<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 sec. 240.14a-11(c) or sec. 240.14a-12
DXP ENTERPRISES, INC.
- --------------------------------------------------------------------------------
(Names of Registrant as Specified In Its Charter)
N/A
- --------------------------------------------------------------------------------
(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
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(4) Proposed maximum aggregate value of the transaction: N/A
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(5) Total fee paid: N/A
- --------------------------------------------------------------------------------
[ ] Fee previously paid with preliminary materials: N/A
[ ] 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
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(4) Date Filed: N/A
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<PAGE> 2
DXP ENTERPRISES, INC.
7272 PINEMONT
HOUSTON, TEXAS 77040
713/996-4700
April 30, 1999
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders of
DXP Enterprises, Inc. (the "Company") to be held at 9:00 a.m., Central Daylight
Time, on Tuesday, June 8, 1999, at the offices of the Company, 7272 Pinemont,
Houston, Texas 77040.
This year you will be asked to consider three proposals. The first proposal
concerns the election of directors, the second proposal concerns the approval of
an Employee Stock Option Plan and the third proposal relates to the approval of
a Non-Employee Director Stock Option Plan. These matters are explained more
fully in the attached proxy statement, which you are encouraged to read.
The Board of Directors recommends that you approve the proposals 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
Chairman of the Board, President and
Chief Executive Officer
<PAGE> 3
DXP ENTERPRISES, INC.
7272 PINEMONT
HOUSTON, TEXAS 77040
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 8, 1999
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 8, 1999, at 9:00 a.m., Central Daylight Time, at the offices of the
Company, 7272 Pinemont, Houston, Texas 77040, for the following purposes:
(1) To elect five directors of the Company to hold office until the
next Annual Meeting of Shareholders or until their respective successors
are duly elected and qualified;
(2) To vote on a proposal to approve the DXP Enterprises, Inc. 1999
Employee Stock Option Plan;
(3) To vote on a proposal to approve the DXP Enterprises, Inc. 1999
Non-Employee Director Stock Option Plan; and
(4) 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 28, 1999,
will be entitled to vote at the meeting.
By Order of the Board of Directors,
/s/ GARY A. ALLCORN
GARY A. ALLCORN
Secretary
April 30, 1999
<PAGE> 4
DXP ENTERPRISES, INC.
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 8, 1999
This Proxy Statement is furnished to the shareholders of DXP Enterprises,
Inc. (the "Company"), 7272 Pinemont, Houston, Texas 77040 (Tel. No.
713/996-4700), 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 8, 1999, at 9:00 a.m., Central Daylight Time, at the
offices of the Company, 7272 Pinemont, Houston, Texas 77040, 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 and for approval of
the DXP Enterprises, Inc. 1999 Employee Stock Option Plan (the "Employee Stock
Option Plan") and the DXP Enterprises, Inc. 1999 Non-Employee Director Stock
Option Plan (the "Director Stock Option Plan"). 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 April 30,
1999, to shareholders of record on April 28, 1999 (the "Record Date").
At the close of business on the Record Date, there were outstanding and
entitled to vote 4,036,010 shares of Common Stock, 2,992 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.
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 voting together with the holders
of Common Stock as a single class. 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.
MATTERS TO COME BEFORE THE MEETING
PROPOSAL 1: ELECTION OF DIRECTORS
At the meeting, five directors are to be elected for a one year term
expiring at the 2000 Annual Meeting of Shareholders.
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
five 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
<PAGE> 5
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 five
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>
DIRECTOR
NOMINEE AGE POSITION WITH THE COMPANY SINCE
- ------- --- ------------------------- --------
<S> <C> <C> <C>
David R. Little........................... 47 Chairman of the Board, President 1996
and Chief Executive Officer
Jerry J. Jones............................ 60 Senior Vice President/Operations 1996
and Director
Cletus Davis.............................. 69 Director 1996
Kenneth H. Miller......................... 60 Director 1996
Thomas V. Orr............................. 48 Director 1996
</TABLE>
INFORMATION REGARDING NOMINEES AND DIRECTORS
Background of Nominees for Director
David R. Little. Mr. Little has served as Chairman of the Board, President
and Chief Executive Officer of the Company since its organization in 1996 and
also has held these positions with SEPCO Industries, Inc. ("SEPCO"), a wholly
owned subsidiary of the Company, since he acquired a controlling interest in
SEPCO in 1986. Mr. Little has been employed by SEPCO since 1975 in various
capacities, including Staff Accountant, Controller, Vice President/Finance and
President.
Jerry J. Jones. Mr. Jones has served as a Director since July 1996 and as
Senior Vice President/ Operations since September 1997. From August 1996 to
September 1997, Mr. Jones served as Senior Vice President/Corporate Development.
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.
Cletus Davis. Mr. Davis has served as a Director of the Company since
August 1996. Mr. Davis also has served as a Director of SEPCO since May 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 also has served as a Director of SEPCO since May 1996. Mr. Orr has
been Executive Managing Director of Morgan Keegan & Company, Inc. ("Morgan
Keegan"), an investment banking firm, since August 1997. From February 1995 to
July 1997 he was a Senior Vice President and Divisional Manager of Morgan
Keegan. 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.
2
<PAGE> 6
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, 1998, the Board of
Directors and the Compensation Committee met one time, and the Audit Committee
met two times. No director attended less than 75% of the meetings of the Board
of Directors and 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.
PROPOSAL 2: APPROVAL OF THE EMPLOYEE STOCK OPTION PLAN
General
At the meeting, the shareholders of the Company will be asked to vote on a
proposal to approve the Employee Stock Option Plan. Approval of the Employee
Stock Option Plan requires the affirmative vote of the holders of a majority of
the votes represented by the 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. The text of the proposed Employee Stock
Option Plan is set forth in full in Annex A to this proxy statement.
Reasons for the Employee Stock Option Plan
The Board of Directors believes that it is in the best interest of the
Company to encourage ownership of the Company's stock by its employees and
consultants. Providing an opportunity to hold an equity interest in the Company
assists the Company in attracting and retaining key management and consulting
personnel, which is critical to the Company's long-term success. The Company
anticipates that the number of shares of Common Stock available for incentive
stock options under its Long-Term Incentive Plan will be depleted during 1999,
and the Board of Directors of the Company has determined that, to continue to
provide performance-based incentive to the Company's management and key
employees, it is in the best interest of the Company to adopt the Employee Stock
Option Plan.
The Board of Directors has approved the Employee Stock Option Plan and has
directed that the same be presented to the shareholders for their approval.
Certain Considerations
Shareholders should note that certain disadvantages may result from the
adoption of the Employee Stock Option Plan, including a reduction in their
interest of the Company with respect to earnings per share, voting, liquidation
value and book and market value per share if options to acquire shares of Common
Stock are granted and subsequently exercised.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE EMPLOYEE
STOCK OPTION PLAN. Approval of the Employee Stock Option Plan requires the
affirmative vote of the holders of a majority of the votes represented by the
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.
If not otherwise provided, proxies will be voted "FOR" approval of the Employee
Stock Option Plan. Abstentions and broker non-votes will be counted as shares
entitled to vote on the proposal, but will not be treated as either a vote for
or against the proposal. Therefore, an abstention or broker non-vote has the
same effect as a vote against the proposal.
3
<PAGE> 7
PROPOSAL 3: APPROVAL OF THE DIRECTOR STOCK OPTION PLAN
General
At the meeting, the shareholders of the Company will be asked to vote on a
proposal to approve the Director Stock Option Plan. Approval of the Director
Stock Option Plan requires the affirmative vote of the holders of a majority of
the votes represented by the 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. The text of the proposed Director Stock
Option Plan is set forth in full in Annex B to this proxy statement. The
Director Stock Option Plan will (i) provide for the grant of options to purchase
1,000 shares of Common Stock to each existing non-employee director who has
served since September 1, 1998, (ii) provide for the grant of options to
purchase 5,000 shares of Common Stock to any new non-employee director on the
date of his or her election and (iii) provide for the grant of options annually
to purchase 1,000 shares of Common Stock to each non-employee director on July 1
of each year, beginning July 1, 1999.
Reasons for the Director Stock Option Plan
The Board of Directors believes that it is in the best interest of the
Company to attract and retain the services of experienced and knowledgeable
non-employee directors of the Company and to provide an incentive for such
directors to increase their proprietary interests in the Company's long-term
success and progress. In furtherance thereof, the Board of Directors has adopted
the Director Stock Option Plan and has directed that the same be presented to
the shareholders for their approval.
Certain Considerations
Shareholders should note that certain disadvantages may result from the
adoption of the Director Stock Option Plan, including a reduction in their
interest of the Company with respect to earnings per share, voting, liquidation
value and book and market value per share if options to acquire shares of Common
Stock are granted and subsequently exercised.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE DIRECTOR
STOCK OPTION PLAN. Approval of the Director Stock Option Plan requires the
affirmative vote of the holders of a majority of the 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. If not otherwise
provided, proxies will be voted "FOR" approval of the Director Stock Option
Plan. Abstentions and broker non-votes will be counted as shares entitled to
vote on the proposal, but will not be treated as either a vote for or against
the proposal. Therefore, an abstention or broker non-vote has the same effect as
a vote against the proposal.
4
<PAGE> 8
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of April 15, 1999, 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.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP(2)
-------------------------------------------------------
SERIES A SERIES B
NAME AND ADDRESS COMMON PREFERRED PREFERRED
OF BENEFICIAL OWNER(1) STOCK % STOCK % STOCK %
- ---------------------- --------- ---- --------- ---- --------- -----
<S> <C> <C> <C> <C> <C> <C>
Gary A. Allcorn(3)......................... 2,247,686 48.9 -- -- 15,000 100.0
David R. Little(4)......................... 1,061,113 21.5 -- -- -- --
Bryan H. Wimberly(5)....................... 418,885 10.0 -- -- -- --
Jerry J. Jones(6).......................... 360,348 8.0 -- -- -- --
DXP Enterprises, Inc. Employee
Stock Ownership Plan..................... 938,021 22.6 1,870 62.5 -- --
c/o River Oaks Trust Company, Trustee
2001 Kirby
Houston, Texas 77210
J. Michael Wappler(7)...................... 220,414 5.3 -- -- -- --
7272 Pinemont
Houston, Texas 77040
Donald E. Tefertiller(8)................... 46,765 1.1 374 12.5 -- --
4425 Congressional Drive
Corpus Christi, Texas 78413
Norman O. Schenk(9)........................ 40,217 1.0 374 12.5 -- --
4415 Waynesboro
Houston, Texas 77035
Charles E. Jacob(10)....................... 24,103 * 187 6.3 -- --
P. O. Box 57
Maypearl, Texas 76064
Ernest E. Herbert(11)...................... 23,857 * 187 6.3 -- --
57 Coronado Avenue
Kenner, Louisiana 70065
Thomas V. Orr, Director(12)................ 6,500 * -- -- -- --
Kenneth H. Miller, Director(13)............ 6,500 * -- -- -- --
Cletus Davis, Director(14)................. 6,500 * -- -- -- --
All executive officers, directors and
nominees as a group (7 persons)(15)...... 4,332,946 74.4 -- -- 15,000 100.0
</TABLE>
- ---------------
* Less than 1%.
(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.
