<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1 TO FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 28, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 000-22237
PALEX, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 76-0520673
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1360 POST OAK BLVD., SUITE 800
HOUSTON, TEXAS 77056
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 350-6030
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $0.01 PAR VALUE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 (the "Exchange Act") during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of
the registrant on March 17, 1998 was $164,955,479. As of that date, 18,175,286
shares of the Company's Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
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PalEx, Inc. (the "Company" or the "Registrant") hereby amends its Annual
Report on Form 10-K for the fiscal year ended December 28, 1997 by deleting its
responses to Items 10 through 13 contained in Part III of its original filing
and replacing such text with the following:
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Tucker S. Bridwell..................... 46 Director(1)(2)
A. Joseph Cruz......................... 51 President-PalEx Container Systems, Inc., Director
John E. Drury.......................... 54 Director(1)(2)
Casey A. Fletcher...................... 43 Chief Accounting Officer and Secretary
Troy L. Fraser......................... 49 Chief Development Officer, Director
A.E. Holland, Jr....................... 50 Chief Operating Officer, Director
Sam W. Humphreys....................... 38 Director(1)(2)
Vance K. Maultsby, Jr.................. 45 President and Chief Executive Officer
Elliott S. Pearlman.................... 57 Chief Executive Officer-PalEx Container
Systems, Inc., Director
Edward E. Rhyne........................ 38 Vice President and General Counsel
Stephen C. Sykes....................... 53 President-Interstate Pallet Co., Inc., Director
</TABLE>
_________
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
Tucker S. Bridwell 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.
A. Joseph Cruz 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.
John E. Drury 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
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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.
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 Pallets Inc. ("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.
Troy L. Fraser became Chief Development Officer and a director of the
Company in March 1997, upon the closing of the Offering. He became President of
Fraser Industries, Inc. ("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.
A. E. Holland, Jr. became Chief Operating Officer and a director of the
Company in March 1997, upon the closing of the Offering. 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.
Sam W. Humphreys 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.
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 the Dallas, Texas office, 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.
Elliot S. Pearlman 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 from 1992 until Acme's acquisition by the Company.
Mr. Pearlman serves as a director of the Association of Container Reconditioners
and served as chairman of this association in 1996 and 1997.
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. Mr. Sykes founded Interstate Pallet Co., Inc.
("Interstate") in 1979 and has served as its President and Chief Executive
3
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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.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table summarizes the compensation paid to the Chief
Executive Officer and the five other most highly compensated executive officers
of the Company (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
COMPENSATION LONG-TERM
------------ -----------------
COMPENSATION
-----------------
NAME AND SECURITIES
PRINCIPAL FISCAL UNDERLYING ALL OTHER
POSITION YEAR SALARY($) OPTIONS/SARS(#)(1) COMPENSATION($)(2)
--------- ------ --------- ------------------ -------------------
<S> <C> <C> <C> <C>
Vance K. Maultsby, Jr., 1997 138,542 200,000 --
Chief Executive Officer
and President of the
Company
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 $11.875 with
an expiration date of December 31, 2007.
4
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OPTION GRANTS DURING 1997 FISCAL YEAR
The following table sets forth the options granted during the fiscal year
ended December 28, 1997 to the named executive officers pursuant to the
Company's 1996 Stock Option Plan (the "Stock Option Plan"). The Company did not
grant any stock appreciation rights during the fiscal year ended December 28,
1997. Options granted under the Stock Option Plan in fiscal 1997 vest and become
exercisable at the rate of 25% per year over a four-year period.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of
Stock Price Appreciation
Individual Grants for Option Term (1)
------------------- ------------------------
% of Total Options Exercise or
Options Granted to Employees in Base Price Expiration
Name Granted (#) Fiscal Year ($/Sh) Date 5% ($) 10% ($)
- --------- -------------- ----------------------- ------------- ------------ ----- ------
<S> <C> <C> <C> <C> <C> <C>
Vance K.
Maultsby,Jr. 200,000 15.1% $7.50 03/20/07 $943,300 $2,390,600
Edward E.
Rhyne(2) 65,000 5.0% $8.875 04/24/07 $362,800 $ 919,400
25,000 2.0% $11.375 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 Company's 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 with
an expiration date of December 31, 2007.
