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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
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
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DXP ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
TEXAS 76-0509661
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
7272 PINEMONT
HOUSTON, TEXAS 77040
(Address of principal executive offices) (Zip Code)
</TABLE>
713/996-4700
(Registrant's telephone number, including area code)
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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 [ ]
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APPLICABLE ONLY TO CORPORATE ISSUERS:
Number of shares outstanding of each of the issuer's classes of common stock, as
of May 12, 1999:
COMMON STOCK: 4,211,072
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ITEM 1: FINANCIAL STATEMENTS
DXP ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash...................................................... $ 999 $ 1,625
Trade accounts receivable, net of allowance for doubtful
accounts of $1,322 and $1,155, respectively............ 25,966 24,367
Inventory................................................. 31,455 28,926
Prepaid expenses and other................................ 2,079 1,453
Deferred income taxes..................................... 958 870
------- -------
Total current assets.............................. 61,457 57,241
Property, plant and equipment, net.......................... 13,095 13,160
Goodwill, net............................................... 10,351 10,447
Other assets................................................ 471 484
------- -------
Total assets...................................... 85,374 81,332
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable.................................... 18,279 14,826
Employee compensation..................................... 1,024 1,449
Other accrued liabilities................................. 331 99
Current portion of long-term debt......................... 3,838 3,782
------- -------
Total current liabilities......................... 23,472 20,156
Long-term debt, less current portion........................ 44,097 42,910
Deferred compensation....................................... 739 739
Deferred income taxes....................................... 580 563
Equity subject to redemption:
Series A preferred stock -- 1,122 shares.................. 112 112
Common stock, -0- and 140,214 shares...................... -- 1,245
Shareholders' Equity:
Series A preferred stock, 1/10th vote per share; $1.00 par
value; liquidation preference of $100 per share;
1,000,000 shares authorized; 2,992 shares issued and
outstanding:........................................... 2 2
Series B convertible preferred stock, 1/10th vote per
share; $1.00 par value; $100 stated value; liquidation
preference of $100 per share; 1,000,000 shares
authorized; 17,700 shares issued and 15,000 shares
outstanding............................................ 18 18
Common stock, $.01 par value, 100,000,000 shares
authorized; 4,211,072 shares issued, of which 4,075,621
shares are outstanding, and 135,451 shares are treasury
stock.................................................. 41 40
Paid-in capital........................................... 2,152 908
Retained earnings......................................... 15,679 15,443
Treasury stock............................................ (1,518) (804)
------- -------
Total shareholders' equity........................ 16,374 15,607
------- -------
Total liabilities and shareholders' equity........ $85,374 $81,332
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
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DXP ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1999 1998
-------- --------
(UNAUDITED)
<S> <C> <C>
Sales....................................................... $48,410 $49,004
Cost of sales............................................... 35,648 36,419
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Gross Profit................................................ 12,762 12,585
Selling, general and administrative expenses................ 11,825 10,508
------- -------
Operating income............................................ 937 2,077
Other income................................................ 508 176
Interest expense............................................ (929) (785)
------- -------
Income before income taxes.................................. 516 1,468
Provision for income taxes.................................. 258 590
------- -------
Net income.................................................. $ 258 $ 878
Preferred stock dividend.................................... 23 21
------- -------
Net Income attributable to common Shareholders.............. $ 235 $ 857
======= =======
Basic earnings per common share............................. $ .06 $ .21
------- -------
Common shares outstanding................................... 4,129 4,157
------- -------
Diluted earnings per share.................................. $ .05 $ .15
------- -------
Common and common equivalent shares outstanding............. 5,552 5,701
------- -------
</TABLE>
See notes to condensed consolidated financial statements.
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DXP ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1999 1998
-------- --------
(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES:
Net cash provided by operating activities................... $ (866) $ 3,415
INVESTING ACTIVITIES:
Purchase of Tri-Electric Supply net assets.................. -- (6,208)
Proceeds on the sale of assets, at cost..................... 267 --
Purchase of property and equipment.......................... (534) (250)
-------- --------
Net cash used in investing activities....................... (267) (6,458)
FINANCING ACTIVITIES:
Proceeds from debt.......................................... 48,040 53,634
Principal payments on revolving line of credit, long-term
and Subordinated debt, and notes payable to bank.......... (46,796) (49,047)
Acquisition of common stock................................. (714) --
Dividends paid.............................................. (23) (21)
-------- --------
Net cash provided by financing activities................... 507 4,566
-------- --------
INCREASE (DECREASE) IN CASH................................. (626) 1,523
CASH AT BEGINNING OF PERIOD................................. 1,625 736
-------- --------
CASH AT END OF PERIOD....................................... $ 999 $ 2,259
======== ========
</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. DXP Enterprises, Inc. (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, 1998, filed with
the Securities and Exchange Commission.
NOTE 2: THE COMPANY
The Company was incorporated on July 26, 1996 in the State of Texas. The
Company is a leading 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 63 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>
MARCH 31, 1999 DECEMBER 31, 1998
-------------- -----------------
(IN THOUSANDS)
<S> <C> <C>
Finished goods........................................ $30,689 $29,717
Work in process....................................... 4,794 3,093
------- -------
Inventories at FIFO................................... 35,483 32,810
Less -- LIFO allowance................................ (4,028) (3,884)
------- -------
Inventories........................................... $31,455 $28,926
======= =======
</TABLE>
NOTE 4: ACQUISITION
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 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. No deferred
payment was required to be made. Tri-Electric did not meet the deferred payment
requirements based on the earnings before interest and taxes and depreciation
for the twelve month period ended March 31, 1999. The results of operations of
Tri-Electric are included in the consolidated
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DXP ENTERPRISES INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
statements of income 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.
NOTE 5: LONG-TERM DEBT
The Company has secured lines of credit for up to $44 million with an
institutional lender (the "Credit Facility"). The Credit Facility was amended by
the Company and its lender effective March 30, 1999, which now provides for
borrowings up to an aggregate of the lessor of (i) a percentage of the
collateral value based on a formula set forth therein and (ii) $44.0 million.
Additionally, the LIBOR pricing, set to expire as of June 30, 1999, was
cancelled and therefore all of the borrowings under the Credit Facility will
bear interest at prime. The Credit Facility is secured by receivables,
inventory, and machinery and equipment and matures April 2000. An executive
officer of the Company, who is also a shareholder of the Company, has personally
guaranteed up to $500,000 of the obligations of the Company under the line of
credit. Additionally, certain shares held in trust for this executive officer's
children are also pledged to secure this line of credit. The available
borrowings under the Credit Facility at March 31, 1999 were approximately $2.8
million. The Credit Facility includes loan covenants that are measured monthly,
which, among other things, require the Company to maintain a certain cash flow
and other financial ratios.
NOTE 6: SUBSEQUENT EVENTS
The Company amended the Credit Facility, effective May 13, 1999, to extend
its maturity date from January 2, 2000 to April 1, 2000. All other terms and
conditions remain as stated above.
On April 27, 1999, the Company entered into an agreement to sell certain
assets of Wesco Equipment, a division that specializes in valve and valve
automation products, for approximately $3.173 million. The sale is expected to
be completed by the second quarter of 1999. The assets being sold include
inventory and personal property. The Company will retain and collect the
customer accounts receivable balances. Upon completion of this transaction, the
Company will no longer be in the valve automation business.
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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The Company is a leading provider of MRO products, equipment and integrated
services, including engineering expertise and logistics capabilities, to
industrial customers. The Company provides a wide range of MRO products in the
fluid handling equipment, bearings and power transmission equipment, general
mill and safety supplies and electrical product categories. The Company also
offers a line of valve and valve automation products within the pipe, valve and
fittings category but has entered into an agreement to sell its valve automation
products business. Upon completion of this transaction, the Company will no
longer derive revenues from the valve automation business. The Company offers
its customers a single source of integrated services and supply on an efficient
and competitive basis by being a first-tier distributor which purchases its
products directly from the manufacturer. The Company also provides integrated
services such as system design, fabrication, installation, repair and
maintenance for its customers. The Company offers a wide range of industrial MRO
products, equipment and services through a complete continuum of customized and
efficient MRO solutions, ranging from traditional distribution to fully
integrated supply contracts. The integrated solution is tailored to satisfy the
customer's unique needs.
The Company's products and services are marketed in 16 states to over
25,000 customers that are engaged in a variety of industries, many of which may
be counter cyclical to each other. Demand for the Company's products generally
is subject to changes in the United States economy and economic trends affecting
the Company's customers and the industries in which they compete in particular.
Certain 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
within particular markets and product categories experience changes in demand as
changes occur in the markets of its customers.
The Company's strategy is focused on addressing current trends in the
industrial distribution market through a combination of acquisitions and
internal growth. The Company seeks acquisitions that will provide the Company
access to additional product lines and customers to enhance its position as a
single source industrial distributor with first-tier distribution capabilities.
Key elements of the Company's internal growth strategy include leveraging
existing customer relationships, expanding product offerings from existing
locations, reducing costs through consolidated purchasing programs and combined
product distribution centers, designing and implementing innovative solutions to
address the procurement and supply needs of the Company's customers and using
the Company's traditional distribution and integrated supply capabilities to
increase sales in each area. Future results for the Company will be dependent on
the success of the Company in implementing its acquisition and internal growth
strategy.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1999 compared to Three Months Ended March 31,
1998
Revenues for the three months ended March 31, 1999 decreased 1.2% to $48.4
million from the three months ended March 31, 1998. The Company's acquisitions
in 1998 accounted for $5.3 million of the $48.4 million in revenues during the
period ended March 31, 1999. Sales of fluid handling equipment increased 16.1%,
or $2.9 million, over the comparable period in 1998, due in part to the $1.7
million in revenues generated by Smith Equipment Company, the fluid handling
equipment business acquired in May 1998. Sales of bearings and power
transmission equipment for the quarter ended March 31, 1999 decreased 28.7%, or
$4.1 million over the comparable period in 1998, due primarily to the effects of
lower oil prices and its affects on the oil industry. Sales of valve and valve
automation equipment decreased 18.1%, or $.4 million over the comparable period
in 1998. During the three months ended March 31, 1999, sales of general mill and
safety supplies decreased 11.5%, or $1.5 million over the comparable period in
1998. A comparison of electrical supplies is not presented because the product
category did not exist during the entire comparative prior period.
Gross margins increased .7% for the first quarter of 1999 as compared to
the first quarter of 1998, from 25.7% of sales to 26.4%. The increase in gross
margin is attributable to higher margins associated with the two
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businesses acquired in the second quarter of 1998. The Company currently expects
some increase in manufacturers' prices to continue due to increased raw material
costs and 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 for the first quarter of 1999
increased as a percentage of revenues by 3.0%, or $1.3 million, as compared to
the first quarter of 1998. This was due in large part to the selling expenses
($.7 million) generated by the acquired companies, Tri-Electric, in the first
quarter of 1998 as well as M.W. Smith Equipment, Inc. and Lucky Electric &
Supply, Inc. in the second quarter of 1998. Also contributing to the increase
was the focus and investment ($.6 million) in the areas of marketing and
information technologies in an effort to improve the Company's future position
in the industrial distribution market.
Operating income for the three month period ended March 31, 1999 decreased
as a percent of revenues by 2.3%, from $2.1 million to $.9 million as compared
to the first quarter of 1998, due to the decrease in revenue volume and the
increase of selling, general and administrative expenses as a percentage of
revenue.
Interest expense during the first quarter of 1999 increased by $.1 million
to $.9 million compared to the first quarter of 1998. The increase was primarily
due to greater interest expense resulting from additional borrowings incurred to
finance an acquisition late in the first quarter of 1998 and two acquisitions
during the second quarter of 1998 and the purchase of real property used as the
Company's corporate headquarters. Average interest rates were slightly lower
during the three months ended March 31, 1999 as compared to the same period in
1998.
The Company's provision for income taxes for the three months ended March
31, 1999 decreased by $.3 million compared to the same period of 1998, as a
result of the decrease in profits.
Net income for the three month period ended March 31, 1999, decreased $.6
million from the three month period ended March 31, 1998 due to the decrease in
revenue volume and the increase of selling, general and administrative expenses
as a percentage of revenue.
LIQUIDITY AND CAPITAL RESOURCES
General
Under the Company's loan agreements with its bank lender, all available
cash is generally applied to reduce outstanding borrowings, with operations
funded through borrowings under the Credit Facility. The Company's policy is to
maintain low levels of cash and cash equivalents and to use borrowings under its
line of credit for working capital. The Company had $2.8 million available for
borrowings under the Credit Facility at March 31, 1999. Working capital at March
31, 1999 and December 31, 1998 was $38.0 million and $37.1 million,
respectively. During the first three months of 1999 and the year 1998, the
Company collected its trade receivables in approximately 48 and 49 days,
respectively, and turned its inventory approximately four times on an annualized
basis.
In the first and again in the second quarter of 1999, the Company and its
lender amended the Credit Facility effective March 30, 1999 and May 13, 1999,
which now provides for borrowings up to an aggregate of the lessor of (i) a
percentage of the collateral value based on a formula set forth therein and (ii)
$44.0 million. Additionally, the LIBOR pricing, set to expire as of June 30,
1999, was cancelled and therefore all of the borrowings under the Credit
Facility will bear interest at prime (7.75 percent at March 31, 1999). The line
of credit is secured by receivables, inventory, and machinery and equipment. The
Company and its lender further amended the Credit Facility, effective May 13,
1999 to extend the maturity date to April 1, 2000. The Credit Facility contains
customary affirmative and negative covenants as well as financial covenants that
are measured monthly and require the Company to maintain a certain cash flow and
other financial ratios.
The Company expended cash through operating activities of $.9 million in
the first three months of 1999 as compared to $3.4 million in cash generation
during the first three months of 1998, due primarily to a decrease in earnings
along with an increase in both accounts receivable and inventory.
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The Company had capital expenditures of approximately $.53 million for the
first three months of 1999 as compared to $.25 million during the same period of
1998. Capital expenditures in the first three months of 1999 were primarily
related to computer hardware ($.27 million) and furniture and fixtures ($.22
million). Capital expenditures for 1998 were primarily related to computer
hardware ($.14 million).
On February 26, 1998, a wholly-owned subsidiary of the Company acquired
substantially all the assets of an electrical supply business. The purchase
price consisted of $6.2 million in cash, assumption of $1.6 million of trade
payables and other accrued expenses. The results of operations of the business
are included in the consolidated statements of income 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.
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 efforts
will require capital in the form of the issuance of additional equity or debt
financing. There can be no assurance that such financing will be available to
the Company or as to the terms thereof.
Year 2000 Readiness Disclosure
Many existing computer systems and applications and other control devices
use only two digits to identify a year in the date field, without considering
the impact of the upcoming change in the century. The Year 2000 issue is the
risk that systems, products and equipment utilizing date-sensitive software or
computer chips with two-digit date fields will fail to properly recognize the
Year 2000. Such failures by the Company's software or hardware or that of
government entities, customers, major vendors and other third parties with whom
the Company has material relationships could result in interruptions of the
Company's business which could have a material adverse effect on the Company.
