<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number 0-21513
DXP ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
Texas 76-0509661
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
580 Westlake Park Boulevard, Suite 1100 77079
Houston, Texas (Zip Code)
(Address of principal executive offices)
281/531-4214
(Registrant's telephone number, including area code)
Index, Inc.
(Former name, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Number of shares outstanding of each of the issuer's classes of common stock,
as of April 21, 1997:
Common Stock: 12,079,975 (6,039,987 after giving effect to two-to-one
reverse stock split effected May 12, 1997)
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Item 1: Financial Statement
DXP ENTERPRISES, INC. AND SUBSIDIARIES
(CONDENSED CONSOLIDATED BALANCE SHEETS)
(In Thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
-------------------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash $ 979 $ 876
Trade accounts receivable, net of allowance for doubtful
accounts of $301,000 and $210,000, respectively 19,899 17,125
Inventory 16,665 17,175
Prepaid expenses and other current assets 266 539
Deferred income taxes 569 511
-------------------------
Total current assets 38,378 36,226
Property and equipment, net 7,792 7,818
Other assets 953 998
Total assets 47,123 45,042
=========================
Liabilities and Shareholders' Equity
Current liabilities:
Trade accounts payable 8,944 6,963
Employee compensation 884 1,296
Other accrued liabilities 965 601
Current portion of long-term debt 623 609
Current portion of subordinated debt -- 1,145
-------------------------
Total current liabilities 11,416 10,614
Long-term debt, less current portion 22,792 22,300
Deferred compensation 739 739
Deferred income taxes 364 330
Equity subject to redemption
Series A Preferred stock--1,496 shares 150 150
Series B convertible preferred stock -- 4,500 shares 450 450
Shareholders' Equity:
Series A preferred stock, 1/10th vote per share; $1.00 par value;
liquidation preference of $100 per share; 1,000,000
shares authorized; 3,366 shares issued and outstanding: 2 2
Series B convertible preferred stock, 1/10th vote per share;
$1.00 par value; $100 stated value; liquidation preference
of $100 per share; 1,000,000 shares authorized; 19,500
shares issued and outstanding 15 15
Common stock, $.01 par value, 100,000,000 shares authorized;
7,993,997 shares issued and outstanding 160 160
Paid-in capital 288 288
Retained earnings 10,747 9,994
-------------------------
Total shareholders' equity 11,212 10,459
Total liabilities and shareholders' equity $47,123 $45,042
=========================
</TABLE>
See notes to condensed consolidated financial statements.
2
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DXP ENTERPRISES, INC. AND SUBSIDIARIES
(CONDENSED CONSOLIDATED STATEMENTS OF INCOME)
(Unaudited)
(In Thousands, except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31
1997 1996
----------------------------
<S> <C> <C>
Sales $ 30,129 $ 30,918
Cost of sales 21,756 22,832
----------------------------
Gross Profit 8,373 8,086
Selling, general and administrative expenses 7,043 7,623
----------------------------
Operating income 1,330 463
Other income 429 368
Interest expense (539) (473)
----------------------------
(110) (105)
----------------------------
Income before income taxes 1,220 358
Provision for income taxes 429 145
----------------------------
Net income $ 791 $ 213
Preferred Stock Dividend 38 23
----------------------------
Net Income Attributable to Common
Shareholders $ 753 $ 190
============================
Primary net income per common and
common equivalent shares $ 0.08 $ 0.02
============================
Number of shares used to compute primary
net income per common and common
equivalent shares 9,892 8,580
============================
Fully diluted net income per common and
common equivalent share $ 0.07 $ 0.02
============================
Number of shares used to compute fully
diluted net income per common and
common equivalent shares 10,984 9,724
============================
</TABLE>
See notes to condensed consolidated financial statements.
3
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DXP ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1997 1996
----------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net cash provided by operating activities $ 1,006 $ 1,851
INVESTING ACTIVITIES
Purchase of Austin Bearing net assets -- (329)
Decrease in notes receivable from shareholders
and employee receivables -- (117)
Purchase of property and equipment (227) (66)
----------------------------
Net cash used in investing activities (227) (512)
FINANCING ACTIVITIES
Proceeds from debt 29,205 27,636
Principal payments on revolving line of credit, long-term and
subordinated debt, and notes payable to bank (29,844) (30,444)
Dividends paid (38) (23)
----------------------------
Net cash used in financing activities (677) (2,831)
----------------------------
INCREASE (DECREASE) IN CASH 102 (1,492)
CASH AT BEGINNING OF PERIOD 876 1,492
============================
CASH AT END OF PERIOD $ 979 $ --
============================
</TABLE>
See notes to condensed consolidated financial statements
4
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DXP ENTERPRISES INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
Note 1: Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been omitted. The Company
believes that the presentations and disclosures herein are adequate to make the
information not misleading. The condensed consolidated financial statements
reflect all elimination entries and adjustments (consisting of normal recurring
adjustments) necessary for a fair presentation of the interim periods.
The results of operations for the interim periods are not necessarily
indicative of the results of operations to be expected for the full year. These
condensed consolidated financial statements should be read in conjunction with
the Company's audited consolidated financial statements included in the
Company's 10-K filing with the Securities and Exchange Commission for 1996.
Note 2: The Company
DXP Enterprises, Inc. (the "Company") was incorporated on July 26, 1996 in the
State of Texas. The Company was formed to facilitate a proposed reorganization
transaction whereby subsequent to July 31, 1996 the Company became a public
holding company and acquired 100% of the outstanding capital stock of SEPCO
Industries, Inc. ("SEPCO"), a private distribution company with revenues
approximating $125 million, and Newman Communications Corporation ("Newman"),
an inactive public entity with nominal net tangible assets.
The Company filed a registration statement on Form S-4 with the Securities and
Exchange to register 18,584,400 shares of its Common Stock, 19,500 shares of
its Series B Convertible Preferred Stock and 3,399 shares of its Series A
Preferred Stock. This registration statement became effective November 12,
1996. Because the Company and Newman are non-operating entities with nominal
tangible net assets, the proposed transaction was accounted for as a
recapitalization of SEPCO into the Company and an issuance of shares for the
net tangible assets of Newman. Accordingly, the historical financial statements
for the Company presented in the filing of this Form 10-Q are those of SEPCO.
Note 3. Per Share Amounts
Net income per common and common equivalent share has been computed on a pro
forma basis as if the reorganization had occurred between the registrant and
SEPCO. These amounts were determined by dividing net income applicable to
common stock by the weighted average number of shares of common stock and
common stock equivalents outstanding during the period. To the extent they are
dilutive, options to purchase common stock issued by the Company within the 12
months preceding the filing of the registration statement referenced above have
been included in the calculation of common equivalent shares outstanding (using
the treasury stock method) as if they were outstanding for all periods
presented. The computation of fully diluted net income per common and common
equivalent share assumes the Class A convertible preferred stock was converted
as of the beginning of the period. Per share amounts have been restated to give
effect to the two-to-one reverse stock split.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS No. 128").
Under SFAS No. 128, primary earnings per share ("Primary EPS") will be replaced
by basic earnings per share ("Basic EPS"), and fully diluted earnings per share
("Fully Diluted EPS") will be replaced with diluted earnings per share ("Diluted
EPS"). Basic EPS differs from Primary EPS in that it only includes the weighted
average impact of outstanding shares of the Company's Common Stock (i.e., it
excludes common stock equivalents and the dilutive effect of options, etc.)
Diluted EPS is substantially similar to Fully Diluted EPS as previously
reported. The provisions of SFAS No. 128 will result in the retroactive
restatement of previously reported Primary EPS and Fully Diluted EPS figures,
but SFAS No. 128 prohibits such restatement prior to December 31, 1997. Based on
the Company's computations, the adoption of SFAS No. 128 is not expected to
impact earnings per share amounts reported during the current quarter or any
recent prior period.
