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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 June 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 July 10, 1998 (restated to reflect the two-to-one stock split effected July
17, 1998:)
Common Stock: 4,158,960
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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.
Part 1. Financial Information
Item 1: Financial Statement
DXP ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, except Per Share Amounts)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------- --------
(Unaudited)
Assets
Current assets:
<S> <C> <C>
Cash $ 1,892 $ 736
Trade accounts receivable, net of allowance for doubtful
accounts of $1130 and $476, respectively 27,630 25,707
Inventory 29,666 26,018
Prepaid expenses and other current assets 1,654 996
Deferred income taxes 900 722
-------- --------
Total current assets $ 61,742 $ 54,179
Property, plant and equipment, net 12,349 10,403
Goodwill 9,734 2,623
Other assets 376 431
-------- --------
Total assets $ 84,201 $ 67,636
======== ========
Liabilities and Shareholders' Equity
Current liabilities:
Trade accounts payable $ 16,169 $ 14,368
Employee compensation 1,395 1,384
Other accrued liabilities 625 704
Current portion of long-term debt 1,214 1,461
-------- --------
Total current liabilities $ 19,403 $ 17,917
Long-term debt, less current portion 46,436 33,395
Deferred compensation 739 739
Deferred income taxes 559 479
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 outstanding 18 18
Common stock, $.01 par value, 100,000,000
shares authorized; 4,187,859 shares issued, of which 4,017,209
shares are outstanding, 140,214 shares are equity subject to
redemption, and 30,436 shares are treasury stock 40 40
Paid-in capital 892 892
Retained earnings 14,617 12,659
Treasury stock (580) (580)
-------- --------
Total shareholders' equity 14,989 13,031
-------- --------
Total liabilities and shareholders' equity $ 84,201 $ 67,636
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
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DXP ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In Thousands, except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months ended
June 30 June 30
----------------------- -----------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Sales $ 52,586 $ 39,341 $ 101,590 $ 69,470
Cost of sales 38,839 28,615 75,258 50,371
--------- --------- --------- ---------
Gross profit 13,747 10,726 26,332 19,099
Selling, general and administrative expenses 11,310 9,304 21,818 16,347
--------- --------- --------- ---------
Operating income 2,437 1,422 4,514 2,752
Other income 342 466 518 895
Interest expense (909) (628) (1,694) (1,167)
--------- --------- --------- ---------
Income before income taxes 1,870 1,260 3,338 2,480
Provision for income taxes 745 459 1,335 888
--------- --------- --------- ---------
Net income $ 1,125 $ 801 $ 2,003 $ 1,592
Preferred stock dividend 23 33 44 71
--------- --------- --------- ---------
Net income attributable to common
shareholders $ 1,102 $ 768 $ 1,959 $ 1,521
========= ========= ========= =========
Basic earnings per common share $ .26 $ .19 $ .47 $ .38
========= ========= ========= =========
Common shares outstanding 4,164 4,012 4,160 4,012
========= ========= ========= =========
Diluted earnings per share $ .20 $ .14 $ .35 $ .29
========= ========= ========= =========
Common and common equivalents shares
outstanding 5,675 5,564 5,671 5,564
========= ========= ========= =========
</TABLE>
See notes to condensed consolidated financial statements.
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DXP ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
1998 1997
-------- --------
OPERATING ACTIVITIES:
<S> <C> <C>
Net cash provided by operating activities $ 3,240 ($ 1,586)
INVESTING ACTIVITIES:
Purchase of Tri-Electric Supply, Ltd. net assets (6,208) -
Purchase of Strategic Supply net assets - (4,118)
Purchase of Pelican State Supply common stock - (1,070)
Purchase of Lucky Electric & Supply, Inc. net assets (2,206) -
Purchase of Mark W. Smith Equipment, Inc. net assets (4,206) -
Purchase of property and equipment (2,214) (469)
-------- --------
Net cash used in investing activities (14,834) ( 5,657)
FINANCING ACTIVITIES:
Proceeds from debt 94,456 73,463
Principal payments on revolving line of credit, long-term and
Subordinated debt, and notes payable to bank (81,662) (66,444)
Acquisition of common stock (581)
Dividends paid (44) (71)
-------- --------
Net cash provided by financing activities 12,750 6,367
-------- --------
INCREASE (DECREASE) IN CASH 1,156 (876)
CASH AT BEGINNING OF PERIOD 736 876
-------- --------
CASH AT END OF PERIOD $ 1,892 -
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
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DXP ENTERPRISES INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
Note 1: Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been omitted. The Company believes that the
presentations and disclosures herein are adequate to make the information not
misleading. The condensed consolidated financial statements reflect all
elimination entries and adjustments (consisting of normal recurring adjustments)
necessary for a fair presentation of the interim periods.
The results of operations for the interim periods are not necessarily indicative
of the results of operations to be expected for the full year. These condensed
consolidated financial statements should be read in conjunction with the
Company's audited consolidated financial statements included in the Company's
10-K Annual Report for the year ended December 31, 1997, filed with the
Securities and Exchange Commission.
Note 2: The Company
DXP was incorporated on July 26, 1996 in the State of Texas. The Company is a
leading supplier of maintenance, repair and operating ("MRO") products,
equipment and services to industrial customers. The Company provides MRO
products in the following categories: fluid handling equipment, bearings and
power transmission equipment, general mill and safety supplies and electrical
supplies. 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 55 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>
June 30, December 31,
1998 1997
-------- --------
(in thousands)
<S> <C> <C>
Finished goods $ 30,928 $ 27,280
Work in process 2,599 2,276
-------- --------
Inventories at FIFO 33,527 29,556
Less - LIFO allowance (3,861) (3,538)
-------- --------
Inventories $ 29,666 $ 26,018
======== ========
</TABLE>
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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 and 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 above mentioned acquisitions 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 million with a bank
lender (the "Credit Facility"). During the second quarter of 1998, the Company
and the lender amended the Credit Facility. The amendment increased 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 component and
authorized 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. To date, $3.5 million has been advanced under the acquisition term loan.
Interest rates will 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. The Company currently has borrowings under
the Credit Facility of $13.0 million at LIBOR plus 2.00
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(approximately 7.70 percent). The remainder of the Company's borrowings under
the Credit Facility bear interest at prime plus .50 percent (9.00 percent at
June 30, 1998) for a weighted average interest rate of 8.66 percent.
Borrowings under the Credit Facility are secured by receivables, inventory, and
machinery and equipment and matures 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 line of credit. Additionally, certain shares held in trust for this
executive officer's children are also pledged to secure borrowings under the
Credit Facility. The borrowings available under the Credit Facility existing
lines of credit at June 30, 1998 approximated $5.2 million. The facility
contains customary affirmative and negative covenants as well as financial
covenants that require the Company to maintain a positive cash flow and other
financial ratios.
Note 6: Subsequent Events
On May 20, 1998, the Company's board of directors approved an amendment to the
Company's Restated Articles of Incorporation providing for a two-to-one reverse
stock split of the Company's Common Stock. Common stock, Paid-in-capital and Per
share amounts have been restated to reflect the reverse split. On July 6, 1998,
the Company's shareholders approved the reverse split. The reverse split was
effected on July 17, 1998.
The Company recently entered into a letter of intent to acquire the electrical
product distribution assets and operations of Texas Electrical Supply Company
("TESCO") (the "Proposed Acquisition") for a total consideration of
approximately $2.7 million in cash. Based on information provided to the
Company, TESCO had $14.0 million in revenues in 1997. The Proposed Acquisition
will expand the Company's electrical distribution capabilities.
On July 17, 1998, the Company entered into an agreement with one of its
shareholders to purchase 43,000 shares of Common Stock from the shareholder for
$401,000, payable in two installments of $200,500 each. The first installment
is due on or before September 1, 1998 and the second installment is due at
anytime after January 1, 1999 and before June 1, 1999.
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
Three Months Ended June 30, 1998 Compared to Three Months Ended June 30, 1997
Revenues for the three months ended June 30, 1998 increased 33.7% to $52.6
million from the three months ended June 30, 1997. The Company's acquisitions
during the period accounted for $13.0 million of the $13.2 million increase in
revenues. Sales of bearings and power transmission equipment for the quarter
ended June 30, 1998 decreased 2.6%, or $.4 million over the comparable period in
1997. Sales of valve and valve automation equipment increased 26.0%, or $.6
million over the comparable period in 1997, accounting for 1.4% of the revenue
increase. During the three months ended June 30, 1998, sales of fluid handling
equipment remained consistent over the comparable period in 1997.
Gross margins decreased 1.1% for the second quarter of 1998 as compared to the
second quarter of 1997, from 27.2% of sales to 26.1%. The decrease in gross
margin is attributable to a change in the product mix sold by the Company due to
acquisitions made in 1997 and 1998. The Company currently expects some increase
in manufacturers' prices to continue due to increased raw material costs and
strong market conditions. Although the Company intends to attempt to pass on
these price increases to its customers to maintain current gross margins, there
can be no assurances that the Company will be successful in this regard.