(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 1,712,796 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 be the
5
<PAGE> 9
beneficial owner of such shares and the 420,000 shares of Common Stock
issuable upon conversion of the 15,000 shares of Series B Preferred Stock
held by the Trusts. Also includes 20,000 shares of Common Stock issuable
upon exercise of an option and 7,690 shares of Common Stock held of record
by the Company's Employee Stock Ownership Plan (the "ESOP") for Mr.
Allcorn's account.
(4) Includes 800,000 shares of Common Stock issuable to Mr. Little upon
exercise of an option and 41,313 shares of Common Stock held of record by
the ESOP for Mr. Little's account.
(5) Includes 50,400 shares of Common Stock owned of record by a trust of which
Mr. Wimberly is one-third beneficiary and 48,800 shares of Common Stock
issuable upon exercise of an option granted to Mr. Wimberly. Also includes
9,825 shares of Common Stock held by the ESOP for Mr. Wimberly's account.
(6) Includes 359,200 shares of Common Stock issuable upon exercise of an option
granted to Mr. Jones and 1,148 shares of Common Stock held by the ESOP for
Mr. Jones's account.
(7) Includes 8,064 shares of Common Stock held of record by the ESOP for Mr.
Wappler's account.
(8) Includes 4,000 shares of Common Stock issuable upon exercise of an option
and 11,965 shares of Common Stock held by the ESOP for Mr. Tefertiller's
account.
(9) Includes 9,417 shares of Common Stock held of record by the ESOP for Mr.
Schenk's account.
(10) Includes 8,503 shares of Common Stock held of record by the ESOP for Mr.
Jacob's account.
(11) Includes 12,107 shares of Common Stock held of record by the ESOP for Mr.
Herbert's account.
(12) Includes 6,500 shares of Common Stock issuable upon exercise of options.
(13) Includes 6,500 shares of Common Stock issuable upon exercise of options.
(14) Includes 6,500 shares of Common Stock issuable upon exercise of options.
(15) See notes (3) through (6) and (12) through (14).
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
FIRST
NAME OFFICES HELD ELECTION AGE
- ---- -------------------------------------- -------------- ---
<S> <C> <C> <C>
David R. Little............. Chairman of the Board, President and July 1996 47
Chief Executive Officer
Jerry J. Jones.............. Senior Vice President/Operations August 1996 60
Bryan H. Wimberly........... Senior Vice President/Corporate August 1996 59
Development
Gary A. Allcorn............. Senior Vice President/Finance, Chief July 1996 46
Financial Officer and Secretary
Richard A. Fortune.......... Senior Vice President/Information October 1998 52
Technology
Dan L. Rice................. Senior Vice President/Marketing September 1998 40
</TABLE>
For further information regarding the backgrounds of Mr. Little and Mr.
Jones, see "Background of Nominees for Director".
Bryan H. Wimberly. Mr. Wimberly has served as Senior Vice
President/Corporate Development since September 1997. Mr. Wimberly also has
served as a Director of the Company since July 1996. Mr. Wimberly has declined
to stand for re-election to the Board of Directors of the Company. From August
1996 to September 1997, he served as Senior Vice President/Pump, Bearing, Power
Transmission and Valve Automation Group. Mr. Wimberly also has served as a
Director of SEPCO since 1987 and the President and
6
<PAGE> 10
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.
Gary A. Allcorn. Mr. Allcorn has served as Senior Vice President/Finance of
the Company since August 1996 and was appointed Chief Financial Officer in
November 1997. Mr. Allcorn also has served as Secretary of the Company since
July 1996. Mr. Allcorn also has held these positions 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.
Richard A. Fortune. Mr. Fortune was elected Senior Vice
President/Information Technology in October 1998. Mr. Fortune served as project
manager for Wang Global Systems, Inc., a high technology services company, from
March 1993 to October 1998.
Dan L. Rice. Mr. Rice was elected Senior Vice President/Marketing in
September 1998 after having served as the head of DXP's marketing since July
1998. From June 1996 through June 1998, Mr. Rice served as general manager of
Rockwell Automation de Mexico, S.A. de C.V., a diversified electronics
manufacturing company. Prior to that, from March 1992 to May 1996, he was global
account director for Rockwell Automation, Inc., U.S.A., a diversified
electronics manufacturing company.
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. 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 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 were established by SEPCO prior to
the Company becoming public and 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
7
<PAGE> 11
Executive Officer. The Committee believes executive base salaries and incentive
compensation for 1998 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 20% to 40% 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.
Chief Executive Officer's 1998 Compensation
The compensation paid to Mr. Little, the Company's Chief Executive Officer,
in 1998 consisted of base salary and incentive compensation and was established
pursuant to his employment agreement with SEPCO which reflects the compensation
policies described above. In 1998, Mr. Little received $275,917 in base pay and
$151,625 in incentive compensation pursuant to his employment agreement.
SUMMARY OF COMPENSATION
Set forth in the following table is certain compensation information
concerning the Chief Executive Officer and each of the Company's other most
highly compensated executive officers as to whom the total annual salary and
bonus for the fiscal year ended December 31, 1998, exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------------- ------------
OTHER SECURITIES
ANNUAL UNDERLYING
SALARY BONUS COMPENSATION OPTIONS
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) (#)
- --------------------------- ---- ------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
David R. Little.......................... 1998 275,917 151,625 -- --
President and Chief Executive Officer 1997 279,277 112,849 -- --
1996 263,714 93,454 -- --
Jerry J. Jones........................... 1998 139,724 101,083 -- --
Senior Vice President/Operations 1997 131,672 75,035 -- --
1996 116,264 62,516 -- --
Bryan H. Wimberly........................ 1998 137,726 32,024 -- --
Senior Vice President/Corporate 1997 142,567 94,227 -- --
Development 1996 136,031 65,620 -- --
Gary A. Allcorn.......................... 1998 123,617 50,542 -- --
Senior Vice President/Finance 1997 123,066 30,023 -- --
and Chief Financial Officer 1996 114,161 10,741 -- 20,000
</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
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, 1998. None of such executive officers
exercised any stock options during the year ended December 31, 1998.
OPTION VALUES AT DECEMBER 31, 1998
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING
UNEXERCISED OPTIONS VALUE OF UNEXERCISED
AT DECEMBER 31, 1998 IN-THE-MONEY OPTIONS AT
(# SHARES) DECEMBER 31, 1998($)(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
David R. Little.................................. 800,000 -- $3,960,000 --
Jerry J. Jones................................... 359,200 -- 1,835,512 --
Bryan H. Wimberly................................ 48,800 -- 257,176 --
Gary A. Allcorn.................................. 20,000 -- 53,250 --
</TABLE>
- ---------------
(1) Based on a price per share of $6.75, the closing sale price of the Common
Stock on December 31, 1998.
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.
<TABLE>
<CAPTION>
S&P Midcap Nasdaq
Measurement Period DXP Industrials Composite
(Fiscal Year Covered) Enterprises Index (US)
<S> <C> <C> <C>
12/27/96 100.00 100.00 100.00
12/31/96 93.33 101.29 99.97
12/31/97 76.66 125.85 122.11
12/31/98 45.00 153.93 171.19
</TABLE>
- ---------------
Source: Carl Thompson Associates, www.ctaonline.com, (303)494-5472. Data from
Bloomberg Financial Markets.
9
<PAGE> 13
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 committee or
board meeting attended, not to exceed $1,500 in the event two meetings occur on
the same day. In 1998, Messrs. Davis, Miller and Orr each received $3,000 for
attendance at board and committee meetings.
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement (the "Little
Employment Agreement"), effective July 1, 1996, as amended, 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. As amended on May 21, 1998,
the Little Employment Agreement will terminate on June 30, 1998 if Mr. Little
enters into a new agreement with the Company, as approved by the Compensation
Committee, and will not be renewable automatically. If Mr. Little has not
entered into a new employment agreement with the Company by June 30, 1998, the
Little Employment Agreement will terminate June 30, 2001.
The Company also has entered into employment agreements (each Employment
Agreement hereinafter referred to as an "Employment Agreement" and the four
Employment Agreements hereinafter collectively referred to as "Employment
Agreements"), effective as of July 1, 1996, as amended, with Messrs. Jerry J.
Jones, Bryan H. Wimberly 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 $130,001 for Mr. Jones, $130,000 for
Mr. Wimberly and $113,100 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 monthly
bonus of one percent of the monthly profit before tax of the Company, excluding
sales of fixed assets and extraordinary items. The Employment Agreements were
amended on May 21, 1998 to provide that the aggregate of the monthly bonuses in
any one year may not exceed twice the annual base salary paid to the Employee.
The May 1998 amendment also provides that the Employment Agreements will not be
renewed on July 1, 1998 if Messrs. Jones, Wimberly and Allcorn have entered into
new employment agreements with the Company, as approved by the Compensation
Committee.
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), such Employee would receive (i) 12 monthly payments each equal
to one month of the Salary, (ii) a termination bonus equal to the previous 12
monthly bonuses 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
10
<PAGE> 14
Agreement is terminated by the Company for Cause, Employee or Employee's estate,
as applicable, would receive all payments then due him under the Employment
Agreement through the date of termination.
BENEFIT PLANS
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 fiscal years of the ESOP ending on December 31 of 1998, 1997 and
1996. The ESOP currently is administered by the Company's Compensation
Committee.
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.
At December 31, 1998, 27,500 shares of Common Stock (approximately 1% of
the current outstanding shares of Common Stock) were available for issuance
under the LTIP and options granted under the LTIP to purchase 172,500 shares of
Common Stock were outstanding. 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
preceding 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, Chairman of the Board, 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,
1998, were $127,814 and $50,080, respectively.
The Company from time to time has made non-interest bearing advances to Mr.
Little that as of December 31, 1998 totaled approximately $420,439. The Company
and Mr. Little have agreed that the amount of non-interest bearing advances made
to Mr. Little will not exceed the amount outstanding at December 31, 1998. The
largest aggregate amount of Mr. Little's indebtedness outstanding to the Company
during the year ended December 31, 1998 was approximately $420,439.
In November 1998, the Company loaned Gary Allcorn, Senior Vice
President/Finance and Chief Financial Officer, $17,500. This loan bears interest
at an annual rate equal to 8% and matures in November 1999.
Mr. Allcorn, Senior Vice President/Finance and Chief Financial Officer of
the Company, is the trustee of three trusts for the benefit of Mr. Little's
children, each of which holds 570,932 shares of Common Stock and
11
<PAGE> 15
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.
DESCRIPTION OF PROPOSED STOCK OPTION PLANS
Pursuant to applicable federal securities laws, the Company is required to
furnish to its shareholders in this proxy statement certain information with
respect to the Employee Stock Option Plan and the Director Stock Option Plan.
For information concerning these plans, see "Proposal 2: Approval of the
Employee Stock Option Plan", "Proposal 3: Approval of the Director Stock Option
Plan" and the summaries set forth below.
The following summaries do not purport to be complete summaries of the
Company's stock option plans and are qualified in their entirety by reference to
the plans.
SUMMARY OF THE EMPLOYEE STOCK OPTION PLAN
The Board of Directors adopted the Employee Stock Option Plan on April 19,
1999, subject to approval by the shareholders of the Company. A complete copy of
the Employee Stock Option Plan is attached to this proxy statement as Annex A.