Note 4: Inventory
The company uses the LIFO method of inventory valuation for approximately 75
percent of its inventories. Remaining inventories are accounted for using the
first-in, first-out (FIFO) method. An actual valuation of inventory under the
LIFO method can be made only at the end of each year based on the inventory
levels and costs at that time. Accordingly, interim LIFO calculations must
necessarily be based on management's estimates of expected year-end inventory
levels and costs. Because these are subject to many forces beyond management's
control, interim results are subject to the final year-end LIFO inventory
valuation. The reconciliation of FIFO inventory to LIFO basis is as follows:
5
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<TABLE>
<CAPTION>
12/31/96 3/31/97
----------------------------
(in thousands)
<S> <C> <C>
Finished goods $ 18,215 $ 18,103
Work in process 2,405 2,007
----------------------------
Inventories at FIFO 20,620 20,110
Less - LIFO allowance (3,445) (3,445)
----------------------------
Inventories $ 17,175 $ 16,665
============================
</TABLE>
Note 5: Acquisition
Effective December 31, 1995, SEPCO Industries, Inc. acquired 100% of the
outstanding common stock of Bayou Pumps. The purchase price totaled $500,000
and consisted of (i) issuance of $450,000 of the SEPCO's Class A convertible
preferred stock and (ii) cash of $50,000. The acquisition has been accounted
for using the purchase method of accounting. Goodwill of $400,000 was recorded
in connection with the acquisition.
Effective February 2, 1996, the SEPCO Industries, Inc. acquired the net assets
of Austin Bearing Corporation. The purchase price totaled approximately
$578,000 and consisted of (i) issuance of a $249,000 note, bearing interest at
9%, payable monthly over five years and (ii) cash of $329,000. The acquisition
has been accounted for using the purchase method of accounting. Goodwill of
$84,000 was recorded in connection with the acquisition.
Note 6: Commitments and Contingencies
SEPCO is currently undergoing an examination of its tax returns by the Internal
Revenue Service ("IRS") which is asserting claims against SEPCO for additional
taxes and penalties of approximately $1 million plus interest of approximately
$328,000. This claim relates primarily to a challenge by the IRS of SEPCO's use
of the LIFO method of accounting for inventory. SEPCO believes that its LIFO
elections were valid and currently is pursuing its rights to administrative
appeal. Although an unfavorable outcome on this matter would result in the
payment of additional taxes and impact SEPCO's liquidity position, SEPCO
believes that any liability that may ultimately result from the resolution of
this matter will not have a material adverse effect on the financial position
of SEPCO. The Company has been engaged in discussion with representatives of
the IRS regarding this matter and has reserved $30,000 to cover any possible
tax liability related to this matter.
Note 7: Stock Options
Prior to and during 1995, SEPCO issued non-qualified, book value plan stock
options to certain officers of the Company to purchase shares of its Class A
common stock, which had exercise prices equal to the book value of the common
stock on the date of the grant. The option agreement allowed the employee to
put the stock acquired back to SEPCO at the book value at that time. SEPCO
recognized compensation expense for increases in the book value of the stock
while the options were outstanding.
Effective March, 31, 1996, the stock option agreements were amended to become
non-qualified, market value plan stock options. Under the amended agreement,
the employees can no longer put the acquired stock back to SEPCO. In connection
with these changes, SEPCO recognized approximately $618,000 of compensation
expense in the three months ended March 31, 1996.
6
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Note 8: Long-Term Debt
In September, 1996 SEPCO amended its credit facility, including its $20 million
line of credit, with its lender to extend the maturity to 1999. The amendment
increased the existing balance of the term loan from $123,898 to $5,000,000
upon conversion of approximately $4.9 million of the amounts outstanding under
the revolving loan to the term loan. The interest rate on the line of credit
was reduced to prime plus .50% from prime plus .75%. The line of credit is
secured by accounts receivable, inventory, machinery and equipment and real
estate and matures January, 1999. The borrowings available under the existing
credit facility at March 31, 1997 approximated $2,100,000.
Note 9: Subsequent Events
In February, 1997, the company signed a non-binding letter of intent to
purchase Pelican State Supply Company, Inc. ("Pelican"), a general mill supply
company located in Baton Rouge, Louisiana. Pursuant to the proposed
acquisition, the company would acquire all of the issued and outstanding shares
of capital stock of Pelican for $1.5 million in cash and 432,286 shares of
common stock. The consummation of the acquisition is subject to customary
conditions, including the Company's negotiation and execution of mutually
satisfactory definitive documentation and the completion of a satisfactory
due-diligence review by the Company. There can be no assurance, however, that
the Company will consummate the acquisition of Pelican, or, if consummated,
that the terms will be as described above.
On or about April 30, 1997, a consent statement was furnished to the holders of
the Company's Common Stock, Series A Preferred Stock and Series B Preferred
Stock, in connection with a solicitation of consents by the Board of Directors
of the Company for the adoption of amendments to the Restated Articles of
Incorporation of the Company, that would effect (1) a change in the Company's
name to DXP Enterprises, Inc. and (2) a two-to-one reverse split of the issued
and outstanding shares of Common Stock. The shareholders have approved the name
change and two-to-one reverse stock split which became effective after the close
of market on May 12, 1997.
The shareholders equity section and earnings per share have been restated to
give effect for the two-to-one reverse stock split.
7
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Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Three Months Ended March 31, 1997 Compared to Three Months Ended March 31, 1996
Revenues for the three months ended March 31, 1997 decreased 2.6% to $30.1
million from the three months ended March 31, 1996. The decrease in revenues
for the 1997 period was primarily attributable to a reduction in sales of valve
and valve automation equipment. Sales of valve and valve automation equipment
declined by $1 million over the comparable period in 1996 due primarily to
increased competition. The decrease in valve and valve automation equipment
represents 3.3% of total sales. During the three months ended March 31, 1997,
sales of pumps and pump products increased 2.1% over the comparable period in
1996. Sales of bearings and power transmission equipment for the quarter ended
March 31, 1997 were consistent with the comparable period in 1995.
Gross margins increased 1.6% for the first quarter of 1997 as compared to the
first quarter of 1996, from 26.2% of sales to 27.8%. The increase in margins is
attributable to the company's avoidance of low-margin sales, the ability to
pass on manufacturer price increases, and reductions in cost-of-sales overhead
expenses. The Company currently expects some increase in manufacturers' prices
to continue due to increased raw material costs and strong market conditions.
Although the Company intends to attempt to pass on these price increases to its
customers to maintain current gross margins, there can be no assurance that the
Company will be successful in this regard.
Selling, general and administrative expense decreased as a percentage of
revenues by 5.3% for first quarter of 1997 as compared to the first quarter of
1996, due primarily to the Company's recognition of approximately $618,000 in
compensation expense in 1996 as a result of amending its stock option
agreements from being book value to market value options. In accordance with
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees ("APB 25"), no further compensation expense related to options
currently outstanding will be recognized in future periods. In addition to the
compensation expense, first quarter 1996 results also included expenses
attributable to training and implementation of a new management information
system. Excluding the effect of the non recurring expenses identified above,
selling, general and administrative expenses as a percentage of revenues
remained relatively consistent from period to period.
Operating income for the three month period ended March 31, 1997 as a
percentage of revenues increased from 1.5% of sales to 4.4%, due to the various
factors discussed above.
Interest expense during the first quarter of 1997 increased by $66,000 compared
to the first quarter of 1996. Average debt for the first quarter of 1997 as
compared to the first quarter of 1996 was $2,000,000 higher as a result of
increased inventory and receivable levels during the three months ended March
31, 1997 as compared March 31, 1996. Average interest rates were slightly lower
during the three months ended March 31, 1997 as compared to 1996. Further
increases in inventories may be required to the extent sales and activity
levels increase.
The Company's provision for income taxes for the three months ended March 31,
1997 increased by $284,000 compared to the same period of 1996, as a result of
the increase in profits.
