<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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 JUNE 30, 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
DXP ENTERPRISES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
TEXAS 76-0509661
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
7272 PINEMONT 77040
HOUSTON, TEXAS (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>
713/996-4700
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Number of shares outstanding of each of the issuer's classes of common
stock, as of August 11, 1999:
Common Stock: 4,212,043
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<PAGE> 2
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
DXP ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 1,143 $ 1,625
Trade accounts receivable, net of allowance for doubtful
accounts of $1,491 and $1,155, respectively............ 23,675 24,367
Inventory................................................. 30,135 28,926
Prepaid expenses and other................................ 2,577 1,453
Deferred income taxes..................................... 1,053 870
------- -------
Total current assets................................. $58,583 $57,241
Property, plant and equipment, net.......................... 13,808 13,160
Goodwill, net............................................... 10,257 10,447
Other assets................................................ 471 484
------- -------
Total assets......................................... $83,119 $81,332
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable.................................... $21,199 $14,826
Employee compensation..................................... 1,191 1,449
Other accrued liabilities................................. 787 99
Current portion of long-term debt......................... 3,917 3,782
------- -------
Total current liabilities............................ $27,094 $20,156
Long-term debt, less current portion........................ 38,835 42,910
Deferred compensation....................................... 739 739
Deferred income taxes....................................... 587 563
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
outstanding............................................ 18 18
Common stock, $.01 par value, 100,000,000 shares
authorized; 4,211,072 and 4,211,010 shares issued, of
which 4,054,121 and 4,155,773 shares are outstanding,
and 156,951 and 55,237 shares are treasury stock....... 41 40
Paid-in capital........................................... 2,152 908
Retained earnings......................................... 15,257 15,443
Treasury stock............................................ (1,718) (804)
------- -------
Total shareholders' equity........................... 15,752 15,607
------- -------
Total liabilities and shareholders' equity........... $83,119 $81,332
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE> 3
DXP ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- ------------------
1999 1998 1999 1998
-------- -------- ------- --------
<S> <C> <C> <C> <C>
Sales................................................ $46,436 $52,586 $94,846 $101,590
Cost of sales........................................ 34,747 38,839 70,395 75,258
------- ------- ------- --------
Gross profit......................................... 11,689 13,747 24,451 26,332
Selling, general and administrative expenses......... 11,134 11,310 22,959 21,818
------- ------- ------- --------
Operating income..................................... 555 2,437 1,492 4,514
Other income......................................... 66 342 574 518
Interest expense..................................... (936) (909) (1,865) (1,694)
------- ------- ------- --------
Income(loss) before income taxes..................... (315) 1,870 201 3,338
Provision for income taxes........................... 84 745 342 1,335
------- ------- ------- --------
Net income (loss).................................... $ (399) $ 1,125 $ (141) $ 2,003
Preferred stock dividend............................. 23 23 45 44
------- ------- ------- --------
Net income (loss) attributable to common
Shareholders....................................... $ (422) $ 1,102 $ (186) $ 1,959
======= ======= ======= ========
Basic earnings (loss) per common share............... $ (.10) $ .26 $ (.05) $ .47
======= ======= ======= ========
Common shares outstanding............................ 4,068 4,164 4,095 4,160
======= ======= ======= ========
Diluted earnings (loss) per share.................... $ (.10) $ .20 $ (.05) $ .35
======= ======= ======= ========
Common and common equivalents shares outstanding..... 4,068 5,675 4,095 5,671
======= ======= ======= ========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 4
DXP ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------
1999 1998
------- -------
<S> <C> <C>
OPERATING ACTIVITIES:
Net cash provided by operating activities................. $ 5,800 $ 3,240
INVESTING ACTIVITIES:
Purchase of Tri-Electric Supply, Ltd. net assets.......... -- (6,109)
Purchase of Lucky Electric Supply, Inc. net assets........ -- (2,430)
Purchase of Mark W. Smith Equipment, Inc. net assets...... -- (3,938)
Purchase of property and equipment........................ (1,650) (2,357)
Proceeds on the sale of assets, at cost................... 267 --
------- -------
Net cash used in investing activities................ (1,383) (14,834)
FINANCING ACTIVITIES:
Proceeds from debt........................................ 92,894 94,456
Principal payments on revolving line of credit, long-term
and Subordinated debt, and notes payable to bank....... (96,834) (81,662)
Acquisition of common stock............................... (914) --
Dividends paid............................................ (45) (44)
------- -------
Net cash provided by financing activities............ (4,899) 12,750
------- -------
INCREASE (DECREASE) IN CASH................................. (482) 1,156
CASH AT BEGINNING OF PERIOD................................. 1,625 736
======= =======
CASH AT END OF PERIOD....................................... $ 1,143 $ 1,892
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 5
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 Company has adopted SFAS 128 and has applied the provisions of the
statement to current and prior periods. While the Company has outstanding stock
options and Series A Preferred Stock convertible into Common Stock, these are
not included in the computation of diluted earnings (loss) per share because to
do so would be anti-dilutive.
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 Annual Report on Form 10-K 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.
