<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 September 30, 1998
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)
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 November 1, 1998:
Common Stock: 4,210,762
<PAGE> 2
PART 1. FINANCIAL INFORMATION.
ITEM 1: FINANCIAL STATEMENTS.
DXP ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash $ 2,102 $ 736
Trade accounts receivable, net of allowance for doubtful
accounts of $1,208 and $476, respectively 26,651 25,707
Inventory 28,957 26,018
Prepaid expenses and other current assets 1,624 996
Deferred income taxes 966 722
------------- ------------
Total current assets $ 60,300 $ 54,179
Property, plant and equipment, net 12,139 10,403
Goodwill 10,714 2,623
Other assets 466 431
------------- ------------
Total assets $ 83,619 $ 67,636
============= ============
Liabilities and Shareholders' Equity
Current liabilities:
Trade accounts payable $ 15,588 $ 14,368
Employee compensation 1,648 1,384
Other accrued liabilities 40 704
Current portion of long-term debt 3,115 1,461
------------- ------------
Total current liabilities $ 20,391 $ 17,917
Long-term debt, less current portion 44,327 33,395
Deferred compensation 739 739
Deferred income taxes 560 479
Equity subject to redemption:
Series A preferred stock--1,122 shares 112 112
Common stock, 140,214 shares 1,963 1,963
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; 2,992 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; 17,700
shares issued and 15,000 outstanding 18 18
Common stock, $.01 par value, 100,000,000 shares
authorized; 4,210,762 shares issued, of which 4,018,612
shares are outstanding, 140,214 shares are equity subject to
redemption, and 51,936 shares are treasury stock 40 40
Paid-in capital 908 892
Retained earnings 15,340 12,659
Treasury stock (781) (580)
------------- ------------
Total shareholders' equity 15,527 13,031
------------- ------------
Total liabilities and shareholders' equity $ 83,619 $ 67,636
============= ============
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE> 3
DXP ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Sales $ 52,296 $ 48,806 $ 153,886 $ 118,277
Cost of sales 38,247 36,334 113,505 86,706
--------- --------- --------- ---------
Gross profit 14,049 12,472 40,381 31,571
Selling, general and administrative expenses 11,940 11,295 33,758 27,642
--------- --------- --------- ---------
Operating income 2,109 1,177 6,623 3,929
Other income 177 86 695 981
Interest expense (1,041) (793) (2,735) (1,960)
--------- --------- --------- ---------
Income before income taxes 1,245 470 4,583 2,950
Provision for income taxes 498 182 1,833 1,070
--------- --------- --------- ---------
Net income $ 747 $ 288 $ 2,750 $ 1,880
Preferred stock dividend 25 38 69 109
--------- --------- --------- ---------
Net income attributable to common
shareholders $ 722 $ 250 $ 2,681 $ 1,771
========= ========= ========= =========
Basic earnings per common share $ .17 $ .06 $ .64 $ .44
========= ========= ========= =========
Common shares outstanding 4,173 4,044 4,168 4,044
========= ========= ========= =========
Diluted earnings per share $ .13 $ .05 $ .49 $ .34
========= ========= ========= =========
Common and common equivalents shares
outstanding 5,635 5,596 5,630 5,596
========= ========= ========= =========
</TABLE>
Send 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>
Nine Months Ended September 30,
1998 1997
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net cash provided(used) by operating activities $ 4,918 ($ 2,081)
INVESTING ACTIVITIES:
Purchase of Tri-Electric Supply, Ltd. net assets (6,208) --
Purchase of Lucky Electric Supply, Inc. net assets (2,206) --
Purchase of Mark W. Smith Equipment, Inc. net assets (4,206) --
Purchase of Strategic Supply net assets -- (4,118)
Purchase of Pelican State Supply common stock (839) (1,070)
Purchase of property and equipment (2,451) (648)
Proceeds from sale of property and equipment 26 --
--------- ---------
Net cash used in investing activities (15,884) (5,836)
FINANCING ACTIVITIES:
Proceeds from debt 168,044 133,488
Principal payments on revolving line of credit, long-term and
Subordinated debt, and notes payable to bank (155,458) (125,314)
Proceeds from sales of Corpus Christi facility -- 112
Issuance of common stock 16 --
Acquisition of common stock (201) (580)
Dividends paid (69) (109)
--------- ---------
Net cash provided by financing activities 12,332 7,597
--------- ---------
INCREASE(DECREASE) IN CASH 1,366 (320)
CASH AT BEGINNING OF PERIOD 736 876
========= =========
CASH AT END OF PERIOD $ 2,102 $ 556
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
4
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DXP ENTERPRISES INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
On May 20, 1998, the Board of Directors of DXP Enterprises, Inc., a Texas
corporation ("DXP" or the "Company"), approved an amendment to the Company's
Restated Articles of Incorporation providing for a two-to-one reverse split of
the Company's Common Stock. On July 6, 1998, the Company's shareholders approved
the reverse stock split, which was effected on July 17, 1998. Unless otherwise
noted, the information in this Report has been restated to give effect to the
reverse stock split.
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 Annual Report for the year ended December 31, 1997, filed with the
Securities and Exchange Commission.
Note 2: The Company
The Company was incorporated on July 26, 1996 in the State of Texas. The Company
is a leading provider of maintenance, repair and operating ("MRO") products,
equipment and services, including engineering expertise and logistics
capabilities, to industrial customers. The Company provides a wide range of MRO
products in the following categories: fluid handling equipment, bearings and
power transmission equipment, general mill and safety supplies and electrical
products. The Company also offers a line of valve and valve automation products
to its customers.
Note 3: Inventory
The Company uses the last-in, first-out ("LIFO") method of inventory valuation
for approximately 60 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:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
(in thousands)
<S> <C> <C>
Finished goods $ 29,609 $ 27,280
Work in process 3,136 2,276
-------- --------
Inventories at FIFO 32,745 29,556
Less - LIFO allowance (3,788) (3,538)
-------- --------
Inventories $ 28,957 $ 26,018
======== ========
</TABLE>
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<PAGE> 6
Note 4: Acquisitions
On February 26, 1998, a wholly-owned subsidiary of the Company acquired
substantially all the assets of Tri-Electric Supply, Ltd. ("Tri-Electric"). The
purchase price consisted of $6.2 million in cash, assumption of $1.6 million of
trade payables and other accrued expenses and a deferred payment of up to a
maximum of $275,000, based on the earnings before interest, taxes and
depreciation of the acquired company, to be paid on March 31, 1999, if earned.
The results of operations of Tri-Electric are included in the consolidated
statements of income of the Company from the date of acquisition. The
acquisition has been accounted for using the purchase method of accounting.
Goodwill of $3.9 million was recorded in connection with the acquisition.
Goodwill may be adjusted based upon the final purchase price; however, it is
anticipated that any such adjustment will be minimal.
On May 31, 1998, a wholly-owned subsidiary of the Company acquired substantially
all the assets of Lucky Electric & Supply, Inc. ("Lucky Electric"). The purchase
price consisted of approximately $1.5 million in cash, a $735,000 promissory
note and the assumption of $149,000 of trade payables and other accrued
expenses. The results of operations of Lucky Electric are included in the
consolidated statements of income of the Company from the date of acquisition.
The acquisition has been accounted for using the purchase method of accounting.
Goodwill of $0.6 million was recorded in connection with the acquisition.
Goodwill may be adjusted based upon the final purchase price; however, it is
anticipated that any such adjustment will be minimal.
Effective as of May 31, 1998, a wholly-owned subsidiary of the Company acquired
substantially all the assets of M.W. Smith Equipment, Inc. ("Smith Equipment").
The purchase price consisted of approximately $4.2 million in cash and the
assumption of $618,000 of trade payables and other accrued expenses. The results
of operations of Smith Equipment are included in the consolidated statements of
income of the Company from the date of acquisition. The acquisition has been
accounted for using the purchase method of accounting. Goodwill of $2.7 million
was recorded in connection with the acquisition. Goodwill may be adjusted based
upon the final purchase price; however, it is anticipated that any such
adjustment will be minimal.
The Company is continuing its evaluation of the acquisitions described in this
Note 4 as they relate to the purchase price allocation. The allocation of the
purchase price is based on the best estimates of the Company using information
currently available. Certain adjustments relating to these acquisitions are
subject to change based upon the final determination of the fair values of the
net assets acquired.
Note 5: Long-Term Debt
The Company currently has a combined line of credit for $50.0 million with a
bank lender (the "Credit Facility"). In the second and again in the fourth
quarter of 1998, the Company and its lender amended the Credit Facility. The
amendments increased the borrowings under the term loan component of the Credit
Facility from approximately $4.9 million to approximately $12.4 million upon
conversion of $5.0 million of the amounts outstanding under the revolving loan
component to the term loan and added an additional $2.5 million term loan
component to be used for the purchase and renovation of real property to serve
as the Company's corporate headquarters. To date, $1.7 million has been advanced
under the real property term loan component. The Credit Facility, as amended,
provides for a $15.0 million acquisition term loan to be used for acquisitions
provided certain customary provisions related to combined cash flows and
acquisition pricing are met and the Company obtains lender approval. To date,
$3.5 million has been advanced under the acquisition term loan. Interest rates
range from LIBOR plus 1.50 to LIBOR plus 3.00 depending upon the relationship of
the Company's debt to cash flow and financial covenants tied to debt service
levels and cash flow. At September 30, 1998, the Company had borrowings under
the Credit Facility of $20.1 million at LIBOR plus 2.00 (approximately 7.64% at
September 30, 1998). The remainder of the Company's borrowings under the Credit
Facility bear interest at prime (8.25% at September 30, 1998) for a weighted
average interest rate of 7.95%.
Borrowings under the Credit Facility are secured by receivables, inventory, and
machinery and equipment and mature January 2000. An executive officer of the
Company, who is also a shareholder and director of the Company, has personally
guaranteed up to $500,000 of the obligations of the Company under the Credit
Facility. Additionally, certain shares held in trust for this executive
officer's children are pledged to
6
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secure borrowings under the Credit Facility. The borrowings available under the
Credit Facility at September 30, 1998 was approximately $5.2 million. The Credit
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.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1998 Compared to Three Months Ended September
30, 1997
Revenues for the three months ended September 30, 1998 increased 7.15% to $52.3
million from the three months ended September 30, 1997. The Company's
acquisitions, which included general mill and safety supply and electrical
supply companies, during the period accounted for all of the $3.5 million
increase in revenues. Sales of bearings and power transmission equipment for the
quarter ended September 30, 1998 decreased 2.4%, or $.3 million over the
comparable period in 1997. Sales of valve and valve automation equipment
decreased 11.4%, or $.3 million over the comparable period in 1997. During the
three months ended September 30, 1998, sales of fluid handling equipment
decreased 6.4% or $1.2 million over the comparable period in 1997. A comparison
of general mill and safety supplies and electrical supplies is not presented due
to the fact that the product categories did not exist during the entire
comparative prior period.
Gross margins increased 1.3% for the third quarter of 1998 as compared to the
third quarter of 1997, from 25.6% of sales to 26.9%. The increase in gross
margin is attributable to a Company wide effort to reduce costs and improve
profits through improved inventory management and operational control and
through the avoidance of low-margin sales. Each operating unit contributed a
higher gross margin in the third quarter of 1998 as compared to the third
quarter of 1997. The Company currently expects some increase in manufacturer's
prices to continue due to increased raw material costs and fair 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
assurances that the Company will be successful in this regard.
Selling, general and administrative expenses decreased slightly as a percentage
of revenues for the third quarter of 1998 as compared to the third quarter of
1997, due primarily to an effort to maintain or reduce operating expenses where
possible.
Operating income for the three month period ended September 30, 1998 increased
as a percentage of revenues by 1.6% to 4.0% as compared to the third quarter of
1997, due to the various factors discussed above.
Interest expense during the third quarter of 1998 increased by $.25 million to
$1.0 million compared to the third quarter of 1997. Long-term debt at September
30, 1998 increased by $10.7 million as a result of the financing of two
acquisitions during the second quarter of 1997, a third during the first quarter
of 1998, two acquisitions during the second quarter of 1998 and the purchase of
real property to be used as the Company's corporate headquarters, resulting in
greater interest costs. Average interest rates were slightly lower during the
three months ended September 1998 as compared to the same period in 1997.
The Company's provision for income taxes for the three months ended September
30, 1998 increased by $.32 million as compared to the same period of 1997, as a
result of the increase in profits.
Net income for the three month period ended September 30, 1998, increased $.46
million from the three month period ended September 30, 1997 due to the increase
in revenue volume and the decrease in selling, general and administrative
expenses as a percentage of revenue.
7
<PAGE> 8
Nine Months Ended September 30, 1998 Compared to Nine Months Ended September 30,
1997
Revenues for the nine months ended September 30, 1998 increased 30.1% to $153.9
million from the nine months ended September 30, 1997. The Company's
acquisitions, which included general mill and safety supply and electrical
supply companies, during the period accounted for $32.8 million of the $35.6
million increase in revenues. Sales of bearings and power transmission equipment
for the nine months ended September 30, 1998 increased 3.5%, or $1.4 million
over the comparable period in 1997, accounting for 1.2% of the revenue increase.
Sales of valve and valve automation equipment increased 15.2%, or $.9 million
over the comparable period in 1997, accounting for .8% of the revenue increase.
During the nine months ended September 30, 1998, sales of fluid handling
equipment remained consistent over the comparable period in 1997. A comparison
of general mill and safety supplies and electrical supplies is not presented due
to the fact that the product categories did not exist during the entire
comparative prior period.
Gross margins remained relatively consistent in the first nine months of 1998 as
compared to 1997. The Company currently expects some increase in manufacturers
prices to continue due to increased raw material costs and fair 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
assurances that the Company will be successful in this regard.
Selling, general and administrative expenses decreased as a percentage of
revenues by 1.4% for the first nine months of 1998 as compared to the first nine
months of 1997, due primarily to an effort to maintain or reduce operating
expenses where possible.
Operating income for the nine month period ended September 30, 1998 increased
68.6% from the corresponding period in 1997, from $3.9 million to $6.6 million,
due to the various factors discussed above.
Interest expense during the first nine months of 1998 increased by $.78 million
to $2.7 million as compared to the first nine months of 1997. The increase was
primarily due to greater interest expense resulting from the financing of two
acquisitions during the second quarter of 1997, a third during the first quarter
of 1998, two acquisitions during the second quarter of 1998 and the purchase of
real property to be used as the Company's corporate headquarters. Average
interest rates were slightly lower during the nine months ended September 30,
1998 as compared to the same period in 1997.
The Company's provision for income taxes for the nine months ended September 30,
1998 increased by $.76 million compared to the same period of 1997, as a result
of the increase in profits.
Net income for the nine month period ended September 30, 1998, increased $.87
million from the nine month period ended September 30, 1997 due to the increase
in revenue volume and the decrease in selling, general and administrative
expenses as a percentage of revenue.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL
Under the Company's loan agreements with its bank lender (the "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 the Credit Facility for working capital. The Company had
$5.2 million available for borrowings under the working capital component of the
Credit Facility at September 30, 1998. Working capital at September 30, 1998 and
December 31, 1997 was $39.9 million and $36.3 million, respectively. During the
first nine months of 1998 and the year ended December 31, 1997, the Company
collected its trade receivables in approximately 50 and 46 days, respectively,
and turned its inventory approximately four times on an annualized basis.