Selling, general and administrative expense decreased as a percentage of
revenues by 2.1% for the second quarter of 1998 as compared to the second
quarter of 1997, due primarily to an effort to maintain or reduce operating
expenses where possible.
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Operating income for the three month period ended June 30, 1998 increased as a
percentage of revenues by 1.0% to 4.6% as compared to the second quarter of
1997.
Interest expense during the second quarter of 1998 increased by $281,000 to
$909,000 compared to the second quarter of 1997. Long-term debt at June 30, 1998
increased by $11.9 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 consistent during the three months
ended June 1998 as compared to the same period in 1997.
The Company's provision for income taxes for the three months ended June 30,
1998 increased by $286,000 as compared to the same period of 1997, as a result
of the increase in profits.
Net income for the three month period ended June 30, 1998 increased $324,000
from the three month period ended June 30, 1997 due to the increase in revenue
volume and the decrease in selling, general and administrative expenses as a
percentage of revenue.
Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997
Revenues for the six months ended June 30, 1998 increased 46.2% to $101.6
million from the six months ended June 30, 1997. The Company's acquisitions
during the period accounted for $27.5 million of the $32.1 million increase in
revenues. Sales of bearings and power transmission equipment for the six months
ended June 30, 1998 increased 6.6%, or $1.7 million over the comparable period
in 1997, accounting for 2.4% of the revenue increase. Sales of valve and valve
automation equipment increased 32.1%, or $1.2 million over the comparable period
in 1997, accounting for 1.7% of the revenue increase. During the six months
ended June 30, 1998, sales of fluid handling equipment increased 4.9%, or $1.7
million, over the comparable period in 1997, accounting for 2.5% of the revenue
increase.
Gross margins decreased 1.6% in the first half of 1998 as compared to 1997, from
27.5% of sales to 25.9%. The decrease in gross margin is attributable to a
change in the product mix sold by the Company due to acquisitions made in 1997
and 1998. The Company currently expects some increase in manufacturers' prices
to continue due to increased raw material costs and strong market conditions.
Although the Company intends to attempt to pass on these price increases to its
customers to maintain current gross margins, there can be no assurances that the
Company will be successful in this regard.
Selling, general and administrative expense decreased as a percentage of
revenues by 2.0% for the first half of 1998 as compared to the first half of
1997, due primarily to an effort to maintain or reduce operating expenses where
possible.
Operating income for the six month period ended June 30, 1998 was consistent as
a percentage of revenues as compared to the six month period ended June 30,
1997.
Interest expense during the first half of 1998 increased by $527,000 to $1.7
million as compared to the first half of 1997. The increase was primarily due to
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
consistent during the six months ended June 30, 1998 as compared to the same
period in 1997.
The Company's provision for income taxes for the six months ended June 30, 1998
increased by $447,000 compared to the same period of 1997, as a result of the
increase in profits.
Net income for the six month period ended June 30, 1998, increased $411,000 from
the six month period ended June 30, 1997 due to the increase in revenue volume
and the decrease in selling, general and administrative expenses as a percentage
of revenue.
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Liquidity and Capital Resources
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 its Credit Facility for working capital. The Company had
$5.2 million available for borrowings under its working capital component at
June 30, 1998. Working capital at June 30, 1998 and December 31, 1997 was $42.3
million and $36.5 million, respectively. During the first six 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.
During the second quarter of 1998, the Company amended the Credit Facility and
currently has a combined line of credit of up to $50 million. Additionally, the
amendment increased 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 authorized
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. To date, $3.5 million has
been advanced under the acquisition term loan component. Additionally, interest
rates will 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. 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, such as tangible net worth less
than five to one and current assets to current liabilities greater than two to
one.
The Company generated cash from operating activities of $3.2 million in the
first six months of 1998 as compared to $1.6 million utilized during the first
six months of 1997 due primarily to a reduction in the net working capital
components during the first six months of 1998.
The Company had capital expenditures of approximately $2.2 million for the first
six months of 1998 as compared to $469,000 during the same period of 1997.
Capital expenditures in the first six 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. Capital
expenditures for the first six months of 1997 were predominantly for the
expansion of a facility in LaPorte, Texas ($144,000) and computers and related
equipment ($131,000).
During the first six 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
$275,000 in a deferred payment (based on the earnings before interest and 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.
The Company expects that its software will be year 2000 compatible 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. All
costs associated with year 2000 issues will be included as part of normal
software upgrades or operating costs, as appropriate. The Company does not
believe that any of the costs associated with such year 2000 issues will be
material to its financial condition or results of operations. The Company is
evaluating the ability of third parties with whom it transacts business to
adequately address their year 2000 issues. There can be no assurance that the
failure of such third parties to adequately address their year 2000 issues will
not have a material adverse effect on the Company's financial condition or
results of operations.
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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. Although the Company has filed a
registration statement with the Securities and Exchange Commission relating to a
possible public offering of Common Stock, there can be no assurance that it or
any other such financing will be available to the Company or as to the terms
thereof.
Item 3: Quantitative and Qualitative Disclosures About Market Price
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
In May 1998, the Company issued 1,537 shares of Common Stock for an aggregate
consideration of $ 4,625 to an employee pursuant to the exercise of a stock
option granted under the Company's Long-Term Incentive Plan. The consideration
for such shares was paid in accordance with the "cashless exercise" provisions
of the stock option pursuant to which the Company withheld 462 shares of a
Common Stock subject to the stock option to pay the exercise price.
Also in May 1998, the Company issued 42,400 shares of Common Stock for an
aggregate consideration of $ 15,953 to an employee pursuant to the exercise of
stock option.
The Company considers all of such securities to have been offered and sold in
transactions not involving a public offering and, therefore, to be exempted
from registration under Section 4(2) of the Securities Act.
Item 3. Defaults upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
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. 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
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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 June 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. 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 and 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 customers 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.
11
<PAGE> 12
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 affect 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 effect 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.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Employee Agreement dated July 1, 1996, between SEPCO Industries,
Inc. and Bryan H. Wimberly, as amended by Amendment to Employment
Agreement dated effective May 21, 1998 and Amendment to Employment
Agreement dated effective June 30, 1998.
10.2 Seventh Amendment to Second Amended and Restated Loan and Security
Agreement dated June 30, 1998, by and among SEPCO Industries,
Inc., Bayou Pumps, Inc., American MRO, Inc. and Fleet Capital
Corporation.
10.3 Sixth Amendment to Second Amended and Restated Loan and Security
Agreement and Amendment to Other Agreements dated April 29, 1998,
by and among SEPCO Industries, Inc., Bayou Pumps, Inc. and
American MRO, Inc. (incorporated by reference to Exhibit 10.1 to
the Company's Quarterly Report on Form 10-Q, filed with the
Securities and Exchange Commission on May 14, 1998).
10.4 Employment Agreement dated effective as of July 15, 1996, between
SEPCO Industries, Inc. and David R. Little, as amended by
Amendment to Employment Agreement dated effective May 21, 1998
(incorporated by reference to Exhibit 10.8 to the Company's
Registration Statement on Form S-1 (Reg. No. 333-53387), filed
with the Securities and Exchange Commission on May 22, 1998).
10.5 Employment Agreement dated effective as of July 1, 1996, between
SEPCO Industries, Inc. and Jerry J. Jones, as amended by Amendment
to Employment Agreement dated effective May 21, 1998 (incorporated
by reference to Exhibit 10.9 to the Company's Registration
Statement on Form S-1 (Reg. No. 333-53387), filed with the
Securities and Exchange Commission on May 22, 1998).
10.6 Employment Agreement dated effective as of July 1, 1996, between
SEPCO Industries, Inc. and Gary A. Allcorn, as amended by
Amendment to Employment Agreement dated effective May 21, 1998
(incorporated by reference to Exhibit 10.11 to the Company's
Registration Statement on Form S-1 (Reg. No. 333-53387), filed
with the Securities and Exchange Commission on May 22, 1998).
11.1 Statement re: Computation of Per Share Earnings
27.1 Financial Data Schedule
27.2 Restated Financial Data Schedules
27.3 Restated Financial Data Schedules
27.4 Restated Financial Data Schedules
(b) Reports on Form 8-K
None
12
<PAGE> 13
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: August 10, 1998 By: /s/ GARY A. ALLCORN
---------------------------------
Gary A. Allcorn
Senior Vice President/Finance
and Chief Financial Officer
(Duly authorized officer and
principal financial officer)
13
<PAGE> 14
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<S> <C>
10.1 Employee Agreement dated July 1, 1996, between SEPCO Industries,
Inc. and Bryan H. Wimberly, as amended by Amendment to Employment
Agreement dated effective May 21, 1998 and Amendment to Employment
Agreement dated effective June 30, 1998.
10.2 Seventh Amendment to Second Amended and Restated Loan and Security
Agreement dated June 30, 1998, by and among SEPCO Industries,
Inc., Bayou Pumps, Inc., American MRO, Inc. and Fleet Capital
Corporation.
10.3 Sixth Amendment to Second Amended and Restated Loan and Security
Agreement and Amendment to Other Agreements dated April 29, 1998,
by and among SEPCO Industries, Inc., Bayou Pumps, Inc. and
American MRO, Inc. (incorporated by reference to Exhibit 10.1 to
the Company's Quarterly Report on Form 10-Q, filed with the
Securities and Exchange Commission on May 14, 1998).