NOTE 3: INVENTORY
The Company uses the last-in, first-out ("LIFO") method of inventory
valuation for approximately 64 percent of its inventories. Remaining inventories
are accounted for using the first-in, first-out ("FIFO") method. An actual
valuation of inventory under the LIFO method can be made only at the end of each
year based on the inventory levels and costs at that time. Accordingly, interim
LIFO calculations must necessarily be based on management's estimates of
expected year-end inventory levels and costs. Because these are subject to many
forces beyond management's control, interim results are subject to the final
year-end LIFO inventory valuation. The reconciliation of FIFO inventory to LIFO
basis is as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
-------- ------------
(IN THOUSANDS)
<S> <C> <C>
Finished goods...................................... $29,062 $29,717
Work in process..................................... 5,091 3,093
------- -------
Inventories at FIFO................................. 34,153 32,810
Less -- LIFO allowance.............................. (4,018) (3,884)
------- -------
Inventories......................................... $30,135 $28,926
======= =======
</TABLE>
NOTE 4: ACQUISITIONS
On February 26, 1998, a wholly-owned subsidiary of the Company acquired
substantially all the assets of Tri-Electric Supply, Ltd ("Tri-Electric"). The
purchase price consisted of $6.1 million in cash, assumption of
5
<PAGE> 6
DXP ENTERPRISES INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$1.6 million of trade payables and other accrued expenses. The results of
operations of Tri-Electric 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.
On May 31, 1998, a wholly-owned subsidiary of the Company acquired
substantially all the assets of Lucky Electric & Supply, Inc. ("Lucky
Electric"). The purchase price consisted of approximately $2.4 million in cash,
a $735,000 promissory note and the assumption of $149,000 of trade payables and
other accrued expenses. The results of operations of Lucky Electric are included
in the consolidated statements of income of the Company from the date of
acquisition. The acquisition has been accounted for using the purchase method of
accounting. Goodwill of $.6 million was recorded in connection with the
acquisition.
On May 31, 1998, a wholly-owned subsidiary of the Company acquired
substantially all the assets of M.W. Smith Equipment, Inc. ("Smith Equipment").
The purchase price consisted of approximately $3.9 million in cash and the
assumption of $618,000 of trade payables and other accrued expenses. The results
of operations of Smith Equipment are included in the consolidated statements of
income of the Company from the date of acquisition. The acquisition has been
accounted for using the purchase method of accounting. Goodwill of $2.7 million
was recorded in connection with the acquisition.
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 at June 30, 1999
provided for borrowings up to an aggregate of the lessor of (i) a percentage of
the collateral value based on a formula set forth therein or (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 $.5 million 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 June 30, 1999 were approximately $5.7
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
As of June 30, 1999, the Company was not in compliance with certain of its
financial ratios for which it subsequently obtained waivers from its lender. In
conjunction with obtaining those waivers, the Company and its lender amended the
Credit Facility, effective August 13, 1999, to extend its maturity date from
April 1, 2000 to April 1, 2001. The amendment raised the interest rate from
prime to prime plus one percent on the term portion of the Credit Facility,
which was $14.4 million at June 30, 1999, and prime plus one-half on the
revolver portion of the Credit Facility, which was $21.7 million at June 30,
1999. The amendment requires the Company to provide a balance sheet, income
statement and statement of cash flows by month for the fourth quarter of 1999.
Furthermore, the funds available under the Credit Facility will be reduced by
$1.25 million. The effect, had the Credit Facility been amended at June 30,
1999, would have reduced availability from $5.7 million to $4.5 million. All
other terms and conditions remain as stated above.
On July 16, 1999, the Company completed the sale of certain assets of Wesco
Equipment, a division that specializes in valve and valve automation products,
for approximately $2.65 million. The proceeds of the sale approximated the net
book value of the assets sold. The assets sold included inventory and personal
property. The Company will retain and collect the customer accounts receivable
balances. Since the completion of the transaction, the Company no longer
competes in the valve automation business.
6
<PAGE> 7
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. On July 16, 1999,
the Company completed the sale of certain assets of Wesco Equipment, a division
that specializes in valve and valve automation products, for approximately $2.65
million. As a result, the Company no longer competes in 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 in the past focused on addressing current trends in
the industrial distribution market through a combination of acquisitions and
internal growth. Due to current conditions in the Company's industry, the
Company has curtailed its acquisitions efforts. 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.
When conditions in the Company's industry improve, the Company intends to seek
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. Future results for the Company will
be dependent on the success of the Company in implementing its internal growth
strategy and, to the extent the Company completes any acquisitions, on the
ability of the Company to integrate such acquisitions.