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In the second and again in the fourth quarter of 1998, the Company amended the
Credit Facility, which currently provides for borrowings up to an aggregate of
$50.0 million. Additionally, the amendments increased borrowings under the term
loan component of the Credit Facility from $4.9 million to $12.4 million upon
conversion of $5.0 million of the amounts outstanding under the revolving loan
component to the term loan and added an additional $2.5 million term loan to be
used for the purchase and renovation of real property to serve as the Company's
corporate headquarters. To date, $1.7 million has been advanced under the real
property term loan component. The Credit Facility, as amended, provides for a
$15.0 million acquisition term loan to be used for acquisitions provided certain
customary provisions related to combined cash flows and acquisition pricing are
met and lender approval is obtained. To date, $3.5 million has been advanced
under the acquisition term loan component. Additionally, interest rates range
from LIBOR plus 1.50 to LIBOR plus 3.00 depending upon the relationship of the
Company's debt to cash flow and financial covenants tied to debt service levels
and cash flow. At September 30, 1998, the Company had borrowings under the
Credit Facility of $20.1 million at LIBOR plus 2.00 (approximately 7.64% at
September 30, 1998). The remainder of the Company's borrowings under the Credit
Facility bear interest at prime (8.25% at September 30, 1998) for a weighted
average interest rate of 7.95%. Borrowings under the Credit Facility are secured
by receivables, inventory, and machinery and equipment and mature January 2000.
The Credit 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.
The Company generated cash from operating activities of $4.9 million in the
first nine months of 1998 as compared to $2.1 million utilized during the first
nine months of 1997, due primarily to increased earnings and a decrease in the
Company's trade accounts receivable balance.
The Company had capital expenditures of approximately $2.5 million in the first
nine months of 1998 as compared to $.65 million during the same period of 1997.
Capital expenditures in the first nine months of 1998 were primarily related to
the purchase of real property ($1.7 million) to be used as the corporate
headquarters for the Company's management and administrative group as well as
other office, computer and communication equipment. Capital expenditures for the
first nine months of 1997 were predominantly for the expansion of a facility in
LaPorte, Texas ($.14 million) and computers and related equipment ($.13
million).
During the first nine months of 1998, in three separate transactions, the
Company completed the acquisition of substantially all of the assets of three
unaffiliated businesses for an aggregate consideration consisting of
approximately $11.9 million in cash, $2.3 million of assumed trade payables and
other accrued expenses, $.7 million in a promissory note and up to approximately
$.28 million in a deferred payment (based on the earnings before interest, taxes
and depreciation of one of the acquired businesses). The cash portion of the
consideration was financed through the acquisition term loan under the Credit
Facility. An aggregate of $7.2 million of goodwill was recorded in connection
with these acquisitions, which may be adjusted based on any adjustments to the
purchase prices. The Company believes that any such adjustments would be
minimal.
As described in the Company's Quarterly Report on Form 10-Q for the period ended
June 30, 1998, the Company entered into a letter of intent to acquire the
electrical product distribution assets and operations of Texas Electrical Supply
Company ("TESCO") for a total consideration of approximately $2.7 million in
cash. After further evaluation of the proposed transaction, the Company
determined not to proceed with the proposed acquisition as it did not fit the
Company's strategy.
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. The Company has on file a registration
statement with the Securities and Exchange Commission relating to a possible
public offering of Common Stock. Due to current market conditions, the Company
has decided not to proceed with the offering. There can be no assurance that
future funding will be available to the Company or, if available, as to the
terms and conditions thereof.
Year 2000 Readiness Disclosure
The Company is in the process of assessing its state of readiness for the year
2000. To date, the Company expects that its software will be year 2000 compliant
by the end of the first quarter of 1999. The upgrading of the Company's software
to address year 2000 issues is being handled through new releases of current
software. The Company will continue to analyze systems and services that utilize
date embedded codes that may experience operational problems when the year 2000
is reached. All costs associated with year 2000 issues will be included as part
of normal software upgrades or operating costs, as appropriate. Additionally,
the Company will continue communicating with customers, major vendors and other
material third party relationships to determine if they will be ready for the
year 2000 by the end of 1999. To the extent the Company's customers, vendors and
other third party relationships are not compliant by the year 2000, it could
have a material adverse effect upon the Company's results of operations and
financial condition. The foregoing statements of this paragraph are intended to
be and are hereby designated "Year 2000 Readiness Disclosure" statements within
the meaning of the Year 2000 Information and Readiness Disclosure Act.
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ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Applicable.
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
From time to time, the Company is a party to legal proceedings arising in the
ordinary course of business. The Company is not currently a party to any
litigation that it believes could have a material adverse effect on the results
of operations or financial condition of the Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
On July 17, 1998, the Company entered into a stock purchase agreement with a
common stock holder. The Company has agreed to purchase 43,000 shares (post
stock split) for a total of $401,000 over two installments. On September 1,
1998, the Company purchased one-half of the shares in exchange for $200,500. The
remainder of the shares will be purchased after January 1, 1999, but no later
than June 1, 1999, in exchange for $200,500.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 20, 1998, the Board of Directors of the Company approved an amendment to
the Company's Restated Articles of Incorporation providing for a two-to-one
reverse split of the Company's Common Stock. On July 6, 1998, the Company's
shareholders approved the reverse stock split, which was effected on July 17,
1998. After adjusting for the two-to-one reverse split, holders of 3,247,594
shares of Common Stock voted in favor of the stock split, 10,172 voted against
the stock split and 4,092 abstained.
On July 6, 1998, at the Company's annual meeting of shareholders, the
individuals listed below were elected directors by the holders of Common Stock,
Series A Preferred Stock and Series B Preferred Stock, voting together as a
class. Set forth opposite each director's name is the tabulation of votes cast.
The shares are disclosed taking into effect the two-to-one reverse split.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Nominee Votes For Votes Against Votes Withheld Broker Non-Votes
- ---------------------- -------------------- --------------------- --------------------- --------------------
<S> <C> <C> <C> <C>
David R. Little 3,488,394 226
- ---------------------- -------------------- --------------------- --------------------- --------------------
Jerry J. Jones 3,488,456 164
- ---------------------- -------------------- --------------------- --------------------- --------------------
Cletus Davis 3,488,456 164
- ---------------------- -------------------- --------------------- --------------------- --------------------
Thomas V. Orr 3,488,456 164
- ---------------------- -------------------- --------------------- --------------------- --------------------
Kenneth H. Miller 3,488,456 164
- ------------------------------------------------------------------------------------------------------------
</TABLE>
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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.
Risks Associated With Acquisition Strategy
Future results for the company will depend in part on the success of the Company
in implementing its acquisition strategy. This strategy includes taking
advantage of a consolidation trend in the industry and effecting acquisitions of
distributors with complementary or desirable new product lines, strategic
distribution locations and attractive customer bases and manufacturer
relationships. The ability of the Company to implement this strategy will be
dependent on its ability to identify, consummate and successfully assimilate
acquisitions on economically favorable terms. Although the Company is actively
seeking acquisitions that would meet its strategic objectives, there can be no
assurance that the Company will be successful in these efforts. In addition,
acquisitions involve a number of specific risks, including possible adverse
effects on the Company's operating results, diversion of management's attention
and failure to retain key acquired personnel, all of which could have a material
adverse effect on the Company's business, financial condition and results of
operations. There can be no assurance that the Company or other industrial
supply distributors acquired in the future will achieve anticipated revenues and
earnings. There also can be no assurance that the Company will successfully
integrate the operations and assets of any acquired business with its own or
that the Company's management will be able to manage effectively the increased
size of the Company or operate a new line of business. Any inability on the part
of the Company to integrate and manage acquired businesses could have material
adverse effect on the Company's results of operations and financial condition.
In addition, the Credit Facility contains certain restrictions that could
adversely affect its ability to implement its acquisition strategy. Such
restrictions include a provision prohibiting the Company from merging or
consolidating with, or acquiring all or a substantial part of the properties or
capital stock of, any other entity without the prior written consent of the
lender. There can be no assurance that the Company will be able to obtain the
lender's consent to any of its proposed acquisitions.
Risks Related to Acquisition Financing
The Company currently intends to finance acquisitions by using shares of its
common stock, par value $.01 per share (the "Common Stock"), for a portion or
all of the consideration to be paid. In the event that the Common Stock does not
maintain a sufficient market value, or potential acquisition candidates are
otherwise unwilling to accept Common Stock as part of the consideration for the
sale of their business, the Company may be required to use more of its cash
resources, if available, to maintain its acquisition program. If the Company
does not have sufficient cash resources, its growth could be limited unless it
is able to obtain additional capital through debt or equity financing. Under the
Credit Facility, all available cash generally is applied to reduce outstanding
borrowings. As of September 30, 1998, the Company had $5.2 million available
under the Credit Facility, and there can be no assurance that the Company will
be able to obtain additional financing on a timely basis or on terms the Company
deems acceptable. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources".
Risks Related to Growth Strategy
Future results for the Company also will depend in part on the Company's success
in implementing its internal growth strategy, which includes expanding existing
product lines and adding new product lines.
11
<PAGE> 12
The ability of the Company to implement this strategy will depend on its success
in acquiring and integrating new product lines and marketing integrated forms of
supply arrangements such as those being pursued by the Company through its
SmartSource and American MRO programs. The Company acquired the assets of two
companies in the second quarter of 1997, another in the first quarter of 1998,
two others in the second quarter of 1998 and plans to acquire other distributors
with complementary or desirable product lines and customer bases. Although the
Company intends to increase sales and product offerings to the customers of
these and other acquired companies, reduce costs through consolidating certain
administrative and sales functions and integrate the acquired companies'
management information systems with the Company's system, there can be no
assurance that the Company will be successful in these efforts.
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
outsourcing services similar to those that are being offered by the Company's
SmartSource and American MRO programs. 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 of Economic Trends
Demand for the Company's products is subject to changes in the United States
economy in general and economic trends affecting the Company's customer and the
industries in which they compete in particular. Many of these industries, such
as the oil and gas industry, are subject to volatility while others, such as the
petrochemical industry, are cyclical and materially affected by changes in the
economy. As a result, the Company may experience changes in demand for its
products as changes occur in the markets of its customers.
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, President 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 business, financial
condition and results of operations.
Dependence on Supplier Relationships
The Company has distribution rights for certain product lines and depends on
these distribution rights for a substantial portion of its business. Many of
these distribution rights are pursuant to contracts that are subject to
cancellation upon little or no prior notice. The termination or limitation by
any key supplier of its relationship with the Company could have a material
adverse affect on the Company's business, financial condition and results of
operations.
Risks Associated with Hazardous Materials
Certain of the Company's operations are subject to federal, state and local laws
and regulations controlling the discharge of materials into or otherwise
relating to the protection of the environment. Although the Company believes
that it has adequate procedures to comply with applicable discharge and other
environmental laws, the risks of accidental contamination or injury from the
discharge of controlled or hazardous materials and chemicals 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 have a
material adverse effect on the Company's business, financial condition and
results of operations.
12
<PAGE> 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
10.1 Eighth Amendment to Second Amended and Restated Loan and
Security Agreement and modifications to other agreements
dated October 20, 1998, by and among SEPCO Industries, Inc.,
Bayou Pumps, Inc., American MRO, Inc. and Fleet Capital
Corporation.
10.2 Second Amendment to Loan and Security Agreement dated
October 20, 1998, by and between DXP Acquisition, Inc. and
Fleet Capital Corporation.
10.3 Second Amendment to Loan and Security Agreement dated
October 20, 1998, by and between Pelican State Supply
Company, Inc. and Fleet Capital Corporation.
11.1 Statement re: Computation of Per Share Earnings.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K.
None.
13
<PAGE> 14
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.
Date: November 13, 1998 By: /s/ GARY A. ALLCORN
----------------------------------------
Gary A. Allcorn
Senior Vice President/Finance and
Chief Financial Officer
(Duly authorized officer and
principal financial officer)
14
<PAGE> 15
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10.1 Eighth Amendment to Second Amended and Restated Loan and
Security Agreement and modifications to other agreements
dated October 20, 1998, by and among SEPCO Industries, Inc.,
Bayou Pumps, Inc., American MRO, Inc. and Fleet Capital
Corporation.
10.2 Second Amendment to Loan and Security Agreement dated
October 20, 1998, by and between DXP Acquisition, Inc. and
Fleet Capital Corporation.
10.3 Second Amendment to Loan and Security Agreement dated
October 20, 1998, by and between Pelican State Supply
Company, Inc. and Fleet Capital Corporation.
11.1 Statement re: Computation of Per Share Earnings.
27.1 Financial Data Schedule.
</TABLE>
<PAGE> 1
EXHIBIT 10.1
EIGHTH AMENDMENT TO SECOND AMENDED AND
RESTATED LOAN AND SECURITY AGREEMENT
AND MODIFICATION TO OTHER AGREEMENTS
THIS EIGHTH AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AND SECURITY
AGREEMENT AND MODIFICATION TO OTHER AGREEMENTS (this "Amendment") is made and
entered into this 20th day of October, 1998, to be effective as of the
respective date herein indicated, by and among SEPCO INDUSTRIES, INC., a Texas
corporation ("Sepco"), BAYOU PUMPS, INC., a Texas corporation ("Bayou") and
AMERICAN MRO, INC., a Nevada corporation ("American") (Sepco, Bayou and
American being hereinafter individually and collectively referred to as
"Borrower", as governed by the provisions of Section 1.4, Section 1.5, and
Section 1.6 of the Loan Agreement, as hereinafter defined), and FLEET CAPITAL
CORPORATION, a Rhode Island corporation ("Lender"), successor-in-interest by
merger to Fleet Capital Corporation, a Connecticut corporation (Fleet Capital
Corporation, a Connecticut corporation, having been, formerly known as Shawmut
Capital Corporation, and having been the successor-in-interest by assignment to
Barclays Business Credit, Inc., a Connecticut corporation).
RECITALS
A. Sepco and Barclays Business Credit, Inc., have entered into
that certain Second Amended and Restated Loan and Security Agreement, dated as
of April 1, 1994, as amended by that certain First Amendment to Second Amended
and Restated Loan and Security Agreement and Secured Promissory Note, dated
May, 1995, executed by Sepco and Fleet Capital Corporation, a Connecticut
corporation (at that time known as Shawmut Capital Corporation), and as amended
by that certain Second Amendment to Second Amended and Restated Loan and
Security Agreement, entered into on April 3, 1996, executed by Sepco and Fleet
Capital Corporation, a Connecticut corporation, and as amended by that certain
Third Amendment to Second Amended and Restated Loan and Security Agreement,
dated September 9, 1996, executed by Sepco, Bayou and Lender, and as amended by
that certain Fourth Amendment to Second Amended and Restated Loan and Security
Agreement, dated October 24, 1996, executed by Lender and Borrower, and as
amended by that certain letter agreement dated November 4, 1996, entered into
by Lender and Borrower, and as amended by that certain Fifth Amendment to
Second Amended and Restated Loan and Security Agreement, dated June 2, 1997,
executed by Lender and Borrower, and as amended by that certain Sixth Amendment
to Second Amended and Restated Loan and Security Agreement and Amendment to
Other Agreements (the "Sixth Amendment"), and as amended by that certain
Seventh Amendment to Second Amended and Restated Loan and Security Agreement,
entered into on June 30, 1998 (the "Seventh Amendment") (as amended, the "Loan
Agreement").
B. Lender, effective May 1, 1996, as successor-in-interest by
merger to Fleet Capital Corporation, a Connecticut corporation, succeeded to,
and today remains the present holder of, all right, title and interest of Fleet
Capital Corporation, a Connecticut corporation, in the Loan Agreement and each
of the Other Agreements.
C. Borrower and Lender desire to further amend the Loan Agreement
and the Other Agreements as hereinafter set forth.
EIGHTH AMENDMENT TO SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT - Page 1
<PAGE> 2
NOW, THEREFORE, in consideration of the premises herein contained and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties, intending to be legally bound, agree as
follows:
AGREEMENT
ARTICLE I
DEFINITIONS
1.01 Capitalized terms used in this Amendment are defined in the
Loan Agreement, as amended hereby, unless otherwise stated.