10.4 Employment Agreement dated effective as of July 15, 1996, between
SEPCO Industries, Inc. and David R. Little, as amended by
Amendment to Employment Agreement dated effective May 21, 1998
(incorporated by reference to Exhibit 10.8 to the Company's
Registration Statement on Form S-1 (Reg. No. 333-53387), filed with
the Securities and Exchange Commission on May 22, 1998).
10.5 Employment Agreement dated effective as of July 1, 1996, between
SEPCO Industries, Inc. and Jerry J. Jones, as amended by Amendment
to Employment Agreement dated effective May 21, 1998 (incorporated
by reference to Exhibit 10.9 to the Company's Registration
Statement on Form S-1 (Reg. No. 333-53387), filed with the
Securities and Exchange Commission on May 22, 1998).
10.6 Employment Agreement dated effective as of July 1, 1996, between
SEPCO Industries, Inc. and Gary A. Allcorn, as amended by
Amendment to Employment Agreement dated effective May 21, 1998
(incorporated by reference to Exhibit 10.11 to the Company's
Registration Statement on Form S-1 (Reg. No. 333-53387), filed
with the Securities and Exchange Commission on May 22, 1998).
11.1 Statement re: Computation of Per Share Earnings
27.1 Financial Data Schedule
27.2 Restated Financial Data Schedules
27.3 Restated Financial Data Schedules
27.4 Restated Financial Data Schedules
</TABLE>
<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement) by and between SEPCO
INDUSTRIES, INC., a Texas corporation (the "Company"), and BRYAN H. WIMBERLY
(the "Executive") is made and entered into as of the Effective Date set forth
in Section 1.3 below:
RECITALS
A. The Company desires to employ the Executive in the capacity
set forth on Exhibit A pursuant to the provisions of this
Agreement; and
B. The Executive desires employment as an employee of the Company
pursuant to the provisions of this Agreement.
ARTICLE I.
TERMS OF EMPLOYMENT
The terms of employment are as follows:
1.1 Employment. The Company hereby employs the Executive for and
during the term hereof in the capacity set forth on Exhibit A, but Company may
subsequently assign Executive to a different position or modify Executive's
duties and responsibilities. The Executive hereby accepts employment under the
terms and conditions set forth in this Agreement.
1.2 Duties of Executive. The Executive shall perform in the
capacity described in Section 1.1 hereof and shall have such duties,
responsibilities, and authorities as may be designated for such office. The
Executive agrees to devote the Executive's best efforts, abilities, knowledge,
experience and full business time to the faithful performance of the duties,
responsibilities, and authorities which may be assigned to the Executive.
Executive may not engage, directly or indirectly, in any other business,
investment, or activity that interferes with Executive's performance of
Executive's duties hereunder, is contrary to the interests of the Company, or
requires any significant portion of Executives's business time. Executive
shall at all times comply with and be subject to such policies and procedures
as the Company may establish from time to time. Executive acknowledges and
agrees that Executive owes a fiduciary duty of loyalty, fidelity and allegiance
to act at all times in the best interests of the Company and to do no act which
would injure Company's business, its interests, or its reputation.
1.3 Term. This Agreement shall become effective as of the 1st day
of July, 1996 (the "Effective Date") and shall continue in force and effect for
one (1) year unless sooner terminated as provided in Section 2.1 hereof.
Unless this Agreement is terminated before its annual anniversary date, the
term hereof shall be automatically extended for one (1) year unless this
Agreement is renewed or extended by written agreement between the Company and
the Executive pursuant to terms and conditions mutually acceptable.
1.4 Compensation. The Company shall pay the Executive, as
"Compensation" for services rendered by the Executive under this Agreement the
following Salary plus Bonus.
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<PAGE> 2
(a) Salary: A base salary per month as set forth on Exhibit A,
prorated for any partial period of employment ("Salary"). Such Salary
shall be paid in installments in accordance with the Company's regular
payroll practices.
(b) Bonus: A bonus as set forth in Exhibit "A" ("Bonus").
1.5 Employment Benefits. In addition to the Salary payable to the
Executive hereunder, the Executive shall be entitled to the following benefits:
(a) Employment Benefits. As an employee of the Company,
the Executive shall participate in and receive all general employee
benefit plans and programs, as may be in effect from time to time,
upon satisfaction by the Executive of the eligibility requirements
therefor. Nothing in this Agreement is to be construed or interpreted
to provide greater rights, participation, coverage, or benefits under
such benefit plans or programs than provided to similarly situated
employees pursuant to the terms and conditions of such benefit plans
and programs.
(b) Working Facilities. During the term of this
Agreement, the Company shall provide, at its expense, office space,
furniture, equipment, supplies and personnel as shall be adequate for
the Executive's use in performing Executive's duties and
responsibilities under this Agreement.
(c) Automobile Allowance. During the term of this
Agreement, the Company shall provide Executive with a vehicle in
accordance with the Company's vehicle policy.
(d) Limitations. Company shall not by reason of this Article
1.5 be obligated to institute, maintain, or refrain from changing,
amending, or discontinuing, any such incentive compensation or
employee benefit program or plan, so long as such actions are
similarly applicable to covered employees similarly situated.
ARTICLE II.
TERMINATION
2.1 Termination. Notwithstanding anything herein to the contrary,
this Agreement and the Executive's employment hereunder may be terminated
without any breach of this Agreement at any time during the term hereof by
reason of and in accordance with the following provisions:
(a) Death. If the Executive dies during the term of this
Agreement and while in the employ of the Company, this Agreement shall
automatically terminate as of the date of the Executive's death, and
the Company shall have no further liability hereunder to the Executive
or Executive's estate, except to the extent set forth in Section
2.2(a) hereof.
(b) Disability. If, during the term of this Agreement,
the Executive shall be prevented from performing the Executive's
duties hereunder by reason of becoming disabled as hereinafter
defined, the Company may terminate this Agreement immediately
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<PAGE> 3
upon written notice to the Executive without any further liability
hereunder to the Executive except as set forth in Section 2.2(b)
hereof. For purposes of this Agreement, the Executive shall be deemed
to have become disabled when the Board of Directors of the Company,
upon the written report of a qualified physician designated by the
Board of Directors of the Company or by its insurers, shall have
determined that the Executive has become mentally, physically and/or
emotionally incapable of performing Executive's duties and services
under this Agreement.
(c) Termination by the Company for Cause. Prior to the
expiration of the term of this Agreement, the Company may discharge
the Executive for cause and terminate this Agreement immediately upon
written notice to the Executive without any further liability
hereunder to the Executive, except to the extent set forth in Section
2.1(c) hereof. For purposes of this Agreement, a "discharge for
cause" shall mean termination of the Executive upon written notice to
the Executive limited, however, to one or more of the following
reasons:
(1) Conviction of the Executive by a court of
competent jurisdiction of a felony or a crime involving moral
turpitude;
(2) The Executive's failure or refusal to comply
with the Company's policies, standards, and regulations of the
Company, which from time to time may be established;
(3) The Executive's engaging in conduct amounting
to fraud, dishonesty, gross negligence, willful misconduct or
conduct that is unprofessional, unethical, or detrimental to
the reputation, character or standing of the Company; or
(4) The Executive's failure to faithfully and
diligently perform the duties required hereunder or to comply
with the provisions of this Agreement.
Prior to terminating this Agreement pursuant to
Section 2.1(c), (2), or (4), the Company shall furnish the
Executive written notice of the Executive's alleged failure to
abide by or alleged breach of this Agreement. The Executive
shall have thirty (30) days after the Executive's receipt of
such notice to cure such failure to abide or breach and the
Company's Board of Directors shall determine if the failure to
abide or breach is cured.
(d) Termination by the Company with Notice. The Company
may terminate this Agreement at any time, for any reason, other than
as set forth in Subparagraphs (a), (b) or (c) of this Section 2.1,
with or without cause, in the Company's sole discretion, immediately
upon written notice to the Executive without any further liability
hereunder to the Executive, except to the extent set forth in Section
2.2(d) hereof.
(e) Termination by the Executive for Good Reason. The
Executive may terminate this Agreement at any time for Good Reason (as
hereinafter defined) in which event the Company shall have no further
liability hereunder to the Executive except to
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<PAGE> 4
the extent set forth in Section 2.2(e) hereof. For purposes of this
Agreement, the term "Good Reason" shall mean, without the Executive's
express written consent, the occurrence of any of the following
circumstances:
(1) The Company's failure to pay the Executive
the Compensation pursuant to the terms of this Agreement that
has not been cured within thirty (30) days after notice of
such noncompliance has been given by the Executive to the
Company;
(2) The failure of the Company to obtain an
agreement, from any successor to assume and agree to perform
this Agreement; or
(3) Any failure by the Company to comply with any
material provision of this Agreement that has not been cured
within thirty (30) days after notice of such noncompliance has
been given by the Executive to the Company.