In response to the Year 2000 issue, the Company has implemented a
company-wide Year 2000 program designed to identify, assess and address
significant Year 2000 issues in the Company's key business operations, including
products and services, business applications, information technology systems and
facilities and to identify the Company's customers, major vendors and other
third parties with whom the Company has material relationships that may have
Year 2000 issues.
The Company's Year 2000 program is an integrated, multi-phase process
covering information technology systems and hardware as well as equipment and
products with embedded computer chips technology. The primary phases of the
program are (1) inventorying existing equipment and systems; (2) analyzing
equipment and systems to identify those which are not Year 2000 ready and to
prioritize critical items; (3) communicating with customers, major vendors and
other third parties with whom the Company has material relationships regarding
their Year 2000 readiness; (4) remediating, repairing or replacing equipment and
systems that are not Year 2000 ready; and (5) testing to verify that Year 2000
readiness has been achieved for the Company's equipment and systems.
Phases (1) and (2) of the Company's Year 2000 program have been completed.
In support of phase (3) of the Company's Year 2000 program, the Company has
developed and implemented a vendor/client Year 2000 questionnaire on the Company
web-site, as well as the development of a paper based version of the
questionnaire. Phase (3) is well under way with an initial mailing to over
20,000 customers/vendors. The Company will continue communicating with
customers, major vendors and other third parties with whom the Company has
material relationships to determine if they will be ready for the Year 2000 by
the end of 1999. Although the most likely worst case scenario faced by the
Company would require the Company to carry additional inventory levels to
mitigate vendor complications, to the extent the Company's customers, vendors
and other third parties are not compliant by the Year 2000 and unexpected
complications result therefrom, it could have a material adverse effect upon the
Company's results of operations and financial condition. With respect to phase
(4), the Company is addressing Year 2000 software issues through the
implementation of Year 2000 compliant upgrades to, or new releases of, current
software. The Company installed the latest upgrade to its main business system
software on the 8th of May 1999, at which time the main business system
supporting the Company became Year 2000 compliant. Cost incurred to date
relative to the conversions and upgrades have been minimal and are expected to
continue to be minimal in future periods, as the Company
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policy has been, and continues to be to maintain the most current version of its
business software packages for maintainability and interoperability
considerations. The Company will continue to analyze systems and services that
utilize date imbedded codes that may experience operational problems when the
Year 2000 is reached. The Company began phase (5) at the end of the first
quarter of 1999 and expects to complete testing and verification efforts by the
end of the second quarter of 1999. All costs associated with the Year 2000
issues will be included as part of the normal software upgrades or operating
costs, as appropriate.
The foregoing statements of this subsection are intended to be and are
hereby designated "Year 2000 Readiness Disclosure" statements within the meaning
of the Year 2000 Information and Readiness Disclosure Act.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
None.
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.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
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.
Ability to Comply with Financial Covenants of Credit Facility
The Credit Facility requires the Company to comply with certain specified
covenants, restrictions, financial ratios and other financial and operating
tests. The Company's ability to comply with any of the foregoing restrictions
will depend on its future performance, which will be subject to prevailing
economic conditions and other factors, including factors beyond the Company's
control. A failure to comply with any of these obligations could result in an
event of default under the Credit Facility, which could permit acceleration of
the Company's indebtedness under the Credit Facility. The Company from time to
time has been unable to comply with some of the financial covenants contained in
the Credit Facility (relating to, among other things,
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the maintenance of prescribed financial ratios) and has, when necessary,
obtained waivers or amendments to the covenants from its lender. Although the
Company expects to be able to comply with the covenants, including the financial
covenants, of the Credit Facility, there can be no assurance that in the future
the Company will be able to do so or that its lender will be willing to waive
such compliance or further amend such covenants.
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 special risks, including possible adverse
effects on the Company's operating results, diversion of management's attention,
failure to retain key acquired personnel, risks associated with unanticipated
events or liabilities, expenses associated with obsolete inventory of an
acquired company and amortization of acquired intangible assets, some or 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
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
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 businesses, 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 financings. Under the Credit Facility, all available cash generally is
applied to reduce outstanding borrowings. As of March 31, 1999, the Company had
approximately $2.8 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 Internal 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
program. The Company acquired two businesses in the second quarter of 1997, a
third in the first quarter of 1998 and two additional businesses 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.
11
<PAGE> 12
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 offered by the Company's
SmartSource program. 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.
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 the life of 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 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. Although the Company believes that
it could obtain alternate distribution rights in the event of such a
cancellation, the termination or limitation by any key supplier of its
relationship with the Company could result in a temporary disruption on the
Company's business and, in turn, could adversely affect results of operations
and financial condition.
Year 2000 Issues
Many existing computer systems and applications and other control devices
use only two digits to identify a year in the date field, without considering
the impact of the upcoming change in the century. As a result, such systems and
applications could fail or create erroneous results unless corrected so that
they can process data related to the Year 2000. The Company relies on its
computer systems and software for financial reporting, customer account
information and inventory management and replenishment. The Company is in the
process of assessing its state of readiness for the Year 2000 and expects its
software to be Year 2000 compliant by the end of the third quarter of 1999 upon
completion of the upgrading of its software and verification testing efforts.
Additionally, the Company has developed and implemented a web-based
questionnaire along with a standard questionnaire in order to communicate with
customers, major vendors and other third parties with whom it has material
relationships to determine if they will be ready for the Year 2000. To the
extent unexpected problems associated with the Year 2000 arise during the
implementation phase of the Company's Year 2000 program or due to the fact that
the Company's customers, vendors and other third parties are not compliant by
the Year 2000, it could have a material adverse effect upon the Company's
12
<PAGE> 13
business, financial condition and results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -- Year
2000 Readiness Disclosure."
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 financial condition and results of
operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
<TABLE>
<C> <S>
10.1 -- Waiver and Amendment dated March 30, 1999 between SEPCO
Industries, Inc., Bayou Pumps, Inc., American MRO, Inc.
and Fleet Capital Corporation.
10.2 -- Waiver and Amendment dated March 30, 1999 between Pelican
State Supply Company, Inc. and Fleet Capital Corporation.
10.3 -- Waiver and Amendment dated March 30, 1999 between DXP
Acquisition, Inc., d/b/a Strategic Acquisition, Inc. and
Fleet Capital Corporation.
10.4 -- May 1999 Amendment to Second Amended and Restated Loan
and Security Agreement and Modification to Other
Agreements dated May 13, 1999, by and among SEPCO
Industries, Inc., Bayou Pumps, Inc., American MRO, Inc.
and Fleet Capital Corporation.
10.5 -- May 1999 Amendment to Loan and Security Agreement dated
May 13, 1999, by and among Pelican State Supply Company,
Inc. and Fleet Capital Corporation.
10.6 -- May 1999 Amendment to Loan and Security Agreement dated
May 13, 1999, by and among DXP Acquisition, Inc., d/b/a
Strategic Acquisition, Inc. and Fleet Capital
Corporation.
11.1 -- Statement re: Computation of Per Share Earnings.
27.1 -- Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K.
None.
13
<PAGE> 14
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
DXP ENTERPRISES, INC.
By: /s/ GARY A. ALLCORN
----------------------------------
Gary A. Allcorn
Senior Vice President/Finance and
Chief Financial Officer
(Duly authorized officer and
principal financial officer)
Date: May 13, 1999
14
<PAGE> 15
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.1 -- Waiver and Amendment dated March 30, 1999 between SEPCO
Industries, Inc., Bayou Pumps, Inc., American MRO, Inc.
and Fleet Capital Corporation.
10.2 -- Waiver and Amendment dated March 30, 1999 between Pelican
State Supply Company, Inc. and Fleet Capital Corporation.
10.3 -- Waiver and Amendment dated March 30, 1999 between DXP
Acquisition, Inc., d/b/a Strategic Acquisition, Inc. and
Fleet Capital Corporation.
10.4 -- May 1999 Amendment to Second Amended and Restated Loan
and Security Agreement and Modification to Other
Agreements dated May 13, 1999, by and among SEPCO
Industries, Inc., Bayou Pumps, Inc., American MRO, Inc.
and Fleet Capital Corporation.
10.5 -- May 1999 Amendment to Loan and Security Agreement dated
May 13, 1999, by and among Pelican State Supply Company,
Inc. and Fleet Capital Corporation.
10.6 -- May 1999 Amendment to Loan and Security Agreement dated
May 13, 1999, by and among DXP Acquisition, Inc., d/b/a
Strategic Acquisition, Inc. and Fleet Capital
Corporation.
11.1 -- Statement re: Computation of Per Share Earnings.
27.1 -- Financial Data Schedule.
</TABLE>
<PAGE> 1
EXHIBIT 10.1
March 30, 1999
Sepco Industries, Inc.
Bayou Pumps, Inc.
American MRO, Inc.
580 Westlake Park Boulevard, Suit 110
Houston, Texas 77079
Attention: Chief Financial Officer
Re: WAIVER OF VIOLATION OF SECTIONS 9.3(A), (B) AND (C) OF THE
SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT WITH
FLEET CAPITAL CORPORATION AND AMENDMENT TO DEFINITIONS OF
"BORROWING BASE", "COMMITMENT" AND "AVAILABILITY" IN THE
SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT AND
POSSIBLE INCREASE IN APPLICABLE ANNUAL RATE UNDER THE SECOND
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT AND ADDITION
OF TWO NEW COVENANTS RELATING TO MONTHLY FIXED CHARGE RATIO
AND MONTHLY AVERAGE AVAILABILITY AND DELETION OF RIGHT TO
REQUEST EURODOLLAR LOANS.
Gentlemen:
Reference is hereby made to that certain Second Amended and Restated
Loan and Security Agreement, dated as of April 1, 1994, executed by Sepco
Industries, Inc. ("Sepco") and Barclays Business Credit, Inc. (as amended from
time to time, the "Loan Agreement"). Unless otherwise indicated, all terms used
herein shall have the same meanings as in the Loan Agreement. Sepco, Bayou
Pumps, Inc. ("Bayou"), and American MRO, Inc. ("American") (Sepco, Bayou and
American are hereinafter collectively referred to as the "Borrower") and Fleet
Capital Corporation (successor-in-interest to Barclays Business Credit, Inc. and
being hereinafter referred to as the "Lender") are the present parties to the
Loan Agreement.
The Borrower has informed Lender that as of the measurement periods
ended December 31, 1998, and March 31, 1999, respectively, the Borrower was in
violation of the financial covenants contained in Sections 9.3(A), (B) and (C)
of the Loan Agreement (collectively, the "Financial Covenant Violations"), and
has requested that Lender waive such Financial Covenant Violations.
In addition, Borrower hereby agrees and acknowledges that it has
requested, effective as of the date hereof, that (i) Lender agree to amend the
definition of "Borrowing Base" contained in Section 1.1 of the Loan Agreement by
deleting therefrom the phrase "Forty Million Dollars ($40,000,000)" and
substituting therefor the phrase "Thirty Six Million Eight Hundred Thousand
Dollars ($36,800,000)", (ii) Lender agree to amend and restate the definition of
"Commitment" contained in Section 1.1 of the Loan Agreement to read in its
entirety as follows: "Commitment - Thirty Six Million Eight Hundred Thousand
Dollars ($36,800,000).", (iii) Lender agree to amend and restate the definition
of "Availability" contained in Section 1.1 of the Loan Agreement to read in its
entirety as follows:
"Availability - The amount of money which Borrower is entitled to
borrow from time to time as Revolving Credit Loans, such amount being
the difference derived when the sum of the principal amount of
revolving Credit Loans then outstanding (including any amounts which
Lender may have paid for the account of Borrower pursuant to any of the
Loan Documents and which have not been reimbursed by Borrower) and the
undrawn amount of all LC Guaranties then outstanding is subtracted from
the Borrowing Base, as the calculation is determined by Lender. If the
amount outstanding is equal to or greater than the Borrowing Base,
Availability is 0.",
<PAGE> 2
DXP Acquisition, Inc.
March 30, 1999
Page 2
(iv) the following sentence shall be added to Section 3.7(A) of the Loan
Agreement:
"The Borrower agrees that Borrower shall no longer have the right to
request a Eurodollar Loan under the Loan Agreement, and Lender shall
not be required to make a Eurodollar Loan to Borrower.", and
(v) Lender agree to add the following two financial covenants to Section 9.3 of
the Loan Agreement, which shall be added as a new Section 9.3(D) and a new
Section 9.3(E), which shall read and be as follows in their entirety:
"(D) Maintain, on a consolidated basis in accordance with GAAP, as of
the end of each fiscal month, beginning with the fiscal month ending on
March 31, 1999, a Fixed Charge Ratio of not less than 1.00 to 1.00, for
each such month.
(E) Maintain average monthly Availability on a consolidated basis of
not less than $3,000,000. For purposes of meeting this requirement, up
to$1,000,000 of the Borrowing Base which is in excess of the combined
Commitments of DXP Enterprises, Inc., Pelican State Supply Company,
Inc., and Sepco Industries, Inc., Bayou Pumps, Inc. and America MRO,
Inc. can be used to meet this average monthly Availability
requirement."
Lender hereby waives the Financial Covenant Violations and agrees to
the revisions to the Loan Agreement set forth above; provided, however, that (i)
such agreement to the above-described revisions to the Loan Agreement and such
waiver shall not apply to or constitute a consent to any future amendment to any
other provision of the Loan Agreement or a waiver of any other past, present or
future violation or violations of any other provision of the Loan Agreement, and
(ii) Lender's agreement to the above-described revisions to the Loan Agreement
and Lender's failure to exercise any right, privilege or remedy as a result of
the violation set forth above shall not directly or indirectly in any way
whatsoever either: (a) impair, prejudice or otherwise adversely affect Lender's
right at any time to exercise any right, privilege, or remedy in connection with
the Loan Agreement, any other agreement, or any other contract or instrument, or
(b) amend or alter any provision of the Loan Agreement, any other agreement, or
any other contract or instrument, or (c) constitute any course of dealing or
other basis for altering any obligation of Borrower or any right, privilege, or
remedy of Lender under the Loan Agreement, any other agreement, or any other
contract or instrument.
Except as expressly set forth herein, all of the other terms,
provisions and conditions of the Loan Agreement and other agreements shall
remain and continue in full force and effect.
Except as expressly stated herein, Lender reserves all of its rights,
privileges and remedies under the Loan Agreement, each other agreement and any
other contracts or instruments executed by Borrower and/or for the benefit of
Lender. In order to induce Lender to execute this letter, Borrower accepts and
agrees to each provision of this letter.
Notwithstanding any provision of this letter to the contrary, this
letter shall not be directly or indirectly effective against Lender for any
purpose unless and until Lender receives a copy of this letter which has been
duly signed by the Borrower.
<PAGE> 3
DXP Acquisition, Inc.
March 30, 1999
Page 3
Yours very truly,
FLEET CAPITAL CORPORATION
By: /s/ H. MICHAEL WILLS
------------------------------
Its: Senior Vice President
------------------------------
AGREED AND ACCEPTED:
SEPCO INDUSTRIES, INC.
By: /s/ GARY A. ALLCORN
-------------------------------
Its: Senior Vice President/Finance
-------------------------------
BAYOU PUMPS, INC.
