<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
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
INDEX, 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: N/A
2. Aggregate number of securities to which transaction applies:
N/A
3. Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11:
N/A
4. Proposed maximum aggregate value of transaction: N/A
5. Total fee paid: N/A
[ ] 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: N/A
2. Form, Schedule or Registration Statement No.: N/A
3. Filing Party: N/A
4. Date Filed: N/A
<PAGE> 2
DXP ENTERPRISES, INC.
(formerly known as Index, Inc.)
580 Westlake Park Boulevard, Suite 1100
Houston, Texas 77079
281/531-4214
May 23, 1997
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders
of DXP Enterprises, Inc. (the "Company") to be held at 10:00 a.m., Central
Daylight Time, on Tuesday, June 17, 1997, at the offices of the Company's
subsidiary, SEPCO Industries, Inc., 6500 Brittmore, Houston, Texas 77041. As
you are probably aware, the Company changed its name from Index, Inc. to DXP
Enterprises, Inc. in May 1997.
This year you will be asked to consider one proposal concerning the
election of directors. This matter is explained more fully in the attached
proxy statement, which you are encouraged to read.
The Board of Directors recommends that you approve the proposal and
urges you to return your signed proxy card at your earliest convenience,
whether or not you plan to attend the annual meeting.
Thank you for your cooperation.
Sincerely,
/s/ DAVID R. LITTLE
David R. Little
President and Chief Executive Officer
<PAGE> 3
DXP ENTERPRISES, INC.
(formerly known as Index, Inc.)
580 Westlake Park Boulevard, Suite 1100
Houston, Texas 77079
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS TO BE HELD JUNE 17, 1997
Notice is hereby given that the Annual Meeting of the Shareholders of
DXP Enterprises, Inc., a Texas corporation (the "Company"), will be held on
Tuesday, June 17, 1997, at 10:00 a.m., Central Daylight Time, at the offices of
the Company's subsidiary, SEPCO Industries, Inc., 6500 Brittmore, Houston,
Texas 77041, for the following purposes:
(l) To elect six directors of the Company to hold office
until the next Annual Meeting of Shareholders or until their
respective successors are duly elected and qualified; and
(2) To transact such other business as may properly come
before the meeting or any adjournment thereof.
The holders of record of Common Stock, Series A Preferred Stock and
Series B Preferred Stock of the Company at the close of business on April 25,
1997, will be entitled to vote at the meeting.
By Order of the Board of Directors,
/s/ GARY A. ALLCORN
Gary A. Allcorn
Secretary
May 23, 1997
<PAGE> 4
DXP ENTERPRISES, INC.
(formerly known as Index, Inc.)
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 17, 1997
This Proxy Statement is furnished to the shareholders of DXP
Enterprises, Inc. (the "Company"), 580 Westlake Park Boulevard, Suite 1100,
Houston, Texas 77079 (Tel. No. 281/531-4214), in connection with the
solicitation by the Board of Directors of the Company of proxies to be used at
the annual meeting of shareholders to be held on Tuesday, June 17, 1997, at
10:00 a.m., Central Daylight Time, at the offices of the Company's subsidiary,
SEPCO Industries, Inc., 6500 Brittmore, Houston, Texas 77041, or any
adjournment thereof.
Proxies in the form enclosed, properly executed by shareholders and
received in time for the meeting, will be voted as specified therein. If a
shareholder does not specify otherwise, the shares represented by his or her
proxy will be voted for the director nominees listed therein. The giving of a
proxy does not preclude the right to vote in person should the person giving
the proxy so desire, and the proxy may be revoked at any time before it is
exercised by written notice delivered to the Company at or prior to the
meeting. This Proxy Statement and accompanying form of proxy are to be mailed
on or about May 23, 1997, to shareholders of record on April 25, 1997 (the
"Record Date").
At the close of business on the Record Date, there were outstanding and
entitled to vote 12,079,975 shares of Common Stock, par value $.01 per share
(the "Common Stock"), 3,179 shares of Series A Preferred Stock, par value $1.00
per share (the "Series A Preferred Stock"), and 15,000 shares of Series B
Preferred Stock, par value $1.00 per share (the "Series B Preferred Stock"),
and only the holders of record on such date are entitled to vote at the
meeting. Subsequent to the Record Date, the Company effected a two-for-one
reverse split of the outstanding shares of Common Stock. References in this
Proxy Statement to numbers of shares of Common Stock have not been adjusted to
give effect to the reverse stock split.
The holders of record of Common Stock on the Record Date will be entitled
to one vote per share on each matter presented to such holders at the meeting.
The holders of record of Series A Preferred Stock and Series B Preferred Stock
on the Record Date will be entitled to one-tenth of one vote per share on each
matter presented to such holders at the meeting. The presence at the meeting,
in person or by proxy, of the holders of a majority of the outstanding shares
of Common Stock, Series A Preferred Stock and Series B Preferred Stock is
necessary to constitute a quorum for the transaction of business at the
meeting.
<PAGE> 5
MATTERS TO COME BEFORE THE MEETING
PROPOSAL 1: ELECTION OF DIRECTORS
At the meeting, six directors constituting the entire Board of
Directors are to be elected. The holders of Common Stock, Series A Preferred
Stock and Series B Preferred Stock, voting together as a single class, are
entitled to elect the six nominees for election to the Board of Directors. All
directors of the Company hold office until the next annual meeting of
shareholders or until their respective successors are duly elected and
qualified or their earlier resignation or removal.