(f) Termination by the Executive with Notice. The
Executive may terminate this Agreement for any reason other than Good
Reason on thirty (30) days prior written notice, in the sole
discretion of the Executive, in which event the Company shall have no
further liability hereunder to the Executive, except to the extent set
forth in Section 2.2(f) hereof.
2.2 Compensation upon Termination.
(a) Death. In the event the Executive's employment
hereunder is terminated pursuant to the provisions of Section 2.1(a)
hereof due to the death of the Executive, the Company shall have no
further obligation to the Executive or Executive's estate, except to
pay to the Executive's spouse, or if none, to the estate of the
Executive any accrued, but unpaid, Salary and any vacation or sick
leave benefits, which have accrued as of the date of death but were
then unpaid or unused. Any amount due the Executive hereunder shall
be paid in a lump sum in cash within thirty (30) days after the death
of the Executive.
(b) Disability. In the event the Executive's employment
hereunder is terminated pursuant to the provisions of Section 2.1(b)
hereof due to Disability of the Executive, the Company shall be
relieved of all of its obligations under this Agreement, except to pay
the Executive any accrued, but unpaid Salary, and vacation or sick
leave benefits which have accrued as of the date on which such
permanent disability is determined, but then remain unpaid. The
provisions of the preceding sentence shall not affect the Executive's
rights to receive payments under the Company's disability insurance
plan, if any. Any amount due the Executive hereunder shall be paid in
a lump sum in cash within thirty (30) days after the termination of
the Executive's employment hereunder.
(c) Cause. In the event the Executive's employment
hereunder is terminated by the Company for Cause pursuant to the
provisions of Section 2.1(c) hereof, the Company shall have no further
obligation to the Executive under this Agreement except
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<PAGE> 5
to pay the Executive any accrued, but unpaid, Salary and any vacation
or sick leave benefits, which have accrued as of the date of
termination of this Agreement, but were then unpaid or unused. Any
amount due the Executive hereunder shall be paid in a lump sum in cash
within sixty (60) days after the termination of the Executive's
employment hereunder.
(d) Termination Pursuant to Section 2.1(d). In the event
the Executive's employment hereunder is terminated by the Company
pursuant to the provisions of Section 2.1(d) hereof, the Executive
shall be entitled to receive (i) any accrued, but unpaid, Salary and
any vacation or sick leave benefits, which have accrued as of the date
of termination of this Agreement, but were then unpaid or unused, (ii)
an amount payable in monthly installments equal to the Executive's
full monthly Salary payable for a period of twelve (12) months and
(iii) the Termination Bonus set forth in Exhibit A. Any amount due
the Executive hereunder (i) of this Section shall be paid in a lump
sum in cash within thirty (30) days after the termination of the
Executive's employment hereunder.
(e) Termination by the Executive for Good Reason. In the
event this Agreement is terminated by the Executive pursuant to the
provisions of Section 2.1(e) hereof, the Executive shall be entitled
to receive (i) any accrued, but unpaid, Salary and any vacation or
sick leave benefits which have accrued as of the date of
termination-of the Agreement, but were then unpaid or unused, (ii) the
full monthly Salary payable hereunder for a period of twelve (12)
months after this Agreement is terminated by the Executive in
accordance with the Company's regular payroll periods or over such
lesser period as the Company may determine and (iii) the Termination
Bonus set forth in Exhibit A. Any amount due the Executive hereunder
(i) of this Section shall be paid in a lump sum in cash within thirty
(30) days after the termination of the Executive's employment
hereunder.
(f) Termination Pursuant to Section 2.1(f). In the event
the Executive's employment hereunder is terminated by the Executive
pursuant to the provisions of Section 2.1(f) hereof, all future
compensation to which Executive is entitled and all future benefits
for which Executive is eligible shall cease and terminate as of the
date of termination. Executive shall be entitled to pro rata Salary
through the date of termination. Any amount due the Executive
hereunder shall be paid in a lump sum in cash within sixty (60) days
after the termination of Executive's Employment hereunder.
(g) Termination of Obligations of the Company Upon
Payment of Compensation. Upon payment of the amount, if any, due the
Executive pursuant to the preceding provisions of this Section, the
Company shall have no further obligation to the Executive under this
Agreement.
2.3 Merger or Acquisition. In the event the Company should
consolidate, or merge into another corporation, or transfer all or
substantially all of its assets to another entity, or divide its assets among a
number of entities, this Agreement shall continue in full force and effect.
The Company will require any and all successors (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to expressly assume and agree
pursuant to an
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<PAGE> 6
appropriate written assumption agreement to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place. Failure of the Company to obtain such
agreement prior to or contemporaneously with the effectiveness of any such
successor shall be a breach of the Agreement and shall entitle the Executive,
as his or her sole remedy, to terminate Executive's employment and this
Agreement for Good Reason.
2.4 Offset. The Company shall have the right to deduct from any
amounts due the Executive hereunder any obligations owed by the Executive to
the Company.
ARTICLE III.
PROTECTION OF INFORMATION AND NON-COMPETITION
Protective Covenants. The Executive recognizes that his employment by
the Company is one of the highest trust and confidence because (i) the
Executive will become fully familiar with all aspects of the Company's business
during the period of his employment with the Company, (ii) certain information
of which the Executive will gain knowledge during his employment is proprietary
and confidential information which is special and peculiar value to the
Company, and (iii) if any such proprietary and confidential information were
imparted to or became known by any person, including the Executive, engaging
in a business in competition with that of the Company, hardship, loss or
irreparable injury and damage could result to the Company, the measurement of
which would be difficult if not impossible to ascertain. The Executive
acknowledges that the Company has developed unique skills, concepts, designs,
marketing programs, marketing strategy, business practices, methods of
operation, trademarks, licenses, hiring and training methods, financial and
other confidential and proprietary information concerning its operations and
expansion plans ("Trade Secrets"). Therefore, the Executive agrees that it is
necessary for the Company to protect its business from such damage, and the
Executive further agrees that the following covenants constitute a reasonable
and appropriate means, consistent with the best interest of both the Executive
and the Company, to protect the Company against such damage and shall apply to
and be binding upon the Executive as provided herein:
(a) Trade Secrets. The Executive recognizes that his
position with the Company is one of the highest trust and confidence
by reason by of the Executive's access to and contact with certain
Trade Secrets of the Company. The Executive agrees and covenants to
use his best efforts and exercise utmost diligence to protect and
safeguard the Trade Secrets of the Company. The Executive further
agrees and covenants that, except as may be required by the Company in
connection with this Agreement, or with the prior written consent of
the Company, the Executive shall not, either during the term of this
Agreement or thereafter, directly or indirectly, use for the
Executive's own benefit or for the benefit of another, or disclose,
disseminate, or distribute to another, any Trade Secret (whether or
not acquired, learned, obtained, or developed by the Executive alone
or in conjunction with others) of the Company or of others with whom
the Company has a business relationship. All memoranda, notes,
records, drawings, documents, or other writings whatsoever made,
compiled, acquired, or received by the Executive during the term of
this Agreement, arising out of, in connection with, or related to any
activity or business of the Company, including, but
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<PAGE> 7
not limited to, the Company's operations, the marketing of the
Company's products, the Company's customers, suppliers, or others with
whom the Company has a business relationship, the Company's
arrangements with such parties, and the Company's pricing and
expansion policies and strategy, are, and shall continue to be, the
sole and exclusive property of the Company, and shall, together with
all copies thereof and all advertising literature, be returned and
delivered to the Company by the Executive immediately, without demand,
upon the termination of this Agreement, or at any time upon the
Company's demand.
(b) Restriction on Soliciting Employees of the Company.
The Executive covenants that during the term of this Agreement and for
a period of twelve (12) months following the termination of this
Agreement, he will not, either directly or indirectly, call on,
solicit, or take away, or attempt to call on, solicit, induce or take
away any employee of the Company, either for himself or for any other
person, firm, corporation or other entity. Further, Executive shall
not induce any employee of the Company to terminate his or her
employment with the Company.
(c) Covenant Not to Compete. The Executive hereby
covenants and agrees that during the term of this Agreement and for
the period set forth in Exhibit "A" following the termination of this
Agreement ("Non-Compete Period"), he will not, directly or
indirectly, either as an employee, employer, consultant, agent,
principal, partner, shareholder (other than through ownership of
publicly-traded capital stock of a corporation which represents less
than five percent (5%) of the outstanding capital stock of such
corporation), corporate officer, director, investor, financier or in
any other individual or representative capacity, engage or participate
in any business competitive with the business conducted by the Company
within Texas, Oklahoma or Louisiana.
(d) Survival of Covenants. Each covenant of the
Executive set forth in this Article III shall survive the termination
of this Agreement and shall be construed as an agreement independent
of any other provision of this Agreement, and the existence of any
claim or cause of action of the Executive against the Company whether
predicated on this Agreement or otherwise shall not constitute a
defense to the enforcement by the Company of said covenant.