ARTICLE II
AMENDMENTS AND MODIFICATION
Effective as of the respective date herein indicated, the Loan
Agreement and the Other Agreements are hereby respectively amended as follows:
2.01 ADDITIONAL CONDITION TO MAKING OF ANY ACQUISITION TERM LOAN.
Effective as of the date hereof, Lender and Borrower agree that in addition to
the Acquisition Term Loans Conditions and the other provisions of Section
2.2(A) of the Loan Agreement, the making of any Acquisition Term Loan shall
require the prior written approval of Lender, which approval may be granted or
withheld in Lender's sole discretion.
2.02 AMENDMENT TO SECTION 9.3(C) OF THE LOAN AGREEMENT. Effective
as of June 30, 1998, Section 9.3(C) of the Loan Agreement is amended and
restated to read in its entirety as follows:
"(C) Maintain, on a consolidated basis in accordance with
GAAP, as of the last day of each fiscal quarter set forth below (the
'Calculation Date'), a ratio of (i) the Senior Debt of DXP and its Subsidiaries
on such Calculation Date, to (ii) an amount equal to (a) the EBITDA of DXP and
its Subsidiaries for the twelve calendar month period ending on such
Calculation Date, plus (b) for any Target Company whose assets were purchased
by Borrower during the twelve calendar month period ending on such Calculation
Date, the Target Company EBITDA of such Target Company for any portion of such
twelve calendar month period preceding the date of closing of the purchase of
such assets by Borrower, minus (c) Capital Expenditures made by DXP and its
Subsidiaries during such period which were not financed either by the proceeds
of the Term Loan or by the proceeds of long-term Indebtedness owing to Persons
other than Lender to the extent that the incurrence of such long-term
Indebtedness did not violate the Loan Agreement, of not greater than the ratio
set forth below on the Calculation Date corresponding thereto:
<TABLE>
<CAPTION>
CALCULATION DATE RATIO
---------------- -----
<S> <C> <C> <C>
(i) June 30, 1998 (i) 4.50 to 1.00
(ii) September 30, 1998 (ii) 4.50 to 1.00
(iii) December 31, 1998 (iii) 4.50 to 1.00
(iv) Each March 31, June 30, (iv) 4.00 to 1.00
September 30, and
December 31 thereafter
occurring
</TABLE>
EIGHTH AMENDMENT TO SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT - Page 2
<PAGE> 3
Notwithstanding the foregoing, beginning with the first
Calculation Date to occur after the consummation of the Stock Offering, and
continuing on each subsequent Calculation Date, the relevant maximum ratio
shall be 3.00 to 1.00."
2.03 AMENDMENT TO SECTION 11.1(Q) OF THE LOAN AGREEMENT. Effective
as of September 30, 1998, Section 11.1(Q) of the Loan Agreement is amended by
deleting therefrom the date "October 1, 1998" and substituting therefor the
date "April 1, 1999".
2.04 AMENDMENT TO SECTION 5.03 OF THE SIXTH AMENDMENT. Effective
as of September 30, 1998, Section 5.03 of the Sixth Amendment (which specifies
the payment dates for the $100,000 fee earned by Lender upon Borrower's
execution of the Sixth Amendment) is amended by deleting therefrom the
reference to the date "September 30, 1998" and substituting therefor the date
"March 31, 1999".
2.05 AMENDMENT TO PAYMENT TERMS IN THE TERM NOTE. Borrower and
Lender hereby agree that notwithstanding the present provisions of Section 2.2
of the Loan Agreement (i) that on the date of execution of the Seventh
Amendment Lender advanced to Borrower $1,700,000 to purchase the real property
legally described on Exhibit A to the Seventh Amendment, rather than $2,500,000
as specified in Section 2.2 of the Loan Agreement, and (ii) that the remaining
$800,000 of the $2,500,000 term loan referred to in Section 2.2 of the Loan
Agreement may be advanced hereafter by Lender to Borrower upon request by
Borrower, although the making of any such subsequent advance shall be in the
sole discretion of Lender. Consequently, effective September 30, 1998, the
last paragraph on page two of the Term Note is amended and restated to read in
its entirety as follows:
"The principal amount of and accrued interest on this Note
shall be due and payable on the dates and in the manner hereinafter
set forth:
(a) interest shall be due and payable monthly, in
arrears, on the first day of each month, commencing on August
1, 1996, and continuing until such time as the full principal
balance, together with all other amounts owing hereunder,
shall have been paid in full;
(b) the outstanding principal balance of this
Note as of September 30, 1998, shall be due and payable in
equal monthly installments of NINETY-SIX THOUSAND FIVE HUNDRED
SIXTY AND NO/100 DOLLARS ($96,560.00) each, commencing on
October 1, 1998, and continuing on the first day of each month
thereafter to and including the first day of December, 1999;
(c) with respect to each advance of the principal
of this Note funded after September 30, 1998, principal
installments equal to 1/120 of the original principal amount
of such advance shall be due and payable monthly, commencing
on the first day of the first month immediately succeeding the
funding of such advance and continuing regularly thereafter on
the first day of each succeeding month thereafter to and
including December 1, 1999; and
(d) the entire unpaid principal balance hereof,
together with any and all other amounts due hereunder, shall
be due and payable on January 2, 2000."
EIGHTH AMENDMENT TO SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT - Page 3
<PAGE> 4
ARTICLE III
NO WAIVERS
3.01 Nothing contained herein shall be construed as a waiver by
Lender of any covenant or provision of the Loan Agreement, the Other
Agreements, this Amendment or of any other contract or instrument between
Borrower and Lender, and the failure of Lender at any time or times hereafter
to require strict performance by Borrower of any provision thereof shall not
waive, affect or diminish any right of Lender to thereafter demand strict
compliance therewith. Lender hereby reserves all rights granted under the Loan
Agreement, the Other Agreements, this Amendment and any other contract or
instrument between Borrower and Lender.
ARTICLE IV
CONDITIONS PRECEDENT
4.01 CONDITIONS TO EFFECTIVENESS. The effectiveness of this
Amendment is subject to the satisfaction of the following conditions precedent
in a manner satisfactory to Lender, unless specifically waived in writing by
Lender:
(a) Lender shall have received each of the following,
each in form and substance satisfactory to Lender, in its sole
discretion, and, where applicable, each duly executed by each party
thereto, other than Lender:
(i) This Amendment, duly executed by Borrower,
together with the relevant Consent, Ratification, and
Amendment, respectively duly executed by David R. Little,
individually, Gary A. Allcorn, Trustee for Kacey Joyce
Little, Nicholas David Little and Andrea Rae Little 1988
Trusts, DXP Enterprises, Inc. ("Parent"), DXP Acquisition,
Inc., d/b/a Strategic Acquisition, Inc. and Pelican State
Supply Company, Inc.; and
(ii) All other documents Lender may request with
respect to any matter relevant to this Amendment or the
transactions contemplated hereby;
(b) The representations and warranties contained herein
and in the Loan Agreement and the Other Agreements, as each is amended
hereby, shall be true and correct as of the date hereof, as if made on
the date hereof;
(c) No Default or Event of Default shall have occurred
and be continuing, unless such Default or Event of Default has been
otherwise specifically waived in writing by Lender; and
(d) All corporate proceedings taken in connection with
the transactions contemplated by this Amendment and all documents,
instruments and other legal matters incident thereto shall be
satisfactory to Lender and its legal counsel.
ARTICLE V
RATIFICATIONS, REPRESENTATIONS AND WARRANTIES
5.01 RATIFICATIONS. The terms and provisions set forth in this
Amendment shall modify and supersede all inconsistent terms and provisions set
forth in the Loan Agreement and the Other Agreements, and, except as expressly
modified and superseded by this Amendment, the terms and provisions of the Loan
Agreement and the Other Agreements are ratified and confirmed and shall
continue in full force and effect.
EIGHTH AMENDMENT TO SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT - Page 4
<PAGE> 5
Each Borrower and Lender agree that the Loan Agreement and the Other
Agreements, as amended hereby, shall continue to be legal, valid, binding and
enforceable in accordance with their respective terms.
5.02 REPRESENTATIONS AND WARRANTIES. Each Borrower hereby
represents and warrants to Lender that (a) the execution, delivery and
performance of this Amendment and any and all Other Agreements executed and/or
delivered in connection herewith have been authorized by all requisite
corporate action on the part of such Borrower and will not violate the Articles
of Incorporation or Bylaws of such Borrower; (b) attached hereto as Annex A is
a true, correct and complete copy of presently effective resolutions of each
Borrower's Board of Directors authorizing the execution, delivery and
performance of this Amendment and any and all Other Agreements executed and/or
delivered in connection herewith, certified by the Assistant Secretary of
Borrower; (c) the representations and warranties contained in the Loan
Agreement, as amended hereby, and any Other Agreement are true and correct on
and as of the date hereof and on and as of the date of execution hereof as
though made on and as of each such date; (d) no Default or Event of Default
under the Loan Agreement, as amended hereby, has occurred and is continuing,
unless such Default or Event of Default has been specifically waived in writing
by Lender; (e) each Borrower is in full compliance with all covenants and
agreements contained in the Loan Agreement and the Other Agreements, as amended
hereby; (f) Sepco has not amended its Articles of Incorporation or its Bylaws
since the date of the Loan Agreement, (g) Bayou has not amended its Articles of
Incorporation or its Bylaws since the date of incorporation of Bayou and (h)
American has not amended its Articles of Incorporation or its Bylaws since the
date of incorporation of American.
ARTICLE VI
MISCELLANEOUS PROVISIONS
6.01 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties made in the Loan Agreement or any Other
Agreement, including, without limitation, any document furnished in connection
with this Amendment, shall survive the execution and delivery of this Amendment
and the Other Agreements, and no investigation by Lender or any closing shall
affect the representations and warranties or the right of Lender to rely upon
them.
6.02 REFERENCE TO LOAN AGREEMENT. Each of the Loan Agreement and
the Other Agreements, and any and all other agreements, documents or
instruments now or hereafter executed and delivered pursuant to the terms
hereof or pursuant to the terms of the Loan Agreement, as amended hereby, are
hereby amended so that any reference in the Loan Agreement and such Other
Agreements to the Loan Agreement shall mean a reference to the Loan Agreement
as amended hereby.
6.03 EXPENSES OF LENDER. As provided in the Loan Agreement, each
Borrower agrees to pay on demand all costs and expenses incurred by Lender in
connection with the preparation, negotiation, and execution of this Amendment
and the Other Agreements executed pursuant hereto and any and all amendments,
modifications, and supplements thereto, including, without limitation, the
costs and fees of Lender's legal counsel, and all costs and expenses incurred
by Lender in connection with the enforcement or preservation of any rights
under the Loan Agreement, as amended hereby, or any Other Agreements,
including, without, limitation, the costs and fees of Lender's legal counsel.
6.04 SEVERABILITY. Any provision of this Amendment held by a court
of competent jurisdiction to be invalid or unenforceable shall not impair or
invalidate the remainder of this Amendment and the effect thereof shall be
confined to the provision so held to be invalid or unenforceable.
EIGHTH AMENDMENT TO SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT - Page 5
<PAGE> 6
6.05 SUCCESSORS AND ASSIGNS. This Amendment is binding upon and
shall inure to the benefit of Lender and each Borrower and their respective
successors and assigns, except that no Borrower may assign or transfer any of
its rights or obligations hereunder without the prior written consent of
Lender.
6.06 COUNTERPARTS. This Amendment may be executed in one or more
counterparts, each of which when so executed shall be deemed to be an original,
but all of which when taken together shall constitute one and the same
instrument.
6.07 EFFECT OF WAIVER. No consent or waiver, express or implied,
by Lender to or for any breach of or deviation from any covenant or condition
by any Borrower shall be deemed a consent to or waiver of any other breach of
the same or any other covenant, condition or duty.
6.08 HEADINGS. The headings, captions, and arrangements used in
this Amendment are for convenience only and shall not affect the interpretation
of this Amendment.
6.09 APPLICABLE LAW. THIS AMENDMENT AND ALL OTHER AGREEMENTS
EXECUTED PURSUANT HERETO SHALL BE DEEMED TO HAVE BEEN MADE AND TO BE
PERFORMABLE IN AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF TEXAS.
6.10 FINAL AGREEMENT. THE LOAN AGREEMENT AND THE OTHER AGREEMENTS,
EACH AS AMENDED HEREBY, REPRESENT THE ENTIRE EXPRESSION OF THE PARTIES WITH
RESPECT TO THE SUBJECT MATTER HEREOF ON THE DATE THIS AMENDMENT IS EXECUTED.
THE LOAN AGREEMENT AND THE OTHER AGREEMENTS, AS AMENDED HEREBY, MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES. NO MODIFICATION, RESCISSION, WAIVER, RELEASE OR AMENDMENT OF ANY
PROVISION OF THIS AMENDMENT SHALL BE MADE, EXCEPT BY A WRITTEN AGREEMENT SIGNED
BY EACH BORROWER AND LENDER.
6.11 RELEASE. EACH BORROWER HEREBY ACKNOWLEDGES THAT IT HAS NO
DEFENSE, COUNTERCLAIM, OFFSET, CROSS-COMPLAINT, CLAIM OR DEMAND OF ANY KIND OR
NATURE WHATSOEVER THAT CAN BE ASSERTED TO REDUCE OR ELIMINATE ALL OR ANY PART
OF ITS LIABILITY TO REPAY THE "OBLIGATIONS" OR TO SEEK AFFIRMATIVE RELIEF OR
DAMAGES OF ANY KIND OR NATURE FROM LENDER. EACH BORROWER HEREBY VOLUNTARILY
AND KNOWINGLY RELEASES AND FOREVER DISCHARGES LENDER, ITS PREDECESSORS, AGENTS,
EMPLOYEES, SUCCESSORS AND ASSIGNS, FROM ALL POSSIBLE CLAIMS, DEMANDS, ACTIONS,
CAUSES OF ACTION, DAMAGES, COSTS, EXPENSES, AND LIABILITIES WHATSOEVER, KNOWN
OR UNKNOWN, ANTICIPATED OR UNANTICIPATED, SUSPECTED OR UNSUSPECTED, FIXED,
CONTINGENT, OR CONDITIONAL, AT LAW OR IN EQUITY, ORIGINATING IN WHOLE OR IN
PART ON OR BEFORE THE DATE THIS AMENDMENT IS EXECUTED, WHICH ANY BORROWER MAY
NOW OR HEREAFTER HAVE AGAINST LENDER, ITS PREDECESSORS, AGENTS, EMPLOYEES,
SUCCESSORS AND ASSIGNS, IF ANY, AND IRRESPECTIVE OF WHETHER ANY SUCH CLAIMS
ARISE OUT OF CONTRACT, TORT, VIOLATION OF LAW OR REGULATIONS, OR OTHERWISE, AND
ARISING FROM ANY "LOANS", INCLUDING, WITHOUT LIMITATION, ANY CONTRACTING FOR,
CHARGING, TAKING, RESERVING, COLLECTING OR RECEIVING INTEREST IN EXCESS OF THE
HIGHEST LAWFUL RATE APPLICABLE, THE EXERCISE OF
EIGHTH AMENDMENT TO SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT - Page 6
<PAGE> 7
ANY RIGHTS AND REMEDIES UNDER THE LOAN AGREEMENT OR OTHER AGREEMENTS, AND
NEGOTIATION FOR AND EXECUTION OF THIS AMENDMENT.
[The remainder of this page intentionally left blank.]
EIGHTH AMENDMENT TO SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT - Page 7
<PAGE> 8
IN WITNESS WHEREOF, this Amendment has been executed and is effective
as of the date first above-written.