RESULTS OF OPERATIONS
Three Months Ended June 30, 1999 compared to Three Months Ended June 30, 1998
Revenues for the three months ended June 30, 1999 decreased 11.7% to $46.4
million from the three months ended June 30, 1998. Revenues for the Company's
two acquisitions during the second quarter of 1998, are excluded for comparative
purposes because the Company did not own the entities during the entire
comparative period. The revenues from these two entities that were excluded for
comparative purposes were $2.6 million for the second quarter of 1999 and $1.2
million for the second quarter of 1998. Sales of fluid handling equipment
decreased 6.5%, or $1.2 million, from the comparable period in 1998. Sales of
bearings and power transmission equipment for the quarter ended June 30, 1999
decreased 24.3%, or $3.3 million, from the comparable period in 1998. Sales of
valve and valve automation equipment decreased 32.5%, or $.9 million, from the
comparable period in 1998. During the three months ended June 30, 1999, sales of
general mill and safety supplies decreased 7.8%, or $1.0 million, from the
comparable period in 1998. The Company entered into electrical product sales
with the acquisition of Tri-Electric during the first quarter of
7
<PAGE> 8
1998. Sales of electrical products decreased 32.0%, or $1.2 million, from $3.8
million to $2.6 million for the quarter ended June 30, 1999, from the comparable
period in 1998. The decrease in revenues resulted primarily from the effects
associated with declining oil prices and a softness related to the mining
industry.
Gross margins decreased by 1% for the second quarter of 1999 as compared to
the second quarter of 1998, from 26.1% to 25.1%. The margin decrease is
primarily attributable to the reduction of volume in the bearing and power
transmission and pump product lines which normally produce higher margins than
other products. The Company currently expects some increase in manufacturers'
prices to continue due to increased raw material costs. 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 second quarter of 1999
increased as a percentage of revenues by 2.5%, from 21.5% to 24.0%, as compared
to the second quarter of 1998. This was due in large part to lower revenues in
the second quarter 1999 as compared to the second quarter in 1998. Also
contributing to the increase were higher selling expenses of $.6 million in the
second quarter of 1999 over those generated in the second quarter of 1998 by
Smith Equipment and Lucky Electric, which were acquired in the second quarter of
1998.
Operating income for the three month period ended June 30, 1999 decreased
from $2.4 million to $.6 million as compared to the second 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 second quarter of 1999 remained consistent at
$.9 million compared to the second quarter of 1998. Average interest rates were
slightly lower during the three months ended June 30, 1999 as compared to the
same period in 1998.
The Company's provision for income taxes for the three months ended June
30, 1999 decreased by $.7 million compared to the same period of 1998, as a
result of the decrease in profits. The current tax provision for the quarter
resulted from deductions allowed for book purposes and not allowed for tax
purposes and state income taxes.
Net income for the three month period ended June 30, 1999, decreased $1.5
million from the three month period ended June 30, 1998 due to the decrease in
revenue volume and the increase of selling, general and administrative expenses
as a percentage of revenue.
Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998
Revenues for the six months ended June 30, 1999 decreased 6.6% to $94.8
million from the six months ended June 30, 1998. The Company's acquisitions
during the first and second quarters of 1998 accounted for $10.5 million in
revenues during the period ended June 30, 1999 and $6.1 million in revenues for
the same period in 1998. Revenues generated by the acquired companies, one in
the first quarter of 1998 and two in the second quarter of 1998, will be
excluded for comparative purposes because the Company did not own these entities
during the entire comparative period. Sales of fluid handling equipment remained
consistent at $36.7 million with the comparable period in 1998. Sales of
bearings and power transmission equipment for the six months ended June 30, 1999
decreased 26.5%, or $7.4 million, from the comparable period in 1998. Sales of
valve and valve automation equipment decreased 25.8%, or $1.3 million, from the
comparable period in 1998. Sales of general mill and safety supplies for the six
months ended June 30, 1999 decreased 9.7%, or $2.5 million, from the comparable
period in 1998. The decrease in revenues resulted primarily from the effects
associated with declining oil prices and a softness related to the mining
industry. A comparison of electrical supplies is not presented because the
product category did not exist during the entire comparative prior period.
Gross margins remained consistent in the first half of 1999 as compared to
1998. The Company currently expects some increase in manufacturers prices to
continue due to increased raw material costs. 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.
8
<PAGE> 9
Selling, general and administrative expense for the first half of 1999
increased as a percentage of revenues by 2.7%, from 21.5% to 24.2%, as compared
to the first half of 1998. This was due in part to lower revenues in the first
half of 1999 as compared to the first half of 1998. Also contributing to the
increase were the higher selling expenses of $1.8 million in the first half of
1999 over those generated in the first half of 1998 by Tri-Electric, acquired in
the first quarter of 1998, as well as Smith Equipment and Lucky Electric, which
were acquired in the second quarter of 1998.
Operating income for the six month period ended June 30, 1999 decreased
from $4.5 million to $1.5 million, 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 half of 1998 increased by $.2 million to
$1.9 million as compared to the first half 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 six months ended June 30, 1999 as compared to the same period in
1998.
The Company's provision for income taxes for the six months ended June 30,
1999 decreased by $1.0 million compared to the same period of 1998, as a result
of the decrease in profits. The current tax provision resulted from deductions
allowed for book purposes but not allowed for tax purposes and state income
taxes.
Net income for the six month period ended June 30, 1999, decreased $2.1
million from the six month period ended June 30, 1998 due to the decrease in
revenue volume and the increase in selling, general and administrative expenses
as a percentage of revenue.