Net income for the three month period ended March 31, 1997, increased $578,000
from the three month period ended March 31, 1996 due to the increase in the
gross profit percentage, the compensation expense of $618,000 recognized in
1996 associated with the company's amendment of its stock option agreements,
and the costs incurred in 1996 relative to the implementation of a new
management information system.
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Liquidity and Capital Resources
Under the Company's credit facility, all available cash is generally applied to
reduce outstanding borrowings, with operations funded through borrowings under
the credit facility. The Company's policy is to maintain low levels of cash and
cash equivalents and to use borrowings under its line of credit for working
capital. The Company had $2.1 million available for borrowings under its
working capital line of credit at March 31, 1997. Working capital at March 31,
1997 and December 31, 1996 was $27 million and $26 million, respectively.
During the first three months of 1997 and the year 1996, SEPCO collected its
trade receivables in approximately 56 and 48 days, respectively, and turned its
inventory approximately five times on an annualized basis.
The Company currently has a $20 million secured line of credit with an
institutional lender. The rate of interest is prime plus .5% (9.00% and 8.75%
at March 31, 1997 and December 31, 1996, respectively). The line of credit is
secured by receivables, inventory, and machinery and equipment and matures
January, 1999. The facility contains customary affirmative and negative
covenants as well as financial covenants that require the Company to maintain a
positive cash flow and other financial ratios, such as aggregate indebtedness to
tangible net worth not more than five to one and current assets to current
liabilities greater than two to one. The Company currently expects to renew the
line of credit at its maturity.
The Company generated cash from operating activities of $1.0 million in the
first three months of 1997 as compared to 1.9 million during the first three
months of 1996 due primarily to a greater investment in the net working capital
components for the first three months of 1997 as compared to the first three
months of 1996.
The Company had capital expenditures of approximately $227,000 for the first
three months of 1997 as compared to $66,000 during the same period of 1996.
Capital expenditures in the first three months of 1997 were for the expansion
of a facility in Laporte, Texas ($80,000), leasehold improvements and furniture
and fixtures at the corporate office and for office equipment and computer
automation. Capital expenditures for 1996 were primarily for office and shop
equipment and computer automation.
During the first quarter of 1996, the Company expended approximately $329,000
for the acquisition of the assets of Austin Bearings.
In February, 1997, the Company signed a non-binding letter of intent to
purchase Pelican State Supply Company, Inc. ("Pelican"), a general mill supply
company located in Baton Rouge, Louisiana. Pursuant to the proposed
acquisition, the Company would acquire all of the issued and outstanding shares
of capital stock of Pelican for $1.5 million in cash and 432,286 shares of
Common Stock. The consummation of the acquisition is subject to customary
conditions, including the negotiation and execution of mutually satisfactory
definitive documentation and the completion of a satisfactory due diligence
review by the Company. There can be no assurance, however, that the Company
will consummate the acquisition of Pelican or, if consummated, that the terms
will be as described above.
The Company is currently undergoing an examination of its tax returns by the
IRS which is asserting claims against SEPCO for additional taxes and penalties
of approximately $1 million plus interest of approximately $328,000. This claim
relates primarily to a challenge by the IRS of SEPCO's use of the LIFO method
of accounting for inventory. SEPCO believes that its LIFO elections were valid
and currently is pursuing its rights to administrative appeal. Although an
unfavorable outcome on this matter would result in the payment of additional
taxes and impact the Company's liquidity position, the Company believes that
any liability that may ultimately result from the resolution of this matter
will not have a material adverse effect on the financial position of the
Company. The company has been engaged in discussions with representatives of
the IRS and has reserved $30,000 to cover any possible tax liability related to
this matter.
The Company believes that cash generated from operations and available under
its credit facility will meet its future ongoing operational and liquidity
needs and capital requirements. Funding of the Company's acquisition program
and integrated supply strategy will require capital in the form of the issuance
of additional equity or debt financing. There can be no assurance that such
financing will be available to the Company or as to the terms thereof.
9
<PAGE> 10
Item 3: Quantitative and Qualitative Disclosures About Market Price
Not Applicable
Part II: Other Information
Item 1. Legal Proceedings - None
Item 2. Changes in Securities
The shareholders of the Company approved an amendment (the "Amendment") to the
Company's Restated Certificate of Incorporation to, among other things, effect
a reclassification of the Company's Common Stock, par value $.01 per share (the
"Common Stock") through a two-to-one reverse stock split. See Item 4
"Submission of Matters to a Vote of Security Holders". The Amendment became
effective after the close of market on May 12, 1997, pursuant to which one new
share of Common Stock will be exchanged for every two shares of Common Stock
outstanding as of May 12, 1997 (the "Effective Date"). Based on information as
of April 25, 1997, the Company anticipates that the number of shares of Common
Stock that would be outstanding on the Effective Date is approximately
6,039,987. In addition, it is expected that 5,551,597 shares of Common Stock
will be reserved for issuance upon the conversion or exercise of various of the
Company's other outstanding securities (convertible preferred stock and
options), and approximately two million shares of Common Stock will be reserved
for issuance to remaining holders of certificates formerly representing shares
of common stock of SEPCO and Newman, leaving a total of approximately 86.4
million shares of Common Stock available for future issuances.
No fractional shares of new Common Stock will be issued for any fractional new
share interest. Rather, each shareholder who would otherwise receive a
fractional new shares of Common Stock as a result of the Amendment will receive
an amount of cash equal to the average of the closing sale price of a share of
Common Stock on the OTC Bulletin Board during the 20 trading days immediately
preceding the Effective Date multiplied by the number of shares of Common Stock
held by such holder that would otherwise have been exchanged for such
fractional interest.
Item 3. Defaults upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders
On or about April 30, 1997, a consent statement was furnished to the holders of
Common Stock, Series A Preferred Stock and Series B Preferred Stock, in
connection with a solicitation of consents by the Board of Directors of the
Company for the adoption of amendments to the Restated Articles of
Incorporation of the Company, that would effect (1) a change in the Company's
name to DXP Enterprises, Inc. and (2) a two-to-one reverse split of the issued
and outstanding shares of Common Stock. The name change and two-to-one reverse
stock split became effective after the close of market on May 12, 1997.
Item 5. Other Information
CAUTIONARY STATEMENTS
The Company's expectations with respect to future results of operations that
may be embodied in oral and written forward-looking statements, including any
forward-looking statements that may be contained in this Quarterly Report on
Form 10-Q, are subject to risks and uncertainties that must be considered when
evaluating the likelihood of the company's realization of such expectations.
The company's actual results could differ materially. Factors that could cause
or contribute to such differences include, but are not limited to, those
discussed below.
10
<PAGE> 11
Substantial Competition
The Company's business is highly competitive. The Company competes with a
variety of industrial supply distributors, some of which may have greater
financial and other resources than the Company. Although many of the Company's
traditional distribution competitors are small enterprises selling to customers
in a limited geographic area, the company also competes with larger
distributors that provide integrated supply programs such as those offered
through the iPower Consortium and outsourcing services similar to those that
are being offered by American MRO, Inc. ("AMRO"), a wholly-owned subsidiary of
the Company. Some of these large distributors may be able to supply their
products in a more timely and cost-efficient manner than the Company. The
Company's competitors include direct mail suppliers, large warehouse stores
and, to a lesser extent, certain manufacturers.