"BORROWER"
SEPCO INDUSTRIES, INC.
By: /s/ Gary A. Allcorn
-------------------------------
Name Gary A. Allcorn
-------------------------------
Title: Senior Vice President/Finance
-------------------------------
BAYOU PUMPS, INC.
By: /s/ Gary A. Allcorn
-------------------------------
Name Gary A. Allcorn
-------------------------------
Title: Vice President/Finance
-------------------------------
AMERICAN MRO, INC.
By: /s/ Gary A. Allcorn
-------------------------------
Name Gary A. Allcorn
-------------------------------
Title: Vice President/Finance
-------------------------------
"LENDER"
FLEET CAPITAL CORPORATION
By: /s/ H. Michael Wills
-------------------------------
Name
-------------------------------
Title:
-------------------------------
ANNEXES:
A-1 - Certified Resolutions of Sepco Industries, Inc.
A-2 - Certified Resolutions of Bayou Pumps, Inc.
A-3 - Certified Resolutions of American MRO, Inc.
EIGHTH AMENDMENT TO SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT - Page 8
<PAGE> 9
ANNEX A-1
CERTIFIED RESOLUTIONS OF
SEPCO INDUSTRIES, INC.'S BOARD OF DIRECTORS
RESOLVED: That any officer of Sepco Industries, Inc., a Texas
corporation (the "Corporation"), acting alone, by his signature be, and the
same hereby is, authorized and directed, in the name of and on behalf of the
Corporation (a) to amend the Corporation's existing Second Amended and Restated
Loan and Security Agreement by and between the Corporation and Fleet Capital
Corporation, a Rhode Island corporation ("Lender"), successor-in-interest by
merger to Fleet Capital Corporation, a Connecticut corporation (Fleet Capital
Corporation, a Connecticut Corporation having been formerly known as Shawmut
Capital Corporation and having been the successor-in-interest by assignment to
Barclays Business Credit, Inc.), (b) to execute and deliver to Lender with such
changes in the terms and provisions thereof as the officer executing same
shall, in his sole discretion, deem advisable, (i) a certain proposed Eighth
Amendment to Second Amended and Restated Loan and Security Agreement and
Modification to Other Agreements and to be executed by Corporation, Bayou
Pumps, Inc., American MRO, Inc. and Lender, a draft of which has been reviewed
and discussed by the Board of Directors of the Corporation, and (ii) such other
agreements, instruments, statements and writings as the officer or officers
executing the same may deem desirable or necessary in connection therewith, and
(c) to perform such other acts as the officer or officers performing such acts
on behalf of the Corporation may deem desirable or necessary in connection
therewith; and be it
FURTHER RESOLVED: That said agreements will benefit the Corporation,
both directly and indirectly, and are in the best interests of the Corporation;
and be it
FURTHER RESOLVED: That said agreements and other statements in
writing executed in the name and on behalf of the Corporation by any officer of
the Corporation shall be presumed conclusively to be the instruments, the
execution of which is authorized by these resolutions; and be it
FURTHER RESOLVED: That the officers of the Corporation be, and the
same hereby are, authorized and directed to execute, in the name of and on
behalf of the Corporation, security agreements, financing statements,
assignments, collateral reports, loan statements, confirmations of delivery,
lien statements, pledge certificates, release certificates, removal reports,
guaranties, cross- collateralization agreements and such other writings and to
take such other actions as are necessary in their dealings with Lender, and any
such papers executed and any such actions taken by any of them prior to this
time are approved, ratified and confirmed; and be it
FURTHER RESOLVED: That the Secretary or any Assistant Secretary of
the Corporation, by the signature of any one or more of them, be, and the same
hereby are, authorized and directed to attest the execution by the Corporation
of the papers signed pursuant to these resolutions, to affix the seal of the
Corporation thereto, if required by Lender, and to certify to Lender the
adoption of these resolutions.
ANNEX A-1 TO EIGHTH AMENDMENT TO SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT - Page 1
<PAGE> 10
CERTIFICATION
The undersigned hereby certifies that the within and foregoing
resolutions are in effect as of the date hereof, without modification, and that
the person signing the within and foregoing Amendment on behalf of the
Corporation is the duly elected officer stated below his name, that he is
authorized to sign such Amendment, and that his signature thereon is genuine.
DATED: October 20, 1998.
/s/ Gary A. Allcorn
----------------------------------------
[Assistant] Secretary of the Corporation
ANNEX A-1 TO EIGHTH AMENDMENT TO SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT - Page 2
<PAGE> 11
ANNEX A-2
CERTIFIED RESOLUTIONS OF
BAYOU PUMPS, INC.'S BOARD OF DIRECTORS
RESOLVED: That any officer of Bayou Pumps, Inc., a Texas corporation
(the "Corporation"), acting alone, by his signature be, and the same hereby is,
authorized and directed, in the name of and on behalf of the Corporation (a) to
become a party to and amend that certain Second Amended and Restated Loan and
Security Agreement by and between Sepco Industries, Inc. ("Sepco") and Fleet
Capital Corporation, a Rhode Island corporation ("Lender"),
successor-in-interest by merger to Fleet Capital Corporation, a Connecticut
corporation (Fleet Capital Corporation, a Connecticut Corporation having been
formerly known as Shawmut Capital Corporation and having been the
successor-in-interest by assignment to Barclays Business Credit, Inc.), as
thereafter amended (Corporation being a present party to such Second Amended
and Restated Loan and Security Agreement), (b) to execute and deliver to Lender
with such changes in the terms and provisions thereof as the officer executing
same shall, in his sole discretion, deem advisable, (i) a certain proposed
Eighth Amendment to Second Amended and Restated Loan and Security Agreement and
Modification to Other Agreements to be executed by Corporation, Sepco, American
MRO, Inc. and Lender, a draft of which has been reviewed and discussed by the
Board of Directors of the Corporation, and (ii) such other agreements,
instruments, statements and writings as the officer or officers executing the
same may deem desirable or necessary in connection therewith, and (c) to
perform such other acts as the officer or officers performing such acts on
behalf of the Corporation may deem desirable or necessary in connection
therewith; and be it
FURTHER RESOLVED: That said agreements will benefit the Corporation,
both directly and indirectly, and are in the best interests of the Corporation;
and be it
FURTHER RESOLVED: That said agreements and other statements in
writing executed in the name and on behalf of the Corporation by any officer of
the Corporation shall be presumed conclusively to be the instruments, the
execution of which is authorized by these resolutions; and be it
FURTHER RESOLVED: That the officers of the Corporation be, and the
same hereby are, authorized and directed to execute, in the name of and on
behalf of the Corporation, security agreements, financing statements,
assignments, collateral reports, loan statements, confirmations of delivery,
lien statements, pledge certificates, release certificates, removal reports,
guaranties, cross- collateralization agreements and such other writings and to
take such other actions as are necessary in their dealings with Lender, and any
such papers executed and any such actions taken by any of them prior to this
time are approved, ratified and confirmed; and be it
FURTHER RESOLVED: That the Secretary or any Assistant Secretary of
the Corporation, by the signature of any one or more of them, be, and the same
hereby are, authorized and directed to attest the execution by the Corporation
of the papers signed pursuant to these resolutions, to affix the seal of the
Corporation thereto, if required by Lender, and to certify to Lender the
adoption of these resolutions.
ANNEX A-2 TO EIGHTH AMENDMENT TO SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT - Page 1
<PAGE> 12
CERTIFICATION
The undersigned hereby certifies that the within and foregoing
resolutions are in effect as of the date hereof, without modification, and that
the person signing the within and foregoing Amendment on behalf of the
Corporation is the duly elected officer stated below his name, that he is
authorized to sign such Amendment, and that his signature thereon is genuine.
DATED: October 20, 1998.
/s/ Gary A. Allcorn
----------------------------------------
[Assistant] Secretary of the Corporation
ANNEX A-2 TO EIGHTH AMENDMENT TO SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT - Page 2
<PAGE> 13
ANNEX A-3
CERTIFIED RESOLUTIONS OF
AMERICAN MRO, INC.'S BOARD OF DIRECTORS
RESOLVED: That any officer of American MRO, Inc., a Nevada
corporation (the "Corporation"), acting alone, by his signature be, and the
same hereby is, authorized and directed, in the name of and on behalf of the
Corporation (a) to amend that certain Second Amended and Restated Loan and
Security Agreement by and between Sepco Industries, Inc. ("Sepco") and Fleet
Capital Corporation, a Rhode Island corporation ("Lender"),
successor-in-interest by merger to Fleet Capital Corporation, a Connecticut
corporation (Fleet Capital Corporation, a Connecticut Corporation having been
formerly known as Shawmut Capital Corporation and having been the
successor-in-interest by assignment to Barclays Business Credit, Inc.), (b) to
execute and deliver to Lender with such changes in the terms and provisions
thereof as the officer executing same shall, in his sole discretion, deem
advisable, (i) a certain proposed Eighth Amendment to Second Amended and
Restated Loan and Security Agreement and Modification to Other Agreements to be
executed by Corporation, Sepco, Bayou Pumps, Inc. and Lender, a draft of which
has been reviewed and discussed by the Board of Directors of the Corporation,
and (ii) such other agreements, instruments, statements and writings as the
officer or officers executing the same may deem desirable or necessary in
connection therewith, and (c) to perform such other acts as the officer or
officers performing such acts on behalf of the Corporation may deem desirable
or necessary in connection therewith; and be it
FURTHER RESOLVED: That said agreements will benefit the Corporation,
both directly and indirectly, and are in the best interests of the Corporation;
and be it
FURTHER RESOLVED: That said agreements and other statements in
writing executed in the name and on behalf of the Corporation by any officer of
the Corporation shall be presumed conclusively to be the instruments, the
execution of which is authorized by these resolutions; and be it
FURTHER RESOLVED: That the officers of the Corporation be, and the
same hereby are, authorized and directed to execute, in the name of and on
behalf of the Corporation, security agreements, financing statements,
assignments, collateral reports, loan statements, confirmations of delivery,
lien statements, pledge certificates, release certificates, removal reports,
guaranties, cross- collateralization agreements and such other writings and to
take such other actions as are necessary in their dealings with Lender, and any
such papers executed and any such actions taken by any of them prior to this
time are approved, ratified and confirmed; and be it
FURTHER RESOLVED: That the Secretary or any Assistant Secretary of
the Corporation, by the signature of any one or more of them, be, and the same
hereby are, authorized and directed to attest the execution by the Corporation
of the papers signed pursuant to these resolutions, to affix the seal of the
Corporation thereto, if required by Lender, and to certify to Lender the
adoption of these resolutions.
ANNEX A-3 TO EIGHTH AMENDMENT TO SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT - Page 1
<PAGE> 14
CERTIFICATION
The undersigned hereby certifies that the within and foregoing
resolutions are in effect as of the date hereof, without modification, and that
the person signing the within and foregoing Amendment on behalf of the
Corporation is the duly elected officer stated below his name, that he is
authorized to sign such Amendment, and that his signature thereon is genuine.
DATED: October 20, 1998.
/s/ Gary A. Allcorn
----------------------------------------
[Assistant] Secretary of the Corporation
ANNEX A-3 TO EIGHTH AMENDMENT TO SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT - Page 2
<PAGE> 15
CONSENT, RATIFICATION, AND AMENDMENT
The undersigned, DAVID R. LITTLE, has executed that certain Amended
and Restated Unconditional Guaranty, dated September 16, 1994 (the "Guaranty"),
in favor of FLEET CAPITAL CORPORATION, a Rhode Island corporation ("Lender"),
successor-in-interest by merger to Fleet Capital Corporation, a Connecticut
corporation (Fleet Capital Corporation, a Connecticut corporation, having
formerly been known as Shawmut Capital Corporation and having been the
successor-in- interest by assignment to Barclays Business Credit, Inc.). The
undersigned hereby (i) consents and agrees to the terms of the Eighth Amendment
to Second Amended and Restated Loan and Security Agreement and Modification to
Other Agreements, dated on or about the date hereof (the "Loan Amendment"), by
and among Sepco Industries, Inc., a Texas corporation, Bayou Pumps, Inc., a
Texas corporation, American MRO, Inc., a Nevada corporation, and Lender, a copy
of which has been reviewed by the undersigned, and (ii) agrees that the
Guaranty shall remain in full force and effect and shall continue to be the
legal, valid and binding obligation of the undersigned enforceable against it
in accordance with its terms. Furthermore, the undersigned hereby agrees and
acknowledges that (a) the obligations, indebtedness and liabilities arising in
connection with the Loan Amendment comprise some, but not all, of the
"Obligations" as such term is used in the Guaranty, (b) the Guaranty is an
"Other Agreement", as such term is defined in the Loan Agreement, (c) the
Guaranty, is not as of this date subject to any claims, defenses or offsets,
(d) nothing contained in the Loan Agreement or any Other Agreement entered into
prior to or as of the date hereof shall adversely affect any right or remedy of
Lender under the Guaranty, and (e) the execution and delivery of the Loan
Amendment shall in no way reduce, impair or discharge any obligations of the
undersigned as guarantor pursuant to the Guaranty and shall not constitute a
waiver by Lender of any of Lender's rights against the undersigned.
Dated: October 20, 1998.
/s/ David R. Little
----------------------------------------
David R. Little, individually
CONSENT AND RATIFICATION TO EIGHTH AMENDMENT TO
SECOND AMENDED AND RESTATED LOAN AND SECURITY - Page 1
<PAGE> 16
CONSENT, RATIFICATION, AND AMENDMENT
The undersigned, GARY A. ALLCORN, TRUSTEE FOR KACEY JOYCE LITTLE,
NICHOLAS DAVID LITTLE AND ANDREA RAE LITTLE 1988 TRUSTS, has executed that
certain Amended and Restated Pledge Agreement dated September 16, 1994 (the
"Pledge Agreement"), in favor of FLEET CAPITAL CORPORATION, a Rhode Island
corporation ("Lender"), successor-in-interest by merger to Fleet Capital
Corporation, a Connecticut corporation (Fleet Capital Corporation, a
Connecticut corporation, having been formerly known as Shawmut Capital
Corporation and having been the successor-in-interest by assignment to Barclays
Business Credit, Inc.). The undersigned hereby (i) consents and agrees to the
terms of the Eighth Amendment to Second Amended and Restated Loan and Security
Agreement and Modification to Other Agreements, dated on or about the date
hereof (the "Loan Amendment"), executed by Sepco Industries, Inc., a Texas
corporation, Bayou Pumps, Inc., a Texas corporation, American MRO, Inc., a
Nevada corporation, and Lender, a copy of which has been reviewed by the
undersigned, and (ii) agrees that the Pledge Agreement shall remain in full
force and effect and shall continue to be the legal, valid and binding
obligation of the undersigned enforceable against it in accordance with its
terms. Furthermore, the undersigned hereby agrees and acknowledges that (a)
the obligations, indebtedness and liabilities arising in connection with the
Loan Amendment comprise some, but not all, of the "Secured Indebtedness" as
such term is used in the Pledge Agreement, (b) the Pledge Agreement is an
"Other Agreement" as such term is defined in the Loan Agreement, (c) the Pledge
Agreement, is not as of the date hereof subject to any claims, defenses or
offsets, (d) nothing contained in this Agreement or any Other Agreement entered
into prior to or as of the date hereof shall adversely affect any right or
remedy of Lender under the Pledge Agreement, and (e) the execution and delivery
of the Loan Amendment shall in no way reduce, impair or discharge any
obligations of the undersigned pursuant to the Pledge Agreement and shall not
constitute a waiver by Lender of any of Lender's rights against the
undersigned.
Dated: October 20, 1998.