(e) Remedies. In the event of breach or threatened
breach by the Executive of any provision of this Article III, the
Company shall be entitled to relief by temporary restraining order,
temporary injunction, or permanent injunction or otherwise, in
addition to other legal and equitable relief to which it may be
entitled, including any and all monetary damages which the Company may
incur as a result of said breach, violation or threatened breach or
violation. The Company may pursue any remedy available to it
concurrently or consecutively in any order as to any breach,
violation, or threatened breach or violation, and the pursuit of one
of such remedies at any time will not be deemed an election of
remedies or waiver of the right to pursue any other of such remedies
as to such breach, violation, or threatened breach or violation, or as
to any other breach, violation, or threatened breach or violation.
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<PAGE> 8
The Executive hereby acknowledges that the Executive's agreement to be
bound by the protective covenants set forth in this Article III was a material
inducement for the Company entering into this Agreement and agreeing to pay the
Executive the compensation and benefits set forth herein. Further, Executive
understands the foregoing restrictions may limit his or her ability to engage
in certain businesses during the period of time provided for, but acknowledges
that Executive will receive sufficiently high remuneration and other benefits
under this Agreement to justify such restriction.
ARTICLE IV.
GENERAL PROVISIONS
4.1 Notices. all notices, requests, consents, and other
communications under this Agreement shall be in writing and shall be deemed to
have been delivered on the date personally delivered or on the date deposited
in a receptacle maintained by the United States Postal Service for such
purpose, postage prepaid, by certified mail, return receipt requested,
addressed to the respective parties as follows:
If to the Executive: As set forth in Exhibit "A"
If to the Company: Sepco Industries, Inc.
6500 Brittmoore
Houston, Texas 77041
ATTN: David R. Little
Either party hereto may designate a different address by providing written
notice of such new address to the other party hereto.
4.2 Severability. If any provision contained in this Agreement is
determined by a court of competent jurisdiction or an arbitrator pursuant to
Section 5 below to be void, illegal or unenforceable, in whole or in part, then
the other provisions contained herein shall remain in full force and effect as
if the provision which was determined to be void, illegal, or unenforceable had
not been contained herein. If the restrictions contained in Article III are
found by a court to be unreasonable or overly broad as to geographic area or
time, or otherwise unenforceable, the parties intend for said restrictions to
be modified by said court so as to be reasonable and enforceable and, as so
modified, to be fully enforced.
4.3 Waiver Modification, and Integration. The waiver by any party
hereto of a breach of any provision of this Agreement shall not operate or be
construed as a waiver of any subsequent breach by any party. This instrument
contains the entire agreement of the parties concerning employment and
supersedes all prior and contemporaneous representations, understandings and
agreements, either oral or in writing, between the parties hereto with respect
to the employment of the Executive by the Company and all such prior or
contemporaneous
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<PAGE> 9
representations, understandings and agreements, both oral and written, are
hereby terminated. This Agreement may not be modified, altered or amended
except by written agreement of all the parties hereto.
4.4 Binding Effect. This Agreement shall be binding and effective
upon the parties and their respective successors. Neither party shall assign
this Agreement without the prior written consent of the other party, except
that the Company shall have the right to assign this Agreement to an entity.
4.5 Governing Law. The parties intend that the laws of the State
of Texas should govern the validity of this Agreement, the construction of its
terms, and the interpretation of the rights and duties of the parties hereto.
4.6 Representation of Executive. The Executive hereby represents
and warrants to the Company that the Executive has not previously assumed any
obligations inconsistent with those contained in this Agreement. The Executive
further represents and warrants to the Company that the Executive has entered
into this Agreement pursuant to Executive's own initiative and that this
Agreement is not in contravention of any existing commitments. The Executive
acknowledges that the Company has entered into this Agreement in reliance upon
the foregoing representations of the Executive.
4.7 Counterpart Execution. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute but one and the same instrument.
4.8 Company. For the purposes of this Agreement, Company shall
include any parent, subsidiary division of the Company, or any entity, who
directly or indirectly, controls, is controlled by, or is under common control
with the Company.
ARTICLE V.
ARBITRATION
5.1 Resolution of Disputes. In any dispute between the Parties,
the Parties shall cooperate in good faith to resolve the dispute. If the
parties cannot resolve the dispute between themselves, they shall each, within
ten (10) days, select one mediator to help resolve the dispute. If a resolution
of the dispute does not occur through mediation within thirty (30) days after
the selection of the two mediators, any Party may demand binding arbitration.
5.2 Arbitration. In the event any dispute cannot be resolved
through mediation the Parties agree to submit such dispute to binding
arbitration. Any such arbitration arising hereunder shall be conducted in
Houston, Texas in accordance with the rules of the American Arbitration
Association then in effect. The costs of arbitration shall be borne equally by
the Parties. However, each Party shall be responsible for such Party's own
attorneys' fees.
-9-
<PAGE> 10
ARTICLE VI.
CONFIDENTIALITY
6.1 Confidentiality. This Agreement is confidential, and the
substance may be disclosed only as mutually agreed by the Parties or as may be
required by law.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written effective as of the Effective Date.
THE COMPANY:
SEPCO INDUSTRIES, INC., a Texas corporation
By: /s/ DAVID R. LITTLE
----------------------------------------
Printed Name: David R. Little
---------------------------
Title: Chairman & CEO
----------------------------------
EXECUTIVE:
By: /s/ BRYAN WIMBERLY
----------------------------------------
Bryan Wimberly
President and Chief Operating
Officer
-10-
<PAGE> 11
AMENDMENT TO EMPLOYMENT AGREEMENT
WHEREAS, on July 1, 1996, SEPCO INDUSTRIES, INC., a Texas corporation ("the
Company") and BRYAN H. WIMBERLY (the "Executive") entered into that one certain
Employment Agreement (the "Agreement");
WHEREAS, the Company and the Executive desire to amend said Employment
Agreement pursuant to the provisions hereof.
NOW, THEREFORE, in consideration of the covenants, and agreements set out
below, the parties agree as follows:
1. All terms defined in the Agreement, which are used in this First
Amendment, shall have the same meaning as set forth in the Agreement
except as specifically changed or modified hereby.
2. The Company has become a wholly owned subsidiary of DXP Enterprises,
Inc., a Texas corporation ("DXP"). Therefore the Company shall, for
the purposes of the Agreement, be DXP.
3. Section 1.3 is hereby amended by adding the following as the last
sentence:
"This Agreement shall terminate June 30, 1998, if the Company and
Executive execute a new Employment Agreement."
4. The Bonus Section in Exhibit A to the Agreement is hereby amended by
adding the following as the last sentence:
"Notwithstanding the foregoing, the annual total of the monthly
bonus shall not exceed twice the annual base salary."
Page 1 of 2 Pages
<PAGE> 12
5. Except as herein amended and modified, the Agreement shall remain in
full force and effect.
EXECUTED effective the 21st day of May, 1998.
DXP ENTERPRISES, INC.
By: /s/ DAVID R. LITTLE
------------------------------------
DAVID R. LITTLE
Chairman and Chief Executive Officer
/s/ BRYAN H. WIMBERLY
------------------------------------
BRYAN H. WIMBERLY
Page 2 of 2 Pages
<PAGE> 13
AMENDMENT TO EMPLOYMENT AGREEMENT
WHEREAS, on July 1, 1996, SEPCO INDUSTRIES, INC., a Texas corporation
("the Company") and BRYAN H. WIMBERLY (the "Executive") entered into that one
certain Employment Agreement (the "Agreement");
WHEREAS, the Company and the Executive desire to amend said Employment
Agreement pursuant to the provisions hereof.
NOW, THEREFORE, in consideration of the covenants, and agreements set
out below, the parties agree as follows:
1. All terms defined in the Agreement, which are used in this
First Amendment, shall have the same meaning as set forth in
the Agreement except as specifically changed or modified
hereby.
2. The Company has become a wholly owned subsidiary of DXP
Enterprises, Inc., a Texas corporation ("DXP"). Therefore the
Company shall, for the purposes of the Agreement, be DXP.
3. Section 1.3 is hereby amended by adding the following as the
last sentence:
"This Agreement shall terminate June 30, 1998, if the Company
and Executive execute a new Employment Agreement."
4. Exhibit A to the Agreement is hereby deleted and the "Revised
Exhibit A" attached hereto shall become Exhibit A of the
Agreement.
5. Except as herein amended and modified, the Agreement shall
remain in full force and effect.
<PAGE> 14
EXECUTED effective the 30th day of June, 1998.
DXP ENTERPRISES, INC.
By: /s/ DAVID R. LITTLE
------------------------------------------
DAVID R. LITTLE
Chairman and Chief Executive Officer
/s/ BRYAN H. WIMBERLY
--------------------------------------------
BRYAN H. WIMBERLY
-2-
<PAGE> 15
REVISED
EXHIBIT "A"
TO
EMPLOYMENT AGREEMENT
<TABLE>
<S> <C>
NAME: Bryan H. Wimberly
POSITION: Senior Vice President
MONTHLY BASE: $10,833.33
BONUS: One-half (.50%) of the monthly profit before
tax of the Company, excluding sale of fixed
assets and extraordinary items, as determined
by the Company, which shall be payable
monthly in accordance with the Company's
regular bonus practices. Notwithstanding the
foregoing, the annual total of the monthly
bonus shall not exceed twice the annual base
salary.