Risks Associated with Implementation of Corporate Strategy
Future results for the Company also will be dependent on the success of the
Company in implementing its acquisition and growth strategy. This strategy
includes taking advantage of a consolidation in the industry and effecting
acquisitions of distributors with complementary or desirable new product lines,
strategic distribution locations and attractive customer bases and manufacturer
relations. The Company's strategy also includes expanding its product lines,
adding new product lines and establishing alliances and joint ventures with
other suppliers in order to provide the Company's customers with a source of
integrated supply. The ability of the Company to implement this strategy will
depend on its ability to identify, consummate and assimilate acquisitions on
economic terms, to acquire and successfully integrate new product lines and to
establish and successfully market new integrated forms of supply arrangements
such as that being pursued by AMRO. Although the Company is actively seeking
acquisitions and integrated supply arrangements that would meet its strategic
objectives, there can be no assurance that the company will be successful in
these efforts. Further, the ability of the Company to effect its strategic
plans will depend on obtaining financing for its planned expansions and
acquisitions. There can be no assurance that such financing will be available
on a timely basis or on terms satisfactory to the Company. The Company plans to
examine appropriate methods of financing any such acquisition, including
issuance of additional capital stock, debt or other securities or a combination
of both. If the Company were to issue shares of its capital stock in any
acquisition, such issuance could be dilutive to existing shareholders.
Dependence on Key Personnel
The company will continue to be dependent to a significant extent upon the
efforts and ability of David R. Little, its Chairman of the Board and Chief
Executive Officer. The loss of the services of Mr. Little or any other
executive officer of the company could have a material adverse effect on the
Company's financial condition and results of operations. The Company does not
maintain key-man life insurance on Mr. Little or on the lives of its other
executive officers. In addition, the Company's ability to grow successfully
will be dependent upon its ability to attract and retain qualified management
and technical and operational personnel. The failure to attract and retain such
persons could materially adversely effect the Company's financial condition and
results of operation.
Risks Associated with Hazardous Materials
Certain of the Company's activities involve the controlled use of hazardous
materials and chemicals. Although the Company believes that its safety
procedures for handling and disposing of such materials comply with the
standards prescribed by state and federal regulations, the risk of accidental
contamination or injury from these materials cannot be eliminated completely.
In the event of such an accident, the Company could be held liable for any
damages that result and any such liability could exceed the resources of the
Company.
IRS Examination
The Company currently is undergoing an examination of its tax returns by the
IRS. The IRS has asserted claims against SEPCO for additional taxes and
penalties of approximately $1 million plus interest of approximately $328,000.
This claim relates primarily to a challenge by the IRS of SEPCO's use of the
LIFO method of accounting for inventory. Although the Company believes that its
LIFO elections were valid and is pursuing its rights to administrative appeal,
an unfavorable outcome on this matter would result
11
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in the payment of additional taxes and impact the company's liquidity position.
The Company has been engaged in discussions with representatives of the IRS and
has reserved $30,000 to cover any possible tax liability related to this
matter.
Limitations on Ability to Pay Dividends
The Company anticipates that future earnings, except for dividends payable on
the Series B Convertible Preferred Stock, will be retained to finance the
continuing development of its business. Accordingly, the Company does not
anticipate paying cash dividends on the common Stock in the foreseeable future.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Restated Articles of Incorporation, as amended
4.1 Form of Common Stock Certificate
11.1 Statement re: Computation of Per Share Earnings
27.1 Financial Data Schedule
(b) Reports of Form 8-K
None
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
DXP Enterprises, Inc.
By: /s/ Gary A. Allcorn
------------------------------------
Gary A. Allcorn
Senior Vice President/Finance
(Duly authorized officer and
principal financial officer)
12
<PAGE> 13
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
3.1 Restated Articles of Incorporation, as amended
4.1 Form of Common Stock Certificate
11.1 Statement re: Computation of Per Share Earnings
27.1 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 3.1
ARTICLES OF AMENDMENT
TO THE
RESTATED ARTICLES OF INCORPORATION
OF
INDEX, INC.
Pursuant to the provisions of Article 4.04 of the Texas Business
Corporation Act, the undersigned corporation adopts the following Articles of
Amendment to its Restated Articles of Incorporation:
ARTICLE ONE
The name of the corporation is Index, Inc.
ARTICLE TWO
The following amendments to the Restated Articles of Incorporation
were adopted by the shareholders of the corporation on May 6, 1997.
1. The following amendment alters or changes Article I which is
amended and restated in its entirety as follows:
"ARTICLE I
The name of the corporation is DXP Enterprises, Inc."
2. The following amendment alters or changes the first paragraph of
Article IV, which paragraph is amended and restated in its entirety as follows:
"ARTICLE IV
Capital Stock
The total number of shares of stock of all classes which the
Corporation shall have the authority to issue is 110,000,000, of which
100,000,000 shares of the par value $.01 each shall be designated common stock
("Common Stock") and 10,000,000 shares of the par value of $1.00 each shall be
designated serial preferred stock ("Preferred Stock").
At the effective time of this amendment, each share of Common Stock
issued and outstanding immediately prior to the effective time shall
automatically be changed and converted, without any action on the part of the
holder thereof, into one-half of a share of Common Stock and, in lieu of
fractional interests in shares of Common Stock of the Corporation, each holder
whose aggregate holdings of shares of Common Stock prior to the effective time
of this amendment amounted to a number not evenly divisible by two, shall be
entitled to receive for such fractional interest, and at the effective time of
this amendment any such fractional interest in shares of Common Stock of the
Corporation shall be converted into the right to receive, upon the surrender of
the stock certificates formerly representing shares of Common Stock of the
corporation, an amount in cash equal to the average closing price per
<PAGE> 2
share for the shares of the Common Stock on the OTC Bulletin Board of the
National Association of Securities Dealers, Inc. (the "NASD"), as reported by
the NASD, for the 20 trading days immediately preceding the date on which this
amendment becomes effective.
A statement of all of the powers, preferences and rights, and the
qualifications, limitations or restrictions thereof in respect of the Common
Stock and the Preferred Stock is as follows:"
3. The following amendment alters or changes paragraph (B)(3)(d)(i)
of Article Four of the original Restated Articles of Incorporation, which
paragraph is amended and restated in its entirety as follows:
"(i) At any time prior to the redemption of any share of
Series B Preferred Stock, the holder of such shares of Series B Preferred Stock
shall have the right to convert such share into 56 shares of Common Stock. The
right to receive the converted shares requires delivery to the office of the
Corporation or its transfer agent of the shareholder's written notice stating
the number of shares the shareholder is electing to convert. Said notice shall
be accompanied by the surrender of the Series B Preferred Stock certificate or
certificates, duly endorsed to the Corporation. The date of conversion shall be
the date of receipt by the Corporation or its transfer agent of the notice and
the duly endorsed certificate or certificates."
ARTICLE THREE
The number of shares of the corporation outstanding at the time of
such adoption was 12,098,154 and the number of shares entitled to vote thereon
was 12,098,154 (representing 12,081,972.9 votes)
ARTICLE FOUR
The holders of at least 8,126,384 votes entitled to be cast in respect
of the shares outstanding and entitled to vote on said amendment have signed a
consent in writing adopting said amendment, which is the vote required by the
Company's Restated Articles of Incorporation for the adoption of said
amendment, pursuant to Article 2.28(D) of the Texas Business Corporation Act.
Dated: May 6, 1997.
INDEX, INC.
By: /s/ DAVID R. LITTLE
-------------------------------
David R. Little
President
-2-
<PAGE> 3
ARTICLES OF CORRECTION
Pursuant to Article 1302-7.01 of the Texas Revised Civil Statutes, the
undersigned corporation hereby submits the following Articles of Correction:
1. The name of the corporation is Index, Inc.
2, The instrument to be corrected is the Restated Articles of
Incorporation (the "Restated Articles") filed with the Secretary of State of
the State of Texas on August 12, 1996.
3. Sections B(3)(d) (entitled "Voting"), B(3)(e) and B(3)(f) of
Article IV of the Restated Articles are erroneously numbered; such Sections
should be numbered B(3)(e), B(3)(f) and B(3)(g), respectively. Additionally,
Sections B(3)(d) (entitled "Voting") and B(3)(e) of Article IV of the Restated
Articles contain erroneous references to Series A Preferred Stock; such
references should be to Series B Preferred Stock.