By: /s/ GARY A. ALLCORN
-------------------------------
Its: Senior Vice President/Finance
-------------------------------
AMERICAN MRO, INC.
By: /s/ GARY A. ALLCORN
-------------------------------
Its: Senior Vice President/Finance
-------------------------------
<PAGE> 1
EXHIBIT 10.2
March 30, 1999
Pelican State Supply Company, Inc.
580 Westlake Park Boulevard
Suite 1100
Houston, Texas 77079
Attention: Chief Financial Officer
Re: WAIVER OF VIOLATION OF SECTIONS 9.3(A), (B) AND (C) OF THE
LOAN AND SECURITY AGREEMENT WITH FLEET CAPITAL CORPORATION AND
AMENDMENT TO DEFINITIONS OF "BORROWING BASE", "COMMITMENT" AND
AVAILABILITY IN THE LOAN AND SECURITY AGREEMENT AND POSSIBLE
INCREASE IN APPLICABLE ANNUAL RATE UNDER THE LOAN AND SECURITY
AGREEMENT AND ADDITION OF TWO NEW COVENANTS RELATING TO
MONTHLY FIXED CHARGE RATIO AND MONTHLY AVERAGE AVAILABILITY
AND DELETION OF RIGHT TO REQUEST EURODOLLAR LOANS.
Gentlemen:
Reference is hereby made to that certain Loan and Security Agreement,
dated as of May 29, 1997, executed by Fleet Capital Corporation, a Rhode Island
corporation ("Lender") and Pelican State Supply Company, Inc., a Nevada
corporation ("Borrower") (as amended from time to time, the "Loan Agreement").
Unless otherwise indicated, all terms used herein shall have the same meanings
as in the Loan Agreement.
The Borrower has informed Lender that as of the measurement periods
ended December 31, 1998, and March 31, 1999, respectively, the Borrower was in
violation of the financial covenants contained in Sections 9.3(A), (B) and (C)
of the Loan Agreement (collectively, the "Financial Covenant Violations"), and
has requested that Lender waive such violations.
In addition, Borrower hereby agrees and acknowledges that it has
requested, effective as of the date hereof, that (i) Lender agree to amend the
definition of "Borrowing Base" contained in Section 1.1 of the Loan Agreement by
(a) deleting therefrom the phrase "Two Million Five Hundred Thousand Dollars
($2,500,000)" and substituting therefor the phrase "One Million Four Hundred
Thousand Dollars ($1,400,000)," and (b) by deleting the phrase "One Million Five
Hundred Thousand Dollars ($1,500,000)" and substituting therefor the phrase "One
Million Four Hundred Thousand Dollars ($1,400,000), (ii) Lender agree to amend
and restate the definition of "Commitment" contained in Section 1.1 of the Loan
Agreement to read in its entirety as follows: "Commitment - One Million Four
Hundred Thousand Dollars ($1,400,000)", (iii) Lender agree to amend and restate
the definition of "Availability" contained in Section 1.1 of the Loan Agreement
to read in its entirety as follows:
"Availability - The amount of money which Borrower is entitled to
borrow from time to time as Revolving Credit Loans, such amount being
the difference derived when the sum of the principal amount of
revolving Credit Loans then outstanding (including any amounts which
Lender may have paid for the account of Borrower pursuant to any of the
Loan Documents and which have not been reimbursed by Borrower) and the
undrawn amount of all LC Guaranties then outstanding is subtracted from
the Borrowing Base, as
<PAGE> 2
Pelican State Supply Company, Inc.
March 30, 1999
Page 2
the calculation is determined by Lender. If the amount outstanding is
equal to or greater than the Borrowing Base, Availability is 0.",
(iv) the following sentence shall be added to Section 3.7(A) of the Loan
Agreement:
"The Borrower agrees that Borrower shall no longer have the right to
request a Eurodollar Loan under the Loan Agreement, and Lender shall
not be required to make a Eurodollar Loan to Borrower.", and
(v) Lender agree to add the following two financial covenants to Section 9.3 of
the Loan Agreement, which shall be added as a new Section 9.3(D) and a new
Section 9.3(E), which shall read and be as follows in their entirety:
"(D) Maintain, on a consolidated basis in accordance with GAAP, as of
the end of each fiscal month, beginning with the fiscal month ending on
March 31, 1999, a Fixed Charge Ratio of not less than 1.00 to 1.00, for
each such month.
(E) Maintain average monthly Availability on a consolidated basis of
not less than $3,000,000. For purposes of meeting this requirement, up
to$1,000,000 of the Borrowing Base which is in excess of the combined
Commitments of DXP Enterprises, Inc., Pelican State Supply Company,
Inc., and Sepco Industries, Inc., Bayou Pumps, Inc. and America MRO,
Inc. can be used to meet this average monthly Availability
requirement."
Lender hereby waives the Financial Covenant Violations and agrees to
the revisions to the Loan Agreement set forth above; provided, however, that (i)
such agreement to the above-described revisions to the Loan Agreement and such
waiver shall not apply to or constitute a consent to any future amendment to any
other provision of the Loan Agreement or a waiver of any other past, present or
future violation or violations of any other provision of the Loan Agreement, and
(ii) Lender's agreement to the above-described revisions to the Loan Agreement
and Lender's failure to exercise any right, privilege or remedy as a result of
the violation set forth above shall not directly or indirectly in any way
whatsoever either: (a) impair, prejudice or otherwise adversely affect Lender's
right at any time to exercise any right, privilege, or remedy in connection with
the Loan Agreement, any other agreement, or any other contract or instrument, or
(b) amend or alter any provision of the Loan Agreement, any other agreement, or
any other contract or instrument, or (c) constitute any course of dealing or
other basis for altering any obligation of Borrower or any right, privilege, or
remedy of Lender under the Loan Agreement, any other agreement, or any other
contract or instrument.
Except as expressly set forth herein, all of the other terms,
provisions and conditions of the Loan Agreement and other agreements shall
remain and continue in full force and effect.
Except as expressly stated herein, Lender reserves all of its rights,
privileges and remedies under the Loan Agreement, each other agreement and any
other contracts or instruments executed by Borrower
<PAGE> 3
Pelican State Supply Company, Inc.
March 30, 1999
Page 3
and/or for the benefit of Lender. In order to induce Lender to execute this
letter, Borrower accepts and agrees to each provision of this letter.
Notwithstanding any provision of this letter to the contrary, this
letter shall not be directly or indirectly effective against Lender for any
purpose unless and until Lender receives a copy of this letter which has been
duly signed by the Borrower.
Yours very truly,
FLEET CAPITAL CORPORATION
By: H. MICHAEL WILLS
------------------------------
Its: Senior Vice President
------------------------------
AGREED AND ACCEPTED:
PELICAN STATE SUPPLY COMPANY, INC.
By: GARY A. ALLCORN
--------------------------------
Its: Senior Vice President/Finance
--------------------------------
<PAGE> 1
EXHIBIT 10.3
March 30, 1999
DXP Acquisition, Inc. d/b/a
Strategic Acquisition, Inc.
580 Westlake Park Boulevard
Suite 1100
Houston, Texas 77079
Attention: Chief Financial Officer
Re: WAIVER OF VIOLATION OF SECTIONS 9.3(A), (B) AND (C) OF THE
LOAN AND SECURITY AGREEMENT WITH FLEET CAPITAL CORPORATION AND
AMENDMENT TO DEFINITIONS OF "BORROWING BASE", "COMMITMENT",
AND AVAILABILITY IN THE LOAN AND SECURITY AGREEMENT AND
POSSIBLE INCREASE IN APPLICABLE ANNUAL RATE UNDER THE LOAN AND
SECURITY AGREEMENT AND ADDITION OF TWO NEW COVENANTS RELATING
TO MONTHLY FIXED CHARGE RATIO AND MONTHLY AVERAGE AVAILABILITY
AND DELETION OF RIGHT TO REQUEST EURODOLLAR LOANS.
Gentlemen:
Reference is hereby made to that certain Loan and Security Agreement,
dated June 16, 1997, executed by Fleet Capital Corporation, a Rhode Island
corporation ("Lender") and DXP Acquisition, Inc. d/b/a Strategic Acquisition,
Inc., a Nevada corporation ("Borrower") (as amended from time to time, the "Loan
Agreement"). Unless otherwise indicated, all terms used herein shall have the
same meanings as in the Loan Agreement.
The Borrower has informed Lender that as of the measurement periods
ended December 31, 1998, and March 31, 1999, respectively, the Borrower was in
violation of each of the financial covenants contained in Sections 9.3(A), (B)
and (C) of the Loan Agreement (collectively, the "Financial Covenant
Violations"), and has requested that Lender waive such Financial Covenant
Violations.
In addition, Borrower hereby agrees and acknowledges that it has
requested, effective as of the date hereof, that (i) Lender agree to amend the
definition of "Borrowing Base" contained in Section 1.1 of the Loan Agreement
(a) by deleting therefrom the phrase "Seven Million Five Hundred Thousand
Dollars ($7,500,000)" and substituting therefor the phrase "Five Million Eight
Hundred Thousand Dollars ($5,800,000)", and (b) by deleting therefrom the phrase
"Six Million Dollars ($6,000,000) and substituting therefor the phrase "Five
Million Eight Hundred Thousand Dollars ($5,800,000)", (ii) Lender agrees to
amend and restate the definition of "Commitment" contained in Section 1.1 of the
Loan Agreement to read in its entirety as follows: "Commitment" - Five Million
Eight Hundred Thousand Dollars ($5,800,000).", (iii) Lender agree to amend and
restate the definition of "Availability" contained in Section 1.1 of the Loan
Agreement to read in its entirety as follows:
"Availability - The amount of money which Borrower is entitled to
borrow from time to time as Revolving Credit Loans, such amount being
the difference derived when the sum of the principal amount of
revolving Credit Loans then outstanding (including any
<PAGE> 2
DXP Acquisition, Inc.
March 30, 1999
Page 2
amounts which Lender may have paid for the account of Borrower pursuant
to any of the Loan Documents and which have not been reimbursed by
Borrower) and the undrawn amount of all LC Guaranties then outstanding
is subtracted from the Borrowing Base, as the calculation is determined
by Lender. If the amount outstanding is equal to or greater than the
Borrowing Base, Availability is 0.",
(iv) the following sentence shall be added to Section 3.7(A) of the Loan
Agreement:
"The Borrower agrees that Borrower shall no longer have the right to
request a Eurodollar Loan under the Loan Agreement, and Lender shall
not be required to make a Eurodollar Loan to Borrower.", and
(v) Lender agree to add the following two financial covenants to Section 9.3 of
the Loan Agreement, which shall be added as a new Section 9.3(D) and a new
Section 9.3(E), which shall read and be as follows in their entirety:
"(D) Maintain, on a consolidated basis in accordance with GAAP, as of
the end of each fiscal month, beginning with the fiscal month ending on
March 31, 1999, a Fixed Charge Ratio of not less than 1.00 to 1.00, for
each such month.
(E) Maintain average monthly Availability on a consolidated basis of
not less than $3,000,000. For purposes of meeting this requirement, up
to $1,000,000 of the Borrowing Base which is in excess of the combined
Commitments of DXP Enterprises, Inc., Pelican State Supply Company,
Inc., and Sepco Industries, Inc., Bayou Pumps, Inc. and America MRO,
Inc. can be used to meet this average monthly Availability
requirement."
Lender hereby waives the Financial Covenant Violations and agrees to
the revisions to the Loan Agreement set forth above; provided, however, that (i)
such agreement to the above-described revisions to the Loan Agreement and such
waiver shall not apply to or constitute a consent to any future amendment to any
other provision of the Loan Agreement or a waiver of any other past, present or
future violation or violations of any other provision of the Loan Agreement, and
(ii) Lender's agreement to the above-described revisions to the Loan Agreement
and Lender's failure to exercise any right, privilege or remedy as a result of
the violation set forth above shall not directly or indirectly in any way
whatsoever either: (a) impair, prejudice or otherwise adversely affect Lender's
right at any time to exercise any right, privilege, or remedy in connection with
the Loan Agreement, any other agreement, or any other contract or instrument, or
(b) amend or alter any provision of the Loan Agreement, any other agreement, or
any other contract or instrument, or (c) constitute any course of dealing or
other basis for altering any obligation of Borrower or any right, privilege, or
remedy of Lender under the Loan Agreement, any other agreement, or any other
contract or instrument.
Except as expressly set forth herein, all of the other terms,
provisions and conditions of the Loan Agreement and other agreements shall
remain and continue in full force and effect.
<PAGE> 3
DXP Acquisition, Inc.
March 30, 1999
Page 3
Except as expressly stated herein, Lender reserves all of its rights,
privileges and remedies under the Loan Agreement, each other agreement and any
other contracts or instruments executed by Borrower and/or for the benefit of
Lender. In order to induce Lender to execute this letter, Borrower accepts and
agrees to each provision of this letter.
Notwithstanding any provision of this letter to the contrary, this
letter shall not be directly or indirectly effective against Lender for any
purpose unless and until Lender receives a copy of this letter which has been
duly signed by the Borrower.
Yours very truly,
FLEET CAPITAL CORPORATION
By: H. MICHAEL WILLS
--------------------------------
Its: Senior Vice President
--------------------------------
AGREED AND ACCEPTED:
DXP ACQUISITION, INC., d/b/a
STRATEGIC ACQUISITION, INC.
By: GARY A. ALLCORN
--------------------------------
Its: Senior Vice President/Finance
--------------------------------
<PAGE> 1
EXHIBIT 10.4
MAY 1999 AMENDMENT TO SECOND AMENDED AND
RESTATED LOAN AND SECURITY AGREEMENT
AND MODIFICATION TO OTHER AGREEMENTS
THIS MAY 1999 AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AND
SECURITY AGREEMENT AND MODIFICATION TO OTHER AGREEMENTS (this "Amendment") is
made and entered into this 13th day of May, 1999, 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 executed by Borrower and Lender, and as amended by that certain
Seventh Amendment to Second Amended and Restated Loan and Security Agreement,
entered into on June 30, 1998, executed by Borrower and Lender, and as amended
by that certain Eighth Amendment to Second Amended and Restated Loan and
Security Agreement and Modification to Other Agreements, entered into on October
20, 1998, executed by Borrower and Lender, and as amended by that certain letter
agreement dated March 30, 1999, executed by Borrower and Lender (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.
MAY 1999 AMENDMENT TO SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT - PAGE 1
<PAGE> 2
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:
AGREEMENT
ARTICLE I
DEFINITIONS
1.01 Capitalized terms used in this Amendment are defined in the Loan
Agreement, as amended hereby, unless otherwise stated.
ARTICLE II
AMENDMENTS AND MODIFICATION
Effective as of the respective date herein indicated, the Loan
Agreement and the Other Agreements are hereby respectively amended as follows:
2.01 AMENDMENT TO SECTION 2.2(A) OF THE LOAN AGREEMENT. Effective as of
the date of execution of this Amendment, Section 2.2(A) of the Loan Agreement is
amended by deleting therefrom the reference to the date "January 1, 2000" and
substituting therefor the date "March 31, 2000."