The following description of the Employee Stock Option Plan is qualified in its
entirety by reference to Annex A, which is incorporated herein by reference as
if fully set forth herein. The Employee Stock Option Plan authorizes a committee
of the Board of Directors to issue options intended to qualify as incentive
stock options ("ISOs"), as defined in Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code"), and stock options that are not intended to
conform to the requirements of Section 422 of the Code ("Non-ISOs"). Under the
terms of the Employee Stock Option Plan, the exercise price of each ISO cannot
be less than 100% of the fair market value of the Common Stock at the time of
grant, and, in the case of a grant to a 10% shareholder, the exercise price may
not be less than 110% of the fair market value on the date of grant. The
exercise price of each Non-ISO may not be less than 100% of the fair market
value of the Common Stock on the date of grant. Options granted under the
Employee Stock Option Plan may not be exercised after the tenth anniversary (or
the fifth anniversary in the case of an option granted to a 10% shareholder) of
their grant. Payments by option holders upon exercise of an option may be made
by delivering cash. The Employee Stock Option Plan currently authorizes: (i)
options to acquire up to an aggregate of 500,000 shares of Common Stock to be
granted; (ii) grants of ISOs to eligible employees and grants of Non-ISOs to any
individual with substantial responsibility for the Company's management and
growth, as determined by a committee of the Board of Directors; (iii)
adjustments to the number and class of shares outstanding pursuant to granted
options and reserved under the Employee Stock Option Plan in the event of a
capital adjustment; (iv) an opportunity for outstanding options to be exercised
subsequent to a merger or disposition of all of the Company's assets and for the
optionee to receive shares to which he would have been entitled prior to such
merger or disposition; and (v) grants of options in substitution for options
held by employees of other corporations who are about to become Company
employees or whose employer is about to become a parent or subsidiary of the
Company. The Company currently has approximately 675 full-time employees,
including 6 executive officers, each of whom may be eligible to receive grants
under the Employee Stock Option Plan. Other persons with substantial
responsibility for the Company's management and growth may be eligible to
receive grants under the Employee Stock Option Plan at the discretion of a
committee of the Board of Directors.
Federal Tax Consequences
Options granted under the Employee Stock Option Plan may be either ISOs
which satisfy the requirements of Section 422 of the Code or Non-ISOs that are
not intended to meet these requirements. The federal income tax treatment for
the two types of options differs as follows.
12
<PAGE> 16
ISOs. In general, no tax consequences should result from the grant to or
exercise by an employee of an ISO under the Employee Stock Option Plan. The
optionee will, however, recognize taxable income in the year in which the
purchased shares are sold or otherwise made the subject of a disposition.
For federal tax purposes, dispositions are either qualifying or
disqualifying. An optionee makes a qualifying disposition of the purchased
shares if he sells or otherwise disposes of the shares after holding them for
more than two years after the date the option was granted and more than one year
after the exercise date. If the optionee fails to satisfy either of these two
holding periods prior to the sale or other disposition, a disqualifying
disposition will result.
Upon a qualifying disposition of the shares, the optionee will recognize
long-term capital gain in an amount equal to the excess of (i) the amount
realized upon the sale or other disposition of the purchased shares over (ii)
the exercise price paid for such shares. If there is a disqualifying disposition
of the shares, the excess of (x) the fair market value of those shares on the
date the option was exercised over (y) the exercise price paid for the shares
generally will be taxable as ordinary income. Any additional gain recognized
upon the disposition will be a capital gain. If, however, the disqualifying
disposition is a sale or exchange with respect to which a loss (if sustained)
would be recognized, the amount of ordinary income realized by the optionee
cannot exceed the amount realized on the sale or exchange over the exercise
price paid for the shares.
If the optionee makes a disqualifying disposition of the purchased shares,
the Company will be entitled to an income tax deduction for the taxable year in
which the disposition occurs, equal to the excess of (i) the fair market value
of such shares on the date the option was exercised over (ii) the exercise price
paid for the shares. In no other instance will the Company be allowed a
deduction with respect to the optionee's disposition of the purchased shares.
Non-ISOs. No taxable income is recognized by an optionee upon the grant of
a Non-ISO. The optionee will generally recognize ordinary income in the year in
which the option is exercised, equal to the excess of the fair market value of
the purchased shares on the date of exercise over the exercise price paid for
the shares. The Company is entitled to a deduction in the same amount as the
income recognized by the optionee.
SUMMARY OF THE DIRECTOR STOCK OPTION PLAN
The Board of Directors adopted the Director Stock Option Plan on April 19,
1999, subject to approval by the shareholders of the Company. The Director Stock
Option Plan provides for the automatic grant of stock options to non-employee
directors. The Company currently has three non-employee directors, each of whom
is eligible to receive grants under the Director Stock Option Plan. The purposes
of the Director Stock Option Plan are to attract and retain the services of
experienced and knowledgeable non-employee directors of the Company and to
increase their proprietary interests in the Company's long-term success and
progress. A committee designated by the Board of Directors shall administer the
Director Stock Option Plan. A complete copy of the Director Stock Option Plan is
attached to this proxy statement as Annex B. The following description of the
Director Stock Option Plan is qualified in its entirety by reference to Annex B,
which is incorporated herein by reference as if fully set forth herein.
Under the Director Stock Option Plan, an aggregate of 200,000 shares of
Common Stock have been authorized and reserved for issuance to non-employee
directors. The aggregate number of shares of Common Stock for which options may
be granted under the Director Stock Option Plan may be adjusted based on certain
anti-dilution provisions contained in the Director Stock Option Plan. The
Director Stock Option Plan will (i) provide for the grant of options to purchase
1,000 shares of Common Stock to each existing non-employee director who has
served since September 1, 1998, (ii) provide for the grant of options to
purchase 5,000 shares of Common Stock to any new non-employee director on the
date of his or her election and (iii) provide for the grant of options annually
to purchase 1,000 shares of Common Stock to each non-employee director on July 1
of each year, beginning July 1, 1999 ("Automatic Options"). Under the terms of
the Director Stock Option Plan, the exercise price of each option will be the
closing sale price of the Common Stock on the date of the grant. Each stock
option granted to a non-employee director will terminate ten years after the
date the option is granted or, if earlier, on the last day of the three-year
period commencing on the date the optionee ceases to be a director for any
reason other than death, retirement (after completing six full
13
<PAGE> 17
terms or six years of service as a director of the Company) or disability. If an
optionee ceases to be a director of the Company for any reason other than his
death, disability or retirement, his option will not continue to vest after he
is no longer a director of the Company. If an optionee ceases to be a director
of the Company due to his death, disability or retirement, his option will
continue to vest after his cessation of service as a director of the Company
until the option expires ten years after the grant of the option. Automatic
Options are fully vested and exercisable when they are granted. Options other
than Automatic Options vest and are exercisable in one-third annual increments
commencing on the first anniversaries of when they are granted.
NEW PLAN BENEFITS
The following table sets forth information concerning the determinable
benefits and amounts that have been received by or allocated to the individuals
and groups identified below under the Director Stock Option Plan.
<TABLE>
<CAPTION>
NAME AND POSITION PLAN NAME DOLLAR VALUE($) NUMBER OF OPTIONS
- ----------------- --------- --------------- -----------------
<S> <C> <C> <C>
Executive Group............................ (1) (2) --
Non-Executive Director Group............... (1) (2) 6,000(3)
</TABLE>
- ---------------
(1) 1999 Non-Employee Director Stock Option Plan.
(2) The actual dollar value, if any, a person may realize will depend on the
excess of the per share price of the Common Stock over the per share
exercise price on the date the option is exercised. Each option granted
under the Director Stock Option Plan will have an exercise price equal to
the fair market value of the Common Stock on the date of grant.
(3) Each non-employee director will be granted 1,000 options to purchase Common
Stock upon approval of the Director Stock Option Plan and an additional
1,000 options to purchase Common Stock on July 1, 1999 pursuant to the terms
of the Director Stock Option Plan.
Federal Tax Consequences
The grant of non-qualified stock options under the Director Stock Option
Plan will not result in the recognition of any taxable income by the director. A
director will recognize ordinary income in the year in which the option is
exercised equal to the fair market value of the purchased shares on the date of
exercise over the exercise price paid for the shares. The Company is entitled to
a deduction equal to the amount recognized as income by the director on the
exercise of a non-qualified stock option.
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS
Arthur Andersen LLP ("Arthur Andersen") served as the Company's principal
independent accountants for the fiscal years ending December 31, 1996, 1997 and
1998 and has been recommended by the Audit Committee to serve 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.
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
14
<PAGE> 18
Form 5 was required, the Company believes that, except as set forth below, all
filing requirements were met during 1998. The Form 3, reporting initial stock
ownership, filed for each of Michael J. Wappler, David C. Vinson, Dan L. Rice,
Jerry L. Owen, James M. Ewan, and Richard A. Fortune was not filed within the
time period set forth in the instructions to Form 3. Each of Messrs. Wappler,
Vinson, Rice, Owen and Ewan did not file a Form 3 by September 25, 1998 as
required. A Form 3 was filed on February 15, 1999 for each of Messrs. Wappler,
Vinson, Rice, Owen and Ewan. Mr. Fortune did not file a Form 3 by October 15,
1998 as required. A Form 3 for Mr. Fortune was filed on February 16, 1999.
PROPOSALS FOR NEXT ANNUAL MEETING
Any proposals of shareholders intended to be included in the Company's
proxy statement for the 2000 Annual Meeting of Shareholders must be received by
the Company at its principal executive offices, 7272 Pinemont, Houston, Texas
77040, no later than January 1, 2000, in order to be included in the proxy
statement and form of proxy relating to that meeting.
For any proposal of a shareholder intended to be presented at the 2000
Annual Meeting of Shareholders but not included in the Company's proxy statement
for such meeting, the shareholder must provide notice to the Company of the
proposal no later than March 16, 2000. These requirements are separate and apart
from and in addition to the requirements of federal securities laws with which a
shareholder must comply to have a shareholder proposal included in the Company's
Proxy Statement under Rule 14a-8 of the Securities Exchange Act of 1934.
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.
15
<PAGE> 19
ANNEX A
DXP ENTERPRISES, INC.
1999 EMPLOYEE STOCK OPTION PLAN
A-1
<PAGE> 20
DXP ENTERPRISES, INC.