/s/ Gary A. Allcorn
----------------------------------------
GARY A. ALLCORN, TRUSTEE FOR
KACEY JOYCE LITTLE, NICHOLAS
DAVID LITTLE AND ANDREA RAE
LITTLE 1988 TRUSTS
CONSENT AND RATIFICATION TO EIGHTH AMENDMENT TO
SECOND AMENDED AND RESTATED LOAN AND SECURITY - Page 2
<PAGE> 17
CONSENT, RATIFICATION, AND AMENDMENT
The undersigned has executed each of the following guaranty agreements
in favor of FLEET CAPITAL CORPORATION, a Rhode Island corporation ("Lender")
(each such guaranty agreement being hereinafter referred to as a "Guaranty"):
(1) Continuing Guaranty Agreement [Indebtedness of Sepco
Industries, Inc.], dated as of October 24, 1996;
(2) Continuing Guaranty Agreement [Indebtedness of Bayou
Pumps, Inc.], dated as of October 24, 1996; and
(3) Continuing Guaranty Agreement [Indebtedness of
American MRO, Inc.], dated as of October 24, 1996.
The undersigned hereby (i) consents and agrees to the terms of the Eighth
Amendment to Second Amended and Restated Loan and Security Agreement and
Modification to Other Agreements, dated on or about the date hereof (the "Loan
Amendment"), by and among Sepco Industries, Inc., a Texas corporation, Bayou
Pumps, Inc., a Texas corporation, American MRO, Inc., a Nevada corporation, and
Lender, a copy of which has been reviewed by the undersigned, and (ii) agrees
that each Guaranty shall remain in full force and effect and shall continue to
be the legal, valid and binding obligation of the undersigned enforceable
against it in accordance with its terms. Furthermore, the undersigned hereby
agrees and acknowledges that (a) the obligations, indebtedness and liabilities
arising in connection with the Loan Amendment comprise some, but not all, of
the "Obligations" as such term is used in each Guaranty, (b) each Guaranty is
an "Other Agreement", as such term is defined in the Loan Agreement, (c) no
Guaranty is as of this date subject to any claims, defenses or offsets, (d)
nothing contained in the Loan Agreement or any Other Agreement entered into
prior to or as of the date hereof shall adversely affect any right or remedy of
Lender under any Guaranty, and (e) the execution and delivery of the Loan
Amendment shall in no way reduce, impair or discharge any obligations of the
undersigned as guarantor pursuant to each Guaranty and shall not constitute a
waiver by Lender of any of Lender's rights against the undersigned.
Dated: October 20, 1998.
DXP ENTERPRISES, INC., formerly known
as Index, Inc.
By: /s/ Gary A. Allcorn
--------------------------------
Name Gary A. Allcorn
--------------------------------
Title: Senior Vice President/Finance
--------------------------------
CONSENT AND RATIFICATION TO EIGHTH AMENDMENT TO
SECOND AMENDED AND RESTATED LOAN AND SECURITY - Page 1
<PAGE> 18
CONSENT, RATIFICATION, AND AMENDMENT
The undersigned has executed each of the following guaranty agreements
in favor of FLEET CAPITAL CORPORATION, a Rhode Island corporation ("Lender")
(each such guaranty agreement being hereinafter referred to as a "Guaranty"):
(1) Continuing Guaranty Agreement [Indebtedness of Sepco
Industries, Inc.], dated as of June 16, 1997;
(2) Continuing Guaranty Agreement [Indebtedness of Bayou Pumps,
Inc.], dated as of June 16, 1997; and
(3) Continuing Guaranty Agreement [Indebtedness of American MRO,
Inc.], dated as of June 16, 1997.
The undersigned hereby (i) consents and agrees to the terms of the Eighth
Amendment to Second Amended and Restated Loan and Security Agreement and
Modification to Other Agreements, dated on or about the date hereof (the "Loan
Amendment"), by and among Sepco Industries, Inc., a Texas corporation, Bayou
Pumps, Inc., a Texas corporation, American MRO, Inc., a Nevada corporation, and
Lender, a copy of which has been reviewed by the undersigned, and (ii) agrees
that each Guaranty shall remain in full force and effect and shall continue to
be the legal, valid and binding obligation of the undersigned enforceable
against it in accordance with its terms. Furthermore, the undersigned hereby
agrees and acknowledges that (a) the obligations, indebtedness and liabilities
arising in connection with the Loan Amendment comprise some, but not all, of
the "Obligations" as such term is used in each Guaranty, (b) each Guaranty is
an "Other Agreement", as such term is defined in the Loan Agreement, (c) no
Guaranty is as of this date subject to any claims, defenses or offsets, (d)
nothing contained in the Loan Agreement or any Other Agreement entered into
prior to or as of the date hereof shall adversely affect any right or remedy of
Lender under any Guaranty, and (e) the execution and delivery of the Loan
Amendment shall in no way reduce, impair or discharge any obligations of the
undersigned as guarantor pursuant to each Guaranty and shall not constitute a
waiver by Lender of any of Lender's rights against the undersigned.
Dated: October 20, 1998.
DXP ACQUISITION, INC., d/b/a
STRATEGIC ACQUISITION, INC.
By: /s/ Gary A. Allcorn
--------------------------------
Name Gary A. Allcorn
--------------------------------
Title: Senior Vice President/Finance
--------------------------------
CONSENT AND RATIFICATION TO EIGHTH AMENDMENT TO
SECOND AMENDED AND RESTATED LOAN AND SECURITY - Page 1
<PAGE> 19
CONSENT, RATIFICATION, AND AMENDMENT
The undersigned has executed each of the following guaranty agreements
in favor of FLEET CAPITAL CORPORATION, a Rhode Island corporation ("Lender")
(each such guaranty agreement being hereinafter referred to as a "Guaranty"):
(1) Continuing Guaranty Agreement [Indebtedness of Sepco
Industries, Inc.], dated as of May 29, 1997;
(2) Continuing Guaranty Agreement [Indebtedness of Bayou Pumps,
Inc.], dated as of May 29, 1997; and
(3) Continuing Guaranty Agreement [Indebtedness of American MRO,
Inc.], dated as of May 29, 1997.
The undersigned hereby (i) consents and agrees to the terms of the Eighth
Amendment to Second Amended and Restated Loan and Security Agreement and
Modification to Other Agreements, dated on or about the date hereof (the "Loan
Amendment"), by and among Sepco Industries, Inc., a Texas corporation, Bayou
Pumps, Inc., a Texas corporation, American MRO, Inc., a Nevada corporation, and
Lender, a copy of which has been reviewed by the undersigned, and (ii) agrees
that each Guaranty shall remain in full force and effect and shall continue to
be the legal, valid and binding obligation of the undersigned enforceable
against it in accordance with its terms. Furthermore, the undersigned hereby
agrees and acknowledges that (a) the obligations, indebtedness and liabilities
arising in connection with the Loan Amendment comprise some, but not all, of
the "Obligations" as such term is used in each Guaranty, (b) each Guaranty is
an "Other Agreement", as such term is defined in the Loan Agreement, (c) no
Guaranty is as of this date subject to any claims, defenses or offsets, (d)
nothing contained in the Loan Agreement or any Other Agreement entered into
prior to or as of the date hereof shall adversely affect any right or remedy of
Lender under any Guaranty, and (e) the execution and delivery of the Loan
Amendment shall in no way reduce, impair or discharge any obligations of the
undersigned as guarantor pursuant to each Guaranty and shall not constitute a
waiver by Lender of any of Lender's rights against the undersigned.
Dated: October 20, 1998.
PELICAN STATE SUPPLY
COMPANY, INC.
By: /s/ Gary A. Allcorn
--------------------------------
Name Gary A. Allcorn
--------------------------------
Title: Senior Vice President/Finance
--------------------------------
CONSENT AND RATIFICATION TO EIGHTH AMENDMENT TO
SECOND AMENDED AND RESTATED LOAN AND SECURITY - Page 1
<PAGE> 1
EXHIBIT 10.2
SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT
[DXP Acquisition, Inc., d/b/a Strategic Acquisition, Inc.]
THIS SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT (this "Amendment")
is made and entered into this 20th day of October, 1998, to be effective as of
the respective date herein indicated, by and between DXP ACQUISITION, INC.,
D/B/A STRATEGIC ACQUISITION, INC., a Nevada corporation ("Borrower") and FLEET
CAPITAL CORPORATION, a Rhode Island corporation ("Lender").
RECITALS
A. Borrower and Lender have entered into that certain Loan and Security
Agreement, dated as of June 16, 1997 (as amended, the "Loan Agreement").
B. Borrower and Lender desire to amend the Loan Agreement and the other
Loan Documents as hereinafter set forth.
NOW, THEREFORE, in consideration of the premises herein contained and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties, intending to be legally bound, agree as
follows:
AGREEMENT
ARTICLE I
DEFINITIONS
1.01 Capitalized terms used in this Amendment are defined in the Loan
Agreement, as amended hereby, unless otherwise stated.
ARTICLE II
AMENDMENTS TO LOAN AGREEMENT
Effective as of the respective date herein indicated, the Loan
Agreement is hereby amended as follows:
2.01 AMENDMENT TO SECTION 9.3(C). Effective as of June 30, 1998,
Section 9.3(C) of the Loan Agreement is hereby amended and restated to read in
its entirety as follows:
"(C) Maintain, on a consolidated basis in accordance with
GAAP, as of the last day of each fiscal quarter set forth below
(the 'Calculation Date'), a ratio of (i) the Senior Debt of Parent
and its Subsidiaries on such Calculation Date, to (ii) an amount
equal to (a) the EBITDA of Parent and its Subsidiaries for the
twelve calendar month period ending on such Calculation Date, plus
(b) for any Target Company whose assets were purchased by Sepco
during the twelve calendar month period ending on such Calculation
Date, the Target Company EBITDA of such Target Company for any
portion of such twelve calendar month period preceding the date of
closing of the purchase of such assets by Sepco, minus (c) Capital
Expenditures made by Parent and its Subsidiaries during such
period which were not financed either by the proceeds of the Term
Loan (as
SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT - Page 1
<PAGE> 2
defined in the Sepco Loan Agreement) or by the proceeds of
long-term Indebtedness owing to Persons other than Lender to the
extent that the incurrence of such long-term Indebtedness did not
violate the Sepco Loan Agreement, of not greater than the ratio
set forth below on the Calculation Date corresponding thereto:
<TABLE>
<CAPTION>
CALCULATION DATE RATIO
---------------- -----
<S> <C>
(i) June 30, 1998 (i) 4.50 to 1.00
(ii) September 30, 1998 (ii) 4.50 to 1.00
(iii) December 31, 1998 (iii) 4.50 to 1.00
(iv) Each March 31, June (iv) 4.00 to 1.00
September 30, and December 31
thereafter occurring
</TABLE>
Notwithstanding the foregoing, beginning with the first Calculation
Date to occur after the consummation of the Stock Offering, and
continuing on each subsequent Calculation Date, the relevant maximum
ratio shall be 3.00 to 1.00."
2.02 AMENDMENT TO SECTION 11.1(S). Effective as of September 30, 1998,
Section 11.1(S) of the Loan Agreement is amended by deleting therefrom the
reference to the date "September 30, 1998" and substituting therefor the date
"March 31, 1999".
ARTICLE III
NO WAIVERS
3.01 Nothing contained herein shall be construed as a waiver by Lender
of any covenant or provision of the Loan Agreement, the other Loan Documents,
this Amendment or of any other contract or instrument between Borrower and
Lender, and the failure of Lender at any time or times hereafter to require
strict performance by Borrower of any provision thereof shall not waive, affect
or diminish any right of Lender to thereafter demand strict compliance
therewith. Lender hereby reserves all rights granted under the Loan Agreement,
the other Loan Documents, this Amendment and any other contract or instrument
between Borrower and Lender.
ARTICLE IV
CONDITIONS PRECEDENT
4.01 CONDITIONS TO EFFECTIVENESS. The effectiveness of this Amendment
is subject to the satisfaction of the following conditions precedent in a manner
satisfactory to Lender, unless specifically waived in writing by Lender:
(a) Lender shall have received each of the following, each in form
and substance satisfactory to Lender, in its sole discretion, and,
where applicable, each duly executed by each party thereto, other than
Lender:
(i) This Amendment, duly executed by Lender, together with the
relevant Consent, Ratification, and Amendment, respectively duly
executed by Sepco Industries, Inc., Bayou Pumps, Inc., American
MRO, Inc., Pelican State Supply Company, Inc. and DXP Enterprises,
Inc.; and
SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT - Page 2
<PAGE> 3
(ii) All other documents Lender may request with respect to
any matter relevant to this Amendment or the transactions
contemplated hereby;
(b) The representations and warranties contained herein and in the
Loan Agreement and the other Loan Documents, as each is amended hereby, shall be
true and correct as of the date hereof, as if made on the date hereof;
(c) No Default or Event of Default shall have occurred and be
continuing, unless such Default or Event of Default has been otherwise
specifically waived in writing by Lender; and
(d) All corporate proceedings taken in connection with the
transactions contemplated by this Amendment and all documents, instruments and
other legal matters incident thereto shall be satisfactory to Lender and its
legal counsel.
ARTICLE V
RATIFICATIONS, REPRESENTATIONS AND WARRANTIES
5.01 RATIFICATIONS. The terms and provisions set forth in this
Amendment shall modify and supersede all inconsistent terms and provisions set
forth in the Loan Agreement and the other Loan Documents, and, except as
expressly modified and superseded by this Amendment, the terms and provisions of
the Loan Agreement and the other Loan Documents are ratified and confirmed and
shall continue in full force and effect. Each Borrower and Lender agree that the
Loan Agreement and the other Loan Documents, as amended hereby, shall continue
to be legal, valid, binding and enforceable in accordance with their respective
terms.
5.02 REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and
warrants to Lender that (a) the execution, delivery and performance of this
Amendment and any and all other Loan Documents executed and/or delivered in
connection herewith have been authorized by all requisite corporate action on
the part of Borrower and will not violate the Articles of Incorporation or
Bylaws of Borrower; (b) attached hereto as Annex A is a true, correct and
complete copy of presently effective resolutions of Borrower's Board of
Directors authorizing the execution, delivery and performance of this Amendment
and any and all other Loan Documents executed and/or delivered in connection
herewith, certified by the Assistant Secretary of Borrower; (c) the
representations and warranties contained in the Loan Agreement, as amended
hereby, and any other Loan Documents are true and correct on and as of the date
hereof and on and as of the date of execution hereof as though made on and as of
each such date; (d) no Default or Event of Default under the Loan Agreement, as
amended hereby, has occurred and is continuing, unless such Default or Event of
Default has been specifically waived in writing by Lender; (e) Borrower is in
full compliance with all covenants and agreements contained in the Loan
Agreement and the other Loan Documents, as amended hereby; and (f) Borrower has
not amended its Articles of Incorporation or its Bylaws since the date of the
Loan Agreement.
ARTICLE VI
MISCELLANEOUS PROVISIONS
6.01 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties made in the Loan Agreement or any other Loan
Documents, including, without limitation, any document furnished in connection
with this Amendment, shall survive the execution and delivery of this Amendment
and the other Loan Documents, and no investigation by Lender or any closing
shall affect the representations and warranties or the right of Lender to rely
upon them.
SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT - Page 3
<PAGE> 4
6.02 REFERENCE TO LOAN AGREEMENT. Each of the Loan Agreement and
the other Loan Documents, and any and all other Loan Documents, documents or
instruments now or hereafter executed and delivered pursuant to the terms hereof
or pursuant to the terms of the Loan Agreement, as amended hereby, are hereby
amended so that any reference in the Loan Agreement and such other Loan
Documents to the Loan Agreement shall mean a reference to the Loan Agreement as
amended hereby.