It is the intention of the persons named in the proxies for the
holders of Common Stock, Series A Preferred Stock and Series B Preferred Stock
to vote the proxies for the election of the nominees named below, unless
otherwise specified in any particular proxy. The management of the Company
does not contemplate that any of the nominees will become unavailable for any
reason, but if that should occur before the meeting, proxies will be voted for
another nominee, or other nominees, to be selected by the Board of Directors.
In accordance with the Company's by-laws and Texas law, a shareholder entitled
to vote for the election of directors may withhold authority to vote for
certain nominees for directors or may withhold authority to vote for all
nominees for directors. The director nominees receiving a plurality of the
votes of the holders of shares of Common Stock, Series A Preferred Stock and
Series B Preferred Stock, voting together as a single class, present in person
or by proxy at the meeting and entitled to vote on the election of directors
will be elected directors. Abstentions and broker non-votes (i.e., shares held
in street name for which the record holder does not have discretionary
authority to vote under the rules of the New York Stock Exchange) will not be
treated as a vote for or against any particular director nominee and will not
affect the outcome of the election.
The persons listed below have been nominated for election to fill the
six director positions to be elected by the holders of the Common Stock, Series
A Preferred Stock and Series B Preferred Stock, voting together as a single
class.
<TABLE>
<CAPTION>
NOMINEE AGE POSITION WITH THE COMPANY DIRECTOR SINCE
------- --- ------------------------ --------------
<S> <C> <C> <C>
David R. Little 45 President, Chief Executive Officer 1996
and Director
Jerry J. Jones 58 Senior Vice President/Corporate 1996
Development and Director
Bryan H. Wimberly 57 Senior Vice President/Pump, Bearing, 1996
Power Transmission and Valve
Automation Group and Director
Cletus Davis 67 Director 1996
Kenneth H. Miller 57 Director 1996
Thomas V. Orr 46 Director 1996
</TABLE>
INFORMATION REGARDING NOMINEES AND DIRECTORS
Background of Nominees for Director
David R. Little. Mr. Little has served as a Director and President of
the Company since July 1996 and as Chief Executive Officer since August 1996
and also has held these positions with SEPCO Industries, Inc. ("SEPCO"), a
wholly owned subsidiary of the Company, since 1986.
-2-
<PAGE> 6
Jerry J. Jones. Mr. Jones has served as a Director and Senior Vice
President/Corporate Development of the Company since August 1996. Mr. Jones
also has served as a Director of SEPCO since 1986 and as Senior Vice
President/Corporate Marketing of SEPCO since June 1995. From February 1993 to
June 1995, Mr. Jones served as President of T. L. Walker Bearing Company, a
subsidiary of SEPCO. Prior to his employment with SEPCO, Mr. Jones served as
President and Chief Executive Officer of The Energy Partners, Inc./Perry
Oceanographics, a renewable energy development company and offshore underwater
equipment manufacturer, from November 1989 to December 1992.
Bryan H. Wimberly. Mr. Wimberly has served as a Director and Senior
Vice President/Pump, Bearing, Power Transmission and Valve Automation Group of
the Company since August 1996. Mr. Wimberly also has served as a Director of
SEPCO since 1987 and the President and Chief Operating Officer of SEPCO since
October 1995. Mr. Wimberly has been employed by SEPCO since 1987 in various
capacities, including Senior Vice President/Operations.
Cletus Davis. Mr. Davis has served as a Director of the Company since
August 1996. Mr. Davis is an attorney practicing in the areas of commercial
real estate, banking, corporate, estate planning and general litigation and is
also a trained mediator. From May 1988 to February 1992, Mr. Davis was a
member of the law firm of Wood, Lucksinger & Epstein. Since March 1992, Mr.
Davis has practiced law with the law firm of Cletus Davis, P.C.
Kenneth H. Miller. Mr. Miller has served as a Director of the Company
since August 1996. Mr. Miller also has served as a Director of SEPCO since
April 1989. Mr. Miller is a Certified Public Accountant and has been a solo
practitioner since 1983.
Thomas V. Orr. Mr. Orr has served as a Director of the Company since
August 1996. Mr. Orr has served as Senior Vice President and Divisional
Manager of Morgan Keegan, Inc., a full service brokerage firm, since February
1995. From June 1990 to January 1995, Mr. Orr was a Divisional Sales Manager
for two years and Branch Office Manager for three years for Paine Webber, Inc.,
an investment banking firm.
Committees of the Board of Directors and Meeting Attendance
The Board of Directors has established an Audit Committee and a
Compensation Committee. The Board of Directors has not established a
nominating committee. During the fiscal year ended December 31, 1996, all
action of the Board of Directors was taken by consent in lieu of meetings. The
Audit Committee met once and the Compensation Committee did not meet. No
director attended less than 75% of the meetings of committees of which he is a
member.
The Audit Committee, composed of Messrs. Davis, Miller and Orr, makes
recommendations to the Board of Directors on matters regarding the independent
public accountants of the Company and the annual audit of the Company's
financial statements and accounts. The Compensation Committee, composed of
Messrs. Davis, Miller and Orr, makes recommendations to the Board of Directors
regarding compensation for the Company's executive officers, directors,
employees, consultants and agents, and acts as the administrative committee for
the Company's stock plans, including the Company's Long-Term Incentive Plan.