NON-COMPETE PERIOD: Twelve (12) months
HOME ADDRESS: 1306A Potomac
Houston, TX 77057
TERMINATION BONUS: The sum equal to the total of twelve (12)
previous monthly bonus payments made to
Employee in accordance with Section 1.4(b)
of this Agreement.
</TABLE>
A-1
<PAGE> 1
EXHIBIT 10.2
SEVENTH AMENDMENT TO SECOND AMENDED AND
RESTATED LOAN AND SECURITY AGREEMENT
THIS SEVENTH AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AND
SECURITY AGREEMENT (this "Amendment") is made and entered into this 30th day of
June, 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 (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.
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:
SEVENTH AMENDMENT TO SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT - PAGE 1
<PAGE> 2
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
Effective as of the respective date herein indicated, the Loan
Agreement and the Other Agreements are hereby respectively amended as follows:
2.01 AMENDMENT TO SECTION 1.1 OF THE LOAN AGREEMENT; ADDITION OF
CERTAIN DEFINITIONS. Effective as of the date of execution of this Amendment,
Section 1.1 of the Loan Agreement is hereby amended by adding the following new
definitions thereto, to be inserted in their proper alphabetical order:
"LC AMOUNT - at any time, the aggregate face amount of all
Letters of Credit and all LC Guaranties then outstanding.
SEVENTH AMENDMENT - that certain Seventh Amendment to Second
Amendment and Restated Loan and Security Agreement, executed by Lender
and Borrower."
2.02 AMENDMENT TO DEFINITION OF "BORROWING BASE" IN SECTION 1.1 OF
THE LOAN AGREEMENT. Effective as of the date of execution of this Amendment,
the definition of "Borrowing Base" in Section 1.1 of the Loan Agreement is
amended by amending and restating paragraph (a) of such definition to read as
follows:
"(a) Forty Million Dollars ($40,000,000), minus the
aggregate unpaid principal balance of the Term Loan and of the
Acquisition Term Loans at such date, minus the aggregate face amount
of all LC Guaranties and Letters of Credit issued by Lender or
Affiliates of Lender outstanding at such date; or".
2.03 AMENDMENT TO DEFINITION OF "TERM NOTE" IN SECTION 1.1 OF THE
LOAN AGREEMENT. Effective as of the date of execution of this Amendment, the
definition of "Term Note" in Section 1.1 of the Loan Agreement is hereby
amended and restated to read in its entirety as follows:
"TERM NOTE - that certain Secured Promissory Note, dated March
1, 1994, in the original principal amount of $1,329,277.37, executed
by Sepco, and payable to the order of Lender, as renewed, extended,
modified and restated from time to time, including, without
limitation, as modified and extended by (i) the Third Amendment
Modification Agreements (which Third Amendment Modification
Agreements, among other things, modified the Term Note to reflect the
increase of the Term Loan to $5,000,000), and (ii) the Sixth Amendment
(which Sixth Amendment, among other things, modified the Term Note to
reflect the increase of the Term Loan to $9,887,000), and (iii) the
Seventh Amendment (which Seventh Amendment, among other things,
modified the Term Note to reflect the increase of the Term Loan to
$12,387,000)."
SEVENTH AMENDMENT TO SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT - PAGE 2
<PAGE> 3
2.04 AMENDMENT TO SECTION 2.1 OF THE LOAN AGREEMENT; ADDITION OF
NEW SECTION 2.1(A). Effective as of the date of execution of this Amendment,
Section 2.1 of the Loan Agreement is amended by adding thereto a new Section
2.1(A) Letters of Credit; LC Guaranties to read in its entirety as follows:
"(A) LETTERS OF CREDIT; LC GUARANTIES. Lender agrees, so
long as no Default or Event of Default exists, and if requested by
Borrower, upon or after the date of execution of the Seventh
Amendment, to (i) issue its or cause to be issued by its Affiliate,
Letters of Credit for the account of Borrower, provided that the LC
Amount shall at no time exceed $4,000,000, or (ii) execute an LC
Guaranty by which Lender shall guaranty the payment or performance by
Borrower of its reimbursement obligations with respect to a Letter of
Credit. Any amounts paid by Lender under any LC Guaranty or in
connection with any Letter of Credit shall be treated as a Loan, shall
be payable on demand by Lender, shall be secured by all the
Collateral, and shall bear interest at the same rate as the other
Loans, with such interest being payable at the same time as when
interest is payable on the other Loans. Notwithstanding anything
herein to the contrary, upon termination of this Agreement, Lender
shall be entitled to retain its security interests in the Collateral
(even if the Obligations have been paid in full) unless the Letters of
Credit and all LC Guaranties shall have expired or have been cash
collateralized on a dollar-for-dollar basis to Lender's satisfaction
or have been covered by an irrevocable letter of credit issued by a
financial institution acceptable to Lender, and in form and substance
acceptable to Lender."
2.05 AMENDMENT TO SECTION 2.2 OF THE LOAN AGREEMENT. Effective as
of the date of execution of this Amendment, Section 2.2 of the Loan Agreement
is hereby amended and restated to read in its entirety as follows:
"2.2 TERM LOAN. The parties hereto agree that (i)
effective as of April 1, 1994, Lender made to Sepco that certain term
loan in the original principal amount of $1,329,277.37, evidenced by
that certain Secured Promissory Note, dated April 1, 1994, in the
original principal amount of $1,329,277.37, executed by Sepco, and
payable to the order of Lender, and (ii) as of the date of execution
of the Third Amendment, the unpaid principal amount of such term loan
was $82,231.76, and that in connection with the Third Amendment, at
the request of Sepco, Lender converted $4,917,768.24 of the principal
amount of Revolving Credit Loans made to Sepco by Lender outstanding
on the date of execution of the Third Amendment to a term loan, which
term loan was combined and consolidated with the outstanding principal
amount of the term loan made to Sepco on April 1, 1994, such that the
combined term loan was in the aggregate principal amount of
$5,000,000, and (iii) as of the date of execution of the Sixth
Amendment, the unpaid principal amount of such term loan was
$4,887,000.00, and that in connection with the Sixth Amendment, at the
request of Sepco, Lender made on the date of execution of the Sixth
Amendment an additional $5,000,000 term loan to Sepco, the proceeds of
which were used to replace working capital used by Sepco to acquire
assets of Tri-Electric Supply, Ltd., and that such additional
$5,000,000 term loan was combined and consolidated with the existing
term loan, such that the combined and consolidated term loan was in
the aggregate principal amount of $9,887,000.00. Sepco further
agrees, represents and warrants that as of the date of execution of
the Seventh Amendment, the unpaid principal amount of such term loan
is $9,887,000.00, and that there are no claims or offsets against, or
defenses or counterclaims to, payment of such amount to Lender. Sepco
further agrees, represents and warrants that it has requested that
lender make on the date of execution of the Seventh Amendment an
additional $2,500,000 term loan to Sepco, the proceeds of which shall
be used to purchase the real property legally described on Exhibit A
to the Seventh Amendment, and that such additional $2,500,000 be
combined and consolidated with the existing term loan, such that the
combined and
SEVENTH AMENDMENT TO SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT - PAGE 3
<PAGE> 4
consolidated term loan shall be in the aggregate principal amount of
$12,387,000 (such combined and consolidated term loan being referred
to in this Agreement as the 'Term Loan'). Subject to the terms and
conditions of this Agreement, Lender agrees to make the Term Loan to
Sepco, and in connection therewith to advance on the date of execution
of the Seventh Amendment an additional $2,500,000.00. The Term Loan
shall be repayable in accordance with the terms of the Term Note, and
shall be secured by the Collateral. The parties hereto agree that the
Term Loan represents a portion of the 'Sepco Obligations' referred to
and defined in Section 1.5 of this Agreement. If Sepco sells any of
its Equipment or real Property, or if any of the other Property owned
by Sepco is taken by condemnation, Sepco shall pay to Lender, unless
otherwise agreed to by Lender, as and when received by Sepco and as a
mandatory prepayment of the Term Loan (or, at Lender's option, such of
the other Obligations as Lender may elect), a sum equal to the
proceeds received by Sepco from such sale or condemnation, less any
state or federal income tax directly attributable thereto."
2.06 AMENDMENT TO SECTION 3 OF THE LOAN AGREEMENT, ADDITION OF NEW
SECTION 3.7. Effective as of the date of execution of this Amendment, Section
3 of the Loan Agreement is amended by adding thereto a new Section 3.7 Letter
of Credit and LC Guaranty Fees to read in its entirety as follows:
"3.7 LETTER OF CREDIT AND LC GUARANTY FEES. Borrower shall
pay to Lender for each Letter of Credit and LC Guaranty of a Letter of
Credit, a fee equal to two percent (2.0%) per annum of the aggregate
face amount of such Letters of Credit (if issued by Lender) and the LC
Guaranties outstanding from time to time during the term of this
Agreement, plus all normal customary charges associated with the
issuance thereof, which fees and charges shall be deemed fully earned
upon issuance of each such Letter of Credit or each such LC Guaranty,
shall be due and payable in full upon issuance of each such Letter of
Credit or such LC Guaranty, and shall not be subject to rebate or
proration upon the termination of this Agreement for any reason."