6.03 EXPENSES OF LENDER. As provided in the Loan Agreement,
Borrower agrees to pay on demand all costs and expenses incurred by Lender in
connection with the preparation, negotiation, and execution of this Amendment
and the other Loan Documents executed pursuant hereto and any and all
amendments, modifications, and supplements thereto, including, without
limitation, the costs and fees of Lender's legal counsel, and all costs and
expenses incurred by Lender in connection with the enforcement or preservation
of any rights under the Loan Agreement, as amended hereby, or any other Loan
Documents, including, without, limitation, the costs and fees of Lender's legal
counsel.
6.04 SEVERABILITY. Any provision of this Amendment held by a court
of competent jurisdiction to be invalid or unenforceable shall not impair or
invalidate the remainder of this Amendment and the effect thereof shall be
confined to the provision so held to be invalid or unenforceable.
6.05 SUCCESSORS AND ASSIGNS. This Amendment is binding upon and
shall inure to the benefit of Lender and Borrower and their respective
successors and assigns, except that Borrower may not assign or transfer any of
its rights or obligations hereunder without the prior written consent of Lender.
6.06 COUNTERPARTS. This Amendment may be executed in one or more
counterparts, each of which when so executed shall be deemed to be an original,
but all of which when taken together shall constitute one and the same
instrument.
6.07 EFFECT OF WAIVER. No consent or waiver, express or implied,
by Lender to or for any breach of or deviation from any covenant or condition by
Borrower shall be deemed a consent to or waiver of any other breach of the same
or any other covenant, condition or duty.
6.08 HEADINGS. The headings, captions, and arrangements used in
this Amendment are for convenience only and shall not affect the interpretation
of this Amendment.
6.09 APPLICABLE LAW. THIS AMENDMENT AND ALL OTHER LOAN DOCUMENTS
EXECUTED PURSUANT HERETO SHALL BE DEEMED TO HAVE BEEN MADE AND TO BE PERFORMABLE
IN AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF TEXAS.
6.10 FINAL AGREEMENT. THE LOAN AGREEMENT AND THE OTHER LOAN
DOCUMENTS, EACH AS AMENDED HEREBY, REPRESENT THE ENTIRE EXPRESSION OF THE
PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF ON THE DATE THIS AMENDMENT IS
EXECUTED. THE LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS AMENDED HEREBY,
MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES. NO MODIFICATION, RESCISSION, WAIVER, RELEASE OR AMENDMENT OF ANY
PROVISION OF THIS AMENDMENT SHALL BE MADE, EXCEPT BY A WRITTEN AGREEMENT SIGNED
BY BORROWER AND LENDER.
SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT - Page 4
<PAGE> 5
\
6.11 RELEASE. BORROWER HEREBY ACKNOWLEDGES THAT IT HAS NO DEFENSE,
COUNTERCLAIM, OFFSET, CROSS-COMPLAINT, CLAIM OR DEMAND OF ANY KIND OR NATURE
WHATSOEVER THAT CAN BE ASSERTED TO REDUCE OR ELIMINATE ALL OR ANY PART OF ITS
LIABILITY TO REPAY THE "OBLIGATIONS" OR TO SEEK AFFIRMATIVE RELIEF OR DAMAGES OF
ANY KIND OR NATURE FROM LENDER. BORROWER HEREBY VOLUNTARILY AND KNOWINGLY
RELEASES AND FOREVER DISCHARGES LENDER, ITS PREDECESSORS, AGENTS, EMPLOYEES,
SUCCESSORS AND ASSIGNS, FROM ALL POSSIBLE CLAIMS, DEMANDS, ACTIONS, CAUSES OF
ACTION, DAMAGES, COSTS, EXPENSES, AND LIABILITIES WHATSOEVER, KNOWN OR UNKNOWN,
ANTICIPATED OR UNANTICIPATED, SUSPECTED OR UNSUSPECTED, FIXED, CONTINGENT, OR
CONDITIONAL, AT LAW OR IN EQUITY, ORIGINATING IN WHOLE OR IN PART ON OR BEFORE
THE DATE THIS AMENDMENT IS EXECUTED, WHICH BORROWER MAY NOW OR HEREAFTER HAVE
AGAINST LENDER, ITS PREDECESSORS, AGENTS, EMPLOYEES, SUCCESSORS AND ASSIGNS, IF
ANY, AND IRRESPECTIVE OF WHETHER ANY SUCH CLAIMS ARISE OUT OF CONTRACT, TORT,
VIOLATION OF LAW OR REGULATIONS, OR OTHERWISE, AND ARISING FROM ANY "LOANS",
INCLUDING, WITHOUT LIMITATION, ANY CONTRACTING FOR, CHARGING, TAKING, RESERVING,
COLLECTING OR RECEIVING INTEREST IN EXCESS OF THE HIGHEST LAWFUL RATE
APPLICABLE, THE EXERCISE OF ANY RIGHTS AND REMEDIES UNDER THE LOAN AGREEMENT OR
OTHER LOAN DOCUMENTS, AND NEGOTIATION FOR AND EXECUTION OF THIS AMENDMENT.
IN WITNESS WHEREOF, this Amendment has been executed and is effective
as of the date first above-written.
"BORROWER"
DXP ACQUISITION, INC.,
D/B/A STRATEGIC ACQUISITION, INC.
By: /s/ Gary A. Allcorn
--------------------------------
Name: Gary A. Allcorn
--------------------------------
Title: Senior Vice President/Finance
--------------------------------
"LENDER"
FLEET CAPITAL CORPORATION
By: /s/ H. Michael Wills
--------------------------------
Name:
--------------------------------
Title:
--------------------------------
ANNEXES:
A-1 - Certified Resolutions of DXP Acquisition, Inc., d/b/a Strategic
Acquisition, Inc.
SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT - Page 5
<PAGE> 6
ANNEX A-1
CERTIFIED RESOLUTIONS OF
DXP ACQUISITION, INC.,
D/B/A STRATEGIC ACQUISITION, INC.'S BOARD OF DIRECTORS
RESOLVED: That any officer of DXP Acquisition, Inc., d/b/a Strategic
Acquisition, Inc., a Nevada corporation (the "Corporation"), acting alone, by
his signature be, and the same hereby is, authorized and directed, in the name
of and on behalf of the Corporation (a) to amend the Corporation's existing Loan
and Security Agreement by and between the Corporation and Fleet Capital
Corporation, a Rhode Island corporation ("Lender"), (b) to execute and deliver
to Lender with such changes in the terms and provisions thereof as the officer
executing same shall, in his sole discretion, deem advisable, (i) a certain
proposed Second Amendment to Loan and Security Agreement to be executed by
Corporation and Lender, a draft of which has been reviewed and discussed by the
Board of Directors of the Corporation, and (ii) such other Loan Documents,
instruments, statements and writings as the officer or officers executing the
same may deem desirable or necessary in connection therewith, and (c) to perform
such other acts as the officer or officers performing such acts on behalf of the
Corporation may deem desirable or necessary in connection therewith; and be it
FURTHER RESOLVED: That said agreements will benefit the Corporation,
both directly and indirectly, and are in the best interests of the Corporation;
and be it
FURTHER RESOLVED: That said agreements and other statements in writing
executed in the name and on behalf of the Corporation by any officer of the
Corporation shall be presumed conclusively to be the instruments, the execution
of which is authorized by these resolutions; and be it
FURTHER RESOLVED: That the officers of the Corporation be, and the same
hereby are, authorized and directed to execute, in the name of and on behalf of
the Corporation, security agreements, financing statements, assignments,
collateral reports, loan statements, confirmations of delivery, lien statements,
pledge certificates, release certificates, removal reports, guaranties, cross-
collateralization agreements and such other writings and to take such other
actions as are necessary in their dealings with Lender, and any such papers
executed and any such actions taken by any of them prior to this time are
approved, ratified and confirmed; and be it
FURTHER RESOLVED: That the Secretary or any Assistant Secretary of the
Corporation, by the signature of any one or more of them, be, and the same
hereby are, authorized and directed to attest the execution by the Corporation
of the papers signed pursuant to these resolutions, to affix the seal of the
Corporation thereto, if required by Lender, and to certify to Lender the
adoption of these resolutions.
CERTIFICATION
The undersigned hereby certifies that the within and foregoing
resolutions are in effect as of the date hereof, without modification, and that
the person signing the within and foregoing Amendment on behalf of the
Corporation is the duly elected officer stated below his name, that he is
authorized to sign such Amendment, and that his signature thereon is genuine.
DATED: October 20, 1998.
/s/ Gary A. Allcorn
-----------------------------------------
[Assistant] Secretary of the Corporation
CONSENT AND RATIFICATION TO
SECOND AMENDMENT TO LOAN AND SECURITY - Page 1
<PAGE> 7
CONSENT, RATIFICATION, AND AMENDMENT
The undersigned, SEPCO INDUSTRIES, INC., has executed that certain
Continuing Guaranty Agreement, dated June 16, 1997 (the "Guaranty"), in favor of
FLEET CAPITAL CORPORATION, a Rhode Island corporation ("Lender"). The
undersigned hereby (i) consents and agrees to the terms of the Second Amendment
to Loan and Security Agreement, dated on or about the date hereof (the "Loan
Amendment"), by and between DXP Acquisition, Inc., d/b/a Strategic Acquisition,
Inc., a Nevada corporation, and Lender, a copy of which has been reviewed by the
undersigned, and (ii) agrees that the Guaranty shall remain in full force and
effect and shall continue to be the legal, valid and binding obligation of the
undersigned enforceable against it in accordance with its terms. Furthermore,
the undersigned hereby agrees and acknowledges that (a) the obligations,
indebtedness and liabilities arising in connection with the Loan Amendment
comprise some, but not all, of the "Obligations" as such term is used in the
Guaranty, (b) the Guaranty is an "Other Agreement", as such term is defined in
the Loan Agreement, (c) the Guaranty is not as of this date subject to any
claims, defenses or offsets, (d) nothing contained in the Loan Agreement or any
Other Agreement entered into prior to or as of the date hereof shall adversely
affect any right or remedy of Lender under the Guaranty, and (e) the execution
and delivery of the Loan Amendment shall in no way reduce, impair or discharge
any obligations of the undersigned as guarantor pursuant to the Guaranty and
shall not constitute a waiver by Lender of any of Lender's rights against the
undersigned.
Dated: October 20, 1998.
SEPCO INDUSTRIES, INC.
By: /s/ Gary A. Allcorn
------------------------------
Name: Gary A. Allcorn
------------------------------
Title: Senior Vice President/Finance
------------------------------
CONSENT AND RATIFICATION TO
SECOND AMENDMENT TO LOAN AND SECURITY - Page 1
<PAGE> 8
CONSENT, RATIFICATION, AND AMENDMENT
The undersigned, AMERICAN MRO, INC., has executed that certain
Continuing Guaranty Agreement, dated June 16, 1997 (the "Guaranty"), in favor of
FLEET CAPITAL CORPORATION, a Rhode Island corporation ("Lender"). The
undersigned hereby (i) consents and agrees to the terms of the Second Amendment
to Loan and Security Agreement, dated on or about the date hereof (the "Loan
Amendment"), by and between DXP Acquisition, Inc., d/b/a Strategic Acquisition,
Inc., a Nevada corporation, and Lender, a copy of which has been reviewed by the
undersigned, and (ii) agrees that the Guaranty shall remain in full force and
effect and shall continue to be the legal, valid and binding obligation of the
undersigned enforceable against it in accordance with its terms. Furthermore,
the undersigned hereby agrees and acknowledges that (a) the obligations,
indebtedness and liabilities arising in connection with the Loan Amendment
comprise some, but not all, of the "Obligations" as such term is used in the
Guaranty, (b) the Guaranty is an "Other Agreement", as such term is defined in
the Loan Agreement, (c) the Guaranty is not as of this date subject to any
claims, defenses or offsets, (d) nothing contained in the Loan Agreement or any
Other Agreement entered into prior to or as of the date hereof shall adversely
affect any right or remedy of Lender under the Guaranty, and (e) the execution
and delivery of the Loan Amendment shall in no way reduce, impair or discharge
any obligations of the undersigned as guarantor pursuant to the Guaranty and
shall not constitute a waiver by Lender of any of Lender's rights against the
undersigned.
Dated: October 20, 1998.
AMERICAN MRO, INC.
By: /s/ Gary A. Allcorn
-----------------------------
Name: Gary A. Allcorn
-----------------------------
Title: Senior Vice President/Finance
-----------------------------
CONSENT AND RATIFICATION TO
SECOND AMENDMENT TO LOAN AND SECURITY - Page 1
<PAGE> 9
CONSENT, RATIFICATION, AND AMENDMENT
The undersigned, BAYOU PUMPS, INC., has executed that certain
Continuing Guaranty Agreement, dated June 16, 1997 (the "Guaranty"), in favor of
FLEET CAPITAL CORPORATION, a Rhode Island corporation ("Lender"). The
undersigned hereby (i) consents and agrees to the terms of the Second Amendment
to Loan and Security Agreement, dated on or about the date hereof (the "Loan
Amendment"), by and between DXP Acquisition, Inc., d/b/a Strategic Acquisition,
Inc., a Nevada corporation, and Lender, a copy of which has been reviewed by the
undersigned, and (ii) agrees that the Guaranty shall remain in full force and
effect and shall continue to be the legal, valid and binding obligation of the
undersigned enforceable against it in accordance with its terms. Furthermore,
the undersigned hereby agrees and acknowledges that (a) the obligations,
indebtedness and liabilities arising in connection with the Loan Amendment
comprise some, but not all, of the "Obligations" as such term is used in the
Guaranty, (b) the Guaranty is an "Other Agreement", as such term is defined in
the Loan Agreement, (c) the Guaranty is not as of this date subject to any
claims, defenses or offsets, (d) nothing contained in the Loan Agreement or any
Other Agreement entered into prior to or as of the date hereof shall adversely
affect any right or remedy of Lender under the Guaranty, and (e) the execution
and delivery of the Loan Amendment shall in no way reduce, impair or discharge
any obligations of the undersigned as guarantor pursuant to the Guaranty and
shall not constitute a waiver by Lender of any of Lender's rights against the
undersigned.
Dated: October 20, 1998.
BAYOU PUMPS, INC.
By: /s/ Gary A. Allcorn
-----------------------------
Name: Gary A. Allcorn
-----------------------------
Title: Senior Vice President/Finance
-----------------------------
CONSENT AND RATIFICATION TO
SECOND AMENDMENT TO LOAN AND SECURITY - Page 1
<PAGE> 10
CONSENT, RATIFICATION, AND AMENDMENT
The undersigned, PELICAN STATE SUPPLY COMPANY, INC., has executed that
certain Continuing Guaranty Agreement, dated June 16, 1997 (the "Guaranty"), in
favor of FLEET CAPITAL CORPORATION, a Rhode Island corporation ("Lender"). The
undersigned hereby (i) consents and agrees to the terms of the Second Amendment
to Loan and Security Agreement, dated on or about the date hereof (the "Loan
Amendment"), by and between DXP Acquisition, Inc., d/b/a Strategic Acquisition,
Inc., a Nevada corporation, and Lender, a copy of which has been reviewed by the
undersigned, and (ii) agrees that the Guaranty shall remain in full force and
effect and shall continue to be the legal, valid and binding obligation of the
undersigned enforceable against it in accordance with its terms. Furthermore,
the undersigned hereby agrees and acknowledges that (a) the obligations,
indebtedness and liabilities arising in connection with the Loan Amendment
comprise some, but not all, of the "Obligations" as such term is used in the
Guaranty, (b) the Guaranty is an "Other Agreement", as such term is defined in
the Loan Agreement, (c) the Guaranty is not as of this date subject to any
claims, defenses or offsets, (d) nothing contained in the Loan Agreement or any
Other Agreement entered into prior to or as of the date hereof shall adversely
affect any right or remedy of Lender under the Guaranty, and (e) the execution
and delivery of the Loan Amendment shall in no way reduce, impair or discharge
any obligations of the undersigned as guarantor pursuant to the Guaranty and
shall not constitute a waiver by Lender of any of Lender's rights against the
undersigned.