-3-
<PAGE> 7
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of April 21, 1997, with
respect to (i) persons known to the Company to be beneficial holders of five
percent or more of either the outstanding shares of Common Stock, Series A
Preferred Stock or Series B Preferred Stock, (ii) named executive officers and
directors of the Company and (iii) all executive officers and directors of the
Company as a group. Subsequent to the Record Date, the Company effected a two-
for-one reverse split of the outstanding shares of Common Stock. References in
this Proxy Statement to numbers of shares of Common Stock have not been
adjusted to give effect to the reverse stock split.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP(2)
-------------------------------------------------------------------
SERIES A SERIES B
NAME AND ADDRESS OF BENEFICIAL COMMON PREFERRED PREFERRED
OWNER(1) STOCK % STOCK % STOCK %
------------------------------ ------------- ------- ----------- ------ ----------- ------
<S> <C> <C> <C> <C> <C> <C>
Gary A. Allcorn(3) 8,988,723 50.6 -- -- 15,000 89.3
580 Westlake Park Blvd.,
Suite 1100
Houston, Texas 77079
David R. Little(4) 4,286,729 22.4 -- -- -- --
580 Westlake Park Blvd.,
Suite 1100
Houston, Texas 77079
Bryan H. Wimberly(5) 1,673,013 10.4 -- -- -- --
580 Westlake Park Blvd.,
Suite 1100
Houston, Texas 77079
Jerry J. Jones(6) 1,439,963 8.3 -- -- -- --
580 Westlake Park Blvd.,
Suite 1100
Houston, Texas 77079
SEPCO Industries, Inc. Employee 3,825,194 24.1 1,870 55.5 -- --
Stock Ownership Plan
c/o River Oaks Trust Company,
Trustee
2001 Kirby
Houston, Texas 77210
Nelvin F. Luke(7) 229,691 1.4 374 11.1 -- --
225 Newman Avenue
Jefferson, Louisiana 70121
Denny Lawrence(8) 201,600 1.2 -- -- 1,800 10.7
Route 1, Box 265-B
Farmerville, Louisiana 71241
Donald E. Tefertiller(9) 186,168 1.2 374 11.1 -- --
4425 Congressional Drive
Corpus Christi, Texas 78413
Norman O. Schenk(10) 160,050 1.0 374 11.1 -- --
4415 Waynesboro
Houston, Texas 77035
Charles E. Jacob(11) 95,769 * 187 5.6 -- --
P. O. Box 57
Maypearl, Texas 76064
Ernest E. Herbert(12) 94,140 * 187 5.6 -- --
57 Coronado Avenue
Kenner, Louisiana
Thomas V. Orr, Director(13) 16,000 * -- -- -- --
Kenneth H. Miller, Director(14) 16,000 * -- -- -- --
Cletus Davis, Director(15) 16,000 * -- -- -- --
All executive officers, directors 16,436,428 72.9 -- -- 15,000 89.3
and nominees as a group
(7 persons)(16)
</TABLE>
_____________________
* Less than 1%.
-4-
<PAGE> 8
(l) Each beneficial owner's percentage ownership is determined by assuming
that options, warrants and other convertible securities that are held by
such person (but not those held by any other person) and that are
exercisable or convertible within 60 days have been exercised or
converted. An aggregate of approximately 83,000 shares of Common Stock
issuable upon surrender of certificates formerly representing shares of
common stock of SEPCO and Newman Communications Corporation ("Newman"),
each of which companies was acquired by the Company in December 1996 as
part of a reorganization of SEPCO, were not included in the determination
of each beneficial owner's percentage ownership. However, an aggregate
of 187 shares of Series A Preferred Stock and 1,800 shares of Series B
Preferred Stock issuable upon surrender of certificates formerly
representing shares of SEPCO preferred stock that as of April 21, 1997
had not been surrendered were included in the determination of each
beneficial owner's percentage ownership. Additionally, as of April 21,
1997, the Company's employee stock ownership plan (the "ESOP") had not
surrendered its certificates formerly representing shares of SEPCO common
stock; however, each person's beneficial ownership was determined by
assuming that an aggregate of 3,825,194 shares of Common Stock issuable
upon surrender of such certificates were issued and outstanding as of
April 21, 1997.
(2) Unless otherwise noted, the Company believes that all persons named in
the above table have sole voting and investment power with respect to all
shares of Common Stock, Series A Preferred Stock and Series B Preferred
Stock beneficially owned by them.
(3) Includes 6,851,184 shares of Common Stock and 15,000 shares of Series B
Preferred Stock owned by the Kacey Joyce, Andrea Rae and Nicholas David
Little 1988 Trusts (the "Trusts") for which Mr. Allcorn serves as
trustee. Because of this relationship, Mr. Allcorn may be deemed to the
beneficial owner of such shares and the 1,680,000 shares of Common Stock
issuable upon conversion of the 15,000 shares of Series B Preferred Stock
held by the Trusts. Also includes 80,000 shares of Common Stock issuable
upon exercise of an option and 28,739 shares of Common Stock held of
record by the ESOP for Mr. Allcorn's account.
(4) Includes 3,200,000 shares of Common Stock issuable to Mr. Little upon
exercise of an option and 161,829 shares of Common Stock held of record
by the ESOP for Mr. Little's account.
(5) Includes 201,600 shares of Common Stock owned of record by a trust of
which Mr. Wimberly is one-third beneficiary and 195,200 shares of Common
Stock issuable upon exercise of an option granted to Mr. Wimberly. Also
includes 34,613 shares of Common Stock held by the ESOP for Mr.