LIQUIDITY AND CAPITAL RESOURCES
General
Under the Company's loan agreements with its bank lender, 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 $5.7 million available for
borrowings under the Credit Facility at June 30, 1999. Working capital at June
30, 1999 and December 31, 1998 was $31.5 million and $37.1 million,
respectively, due in large part to the efforts of the Company to use capital to
reduce long term debt by $4.1 million and to purchase capital assets of $1.7
million. During the first six 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 at June 30, 1999 provided for borrowings up to an aggregate of the lessor
of (i) a percentage of the collateral value based on a formula set forth therein
or (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 June 30, 1999). The line
of credit is secured by receivables, inventory, and machinery and equipment.
As of June 30, 1999, the Company was not in compliance with certain of its
financial ratios for which it subsequently obtained waivers from its lender. In
conjunction with obtaining those waivers, the Company and its lender further
amended the Credit Facility, effective August 13, 1999 to extend the maturity
date to April 1, 2001. The amendment raised the interest rate from prime to
prime plus one percent on the term portion of the Credit Facility, which was
$14.4 million at June 30, 1999, and prime plus one-half on the revolver portion
of the Credit Facility, which was $21.7 million at June 30, 1999. The amendment
requires the Company to provide a balance sheet, income statement and statement
of cash flows by month for the fourth quarter of 1999. Furthermore, the funds
available under the Credit Facility will be reduced by $1.25 million. The
effect, had the amendment occurred at June 30, 1999, would have reduced
availability from $5.7 million
9
<PAGE> 10
to $4.5 million. 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 generated cash through operating activities of $5.8 million in
the first six months of 1999 as compared to $3.2 million in cash generation
during the first six months of 1998, due primarily to a decrease in accounts
receivable and an increase in accounts payable.
The Company had capital expenditures of approximately $1.7 million for the
first six months of 1999 as compared to $2.4 million during the same period of
1998. Capital expenditures in the first six months of 1999 were primarily
related to the purchase of furniture and fixtures and a phone system ($.9
million) for the Company's corporate headquarters as well as the purchase of
computer equipment ($.4 million). Capital expenditures for the first six months
of 1998 were primarily related to the purchase of real property ($1.7 million)
to be used as the corporate headquarters for the Company's management and
administrative group.
During the first six months of 1998, in three separate transactions, the
Company completed the acquisition of substantially all of the assets of three
unaffiliated businesses for an aggregate consideration consisting of
approximately $12.6 million in cash, $2.3 million of assumed trade payables and
other accrued expenses and $.7 million in a promissory note. An aggregate of
$7.2 million of goodwill was recorded in connection with these acquisitions.
On July 17, 1998, the Company entered into a stock purchase agreement with
a common stock holder. The Company agreed to purchase 43,000 shares for a total
of $401,000 over two installments. On September 1, 1998, the Company purchased
one-half of the shares in exchange for $200,500. On June 1, 1999, the remainder
of the shares were purchased in exchange for $200,500 which completed the stock
purchase agreement.
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 any acquisitions 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.
10
<PAGE> 11
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
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 complete with the mailing to over 26,000
customers/vendors. To date, all responses received have indicated that vendors
and customers will be Year 2000 compliant. 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 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 has
completed testing and verification efforts on all major systems with only the
desktop PCs at 12 final locations remaining to be tested. The last of the
testing effort for the remaining PCs will be completed before the end of the
third 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.
Under the terms of the Credit Facility, the Company is restricted from
paying dividends on its common stock and must comply with certain covenants with
respect to working capital.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
11
<PAGE> 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On June 8, 1999, at the Company's annual meeting of shareholders, the
individuals listed below were elected directors by the holders of Common Stock,
Series A Preferred Stock and Series B Preferred Stock, voting together as a
class. Set forth opposite each director's name is the tabulation of votes cast.
<TABLE>
<CAPTION>
NOMINEE VOTES FOR VOTES AGAINST VOTES WITHHELD
------- --------- ------------- --------------
<S> <C> <C> <C>
David R. Little.................... 3,942,034 -0- -0-
Jerry J. Jones..................... 3,942,034 -0- -0-
Cletus Davis....................... 3,942,034 -0- -0-
Thomas V. Orr...................... 3,942,034 -0- -0-
Kenneth H. Miller.................. 3,942,034 -0- -0-
</TABLE>
At the annual meeting of shareholders, the holders of the Company's Common
Stock, Series A Preferred Stock and Series B Preferred Stock, voting together as
a single class, approved the adoption of the DXP Enterprises, Inc. 1999 Employee
Stock Option Plan (the "Employee Plan") and the DXP Enterprises, Inc. 1999
Non-Employee Director Stock Option Plan (the "Director Plan"). Holders of
3,417,382 shares of capital stock of the Company voted in favor of the Employee
plan, 55,022 voted against the Employee Plan and 12 abstained. Holders of
3,341,949 shares of capital stock of the Company voted in favor of the Director
plan, 122,902 voted against the Director Plan and 116,355 abstained.