4. Sections B(3)(d) (entitled "Voting"), B(3)(e) and B(3)(f) of
Article IV of the Restated Articles are hereby corrected to read as follows:
"(e) Voting. Each share of Series B Preferred Stock shall entitle
the holder thereof to one-tenth (1/10) of one vote on each matter
presented to the shareholders generally voting as a single class with
the Common Stock and any other class or series of stock having similar
voting rights. The holders of the Series B Preferred Stock shall not
be entitled to vote as a class on any matter except as required by
law."
"(f) Exclusion of Other Rights. Unless otherwise required by law,
the shares of Series B Preferred Stock shall not have any powers,
preferences, or relative, participating, option or other special
rights other than those specifically set forth herein."
"(g) Stated Value. The stated value of the Series B Preferred
Stock is $100 per share, all of which shall be allocated to the stated
capital of the Corporation."
INDEX, INC.
Date: September 17, 1996 By: /s/ DAVID R. LITTLE
------------------------
David R. Little
Chairman and
Chief Executive Officer
<PAGE> 4
RESTATED ARTICLES OF INCORPORATION
OF
INDEX, INC.
ARTICLE ONE
Index, Inc., pursuant to the provisions of Article 4.07 of the Texas
Business Corporation Act, hereby adopts restated articles of incorporation
which accurately copy the articles of incorporation and all amendments thereto
that are in effect to date and as further amended by such restated articles of
incorporation as hereinafter set forth and which contain no other change in any
provision thereof.
ARTICLE TWO
The articles of incorporation of the corporation are amended by the
restated articles of incorporation as follows:
The total number of shares of stock of all classes which the
Corporation shall have authority to issue has been increased from 102,000,000
shares to 110,000,000 shares. Further, the designated Common Stock, Preferred
Stock and Convertible Preferred Stock have each been designated as a series.
ARTICLE THREE
Each such amendment made by the restated articles of incorporation has
been effected in conformity with the provisions of the Texas Business
Corporation Act and such restated articles of incorporation and each such
amendment made by the restated articles of incorporation were duly adopted by
the shareholders of the corporation on the 2nd day of August, 1996.
ARTICLE FOUR
The number of shares outstanding was 100, and the number of shares
entitled to vote on the restated articles of incorporation as so amended was
100. All of the shareholders have signed a written consent to the adoption of
such restated articles of incorporation as so amended pursuant to Article 9.10
and any written notice required by Article 9.10 has been given.
ARTICLE FIVE
The articles of incorporation and all amendments and supplements
thereto are hereby superseded by the following restated articles of
incorporation which accurately copy the entire text thereof and as amended as
above set forth:
ARTICLE I
Name
The name of the Corporation is Index, Inc. (the "Corporation").
<PAGE> 5
ARTICLE II
Duration
The period of its duration is perpetual.
ARTICLE III
Purpose
The purpose or purposes for which the Corporation is organized is the
transaction of any or all lawful business for which corporations may be
incorporated under the Act.
ARTICLE IV
Capital Stock
The total number of shares of stock of all classes which the
Corporation shall have the authority to issue is 110,000,000, of which
100,000,000 shares of the par value of $.01 each shall be designated common
stock ("Common Stock") and 10,000,000 shares of the par value of $1.00 each
shall be designated serial preferred stock ("Preferred Stock"). A statement
of all of the powers, preferences and rights, and the qualifications,
limitations or restrictions thereof in respect of the Common Stock and the
Preferred Stock is as follows:
A. Common Stock.
1. Dividends. Subject to any rights of the Preferred Stock or
any series thereof and the conditions set forth in paragraph B of this Article
IV or in any resolution of the Board of Directors of the Corporation providing
for the issuance of any series of Preferred Stock, the holders of the Common
Stock shall be entitled to receive, when, as and if declared by the Board of
Directors, out of funds legally available therefor, dividends payable in cash,
stock or otherwise.
2. Voting Rights. Each holder of Common Stock shall be entitled
to one vote for each share held on each matter presented to shareholders
generally. Notwithstanding the foregoing, the Corporation may, without the
approval or consent of any holder of the Common Stock, amend these Articles of
Incorporation in any manner that would solely effect changes in the
preferences, limitations and relative rights of one or more series of stock of
the corporation which has been established pursuant to the authority granted
the Board of Directors of the corporation pursuant to paragraph B of this
Section 2 if (x) such amendment is approved by the holders of a majority of the
outstanding shares of the series of stock so affected and (y) the preferences,
limitations and relative rights of such series after giving effect to such
amendment and of any new series that may be established as a result of a
reclassification of such series are, in each case, no greater than those
preferences, limitations and rights permitted to be fixed and determined by the
Board of Directors of the corporation with respect to the establishment of any
new series of shares pursuant to the authority granted the Board of Directors
of the corporation in these Articles of Incorporation.
B. Preferred Stock.
1. Authorized Shares. The Preferred Stock may be divided into
and issued in one or more series. Of the 10,000,000 authorized shares of
Preferred Stock, (i) 1,000,000 shares have been designated as Series A
Preferred Stock (the "Series A Preferred Stock"), (ii) 1,000,000 shares have
been designated as Series B Convertible Preferred Stock (the "Series B
Preferred Stock") and (iii) 8,000,000 shares are available for future
designation as provided herein.
2. Series A Preferred Stock
-2-
<PAGE> 6
The holders of the Series A Preferred Stock shall have the
following rights and preferences:
(a) Dividends. The holders of Series A Preferred Stock shall not
as a matter of right be entitled to be paid or receive or have declared or set
apart for such Series A Preferred Stock, any dividends or distributions of the
Corporation in respect thereof.
(b) Liquidation, Dissolution and Winding Up. In the event of any
voluntary or involuntary liquidation, dissolution or winding up of the affairs
of the Corporation, the holders of the Series A Preferred Stock shall be
entitled to receive $100.00 in cash and no more for each share of Series A
Preferred Stock held by them, before any distribution of the assets of the
Corporation shall be made to the holders of any other outstanding shares of the
Corporation, unless funds necessary for such payment shall have been set aside
in trust for the account of the holders of outstanding shares of Series A
Preferred Stock so as to be and continue to be available therefor. The holders
of shares of Series A Preferred Stock shall be entitled to no further
participation in any distribution of the assets of the Corporation. If upon
such liquidation, dissolution or winding up, the assets of the Corporation
distributable as aforesaid among the holders of shares of Series A Preferred
Stock are insufficient to permit the payment to holders of Series A Preferred
Stock of $100.00 per share then the assets of the Corporation shall be
distributed to the holders of shares of Preferred Stock ratably according to
their respective shares until they shall have received the full amount to which
they would otherwise be so entitled.
(c) Redemption. No shares of Series A Preferred Stock shall be
callable or redeemable by the Corporation. Any shares of Series A Preferred
Stock purchased or otherwise acquired by the Corporation shall have the status
of treasury shares of Preferred Stock until such time as such shares are
cancelled pursuant to the provisions of the Act.
(d) Voting. Each share of Series A Preferred Stock shall entitle
the holder thereof to one-tenth (1/10) of one vote on each matter presented to
shareholders generally voting as a single class with the Common Stock and any
other class or series of stock having similar voting rights. The holders of
the Series A Preferred Stock shall not be entitled to vote as a class on any
matter except as required by law.
(e) Exclusion of Other Rights. Unless otherwise required by law,
the shares of Series A Preferred Stock shall not have any powers, preferences,
or relative, participating, option or other special rights other than those
specifically set forth herein.