Wimberly's account.
(6) Includes 1,436,800 shares of Common Stock issuable upon exercise of an
option granted to Mr. Jones and 3,163 shares of Common Stock held by the
ESOP for Mr. Jones's account.
(7) Includes 16,000 shares of Common Stock issuable upon exercise of an
option and 90,491 shares of Common Stock held of record by the ESOP for
Mr. Luke's account.
(8) Includes 201,600 shares of Common Stock issuable upon conversion of
shares of Series B Preferred Stock.
(9) Includes 16,000 shares of Common Stock issuable upon exercise of an
option and 46,968 shares of Common Stock held of record by the ESOP for
Mr. Tefertiller's account.
(10) Includes 36,580 shares of Common Stock held of record by the ESOP for Mr.
Schenk's account.
(11) Includes 47,140 shares of Common Stock held of record by the ESOP for Mr.
Jacob's account.
(12) Includes 33,369 shares of Common Stock held of record by the ESOP for Mr.
Herbert's account.
(13) Includes 16,000 shares of Common Stock issuable upon exercise of an
option.
(14) Includes 16,000 shares of Common Stock issuable upon exercise of an
option.
(15) Includes 16,000 shares of Common Stock issuable upon exercise of an
option.
(16) See notes (3) through (6) and (13) through (15).
-5-
<PAGE> 9
EXECUTIVE OFFICERS AND COMPENSATION
The following section sets forth the names and background of the
Company's executive officers.
BACKGROUND OF EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
DATE OF
NAME OFFICES HELD FIRST ELECTION AGE
---- ------------ -------------- ---
<S> <C> <C> <C>
David R. Little . . . . President and Chief Executive Officer July 1996 45
Jerry J. Jones . . . . Senior Vice President/Corporate Development August 1996 58
Bryan H. Wimberly . . . Senior Vice President/Pump, Bearing, Power August 1996 57
Transmission and Valve Automation Group
Gary A. Allcorn . . . . Senior Vice President/Finance, Treasurer and July 1996 44
Secretary
</TABLE>
For further information regarding Mr. Little's background, see
"Background of Nominees for Director".
For further information regarding Mr. Jones's background, see "Background
of Nominees for Director".
For further information regarding Mr. Wimberly's background, see
"Background of Nominees for Director".
Gary A. Allcorn. Mr. Allcorn has served as Secretary and Treasurer of
the Company since July 1996 and as Senior Vice President/Finance since August
1996. Mr. Allcorn also has held this position with SEPCO since December 1995.
Mr. Allcorn has been employed with SEPCO since 1985 in various capacities,
including Vice-President/Finance and Chief Financial Officer.
All officers of the Company hold office until the regular meeting of
directors following the annual meeting of shareholders or until their
respective successors are duly elected and qualified or their earlier
resignation or removal.
COMPENSATION COMMITTEE REPORT
The Board established a Compensation Committee (the "Committee") on
August 12, 1996, which is composed of Cletus Davis, Tommy Orr and Kenneth
Miller, all of whom are outside directors. The purpose of the Committee is to
review, approve and make recommendations to the Board of Directors on matters
regarding the compensation of officers, directors, employees, consultants and
agents of the Company and act as the administrative committee for any stock
plans of the Company, including its Long-Term Incentive Plan. The Committee
makes its compensation decisions based upon its own research and analysis. The
Company is prepared to engage an outside compensation consultant if the
Committee so requests.
The Committee believes that the Company's past and future success is the
result of a highly qualified and stable management team. The Company believes
that the stability of a management team
-6-
<PAGE> 10
is important to its success and has adopted a strategy to (i) compensate its
executive officers through a stable base salary set at a sufficiently high
level to retain and motivate such officers, (ii) link a portion of their
compensation to their individual and the Company's performance and (iii)
provide a portion of their compensation in a manner that aligns the financial
interests of the Company's executive officers with those of the Company's
shareholders.
The Company was privately held until December 1996. The compensation
packages of the Company's executive officers was established by SEPCO prior to
the Company becoming public. These compensation packages were assumed by the
Company upon completion of the SEPCO reorganization. The Committee reviewed
these executive compensation packages with its outside advisors and determined
that they were consistent with the long-term strategies of the Company.
The major components of the Company's executive compensation program
consist of base salary, incentive compensation tied to the Company's
performance and equity participation in the form of stock ownership and stock
options.
Base Salary
Base salaries for the Company's executives are influenced by both
objective and subjective criteria. Salaries are determined by reviewing the
executive level of responsibility, tenure with the Company, prior year
compensation and effectiveness of the management team. In setting compensation
levels for positions other than the Chief Executive Officer, the Committee
considers recommendations from the Company's Chief Executive Officer. The
Committee believes executive base salaries and incentive compensation for 1996
were reasonable based upon the duties and responsibilities of those executives.
Incentive Compensation
The Committee believes incentive compensation tied to the Company's
performance is a key component of executive compensation. The incentive
compensation for the Company's executive officers ranges from 9% to 35% of the
cash portion of their annual compensation package. The Committee believes this
type of incentive compensation motivates the executive to focus on the
Company's performance. Additionally, poor Company performance results in lower
compensation for the executives.