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, 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
12
<PAGE> 13
implement this strategy will be dependent on its ability to identify, consummate
and successfully assimilate acquisitions on economically favorable terms. Due to
current business conditions, the Company has curtailed its acquisitions 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 June 30, 1999, the Company had
approximately $5.7 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.
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.
13
<PAGE> 14
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
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
14
<PAGE> 15
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>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<C> <S>
10.1 -- DXP Enterprises, Inc. 1999 Employee Stock Option Plan.
10.2 -- DXP Enterprises, Inc. 1999 Non-Employee Director Stock
Option Plan.
10.3 -- August 1999 Amendment to Loan and Security Agreement
dated August 13, 1999, by and among DXP Acquisition,
Inc., d/b/a Strategic Acquisition, Inc. and Fleet Capital
Corporation.
10.4 -- August 1999 Amendment to Second Amended and Restated Loan
and Security Agreement and Modification to Other
Agreements dated August 13, 1999, by and among SEPCO
Industries, Inc., Bayou Pumps, Inc., American MRO, Inc.
and Fleet Capital Corporation.
10.5 -- August 1999 Amendment to Loan and Security Agreement
dated August 13, 1999, by and among Pelican State Supply
Company, 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.
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: August 13, 1999
15
<PAGE> 16
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<C> <S>
10.1 -- DXP Enterprises, Inc. 1999 Employee Stock Option Plan.
10.2 -- DXP Enterprises, Inc. 1999 Non-Employee Director Stock
Option Plan.
10.3 -- August 1999 Amendment to Loan and Security Agreement
dated August 13, 1999, by and among DXP Acquisition,
Inc., d/b/a Strategic Acquisition, Inc. and Fleet Capital
Corporation.
10.4 -- August 1999 Amendment to Second Amended and Restated Loan
and Security Agreement and Modification to Other
Agreements dated August 13, 1999, by and among SEPCO
Industries, Inc., Bayou Pumps, Inc., American MRO, Inc.
and Fleet Capital Corporation.
10.5 -- August 1999 Amendment to Loan and Security Agreement
dated August 13, 1999, by and among Pelican State Supply
Company, Inc. and Fleet Capital Corporation.
11.1 -- Statement re: Computation of Per Share Earnings.
27.1 -- Financial Data Schedule.
</TABLE>
<PAGE> 1
EXHIBIT 10.1
DXP ENTERPRISES, INC.
1999 EMPLOYEE STOCK OPTION PLAN
<PAGE> 2
DXP ENTERPRISES, INC.
1999 EMPLOYEE STOCK OPTION PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION
-------
<S> <C>
ARTICLE I
PLAN
Purpose..................................................... 1.1
Term of Plan................................................ 1.2
ARTICLE II
DEFINITIONS
Affiliate................................................... 2.1
Board....................................................... 2.2
Change of Control........................................... 2.3
Change of Control Value..................................... 2.4
Code........................................................ 2.5
Committee................................................... 2.6
Company..................................................... 2.7
Corporate Change............................................ 2.8
Disability.................................................. 2.9
Employee.................................................... 2.10
Exchange Act................................................ 2.11
Fair Market Value........................................... 2.12
Incentive Option............................................ 2.13
Mature Shares............................................... 2.14
Non-Employee Director....................................... 2.15
Nonqualified Option......................................... 2.16
Option...................................................... 2.17
Optionee.................................................... 2.18
Option Agreement............................................ 2.19
Outside Director............................................ 2.20
Plan........................................................ 2.21
Retirement.................................................. 2.22
Stock....................................................... 2.23
Ten Percent Stockholder..................................... 2.24
Voting Stock................................................ 2.25
ARTICLE III
ELIGIBILITY
ARTICLE IV
GENERAL PROVISIONS RELATING TO OPTIONS
Authority to Grant Options.................................. 4.1
Dedicated Shares; Maximum Options........................... 4.2
Non-Transferability......................................... 4.3
Requirements of Law......................................... 4.4
Recapitalization or Reorganization of the Company........... 4.5
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
SECTION
-------
<S> <C>
ARTICLE V
OPTIONS
Type of Option.............................................. 5.1
Exercise Price.............................................. 5.2
Duration of Options......................................... 5.3
Amount Exercisable.......................................... 5.4
Exercise of Options......................................... 5.5
Exercise on Termination of Employment....................... 5.6
Substitution Options........................................ 5.7
No Rights as Stockholder.................................... 5.8
ARTICLE VI
ADMINISTRATION
ARTICLE VII
AMENDMENT OR TERMINATION OF PLAN
ARTICLE VIII
MISCELLANEOUS
No Establishment of a Trust Fund............................ 8.1
No Employment or Affiliation Obligation..................... 8.2
Forfeiture.................................................. 8.3
Tax Withholding............................................. 8.4
Written Agreement........................................... 8.5
Indemnification of the Committee and the Board.............. 8.6
Gender...................................................... 8.7
Headings.................................................... 8.8
Other Compensation Plans.................................... 8.9
Other Options............................................... 8.10
Governing Law............................................... 8.11
</TABLE>
<PAGE> 4
ARTICLE I
PLAN
1.1 Purpose. The Plan is intended to advance the best interests of the
Company and its stockholders by providing those persons who have substantial
responsibility for the management and growth of the Company and its Affiliates
with additional incentives and an opportunity to obtain or increase their
proprietary interest in the Company, thereby encouraging them to continue in the
employ of the Company or any of its Affiliates.