3. Series B Preferred Stock
The holders of the Series B Preferred Stock shall have the
following rights and preferences:
(a) Dividends. The holders of the Series B Preferred Stock shall
be entitled to receive dividends out of any funds legally available for that
purpose at the annual rate of six percent (6%) per annum of the stated value
and no more. These dividends are payable in cash monthly on the last day of
each month. The first dividend, after the issuance of such shares, shall be
payable on the last day of the month of issuance. Dividends will accrue from
the date the shares of Series B Preferred Stock are issued and are considered
to accrue from day to day, whether or not earned or declared. The dividends
will be payable before any dividends are paid, declared, or set apart for any
other capital stock of the Corporation. Dividends are cumulative so that if
for any dividend period the dividends on the outstanding Series B Preferred
Stock are not paid or declared and set apart, the deficiency shall be fully
paid or
-3-
<PAGE> 7
declared and set apart for payment, without interest, before any distribution
(by dividend or otherwise) is paid on, declared, or set apart for any other
capital stock of the Corporation. The holders of shares of Series B Preferred
Stock shall not be entitled to receive any other dividends or distributions.
(b) Liquidation, Dissolution and Winding Up. Subject to the
rights of the holders of the Series A Preferred Stock, in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the affairs
of the Corporation, the holders of outstanding shares of Series B Preferred
Stock shall be entitled to receive $100.00 in cash for each share, before any
distribution of the assets of the Corporation shall be made to the holders of
any other class or series of shares of the Corporation unless funds necessary
for such payment shall have been set aside in trust for the account of the
holders of outstanding shares of Series B Preferred Stock so as to be and
continue to be available therefor. If upon such liquidation, dissolution or
winding up, the assets of the Corporation distributable as aforesaid among the
holders of shares of Series B Preferred Stock are insufficient to permit the
payment to the holders of outstanding shares of Series B Preferred Stock of
$100.00 per share, then the assets of the Corporation shall be distributed to
the holders of outstanding shares of Series B Preferred Stock ratably according
to their respective shares until they shall have received the full amount to
which they would otherwise be so entitled. The holders of the Series B
Preferred Stock shall also be entitled to participate on a pro rata basis
(based on the outstanding number of shares) in any distributions made to the
holders of the Common Stock or other class or series of stock that is entitled
to distributions upon satisfaction of all shares entitled to preferred
distribution.
(c) Redemption.
(i) The Corporation, at the option of the Board of
Directors, may at any time five (5) years from the date of initial issuance
redeem the whole, or any part, of the outstanding shares of Series B Preferred
Stock by paying $100.00 per share plus all dividends accrued, unpaid, and
accumulated as provided in this Article through and including the redemption
date and by giving to each record holder of Series B Preferred Stock, at his or
her last known address as shown in the Corporation's records, at least twenty
but not more than sixty days' notice. This redemption notice may be delivered
either in person or in writing, by mail, postage prepaid and must state the
shares to be redeemed, along with the date and plan of redemption, the
redemption price, and the place where the shareholders may obtain payment of
the redemption price on surrendering their share certificates. If only a part
of the outstanding shares of Series B Preferred Stock shares are redeemed,
redemption will be pro rata. No shares of Series B Preferred Stock may be
redeemed unless all accrued dividends on all outstanding shares of Series B
Preferred Stock shares have been paid for all past dividend periods and full
dividends for the current period, except those to be redeemed, have been paid
or declared and set apart for payment. On or after the date fixed for
redemption, each holder of shares called for redemption must, unless the
shareholder has previously exercised the option to convert the holder's shares
of Series B Preferred Stock as provided herein, surrender to the Corporation
the certificate for the shares at the place designated in the redemption notice
and will then be entitled to receive payment of the redemption price. If fewer
than all the shares represented by any surrendered certificate are redeemed, a
new certificate for the unredeemed shares will be issued. If the redemption
notice is duly given and sufficient funds are available to pay all monies
herein required on the date fixed for redemption, then, whether or not the
certificates representing the shares to be redeemed are surrendered, all rights
with respect to the shares shall terminate on the date fixed for redemption,
except for the holders' right to receive the redemption price, without
interest, on surrendering their certificates.
-4-
<PAGE> 8
(ii) Shares are considered redeemed, and dividends on them
cease to accrue after the date fixed for redemption, if, on or before any date
fixed for redemption of the shares of Series B Preferred Stock as provided
herein, the Corporation deposits as a trust fund with any bank or trust company
a sum sufficient to redeem, on the date fixed for redemption, with irrevocable
instructions and authority to the bank or trust company (a) to publish the
redemption notice (or to complete publication already begun), and (b) to pay,
on and after the date fixed for redemption or before that date, the redemption
price of the shares to their holders when they surrender their certificates.
The deposit is considered to constitute full payment of the shares to their
holders, and from the date of the deposit the shares will no longer be
considered outstanding. Moreover, the holders of the shares will cease to be
shareholders with respect to the shares and will have no rights with respect to
the shares, except to receive from the bank or trust company payment of the
redemption price of the shares (without interest) on surrendering of the
certificates unless the shares are converted to Common Stock, as provided
herein. Any money so deposited on account of the redemption price of Series B
Preferred Stock share which are converted after the deposit is made must be
repaid immediately to the Corporation on conversion of the Series B Preferred
Stock.
(iii) Share of Series B Preferred Stock redeemed by the
Corporation shall be restored to the status of authorized but unissued shares.
(d) Conversion.
(i) At any time prior to the redemption of any share of
Series B Preferred Stock, the holder of such shares of Series B Preferred Stock
shall have the right to convert such share into 112 shares of Common Stock.
The right to receive the converted shares requires delivery to the office of
the Corporation or its transfer agent of the shareholder's written notice
stating the number of shares the shareholder is electing to convert. Said
notice shall be accompanied by the surrender of the Series B Preferred Stock
certificate or certificates, duly endorsed to the Corporation. The date of
conversion shall be the date of receipt by the Company or its transfer agent of
the notice and the duly endorsed certificate(s).
(ii) Neither fractional shares nor scrip or other
certificates representing the shares may be issued by the Corporation on
conversion of shares of Series B Preferred Stock, but the Corporation must pay
in lieu thereof the full value in cash to the holders who would be entitled to
receive the fractional shares but for this provision.
(iii) The Corporation must at all time reserve out of its
authorized but unissued shares of Common Stock the full number of shares
deliverable on conversion of all shares hereunder from time to time
outstanding. Said shares are reserved solely for the purpose of satisfying the
conversion requirements.
(iv) The number of shares and securities or other property
issuable upon the conversion of the Series Preferred Stock shall be subject to
adjustment from time to time in the event of any reclassification of the Common
Stock, the issuance of any stock dividend or stock split in respect of the
Common Stock, share exchange involving the Common Stock or other similar
transaction so that the holders of the Series B Preferred Stock shall be
entitle to receive on conversion of the shares of Series B Preferred Stock that
number of shares and other securities or property that a holder of a share of
Common Stock received in such reclassification, stock dividend, stock split,
share exchange or similar transaction. Such adjustments shall be determined by
the Board of Directors of the Corporation, whose determination shall be final
and conclusive. Such adjustments shall be made for successive transactions.
-5-
<PAGE> 9
(d) Voting. Each share of Series A Preferred Stock shall entitle
the holder thereof to one-tenth (1/10) of one vote on each matter presented to
shareholders generally voting as a single class with the Common Stock and any
other class or series of stock having similar voting rights. The holders of
the Series A Preferred Stock shall not be entitled to vote as a class on any
matter except as required by law.
(e) Exclusion of Other Rights. Unless otherwise required by law,
the shares of Series A Preferred Stock shall not have any powers, preferences,
or relative, participating, option or other special rights other than those
specifically set forth herein.
(f) Stated Value. The stated value of the Series B Preferred
Stock is $100 per share, all of which shall be allocated to the stated capital
of the Corporation.