1999 EMPLOYEE STOCK OPTION PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION
-------
<S> <C>
ARTICLE I
PLAN
Purpose..................................................... 1.1
Term of Plan................................................ 1.2
ARTICLE II
DEFINITIONS
Affiliate................................................... 2.1
Board....................................................... 2.2
Change of Control........................................... 2.3
Change of Control Value..................................... 2.4
Code........................................................ 2.5
Committee................................................... 2.6
Company..................................................... 2.7
Corporate Change............................................ 2.8
Disability.................................................. 2.9
Employee.................................................... 2.10
Exchange Act................................................ 2.11
Fair Market Value........................................... 2.12
Incentive Option............................................ 2.13
Mature Shares............................................... 2.14
Non-Employee Director....................................... 2.15
Nonqualified Option......................................... 2.16
Option...................................................... 2.17
Optionee.................................................... 2.18
Option Agreement............................................ 2.19
Outside Director............................................ 2.20
Plan........................................................ 2.21
Retirement.................................................. 2.22
Stock....................................................... 2.23
Ten Percent Stockholder..................................... 2.24
Voting Stock................................................ 2.25
ARTICLE III
ELIGIBILITY
ARTICLE IV
GENERAL PROVISIONS RELATING TO OPTIONS
Authority to Grant Options.................................. 4.1
Dedicated Shares; Maximum Options........................... 4.2
Non-Transferability......................................... 4.3
Requirements of Law......................................... 4.4
Recapitalization or Reorganization of the Company........... 4.5
</TABLE>
A-2
<PAGE> 21
<TABLE>
<CAPTION>
SECTION
-------
<S> <C>
ARTICLE V
OPTIONS
Type of Option.............................................. 5.1
Exercise Price.............................................. 5.2
Duration of Options......................................... 5.3
Amount Exercisable.......................................... 5.4
Exercise of Options......................................... 5.5
Exercise on Termination of Employment....................... 5.6
Substitution Options........................................ 5.7
No Rights as Stockholder.................................... 5.8
ARTICLE VI
ADMINISTRATION
ARTICLE VII
AMENDMENT OR TERMINATION OF PLAN
ARTICLE VIII
MISCELLANEOUS
No Establishment of a Trust Fund............................ 8.1
No Employment or Affiliation Obligation..................... 8.2
Forfeiture.................................................. 8.3
Tax Withholding............................................. 8.4
Written Agreement........................................... 8.5
Indemnification of the Committee and the Board.............. 8.6
Gender...................................................... 8.7
Headings.................................................... 8.8
Other Compensation Plans.................................... 8.9
Other Options............................................... 8.10
Governing Law............................................... 8.11
</TABLE>
A-3
<PAGE> 22
ARTICLE I
PLAN
1.1 Purpose. The Plan is intended to advance the best interests of the
Company and its stockholders by providing those persons who have substantial
responsibility for the management and growth of the Company and its Affiliates
with additional incentives and an opportunity to obtain or increase their
proprietary interest in the Company, thereby encouraging them to continue in the
employ of the Company or any of its Affiliates.
1.2 Term of Plan. The Plan is effective April 19, 1999, if within one year
of that date it shall have been approved by at least a majority vote of
stockholders voting in person or by proxy at a duly held stockholders' meeting,
or if the provisions of the corporate charter, by-laws or applicable state law
prescribes a greater degree of stockholders' approval for this action, the
approval by the stockholders of that percentage, at a duly-held meeting of
stockholders. No Option shall be granted under the Plan after April 19, 2009.
The Plan shall remain in effect until all Options under the Plan have been
satisfied or expired.
ARTICLE II
DEFINITIONS
The words and phrases defined in this Article shall have the meaning set
out in these definitions throughout the Plan, unless the context in which any
such word or phrase appears reasonably requires a broader, narrower, or
different meaning.
2.1 "Affiliate" means any parent corporation and any subsidiary
corporation. The term "parent corporation" means any corporation (other than the
Company) in an unbroken chain of corporations ending with the Company if, at the
time of the action or transaction, each of the corporations other than the
Company owns stock possessing 50 percent or more of the total combined voting
power of all classes of stock in one of the other corporations in the chain. The
term "subsidiary corporation" means any corporation (other than the Company) in
an unbroken chain of corporations beginning with the Company if, at the time of
the action or transaction, each of the corporations other than the last
corporation in the unbroken chain owns stock possessing 50 percent or more of
the total combined voting power of all classes of stock in one of the other
corporations in the chain.
2.2 "Board" means the board of directors of the Company.
2.3 "Change of Control" means the occurrence of any of the following after
the date on which the applicable Option is granted:
(i) a report on Schedule 13D or Schedule 14D-1 (or any successor
schedule, form or report) shall be filed with the Securities and Exchange
Commission pursuant to the Exchange Act and that report discloses that any
person (within the meaning of Section 13(d) or Section 14(d)(2) of the
Exchange Act), other than the Company (or one of its subsidiaries) or any
employee benefit plan sponsored by the Company (or one of its
subsidiaries), is the beneficial owner (as that term is defined in Rule
13d-3 or any successor rule or regulation promulgated under the Exchange
Act), directly or indirectly, of 20 percent or more of the outstanding
Voting Stock;
(ii) any person (within the meaning of Section 13(d) or Section
14(d)(2) of the Exchange Act), other than the Company (or one of its
subsidiaries) or any employee benefit plan sponsored by the Company (or one
of its subsidiaries), shall purchase securities pursuant to a tender offer
or exchange offer to acquire any Voting Stock (or any securities
convertible into Voting Stock) and, immediately after consummation of that
purchase, that person is the beneficial owner (as that term is defined in
Rule 13d-3 or any successor rule or regulation promulgated under the
Exchange Act), directly or indirectly, of 20 percent or more of the
outstanding Voting Stock (such person's beneficial ownership to be
determined, in the case of rights to acquire Voting Stock, pursuant to
paragraph (d) of Rule 13d-3 or any successor rule or regulation promulgated
under the Exchange Act);
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(iii) the consummation of:
(x) a merger, consolidation or reorganization of the Company with
or into any other person if as a result of such merger, consolidation or
reorganization, 50 percent or less of the combined voting power of the
then-outstanding securities of such other person immediately after such
merger, consolidation or reorganization are held in the aggregate by the
Optionees of Voting Stock immediately prior to such merger,
consolidation or reorganization;
(y) any sale, lease, exchange or other transfer of all or
substantially all the assets of the Company and its consolidated
subsidiaries to any other person if as a result of such sale, lease,
exchange or other transfer, 50 percent or less of the combined voting
power of the then-outstanding securities of such other person
immediately after such sale, lease, exchange or other transfer are held
in the aggregate by the Optionees of Voting Stock immediately prior to
such sale, lease, exchange or other transfer; or
(z) a transaction immediately after the consummation of which any
person (within the meaning of Section 13(d) or Section 14(d)(2) of the
Exchange Act) would be the beneficial owner (as that term is defined in
Rule 13d-3 or any successor rule or regulation promulgated under the
Exchange Act), directly or indirectly, of more than 50 percent of the
outstanding Voting Stock;
(iv) the stockholders of the Company approve the dissolution of the
Company; or
(v) during any period of 12 consecutive months, the individuals who at
the beginning of that period constituted the Board shall cease to
constitute a majority of the Board, unless the election, or the nomination
for election by the Company's stockholders, of each director of the Company
first elected during such period was approved by a vote of at least a
two-thirds majority of the directors of the Company then still in office
who were directors of the Company at the beginning of any such period.
2.4 "Change of Control Value" means the amount determined in clause (i),
(ii) or (iii), whichever is applicable, as follows: (i) the per share price
offered to stockholders of the Company in the merger, consolidation,
reorganization, sale of assets or dissolution transaction, (ii) the price per
share offered to stockholders of the Company in any tender offer or exchange
offer whereby a Corporate Change takes place, or (iii) if a Corporate Change
occurs other than pursuant to a tender or exchange offer, the fair market value
per share of the shares into which such Options being surrendered are
exercisable, as determined by the Committee as of the date determined by the
Committee to be the date of cancellation and surrender of such Options. If the
consideration offered to stockholders of the Company in any transaction
described above consists of anything other than cash, the Committee shall
determine the fair cash equivalent of the portion of the consideration offered
which is other than cash.
2.5 "Code" means the Internal Revenue Code of 1986, as amended.
2.6 "Committee" means a committee of at least two persons appointed by the
Board. The Committee shall be comprised solely of persons who are both
Non-Employee Directors and Outside Directors.
2.7 "Company" means DXP Enterprises, Inc, a Texas corporation.
2.8 "Corporate Change" means that any of the following shall have
occurred: (i) the Company shall not be the surviving entity in any merger,
consolidation or other reorganization (or survives only as a subsidiary of an
entity other than a previously wholly owned subsidiary of the Company), (ii) the
Company sells, leases or exchanges or agrees to sell, lease or exchange all or
substantially all of its assets to any other person or entity (other than a
wholly owned subsidiary of the Company), (iii) the Company is to be dissolved
and liquidated, (iv) any person or entity, including a "group" as contemplated
by Section 13(d)(3) of the Exchange Act, acquires or gains ownership or control
of more than 50 percent of the shares of the Voting Stock, or (v) as a result of
or in connection with a contested election of directors, the persons who were
directors of the Company before such election shall cease to constitute a
majority of the Board.
2.9 "Disability" means a medically determinable mental or physical
impairment which, in the opinion of a physician selected by the Committee, shall
prevent the Optionee from engaging in any substantial gainful
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activity and which can be expected to result in death or which has lasted or can
be expected to last for a continuous period of not less than 12 months and
which: (a) was not contracted, suffered or incurred while the Optionee was
engaged in, or did not result from having engaged in, a felonious criminal
enterprise; (b) did not result from alcoholism or addiction to narcotics; (c)
did not result from an injury incurred while a member of the Armed Forces of the
United States for which the Optionee receives a military pension; and (d) did
not result from an intentionally self-inflicted injury.
2.10 "Employee" means a person employed by the Company or any Affiliate.
2.11 "Exchange Act" means the Securities Exchange Act of 1934, as amended.
2.12 "Fair Market Value" of the Stock as of any date means (a) the average
of the high and low sale prices of the Stock on that date (or, if there was no
sale on such date, the next preceding date on which there was such a sale) on
the principal securities exchange on which the Stock is listed; or (b) if the
Stock is not listed on a securities exchange, an amount as determined by the
Committee in its sole discretion.
2.13 "Incentive Option" means an Option granted under the Plan that is
designated as an "Incentive Option" and satisfies the requirements of section
422 of the Code.
2.14 "Mature Shares" means shares of Stock that the Optionee has held for
at least six months.
2.15 "Non-Employee Director" means a "non-employee director" as defined in
Rule 16b-3 of the Exchange Act.
2.16 "Nonqualified Option" means an Option granted under the Plan other
than an Incentive Option.
2.17 "Option" means either an Incentive Option or a Nonqualified Option
granted under the Plan to purchase shares of Stock.
2.18 "Option Agreement" means the written agreement which sets out the
terms of an Option.
2.19 "Optionee" means a person to whom an Option is granted under the
Plan.
2.20 "Outside Director" means a member of the Board serving on the
Committee who qualifies as an outside director as defined in Department of
Treasury regulations promulgated under section 162(m) of the Code.
2.21 "Plan" means the DXP Enterprises, Inc. 1999 Employee Stock Option
Plan, as set forth in this document and as it may be amended from time to time.
2.22 "Retirement" means the termination of an Employee's employment
relationship with the Company and all Affiliates after attaining the age of 65.
2.23 "Stock" means the common stock of the Company, $.01 par value or, in
the event that the outstanding shares of common stock are later changed into or
exchanged for a different class of stock or securities of the Company or another
corporation, that other stock or security.
2.24 "Ten Percent Stockholder" means an individual who, at the time the
Option is granted, owns stock possessing more than ten percent of the total
combined voting power of all classes of stock of the Company or of any
Affiliate. An individual shall be considered as owning the stock owned, directly
or indirectly, by or for his brothers and sisters (whether by the whole or half
blood), spouse, ancestors, and lineal descendants; and stock owned, directly or
indirectly, by or for a corporation, partnership, estate, or trust, shall be
considered as being owned proportionately by or for its stockholders, partners,
or beneficiaries.
2.25 "Voting Stock" means shares of capital stock of the Company the
holders of which are entitled to vote for the election of directors, but
excluding shares entitled to so vote only upon the occurrence of a contingency
unless that contingency shall have occurred.