2.02 AMENDMENT TO SECTION 3.3. Effective as of the date of execution of
this Amendment, Section 3.3 of the Loan Agreement is hereby amended as follows:
(i) Section 3.3(A) is amended by deleting therefrom the
reference to the date "January 2, 2000" and substituting therefor the date
"April 1, 2000."
(ii) Section 3.3(C) is amended by deleting therefrom the
reference to the date "January 2, 2000" and substituting therefor the date
"April 1, 2000."
2.03 EXTENSION OF MATURITY OF TERM NOTE. Effective as of the date of
execution of this Amendment, the maturity of the Term Note is hereby renewed and
extended until April 1, 2000.
2.04 AMENDMENT TO PAYMENT TERMS IN THE TERM NOTE. Borrower and Lender
hereby agree that effective as of the date of execution of this Amendment, the
last paragraph on page two of the Term Note is amended by deleting therefrom the
date "January 2, 2000" and substituting therefor the date "April 1, 2000."
ARTICLE III
LIMITED WAIVER
3.01 Borrower has informed Lender that Borrower has violated the
following covenants contained in the Loan Agreement and has requested that
Lender waive such violations: (i) Borrower failed to maintain as of the end of
the fiscal month ending March 31, 1999, a Fixed Charge Ratio of not
MAY 1999 AMENDMENT TO SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT - PAGE 2
<PAGE> 3
less than the relevant ratio provided for in Section 9.3(D) of the Loan
Agreement, and (ii) Borrower failed to maintain average monthly Availability for
the fiscal month ending April 30, 1999 of not less than the relevant amount
provided for in Section 9.3(E) of the Loan Agreement. Subject to the
satisfaction of the conditions precedent set forth in Section 4.01 of this
Amendment and to the other terms, conditions and provisions of this Amendment,
Lender hereby waives each of the above-described violations of the
above-described Sections of the Loan Agreement; provided, however, that the
waiver described in this Section 3.01 of this Amendment is strictly limited to
the Sections of the Loan Agreement described above and to the specific
occurrences described above. Except as otherwise specifically provided for in
this Amendment, nothing contained herein shall be construed as a waiver by
Lender of any covenant or provision of the Loan Agreement, the Other Agreements,
this Amendment or of any other contract or instrument between Borrower and
Lender, and the failure of Lender at any time or times hereafter to require
strict performance by Borrower of any provision thereof shall not waive, affect
or diminish any right of Lender to thereafter demand strict compliance
therewith. Lender hereby reserves all rights granted under the Loan Agreement,
the Other Agreements, this Amendment and any other contract or instrument
between Borrower and Lender.
ARTICLE IV
CONDITIONS PRECEDENT
4.01 CONDITIONS TO EFFECTIVENESS. The effectiveness of this Amendment
is subject to the satisfaction of the following conditions precedent in a manner
satisfactory to Lender, unless specifically waived in writing by Lender:
(a) Lender shall have received each of the following, each in
form and substance satisfactory to Lender, in its sole discretion, and,
where applicable, each duly executed by each party thereto, other than
Lender:
(i) This Amendment, duly executed by Borrower,
together with the relevant Consent, Ratification, and
Amendment, respectively duly executed by David R. Little,
individually, Gary A. Allcorn, Trustee for Kacey Joyce Little,
Nicholas David Little and Andrea Rae Little 1988 Trusts, DXP
Enterprises, Inc. ("Parent"), DXP Acquisition, Inc., d/b/a
Strategic Acquisition, Inc. and Pelican State Supply Company,
Inc.; and
(ii) All other documents Lender may request with
respect to any matter relevant to this Amendment or the
transactions contemplated hereby;
(b) The representations and warranties contained herein and in
the Loan Agreement and the Other Agreements, as each is amended hereby,
shall be true and correct as of the date hereof, as if made on the date
hereof;
(c) No Default or Event of Default shall have occurred and be
continuing, unless such Default or Event of Default has been otherwise
specifically waived in writing by Lender; and
(d) All corporate proceedings taken in connection with the
transactions contemplated by this Amendment and all documents,
instruments and other legal matters incident thereto shall be
satisfactory to Lender and its legal counsel.
MAY 1999 AMENDMENT TO SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT - PAGE 3
<PAGE> 4
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.
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
MAY 1999 AMENDMENT TO SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT - PAGE 4
<PAGE> 5
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 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,
MAY 1999 AMENDMENT TO SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT - PAGE 5
<PAGE> 6
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.
MAY 1999 AMENDMENT TO SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT - PAGE 6
<PAGE> 7
IN WITNESS WHEREOF, this Amendment has been executed and is effective
as of the date first above-written.
"BORROWER"
SEPCO INDUSTRIES, INC.
By: /s/ GARY A. ALLCORN
-------------------------------
Name Gary A. Allcorn
-------------------------------
Title: Senior Vice President/Finance
-------------------------------
BAYOU PUMPS, INC.
By: /s/ GARY A. ALLCORN
-----------------------------
Name Gary A. Allcorn
-----------------------------
Title: Senior Vice President/Finance
-----------------------------
AMERICAN MRO, INC.
By: /s/ GARY A. ALLCORN
------------------------------
Name Gary A. Allcorn
------------------------------
Title: Senior Vice President/Finance
------------------------------
"LENDER"
FLEET CAPITAL CORPORATION
By: /s/ H. MICHAEL WILLS
----------------------------
Name 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.
MAY 1999 AMENDMENT TO SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT - PAGE 7
<PAGE> 8
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 May 1999
Amendment to Second Amended and Restated Loan and Security Agreement and
Modification to Other Agreements and to be executed by Corporation, Bayou Pumps,
Inc., American MRO, Inc. and Lender, a draft of which has been reviewed and
discussed by the Board of Directors of the Corporation, and (ii) such other
agreements, instruments, statements and writings as the officer or officers
executing the same may deem desirable or necessary in connection therewith, and
(c) to perform such other acts as the officer or officers performing such acts
on behalf of the Corporation may deem desirable or necessary in connection
therewith; and be it
FURTHER RESOLVED: That said agreements will benefit the Corporation,
both directly and indirectly, and are in the best interests of the Corporation;
and be it
FURTHER RESOLVED: That said agreements and other statements in writing
executed in the name and on behalf of the Corporation by any officer of the
Corporation shall be presumed conclusively to be the instruments, the execution
of which is authorized by these resolutions; and be it
FURTHER RESOLVED: That the officers of the Corporation be, and the same
hereby are, authorized and directed to execute, in the name of and on behalf of
the Corporation, security agreements, financing statements, assignments,
collateral reports, loan statements, confirmations of delivery, lien statements,
pledge certificates, release certificates, removal reports, guaranties, cross-
collateralization agreements and such other writings and to take such other
actions as are necessary in their dealings with Lender, and any such papers
executed and any such actions taken by any of them prior to this time are
approved, ratified and confirmed; and be it
FURTHER RESOLVED: That the Secretary or any Assistant Secretary of the
Corporation, by the signature of any one or more of them, be, and the same
hereby are, authorized and directed to attest the execution by the Corporation
of the papers signed pursuant to these resolutions, to affix the seal of the
Corporation thereto, if required by Lender, and to certify to Lender the
adoption of these resolutions.
ANNEX A-1 TO MAY 1999 AMENDMENT TO SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT - Page 1
<PAGE> 9
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: May , 1999.
----
----------------------------------------
[Assistant] Secretary of the Corporation
ANNEX A-1 TO MAY 1999 AMENDMENT TO SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT - Page 2
<PAGE> 10
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 May 1999
Amendment to Second Amended and Restated Loan and Security Agreement and
Modification to Other Agreements to be executed by Corporation, Sepco, American
MRO, Inc. and Lender, a draft of which has been reviewed and discussed by the
Board of Directors of the Corporation, and (ii) such other agreements,
instruments, statements and writings as the officer or officers executing the
same may deem desirable or necessary in connection therewith, and (c) to perform
such other acts as the officer or officers performing such acts on behalf of the
Corporation may deem desirable or necessary in connection therewith; and be it
FURTHER RESOLVED: That said agreements will benefit the Corporation,
both directly and indirectly, and are in the best interests of the Corporation;
and be it
FURTHER RESOLVED: That said agreements and other statements in writing
executed in the name and on behalf of the Corporation by any officer of the
Corporation shall be presumed conclusively to be the instruments, the execution
of which is authorized by these resolutions; and be it
FURTHER RESOLVED: That the officers of the Corporation be, and the same
hereby are, authorized and directed to execute, in the name of and on behalf of
the Corporation, security agreements, financing statements, assignments,
collateral reports, loan statements, confirmations of delivery, lien statements,
pledge certificates, release certificates, removal reports, guaranties, cross-
collateralization agreements and such other writings and to take such other
actions as are necessary in their dealings with Lender, and any such papers
executed and any such actions taken by any of them prior to this time are
approved, ratified and confirmed; and be it
FURTHER RESOLVED: That the Secretary or any Assistant Secretary of the
Corporation, by the signature of any one or more of them, be, and the same
hereby are, authorized and directed to attest the execution by the Corporation
of the papers signed pursuant to these resolutions, to affix the seal of the
Corporation thereto, if required by Lender, and to certify to Lender the
adoption of these resolutions.
ANNEX A-2 TO MAY 1999 AMENDMENT TO SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT - Page 1
<PAGE> 11
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: May , 1999.
----
----------------------------------------,
[Assistant] Secretary of the Corporation
ANNEX A-2 TO MAY 1999 AMENDMENT TO SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT - Page 2
<PAGE> 12
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 May 1999 Amendment to
Second Amended and Restated Loan and Security Agreement and Modification to
Other Agreements to be executed by Corporation, Sepco, Bayou Pumps, Inc. and
Lender, a draft of which has been reviewed and discussed by the Board of
Directors of the Corporation, and (ii) such other agreements, instruments,
statements and writings as the officer or officers executing the same may deem
desirable or necessary in connection therewith, and (c) to perform such other
acts as the officer or officers performing such acts on behalf of the
Corporation may deem desirable or necessary in connection therewith; and be it
FURTHER RESOLVED: That said agreements will benefit the Corporation,
both directly and indirectly, and are in the best interests of the Corporation;
and be it
FURTHER RESOLVED: That said agreements and other statements in writing
executed in the name and on behalf of the Corporation by any officer of the
Corporation shall be presumed conclusively to be the instruments, the execution
of which is authorized by these resolutions; and be it
FURTHER RESOLVED: That the officers of the Corporation be, and the same
hereby are, authorized and directed to execute, in the name of and on behalf of
the Corporation, security agreements, financing statements, assignments,
collateral reports, loan statements, confirmations of delivery, lien statements,
pledge certificates, release certificates, removal reports, guaranties, cross-
collateralization agreements and such other writings and to take such other
actions as are necessary in their dealings with Lender, and any such papers
executed and any such actions taken by any of them prior to this time are
approved, ratified and confirmed; and be it
FURTHER RESOLVED: That the Secretary or any Assistant Secretary of the
Corporation, by the signature of any one or more of them, be, and the same
hereby are, authorized and directed to attest the execution by the Corporation
of the papers signed pursuant to these resolutions, to affix the seal of the
Corporation thereto, if required by Lender, and to certify to Lender the
adoption of these resolutions.
ANNEX A-3 TO MAY 1999 AMENDMENT TO SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT - Page 1
<PAGE> 13
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: May , 1999.
----
----------------------------------------,
[Assistant] Secretary of the Corporation
ANNEX A-3 TO MAY 1999 AMENDMENT TO SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT - Page 2
<PAGE> 14
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 May 1999
Amendment to Second Amended and Restated Loan and Security Agreement and
Modification to Other Agreements, dated on or about the date hereof (the "Loan
Amendment"), by and among Sepco Industries, Inc., a Texas corporation, Bayou
Pumps, Inc., a Texas corporation, American MRO, Inc., a Nevada corporation, and
Lender, a copy of which has been reviewed by the undersigned, and (ii) agrees
that the Guaranty shall remain in full force and effect and shall continue to be
the legal, valid and binding obligation of the undersigned enforceable against
it in accordance with its terms. Furthermore, the undersigned hereby agrees and
acknowledges that (a) the obligations, indebtedness and liabilities arising in
connection with the Loan Amendment comprise some, but not all, of the
"Obligations" as such term is used in the Guaranty, (b) the Guaranty is an
"Other Agreement", as such term is defined in the Loan Agreement, (c) the
Guaranty, is not as of this date subject to any claims, defenses or offsets, (d)
nothing contained in the Loan Agreement or any Other Agreement entered into
prior to or as of the date hereof shall adversely affect any right or remedy of
Lender under the Guaranty, and (e) the execution and delivery of the Loan
Amendment shall in no way reduce, impair or discharge any obligations of the
undersigned as guarantor pursuant to the Guaranty and shall not constitute a
waiver by Lender of any of Lender's rights against the undersigned.
Dated: May 13, 1999.
/s/ DAVID R. LITTLE
-----------------------------
David R. Little, individually
CONSENT AND RATIFICATION TO MAY 1999 AMENDMENT TO
SECOND AMENDED AND RESTATED LOAN AND SECURITY - Page 1
<PAGE> 15
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 May
1999 Amendment to Second Amended and Restated Loan and Security Agreement and
Modification to Other Agreements, dated on or about the date hereof (the "Loan
Amendment"), executed by Sepco Industries, Inc., a Texas corporation, Bayou
Pumps, Inc., a Texas corporation, American MRO, Inc., a Nevada corporation, and
Lender, a copy of which has been reviewed by the undersigned, and (ii) agrees
that the Pledge Agreement shall remain in full force and effect and shall
continue to be the legal, valid and binding obligation of the undersigned
enforceable against it in accordance with its terms. Furthermore, the
undersigned hereby agrees and acknowledges that (a) the obligations,
indebtedness and liabilities arising in connection with the Loan Amendment
comprise some, but not all, of the "Secured Indebtedness" as such term is used
in the Pledge Agreement, (b) the Pledge Agreement is an "Other Agreement" as
such term is defined in the Loan Agreement, (c) the Pledge Agreement, is not as
of the date hereof subject to any claims, defenses or offsets, (d) nothing
contained in this Agreement or any Other Agreement entered into prior to or as
of the date hereof shall adversely affect any right or remedy of Lender under
the Pledge Agreement, and (e) the execution and delivery of the Loan Amendment
shall in no way reduce, impair or discharge any obligations of the undersigned
pursuant to the Pledge Agreement and shall not constitute a waiver by Lender of
any of Lender's rights against the undersigned.
Dated: May 13, 1999.