Stock Options
The Committee believes equity participation is a key component of the
Company's executive compensation program. Stock options are granted to
executives based upon the officer's past and anticipated contribution to the
growth and profitability of the Company. The Committee also believes that the
granting of stock options enhances shareholder value by aligning the financial
interests of the executive with those of the Company's shareholders. In 1996,
the Committee granted stock options with respect to 80,000 shares of Common
Stock to Gary Allcorn, the Company's Senior Vice President/Finance, at an
exercise price of $0.58 per share. In making this grant the Committee
considered Mr. Allcorn's contribution to the Company in meeting its financial
and strategic objectives and also relied upon recommendations of Mr. Little.
The option is currently vested and expires in December 2001. In 1995, each of
Mr. Little, Mr. Jones and Mr. Wimberly were granted options to purchase
3,200,000, 1,436,800 and 195,200 shares of Common Stock, respectively, at an
exercise price per share of $0.44625, $0.41 and $0.36875, respectively.
-7-
<PAGE> 11
Chief Executive Officer's 1996 Compensation
The compensation paid to Mr. Little, the Company's Chief Executive
Officer, in 1996 consisted of base salary and incentive compensation and was
established pursuant to his employment agreement with SEPCO. In 1996, Mr.
Little received $263,714 in base pay and $93,454 in incentive compensation
pursuant to his employment agreement.
Cletus Davis
Kenneth H. Miller
Thomas V. Orr
SUMMARY OF COMPENSATION
Set forth in the following table is certain compensation information
concerning the Chief Executive Officer and each of the Company's most highly
compensated executive officers as to whom the total annual salary and bonus for
the fiscal year ended December 31, 1996, exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
- -------------------------------------------------------------------------------------------------------------
OTHER SECURITIES
ANNUAL UNDERLYING
NAME AND PRINCIPAL SALARY BONUS COMPENSATION OPTIONS
POSITION YEAR ($) ($) ($) (#)
-------------------------------------- -------- ---------- --------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
David R. Little, 1996 263,714 93,454 -- --
President and Chief Executive 1995 222,567 131,888 -- 3,200,000
Officer
Jerry J. Jones, 1996 116,264 62,516 -- --
Senior Vice President/ 1995 113,330 67,503 357,216(1) 1,436,800
Corporate Development
Bryan H. Wimberly, 1996 136,031 65,620 -- --
Senior Vice President/Operation 1995 121,967 92,589 -- 195,200
Gary A. Allcorn, 1996 114,161 10,741 -- 80,000
Senior Vice President/Finance 1995 103,707 9,059 -- --
</TABLE>
(1) Represents payments to Mr. Jones in respect of the repurchase by the
Company of shares acquired by Mr. Jones on exercise of options held by
him.
-8-
<PAGE> 12
OPTION GRANTS AND EXERCISES
The following table sets forth information concerning individual grants
of stock options made during the year ended December 31, 1996, to the executive
officers named in the Summary Compensation Table.
OPTION GRANTS IN FISCAL YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
POTENTIAL REALIZED
INDIVIDUAL GRANTS VALUE AT ASSUMED
------------------------------------------------------------------------------------- ANNUAL RATES OF
STOCK PRICE
NUMBER OF % OF TOTAL APPRECIATION FOR
SECURITIES OPTIONS EXERCISE OPTION TERM
--------------------
UNDERLYING GRANTED TO OR BASE
OPTIONS EMPLOYEES IN PRICE EXPIRATION
NAME GRANTED (#) FISCAL YEAR ($/SHARE) DATE 5% ($) 10% ($)
------------------- -------------- --------------- ------------ -------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Gary A. Allcorn 80,000 16.7% 0.58 12/05/01 12,819 28,327
</TABLE>
The following table sets forth information concerning the value of
unexercised options held by each of the executive officers named in the Summary
Compensation Table at December 31, 1996. None of such executive officers
exercised any stock options during the year ended December 31, 1996.
OPTION VALUES AT DECEMBER 31, 1996
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING
UNEXERCISED OPTIONS VALUE OF UNEXERCISED
AT DECEMBER 31, 1996 IN-THE-MONEY OPTIONS AT
(# SHARES) DECEMBER 31, 1996 ($)(1)
------------------------------- ------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------------------------------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
David R. Little 3,200,000 -- 9,760,000 --
Jerry J. Jones 1,436,800 -- 4,439,712 --
Bryan H. Wimberly 195,200 -- 610,976 --
Gary A. Allcorn 80,000 -- 233,600 --
</TABLE>
__________
(1) Based on a price per share of $3.50, the closing sale price of the Common
Stock on December 31, 1996.
-9-
<PAGE> 13
PERFORMANCE PRESENTATION
The following performance graph compares the performance of the Common
Stock to the S&P Midcap Industrials Index and the Nasdaq Composite (US).
Information with respect to the Common Stock, the S&P Midcap Industrials Index
and the Nasdaq Composite (US) is from December 27, 1996, the date on which the
Common Stock first began public trading. The graph assumes that the value of
the investment in the Common Stock in each index was $100 at December 27, 1996,
and that all dividends were reinvested.
[GRAPH]
TOTAL RETURN ANALYSIS
<TABLE>
<CAPTION>
December 27, 1996 December 31, 1996
<S> <C> <C>
Index, Inc. $ 100.00 $ 93.33
S&P Midcap Industrials Index $ 100.00 $ 101.29
Nasdaq Composite (US) $ 100.00 $ 99.97
</TABLE>
COMPENSATION OF DIRECTORS
The Company's Bylaws provide that directors may be paid their expenses,
if any, and may be paid a fixed sum for attendance of each Board of Directors
meeting. The Company pays each non-employee director $1,000 per meeting
attended, plus expenses. During 1996, all action of the Board of Directors was
taken by consents in lieu of meetings; therefore, no amounts were paid to
directors of the Company for meeting attendance.