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ARTICLE III
ELIGIBILITY
The individuals who shall be eligible to receive Incentive Options shall be
those key employees of the Company or any of its Affiliates as the Committee
shall determine from time to time. The individuals who shall be eligible to
receive Nonqualified Options shall be those persons, including employees,
consultants, advisors and directors, who have substantial responsibility for the
management and growth of the Company or any of its Affiliates as the Committee
shall determine from time to time. The Board may designate one or more
individuals who shall not be eligible to receive an Option under the Plan.
ARTICLE IV
GENERAL PROVISIONS RELATING TO OPTIONS
4.1 Authority to Grant Options. The Committee may grant to those key
Employees of the Company or any of its Affiliates and other eligible persons as
it shall from time to time determine, Options under the terms and conditions of
the Plan. Subject only to any applicable limitations set out in the Plan, the
number of shares of Stock to be covered by any Option to be granted to any
person shall be as determined by the Committee.
4.2 Dedicated Shares; Maximum Options. The total number of shares of Stock
with respect to which Options may be granted under the Plan is 500,000. The
shares of Stock may be treasury shares or authorized but unissued shares. The
total number of shares of Stock with respect to which Incentive Options may be
granted under the Plan is 500,000 shares. The maximum number of shares subject
to Options which may be issued to any person under the Plan during any calendar
year is 125,000 shares. If an Optionee's Option is canceled, the canceled Option
continues to be counted against the maximum number of shares of Stock for which
Options may be granted to the Optionee under the Plan. The number of shares
stated in this Section 4.2 shall be subject to adjustment in accordance with the
provisions of Section 4.5.
If any outstanding Option expires or terminates for any reason or any
Option is surrendered, the shares of Stock allocable to the unexercised portion
of that Option may again be subject to an Option under the Plan.
4.3 Non-Transferability. Incentive Options shall not be transferable by
the Employee other than by will or under the laws of descent and distribution,
and shall be exercisable, during the Employee's lifetime, only by him. Except as
specified in the applicable Option agreements or in domestic relations court
orders, Nonqualified Options shall not be transferable by the Optionee other
than by will or under the laws of descent and distribution, and shall be
exercisable, during the Optionee's lifetime, only by him. In the discretion of
the Committee, any attempt to transfer an Option other than under the terms of
the Plan and the applicable Option Agreement may terminate the Option.
4.4 Requirements of Law. The Company shall not be required to sell or
issue any Stock under any Option if issuing that Stock would constitute or
result in a violation by the Optionee or the Company of any provision of any
law, statute, or regulation of any governmental authority. Specifically, in
connection with any applicable statute or regulation relating to the
registration of securities, upon exercise of any Option, the Company shall not
be required to issue any Stock unless the Committee has received evidence
satisfactory to it to the effect that the Optionee will not transfer the Stock
except in accordance with applicable law, including receipt of an opinion of
counsel satisfactory to the Company to the effect that any proposed transfer
complies with applicable law. The determination by the Committee on this matter
shall be final, binding and conclusive. The Company may, but shall in no event
be obligated to, register any Stock covered by the Plan pursuant to applicable
securities laws of any country or any political subdivision. In the event the
Stock issuable on exercise of an Option is not registered, the Company may
imprint on the certificate evidencing the Stock any legend that counsel for the
Company considers necessary or advisable to comply with applicable law. The
Company shall not be obligated to take any other affirmative action in order to
cause the exercise of an Option or vesting under an Optionee, or the issuance of
shares pursuant thereto, to comply with any law or regulation of any
governmental authority.
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4.5 Recapitalization or Reorganization of the Company.
(a) No Limitations on Company's Rights to Effect Changes. The existence of
outstanding Options shall not affect in any way the right or power of the
Company or its stockholders to make or authorize any or all adjustments,
recapitalizations, reorganizations or other changes in the Company's capital
structure or its business, or any merger or consolidation of the Company, or any
issue of bonds, debentures, preferred or prior preference stock ahead of or
affecting the Stock or its rights, or the dissolution or liquidation of the
Company, or any sale or transfer of all or any part of its assets or business,
or any other corporate act or proceeding, whether of a similar character or
otherwise.
(b) Increase or Reduction of Outstanding Shares. If a stock split, reverse
stock split, stock dividend, combination, recapitalization or reclassification
of the Stock, or any other increase or decrease in the number of shares of the
Stock outstanding, is effected without receipt of consideration by the Company,
then (a) the number, class, and per share price of shares of Stock subject to
outstanding Options under the Plan shall be appropriately adjusted in such a
manner as to entitle an Optionee to receive upon exercise of an Option, for the
same aggregate cash consideration, the equivalent total number and class of
shares he would have received had he exercised his Option in full immediately
prior to the event requiring the adjustment; and (b) the number and class of
shares of Stock then reserved to be issued under the Plan shall be adjusted by
substituting for the total number and class of shares of Stock then reserved,
that number and class of shares of Stock that would have been received by the
owner of an equal number of outstanding shares of each class of Stock as the
result of the event requiring the adjustment. The conversion of any convertible
securities of the Company shall not be deemed to have been "effected without
receipt of consideration by the Company". Such adjustment shall be made by the
Board, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Stock subject to an Option.
(c) Sale or Merger of the Company Where the Company is Not the Survivor;
Dissolution or Liquidation of the Company. In the event of a Corporate Change,
no later than (x) ten days after the approval by the stockholders of the Company
of the Corporate Change or (y) thirty days after the occurrence of a Corporate
Change for which no approval by the stockholder of the Company is required, the
Committee, acting in its sole discretion without the consent or approval of any
Optionee, shall act to effect one or more of the following alternatives, which
may vary among individual Optionees and which may vary among Options held by any
individual Optionee: (1) accelerate the time at which Options then outstanding
may be exercised so that such Options may be exercised in full for a limited
period of time on or before a specified date (before or after the Corporate
Change) fixed by the Committee, after which specified date all unexercised
Options and all rights of Optionees thereunder shall terminate, (2) require the
mandatory surrender to the Company by selected Optionees of some or all of the
outstanding Options held by such Optionees(irrespective of whether such Options
are then exercisable under the provisions of the Plan) as of a date, before or
after such Corporate Change, specified by the Committee, in which event the
Committee shall thereupon cancel such Options and the Company shall pay to each
Optionee an amount of cash per share equal to the excess, if any, of the Change
of Control Value of the shares subject to such Options over the exercise
price(s) under such Options for such shares, (3) make any adjustments to Options
then outstanding as the Committee deems appropriate, or (4) provide that the
number and class of shares of Stock covered by an Optionee theretofore granted
shall be adjusted so that such Optionee shall thereafter cover the number and
class of shares of stock or other securities or property (including, without
limitation, cash) to which the Optionee would have been entitled pursuant to the
terms of the agreement of merger, consolidation or sale of assets and
dissolution if, immediately prior to such merger, consolidation or sale of
assets and dissolution, the Optionee had been the holder of record of the number
of shares of Stock then covered by such Option.
(d) Merger of the Company Where the Company is the Survivor. After a merger
of one or more corporations into the Company or after a consolidation of the
Company and one or more corporations in which the Company shall be the surviving
corporation, each Optionee shall be entitled to have his Option appropriately
adjusted based on the manner in which the Stock was adjusted under the terms of
the agreement of merger or consolidation.
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ARTICLE V
OPTIONS
5.1 Type of Option. The Committee shall specify in an Option Agreement
whether a given Option is an Incentive Option or a Nonqualified Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value (determined as of the time an Incentive Option is granted) of the Stock
with respect to which incentive stock options first become exercisable by an
Employee during any calendar year (under the Plan and any other incentive stock
option plan(s) of the Company or any Affiliate) exceeds $100,000.00, the
Incentive Option shall be treated as a Nonqualified Option. In making this
determination, incentive stock options shall be taken into account in the order
in which they were granted.
5.2 Exercise Price. The price at which Stock may be purchased under an
Incentive Option or Nonqualified Option shall not be less than 100 percent of
the Fair Market Value of the shares of Stock on the date the Option is granted.
In the case of any Ten Percent Stockholder, the price at which shares of Stock
may be purchased under an Incentive Option shall not be less than 110 percent of
the Fair Market Value of the Stock on the date the Incentive Option is granted.
In its discretion, the Committee may provide that the price at which shares of
Stock may be purchased under an Option shall be more than the minimum price
specified above.
5.3 Duration of Options. No Option shall be exercisable after the
expiration of ten years from the date the Option is granted. In the case of a
Ten Percent Stockholder, no Incentive Option shall be exercisable after the
expiration of five years from the date the Incentive Option is granted.
5.4 Amount Exercisable. Each Option may be exercised at the time, in the
manner and subject to the conditions the Committee specifies in the Option
Agreement in its sole discretion. If specified in the Option Agreement, an
Option will be exercisable in full upon the occurrence of a Change of Control.
5.5 Exercise of Options. Each Option shall be exercised by the delivery of
written notice to the Committee setting forth the number of shares of Stock with
respect to which the Option is to be exercised, together with: (a) cash,
certified check, bank draft, or postal or express money order payable to the
order of the Company for an amount equal to the exercise price under the Option,
(b) Mature Shares with a Fair Market Value on the date of exercise equal to the
exercise price under the Option, (c) an election to make a cashless exercise
through a registered broker-dealer (if approved in advance by the Committee),
and/or (d) any other form of payment which is acceptable to the Committee, and
specifying the address to which the certificates for the shares are to be
mailed. As promptly as practicable after receipt of written notification and
payment, the Company shall deliver to the Optionee certificates for the number
of shares with respect to which the Option has been exercised, issued in the
Optionee's name. If Mature Shares are used for payment by the Optionee, the
aggregate Fair Market Value of the shares of Stock tendered must be equal to or
less than the aggregate exercise price of the shares being purchased upon
exercise of the Option, and any difference must be paid by cash, certified
check, bank draft, or postal or express money order payable to the order of the
Company. Delivery of the shares shall be deemed effected for all purposes when a
stock transfer agent of the Company shall have deposited the certificates in the
United States mail, addressed to the Optionee, at the address specified by the
Optionee.
Whenever an Option is exercised by exchanging Mature Shares owned by the
Optionee, the Optionee shall deliver to the Company certificates registered in
the name of the Optionee representing a number of shares of Stock legally and
beneficially owned by the Optionee, free of all liens, claims, and encumbrances
of every kind, accompanied by stock powers duly endorsed in blank by the record
holder of the shares represented by the certificates (with signature guaranteed
by a commercial bank or trust company or by a brokerage firm having a membership
on a registered national stock exchange). The delivery of certificates upon the
exercise of Options is subject to the condition that the person exercising the
Option provide the Company with the information the Company might reasonably
request pertaining to exercise, sale or other disposition.
The Committee may permit an Optionee to elect to pay the exercise price
upon exercise of an Option by authorizing a third-party broker to sell all or a
portion of the shares of Stock acquired upon exercise of the
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Option and remit to the Company a sufficient portion of the sale proceeds to pay
the exercise price and any applicable tax withholding resulting from such
exercise.
An Option may not be exercised for a fraction of a share of Stock.
5.6 Exercise on Termination of Employment.
(a) Termination of Employment Other Than As a Result of Retirement, Death
or Disability. Unless it is expressly provided otherwise in the Option
Agreement, an Option shall terminate one day less than three months after the
severance of employment or affiliation relationship between the Optionee and the
Company and all Affiliates for any reason, with or without cause, other than
Retirement, death or Disability. Whether authorized leave of absence or absence
on military or government service shall constitute severance of the employment
of an Employee shall be determined by the Committee at that time.