/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 MAY 1999 AMENDMENT TO
SECOND AMENDED AND RESTATED LOAN AND SECURITY - Page 2
<PAGE> 16
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 May 1999
Amendment to Second Amended and Restated Loan and Security Agreement and
Modification to Other Agreements, dated on or about the date hereof (the "Loan
Amendment"), by and among Sepco Industries, Inc., a Texas corporation, Bayou
Pumps, Inc., a Texas corporation, American MRO, Inc., a Nevada corporation, and
Lender, a copy of which has been reviewed by the undersigned, and (ii) agrees
that each Guaranty shall remain in full force and effect and shall continue to
be the legal, valid and binding obligation of the undersigned enforceable
against it in accordance with its terms. Furthermore, the undersigned hereby
agrees and acknowledges that (a) the obligations, indebtedness and liabilities
arising in connection with the Loan Amendment comprise some, but not all, of the
"Obligations" as such term is used in each Guaranty, (b) each Guaranty is an
"Other Agreement", as such term is defined in the Loan Agreement, (c) no
Guaranty is as of this date subject to any claims, defenses or offsets, (d)
nothing contained in the Loan Agreement or any Other Agreement entered into
prior to or as of the date hereof shall adversely affect any right or remedy of
Lender under any Guaranty, and (e) the execution and delivery of the Loan
Amendment shall in no way reduce, impair or discharge any obligations of the
undersigned as guarantor pursuant to each Guaranty and shall not constitute a
waiver by Lender of any of Lender's rights against the undersigned.
Dated: May 13, 1999.
DXP ENTERPRISES, INC., formerly
known as Index, Inc.
By: /s/ GARY A. ALLCORN
----------------------------------
Name Gary A. Allcorn
---------------------------------
Title: Senior Vice President/Finance
-------------------------------
CONSENT AND RATIFICATION TO MAY 1999 AMENDMENT TO
SECOND AMENDED AND RESTATED LOAN AND SECURITY - Page 1
<PAGE> 17
CONSENT, RATIFICATION, AND AMENDMENT
The undersigned has executed each of the following guaranty agreements
in favor of FLEET CAPITAL CORPORATION, a Rhode Island corporation ("Lender")
(each such guaranty agreement being hereinafter referred to as a "Guaranty"):
(1) Continuing Guaranty Agreement [Indebtedness of Sepco
Industries, Inc.], dated as of 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 May 1999
Amendment to Second Amended and Restated Loan and Security Agreement and
Modification to Other Agreements, dated on or about the date hereof (the "Loan
Amendment"), by and among Sepco Industries, Inc., a Texas corporation, Bayou
Pumps, Inc., a Texas corporation, American MRO, Inc., a Nevada corporation, and
Lender, a copy of which has been reviewed by the undersigned, and (ii) agrees
that each Guaranty shall remain in full force and effect and shall continue to
be the legal, valid and binding obligation of the undersigned enforceable
against it in accordance with its terms. Furthermore, the undersigned hereby
agrees and acknowledges that (a) the obligations, indebtedness and liabilities
arising in connection with the Loan Amendment comprise some, but not all, of the
"Obligations" as such term is used in each Guaranty, (b) each Guaranty is an
"Other Agreement", as such term is defined in the Loan Agreement, (c) no
Guaranty is as of this date subject to any claims, defenses or offsets, (d)
nothing contained in the Loan Agreement or any Other Agreement entered into
prior to or as of the date hereof shall adversely affect any right or remedy of
Lender under any Guaranty, and (e) the execution and delivery of the Loan
Amendment shall in no way reduce, impair or discharge any obligations of the
undersigned as guarantor pursuant to each Guaranty and shall not constitute a
waiver by Lender of any of Lender's rights against the undersigned.
Dated: May 13, 1999
DXP ACQUISITION, INC., d/b/a
STRATEGIC ACQUISITION, INC.
By: /s/ GARY A. ALLCORN
--------------------------------
Name: Gary A. Allcorn
------------------------------
Title: Senior Vice President/Finance
------------------------------
CONSENT AND RATIFICATION TO MAY 1999 AMENDMENT TO
SECOND AMENDED AND RESTATED LOAN AND SECURITY - Page 1
<PAGE> 18
CONSENT, RATIFICATION, AND AMENDMENT
The undersigned has executed each of the following guaranty agreements
in favor of FLEET CAPITAL CORPORATION, a Rhode Island corporation ("Lender")
(each such guaranty agreement being hereinafter referred to as a "Guaranty"):
(1) Continuing Guaranty Agreement [Indebtedness of Sepco
Industries, Inc.], dated as of 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 May 1999
Amendment to Second Amended and Restated Loan and Security Agreement and
Modification to Other Agreements, dated on or about the date hereof (the "Loan
Amendment"), by and among Sepco Industries, Inc., a Texas corporation, Bayou
Pumps, Inc., a Texas corporation, American MRO, Inc., a Nevada corporation, and
Lender, a copy of which has been reviewed by the undersigned, and (ii) agrees
that each Guaranty shall remain in full force and effect and shall continue to
be the legal, valid and binding obligation of the undersigned enforceable
against it in accordance with its terms. Furthermore, the undersigned hereby
agrees and acknowledges that (a) the obligations, indebtedness and liabilities
arising in connection with the Loan Amendment comprise some, but not all, of the
"Obligations" as such term is used in each Guaranty, (b) each Guaranty is an
"Other Agreement", as such term is defined in the Loan Agreement, (c) no
Guaranty is as of this date subject to any claims, defenses or offsets, (d)
nothing contained in the Loan Agreement or any Other Agreement entered into
prior to or as of the date hereof shall adversely affect any right or remedy of
Lender under any Guaranty, and (e) the execution and delivery of the Loan
Amendment shall in no way reduce, impair or discharge any obligations of the
undersigned as guarantor pursuant to each Guaranty and shall not constitute a
waiver by Lender of any of Lender's rights against the undersigned.
Dated: May 13, 1999.
PELICAN STATE SUPPLY
COMPANY, INC.
By: /s/ GARY A. ALLCORN
---------------------------------
Name: Gary A. Allcorn
------------------------------
Title: Senior Vice President/Finance
-----------------------------
CONSENT AND RATIFICATION TO MAY 1999 AMENDMENT TO
SECOND AMENDED AND RESTATED LOAN AND SECURITY - Page 1
<PAGE> 1
EXHIBIT 10.5
MAY 1999 AMENDMENT TO LOAN AND SECURITY AGREEMENT
[Pelican State Supply Company, Inc.]
THIS MAY 1999 AMENDMENT TO LOAN AND SECURITY AGREEMENT (this
"Amendment") is made and entered into this 13th day of May, 1999, to be
effective as of the respective date herein indicated, by and between PELICAN
STATE SUPPLY COMPANY, INC., a Nevada corporation ("Borrower") and FLEET CAPITAL
CORPORATION, a Rhode Island corporation ("Lender").
RECITALS
A. Borrower and Lender have entered into that certain Loan and Security
Agreement, dated as of May 29, 1997 (as amended, the "Loan Agreement").
B. Borrower and Lender desire to amend the Loan Agreement and the other
Loan Documents as hereinafter set forth.
NOW, THEREFORE, in consideration of the premises herein contained and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties, intending to be legally bound, agree as
follows:
AGREEMENT
ARTICLE I
DEFINITIONS
1.01 Capitalized terms used in this Amendment are defined in the Loan
Agreement, as amended hereby, unless otherwise stated.
ARTICLE II
AMENDMENTS TO LOAN AGREEMENT
Effective as of the respective date herein indicated, the Loan
Agreement is hereby amended as follows:
2.01 AMENDMENT TO SECTION 3.3. Effective as of the date of execution of
this Amendment, Section 3.3 of the Loan Agreement is hereby amended as follows:
(i) Section 3.3(A) is amended by deleting therefrom the
reference to the date "January 2, 2000" and substituting therefor the date
"April 1, 2000."
(ii) Section 3.3(D) is amended by deleting therefrom the
reference to the date "January 2, 2000" and substituting therefor the date
"April 1, 2000."
ARTICLE III
LIMITED WAIVER
3.01 Borrower has informed Lender that Borrower has violated the
following covenants contained in the Loan Agreement and has requested that
Lender waive such violations: (i) Borrower
MAY 1999 AMENDMENT TO LOAN AND SECURITY AGREEMENT - Page 1
<PAGE> 2
failed to maintain as of the end of the fiscal month ending March 31, 1999, a
Fixed Charge Ratio of not less than the relevant ratio provided for in Section
9.3(D) of the Loan Agreement, and (ii) Borrower failed to maintain average
monthly Availability for the fiscal month ending April 30, 1999 of not less than
the relevant amount provided for in Section 9.3(E) of the Loan Agreement.
Subject to the satisfaction of the conditions precedent set forth in Section
4.01 of this Amendment and to the other terms, conditions and provisions of this
Amendment, Lender hereby waives each of the above-described violations of the
above-described Sections of the Loan Agreement; provided, however, that the
waiver described in this Section 3.01 of this Amendment is strictly limited to
the Sections of the Loan Agreement described above and to the specific
occurrences described above. Except as otherwise specifically provided for in
this Amendment, nothing contained herein shall be construed as a waiver by
Lender of any covenant or provision of the Loan Agreement, the other Loan
Documents, this Amendment or of any other contract or instrument between
Borrower and Lender, and the failure of Lender at any time or times hereafter to
require strict performance by Borrower of any provision thereof shall not waive,
affect or diminish any right of Lender to thereafter demand strict compliance
therewith. Lender hereby reserves all rights granted under the Loan Agreement,
the other Loan Documents, this Amendment and any other contract or instrument
between Borrower and Lender.
ARTICLE IV
CONDITIONS PRECEDENT
4.01 CONDITIONS TO EFFECTIVENESS. The effectiveness of this Amendment
is subject to the satisfaction of the following conditions precedent in a manner
satisfactory to Lender, unless specifically waived in writing by Lender:
(a) Lender shall have received each of the following, each in
form and substance satisfactory to Lender, in its sole discretion, and,
where applicable, each duly executed by each party thereto, other than
Lender:
(i) This Amendment, duly executed by Lender, together
with the relevant Consent, Ratification, and Amendment,
respectively duly executed by Sepco Industries, Inc., Bayou
Pumps, Inc., American MRO, Inc., DXP Acquisition, Inc. d/b/a
Strategic Acquisition, Inc. and DXP Enterprises, Inc.; and
(ii) All other documents Lender may request with
respect to any matter relevant to this Amendment or the
transactions contemplated hereby;
(b) The representations and warranties contained herein and in
the Loan Agreement and the other Loan Documents, as each is amended
hereby, shall be true and correct as of the date hereof, as if made on
the date hereof;
(c) No Default or Event of Default shall have occurred and be
continuing, unless such Default or Event of Default has been otherwise
specifically waived in writing by Lender; and
(d) All corporate proceedings taken in connection with the
transactions contemplated by this Amendment and all documents,
instruments and other legal matters incident thereto shall be
satisfactory to Lender and its legal counsel.
MAY 1999 AMENDMENT TO LOAN AND SECURITY AGREEMENT - Page 2
<PAGE> 3
ARTICLE V
RATIFICATIONS, REPRESENTATIONS AND WARRANTIES
5.01 RATIFICATIONS. The terms and provisions set forth in this
Amendment shall modify and supersede all inconsistent terms and provisions set
forth in the Loan Agreement and the other Loan Documents, and, except as
expressly modified and superseded by this Amendment, the terms and provisions of
the Loan Agreement and the other Loan Documents are ratified and confirmed and
shall continue in full force and effect. Each Borrower and Lender agree that the
Loan Agreement and the other Loan Documents, as amended hereby, shall continue
to be legal, valid, binding and enforceable in accordance with their respective
terms.
5.02 REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and
warrants to Lender that (a) the execution, delivery and performance of this
Amendment and any and all other Loan Documents executed and/or delivered in
connection herewith have been authorized by all requisite corporate action on
the part of Borrower and will not violate the Articles of Incorporation or
Bylaws of Borrower; (b) attached hereto as Annex A is a true, correct and
complete copy of presently effective resolutions of Borrower's Board of
Directors authorizing the execution, delivery and performance of this Amendment
and any and all other Loan Documents executed and/or delivered in connection
herewith, certified by the Assistant Secretary of Borrower; (c) the
representations and warranties contained in the Loan Agreement, as amended
hereby, and any other Loan Documents are true and correct on and as of the date
hereof and on and as of the date of execution hereof as though made on and as of
each such date; (d) no Default or Event of Default under the Loan Agreement, as
amended hereby, has occurred and is continuing, unless such Default or Event of
Default has been specifically waived in writing by Lender; (e) Borrower is in
full compliance with all covenants and agreements contained in the Loan
Agreement and the other Loan Documents, as amended hereby; and (f) Borrower has
not amended its Articles of Incorporation or its Bylaws since the date of the
Loan Agreement.
ARTICLE VI
MISCELLANEOUS PROVISIONS
6.01 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties made in the Loan Agreement or any other Loan Documents,
including, without limitation, any document furnished in connection with this
Amendment, shall survive the execution and delivery of this Amendment and the
other Loan Documents, and no investigation by Lender or any closing shall affect
the representations and warranties or the right of Lender to rely upon them.
6.02 REFERENCE TO LOAN AGREEMENT. Each of the Loan Agreement and the
other Loan Documents, and any and all other Loan Documents, documents or
instruments now or hereafter executed and delivered pursuant to the terms hereof
or pursuant to the terms of the Loan Agreement, as amended hereby, are hereby
amended so that any reference in the Loan Agreement and such other Loan
Documents to the Loan Agreement shall mean a reference to the Loan Agreement as
amended hereby.
6.03 EXPENSES OF LENDER. As provided in the Loan Agreement, Borrower
agrees to pay on demand all costs and expenses incurred by Lender in connection
with the preparation, negotiation, and execution of this Amendment and the other
Loan Documents executed pursuant hereto and any and all amendments,
modifications, and supplements thereto, including, without limitation, the costs
and fees of Lender's legal counsel, and all costs and expenses incurred by
Lender in connection with the enforcement or preservation of any rights under
the Loan Agreement, as amended hereby, or any other Loan Documents, including,
without, limitation, the costs and fees of Lender's legal counsel.
MAY 1999 AMENDMENT TO LOAN AND SECURITY AGREEMENT - Page 3
<PAGE> 4
6.04 SEVERABILITY. Any provision of this Amendment held by a court of
competent jurisdiction to be invalid or unenforceable shall not impair or
invalidate the remainder of this Amendment and the effect thereof shall be
confined to the provision so held to be invalid or unenforceable.
6.05 SUCCESSORS AND ASSIGNS. This Amendment is binding upon and shall
inure to the benefit of Lender and Borrower and their respective successors and
assigns, except that Borrower may not assign or transfer any of its rights or
obligations hereunder without the prior written consent of Lender.
6.06 COUNTERPARTS. This Amendment may be executed in one or more
counterparts, each of which when so executed shall be deemed to be an original,
but all of which when taken together shall constitute one and the same
instrument.
6.07 EFFECT OF WAIVER. No consent or waiver, express or implied, by
Lender to or for any breach of or deviation from any covenant or condition by
Borrower shall be deemed a consent to or waiver of any other breach of the same
or any other covenant, condition or duty.
6.08 HEADINGS. The headings, captions, and arrangements used in this
Amendment are for convenience only and shall not affect the interpretation of
this Amendment.
6.09 APPLICABLE LAW. THIS AMENDMENT AND ALL OTHER LOAN DOCUMENTS
EXECUTED PURSUANT HERETO SHALL BE DEEMED TO HAVE BEEN MADE AND TO BE PERFORMABLE
IN AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF TEXAS.