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<PAGE> 14
In May 1996, each of Messrs. Davis, Miller and Orr received non-qualified
stock options to purchase 16,000 shares of Common Stock at an exercise price
per share of $0.578125.
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement (the "Little
Employment Agreement"), effective July 1, 1996, with Mr. Little. The Little
Employment Agreement is for a term of three years, renewable annually for a
term to extend three years from such renewal date. The Little Employment
Agreement provides for compensation in a minimum amount of $260,000 per annum,
to be reviewed at least annually for possible increases, monthly bonuses equal
to 3% of the profit before tax of SEPCO as shown on the books and records of
SEPCO at the end of each month and other perquisites in accordance with SEPCO
policy. In the event Mr. Little terminates his employment for "Good Reason"
(as defined therein), or is terminated by the Company for other than "Good
Cause" (as defined therein), Mr. Little would receive a cash lump sum payment
equal to the sum of (i) the base salary for the remainder of the employment
period under the Little Employment Agreement, (ii) an amount equal to the sum
of the most recent 12 months of bonuses paid to him, (iii) two times the sum of
his current annual base salary plus the total of the most recent 12 months of
bonuses, (iv) all compensation previously deferred and any accrued interest
thereon, and any accrued vacation pay not yet paid by the Company and (v)
continuation of benefits under the Company's benefit plans for the current
employment period. Mr. Little is also entitled under the Little Employment
Agreement to certain gross-up payments if an excise tax is imposed pursuant to
Section 4999 of the Code, which imposes an excise tax on certain severance
payments in excess of three times an annualized compensation amount following
certain changes in control or any payment of distribution made to him.
The Company also has entered into employment agreements (each Employment
Agreement hereinafter referred to as "Employment Agreement" and the four
Employment Agreements hereinafter collectively referred to as "Employment
Agreements"), effective as of July 1, 1996, with Messrs. Jerry J. Jones, Bryan
H. Wimberly, Bob Evans and Gary A. Allcorn, (each hereinafter referred to as
"Employee"). Each Employment Agreement is for a term of one year, renewable
automatically for a one-year term. The Employment Agreements provide for (i)
annual salary ("Salary") in the amounts of $113,000 for Mr. Jones, $130,000 for
Mr. Wimberly, $108,000 for Mr. Evans and $110,000 for Mr. Allcorn, and (ii)
other perquisites in accordance with Company policy. The Employment Agreements
provide for bonuses as follows: (i) Mr. Jones is entitled to a monthly bonus of
two percent of the monthly profit before tax of the Company, excluding sales of
fixed assets and extraordinary items; (ii) Mr. Wimberly is entitled to a
monthly bonus of two percent of the monthly profit before tax of SEPCO,
excluding sales of fixed assets and extraordinary items; and (iii) Mr. Allcorn
is entitled to a quarterly bonus pursuant to the terms and conditions of
SEPCO's bonus pool. Mr. Evans is not entitled to receive a bonus.
In the event Employee terminates his employment for "Good Reason" (as
defined therein), or is terminated by the Company for other than "Cause" (as
defined therein), each Employee would receive (i) 12 monthly payments each
equal to one month of the Salary, in the case of Messrs. Jones, Wimberly and
Allcorn, and six monthly payments each equal to one month of Salary, in the
case of Mr. Evans, (ii) a termination bonus equal to (A) the previous 12
monthly bonuses, in the case of Messrs. Jones and Wimberly, (B) the previous
four quarterly bonuses, in the case of Mr. Allcorn and (C) six months of
Salary, in the case of Mr. Evans, and (iii) any other payments due through the
date of termination. In the event Employee dies, become disabled, terminates
the Employment Agreement with notice or the Employment Agreement is terminated
by the Company for Cause, Employee or Employee's estate, as
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<PAGE> 15
applicable, would receive all payments then due him under the Employment
Agreement through the date of termination.
BENEFIT PLANS
The SEPCO Industries, Inc. Employee Stock Ownership Plan
The Company maintains the ESOP for the benefit of eligible employees
pursuant to which annual contributions may be made. The amount and form of the
annual contribution is within the discretion of the Company's Board of
Directors. Such contributions are limited to a maximum of 15% of the total
compensation paid to all participants eligible to receive an allocation during
the fiscal year. The Company (or its predecessor, SEPCO) contributed $150,000
for each of the years ended December 31, 1996, 1995 and 1994. The ESOP
currently is administered by David R. Little. However, the Company is in the
process of amending the ESOP to name the Compensation Committee to serve as
administrator.
Long-Term Incentive Plan
In August 1996, the Company established a Long-Term Incentive Plan (the
"LTIP"). The LTIP provides for the grant of stock options (which may be
non-qualified stock options or incentive stock options for tax purposes), stock
appreciation rights issued independent of or in tandem with such options,
restricted stock awards and performance awards to certain key employees of the
Company and its subsidiaries. The LTIP is administered by the Compensation
Committee.