2.07 NO TERMINATION OF LOAN AGREEMENT EFFECTIVE UNTIL ALL LETTERS
OF CREDIT AND ALL LC GUARANTIES HAVE EXPIRED OR BEEN CASH COLLATERALIZED.
Effective as of the date of execution of this Amendment, Borrower and Lender
hereby agree that in addition to the other provisions of the Loan Agreement, no
termination by Borrowers of the Loan Agreement shall be effective until all
Letters of Credit issued by Lender for the account of a Borrower and all LC
Guaranties have expired or been cash collateralized on a dollar-for-dollar
basis to Lender's satisfaction or are covered by an irrevocable letter of
credit, issued for the benefit of Lender, issued by a financial institution
acceptable to Lender, and in form and substance acceptable to Lender.
2.08 AMENDMENT TO SECTION 11.3 OF THE LOAN AGREEMENT; ADDITION OF
NEW SECTION 11.3(F). Effective as of the date of execution of this Amendment,
Section 11.3 of the Loan Agreement is amended by adding thereto a new Section
11.3(F) to read in its entirety as follows:
"(F) Lender may, at its option, require Borrower to deposit
with Lender funds equal to the LC Amount. Any such deposit shall be
held by Lender as a reserve to fund future payments on such LC
Guaranties and future drawings against such Letters of Credit issued
by Lender for the account of Borrower. At such time as all LC
Guaranties have been paid or terminated and the Letters of Credit
issued by Lender for the account of Borrower have been drawn upon or
expired, any amounts remaining in such reserve shall be applied
against any outstanding Obligations, or, if all Obligations have been
indefeasibly paid in full, returned to Borrower."
SEVENTH AMENDMENT TO SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT - PAGE 4
<PAGE> 5
2.09 AMENDMENT TO PRINCIPAL BALANCE OF TERM NOTE. Borrower and
Lender hereby amend the Term Note such that (i) each reference in the Term Note
to the dollar amount "$9,887,000.00" is deleted and substituted therefor is the
dollar amount "$12,387,000.00", and (ii) the reference to the phrase "NINE
MILLION EIGHT HUNDRED EIGHTY-SEVEN THOUSAND AND NO/100 DOLLARS" is deleted and
substituted therefor is the phrase "TWELVE MILLION THREE HUNDRED EIGHTY-SEVEN
THOUSAND AND NO/100 DOLLARS".
2.10 AMENDMENT TO PAYMENT TERMS IN THE TERM NOTE. Effective as of
the date of execution of this Amendment, 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 principal shall be due and payable in
equal monthly installments of ONE HUNDRED THREE THOUSAND AND
TWO HUNDRED TWENTY-FIVE AND NO/100 DOLLARS ($103,225.00) 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; and
(c) the entire unpaid principal balance hereof,
together with any and all other amounts due hereunder, shall
be due and payable on January 2, 2000."
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:
SEVENTH AMENDMENT TO SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT - PAGE 5
<PAGE> 6
(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) The following information and documentation
regarding the real property legally described on Exhibit A
attached hereto (the "Real Property"), all in form and
substance satisfactory to Lender:
(A) Deed of Trust, Security Agreement,
Financing Statement and Assignment of Rents ("Deed of
Trust"), duly executed by Sepco to Larry A. Makel,
Trustee, for the benefit of Lender, granting Lender a
first priority Lien in the Real Property securing
payment of all the Obligations;
(B) Lender shall have received a fully
paid mortgagee title insurance policy (or binding
commitment to issue title insurance policy, marked to
Lender's satisfaction to evidence the form of such
policy to be delivered after the date of execution of
this Amendment), in standard ALTEX form issued by a
title insurance company satisfactory to Lender, in an
amount equal to not less than the fair market value
of the Real Property, insuring the Deed of Trust to
create a valid Lien on all Real Property with no
exceptions which Lender shall not have approved in
writing and no survey exceptions;
(C) Lender shall have received a survey
with respect to the Real Property which survey shall
indicate the following: (i) an accurate metes and
bounds or lot, block and parcel description of the
Real Property; (ii) the correct location of all
buildings, structures and improvements on the Real
Property, including all streets, easements, rights of
way and utility lines; (iii) the location of ingress
and egress from the Real Property, and the location
of any set-back or other building lines affecting the
Real Property; and (iv) a certification by a
registered land surveyor in form and substance
acceptable to Lender, certifying to the accuracy and
completeness of such survey and to such other matters
relating to such Real Property and survey as Lender
shall require; and
(D) Lender shall have received such
environmental studies regarding the Real Property as
shall be required by Lender; and
(iii) 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
SEVENTH AMENDMENT TO SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT - PAGE 6
<PAGE> 7
(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. 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.
SEVENTH AMENDMENT TO SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT - PAGE 7
<PAGE> 8
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.
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
SEVENTH AMENDMENT TO SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT - PAGE 8
<PAGE> 9
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 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.]
SEVENTH AMENDMENT TO SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT - PAGE 9
<PAGE> 10
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: VP Finance
----------------------------------
BAYOU PUMPS, INC.
By: /s/ GARY A. ALLCORN
----------------------------------
Name Gary A. Allcorn
----------------------------------
Title: VP Finance
----------------------------------
AMERICAN MRO, INC.
By: /s/ GARY A. ALLCORN
----------------------------------
Name Gary A. Allcorn
----------------------------------
Title: VP Finance
----------------------------------
"LENDER"
FLEET CAPITAL CORPORATION
By: /s/ H. MICHAEL WILLS
----------------------------------
Name H. Michael Wills
----------------------------------
Title: Senior Vice President
----------------------------------
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.
SEVENTH AMENDMENT TO SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT - PAGE 10
<PAGE> 11
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 Seventh
Amendment to Second Amended and Restated Loan and Security Agreement 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 SEVENTH 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: June 30, 1998.
/s/ GARY A. ALLCORN
----------------------------------------
[Assistant] Secretary of the Corporation
ANNEX A-1 TO SEVENTH AMENDMENT TO SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT - PAGE 2
<PAGE> 13
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
Seventh Amendment to Second Amended and Restated Loan and Security Agreement 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 SEVENTH 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: June 30, 1998.
/s/ GARY A. ALLCORN
----------------------------------------
[Assistant] Secretary of the Corporation
ANNEX A-2 TO SEVENTH AMENDMENT TO SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT - PAGE 2
<PAGE> 15
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 Seventh Amendment to Second Amended and
Restated Loan and Security Agreement 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 SEVENTH AMENDMENT TO SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT - PAGE 1
<PAGE> 16
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: June 30, 1998.
/s/ GARY A. ALLCORN
----------------------------------------
[Assistant] Secretary of the Corporation
ANNEX A-3 TO SEVENTH AMENDMENT TO SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT - PAGE 2
<PAGE> 17
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 Seventh
Amendment to Second Amended and Restated Loan and Security Agreement, 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: June 30, 1998.
/s/ DAVID R. LITTLE
----------------------------------------
David R. Little, individually
CONSENT AND RATIFICATION TO SEVENTH AMENDMENT TO
SECOND AMENDED AND RESTATED LOAN AND SECURITY - PAGE 1
<PAGE> 18
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 Seventh Amendment to Second Amended and Restated Loan and Security
Agreement, 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: June 30, 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 SEVENTH AMENDMENT TO
SECOND AMENDED AND RESTATED LOAN AND SECURITY - PAGE 2
<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 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 Seventh
Amendment to Second Amended and Restated Loan and Security Agreement, 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: June 30, 1998.
DXP ENTERPRISES, INC., formerly
known as Index, Inc.
By: /s/ GARY A. ALLCORN
-----------------------------------
Name Gary A. Allcorn
-----------------------------------
Title: VP Finance
-----------------------------------
CONSENT AND RATIFICATION TO SEVENTH AMENDMENT TO
SECOND AMENDED AND RESTATED LOAN AND SECURITY - PAGE 1
<PAGE> 20
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 Seventh
Amendment to Second Amended and Restated Loan and Security Agreement, 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: June 30, 1998.
DXP ACQUISITION, INC., d/b/a
STRATEGIC ACQUISITION, INC.
By: /s/ GARY A. ALLCORN
-----------------------------------
Name Gary A. Allcorn
-----------------------------------
Title: VP Finance
-----------------------------------
CONSENT AND RATIFICATION TO SEVENTH AMENDMENT TO
SECOND AMENDED AND RESTATED LOAN AND SECURITY - PAGE 1
<PAGE> 21
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 Seventh
Amendment to Second Amended and Restated Loan and Security Agreement, 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: June 30, 1998.
PELICAN STATE SUPPLY
COMPANY, INC.