(b) Retirement. Unless it is expressly provided otherwise in the Option
Agreement, an Option shall terminate one day less than one year after the
Retirement of the Optionee.
(c) Death. After the death of the Optionee, his executors, administrators
or any persons to whom his Option may be transferred by will or by the laws of
descent and distribution shall have the right, at any time prior to the earlier
of the Option's expiration or one day less than one year after the death of the
Optionee, to exercise it, to the extent to which he was entitled to exercise it
immediately prior to his death, unless it is expressly provided otherwise in the
Option Agreement.
(d) Disability. If, before the expiration of an Option, the Optionee shall
be severed from the employ of or affiliation with the Company and all Affiliates
due to Disability, the Option shall terminate on the earlier of the Optionee's
expiration date or one day less than one year after the date of his severance
due to Disability, unless it is expressly provided otherwise in the Option
Agreement. In the event that the Optionee shall be severed from the employ of or
affiliation with the Company and all Affiliates for Disability, the Optionee
shall have the right prior to the termination of the Option to exercise the
Option, to the extent to which he was entitled to exercise it immediately prior
to his severance of employment or affiliation due to Disability, unless it is
expressly provided otherwise in the Option Agreement.
(e) Employment With an Entity in a Section 424(a) Transaction. In
determining the employment relationship between the Company and/or any Affiliate
and an Employee, employment by a corporation issuing or assuming a stock option
in a transaction to which section 424(a) of the Code applies shall be considered
employment by the Company or an Affiliate.
5.7 Substitution Options. Options may be granted under the Plan from time
to time in substitution for stock options held by employees of other
corporations who are about to become employees of or affiliated with the Company
or any Affiliate as the result of a merger or consolidation of the employing
corporation with the Company or any Affiliate, or the acquisition by the Company
or any Affiliate of the assets of the employing corporation, or the acquisition
by the Company or any Affiliate of stock of the employing corporation as the
result of which it becomes an Affiliate of the Company. The terms and conditions
of the substitute Options granted may vary from the terms and conditions set out
in the Plan to the extent the Committee, at the time of grant, may deem
appropriate to conform, in whole or in part, to the provisions of the stock
options in substitution for which they are granted.
5.8 No Rights as Stockholder. No Optionee shall have any rights as a
stockholder with respect to Stock covered by his Option until the date a stock
certificate is issued for the Stock.
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ARTICLE VI
ADMINISTRATION
The Plan shall be administered by the Committee. All questions of
interpretation and application of the Plan and Options shall be subject to the
determination of the Committee. A majority of the members of the Committee shall
constitute a quorum. All determinations of the Committee shall be made by a
majority of its members. Any decision or determination reduced to writing and
signed by a majority of the members shall be as effective as if it had been made
by a majority vote at a meeting properly called and held. The Plan shall be
administered in such a manner as to permit the Options which are designated to
be Incentive Options to qualify as Incentive Options. In carrying out its
authority under the Plan, the Committee shall have full and final authority and
discretion, including but not limited to the following rights, powers and
authorities, to:
(a) determine the persons to whom and the time or times at which
Options will be granted,
(b) determine the number of shares and the exercise price of Stock
covered in each Option, subject to the terms of the Plan,
(c) determine the terms, provisions and conditions of each Option,
which need not be identical,
(d) accelerate the time at which any outstanding Option may be
exercised,
(e) define the effect, if any, on an Optionee of the death,
disability, retirement, or termination of employment or affiliation
relationship between the Optionee and the Company and Affiliates,
(f) prescribe, amend and rescind rules and regulations relating to
administration of the Plan, and
(g) make all other determinations and take all other actions deemed
necessary, appropriate, or advisable for the proper administration of the
Plan.
The actions of the Committee in exercising all of the rights, powers, and
authorities set out in this Article and all other Articles of the Plan, when
performed in good faith and in its sole judgment, shall be final, conclusive and
binding on all parties.
ARTICLE VII
AMENDMENT OR TERMINATION OF PLAN
The Board may amend, terminate or suspend the Plan at any time, in its sole
and absolute discretion; provided, however, that to the extent required to
maintain the status of any Incentive Option under the Code, no amendment that
would: (a) change the aggregate number of shares of Stock which may be issued
under Incentive Options, (b) change the class of employees eligible to receive
Incentive Options, or (c) decrease the exercise price for Incentive Options
below the Fair Market Value of the Stock at the time it is granted, shall be
made without the approval of the Company's stockholders. Subject to the
preceding sentence, the Board shall have the power to make any changes in the
Plan and in the regulations and administrative provisions under it or in any
outstanding Incentive Option as in the opinion of counsel for the Company may be
necessary or appropriate from time to time to enable any Incentive Option
granted under the Plan to continue to qualify as an incentive stock option or
such other stock option as may be defined under the Code so as to receive
preferential federal income tax treatment.
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ARTICLE VIII
MISCELLANEOUS
8.1 No Establishment of a Trust Fund. No property shall be set aside nor
shall a trust fund of any kind be established to secure the rights of any
Optionee under the Plan. All Optionees shall at all times rely solely upon the
general credit of the Company for the payment of any benefit which becomes
payable under the Plan.
8.2 No Employment or Affiliation Obligation. The granting of any Option
shall not constitute an employment contract, express or implied, nor impose upon
the Company or any Affiliate any obligation to employ or continue to employ, or
utilize the services of, any Optionee. The right of the Company or any Affiliate
to terminate the employment of any person shall not be diminished or affected by
reason of the fact that an Option has been granted to him.
8.3 Forfeiture. Notwithstanding any other provisions of the Plan, if the
Committee finds by a majority vote after full consideration of the facts that
the Optionee, before or after termination of his employment or affiliation
relationship with the Company or an Affiliate for any reason (a) committed or
engaged in fraud, embezzlement, theft, commission of a felony, or proven
dishonesty in the course of his employment by the Company or an Affiliate, which
conduct damaged the Company or Affiliate, or disclosed trade secrets of the
Company or an Affiliate, or (b) participated, engaged in or had a material,
financial or other interest, whether as an employee, officer, director,
consultant, contractor, stockholder, owner, or otherwise, in any commercial
endeavor in the United States which is competitive with the business of the
Company or an Affiliate without the written consent of the Company or Affiliate,
the Optionee shall forfeit all outstanding Options, and including all exercised
Options and other situations pursuant to which the Company has not yet delivered
a stock certificate. Clause (b) shall not be deemed to have been violated solely
by reason of the Optionee's ownership of stock or securities of any publicly
owned corporation, if that ownership does not result in effective control of the
corporation.
The decision of the Committee as to the cause of the Optionee's discharge,
the damage done to the Company or an Affiliate, and the extent of the Optionee's
competitive activity shall be final. No decision of the Committee, however,
shall affect the finality of the discharge of the Optionee by the Company or an
Affiliate in any manner.
8.4 Tax Withholding. The Company or any Affiliate shall be entitled to
deduct from other compensation payable to each Optionee any sums required by
federal, state, or local tax law to be withheld with respect to the grant or
exercise of an Option, or lapse of restrictions on Restricted Stock. In the
alternative, the Company may require the Optionee to pay such sums for taxes
directly to the Company or any Affiliate in cash or by check within ten days
after the date of exercise or lapse of restrictions. In the discretion of the
Committee, an Optionee may use shares of Stock received by the Optionee upon the
exercise of a Nonqualified Option to satisfy any required tax withholding
obligations of the Company or an Affiliate that result from the exercise. The
Company shall have no obligation upon exercise of any Option until the Company
or an Affiliate has received payment sufficient to cover all tax withholding
amounts due with respect to that exercise. Neither the Company nor any Affiliate
shall be obligated to advise an Optionee of the existence of the tax or the
amount which it will be required to withhold.
8.5 Written Agreement. Each Option shall be embodied in a written
agreement which shall be subject to the terms and conditions of the Plan and
shall be signed by the Optionee and by a member of the Committee on behalf of
the Committee and the Company or an executive officer of the Company, other than
the Optionee, on behalf of the Company. The agreement may contain any other
provisions that the Committee in its discretion shall deem advisable which are
not inconsistent with the terms of the Plan.
8.6 Indemnification of the Committee and the Board. With respect to
administration of the Plan, the Company shall indemnify each present and future
member of the Committee and the Board against, and each member of the Committee
and the Board shall be entitled without further act on his part to indemnity
from the Company for, all expenses (including attorney's fees, the amount of
judgments and the amount of
A-12
<PAGE> 31
approved settlements made with a view to the curtailment of costs of litigation,
other than amounts paid to the Company itself) reasonably incurred by him in
connection with or arising out of any action, suit, or proceeding in which he
may be involved by reason of his being or having been a member of the Committee
and/or the Board, whether or not he continues to be a member of the Committee
and/or the Board at the time of incurring the expenses -- including, without
limitation, matters as to which he shall be finally adjudged in any action, suit
or proceeding to have been found to have been negligent in the performance of
his duty as a member of the Committee or the Board. However, this indemnity
shall not include any expenses incurred by any member of the Committee and/or
the Board in respect of matters as to which he shall be finally adjudged in any
action, suit or proceeding to have been guilty of gross negligence or willful
misconduct in the performance of his duty as a member of the Committee and the
Board. In addition, no right of indemnification under the Plan shall be
available to or enforceable by any member of the Committee and the Board unless,
within 60 days after institution of any action, suit or proceeding, he shall
have offered the Company, in writing, the opportunity to handle and defend same
at its own expense. This right of indemnification shall inure to the benefit of
the heirs, executors or administrators of each member of the Committee and the
Board and shall be in addition to all other rights to which a member of the
Committee and the Board may be entitled as a matter of law, contract, or
otherwise.
8.7 Gender. If the context requires, words of one gender when used in the
Plan shall include the other and words used in the singular or plural shall
include the other.
8.8 Headings. Headings of Articles and Sections are included for
convenience of reference only and do not constitute part of the Plan and shall
not be used in construing the terms of the Plan.
8.9 Other Compensation Plans. The adoption of the Plan shall not affect
any other stock option, incentive or other compensation or benefit plans in
effect for the Company or any Affiliate, nor shall the Plan preclude the Company
from establishing any other forms of incentive or other compensation for
employees of the Company or any Affiliate.
8.10 Other Options. The grant of an Option shall not confer upon the
Optionee the right to receive any future Options under the Plan, whether or not
Options may be granted to similarly situated Optionees, or the right to receive
future Options upon the same terms or conditions as previously granted.
8.11 Governing Law. The provisions of the Plan shall be construed,
administered, and governed under the laws of the State of Texas.
A-13
<PAGE> 32
ANNEX B
DXP ENTERPRISES, INC.
1999 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
B-1
<PAGE> 33
DXP ENTERPRISES, INC.