800,000 shares of Common Stock (approximately 5% of the current
outstanding shares of Common Stock) currently are available for issuance under
the LTIP. In addition, as of January 1 of each year the LTIP is in effect, if
the total number of shares of Common Stock issued and outstanding, not
including any shares issued under the LTIP, exceeds the total number of shares
of Common Stock issued and outstanding as of January 1 of the proceeding year,
the number of shares available will be increased by an amount such that the
total number of shares available for issuance under the LTIP equals 5% of the
total number of shares of Common Stock outstanding, not including any shares
issued under the LTIP. Lapsed, forfeited or canceled awards will not count
against these limits. Cash exercises of SARs and cash settlement of other
awards will also not be counted against these limits but the total number of
SARs and other awards settled in cash shall not exceed the total number of
shares authorized for issuance under the LTIP (without reduction for
issuances).
TRANSACTIONS
In December 1989, the Company restructured certain loans previously made
by the Company to David R. Little, President and Chief Executive Officer of the
Company, pursuant to which Mr. Little executed two promissory notes in the
amounts of $149,910 and $58,737, respectively, each bearing interest at 9% per
annum. The notes require monthly payments of $1,349 and $528, respectively.
The outstanding balances of such loans at December 31, 1996, were $127,814 and
$50,080, respectively.
In December 1993, the Company loaned Mr. Little approximately $210,940 to
purchase 59,800 shares of SEPCO's Class A Common Stock. The loan bore interest
at 6% per annum and provided for annual interest payments and one principal
payment upon sale of the stock which secured such loan. The loan was repaid on
August 5, 1996. SEPCO from time to time also has made non-interest bearing
advances to Mr. Little that as of December 31, 1996 totaled approximately
$330,845. The largest
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<PAGE> 16
aggregate amount of Mr. Little's indebtedness outstanding to SEPCO during the
year ended December 31, 1996 was approximately $770,000.
Mr. Allcorn, Senior Vice President/Finance of the Company, is the trustee
of three trusts for the benefit of Mr. Little's children, each of which holds
2,283,728 shares of Common Stock and 5,000 shares of Series B Preferred Stock.
Mr. Allcorn exercises sole voting and investment power over the shares held by
such trusts.
Mr. Little has personally guaranteed up to $500,000 of the obligations of
the Company under the loan agreement with its principal lender. In addition,
all of the shares of Common Stock and Series B Preferred Stock held in trust
for Mr. Little's children have been pledged to such lender to secure the
obligations of the Company under the loan agreement.
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS
Arthur Andersen LLP ("Arthur Andersen") served as the Company's principal
independent accountants for the fiscal year ended December 31, 1996 and has
been recommended by the Audit Committee to so serve for the current year.
Representatives of Arthur Andersen are expected to be present at the annual
meeting of shareholders, will have the opportunity to make a statement if they
so desire and will be available to respond to appropriate questions.
Ernst & Young L.L.P. ("Ernst & Young") served as the Company's auditors
for the fiscal years ending December 31, 1994 and 1995. On December 26, 1996,
the Board of Directors of the Company approved the recommendation of the Audit
Committee of the Company's Board of Directors not to reappoint Ernst & Young as
the Company's auditors for the fiscal year ended December 31, 1996. The Audit
Committee recommended, and the Board of Directors ratified and approved, the
appointment of Arthur Andersen as the Company's auditors for the year ended
December 31, 1996. The decision to replace Ernst & Young as the Company's
independent auditors with Arthur Andersen followed a review by the Company of
its accounting needs in light of the recent registration of its capital stock
under the Securities Act of 1933, as amended, and the Securities Exchange Act
of 1934, as amended. The Company's Audit Committee and Board of Directors also
considered proposed fee arrangements by both Ernst & Young and Arthur Andersen
and their respective expertise in the area industrial distribution, public
company reporting and mergers and acquisitions. In light of all of these
factors, the Company's Audit Committee and Board of Directors concluded that it
would be desirable for the Company to appoint Arthur Andersen as its
independent auditors for the year ended December 31, 1996.
The reports of Ernst & Young on the Company's balance sheet as of July
31, 1996 and on the financial statements of SEPCO for the years ended December
31, 1994 and 1995 did not contain an adverse opinion or a disclaimer of
opinion, and were not qualified or modified as to uncertainty, audit scope or
accounting principles.
There have been no disagreements with Ernst & Young during the two most
recent fiscal years of SEPCO, or any subsequent interim period of SEPCO or the
Company, on any matter of accounting principles or practices, financial
statement disclosure, or audit scope or procedure, which would have caused
Ernst & Young to make reference to the matter in connection with any of its
reports on the Company's financial statements and which were not resolved to
the satisfaction of Ernst & Young.
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<PAGE> 17
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended
("Section 16(a)"), requires the Company's officers, directors and persons who
own more than 10% of a registered class of the Company's equity securities to
file statements on Form 3, Form 4, and Form 5 of ownership and changes in
ownership with the Securities and Exchange Commission. Officers, directors and
greater than 10% stockholders are required by the regulation to furnish the
Company with copies of all Section 16(a) reports which they file.
Based solely on a review of reports on Form 3 and 4 and amendments
thereto furnished to the Company during its most recent fiscal year, reports on
Form 5 and amendments thereto furnished to the Company with respect to its most
recent fiscal year and written representations from reporting persons that no
report on Form 5 was required, the Company believes that, no person who, at any
time during 1996, was subject to the reporting requirements of Section 16(a)
with respect to the Company failed to meet such requirements on a timely basis.