6.10 FINAL AGREEMENT. THE LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS,
EACH AS AMENDED HEREBY, REPRESENT THE ENTIRE EXPRESSION OF THE PARTIES WITH
RESPECT TO THE SUBJECT MATTER HEREOF ON THE DATE THIS AMENDMENT IS EXECUTED. THE
LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS AMENDED HEREBY, MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. NO
MODIFICATION, RESCISSION, WAIVER, RELEASE OR AMENDMENT OF ANY PROVISION OF THIS
AMENDMENT SHALL BE MADE, EXCEPT BY A WRITTEN AGREEMENT SIGNED BY BORROWER AND
LENDER.
6.11 RELEASE. BORROWER HEREBY ACKNOWLEDGES THAT IT HAS NO DEFENSE,
COUNTERCLAIM, OFFSET, CROSS-COMPLAINT, CLAIM OR DEMAND OF ANY KIND OR NATURE
WHATSOEVER THAT CAN BE ASSERTED TO REDUCE OR ELIMINATE ALL OR ANY PART OF ITS
LIABILITY TO REPAY THE "OBLIGATIONS" OR TO SEEK AFFIRMATIVE RELIEF OR DAMAGES OF
ANY KIND OR NATURE FROM LENDER. BORROWER HEREBY VOLUNTARILY AND KNOWINGLY
RELEASES AND FOREVER DISCHARGES LENDER, ITS PREDECESSORS, AGENTS, EMPLOYEES,
SUCCESSORS AND ASSIGNS, FROM ALL POSSIBLE CLAIMS, DEMANDS, ACTIONS, CAUSES OF
ACTION, DAMAGES, COSTS, EXPENSES, AND LIABILITIES WHATSOEVER, KNOWN OR UNKNOWN,
ANTICIPATED OR UNANTICIPATED, SUSPECTED OR UNSUSPECTED, FIXED, CONTINGENT, OR
CONDITIONAL, AT LAW OR IN EQUITY, ORIGINATING IN WHOLE OR IN PART ON OR BEFORE
THE DATE THIS AMENDMENT IS EXECUTED, WHICH BORROWER MAY NOW OR HEREAFTER HAVE
AGAINST LENDER, ITS PREDECESSORS, AGENTS, EMPLOYEES, SUCCESSORS AND ASSIGNS, IF
ANY, AND IRRESPECTIVE OF WHETHER ANY SUCH CLAIMS ARISE OUT OF
MAY 1999 AMENDMENT TO LOAN AND SECURITY AGREEMENT - Page 4
<PAGE> 5
CONTRACT, TORT, VIOLATION OF LAW OR REGULATIONS, OR OTHERWISE, AND ARISING FROM
ANY "LOANS", INCLUDING, WITHOUT LIMITATION, ANY CONTRACTING FOR, CHARGING,
TAKING, RESERVING, COLLECTING OR RECEIVING INTEREST IN EXCESS OF THE HIGHEST
LAWFUL RATE APPLICABLE, THE EXERCISE OF ANY RIGHTS AND REMEDIES UNDER THE LOAN
AGREEMENT OR OTHER LOAN DOCUMENTS, AND NEGOTIATION FOR AND EXECUTION OF THIS
AMENDMENT.
IN WITNESS WHEREOF, this Amendment has been executed and is effective
as of the date first above-written.
"BORROWER"
PELICAN STATE SUPPLY COMPANY, INC.
By: /s/ GARY A. ALLCORN
----------------------------------
Name: Gary A. Allcorn
--------------------------------
Title: Senior Vice President/Finance
-------------------------------
"LENDER"
FLEET CAPITAL CORPORATION
By: /s/ H. MICHAEL WILLS
----------------------------------
Name: H. Michael Wills
--------------------------------
Title: Senior Vice President
-------------------------------
ANNEXES:
A-1 - Certified Resolutions of Pelican State Supply Company, Inc.
MAY 1999 AMENDMENT TO LOAN AND SECURITY AGREEMENT - Page 5
<PAGE> 6
ANNEX A-1
CERTIFIED RESOLUTIONS OF
PELICAN STATE SUPPLY COMPANY, INC.'S BOARD OF DIRECTORS
RESOLVED: That any officer of Pelican State Supply Company, Inc., a
Nevada corporation (the "Corporation"), acting alone, by his signature be, and
the same hereby is, authorized and directed, in the name of and on behalf of the
Corporation (a) to amend the Corporation's existing Loan and Security Agreement
by and between the Corporation and Fleet Capital Corporation, a Rhode Island
corporation ("Lender"), (b) to execute and deliver to Lender with such changes
in the terms and provisions thereof as the officer executing same shall, in his
sole discretion, deem advisable, (i) a certain proposed May 1999 Amendment to
Loan and Security Agreement to be executed by Corporation and Lender, a draft of
which has been reviewed and discussed by the Board of Directors of the
Corporation, and (ii) such other Loan Documents, instruments, statements and
writings as the officer or officers executing the same may deem desirable or
necessary in connection therewith, and (c) to perform such other acts as the
officer or officers performing such acts on behalf of the Corporation may deem
desirable or necessary in connection therewith; and be it
FURTHER RESOLVED: That said agreements will benefit the Corporation,
both directly and indirectly, and are in the best interests of the Corporation;
and be it
FURTHER RESOLVED: That said agreements and other statements in writing
executed in the name and on behalf of the Corporation by any officer of the
Corporation shall be presumed conclusively to be the instruments, the execution
of which is authorized by these resolutions; and be it
FURTHER RESOLVED: That the officers of the Corporation be, and the same
hereby are, authorized and directed to execute, in the name of and on behalf of
the Corporation, security agreements, financing statements, assignments,
collateral reports, loan statements, confirmations of delivery, lien statements,
pledge certificates, release certificates, removal reports, guaranties, cross-
collateralization agreements and such other writings and to take such other
actions as are necessary in their dealings with Lender, and any such papers
executed and any such actions taken by any of them prior to this time are
approved, ratified and confirmed; and be it
FURTHER RESOLVED: That the Secretary or any Assistant Secretary of the
Corporation, by the signature of any one or more of them, be, and the same
hereby are, authorized and directed to attest the execution by the Corporation
of the papers signed pursuant to these resolutions, to affix the seal of the
Corporation thereto, if required by Lender, and to certify to Lender the
adoption of these resolutions.
CERTIFICATION
The undersigned hereby certifies that the within and foregoing
resolutions are in effect as of the date hereof, without modification, and that
the person signing the within and foregoing Amendment on behalf of the
Corporation is the duly elected officer stated below his name, that he is
authorized to sign such Amendment, and that his signature thereon is genuine.
DATED: May , 1999.
----
----------------------------------------
[Assistant] Secretary of the Corporation
CONSENT AND RATIFICATION TO
MAY 1999 AMENDMENT TO LOAN AND SECURITY - Page 1
<PAGE> 7
CONSENT, RATIFICATION, AND AMENDMENT
The undersigned, SEPCO INDUSTRIES, INC., has executed that certain
Continuing Guaranty Agreement, dated May 29, 1997 (the "Guaranty"), in favor of
FLEET CAPITAL CORPORATION, a Rhode Island corporation ("Lender"). The
undersigned hereby (i) consents and agrees to the terms of the May 1999
Amendment to Loan and Security Agreement, dated on or about the date hereof (the
"Loan Amendment"), by and between Pelican State Supply Company, Inc., a Nevada
corporation, and Lender, a copy of which has been reviewed by the undersigned,
and (ii) agrees that the Guaranty shall remain in full force and effect and
shall continue to be the legal, valid and binding obligation of the undersigned
enforceable against it in accordance with its terms. Furthermore, the
undersigned hereby agrees and acknowledges that (a) the obligations,
indebtedness and liabilities arising in connection with the Loan Amendment
comprise some, but not all, of the "Obligations" as such term is used in the
Guaranty, (b) the Guaranty is an "Other Agreement", as such term is defined in
the Loan Agreement, (c) the Guaranty is not as of this date subject to any
claims, defenses or offsets, (d) nothing contained in the Loan Agreement or any
Other Agreement entered into prior to or as of the date hereof shall adversely
affect any right or remedy of Lender under the Guaranty, and (e) the execution
and delivery of the Loan Amendment shall in no way reduce, impair or discharge
any obligations of the undersigned as guarantor pursuant to the Guaranty and
shall not constitute a waiver by Lender of any of Lender's rights against the
undersigned.
Dated: May , 1999.
----
SEPCO INDUSTRIES, INC.
By: /s/ GARY A. ALLCORN
----------------------------------
Name: Gary A. Allcorn
--------------------------------
Title: Senior Vice President/Finance
-------------------------------
CONSENT AND RATIFICATION TO
MAY 1999 AMENDMENT TO LOAN AND SECURITY - Page 1
<PAGE> 8
CONSENT, RATIFICATION, AND AMENDMENT
The undersigned, AMERICAN MRO, INC., has executed that certain
Continuing Guaranty Agreement, dated May 29, 1997 (the "Guaranty"), in favor of
FLEET CAPITAL CORPORATION, a Rhode Island corporation ("Lender"). The
undersigned hereby (i) consents and agrees to the terms of the May 1999
Amendment to Loan and Security Agreement, dated on or about the date hereof (the
"Loan Amendment"), by and between Pelican State Supply Company, Inc., a Nevada
corporation, and Lender, a copy of which has been reviewed by the undersigned,
and (ii) agrees that the Guaranty shall remain in full force and effect and
shall continue to be the legal, valid and binding obligation of the undersigned
enforceable against it in accordance with its terms. Furthermore, the
undersigned hereby agrees and acknowledges that (a) the obligations,
indebtedness and liabilities arising in connection with the Loan Amendment
comprise some, but not all, of the "Obligations" as such term is used in the
Guaranty, (b) the Guaranty is an "Other Agreement", as such term is defined in
the Loan Agreement, (c) the Guaranty is not as of this date subject to any
claims, defenses or offsets, (d) nothing contained in the Loan Agreement or any
Other Agreement entered into prior to or as of the date hereof shall adversely
affect any right or remedy of Lender under the Guaranty, and (e) the execution
and delivery of the Loan Amendment shall in no way reduce, impair or discharge
any obligations of the undersigned as guarantor pursuant to the Guaranty and
shall not constitute a waiver by Lender of any of Lender's rights against the
undersigned.
Dated: May , 1999.
----
AMERICAN MRO, INC.
By: /s/ GARY A. ALLCORN
----------------------------------
Name: Gary A. Allcorn
--------------------------------
Title: Senior Vice President/Finance
-------------------------------
CONSENT AND RATIFICATION TO
MAY 1999 AMENDMENT TO LOAN AND SECURITY - Page 1
<PAGE> 9
CONSENT, RATIFICATION, AND AMENDMENT
The undersigned, BAYOU PUMPS, INC., has executed that certain
Continuing Guaranty Agreement, dated May 29, 1997 (the "Guaranty"), in favor of
FLEET CAPITAL CORPORATION, a Rhode Island corporation ("Lender"). The
undersigned hereby (i) consents and agrees to the terms of the May 1999
Amendment to Loan and Security Agreement, dated on or about the date hereof (the
"Loan Amendment"), by and between Pelican State Supply Company, Inc., a Nevada
corporation, and Lender, a copy of which has been reviewed by the undersigned,
and (ii) agrees that the Guaranty shall remain in full force and effect and
shall continue to be the legal, valid and binding obligation of the undersigned
enforceable against it in accordance with its terms. Furthermore, the
undersigned hereby agrees and acknowledges that (a) the obligations,
indebtedness and liabilities arising in connection with the Loan Amendment
comprise some, but not all, of the "Obligations" as such term is used in the
Guaranty, (b) the Guaranty is an "Other Agreement", as such term is defined in
the Loan Agreement, (c) the Guaranty is not as of this date subject to any
claims, defenses or offsets, (d) nothing contained in the Loan Agreement or any
Other Agreement entered into prior to or as of the date hereof shall adversely
affect any right or remedy of Lender under the Guaranty, and (e) the execution
and delivery of the Loan Amendment shall in no way reduce, impair or discharge
any obligations of the undersigned as guarantor pursuant to the Guaranty and
shall not constitute a waiver by Lender of any of Lender's rights against the
undersigned.
Dated: May , 1999.
----
BAYOU PUMPS, INC.
By: /s/ GARY A. ALLCORN
----------------------------------
Name: Gary A. Allcorn
--------------------------------
Title: Senior Vice President/Finance
-------------------------------
CONSENT AND RATIFICATION TO
MAY 1999 AMENDMENT TO LOAN AND SECURITY - Page 1
<PAGE> 10
CONSENT, RATIFICATION, AND AMENDMENT
The undersigned, DXP ACQUISITION, INC. D/B/A STRATEGIC ACQUISITION,
INC., has executed that certain Continuing Guaranty Agreement, dated June 16,
1997 (the "Guaranty"), in favor of FLEET CAPITAL CORPORATION, a Rhode Island
corporation ("Lender"). The undersigned hereby (i) consents and agrees to the
terms of the May 1999 Amendment to Loan and Security Agreement, dated on or
about the date hereof (the "Loan Amendment"), by and between Pelican State
Supply Company, Inc., a Nevada corporation, and Lender, a copy of which has been
reviewed by the undersigned, and (ii) agrees that the Guaranty shall remain in
full force and effect and shall continue to be the legal, valid and binding
obligation of the undersigned enforceable against it in accordance with its
terms. Furthermore, the undersigned hereby agrees and acknowledges that (a) the
obligations, indebtedness and liabilities arising in connection with the Loan
Amendment comprise some, but not all, of the "Obligations" as such term is used
in the Guaranty, (b) the Guaranty is an "Other Agreement", as such term is
defined in the Loan Agreement, (c) the Guaranty is not as of this date subject
to any claims, defenses or offsets, (d) nothing contained in the Loan Agreement
or any Other Agreement entered into prior to or as of the date hereof shall
adversely affect any right or remedy of Lender under the Guaranty, and (e) the
execution and delivery of the Loan Amendment shall in no way reduce, impair or
discharge any obligations of the undersigned as guarantor pursuant to the
Guaranty and shall not constitute a waiver by Lender of any of Lender's rights
against the undersigned.
Dated: May , 1999.
----
DXP ACQUISITION, INC.
D/B/A STRATEGIC ACQUISITION, INC.
