exercised this right and the Company completed the
acquisition of this property from Mr. Sykes in June 1998 for approximately
$1.4 million.
SECTION 16 REQUIREMENTS
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than ten percent of
a registered class of the Company's equity securities ("Insiders"), to file
with the Securities and Exchange Commission (the "Commission") initial reports
of ownership and reports of changes in ownership of Common Stock. Insiders are
required by the Commission's regulations to furnish the Company with copies of
all Section 16(a) reports filed by such persons. To the Company's knowledge,
based on its review of the copies of such reports furnished to the Company
during the fiscal year ended December 28, 1997, all Insiders complied with all
applicable Section 16(a) filing requirements.
STOCKHOLDERS' PROPOSALS
Stockholders must submit their proposals to the Secretary of the Company,
1360 Post Oak Blvd., Suite 800, Houston, Texas 77056, on or before March 11,
1999 to be considered for inclusion in the Company's 1999 proxy material.
13
<PAGE>
MISCELLANEOUS
The Board knows of no business other than that set forth above to be
transacted at the Annual Meeting. If other matters requiring a vote of the
stockholders arise, the persons designated as proxies will vote the shares of
Common Stock represented by the proxies in accordance with their judgment on
such matters.
The information contained in this Proxy Statement relating to the
occupations and security holdings of the directors and officers of the Company
and their transactions with the Company is based upon information received
from the individual directors and officers. All information relating to any
beneficial owner of more than 5% of the Common Stock is based upon information
contained in reports filed by such owner with the Commission.
ANNUAL REPORT AND FINANCIAL INFORMATION
A copy of the Company's 1997 Annual Report to Stockholders, which includes a
copy of the Company's Annual Report on Form 10-K for the year ended December
28, 1997, as amended, accompanies this Proxy Statement.
Nothing contained in the Annual Report to Stockholders is to be regarded as
proxy soliciting material or as a communication by means of which a
solicitation of proxies is to be made.
By Order of the Board of Directors
/s/ CASEY A. FLETCHER
Casey A. Fletcher
Secretary
Houston, Texas
July 13, 1998
14
<PAGE>
PALEX, INC.
1360 POST OAK BLVD., SUITE 800
HOUSTON, TEXAS 77056
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS ON AUGUST 6, 1998
The undersigned hereby appoints Vance K. Maultsby, Jr. and Edward E. Rhyne,
and each of them, with full power of substitution, proxies to vote in respect
of the undersigned's shares of common stock of PalEx, Inc., held of record by
the undersigned at the close of business on June 22, 1998, at the Annual
Meeting of Stockholders to be held on August 6, 1998 at 10:00 a.m., local time,
at the Doubletree Hotel at Post Oak, 2001 Post Oak Blvd., Houston, Texas 77056,
and at any adjournment thereof, on the items of business set forth below and on
the reverse side and on such other business as may properly come before the
meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE FOLLOWING MATTERS:
1. To elect eight directors to serve until the next Annual Meeting of
Stockholders:
FOR all nominees WITHHOLD AUTHORITY
listed below to vote for all
(except as marked to nominees listed
the contrary) below
[_] [_]
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name on the space provided below.)
- --------------------------------------------------------------------------------
Nominees: Tucker S. Bridwell, A. Joseph Cruz, John E. Drury, Troy L. Fraser,
A.E. Holland, Jr., Sam W. Humphreys, Elliot S. Pearlman and Stephen
C. Sykes
2. To ratify the appointment of Arthur Andersen LLP as independent public
accountants of the Company for 1998:
FOR [_] AGAINST [_] ABSTAIN [_]
(TO BE SIGNED ON REVERSE SIDE) SEE REVERSE SIDE
3. To transact such other business as may properly come before the meeting or
any adjournment of the meeting.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. IF THE
UNDERSIGNED FAILS TO SPECIFY HOW THE PROXY IS TO BE VOTED, IT WILL BE VOTED FOR
THE ELECTION OF THE DIRECTORS SPECIFIED ON THE REVERSE SIDE AND FOR PROPOSAL
NO. 2.
DATE:__________________________ , 1998
--------------------------------------
Signature
--------------------------------------
Signature if held jointly
Note: (Please sign your name exactly
as it appears on the proxy. When
signing as attorney, agent,
executor, administrator, trustee,
guardian or corporate officer,
please give full title as such. Each
joint owner should sign the proxy.)