By: /s/ GARY A. ALLCORN
-----------------------------------
Name Gary A. Allcorn
-----------------------------------
Title: VP Finance
-----------------------------------
CONSENT AND RATIFICATION TO SEVENTH AMENDMENT TO
SECOND AMENDED AND RESTATED LOAN AND SECURITY - PAGE 1
<PAGE> 22
EXHIBIT A
STATE OF TEXAS )
COUNTY OF HARRIS )
A METES AND BOUNDS description of a 2.793 acres of land out of Reserve "1",
Block 9 of Northwest Crossing Section 2 according to the plat recorded in
Volume 218, Page 49 of the Harris County Map Records and lying in the Joseph
Bays Survey, Abstract No. 127, Harris County, Texas: same tract being described
in a Deed from L.L.&F. interest to S.H. Landes, Inc., records in Clerk File
G-422242 in the Harris County Deed Records. Said 2.793 acre tract of land
being more particularly described as follows:
BEGINNING at a 5/8-inch iron rod set marking the most southerly southwest
corner of said Reserve "1", said point lying on the north right-of-way line of
Pinemont Drive (80 feet wide) and being the southeast cut-back corner of the
right-of-way line of Langfield Road (width varies);
THENCE, North 47 degrees 23' 21" West, 14.14 feet to a 5/8-inch iron rod set for
corner;
THENCE, North 02 degrees 23' 21" West, 135.00 feet along the east right-of-way
line of Langfield Road to a 5/8-inch iron rod found marking the beginning of a
tangent curve to the left;
THENCE, 41.49 feet along the arc of said curve and easterly right-of-way line
of Langfield Road to the left having a radius of 510.00 feet, a central angle
of 04 degrees 39' 42", along cord bearing north 04 degrees 43' 12" west, 41.48
feet to a 5/8-inch iron rod found for a point of tangency;
THENCE, North 07 degrees 03' 03" West, 68.29 feet along said east right-of-way
line of Langfield Road to a 5/8-inch iron rod found marking the beginning of a
tangent curve to the right;
THENCE, 55.54 feet along the arc of said curve and east right-of-way line of
Langfield Road to the right having a radius a 490.00 feet, a central angle of 06
degrees 29' 38", along cord bearing north 03 degrees 48' 14" west, 55.51 feet to
a 5/8-inch iron rod found marking the most northwesterly corner of the herein
described tract;
THENCE, North 87 degrees 36' 38" East, 398.61 feet along an interior line of The
Pines of Northwest Crossing as recorded in Volume 231, Page 18 of the Harris
County Map Records, to a 5/8-inch iron rod found marking the most northeasterly
corner of the herein described tract;
THENCE, South 02 degrees 23' 22" East, 310.00 feet continuing along the interior
line of The Pines of Northwest Crossing to a 5/8-inch iron rod found marking
the most southeasterly corner of the herein described tract and being located
on the north right-of-way line of Pinemont Drive (80 feet wide);
THENCE, South 87 degrees 36' 38" West, 380.00 feet along the north right-of-way
line of said Pinemont Drive to the POINT OF BEGINNING, CONTAINING 2.793 acres
of land in Harris County, Texas
<PAGE> 1
Exhibit 11.1: Statement re: Computation of Per Share Earnings.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Basic:
Average shares outstanding 4,164,010 4,012,076 4,159,972 4,012,076
Net Income $1,102,000 $ 768,000 $1,959,000 $1,521,000
Per share amount $ .2646 $ .1914 $ .4709 $ .3791
Diluted:
Average shares outstanding 4,164,010 4,012,076 4,159,972 4,012,076
Net effect of dilutive stock options --
based on the treasury stock method using
period-end market price, if higher than
average market price 1,090,816 1,081,611 1,090,816 1,081,611
Assumed conversion of Class A convertible
Preferred Stock 420,000 470,400 420,000 470,400
Total 5,674,826 5,564,087 5,670,788 5,564,087
Net Income $1,125,000 $ 801,000 $2,003,000 $1,592,000
Per share amount $ .1982 $ .1440 $ .3532 $ .2861
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS OF DXP
ENTERPRISES, INC. AS OF JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,892
<SECURITIES> 0
<RECEIVABLES> 28,760
<ALLOWANCES> 1,130
<INVENTORY> 29,666
<CURRENT-ASSETS> 61,742
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 84,201
<CURRENT-LIABILITIES> 19,403
<BONDS> 0
112
20
<COMMON> 40
<OTHER-SE> 14,929
<TOTAL-LIABILITY-AND-EQUITY> 84,201
<SALES> 101,590
<TOTAL-REVENUES> 101,590
<CGS> 72,258
<TOTAL-COSTS> 72,258
<OTHER-EXPENSES> 21,300
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,694
<INCOME-PRETAX> 3,338
<INCOME-TAX> 1,335
<INCOME-CONTINUING> 2,003
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,003
<EPS-PRIMARY> .47
<EPS-DILUTED> .35
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
DXP ENTERPRISES, INC. UNAUDITED FINANCIAL STATEMENTS FOR THE QUARTER'S ENDED
SEPTEMBER 30, 1996 AND MARCH 31, JUNE 30 AND SEPTEMBER 30, 1997 AND AUDITED
FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1996.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 9-MOS YEAR 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1996 JAN-01-1996 JAN-01-1997 JAN-01-1997
<PERIOD-END> SEP-30-1996 DEC-31-1996 MAR-31-1997 JUN-30-1997
<CASH> 1 876 979 0
<SECURITIES> 0 0 0 0
<RECEIVABLES> 16,558 17,335 20,200 26,107
<ALLOWANCES> 200 210 301 406
<INVENTORY> 16,719 17,175 16,665 28,380
<CURRENT-ASSETS> 34,602 36,226 38,378 55,031
<PP&E> 15,068 15,862 16,091 19,232
<DEPRECIATION> 7,987 8,044 8,299 8,553
<TOTAL-ASSETS> 42,856 45,042 47,123 69,059
<CURRENT-LIABILITIES> 9,043 10,614 11,416 18,927
<BONDS> 19,764 22,300 22,792 35,031
600 600 600 2,255
1,509 17 17 20
<COMMON> 9 80 160 80
<OTHER-SE> 7,483 10,362 11,035 12,189
<TOTAL-LIABILITY-AND-EQUITY> 42,856 45,042 47,123 69,059
<SALES> 95,214 125,208 30,129 69,470
<TOTAL-REVENUES> 95,214 125,208 30,129 69,470
<CGS> 70,574 93,091 21,756 50,371
<TOTAL-COSTS> 70,574 93,091 21,753 50,371
<OTHER-EXPENSES> 0 0 7,043 16,347
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 1,556 2,101 539 1,008
<INCOME-PRETAX> 1,497 1,635 1,220 2,480
<INCOME-TAX> 607 745 429 888
<INCOME-CONTINUING> 890 890 791 1,592
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 890 890 791 1,592
<EPS-PRIMARY> .21 .19 .19 .38
<EPS-DILUTED> .18 .18 .14 .29
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
DXP ENTERPRISES, INC. UNAUDITED FINANCIAL STATEMENTS FOR THE QUARTER'S ENDED
SEPTEMBER 30,1996 AND MARCH 31, JUNE 30 AND SEPTEMBER 30, 1997 AND AUDITED
FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1996.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 556
<SECURITIES> 0
<RECEIVABLES> 27,201
<ALLOWANCES> 310
<INVENTORY> 28,027
<CURRENT-ASSETS> 56,263
<PP&E> 19,351
<DEPRECIATION> 8,799
<TOTAL-ASSETS> 69,985
<CURRENT-LIABILITIES> 18,808
<BONDS> 35,793
292
20
<COMMON> 80
<OTHER-SE> 12,438
<TOTAL-LIABILITY-AND-EQUITY> 69,985
<SALES> 118,277
<TOTAL-REVENUES> 118,277
<CGS> 86,706
<TOTAL-COSTS> 86,706
<OTHER-EXPENSES> 26,661
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,960
<INCOME-PRETAX> 2,950
<INCOME-TAX> 1,070
<INCOME-CONTINUING> 1,880
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,880
<EPS-PRIMARY> .44
<EPS-DILUTED> .34
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DXP
ENTERPRISES, INC. AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31,
1997 AND UNAUDITED FINANCIAL STATEMENTS FOR THE QUARTER ENDED MARCH 31, 1998 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 MAR-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 MAR-31-1998
<CASH> 736 2,259
<SECURITIES> 0 0
<RECEIVABLES> 26,183 27,765
<ALLOWANCES> 476 935
<INVENTORY> 26,018 28,922
<CURRENT-ASSETS> 54,179 59,914
<PP&E> 19,528 19,800
<DEPRECIATION> 9,125 9,416
<TOTAL-ASSETS> 67,636 77,162
<CURRENT-LIABILITIES> 17,917 21,701
<BONDS> 33,395 38,245
112 112
20 20
<COMMON> 80 80
<OTHER-SE> 12,931 13,788
<TOTAL-LIABILITY-AND-EQUITY> 67,636 77,162
<SALES> 169,667 49,004
<TOTAL-REVENUES> 169,667 49,004
<CGS> 124,787 36,419
<TOTAL-COSTS> 124,787 36,419
<OTHER-EXPENSES> 37,556 10,508
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 2,654 785
<INCOME-PRETAX> 4,670 1,468
<INCOME-TAX> 1,902 590
<INCOME-CONTINUING> 2,768 878
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,768 878
<EPS-PRIMARY> .65 .21
<EPS-DILUTED> .48 .15
</TABLE>