By: /s/ GARY A. ALLCORN
----------------------------------
Name: Gary A. Allcorn
--------------------------------
Title: Senior Vice President
-------------------------------
CONSENT AND RATIFICATION TO
MAY 1999 AMENDMENT TO LOAN AND SECURITY - Page 1
<PAGE> 11
CONSENT, RATIFICATION AND AMENDMENT
The undersigned, DXP ENTERPRISES, INC., has executed (x) that certain
Continuing Guaranty Agreement, dated May 29, 1997 (the "Guaranty"), in favor of
FLEET CAPITAL CORPORATION, a Rhode Island corporation ("Lender"), and (y) that
certain Stock Pledge Agreement, dated as of May 29, 1997, executed by the
undersigned and Fleet (the "Security Agreement"). The undersigned hereby (i)
consents and agrees to the terms of the May 1999 Amendment to Loan and Security
Agreement, dated on or about the date hereof (the "Loan Amendment"), by and
between Pelican State Supply Company, Inc., a Nevada corporation, and Lender, a
copy of which has been reviewed by the undersigned, and (ii) agrees that each of
the Guaranty and the Security Agreement shall remain in full force and effect
and shall continue to be the legal, valid and binding obligation of the
undersigned, enforceable against it in accordance with its terms. Furthermore,
the undersigned hereby agrees and acknowledges that (a) the obligations,
indebtedness and liabilities arising in connection with the Loan Amendment
comprise some, but not all, of the "Obligations", as such term is used in the
Guaranty, and some, but not all, of the "Secured Obligations", as such term is
used in the Security Agreement, (b) each of the Guaranty and the Security
Agreement is an "Other Agreement", as such term is defined in the Loan
Agreement, (c) neither the Guaranty nor the Security Agreement is, as of the
date hereof, subject to any claims, defenses or offsets, (d) nothing contained
in the Loan Agreement or any Other Agreement entered into prior to or as of the
date hereof shall adversely affect any right or remedy of Lender under the
Guaranty or under the Security Agreement, and (e) the execution and delivery of
the Loan Amendment shall in no way reduce, impair or discharge any obligations
of the undersigned as guarantor pursuant to the Guaranty or as debtor pursuant
to the Security Agreement and shall not constitute a waiver by Lender of any of
Lender's rights against the undersigned.
Dated: May , 1999.
----
DXP ENTERPRISES, INC.
By: /s/ GARY A. ALLCORN
----------------------------------
Name: Gary A. Allcorn
--------------------------------
Title: Senior Vice President/Finance
-------------------------------
CONSENT AND RATIFICATION TO
MAY 1999 AMENDMENT TO LOAN AND SECURITY - Page 1
<PAGE> 1
EXHIBIT 10.6
MAY 1999 AMENDMENT TO LOAN AND SECURITY AGREEMENT
[DXP Acquisition, Inc., d/b/a Strategic Acquisition, Inc.]
THIS MAY 1999 AMENDMENT TO LOAN AND SECURITY AGREEMENT (this
"Amendment") is made and entered into this 13th day of May, 1999, to be
effective as of the respective date herein indicated, by and between DXP
ACQUISITION, INC., D/B/A STRATEGIC ACQUISITION, INC., a Nevada corporation
("Borrower") and FLEET CAPITAL CORPORATION, a Rhode Island corporation
("Lender").
RECITALS
A. Borrower and Lender have entered into that certain Loan and Security
Agreement, dated as of June 16, 1997 (as amended, the "Loan Agreement").
B. Borrower and Lender desire to amend the Loan Agreement and the other
Loan Documents as hereinafter set forth.
NOW, THEREFORE, in consideration of the premises herein contained and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties, intending to be legally bound, agree as
follows:
AGREEMENT
ARTICLE I
DEFINITIONS
1.01 Capitalized terms used in this Amendment are defined in the Loan
Agreement, as amended hereby, unless otherwise stated.
ARTICLE II
AMENDMENTS TO LOAN AGREEMENT
Effective as of the respective date herein indicated, the Loan
Agreement is hereby amended as follows:
2.01 AMENDMENT TO SECTION 3.3. Effective as of the date of execution of
this Amendment, Section 3.3 of the Loan Agreement is hereby amended as follows:
(i) Section 3.3(A) is amended by deleting therefrom the
reference to the date "January 2, 2000" and substituting therefor the date
"April 1, 2000."
(ii) Section 3.3(D) is amended by deleting therefrom the
reference to the date "January 2, 2000" and substituting therefor the date
"April 1, 2000."
ARTICLE III
LIMITED WAIVER
3.01 Borrower has informed Lender that Borrower has violated the
following covenants contained in the Loan Agreement and has requested that
Lender waive such violations: (i) Borrower
MAY 1999 AMENDMENT TO LOAN AND SECURITY AGREEMENT - Page 1
<PAGE> 2
failed to maintain as of the end of the fiscal month ending March 31, 1999, a
Fixed Charge Ratio of not less than the relevant ratio provided for in Section
9.3(D) of the Loan Agreement, and (ii) Borrower failed to maintain average
monthly Availability for the fiscal month ending April 30, 1999 of not less than
the relevant amount provided for in Section 9.3(E) of the Loan Agreement.
Subject to the satisfaction of the conditions precedent set forth in Section
4.01 of this Amendment and to the other terms, conditions and provisions of this
Amendment, Lender hereby waives each of the above-described violations of the
above-described Sections of the Loan Agreement; provided, however, that the
waiver described in this Section 3.01 of this Amendment is strictly limited to
the Sections of the Loan Agreement described above and to the specific
occurrences described above. Except as otherwise specifically provided for in
this Amendment, nothing contained herein shall be construed as a waiver by
Lender of any covenant or provision of the Loan Agreement, the other Loan
Documents, this Amendment or of any other contract or instrument between
Borrower and Lender, and the failure of Lender at any time or times hereafter to
require strict performance by Borrower of any provision thereof shall not waive,
affect or diminish any right of Lender to thereafter demand strict compliance
therewith. Lender hereby reserves all rights granted under the Loan Agreement,
the other Loan Documents, this Amendment and any other contract or instrument
between Borrower and Lender.
ARTICLE IV
CONDITIONS PRECEDENT
4.01 CONDITIONS TO EFFECTIVENESS. The effectiveness of this Amendment
is subject to the satisfaction of the following conditions precedent in a manner
satisfactory to Lender, unless specifically waived in writing by Lender:
(a) Lender shall have received each of the following, each in
form and substance satisfactory to Lender, in its sole discretion, and,
where applicable, each duly executed by each party thereto, other than
Lender:
(i) This Amendment, duly executed by Lender, together
with the relevant Consent, Ratification, and Amendment,
respectively duly executed by Sepco Industries, Inc., Bayou
Pumps, Inc., American MRO, Inc., Pelican State Supply Company,
Inc. and DXP Enterprises, Inc.; and
(ii) All other documents Lender may request with
respect to any matter relevant to this Amendment or the
transactions contemplated hereby;
(b) The representations and warranties contained herein and in
the Loan Agreement and the other Loan Documents, as each is amended
hereby, shall be true and correct as of the date hereof, as if made on
the date hereof;
(c) No Default or Event of Default shall have occurred and be
continuing, unless such Default or Event of Default has been otherwise
specifically waived in writing by Lender; and
(d) All corporate proceedings taken in connection with the
transactions contemplated by this Amendment and all documents,
instruments and other legal matters incident thereto shall be
satisfactory to Lender and its legal counsel.
MAY 1999 AMENDMENT TO LOAN AND SECURITY AGREEMENT - Page 2
<PAGE> 3
ARTICLE V
RATIFICATIONS, REPRESENTATIONS AND WARRANTIES
5.01 RATIFICATIONS. The terms and provisions set forth in this
Amendment shall modify and supersede all inconsistent terms and provisions set
forth in the Loan Agreement and the other Loan Documents, and, except as
expressly modified and superseded by this Amendment, the terms and provisions of
the Loan Agreement and the other Loan Documents are ratified and confirmed and
shall continue in full force and effect. Each Borrower and Lender agree that the
Loan Agreement and the other Loan Documents, as amended hereby, shall continue
to be legal, valid, binding and enforceable in accordance with their respective
terms.
5.02 REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and
warrants to Lender that (a) the execution, delivery and performance of this
Amendment and any and all other Loan Documents executed and/or delivered in
connection herewith have been authorized by all requisite corporate action on
the part of Borrower and will not violate the Articles of Incorporation or
Bylaws of Borrower; (b) attached hereto as Annex A is a true, correct and
complete copy of presently effective resolutions of Borrower's Board of
Directors authorizing the execution, delivery and performance of this Amendment
and any and all other Loan Documents executed and/or delivered in connection
herewith, certified by the Assistant Secretary of Borrower; (c) the
representations and warranties contained in the Loan Agreement, as amended
hereby, and any other Loan Documents are true and correct on and as of the date
hereof and on and as of the date of execution hereof as though made on and as of
each such date; (d) no Default or Event of Default under the Loan Agreement, as
amended hereby, has occurred and is continuing, unless such Default or Event of
Default has been specifically waived in writing by Lender; (e) Borrower is in
full compliance with all covenants and agreements contained in the Loan
Agreement and the other Loan Documents, as amended hereby; and (f) Borrower has
not amended its Articles of Incorporation or its Bylaws since the date of the
Loan Agreement.
ARTICLE VI
MISCELLANEOUS PROVISIONS
6.01 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties made in the Loan Agreement or any other Loan Documents,
including, without limitation, any document furnished in connection with this
Amendment, shall survive the execution and delivery of this Amendment and the
other Loan Documents, and no investigation by Lender or any closing shall affect
the representations and warranties or the right of Lender to rely upon them.
6.02 REFERENCE TO LOAN AGREEMENT. Each of the Loan Agreement and the
other Loan Documents, and any and all other Loan Documents, documents or
instruments now or hereafter executed and delivered pursuant to the terms hereof
or pursuant to the terms of the Loan Agreement, as amended hereby, are hereby
amended so that any reference in the Loan Agreement and such other Loan
Documents to the Loan Agreement shall mean a reference to the Loan Agreement as
amended hereby.
6.03 EXPENSES OF LENDER. As provided in the Loan Agreement, Borrower
agrees to pay on demand all costs and expenses incurred by Lender in connection
with the preparation, negotiation, and execution of this Amendment and the other
Loan Documents executed pursuant hereto and any and all amendments,
modifications, and supplements thereto, including, without limitation, the costs
and fees of Lender's legal counsel, and all costs and expenses incurred by
Lender in connection with the enforcement or preservation of any rights under
the Loan Agreement, as amended hereby, or any other Loan Documents, including,
without, limitation, the costs and fees of Lender's legal counsel.
MAY 1999 AMENDMENT TO LOAN AND SECURITY AGREEMENT - Page 3
<PAGE> 4
6.04 SEVERABILITY. Any provision of this Amendment held by a court of
competent jurisdiction to be invalid or unenforceable shall not impair or
invalidate the remainder of this Amendment and the effect thereof shall be
confined to the provision so held to be invalid or unenforceable.
6.05 SUCCESSORS AND ASSIGNS. This Amendment is binding upon and shall
inure to the benefit of Lender and Borrower and their respective successors and
assigns, except that Borrower may not assign or transfer any of its rights or
obligations hereunder without the prior written consent of Lender.
6.06 COUNTERPARTS. This Amendment may be executed in one or more
counterparts, each of which when so executed shall be deemed to be an original,
but all of which when taken together shall constitute one and the same
instrument.
6.07 EFFECT OF WAIVER. No consent or waiver, express or implied, by
Lender to or for any breach of or deviation from any covenant or condition by
Borrower shall be deemed a consent to or waiver of any other breach of the same
or any other covenant, condition or duty.
6.08 HEADINGS. The headings, captions, and arrangements used in this
Amendment are for convenience only and shall not affect the interpretation of
this Amendment.
6.09 APPLICABLE LAW. THIS AMENDMENT AND ALL OTHER LOAN DOCUMENTS
EXECUTED PURSUANT HERETO SHALL BE DEEMED TO HAVE BEEN MADE AND TO BE PERFORMABLE
IN AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF TEXAS.
6.10 FINAL AGREEMENT. THE LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS,
EACH AS AMENDED HEREBY, REPRESENT THE ENTIRE EXPRESSION OF THE PARTIES WITH
RESPECT TO THE SUBJECT MATTER HEREOF ON THE DATE THIS AMENDMENT IS EXECUTED. THE
LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS AMENDED HEREBY, MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. NO
MODIFICATION, RESCISSION, WAIVER, RELEASE OR AMENDMENT OF ANY PROVISION OF THIS
AMENDMENT SHALL BE MADE, EXCEPT BY A WRITTEN AGREEMENT SIGNED BY BORROWER AND
LENDER.
6.11 RELEASE. BORROWER HEREBY ACKNOWLEDGES THAT IT HAS NO DEFENSE,
COUNTERCLAIM, OFFSET, CROSS-COMPLAINT, CLAIM OR DEMAND OF ANY KIND OR NATURE
WHATSOEVER THAT CAN BE ASSERTED TO REDUCE OR ELIMINATE ALL OR ANY PART OF ITS
LIABILITY TO REPAY THE "OBLIGATIONS" OR TO SEEK AFFIRMATIVE RELIEF OR DAMAGES OF
ANY KIND OR NATURE FROM LENDER. BORROWER HEREBY VOLUNTARILY AND KNOWINGLY
RELEASES AND FOREVER DISCHARGES LENDER, ITS PREDECESSORS, AGENTS, EMPLOYEES,
SUCCESSORS AND ASSIGNS, FROM ALL POSSIBLE CLAIMS, DEMANDS, ACTIONS, CAUSES OF
ACTION, DAMAGES, COSTS, EXPENSES, AND LIABILITIES WHATSOEVER, KNOWN OR UNKNOWN,
ANTICIPATED OR UNANTICIPATED, SUSPECTED OR UNSUSPECTED, FIXED, CONTINGENT, OR
CONDITIONAL, AT LAW OR IN EQUITY, ORIGINATING IN WHOLE OR IN PART ON OR BEFORE
THE DATE THIS AMENDMENT IS EXECUTED, WHICH BORROWER MAY NOW OR HEREAFTER HAVE
AGAINST LENDER, ITS PREDECESSORS, AGENTS, EMPLOYEES, SUCCESSORS AND ASSIGNS, IF
ANY, AND IRRESPECTIVE OF WHETHER ANY SUCH CLAIMS ARISE OUT OF
MAY 1999 AMENDMENT TO LOAN AND SECURITY AGREEMENT - Page 4
<PAGE> 5
CONTRACT, TORT, VIOLATION OF LAW OR REGULATIONS, OR OTHERWISE, AND ARISING FROM
ANY "LOANS", INCLUDING, WITHOUT LIMITATION, ANY CONTRACTING FOR, CHARGING,
TAKING, RESERVING, COLLECTING OR RECEIVING INTEREST IN EXCESS OF THE HIGHEST
LAWFUL RATE APPLICABLE, THE EXERCISE OF ANY RIGHTS AND REMEDIES UNDER THE LOAN
AGREEMENT OR OTHER LOAN DOCUMENTS, AND NEGOTIATION FOR AND EXECUTION OF THIS
AMENDMENT.
IN WITNESS WHEREOF, this Amendment has been executed and is effective
as of the date first above-written.
"BORROWER"
DXP ACQUISITION, INC.,
D/B/A STRATEGIC ACQUISITION, INC.
By: /s/ GARY A. ALLCORN
-----------------------------------
Name: Gary A. Allcorn
---------------------------------
Title: Senior Vice President/Finance
--------------------------------
"LENDER"
FLEET CAPITAL CORPORATION
By: /s/ H. MICHAEL WILLS
-----------------------------------
Name: H. Michael Wills
---------------------------------
Title: Senior Vice President
--------------------------------
ANNEXES:
A-1 - Certified Resolutions of DXP Acquisition, Inc., d/b/a Strategic
Acquisition, Inc.