1.2 Term of Plan. The Plan is effective April 19, 1999, if within one year
of that date it shall have been approved by at least a majority vote of
stockholders voting in person or by proxy at a duly held stockholders' meeting,
or if the provisions of the corporate charter, by-laws or applicable state law
prescribes a greater degree of stockholders' approval for this action, the
approval by the stockholders of that percentage, at a duly-held meeting of
stockholders. No Option shall be granted under the Plan after April 19, 2009.
The Plan shall remain in effect until all Options under the Plan have been
satisfied or expired.
ARTICLE II
DEFINITIONS
The words and phrases defined in this Article shall have the meaning set
out in these definitions throughout the Plan, unless the context in which any
such word or phrase appears reasonably requires a broader, narrower, or
different meaning.
2.1 "Affiliate" means any parent corporation and any subsidiary
corporation. The term "parent corporation" means any corporation (other than the
Company) in an unbroken chain of corporations ending with the Company if, at the
time of the action or transaction, each of the corporations other than the
Company owns stock possessing 50 percent or more of the total combined voting
power of all classes of stock in one of the other corporations in the chain. The
term "subsidiary corporation" means any corporation (other than the Company) in
an unbroken chain of corporations beginning with the Company if, at the time of
the action or transaction, each of the corporations other than the last
corporation in the unbroken chain owns stock possessing 50 percent or more of
the total combined voting power of all classes of stock in one of the other
corporations in the chain.
2.2 "Board" means the board of directors of the Company.
2.3 "Change of Control" means the occurrence of any of the following after
the date on which the applicable Option is granted:
(i) a report on Schedule 13D or Schedule 14D-1 (or any successor
schedule, form or report) shall be filed with the Securities and Exchange
Commission pursuant to the Exchange Act and that report discloses that any
person (within the meaning of Section 13(d) or Section 14(d)(2) of the
Exchange Act), other than the Company (or one of its subsidiaries) or any
employee benefit plan sponsored by the Company (or one of its
subsidiaries), is the beneficial owner (as that term is defined in Rule
13d-3 or any successor rule or regulation promulgated under the Exchange
Act), directly or indirectly, of 20 percent or more of the outstanding
Voting Stock;
(ii) any person (within the meaning of Section 13(d) or Section
14(d)(2) of the Exchange Act), other than the Company (or one of its
subsidiaries) or any employee benefit plan sponsored by the Company (or one
of its subsidiaries), shall purchase securities pursuant to a tender offer
or exchange offer to acquire any Voting Stock (or any securities
convertible into Voting Stock) and, immediately after consummation of that
purchase, that person is the beneficial owner (as that term is defined in
Rule 13d-3 or any successor rule or regulation promulgated under the
Exchange Act), directly or indirectly, of 20 percent or more of the
outstanding Voting Stock (such person's beneficial ownership to be
determined, in the case of rights to acquire Voting Stock, pursuant to
paragraph (d) of Rule 13d-3 or any successor rule or regulation promulgated
under the Exchange Act);
1
<PAGE> 5
(iii) the consummation of:
(x) a merger, consolidation or reorganization of the Company with
or into any other person if as a result of such merger, consolidation or
reorganization, 50 percent or less of the combined voting power of the
then-outstanding securities of such other person immediately after such
merger, consolidation or reorganization are held in the aggregate by the
Optionees of Voting Stock immediately prior to such merger,
consolidation or reorganization;
(y) any sale, lease, exchange or other transfer of all or
substantially all the assets of the Company and its consolidated
subsidiaries to any other person if as a result of such sale, lease,
exchange or other transfer, 50 percent or less of the combined voting
power of the then-outstanding securities of such other person
immediately after such sale, lease, exchange or other transfer are held
in the aggregate by the Optionees of Voting Stock immediately prior to
such sale, lease, exchange or other transfer; or
(z) a transaction immediately after the consummation of which any
person (within the meaning of Section 13(d) or Section 14(d)(2) of the
Exchange Act) would be the beneficial owner (as that term is defined in
Rule 13d-3 or any successor rule or regulation promulgated under the
Exchange Act), directly or indirectly, of more than 50 percent of the
outstanding Voting Stock;
(iv) the stockholders of the Company approve the dissolution of the
Company; or
(v) during any period of 12 consecutive months, the individuals who at
the beginning of that period constituted the Board shall cease to
constitute a majority of the Board, unless the election, or the nomination
for election by the Company's stockholders, of each director of the Company
first elected during such period was approved by a vote of at least a
two-thirds majority of the directors of the Company then still in office
who were directors of the Company at the beginning of any such period.