4. Future Designations
Subject to the provisions of paragraph A of this Article IV, the Board
of Directors of the Corporation is hereby vested with authority from time to
time to establish and designate such series of Preferred Stock from the
authorized but unissued shares of Preferred Stock as it may deem desirable, and
within the limitations prescribed by law or set forth herein, to fix and
determine the relative rights and preferences of the shares of any series so
established. The Board of Directors shall exercise such authority by the
adoption of a resolution or resolutions as prescribed by law, setting forth the
designation of the series and fixing and determining the relative rights and
preferences thereof or so much thereof as shall not be fixed and determined
herein. The Board of Directors may increase or decrease the number of shares of
a series by adopting a resolution fixing and determining the new number of
shares of each series in which the number of shares is increased or decreased;
provided, however, no decrease may reduce the number of shares within a series
to less than the number of shares within such series that are then issued.
C. Provisions Applicable to All Stock.
1. Voting Rights. The holders of a majority of the shares of the
Corporation's stock of any class entitled to vote, represented in person or by
proxy, shall constitute a quorum at a meeting of shareholders. Subject to the
provisions of paragraph A of this Article IV, the vote of the holders of a
majority of the shares entitled to vote and represented at a meeting at which a
quorum is present shall be the act of the shareholders' meeting, except with
respect to certain actions, which require the affirmative vote of the holders
of a majority of the outstanding shares of the Corporation unless any class of
stock of the Corporation is entitled to vote as a class thereon, in which event
the action shall be approved upon the affirmative vote of the holders of a
majority of the outstanding shares within each class entitled to vote as a
class thereon as well as a majority of the outstanding shares. No shareholder
of the Corporation shall have the right of cumulative voting at any election of
directors or upon any other matter.
2. Preemptive Rights. No holder of securities of the Corporation
shall be entitled as a matter of right, preemptive or otherwise, to subscribe
for or purchase any securities of the Corporation now or hereafter authorized
to be issued, or securities held in the treasury of the Corporation, whether
issued or sold for cash or other consideration or as a share dividend or
otherwise. Any such securities may be issued or disposed of by the Board of
Directors to such persons and on such terms as in its discretion it shall deem
advisable.
ARTICLE V
Majority Vote for Approval of Certain Actions
-6-
<PAGE> 10
If, with respect to any matter for which the affirmative vote or
concurrence of the shareholders of the Corporation is required, any provision
of the Texas Business Corporation Act, as the same may be amended from time to
time, would, but for this Article V, require the affirmative vote or
concurrence of the holders of shares having more than a majority of the votes
entitled to vote on such matter, or of any class or series thereof, the
affirmative vote or concurrence of the holders of shares having only a majority
of the votes entitled to vote on such matter, or of any class or series
thereof, shall be required with respect to any such matter.
ARTICLE VI
Written Consents
Except for the election of directors of the Corporation, who when
elected by shareholders shall be elected at either an annual or special meeting
of shareholders called for such purpose, any action required to, or which may,
be taken at any annual or special meeting of shareholders may be taken without
a meeting, without prior notice and without a vote, if a consent or consents in
writing, setting forth the action so taken, shall be signed by the holder or
holders of shares having not less than the minimum number of votes that would
be necessary to take such action at a meeting at which the holders of all
shares entitled to vote on the action were present and voted.
ARTICLE VII
Commencement of Business
The Corporation will not commence business until it has received for
the issuance of its shares consideration of the value of One Thousand
($1,000.00) Dollars consisting of money, labor done, or property actually
received.
ARTICLE VIII
Registered Office and Agent
The street address of its initial registered office is 5555 San
Felipe, 17th Floor, Houston, Texas 77056 and the name of its initial registered
agent at such address is Gary A. Messersmith.
ARTICLE IX
Directors
(A) Number of Directors. The business and affairs of the
Corporation shall be managed by or be under the direction of the Board of
Directors of the Corporation. The number of Directors constituting the initial
Board of Directors is one (1). The number of Directors of the Corporation may
from time to time be changed in accordance with the Bylaws of the Corporation
and the Act.
(B) Name and Address of Director. The name of the person who is to
serve as Director until the first annual meeting of the shareholders, or until
his successor is elected and qualified is DAVID R. LITTLE and his address is
580 Westlake Park Blvd., Suite 1100, Houston, Texas 77079
(C) Directors Liability. No director of the Corporation shall be
liable to the Corporation or any of its shareholders for monetary damages for
an act or omission in the director's capacity as a director, except that this
Article IX shall not authorize the elimination or limitation of liability of a
director of the Corporation to the extent the director is found liable for: (i)
a breach of such director's duty of loyalty to the Corporation or its
shareholders;
-7-
<PAGE> 11
(ii) an act or omission not in good faith that constitutes a breach of duty of
such director to the Corporation or an act or omission that involves
intentional misconduct or a knowing violation of the law; (iii) a transaction
from which such director received an improper benefit, whether or not the
benefit resulted from an action taken within the scope of the director's
office; or (iv) an act or omission for which the liability of a director is
expressly provided by an applicable statute.
ARTICLE X
Limitation of Liability of Directors
A. No director of the Corporation shall be liable to the
Corporation or any of its shareholders for monetary damages for an act or
omission in the director's capacity as a director, except that this Article
VIII shall not authorize the elimination or limitation of liability of a
director of the Corporation to the extent the director is found liable for: (i)
a breach of such director's duty of loyalty to the Corporation or its
shareholders; (ii) an act or omission not in good faith that constitutes a
breach of duty of such director to the Corporation or an act or omission that
involves intentional misconduct or a knowing violation of the law; (iii) a
transaction from which such director received an improper benefit, whether or
not the benefit resulted from an action taken within the scope of the
director's office; or (iv) an act or omission for which the liability of a
director is expressly provided by an applicable statute.
B. If the Texas Business Corporation Act, the Texas Miscellaneous
Corporation Laws Act or any other applicable Texas statute hereafter is amended
to authorize the further elimination or limitation of the liability of
directors of the Corporation, then the liability of a director of the
Corporation shall be limited to the fullest extent permitted by the Texas
Business Corporation Act, the Texas Miscellaneous Corporation Laws Act and such
other applicable Texas statute, as so amended, and such limitation of liability
shall be in addition to, and not in lieu of, the limitation on the liability of
a director of the Corporation provided by the foregoing provisions of this
Article VIII.
C. Any repeal of or amendment to this Article VIII shall be
prospective only and shall not adversely affect any limitation on the liability
of a director of the Corporation existing at the time of such repeal or
amendment.
ARTICLE XI
Indemnification of Officers and Directors
(A) Indemnification of Directors. To the fullest extent permitted by
Section B and Section E of Article 2.02-1 of the Act, the Corporation shall
indemnify each person who was, is, or is threatened to be made a named
defendant or respondent in a proceeding because the person is or was a director
of the Corporation, and this provision for indemnification shall be deemed to
constitute authorization of such indemnification in the manner required by
Section G of said Article 2.02-1 of the Act.
(B) Expenses of a Defendant. To the fullest extent permitted by
Section K of Article 2.02-1 of the Act, reasonable expenses incurred by a
director of the Corporation who was, is, or is threatened to be made a named
defendant or respondent in a proceeding shall be paid or reimbursed by the
Corporation, in advance of the final disposition of such proceeding, after the
Corporation receives a written affirmation by the director of his good faith
belief that he has met the standard of conduct necessary for indemnification by
the Corporation and the Corporation receives a written undertaking by or behalf
of the director to repay the amount paid or reimbursed if it is ultimately
determined that he has not met that standard or if it is ultimately determined
that indemnification of the director against expenses incurred by him
-8-
<PAGE> 12
in connection with that proceeding is otherwise prohibited by said Article
2.02-1 of the Act. This provision for payment or reimbursement shall be deemed
to constitute authorization of such payment or reimbursement as provided by
said Section K of Article 2.02-1 of the Act.
(C) Officers. Pursuant to Section O of Article 2.02-1 of the Act,
the Corporation shall indemnify and advance expenses to an officer of the
Corporation to the same extent that the Corporation shall indemnify and pay or
reimburse expenses to directors of the Corporation as set forth in subsections
(A) and (B) hereinabove.