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>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
---------------------------------------------------------------
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options at
Shares Acquired Value Realized Options at FY-End (#) FY-End
Name on Exercise (#) (1) Exercisable/Unexercisable Exercisable/Unexercisable(1)
- ------ --------------- ----------------- ------------------------- ----------------------------
<S> <C> <C> <C> <C>
Vance K.
Maultsby, Jr. -- -- 50,000/150,000 $225,000/675,000
Edward E. Rhyne -- -- 0/90,000(2) $ 50,782/167,969
</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.
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
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of Directors meeting and $500 for each committee meeting (unless held on the
same day as a Board of Directors meeting). Directors of the Company are
reimbursed for out-of-pocket expenses incurred in attending meetings of the
Board of Directors 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 of Directors and an annual grant of 5,000 options.
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 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 Messrs. Maultsby, Holland, Fraser,
Fletcher, Rhyne, Sykes 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 of Directors 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 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 Company's outstanding Common Stock, as
determined on each date an option is granted.
The Stock Option Plan is administered by the Compensation Committee,
which is composed of non-employee directors (the "Committee"). Subject to the
terms of the Stock Option Plan, the 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 Committee determines the period over which options become
exercisable, provided that all
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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
equal to the initial public offering price. 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 of the Board of Directors of the Company consisted of Messrs.
Bridwell, Drury and Humphreys. Each of Messrs. Bridwell, Drury and Humphreys
are independent directors.
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.
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. See "Executive Compensation
- --Compensation of Directors" and "--Employee Benefit Plans."
7
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of April 23,
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 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. Except as indicated
below, no director or executive officer of the Company owned any other equity
securities of the Company.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP (1)
------------------------
NAME OF BENEFICIAL OWNER OR GROUP SHARES PERCENTAGE OWNED
- ---------------------------------------------------- ------------------- ----------------------
<S> <C> <C>
Tucker S. Bridwell(2)............................... 45,000 *
A. Joseph Cruz(3)................................... 530,766 2.9%
John E. Drury(4).................................... 93,227 *
Casey A. Fletcher(5)................................ 321,683 1.8%
Troy L. Fraser...................................... 1,410,415 7.7%
A. E. Holland, Jr................................... 318,583 1.7%
Sam W. Humphreys.................................... 450,000 2.5%
Vance K. Maultsby, Jr.(6)........................... 100,000 *
Elliott S. Pearlman(7).............................. 1,132,767 6.2%
Edward E. Rhyne(8).................................. 16,250 *
Stephen C. Sykes.................................... 374,528 2.0%
All executive officers and directors
as a group (9) (11 persons)....................... 4,796,519 26.0%
</TABLE>
- -----------------
* Less than 1%
(1) Includes shares beneficially owned by such persons, including shares
underlying options granted under the 1996 Stock Option Plan. If a person
has the right to acquire beneficial ownership of any shares by exercise of
options within 60 days after April 23, 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 April
23, 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 hold a 50% ownership interest.
(4) Includes options to purchase 20,000 shares which were exercisable on April
23, 1998 or that become exercisable within 60 days of such date.
8
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(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 April
23, 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 that date.
(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 April
23, 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 as of April 23, 1998.
(9) Excludes shares underlying options that were not exercisable as of April
23, 1998 or within 60 days of such date. See Footnotes 4 through 8 above.
SECTION 16(A) BENEFICIAL REPORTING 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 Commission initial reports of ownership and reports of changes in ownership
of the Company's 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.
ITEM 13. 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.
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. See "Executive Compensation
- --Compensation of Directors" and "--Employee Benefit Plans."
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. Interstate continues to lease its
operating facilities from Mr. Sykes and paid rent of approximately $93,000 for
the lease of this facility in fiscal 1997. Mr. Sykes has the right to require
the Company to purchase the property at its appraised value, estimated by
management to be between $1.0 million and $1.4 million. Mr. Sykes has exercised
this right, and the Company expects to complete the acquisition of this property
by the end of May, 1998.
9
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SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Houston, State of Texas, on April 27, 1998.
PALEX, INC.
By:/s/ Edward E. Rhyne
------------------------------------
Edward E. Rhyne
Vice President and General Counsel