2.4 "Change of Control Value" means the amount determined in clause (i),
(ii) or (iii), whichever is applicable, as follows: (i) the per share price
offered to stockholders of the Company in the merger, consolidation,
reorganization, sale of assets or dissolution transaction, (ii) the price per
share offered to stockholders of the Company in any tender offer or exchange
offer whereby a Corporate Change takes place, or (iii) if a Corporate Change
occurs other than pursuant to a tender or exchange offer, the fair market value
per share of the shares into which such Options being surrendered are
exercisable, as determined by the Committee as of the date determined by the
Committee to be the date of cancellation and surrender of such Options. If the
consideration offered to stockholders of the Company in any transaction
described above consists of anything other than cash, the Committee shall
determine the fair cash equivalent of the portion of the consideration offered
which is other than cash.
2.5 "Code" means the Internal Revenue Code of 1986, as amended.
2.6 "Committee" means a committee of at least two persons appointed by the
Board. The Committee shall be comprised solely of persons who are both
Non-Employee Directors and Outside Directors.
2.7 "Company" means DXP Enterprises, Inc, a Texas corporation.
2.8 "Corporate Change" means that any of the following shall have
occurred: (i) the Company shall not be the surviving entity in any merger,
consolidation or other reorganization (or survives only as a subsidiary of an
entity other than a previously wholly owned subsidiary of the Company), (ii) the
Company sells, leases or exchanges or agrees to sell, lease or exchange all or
substantially all of its assets to any other person or entity (other than a
wholly owned subsidiary of the Company), (iii) the Company is to be dissolved
and liquidated, (iv) any person or entity, including a "group" as contemplated
by Section 13(d)(3) of the Exchange Act, acquires or gains ownership or control
of more than 50 percent of the shares of the Voting Stock, or (v) as a result of
or in connection with a contested election of directors, the persons who were
directors of the Company before such election shall cease to constitute a
majority of the Board.
2.9 "Disability" means a medically determinable mental or physical
impairment which, in the opinion of a physician selected by the Committee, shall
prevent the Optionee from engaging in any substantial gainful
2
<PAGE> 6
activity and which can be expected to result in death or which has lasted or can
be expected to last for a continuous period of not less than 12 months and
which: (a) was not contracted, suffered or incurred while the Optionee was
engaged in, or did not result from having engaged in, a felonious criminal
enterprise; (b) did not result from alcoholism or addiction to narcotics; (c)
did not result from an injury incurred while a member of the Armed Forces of the
United States for which the Optionee receives a military pension; and (d) did
not result from an intentionally self-inflicted injury.
2.10 "Employee" means a person employed by the Company or any Affiliate.
2.11 "Exchange Act" means the Securities Exchange Act of 1934, as amended.
2.12 "Fair Market Value" of the Stock as of any date means (a) the average
of the high and low sale prices of the Stock on that date (or, if there was no
sale on such date, the next preceding date on which there was such a sale) on
the principal securities exchange on which the Stock is listed; or (b) if the
Stock is not listed on a securities exchange, an amount as determined by the
Committee in its sole discretion.
2.13 "Incentive Option" means an Option granted under the Plan that is
designated as an "Incentive Option" and satisfies the requirements of section
422 of the Code.
2.14 "Mature Shares" means shares of Stock that the Optionee has held for
at least six months.
2.15 "Non-Employee Director" means a "non-employee director" as defined in
Rule 16b-3 of the Exchange Act.
2.16 "Nonqualified Option" means an Option granted under the Plan other
than an Incentive Option.
2.17 "Option" means either an Incentive Option or a Nonqualified Option
granted under the Plan to purchase shares of Stock.
2.18 "Option Agreement" means the written agreement which sets out the
terms of an Option.
2.19 "Optionee" means a person to whom an Option is granted under the
Plan.
2.20 "Outside Director" means a member of the Board serving on the
Committee who qualifies as an outside director as defined in Department of
Treasury regulations promulgated under section 162(m) of the Code.
2.21 "Plan" means the DXP Enterprises, Inc. 1999 Employee Stock Option
Plan, as set forth in this document and as it may be amended from time to time.
2.22 "Retirement" means the termination of an Employee's employment
relationship with the Company and all Affiliates after attaining the age of 65.
2.23 "Stock" means the common stock of the Company, $.01 par value or, in
the event that the outstanding shares of common stock are later changed into or
exchanged for a different class of stock or securities of the Company or another
corporation, that other stock or security.
2.24 "Ten Percent Stockholder" means an individual who, at the time the
Option is granted, owns stock possessing more than ten percent of the total
combined voting power of all classes of stock of the Company or of any
Affiliate. An individual shall be considered as owning the stock owned, directly
or indirectly, by or for his brothers and sisters (whether by the whole or half
blood), spouse, ancestors, and lineal descendants; and stock owned, directly or
indirectly, by or for a corporation, partnership, estate, or trust, shall be
considered as being owned proportionately by or for its stockholders, partners,
or beneficiaries.
2.25 "Voting Stock" means shares of capital stock of the Company the
holders of which are entitled to vote for the election of directors, but
excluding shares entitled to so vote only upon the occurrence of a contingency
unless that contingency shall have occurred.