(D) Expenses of a Witness. To the fullest extent permitted by
Section N of Article 2.02-1 of the Act, the Corporation shall pay or reimburse
expenses incurred by a director or officer in connection with his appearance as
a witness or other participation, only in his capacity as a director or officer
of the Corporation, in a proceeding at a time when he is not a named defendant
or respondent in the proceeding as set out therein.
(E) Other. In addition to the foregoing, the Corporation hereby
adopts all other terms, provisions and authorizations of Article 2.02-1 of the
Act, not in conflict with subsections (A), (B), (C) and (d) hereinabove,
including but not limited to Sections H, I, J and O of said Article 2.02-1 of
the Act. It is the intention of the Corporation to provide the maximum
indemnification allowed by law to its directors and officers and to make
mandatory in all instances any permissive provisions of Article 2.02-1 of the
Act for the benefit of the Corporation's directors and officers.
(F) Insurance. The Corporation shall have power to purchase and
maintain insurance or another arrangement on behalf of any person who is or was
a director, officer, employee or agent of the Corporation, or is or was serving
at the request of the Corporation as a director, officer, partner, venturer,
proprietor, trustee, employee, agent, or similar functionary of another
corporation, partnership, joint venture, sole proprietorship, trust, employee
benefit plan or other enterprise against any liability asserted against him and
incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under the provisions of this Article or the Act.
(G) Amendment of this Article. No amendment or repeal of this
Article shall apply to or have any affect on the indemnification or
reimbursement of any director or officer of the Corporation for or with respect
to any such indemnification or reimbursement on the part of such director or
officer for events covered by such indemnification or reimbursement occurring
prior to such amendment or repeal.
(H) Amendment of the Act. In the event any provision of the Act set
out in this Article is amended, altered or repealed in any way, then any such
amendment, alteration or repeal shall be incorporated herein without the
necessity of any further action by the corporation upon the effective date of
such action.
ARTICLE XII
Amendment of Bylaws
The shareholders of the Corporation hereby delegate to the Board of
Directors the power to adopt, alter, amend or repeal the Bylaws of the
Corporation. Such power shall be vested exclusively in the Board of Directors
and shall not be exercised by the shareholders.
-9-
<PAGE> 13
ARTICLE XIII
Power to Call Special Shareholders' Meetings
Special meetings of the shareholders of the Corporation may be called
by the President of the Corporation, the Board of Directors or holders of not
less than thirty (30%) percent of all the shares entitled to vote at the
proposed special meeting of the shareholders.
ARTICLE XIV
Amendments
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in these Articles of Incorporation or in its Bylaws in
the manner now or hereafter prescribed by the Act or these Articles of
Incorporation, and all rights conferred on shareholders herein are granted
subject to this reservation.
-10-
<PAGE> 14
Executed this the 12th day of August, 1996.
INDEX, INC.
By: /s/ DAVID R. LITTLE
----------------------------------
Name: David R. Little
--------------------------------
Title: Chairman & CEO
-------------------------------
-11-
<PAGE> 1
EXHIBIT 4.1
COMMON STOCK COMMON STOCK
INCORPORATED UNDER THE
LAWS OF THE STATE OF TEXAS
NUMBER DXP ENTERPRISES, INC. SHARES
I--
CUSIP 233377 10 0
SEE REVERSE FOR CERTAIN DEFINITIONS
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK,
PAR VALUE $.01 PER SHARE, OF
DXP Enterprises, Inc., transferable on the books of the Corporation by the
holder hereof in person or by a duly authorized attorney upon surrender of this
certificate properly endorsed. This certificate is not valid until
countersigned by the Transfer Agent and registered by the Registrar.
Witness the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized Officers.
Dated:
/s/ DAVID R. LITTLE Countersigned and Registered
President American Stock Transfer & Trust Company
[SEAL]
Transfer Agent and Registrar
/s/ GARY A. ALLCORN By
Secretary Authorized Signature
<PAGE> 2
DXP ENTERPRISES, INC
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO
REQUESTS A STATEMENT OF THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE,
PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR
SERIES THEREOF AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH
PREFERENCES AND/OR RIGHTS. SUCH REQUESTS MAY BE MADE TO THE SECRETARY OF THE
CORPORATION AT ITS PRINCIPAL PLACE OF BUSINESS. COPIES OF SUCH INFORMATION ALSO
ARE ON FILE WITH THE SECRETARY OF STATE OF THE STATE OF TEXAS.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian
TEN ENT - as tenants by the ------ --------
entireties (Cust) (Minor)
JT TEN - as joint tenants with Uniform Gifts to Minors
right of survivorship Act
and not as tenants
in common ------------------
(State)
Additional abbreviations may also be used though not in the above list.
For Value Received, hereby sell, assign and transfer unto
--------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
[ ]
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE)
----------------------------------------------------------------------------
Shares
----------------------------------------------------------------------
of the Common Stock represented by the within certificate, and do hereby
irrevocably constitute and appoint
----------------------------------------------------------------------------
Attorney,
----------------------------------------------------------------------
----------------------------------------------------------------------------
to transfer the said shares on the books of the within-named Corporation
with full power of substitution in the premises.
X
-------------------------------------------
NOTICE: THE SIGNATURE(S) TO THIS
ASSIGNMENT MUST CORRESPOND WITH
THE NAME(S) AS WRITTEN UPON THE
FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE
WHATEVER.
X
-------------------------------------------
------------------------------------------
ALL GUARANTEES MUST BE MADE BY A FINANCIAL
INSTITUTION (SUCH AS A BANK OR BROKER)
WHICH IS A PARTICIPANT IN THE SECURITIES
TRANSFER AGENTS MEDALLION PROGRAM
("STAMP"), THE NEW YORK STOCK EXCHANGE,
INC. MEDALLION SIGNATURE PROGRAM ("MSP"),
OR THE STOCK EXCHANGES MEDALLION PROGRAM
("SEMP") AND MUST NOT BE DATED. GUARANTEES
BY A NOTARY PUBLIC ARE NOT ACCEPTABLE.
------------------------------------------
<PAGE> 1
Exhibit 11.1: Statement re: Computation of Per Share Earnings.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
<S> <C> <C>
Primary:
Average shares outstanding 7,993,947 7,993,947
Net effect of dilutive stock options -- based
on the treasury stock method using
average market price 1,897,633 586,232
Total common and common stock
equivalents 9,891,580 8,580,179
Net income attributable to
common shareholders $ 753,000 $ 190,000
Per share amount $ .0761 $ .0221
Fully diluted
Average shares outstanding 7,993,947 7,993,947
Net effect of dilutive stock options --
based on the treasure stock method using
period-end market price, if higher than
average market price 1,897,633 637,840
Assumed conversion of Class A convertible
Preferred Stock 1,092,000 1,092,000
Total 10,983,580 9,723,787
Net Income $ 791,000 $ 213,000
Per share amount $ .0722 $ .0219
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONDENSED COMBINED CONSOLIDATED DATE OF FINANCIAL STATEMENTS OF DXP
ENTERPRISES, INCORPORATED AS OF MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 979
<SECURITIES> 0
<RECEIVABLES> 20,200
<ALLOWANCES> 301
<INVENTORY> 16,665
<CURRENT-ASSETS> 38,378
<PP&E> 16,091
<DEPRECIATION> 8,299
<TOTAL-ASSETS> 47,123
<CURRENT-LIABILITIES> 11,416
<BONDS> 0
600
17
<COMMON> 160
<OTHER-SE> 11,035
<TOTAL-LIABILITY-AND-EQUITY> 47,123
<SALES> 30,129
<TOTAL-REVENUES> 30,129
<CGS> 21,756
<TOTAL-COSTS> 21,753
<OTHER-EXPENSES> 7,043
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 539
<INCOME-PRETAX> 1,220
<INCOME-TAX> 429
<INCOME-CONTINUING> 791
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 791
<EPS-PRIMARY> .08
<EPS-DILUTED> .07
</TABLE>