PROPOSALS FOR NEXT ANNUAL MEETING
Any proposals of shareholders intended to be presented at the annual
meeting of shareholders of the Company to be held in 1998 must be received by
the Company at its principal executive offices, 580 Westlake Park Boulevard,
Suite 1100, Houston, Texas 77079, no later than January 23, 1998, in order to
be included in the proxy statement and form of proxy relating to that meeting.
OTHER MATTERS
The management of the Company knows of no other matters that may come
before the meeting. However, if any matters other than those referred to above
should properly come before the meeting, it is the intention of the persons
named in the enclosed proxy to vote such proxy in accordance with their best
judgment.
The cost of solicitation of proxies in the accompanying form will be paid
by the Company. In addition to solicitation by use of the mails, certain
directors, officers or employees of the Company may solicit the return of
proxies by telephone, telegram or personal interview.
-14-
<PAGE> 18
DXP ENTERPRISES, INC.
(formerly known as Index, Inc.)
PROXY - ANNUAL MEETING OF SHAREHOLDERS
June 17, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned holder of Common Stock of DXP Enterprises, Inc.
(formerly known as Index, Inc.) ("DXP") hereby appoints David R. Little and
Gary A. Allcorn, or either of them, proxies of the undersigned with full
power of substitution, to vote at the Annual Meeting of Shareholders of DXP
to be held on Tuesday, June 17, 1997, at 10:00 a.m., Houston time, at the
offices of SEPCO Industries, Inc., 6500 Brittmore, Houston, Texas 77041,
and at any adjournment or postponement thereof, the number of votes that the
undersigned would be entitled to cast if personally present.
PLEASE MARK, SIGN, DATE AND RETURN IN THE ENCLOSED ENVELOPE, WHICH REQUIRES
NO POSTAGE IF MAILED IN THE UNITED STATES.
(CONTINUED AND TO BE SIGNED ON OTHER SIDE)
<PAGE> 19
(1) ELECTION OF DIRECTORS:
FOR all of the nominees listed below [ ]
(except as indicated to the contrary below)
WITHHOLD AUTHORITY [ ]
to vote for election of directors
NOMINEES: David R. Little, Jerry J. Jones, Bryan H. Wimberly, Cletus
Davis, Kenneth H. Miller and Thomas V. Orr.
(Instruction: To withhold authority to vote for any individual nominee,
write that nominee's name in the space provided below.)
- --------------------------------------------------------------------------------
(2) In their discretion, the above-named proxies are authorized to vote
upon such other business as may properly come before the meeting or
any adjournment thereof and upon matters incident to the conduct of
the meeting.
This proxy when properly executed will be voted in the manner directed herein
by the undersigned shareholder. If no direction is made, this proxy will be
voted FOR the election of the director nominees named in Item 1, or if any one
or more of the nominees becomes unavailable, FOR another nominee or other
nominees to be selected by the Board of Directors.
------------------------------------
------------------------------------
Signature of Shareholder(s)
Please sign your name exactly as it
appears hereon. Joint owners
must each sign. When signing as
attorney, executor, administrator,
trustee or guardian, please give your
full title as it appears hereon.
Date , 1997.
<PAGE> 20
DXP ENTERPRISES, INC.
(formerly known as Index, Inc.)
PROXY - ANNUAL MEETING OF SHAREHOLDERS
June 17, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned holder of Preferred Stock of DXP Enterprises, Inc.
(formerly known as Index, Inc.) ("DXP") hereby appoints David R. Little and
Gary A. Allcorn, or either of them, proxies of the undersigned with full power
of substitution, to vote at the Annual Meeting of Shareholders of DXP to be
held on Tuesday, June 17, 1997, at 10:00 a.m., Houston time, at the offices of
SEPCO Industries, Inc., 6500 Brittmore, Houston, Texas 77041, and at any
adjournment or postponement thereof, the number of votes that the undersigned
would be entitled to cast if personally present.
PLEASE MARK, SIGN, DATE AND RETURN IN THE ENCLOSED ENVELOPE, WHICH REQUIRES
NO POSTAGE IF MAILED IN THE UNITED STATES.
(CONTINUED AND TO BE SIGNED ON OTHER SIDE)
<PAGE> 21
(1) ELECTION OF DIRECTORS:
FOR all of the nominees listed below [ ]
(except as indicated to the contrary below)
WITHHOLD AUTHORITY [ ]
to vote for election of directors
NOMINEES: David R. Little, Jerry J. Jones, Bryan H. Wimberly, Cletus
Davis, Kenneth H. Miller and Thomas V. Orr.
(Instruction: To withhold authority to vote for any individual nominee,
write that nominee's name in the space provided below.)
- --------------------------------------------------------------------------------
(2) In their discretion, the above-named proxies are authorized to vote
upon such other business as may properly come before the meeting or
any adjournment thereof and upon matters incident to the conduct of
the meeting.
This proxy when properly executed will be voted in the manner directed herein
by the undersigned shareholder. If no direction is made, this proxy will be
voted FOR the election of the director nominees named in Item 1, or if any one
or more of the nominees becomes unavailable, FOR another nominee or other
nominees to be selected by the Board of Directors.
------------------------------------
------------------------------------
Signature of Shareholder(s)
Please sign your name exactly as it
appears hereon. Joint owners
must each sign. When signing as
attorney, executor, administrator,
trustee or guardian, please give your
full title as it appears hereon.
Date , 1997.