1999 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION
-------
<S> <C>
ARTICLE I
DEFINITIONS
Board....................................................... 1.1
Change of Control Value..................................... 1.2
Company..................................................... 1.3
Corporate Change............................................ 1.4
Disability.................................................. 1.5
Fair Market Value........................................... 1.6
Non-Employee Director....................................... 1.7
Option...................................................... 1.8
Option Agreement............................................ 1.9
Optionee.................................................... 1.10
Plan........................................................ 1.11
Retire or Retirement........................................ 1.12
Stock....................................................... 1.13
ARTICLE II
GENERAL PROVISIONS RELATING TO OPTIONS
Dedicated Shares............................................ 2.1
Non-Transferability......................................... 2.2
Requirements of Law......................................... 2.3
Recapitalization or Reorganization of the Company........... 2.4
Options Conditioned Upon Shareholder Approval............... 2.5
ARTICLE III
OPTIONS
Automatic Annual Grants..................................... 3.1
Amount Exercisable -- Automatic Annual Grants............... 3.2
Grants for Persons Who are Directors on September 1, 1998... 3.3
Grants for New Directors.................................... 3.4
Amount Exercisable -- Grants for New Directors.............. 3.5
Option Price................................................ 3.6
Duration of Options......................................... 3.7
Death of an Optionee........................................ 3.8
Exercise of Options......................................... 3.9
Form of Options............................................. 3.10
Written Agreement........................................... 3.11
No Rights as Shareholder.................................... 3.12
ARTICLE IV
AMENDMENT OR TERMINATION OF PLAN
ARTICLE V
MISCELLANEOUS
No Retention Obligation..................................... 5.1
Taxes....................................................... 5.2
Gender...................................................... 5.3
Headings.................................................... 5.4
Other Compensation.......................................... 5.5
Other Options............................................... 5.6
Arbitration of Disputes..................................... 5.7
Governing Law............................................... 5.8
</TABLE>
B-2
<PAGE> 34
DXP ENTERPRISES, INC.
1999 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
This DXP Enterprises, Inc. 1999 Non-Employee Director Stock Option Plan
(the "Plan") is adopted for the benefit of the directors of DXP Enterprises,
Inc., a Texas corporation (the "Company"), who, at the time of their service,
are not employees of the Company or any of its subsidiaries. The Plan is
intended to advance the interest of the Company by providing such directors with
an additional incentive to serve the Company by increasing their proprietary
interest in the success of the Company.
ARTICLE I
DEFINITIONS
The words and phrases defined in this Article shall have the meaning set
out in these definitions throughout this Plan, unless the context in which any
such word or phrase appears reasonably requires a broader, narrower, or
different meaning.
1.1 "Board" means the board of directors of the Company.
1.2 "Change of Control Value" means the amount determined in clause (i),
(ii) or (iii), whichever is applicable, as follows: (i) the per share price
offered to shareholders of the Company in the merger, consolidation,
reorganization, sale of assets or dissolution transaction, (ii) the price per
share offered to shareholders of the Company in any tender offer or exchange
offer whereby a Corporate Change takes place, or (iii) if a Corporate Change
occurs other than pursuant to a tender or exchange offer, the fair market value
per share of the shares into which such Options being surrendered are
exercisable, as determined by the Board as of the date determined by the Board
to be the date of cancellation and surrender of such Options. If the
consideration offered to shareholders of the Company in any transaction
described above consists of anything other than cash, the Board shall determine
the fair cash equivalent of the portion of the consideration offered which is
other than cash.
1.3 "Company" means DXP Enterprises, Inc., a Texas corporation.
1.4 "Committee" means a committee appointed by the Board to administer the
Plan, which Committee shall consist of not less than two members of the Board
and shall be comprised solely of members of the Board who qualify as
non-employee directors as defined in Rule 16b-3(b)(3) of the Securities Exchange
Act of 1934, as amended.
1.5 "Corporate Change" means that any of the following shall have
occurred: (i) the Company shall not be the surviving entity in any merger,
consolidation or other reorganization (or survives only as a subsidiary of an
entity other than a previously wholly owned subsidiary of the Company), (ii) the
Company sells, leases or exchanges or agrees to sell, lease or exchange all or
substantially all of its assets to any other person or entity (other than a
wholly owned subsidiary of the Company), (iii) the Company is to be dissolved
and liquidated, (iv) any person or entity, including a "group" as contemplated
by Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, acquires
or gains ownership or control of more than 50 percent of the shares of the
Stock, or (v) as a result of or in connection with a contested election of
directors, the persons who were directors of the Company before such election
shall cease to constitute a majority of the Board.
1.6 "Disability" means a mental or physical disability of the Optionee
which, in the opinion of a physician selected by the Committee, (i) shall
prevent the Optionee from adequately performing his services as a director of
the Company and (ii) can be expected to result in death or has lasted or can be
expected to last for a continuous period of not less than 12 months.
1.7 "Fair Market Value" of the Stock as of any date means the closing sale
price of the Stock on that date (or, if there was no sale on such date, the next
preceding date on which there was such a sale) on the Nasdaq National Market or
the principal securities exchange on which the Stock is listed.
B-3
<PAGE> 35
1.8 "Non-Employee Director" means a director of the Company who, while a
director, is not an employee of the Company, or a corporation, of which a
majority of voting securities is owned, directly or indirectly, by the Company.
1.9 "Option" means an option granted under this Plan to purchase shares of
Stock.
1.10 "Option Agreement" means the written agreement which sets out the
terms of an Option.
1.11 "Optionee" means a person who is granted an Option under this Plan.
1.12 "Plan" means the DXP Enterprises, Inc. 1999 Non-Employee Director
Stock Option Plan, as set out in this document and as it may be amended from
time to time.
1.13 "Retire" or "Retirement" means the cessation of an Optionee's
services as a director on the Board after completing either six full terms or
six years of service as a director on the Board.
1.14 "Stock" means the common stock of the Company, $.01 par value.
ARTICLE II
GENERAL PROVISIONS RELATING TO OPTIONS
2.1 Dedicated Shares. The total number of shares of Stock with respect to
which Options may be granted under the Plan shall be 200,000 shares. The shares
may be treasury shares or authorized but unissued shares. The number of shares
stated in this Section 2.1 shall be subject to adjustment in accordance with the
provisions of Section 2.4.
If any outstanding Option expires or terminates for any reason or any
Option is surrendered, the shares of Stock allocable to the unexercised portion
of that Option may again be subject to an Option under the Plan.
2.2 Non-Transferability. Except as expressly provided otherwise in an
Optionee's Option Agreement, Options shall not be transferable by the Optionee
otherwise than by will or under the laws of descent and distribution, and shall
be exercisable, during the Optionee's lifetime, only by him.
2.3 Requirements of Law. The Company shall not be required to sell or
issue any Stock under any Option if issuing that Stock would constitute or
result in a violation by the Optionee or the Company of any provision of any
law, statute, or regulation of any governmental authority. Specifically, in
connection with any applicable statute or regulation relating to the
registration of securities, upon exercise of any Option, the Company shall not
be required to issue any Stock unless the Committee has received evidence
satisfactory to it to the effect that the holder of that Option will not
transfer the Stock except in accordance with applicable law, including receipt
of an opinion of counsel satisfactory to the Company to the effect that any
proposed transfer complies with applicable law. The determination by the
Committee on this matter shall be final, binding and conclusive. The Company
may, but shall in no event be obligated to, register any Stock covered by this
Plan pursuant to applicable securities laws of any country or any political
subdivision. In the event the Stock issuable on exercise of an Option is not
registered, the Company may imprint on the certificate evidencing the Stock any
legend that counsel for the Company considers necessary or advisable to comply
with applicable law. The Company shall not be obligated to take any other
affirmative action in order to cause the exercise of an Option and the issuance
of shares thereunder, to comply with any law or regulation of any governmental
authority.
2.4 Recapitalization or Reorganization of the Company.
(a) No Limitations on Company's Rights to Effect Changes. The existence of
outstanding Options shall not affect in any way the right or power of the
Company or its shareholders to make or authorize any or all adjustments,
recapitalizations, reorganizations or other changes in the Company's capital
structure or its business, or any merger or consolidation of the Company, or any
issue of bonds, debentures, preferred or prior preference stock ahead of or
affecting the Stock or its rights, or the dissolution or liquidation of the
Company, or any sale or transfer of all or any part of its assets or business,
or any other corporate act or proceeding, whether of a similar character or
otherwise.
B-4
<PAGE> 36
(b) Increase or Reduction of Outstanding Shares. If a stock split, reverse
stock split, stock dividend, combination, recapitalization or reclassification
of the Stock, or any other increase or decrease in the number of shares of the
Stock outstanding, is effected without receipt of consideration by the Company,
then (i) the number, class, and per share price of shares of Stock subject to
outstanding Options under the Plan shall be appropriately adjusted in such a
manner as to entitle an Employee to receive upon exercise of an Option, for the
same aggregate cash consideration, the equivalent total number and class of
shares he would have received had he exercised his Option in full immediately
prior to the event requiring the adjustment and (ii) the number and class of
shares of Stock then reserved to be issued under the Plan shall be adjusted by
substituting for the total number and class of shares of Stock then reserved,
that number and class of shares of Stock that would have been received by the
owner of an equal number of outstanding shares of each class of Stock as the
result of the event requiring the adjustment. The conversion of any convertible
securities of the Company shall not be deemed to have been "effected without
receipt of consideration by the Company". Such adjustment shall be made by the
Committee, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Stock subject to an Option.
(c) Sale or Merger of the Company Where the Company is Not the Survivor;
Dissolution or Liquidation of the Company. In the event of a Corporate Change,
no later than (i) ten days after the approval by the shareholders of the Company
of the Corporate Change or (ii) thirty days after the occurrence of a Corporate
Change for which no approval by the shareholders of the Company is required, the
Committee, acting in its sole discretion without the consent or approval of any
Optionee, shall act to effect one or more of the following alternatives, which
may vary among individual Optionees and which may vary among Options held by any
individual Optionee: (i) accelerate the time at which Options then outstanding
may be exercised so that such Options may be exercised in full for a limited
period of time on or before a specified date (before or after the Corporate
Change) fixed by the Committee, after which specified date all unexercised
Options and all rights of Optionees thereunder shall terminate, (ii) require the
mandatory surrender to the Company by selected Optionees of some or all of the
outstanding Options held by such Optionees (irrespective of whether such Options
are then exercisable under the provisions of the Plan) as of a date, before or
after such Corporate Change, specified by the Committee, in which event the
Committee shall thereupon cancel such Options and the Company shall pay to each
Optionee an amount of cash per share equal to the excess, if any, of the Change
of Control Value of the shares subject to such Options over the exercise
price(s) under such Options for such shares, (iii) make any adjustments to
Options then outstanding as the Committee deems appropriate, or (iv) provide
that the number and class of shares of Stock covered by an Option theretofore
granted shall be adjusted so that such Option shall thereafter cover the number
and class of shares of stock or other securities or property (including, without
limitation, cash) to which the Optionee would have been entitled pursuant to the
terms of the agreement of merger, consolidation or sale of assets and
dissolution if, immediately prior to such merger, consolidation or sale of
assets and dissolution, the Optionee had been the holder of record of the number
of shares of Stock then covered by such Option.
(d) Merger of the Company Where the Company is the Survivor. After a merger
of one or more corporations into the Company or after a consolidation of the
Company and one or more corporations in which the Company shall be the surviving
corporation, each Optionee shall be entitled to have his Option appropriately
adjusted based on the manner in which the Stock was adjusted under the terms of
the agreement of merger or consolidation.
2.5 Options Conditioned Upon Shareholder Approval. No Option granted under
the Plan will be exercisable before the shareholders of the Company approve the
Plan.