Dated: October 20, 1998.
PELICAN STATE SUPPLY COMPANY, INC.
By: /s/ Gary A. Allcorn
-----------------------------
Name: Gary A. Allcorn
-----------------------------
Title: Senior Vice President/Finance
-----------------------------
CONSENT AND RATIFICATION TO
SECOND AMENDMENT TO LOAN AND SECURITY - Page 1
<PAGE> 11
CONSENT, RATIFICATION AND AMENDMENT
The undersigned, DXP ENTERPRISES, INC., has executed (x) that certain
Continuing Guaranty Agreement, dated June 16, 1997 (the "Guaranty"), in favor of
FLEET CAPITAL CORPORATION, a Rhode Island corporation ("Lender"), and (y) that
certain Stock Pledge Agreement, dated as of June 16, 1997, executed by the
undersigned and Fleet (the "Security Agreement"). The undersigned hereby (i)
consents and agrees to the terms of the Second Amendment to Loan and Security
Agreement, dated on or about the date hereof (the "Loan Amendment"), by and
between DXP Acquisition, Inc., d/b/a Strategic Acquisition, Inc., a Nevada
corporation, and Lender, a copy of which has been reviewed by the undersigned,
and (ii) agrees that each of the Guaranty and the Security Agreement shall
remain in full force and effect and shall continue to be the legal, valid and
binding obligation of the undersigned, enforceable against it in accordance with
its terms. Furthermore, the undersigned hereby agrees and acknowledges that (a)
the obligations, indebtedness and liabilities arising in connection with the
Loan Amendment comprise some, but not all, of the "Obligations", as such term is
used in the Guaranty, and some, but not all, of the "Secured Obligations", as
such term is used in the Security Agreement, (b) each of the Guaranty and the
Security Agreement is an "Other Agreement", as such term is defined in the Loan
Agreement, (c) neither the Guaranty nor the Security Agreement is, as of the
date hereof, subject to any claims, defenses or offsets, (d) nothing contained
in the Loan Agreement or any Other Agreement entered into prior to or as of the
date hereof shall adversely affect any right or remedy of Lender under the
Guaranty or under the Security Agreement, and (e) the execution and delivery of
the Loan Amendment shall in no way reduce, impair or discharge any obligations
of the undersigned as guarantor pursuant to the Guaranty or as debtor pursuant
to the Security Agreement and shall not constitute a waiver by Lender of any of
Lender's rights against the undersigned.
Dated: October 20, 1998.
DXP ENTERPRISES, INC.
By: /s/ Gary A. Allcorn
-----------------------------
Name: Gary A. Allcorn
-----------------------------
Title: Senior Vice President/Finance
-----------------------------
CONSENT AND RATIFICATION TO
SECOND AMENDMENT TO LOAN AND SECURITY - Page 1
<PAGE> 1
EXHIBIT 10.3
SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT
[Pelican State Supply Company, Inc.]
THIS SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT (this "Amendment")
is made and entered into this 20th day of October, 1998, to be effective as of
the respective date herein indicated, by and between PELICAN STATE SUPPLY
COMPANY, INC., a Nevada corporation ("Borrower") and FLEET CAPITAL CORPORATION,
a Rhode Island corporation ("Lender").
RECITALS
A. Borrower and Lender have entered into that certain Loan and Security
Agreement, dated as of May 29, 1997 (as amended, the "Loan Agreement").
B. Borrower and Lender desire to amend the Loan Agreement and the other
Loan Documents as hereinafter set forth.
NOW, THEREFORE, in consideration of the premises herein contained and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties, intending to be legally bound, agree as
follows:
AGREEMENT
ARTICLE I
DEFINITIONS
1.01 Capitalized terms used in this Amendment are defined in the Loan
Agreement, as amended hereby, unless otherwise stated.
ARTICLE II
AMENDMENTS TO LOAN AGREEMENT
Effective as of the respective date herein indicated, the Loan
Agreement is hereby amended as follows:
2.01 AMENDMENT TO SECTION 9.3(C). Effective as of June 30, 1998,
Section 9.3(C) of the Loan Agreement is hereby amended and restated to read in
its entirety as follows:
"(C) Maintain, on a consolidated basis in accordance with
GAAP, as of the last day of each fiscal quarter set forth below
(the 'Calculation Date'), a ratio of (i) the Senior Debt of Parent
and its Subsidiaries on such Calculation Date, to (ii) an amount
equal to (a) the EBITDA of Parent and its Subsidiaries for the
twelve calendar month period ending on such Calculation Date, plus
(b) for any Target Company whose assets were purchased by Sepco
during the twelve calendar month period ending on such Calculation
Date, the Target Company EBITDA of such Target Company for any
portion of such twelve calendar month period preceding the date of
closing of the purchase of such assets by Sepco, minus (c) Capital
Expenditures made by Parent and its Subsidiaries during such
period which were not financed either by the proceeds of the Term
Loan (as
SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT - Page 1
<PAGE> 2
defined in the Sepco Loan Agreement) or by the proceeds of
long-term Indebtedness owing to Persons other than Lender to the
extent that the incurrence of such long-term Indebtedness did not
violate the Sepco Loan Agreement, of not greater than the ratio
set forth below on the Calculation Date corresponding thereto:
<TABLE>
<CAPTION>
CALCULATION DATE RATIO
---------------- -----
<S> <C>
(i) June 30, 1998 (i) 4.50 to 1.00
(ii) September 30, 1998 (ii) 4.50 to 1.00
(iii) December 31, 1998 (iii) 4.50 to 1.00
(iv) Each March 31, June (iv) 4.00 to 1.00
September 30, and December 31
thereafter occurring
</TABLE>
Notwithstanding the foregoing, beginning with the first Calculation
Date to occur after the consummation of the Stock Offering, and
continuing on each subsequent Calculation Date, the relevant maximum
ratio shall be 3.00 to 1.00."
2.02 AMENDMENT TO SECTION 11.1(R). Effective as of September 30, 1998,
Section 11.1(R) of the Loan Agreement is amended by deleting therefrom the
reference to the date "September 30, 1998" and substituting therefor the date
"March 31, 1999".
ARTICLE III
NO WAIVERS
3.01 Nothing contained herein shall be construed as a waiver by Lender
of any covenant or provision of the Loan Agreement, the other Loan Documents,
this Amendment or of any other contract or instrument between Borrower and
Lender, and the failure of Lender at any time or times hereafter to require
strict performance by Borrower of any provision thereof shall not waive, affect
or diminish any right of Lender to thereafter demand strict compliance
therewith. Lender hereby reserves all rights granted under the Loan Agreement,
the other Loan Documents, this Amendment and any other contract or instrument
between Borrower and Lender.
ARTICLE IV
CONDITIONS PRECEDENT
4.01 CONDITIONS TO EFFECTIVENESS. The effectiveness of this Amendment
is subject to the satisfaction of the following conditions precedent in a manner
satisfactory to Lender, unless specifically waived in writing by Lender:
(a) Lender shall have received each of the following, each in form
and substance satisfactory to Lender, in its sole discretion, and,
where applicable, each duly executed by each party thereto, other than
Lender:
(i) This Amendment, duly executed by Lender, together with
the relevant Consent, Ratification, and Amendment, respectively
duly executed by Sepco Industries, Inc., Bayou Pumps, Inc.,
American MRO, Inc., DXP Acquisition, Inc. d/b/a Strategic
Acquisition, Inc. and DXP Enterprises, Inc.; and
SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT - Page 2
<PAGE> 3
(ii) All other documents Lender may request with respect to
any matter relevant to this Amendment or the transactions
contemplated hereby;
(b) The representations and warranties contained herein and in the
Loan Agreement and the other Loan Documents, as each is amended hereby,
shall be true and correct as of the date hereof, as if made on the date
hereof;
(c) No Default or Event of Default shall have occurred and be
continuing, unless such Default or Event of Default has been otherwise
specifically waived in writing by Lender; and
(d) All corporate proceedings taken in connection with the
transactions contemplated by this Amendment and all documents,
instruments and other legal matters incident thereto shall be
satisfactory to Lender and its legal counsel.
ARTICLE V
RATIFICATIONS, REPRESENTATIONS AND WARRANTIES
5.01 RATIFICATIONS. The terms and provisions set forth in this
Amendment shall modify and supersede all inconsistent terms and provisions set
forth in the Loan Agreement and the other Loan Documents, and, except as
expressly modified and superseded by this Amendment, the terms and provisions of
the Loan Agreement and the other Loan Documents are ratified and confirmed and
shall continue in full force and effect. Each Borrower and Lender agree that the
Loan Agreement and the other Loan Documents, as amended hereby, shall continue
to be legal, valid, binding and enforceable in accordance with their respective
terms.
5.02 REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and
warrants to Lender that (a) the execution, delivery and performance of this
Amendment and any and all other Loan Documents executed and/or delivered in
connection herewith have been authorized by all requisite corporate action on
the part of Borrower and will not violate the Articles of Incorporation or
Bylaws of Borrower; (b) attached hereto as Annex A is a true, correct and
complete copy of presently effective resolutions of Borrower's Board of
Directors authorizing the execution, delivery and performance of this Amendment
and any and all other Loan Documents executed and/or delivered in connection
herewith, certified by the Assistant Secretary of Borrower; (c) the
representations and warranties contained in the Loan Agreement, as amended
hereby, and any other Loan Documents are true and correct on and as of the date
hereof and on and as of the date of execution hereof as though made on and as of
each such date; (d) no Default or Event of Default under the Loan Agreement, as
amended hereby, has occurred and is continuing, unless such Default or Event of
Default has been specifically waived in writing by Lender; (e) Borrower is in
full compliance with all covenants and agreements contained in the Loan
Agreement and the other Loan Documents, as amended hereby; and (f) Borrower has
not amended its Articles of Incorporation or its Bylaws since the date of the
Loan Agreement.
ARTICLE VI
MISCELLANEOUS PROVISIONS
6.01 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties made in the Loan Agreement or any other Loan Documents,
including, without limitation, any document furnished in connection with this
Amendment, shall survive the execution and delivery of this Amendment and the
other Loan Documents, and no investigation by Lender or any closing shall affect
the representations and warranties or the right of Lender to rely upon them.
SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT - Page 3
<PAGE> 4
6.02 REFERENCE TO LOAN AGREEMENT. Each of the Loan Agreement and the
other Loan Documents, and any and all other Loan Documents, documents or
instruments now or hereafter executed and delivered pursuant to the terms hereof
or pursuant to the terms of the Loan Agreement, as amended hereby, are hereby
amended so that any reference in the Loan Agreement and such other Loan
Documents to the Loan Agreement shall mean a reference to the Loan Agreement as
amended hereby.
6.03 EXPENSES OF LENDER. As provided in the Loan Agreement, Borrower
agrees to pay on demand all costs and expenses incurred by Lender in connection
with the preparation, negotiation, and execution of this Amendment and the other
Loan Documents executed pursuant hereto and any and all amendments,
modifications, and supplements thereto, including, without limitation, the costs
and fees of Lender's legal counsel, and all costs and expenses incurred by
Lender in connection with the enforcement or preservation of any rights under
the Loan Agreement, as amended hereby, or any other Loan Documents, including,
without, limitation, the costs and fees of Lender's legal counsel.
6.04 SEVERABILITY. Any provision of this Amendment held by a court of
competent jurisdiction to be invalid or unenforceable shall not impair or
invalidate the remainder of this Amendment and the effect thereof shall be
confined to the provision so held to be invalid or unenforceable.
6.05 SUCCESSORS AND ASSIGNS. This Amendment is binding upon and shall
inure to the benefit of Lender and Borrower and their respective successors and
assigns, except that Borrower may not assign or transfer any of its rights or
obligations hereunder without the prior written consent of Lender.
6.06 COUNTERPARTS. This Amendment may be executed in one or more
counterparts, each of which when so executed shall be deemed to be an original,
but all of which when taken together shall constitute one and the same
instrument.
6.07 EFFECT OF WAIVER. No consent or waiver, express or implied, by
Lender to or for any breach of or deviation from any covenant or condition by
Borrower shall be deemed a consent to or waiver of any other breach of the same
or any other covenant, condition or duty.
6.08 HEADINGS. The headings, captions, and arrangements used in this
Amendment are for convenience only and shall not affect the interpretation of
this Amendment.
6.09 APPLICABLE LAW. THIS AMENDMENT AND ALL OTHER LOAN DOCUMENTS
EXECUTED PURSUANT HERETO SHALL BE DEEMED TO HAVE BEEN MADE AND TO BE PERFORMABLE
IN AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF TEXAS.
6.10 FINAL AGREEMENT. THE LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS,
EACH AS AMENDED HEREBY, REPRESENT THE ENTIRE EXPRESSION OF THE PARTIES WITH
RESPECT TO THE SUBJECT MATTER HEREOF ON THE DATE THIS AMENDMENT IS EXECUTED. THE
LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS AMENDED HEREBY, MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. NO
MODIFICATION, RESCISSION, WAIVER, RELEASE OR AMENDMENT OF ANY PROVISION OF THIS
AMENDMENT SHALL BE MADE, EXCEPT BY A WRITTEN AGREEMENT SIGNED BY BORROWER AND
LENDER.
SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT - Page 4
<PAGE> 5
6.11 RELEASE. BORROWER HEREBY ACKNOWLEDGES THAT IT HAS NO DEFENSE,
COUNTERCLAIM, OFFSET, CROSS-COMPLAINT, CLAIM OR DEMAND OF ANY KIND OR NATURE
WHATSOEVER THAT CAN BE ASSERTED TO REDUCE OR ELIMINATE ALL OR ANY PART OF ITS
LIABILITY TO REPAY THE "OBLIGATIONS" OR TO SEEK AFFIRMATIVE RELIEF OR DAMAGES OF
ANY KIND OR NATURE FROM LENDER. BORROWER HEREBY VOLUNTARILY AND KNOWINGLY
RELEASES AND FOREVER DISCHARGES LENDER, ITS PREDECESSORS, AGENTS, EMPLOYEES,
SUCCESSORS AND ASSIGNS, FROM ALL POSSIBLE CLAIMS, DEMANDS, ACTIONS, CAUSES OF
ACTION, DAMAGES, COSTS, EXPENSES, AND LIABILITIES WHATSOEVER, KNOWN OR UNKNOWN,
ANTICIPATED OR UNANTICIPATED, SUSPECTED OR UNSUSPECTED, FIXED, CONTINGENT, OR
CONDITIONAL, AT LAW OR IN EQUITY, ORIGINATING IN WHOLE OR IN PART ON OR BEFORE
THE DATE THIS AMENDMENT IS EXECUTED, WHICH BORROWER MAY NOW OR HEREAFTER HAVE
AGAINST LENDER, ITS PREDECESSORS, AGENTS, EMPLOYEES, SUCCESSORS AND ASSIGNS, IF
ANY, AND IRRESPECTIVE OF WHETHER ANY SUCH CLAIMS ARISE OUT OF CONTRACT, TORT,
VIOLATION OF LAW OR REGULATIONS, OR OTHERWISE, AND ARISING FROM ANY "LOANS",
INCLUDING, WITHOUT LIMITATION, ANY CONTRACTING FOR, CHARGING, TAKING, RESERVING,
COLLECTING OR RECEIVING INTEREST IN EXCESS OF THE HIGHEST LAWFUL RATE
APPLICABLE, THE EXERCISE OF ANY RIGHTS AND REMEDIES UNDER THE LOAN AGREEMENT OR
OTHER LOAN DOCUMENTS, AND NEGOTIATION FOR AND EXECUTION OF THIS AMENDMENT.