MAY 1999 AMENDMENT TO LOAN AND SECURITY AGREEMENT - Page 5
<PAGE> 6
ANNEX A-1
CERTIFIED RESOLUTIONS OF
DXP ACQUISITION, INC.,
D/B/A STRATEGIC ACQUISITION, INC.'S BOARD OF DIRECTORS
RESOLVED: That any officer of DXP Acquisition, Inc., d/b/a Strategic
Acquisition, Inc., a Nevada corporation (the "Corporation"), acting alone, by
his signature be, and the same hereby is, authorized and directed, in the name
of and on behalf of the Corporation (a) to amend the Corporation's existing Loan
and Security Agreement by and between the Corporation and Fleet Capital
Corporation, a Rhode Island corporation ("Lender"), (b) to execute and deliver
to Lender with such changes in the terms and provisions thereof as the officer
executing same shall, in his sole discretion, deem advisable, (i) a certain
proposed May 1999 Amendment to Loan and Security Agreement to be executed by
Corporation and Lender, a draft of which has been reviewed and discussed by the
Board of Directors of the Corporation, and (ii) such other Loan Documents,
instruments, statements and writings as the officer or officers executing the
same may deem desirable or necessary in connection therewith, and (c) to perform
such other acts as the officer or officers performing such acts on behalf of the
Corporation may deem desirable or necessary in connection therewith; and be it
FURTHER RESOLVED: That said agreements will benefit the Corporation,
both directly and indirectly, and are in the best interests of the Corporation;
and be it
FURTHER RESOLVED: That said agreements and other statements in writing
executed in the name and on behalf of the Corporation by any officer of the
Corporation shall be presumed conclusively to be the instruments, the execution
of which is authorized by these resolutions; and be it
FURTHER RESOLVED: That the officers of the Corporation be, and the same
hereby are, authorized and directed to execute, in the name of and on behalf of
the Corporation, security agreements, financing statements, assignments,
collateral reports, loan statements, confirmations of delivery, lien statements,
pledge certificates, release certificates, removal reports, guaranties, cross-
collateralization agreements and such other writings and to take such other
actions as are necessary in their dealings with Lender, and any such papers
executed and any such actions taken by any of them prior to this time are
approved, ratified and confirmed; and be it
FURTHER RESOLVED: That the Secretary or any Assistant Secretary of the
Corporation, by the signature of any one or more of them, be, and the same
hereby are, authorized and directed to attest the execution by the Corporation
of the papers signed pursuant to these resolutions, to affix the seal of the
Corporation thereto, if required by Lender, and to certify to Lender the
adoption of these resolutions.
CERTIFICATION
The undersigned hereby certifies that the within and foregoing
resolutions are in effect as of the date hereof, without modification, and that
the person signing the within and foregoing Amendment on behalf of the
Corporation is the duly elected officer stated below his name, that he is
authorized to sign such Amendment, and that his signature thereon is genuine.
DATED: May , 1999.
----
-----------------------------------------
[Assistant] Secretary of the Corporation
CONSENT AND RATIFICATION TO
MAY 1999 AMENDMENT TO LOAN AND SECURITY - Page 1
<PAGE> 7
CONSENT, RATIFICATION, AND AMENDMENT
The undersigned, SEPCO INDUSTRIES, INC., has executed that certain
Continuing Guaranty Agreement, dated June 16, 1997 (the "Guaranty"), in favor of
FLEET CAPITAL CORPORATION, a Rhode Island corporation ("Lender"). The
undersigned hereby (i) consents and agrees to the terms of the May 1999
Amendment to Loan and Security Agreement, dated on or about the date hereof (the
"Loan Amendment"), by and between DXP Acquisition, Inc., d/b/a Strategic
Acquisition, Inc., a Nevada corporation, and Lender, a copy of which has been
reviewed by the undersigned, and (ii) agrees that the Guaranty shall remain in
full force and effect and shall continue to be the legal, valid and binding
obligation of the undersigned enforceable against it in accordance with its
terms. Furthermore, the undersigned hereby agrees and acknowledges that (a) the
obligations, indebtedness and liabilities arising in connection with the Loan
Amendment comprise some, but not all, of the "Obligations" as such term is used
in the Guaranty, (b) the Guaranty is an "Other Agreement", as such term is
defined in the Loan Agreement, (c) the Guaranty is not as of this date subject
to any claims, defenses or offsets, (d) nothing contained in the Loan Agreement
or any Other Agreement entered into prior to or as of the date hereof shall
adversely affect any right or remedy of Lender under the Guaranty, and (e) the
execution and delivery of the Loan Amendment shall in no way reduce, impair or
discharge any obligations of the undersigned as guarantor pursuant to the
Guaranty and shall not constitute a waiver by Lender of any of Lender's rights
against the undersigned.
Dated: May , 1999.
----
SEPCO INDUSTRIES, INC.
By: /s/ GARY A. ALLCORN
-----------------------------------
Name: Gary A. Allcorn
---------------------------------
Title: Senior Vice President/Finance
--------------------------------
CONSENT AND RATIFICATION TO
MAY 1999 AMENDMENT TO LOAN AND SECURITY - Page 1
<PAGE> 8
CONSENT, RATIFICATION, AND AMENDMENT
The undersigned, AMERICAN MRO, INC., has executed that certain
Continuing Guaranty Agreement, dated June 16, 1997 (the "Guaranty"), in favor of
FLEET CAPITAL CORPORATION, a Rhode Island corporation ("Lender"). The
undersigned hereby (i) consents and agrees to the terms of the May 1999
Amendment to Loan and Security Agreement, dated on or about the date hereof (the
"Loan Amendment"), by and between DXP Acquisition, Inc., d/b/a Strategic
Acquisition, Inc., a Nevada corporation, and Lender, a copy of which has been
reviewed by the undersigned, and (ii) agrees that the Guaranty shall remain in
full force and effect and shall continue to be the legal, valid and binding
obligation of the undersigned enforceable against it in accordance with its
terms. Furthermore, the undersigned hereby agrees and acknowledges that (a) the
obligations, indebtedness and liabilities arising in connection with the Loan
Amendment comprise some, but not all, of the "Obligations" as such term is used
in the Guaranty, (b) the Guaranty is an "Other Agreement", as such term is
defined in the Loan Agreement, (c) the Guaranty is not as of this date subject
to any claims, defenses or offsets, (d) nothing contained in the Loan Agreement
or any Other Agreement entered into prior to or as of the date hereof shall
adversely affect any right or remedy of Lender under the Guaranty, and (e) the
execution and delivery of the Loan Amendment shall in no way reduce, impair or
discharge any obligations of the undersigned as guarantor pursuant to the
Guaranty and shall not constitute a waiver by Lender of any of Lender's rights
against the undersigned.
Dated: May , 1999.
----
AMERICAN MRO, INC.
By: /s/ GARY A. ALLCORN
-----------------------------------
Name: Gary A. Allcorn
---------------------------------
Title: Senior Vice President/Finance
--------------------------------
CONSENT AND RATIFICATION TO
MAY 1999 AMENDMENT TO LOAN AND SECURITY - Page 1
<PAGE> 9
CONSENT, RATIFICATION, AND AMENDMENT
The undersigned, BAYOU PUMPS, INC., has executed that certain
Continuing Guaranty Agreement, dated June 16, 1997 (the "Guaranty"), in favor of
FLEET CAPITAL CORPORATION, a Rhode Island corporation ("Lender"). The
undersigned hereby (i) consents and agrees to the terms of the May 1999
Amendment to Loan and Security Agreement, dated on or about the date hereof (the
"Loan Amendment"), by and between DXP Acquisition, Inc., d/b/a Strategic
Acquisition, Inc., a Nevada corporation, and Lender, a copy of which has been
reviewed by the undersigned, and (ii) agrees that the Guaranty shall remain in
full force and effect and shall continue to be the legal, valid and binding
obligation of the undersigned enforceable against it in accordance with its
terms. Furthermore, the undersigned hereby agrees and acknowledges that (a) the
obligations, indebtedness and liabilities arising in connection with the Loan
Amendment comprise some, but not all, of the "Obligations" as such term is used
in the Guaranty, (b) the Guaranty is an "Other Agreement", as such term is
defined in the Loan Agreement, (c) the Guaranty is not as of this date subject
to any claims, defenses or offsets, (d) nothing contained in the Loan Agreement
or any Other Agreement entered into prior to or as of the date hereof shall
adversely affect any right or remedy of Lender under the Guaranty, and (e) the
execution and delivery of the Loan Amendment shall in no way reduce, impair or
discharge any obligations of the undersigned as guarantor pursuant to the
Guaranty and shall not constitute a waiver by Lender of any of Lender's rights
against the undersigned.
Dated: May , 1999.
----
BAYOU PUMPS, INC.
By: /s/ GARY A. ALLCORN
-----------------------------------
Name: Gary A. Allcorn
---------------------------------
Title: Senior Vice President/Finance
--------------------------------
CONSENT AND RATIFICATION TO
MAY 1999 AMENDMENT TO LOAN AND SECURITY - Page 1
<PAGE> 10
CONSENT, RATIFICATION, AND AMENDMENT
The undersigned, PELICAN STATE SUPPLY COMPANY, INC., has executed that
certain Continuing Guaranty Agreement, dated June 16, 1997 (the "Guaranty"), in
favor of FLEET CAPITAL CORPORATION, a Rhode Island corporation ("Lender"). The
undersigned hereby (i) consents and agrees to the terms of the May 1999
Amendment to Loan and Security Agreement, dated on or about the date hereof (the
"Loan Amendment"), by and between DXP Acquisition, Inc., d/b/a Strategic
Acquisition, Inc., a Nevada corporation, and Lender, a copy of which has been
reviewed by the undersigned, and (ii) agrees that the Guaranty shall remain in
full force and effect and shall continue to be the legal, valid and binding
obligation of the undersigned enforceable against it in accordance with its
terms. Furthermore, the undersigned hereby agrees and acknowledges that (a) the
obligations, indebtedness and liabilities arising in connection with the Loan
Amendment comprise some, but not all, of the "Obligations" as such term is used
in the Guaranty, (b) the Guaranty is an "Other Agreement", as such term is
defined in the Loan Agreement, (c) the Guaranty is not as of this date subject
to any claims, defenses or offsets, (d) nothing contained in the Loan Agreement
or any Other Agreement entered into prior to or as of the date hereof shall
adversely affect any right or remedy of Lender under the Guaranty, and (e) the
execution and delivery of the Loan Amendment shall in no way reduce, impair or
discharge any obligations of the undersigned as guarantor pursuant to the
Guaranty and shall not constitute a waiver by Lender of any of Lender's rights
against the undersigned.
Dated: May , 1999.
----
PELICAN STATE SUPPLY COMPANY, INC.
By: /s/ GARY A. ALLCORN
-----------------------------------
Name: Gary A. Allcorn
---------------------------------
Title: Senior Vice President/Finance
--------------------------------
CONSENT AND RATIFICATION TO
MAY 1999 AMENDMENT TO LOAN AND SECURITY - Page 1
<PAGE> 11
CONSENT, RATIFICATION AND AMENDMENT
The undersigned, DXP ENTERPRISES, INC., has executed (x) that certain
Continuing Guaranty Agreement, dated June 16, 1997 (the "Guaranty"), in favor of
FLEET CAPITAL CORPORATION, a Rhode Island corporation ("Lender"), and (y) that
certain Stock Pledge Agreement, dated as of June 16, 1997, executed by the
undersigned and Fleet (the "Security Agreement"). The undersigned hereby (i)
consents and agrees to the terms of the May 1999 Amendment to Loan and Security
Agreement, dated on or about the date hereof (the "Loan Amendment"), by and
between DXP Acquisition, Inc., d/b/a Strategic Acquisition, Inc., a Nevada
corporation, and Lender, a copy of which has been reviewed by the undersigned,
and (ii) agrees that each of the Guaranty and the Security Agreement shall
remain in full force and effect and shall continue to be the legal, valid and
binding obligation of the undersigned, enforceable against it in accordance with
its terms. Furthermore, the undersigned hereby agrees and acknowledges that (a)
the obligations, indebtedness and liabilities arising in connection with the
Loan Amendment comprise some, but not all, of the "Obligations", as such term is
used in the Guaranty, and some, but not all, of the "Secured Obligations", as
such term is used in the Security Agreement, (b) each of the Guaranty and the
Security Agreement is an "Other Agreement", as such term is defined in the Loan
Agreement, (c) neither the Guaranty nor the Security Agreement is, as of the
date hereof, subject to any claims, defenses or offsets, (d) nothing contained
in the Loan Agreement or any Other Agreement entered into prior to or as of the
date hereof shall adversely affect any right or remedy of Lender under the
Guaranty or under the Security Agreement, and (e) the execution and delivery of
the Loan Amendment shall in no way reduce, impair or discharge any obligations
of the undersigned as guarantor pursuant to the Guaranty or as debtor pursuant
to the Security Agreement and shall not constitute a waiver by Lender of any of
Lender's rights against the undersigned.
Dated: May , 1999.
----
DXP ENTERPRISES, INC.
By: /s/ GARY A. ALLCORN
-----------------------------------
Name: Gary A. Allcorn
---------------------------------
Title: Senior Vice President/Finance
--------------------------------
CONSENT AND RATIFICATION TO
MAY 1999 AMENDMENT TO LOAN AND SECURITY - Page 1
<PAGE> 1
Exhibit 11.1: Statement re: Computation of Per Share Earnings.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
<S> <C> <C>
Basic:
Average shares outstanding 4,129,097 4,157,423
Net Income $ 235,000 $ 857,000
Per share amount $ .0569 $ .2061
Dilutive:
Average shares outstanding 4,129,097 4,157,423
Net effect of dilutive stock options --
based on the treasure stock method using
period-end market price, if higher than
average market price 1,003,277 1,123,122
Assumed conversion of Class A convertible
Preferred Stock 420,000 420,000
Total 5,552,374 5,700,545
Net Income $ 258,000 $ 878,000
Per share amount $ .0465 $ .1540
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary Financial Information extracted from the
unaudited condensed financial statements of DXP Enterprises, Inc. as of March
31, 1999 and is qualified in its entirety by reference to such statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 999
<SECURITIES> 0
<RECEIVABLES> 27,288
<ALLOWANCES> 1,322
<INVENTORY> 31,455
<CURRENT-ASSETS> 61,457
<PP&E> 23,923
<DEPRECIATION> 10,828
<TOTAL-ASSETS> 85,374
<CURRENT-LIABILITIES> 23,472
<BONDS> 0
112
0
<COMMON> 41
<OTHER-SE> 16,333
<TOTAL-LIABILITY-AND-EQUITY> 85,374
<SALES> 48,410
<TOTAL-REVENUES> 48,410
<CGS> 35,648
<TOTAL-COSTS> 35,648
<OTHER-EXPENSES> 11,825
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 929
<INCOME-PRETAX> 516
<INCOME-TAX> 258
<INCOME-CONTINUING> 258
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 258
<EPS-PRIMARY> .06
<EPS-DILUTED> .05
</TABLE>