B-5
<PAGE> 37
ARTICLE III
OPTIONS
3.1 Automatic Annual Grants. Subject to the availability under the Plan of
a sufficient number of shares of Stock that may be issued upon the exercise of
outstanding Options, each Non-Employee Director who is a director of the Company
on any July 1 while this Plan is in effect shall be granted on each such July 1
an Option to purchase 1,000 shares of Stock.
3.2 Amount Exercisable -- Automatic Annual Grants. Subject to Section 2.5,
each Option granted pursuant to Section 3.1 is exercisable in full immediately
upon the date of grant.
3.3 Grants For Persons Who are Directors on September 1, 1998. There shall
be granted under the Plan to each Non-Employee Director who is serving as a
director of the Company on September 1, 1998, an Option to purchase 1,000 shares
of Stock. Nothing in this Section 3.3 shall affect the eligibility of an
Optionee to receive an Option pursuant to Section 3.1.
3.4 Grants for New Directors. Subject to the availability under the Plan
of a sufficient number of shares of Stock that may be issued upon the exercise
of outstanding options, each person who shall become a Non-Employee Director
after June 8, 1999 shall be granted, on the date of his election, whether by the
shareholders of the Company or the Board in accordance with applicable law, an
Option under the Plan to purchase 5,000 shares of Stock. Notwithstanding the
foregoing, no Non-Employee Director who has received an Option pursuant to
Section 3.3 shall be eligible to receive an Option pursuant to this Section 3.4.
Upon the receipt of an Option under the Plan pursuant to this Section 3.4, the
Optionee shall not be eligible to receive another Option for new Non-Employee
Directors pursuant to this Section 3.4. Nothing in this Section 3.4 shall affect
the eligibility of an Optionee to receive an Option pursuant to Section 3.1.
3.5 Amount Exercisable -- Grants for New Directors. Each Option Agreement
for an Option granted pursuant to Section 3.3 or Section 3.4 shall contain the
following terms of exercise:
(a) No Option granted under Section 3.3 or Section 3.4 of the Plan may
be exercised until the Optionee has served as a director of the Company for
one year following the date of grant;
(b) beginning on the day after the first anniversary of the date of
grant, the Option may be exercised up to 1/3 of the shares subject to the
Option;
(c) after the expiration of each succeeding anniversary date of the
date of grant, the Option may be exercised up to an additional 1/3 of the
shares subject to the Option, so that after the expiration of the third
anniversary of the date of grant, the Option shall be exercisable in full;
and
(d) to the extent not exercised, installments shall be cumulative and
may be exercised in whole or in part until the Option expires on the tenth
anniversary of the date of the grant.
3.6 Option Price. The price at which Stock may be purchased under an
Option shall be equal to 100 percent of the Fair Market Value of the shares of
Stock on the date the Option is granted.
3.7 Duration of Options.
Each Option awarded, to the extent it shall not previously have been
exercised, shall terminate on the earlier of the following dates:
(i) on the last day within the three-year period commencing on the
date on which the Optionee ceases to be a director of the Company, for
any reason other than death, Retirement or Disability; or
(ii) ten years after the date of grant of such Option.
If the Optionee ceases to be a director of the Company for any reason other
than his death, Disability or Retirement, his Option shall not continue to vest
after such cessation of service as a director. If the Optionee ceases to be a
director of the Company due to his death, Disability or Retirement, his Option
shall continue to vest after such cessation of service as a director until the
Option expires ten years after the grant of the Option.
B-6
<PAGE> 38
3.8 Death of an Optionee. Upon the death of an Optionee prior to the
expiration of his Option, his executors, administrators or any person or persons
to whom his Option may be transferred by will or by the laws of descent and
distribution, shall have the right, at any time prior to the expiration date of
the Option to exercise the Option with respect to the number of shares that the
Optionee would have been entitled to exercise if he were still alive.
3.9 Exercise of Options. An Optionee may exercise his Option by delivering
to the Company a written notice stating (i) that he wishes to exercise such
Option on the date such notice is so delivered, (ii) the number of shares of
Stock with respect to which such Option is to be exercised and (iii) the address
to which the certificate representing such shares of Stock should be mailed. In
order to be effective, such written notice shall be accompanied by payment of
the option price of such shares of Stock. Each such payment shall be made by
cashier's check drawn on a national banking association and payable to the order
of the Company in United States dollars.
If, at the time of receipt by the Company of such written notice, (i) the
Company has unrestricted surplus in an amount not less than the option price of
such shares of Stock, (ii) all accrued cumulative preferential dividends and
other current preferential dividends on all outstanding shares of preferred
Stock of the Company have been fully paid, (iii) the acquisition by the Company
of its own shares of Stock for the purpose of enabling such Optionee to exercise
such Option is otherwise permitted by applicable law and without any vote or
consent of any shareholder of the Company, and (iv) there shall have been
adopted, and there shall be in full force and effect, a resolution of the Board
of Directors of the Company authorizing the acquisition by the Company of its
own shares of Stock for such purpose, then such Optionee may deliver to the
Company, in payment of the option price of the shares of Stock with respect to
which such Option is exercised, (x) certificates registered in the name of such
Optionee that represent a number of shares of Stock legally and beneficially
owned by such Optionee (free of all liens, claims and encumbrances of every
kind) and having a Fair Market Value on the date of receipt by the Company of
such written notice that is not greater than the option price of the shares of
Stock with respect to which such Option is to be exercised, such certificates to
be accompanied by Stock powers duly endorsed in blank by the record holder of
the shares of Stock represented by such certificates, with the signature of such
record holder guaranteed by a national banking association, and (y) if the
option price of the shares of Stock with respect to which such Option is to be
exercised exceeds such Fair Market Value, a cashier's check drawn on a national
banking association and payable to the order of the Company in an amount, in
United States dollars, equal to the amount of such excess. Notwithstanding the
provisions of the immediately preceding sentence, the Treasurer of the Company,
in his sole discretion, may refuse to accept shares of Stock in payment of the
option price of the shares of Stock with respect to which such Option is to be
exercised and, in that event, any certificates representing shares of Stock that
were received by the Company with such written notice shall be returned to such
Optionee, together with notice by the Company to such Optionee of the refusal of
the Treasurer of the Company to accept such shares of Stock. If, at the
expiration of seven business days after the delivery to such Optionee of such
written notice from the Company, such Optionee shall not have delivered to the
Company a cashier's check drawn on a national banking association and payable to
the order of the Company in an amount, in United States dollars, equal to the
option price of the shares of Stock with respect to which such Option is to be
exercised, such written notice from the Optionee to the Company shall be
ineffective to exercise such Option.
As promptly as practicable after the receipt by the Company of (i) such
written notice from the Optionee and (ii) payment, in the form required by the
foregoing provisions of this Section 3.9, of the option price of the shares of
Stock with respect to which such Option is to be exercised, a certificate
representing the number of shares of Stock with respect to which such Option has
been so exercised, such certificate to be registered in the name of such
Optionee, provided that such delivery shall be considered to have been made when
such certificate shall have been mailed, postage prepaid, to such Optionee at
the address specified for such purpose in such written notice from the Optionee
to the Company.
3.10 Form of Options. All Options granted under this Plan will be
nonqualified stock options that are not intended to qualify as incentive stock
options under section 422 of the Internal Revenue Code of 1986, as amended.
B-7
<PAGE> 39
3.11 Written Agreement. Each Option shall be embodied in a written Option
Agreement which shall be subject to the terms and conditions of this Plan and
shall be signed by the Optionee and by an officer of the Company.
3.12 No Rights as Shareholder. No Optionee shall have any rights as a
shareholder with respect to Stock covered by his Option until the date a stock
certificate is issued for the Stock.
ARTICLE IV
AMENDMENT OR TERMINATION OF PLAN
The Board may amend or terminate this Plan at any time, in its sole and
absolute discretion; provided, however, that no amendment shall decrease the
exercise price for Options below the Fair Market Value of the Stock at the time
it is granted.
ARTICLE V
MISCELLANEOUS
5.1 No Retention Obligation. The granting of any Option shall not impose
upon the Company any obligation to continue to retain the Optionee's services as
a director of the Company.
5.2 Taxes. The Company shall not be obligated to advise an Optionee of the
existence of any tax that may apply with respect to the grant or exercise of an
Option.
5.3 Gender. If the context requires, words of one gender when used in this
Plan shall include the other and words used in the singular or plural shall
include the other.
5.4 Headings. Headings of Articles and Sections are included for
convenience of reference only and do not constitute part of this Plan and shall
not be used in construing the terms of this Plan.
5.5 Other Compensation. The adoption of this Plan shall not affect any
other compensation in effect for the Non-Employee Directors, nor shall this Plan
preclude the Company from establishing any other forms of compensation for
Non-Employee Directors.
5.6 Other Options. The grant of an Option shall not confer upon an
Optionee the right to receive any future or other Options under this Plan.
5.7 Arbitration of Disputes. Any controversy arising out of or relating to
the Plan or an Option Agreement shall be resolved by arbitration conducted
pursuant to the arbitration rules of the American Arbitration Association. The
arbitration shall be final and binding on the parties.
5.8 Governing Law. The provisions of this Plan shall be construed,
administered, and governed under the laws of the State of Texas.
B-8
<PAGE> 40
DXP ENTERPRISES, INC.
PROXY -- ANNUAL MEETING OF SHAREHOLDERS
JUNE 8, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned holder of Preferred Stock of DXP Enterprises, 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 8, 1999, at 9:00
a.m., Houston time, at the offices of the Company, 7272 Pinemont, Houston, Texas
77040, 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.
(1) ELECTION OF DIRECTORS:
<TABLE>
<S> <C>
FOR all of the nominees listed below [ ] WITHHOLD AUTHORITY [ ]
(except as indicated to the contrary to vote for election of directors
below)
</TABLE>
NOMINEES: David R. Little, Jerry J. Jones, 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) Proposal to approve the DXP Enterprises, Inc. 1999 Employee Stock Option
Plan.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
(continued and to be signed on other side)
(3) Proposal to approve the DXP Enterprises, Inc. 1999 Non-Employee Director
Stock Option Plan.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
(4) 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, AND FOR THE PROPOSALS SET
FORTH IN ITEMS 2, 3 AND 4.
Signature of Shareholder(s)
-------------------------------
-------------------------------
Date , 1999.
-------------------
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 such.
<PAGE> 41
DXP ENTERPRISES, INC.
PROXY -- ANNUAL MEETING OF SHAREHOLDERS
JUNE 8, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned holder of Common Stock of DXP Enterprises, 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 8, 1999, at 9:00
a.m., Houston time, at the offices of the Company, 7272 Pinemont, Houston, Texas
77040, 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.
(1) ELECTION OF DIRECTORS:
<TABLE>
<S> <C>
FOR all of the nominees listed below [ ] WITHHOLD AUTHORITY [ ]
(except as indicated to the contrary to vote for election of directors
below)
</TABLE>
NOMINEES: David R. Little, Jerry J. Jones, 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) Proposal to approve the DXP Enterprises, Inc. 1999 Employee Stock Option
Plan.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
(continued and to be signed on other side)
(3) Proposal to approve the DXP Enterprises, Inc. 1999 Non-Employee Director
Stock Option Plan.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
(4) 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, AND FOR THE PROPOSALS SET
FORTH IN ITEMS 2, 3 AND 4.
Signature of Shareholder(s)
-------------------------------
-------------------------------
Date , 1999.
-------------------
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 such.