IN WITNESS WHEREOF, this Amendment has been executed and is effective
as of the date first above-written.
"BORROWER"
PELICAN STATE SUPPLY COMPANY, INC.
By: /s/ Gary A. Allcorn
-----------------------------
Name: Gary A. Allcorn
-----------------------------
Title: Senior Vice President/Finance
-----------------------------
"LENDER"
FLEET CAPITAL CORPORATION
By: /s/ H. Michael Wills
-----------------------------
Name:
-----------------------------
Title:
-----------------------------
ANNEXES:
A-1 - Certified Resolutions of Pelican State Supply Company, Inc.
SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT - Page 5
<PAGE> 6
ANNEX A-1
CERTIFIED RESOLUTIONS OF
PELICAN STATE SUPPLY COMPANY, INC.'S BOARD OF DIRECTORS
RESOLVED: That any officer of Pelican State Supply Company, Inc., a
Nevada corporation (the "Corporation"), acting alone, by his signature be, and
the same hereby is, authorized and directed, in the name of and on behalf of the
Corporation (a) to amend the Corporation's existing Loan and Security Agreement
by and between the Corporation and Fleet Capital Corporation, a Rhode Island
corporation ("Lender"), (b) to execute and deliver to Lender with such changes
in the terms and provisions thereof as the officer executing same shall, in his
sole discretion, deem advisable, (i) a certain proposed Second Amendment to Loan
and Security Agreement to be executed by Corporation and Lender, a draft of
which has been reviewed and discussed by the Board of Directors of the
Corporation, and (ii) such other Loan Documents, instruments, statements and
writings as the officer or officers executing the same may deem desirable or
necessary in connection therewith, and (c) to perform such other acts as the
officer or officers performing such acts on behalf of the Corporation may deem
desirable or necessary in connection therewith; and be it
FURTHER RESOLVED: That said agreements will benefit the Corporation,
both directly and indirectly, and are in the best interests of the Corporation;
and be it
FURTHER RESOLVED: That said agreements and other statements in writing
executed in the name and on behalf of the Corporation by any officer of the
Corporation shall be presumed conclusively to be the instruments, the execution
of which is authorized by these resolutions; and be it
FURTHER RESOLVED: That the officers of the Corporation be, and the same
hereby are, authorized and directed to execute, in the name of and on behalf of
the Corporation, security agreements, financing statements, assignments,
collateral reports, loan statements, confirmations of delivery, lien statements,
pledge certificates, release certificates, removal reports, guaranties, cross-
collateralization agreements and such other writings and to take such other
actions as are necessary in their dealings with Lender, and any such papers
executed and any such actions taken by any of them prior to this time are
approved, ratified and confirmed; and be it
FURTHER RESOLVED: That the Secretary or any Assistant Secretary of the
Corporation, by the signature of any one or more of them, be, and the same
hereby are, authorized and directed to attest the execution by the Corporation
of the papers signed pursuant to these resolutions, to affix the seal of the
Corporation thereto, if required by Lender, and to certify to Lender the
adoption of these resolutions.
CERTIFICATION
The undersigned hereby certifies that the within and foregoing
resolutions are in effect as of the date hereof, without modification, and that
the person signing the within and foregoing Amendment on behalf of the
Corporation is the duly elected officer stated below his name, that he is
authorized to sign such Amendment, and that his signature thereon is genuine.
DATED: October 20, 1998.
/s/ Gary A. Allcorn
-----------------------------------
[Assistant] Secretary of the Corporation
CONSENT AND RATIFICATION TO
SECOND AMENDMENT TO LOAN AND SECURITY - Page 1
<PAGE> 7
CONSENT, RATIFICATION, AND AMENDMENT
The undersigned, SEPCO INDUSTRIES, INC., has executed that certain
Continuing Guaranty Agreement, dated May 29, 1997 (the "Guaranty"), in favor of
FLEET CAPITAL CORPORATION, a Rhode Island corporation ("Lender"). The
undersigned hereby (i) consents and agrees to the terms of the Second Amendment
to Loan and Security Agreement, dated on or about the date hereof (the "Loan
Amendment"), by and between Pelican State Supply Company, Inc., a Nevada
corporation, and Lender, a copy of which has been reviewed by the undersigned,
and (ii) agrees that the Guaranty shall remain in full force and effect and
shall continue to be the legal, valid and binding obligation of the undersigned
enforceable against it in accordance with its terms. Furthermore, the
undersigned hereby agrees and acknowledges that (a) the obligations,
indebtedness and liabilities arising in connection with the Loan Amendment
comprise some, but not all, of the "Obligations" as such term is used in the
Guaranty, (b) the Guaranty is an "Other Agreement", as such term is defined in
the Loan Agreement, (c) the Guaranty is not as of this date subject to any
claims, defenses or offsets, (d) nothing contained in the Loan Agreement or any
Other Agreement entered into prior to or as of the date hereof shall adversely
affect any right or remedy of Lender under the Guaranty, and (e) the execution
and delivery of the Loan Amendment shall in no way reduce, impair or discharge
any obligations of the undersigned as guarantor pursuant to the Guaranty and
shall not constitute a waiver by Lender of any of Lender's rights against the
undersigned.
Dated: October 20, 1998.
SEPCO INDUSTRIES, INC.
By: /s/ Gary A. Allcorn
-----------------------------
Name: Gary A. Allcorn
-----------------------------
Title: Senior Vice President/Finance
-----------------------------
CONSENT AND RATIFICATION TO
SECOND AMENDMENT TO LOAN AND SECURITY - Page 1
<PAGE> 8
CONSENT, RATIFICATION, AND AMENDMENT
The undersigned, AMERICAN MRO, INC., has executed that certain
Continuing Guaranty Agreement, dated May 29, 1997 (the "Guaranty"), in favor of
FLEET CAPITAL CORPORATION, a Rhode Island corporation ("Lender"). The
undersigned hereby (i) consents and agrees to the terms of the Second Amendment
to Loan and Security Agreement, dated on or about the date hereof (the "Loan
Amendment"), by and between Pelican State Supply Company, Inc., a Nevada
corporation, and Lender, a copy of which has been reviewed by the undersigned,
and (ii) agrees that the Guaranty shall remain in full force and effect and
shall continue to be the legal, valid and binding obligation of the undersigned
enforceable against it in accordance with its terms. Furthermore, the
undersigned hereby agrees and acknowledges that (a) the obligations,
indebtedness and liabilities arising in connection with the Loan Amendment
comprise some, but not all, of the "Obligations" as such term is used in the
Guaranty, (b) the Guaranty is an "Other Agreement", as such term is defined in
the Loan Agreement, (c) the Guaranty is not as of this date subject to any
claims, defenses or offsets, (d) nothing contained in the Loan Agreement or any
Other Agreement entered into prior to or as of the date hereof shall adversely
affect any right or remedy of Lender under the Guaranty, and (e) the execution
and delivery of the Loan Amendment shall in no way reduce, impair or discharge
any obligations of the undersigned as guarantor pursuant to the Guaranty and
shall not constitute a waiver by Lender of any of Lender's rights against the
undersigned.
Dated: October 20, 1998.
AMERICAN MRO, INC.
By: /s/ Gary A. Allcorn
-----------------------------
Name: Gary A. Allcorn
-----------------------------
Title: Senior Vice President/Finance
-----------------------------
CONSENT AND RATIFICATION TO
SECOND AMENDMENT TO LOAN AND SECURITY - Page 1
<PAGE> 9
CONSENT, RATIFICATION, AND AMENDMENT
The undersigned, BAYOU PUMPS, INC., has executed that certain
Continuing Guaranty Agreement, dated May 29, 1997 (the "Guaranty"), in favor of
FLEET CAPITAL CORPORATION, a Rhode Island corporation ("Lender"). The
undersigned hereby (i) consents and agrees to the terms of the Second Amendment
to Loan and Security Agreement, dated on or about the date hereof (the "Loan
Amendment"), by and between Pelican State Supply Company, Inc., a Nevada
corporation, and Lender, a copy of which has been reviewed by the undersigned,
and (ii) agrees that the Guaranty shall remain in full force and effect and
shall continue to be the legal, valid and binding obligation of the undersigned
enforceable against it in accordance with its terms. Furthermore, the
undersigned hereby agrees and acknowledges that (a) the obligations,
indebtedness and liabilities arising in connection with the Loan Amendment
comprise some, but not all, of the "Obligations" as such term is used in the
Guaranty, (b) the Guaranty is an "Other Agreement", as such term is defined in
the Loan Agreement, (c) the Guaranty is not as of this date subject to any
claims, defenses or offsets, (d) nothing contained in the Loan Agreement or any
Other Agreement entered into prior to or as of the date hereof shall adversely
affect any right or remedy of Lender under the Guaranty, and (e) the execution
and delivery of the Loan Amendment shall in no way reduce, impair or discharge
any obligations of the undersigned as guarantor pursuant to the Guaranty and
shall not constitute a waiver by Lender of any of Lender's rights against the
undersigned.
Dated: October 20, 1998.
BAYOU PUMPS, INC.
By: /s/ Gary A. Allcorn
-----------------------------
Name: Gary A. Allcorn
-----------------------------
Title: Senior Vice President/Finance
-----------------------------
CONSENT AND RATIFICATION TO
SECOND AMENDMENT TO LOAN AND SECURITY - Page 1
<PAGE> 10
CONSENT, RATIFICATION, AND AMENDMENT
The undersigned, DXP ACQUISITION, INC. D/B/A STRATEGIC ACQUISITION,
INC., has executed that certain Continuing Guaranty Agreement, dated June 16,
1997 (the "Guaranty"), in favor of FLEET CAPITAL CORPORATION, a Rhode Island
corporation ("Lender"). The undersigned hereby (i) consents and agrees to the
terms of the Second Amendment to Loan and Security Agreement, dated on or about
the date hereof (the "Loan Amendment"), by and between Pelican State Supply
Company, Inc., a Nevada corporation, and Lender, a copy of which has been
reviewed by the undersigned, and (ii) agrees that the Guaranty shall remain in
full force and effect and shall continue to be the legal, valid and binding
obligation of the undersigned enforceable against it in accordance with its
terms. Furthermore, the undersigned hereby agrees and acknowledges that (a) the
obligations, indebtedness and liabilities arising in connection with the Loan
Amendment comprise some, but not all, of the "Obligations" as such term is used
in the Guaranty, (b) the Guaranty is an "Other Agreement", as such term is
defined in the Loan Agreement, (c) the Guaranty is not as of this date subject
to any claims, defenses or offsets, (d) nothing contained in the Loan Agreement
or any Other Agreement entered into prior to or as of the date hereof shall
adversely affect any right or remedy of Lender under the Guaranty, and (e) the
execution and delivery of the Loan Amendment shall in no way reduce, impair or
discharge any obligations of the undersigned as guarantor pursuant to the
Guaranty and shall not constitute a waiver by Lender of any of Lender's rights
against the undersigned.
Dated: October 20, 1998.
DXP ACQUISITION, INC.
D/B/A STRATEGIC ACQUISITION, INC.
By: /s/ Gary A. Allcorn
-----------------------------
Name: Gary A. Allcorn
-----------------------------
Title: Senior Vice President/Finance
-----------------------------
CONSENT AND RATIFICATION TO
SECOND AMENDMENT TO LOAN AND SECURITY - Page 1
<PAGE> 11
CONSENT, RATIFICATION AND AMENDMENT
The undersigned, DXP ENTERPRISES, INC., has executed (x) that certain
Continuing Guaranty Agreement, dated May 29, 1997 (the "Guaranty"), in favor of
FLEET CAPITAL CORPORATION, a Rhode Island corporation ("Lender"), and (y) that
certain Stock Pledge Agreement, dated as of May 29, 1997, executed by the
undersigned and Fleet (the "Security Agreement"). The undersigned hereby (i)
consents and agrees to the terms of the Second Amendment to Loan and Security
Agreement, dated on or about the date hereof (the "Loan Amendment"), by and
between Pelican State Supply Company, Inc., a Nevada corporation, and Lender, a
copy of which has been reviewed by the undersigned, and (ii) agrees that each of
the Guaranty and the Security Agreement shall remain in full force and effect
and shall continue to be the legal, valid and binding obligation of the
undersigned, enforceable against it in accordance with its terms. Furthermore,
the undersigned hereby agrees and acknowledges that (a) the obligations,
indebtedness and liabilities arising in connection with the Loan Amendment
comprise some, but not all, of the "Obligations", as such term is used in the
Guaranty, and some, but not all, of the "Secured Obligations", as such term is
used in the Security Agreement, (b) each of the Guaranty and the Security
Agreement is an "Other Agreement", as such term is defined in the Loan
Agreement, (c) neither the Guaranty nor the Security Agreement is, as of the
date hereof, subject to any claims, defenses or offsets, (d) nothing contained
in the Loan Agreement or any Other Agreement entered into prior to or as of the
date hereof shall adversely affect any right or remedy of Lender under the
Guaranty or under the Security Agreement, and (e) the execution and delivery of
the Loan Amendment shall in no way reduce, impair or discharge any obligations
of the undersigned as guarantor pursuant to the Guaranty or as debtor pursuant
to the Security Agreement and shall not constitute a waiver by Lender of any of
Lender's rights against the undersigned.
Dated: October 20, 1998.
DXP ENTERPRISES, INC.
By: /s/ Gary A. Allcorn
-----------------------------
Name: Gary A. Allcorn
-----------------------------
Title: Senior Vice President/Finance
-----------------------------
CONSENT AND RATIFICATION TO
SECOND AMENDMENT TO LOAN AND SECURITY - Page 1
<PAGE> 1
Exhibit 11.1: Statement re: Computation of Per Share Earnings.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Basic:
Average shares outstanding 4,173,159 4,043,981 4,167,832 4,043,981
Net Income $ 722,000 $ 250,000 $2,681,000 $1,771,000
Per share amount $ .1730 $ .0618 $ .6433 $ .4379
Diluted:
Average shares outstanding 4,173,159 4,043,981 4,167,832 4,043,981
Net effect of dilutive stock options --
based on the treasury stock method using
period-end market price, if higher than
average market price 1,041,728 1,081,611 1,041,728 1,081,611
Assumed conversion of Class A convertible
Preferred Stock 420,000 470,400 420,000 470,400
Total 5,634,887 5,595,992 5,629,560 5,595,992
Net Income $ 747,000 $ 288,000 $2,750,000 $1,880,000
Per share amount $ .1326 $ .0515 $ .4885 $ .33600
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONDENSED FINANCIAL STATEMENTS OF DXP ENTERPRISES, INC. AS OF
SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 2,102
<SECURITIES> 0
<RECEIVABLES> 27,859
<ALLOWANCES> 1,208
<INVENTORY> 28,957
<CURRENT-ASSETS> 60,300
<PP&E> 22,279
<DEPRECIATION> 10,140
<TOTAL-ASSETS> 83,619
<CURRENT-LIABILITIES> 20,391
<BONDS> 0
112
20
<COMMON> 40
<OTHER-SE> 15,467
<TOTAL-LIABILITY-AND-EQUITY> 83,619
<SALES> 155,886
<TOTAL-REVENUES> 155,886
<CGS> 113,505
<TOTAL-COSTS> 113,505
<OTHER-EXPENSES> 33,063
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,735
<INCOME-PRETAX> 4,583
<INCOME-TAX> 1,833
<INCOME-CONTINUING> 2,750
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,750
<EPS-PRIMARY> .64
<EPS-DILUTED> .49
</TABLE>