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<PAGE> 7
ARTICLE III
ELIGIBILITY
The individuals who shall be eligible to receive Incentive Options shall be
those key employees of the Company or any of its Affiliates as the Committee
shall determine from time to time. The individuals who shall be eligible to
receive Nonqualified Options shall be those persons, including employees,
consultants, advisors and directors, who have substantial responsibility for the
management and growth of the Company or any of its Affiliates as the Committee
shall determine from time to time. The Board may designate one or more
individuals who shall not be eligible to receive an Option under the Plan.
ARTICLE IV
GENERAL PROVISIONS RELATING TO OPTIONS
4.1 Authority to Grant Options. The Committee may grant to those key
Employees of the Company or any of its Affiliates and other eligible persons as
it shall from time to time determine, Options under the terms and conditions of
the Plan. Subject only to any applicable limitations set out in the Plan, the
number of shares of Stock to be covered by any Option to be granted to any
person shall be as determined by the Committee.
4.2 Dedicated Shares; Maximum Options. The total number of shares of Stock
with respect to which Options may be granted under the Plan is 500,000. The
shares of Stock may be treasury shares or authorized but unissued shares. The
total number of shares of Stock with respect to which Incentive Options may be
granted under the Plan is 500,000 shares. The maximum number of shares subject
to Options which may be issued to any person under the Plan during any calendar
year is 125,000 shares. If an Optionee's Option is canceled, the canceled Option
continues to be counted against the maximum number of shares of Stock for which
Options may be granted to the Optionee under the Plan. The number of shares
stated in this Section 4.2 shall be subject to adjustment in accordance with the
provisions of Section 4.5.
If any outstanding Option expires or terminates for any reason or any
Option is surrendered, the shares of Stock allocable to the unexercised portion
of that Option may again be subject to an Option under the Plan.
4.3 Non-Transferability. Incentive Options shall not be transferable by
the Employee other than by will or under the laws of descent and distribution,
and shall be exercisable, during the Employee's lifetime, only by him. Except as
specified in the applicable Option agreements or in domestic relations court
orders, Nonqualified Options shall not be transferable by the Optionee other
than by will or under the laws of descent and distribution, and shall be
exercisable, during the Optionee's lifetime, only by him. In the discretion of
the Committee, any attempt to transfer an Option other than under the terms of
the Plan and the applicable Option Agreement may terminate the Option.
4.4 Requirements of Law. The Company shall not be required to sell or
issue any Stock under any Option if issuing that Stock would constitute or
result in a violation by the Optionee or the Company of any provision of any
law, statute, or regulation of any governmental authority. Specifically, in
connection with any applicable statute or regulation relating to the
registration of securities, upon exercise of any Option, the Company shall not
be required to issue any Stock unless the Committee has received evidence
satisfactory to it to the effect that the Optionee will not transfer the Stock
except in accordance with applicable law, including receipt of an opinion of
counsel satisfactory to the Company to the effect that any proposed transfer
complies with applicable law. The determination by the Committee on this matter
shall be final, binding and conclusive. The Company may, but shall in no event
be obligated to, register any Stock covered by the Plan pursuant to applicable
securities laws of any country or any political subdivision. In the event the
Stock issuable on exercise of an Option is not registered, the Company may
imprint on the certificate evidencing the Stock any legend that counsel for the
Company considers necessary or advisable to comply with applicable law. The
Company shall not be obligated to take any other affirmative action in order to
cause the exercise of an Option or vesting under an Optionee, or the issuance of
shares pursuant thereto, to comply with any law or regulation of any
governmental authority.
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<PAGE> 8
4.5 Recapitalization or Reorganization of the Company.
(a) No Limitations on Company's Rights to Effect Changes. The existence of
outstanding Options shall not affect in any way the right or power of the
Company or its stockholders to make or authorize any or all adjustments,
recapitalizations, reorganizations or other changes in the Company's capital
structure or its business, or any merger or consolidation of the Company, or any
issue of bonds, debentures, preferred or prior preference stock ahead of or
affecting the Stock or its rights, or the dissolution or liquidation of the
Company, or any sale or transfer of all or any part of its assets or business,
or any other corporate act or proceeding, whether of a similar character or
otherwise.
(b) Increase or Reduction of Outstanding Shares. If a stock split, reverse
stock split, stock dividend, combination, recapitalization or reclassification
of the Stock, or any other increase or decrease in the number of shares of the
Stock outstanding, is effected without receipt of consideration by the Company,
then (a) the number, class, and per share price of shares of Stock subject to
outstanding Options under the Plan shall be appropriately adjusted in such a
manner as to entitle an Optionee to receive upon exercise of an Option, for the
same aggregate cash consideration, the equivalent total number and class of
shares he would have received had he exercised his Option in full immediately
prior to the event requiring the adjustment; and (b) the number and class of
shares of Stock then reserved to be issued under the Plan shall be adjusted by
substituting for the total number and class of shares of Stock then reserved,
that number and class of shares of Stock that would have been received by the
owner of an equal number of outstanding shares of each class of Stock as the
result of the event requiring the adjustment. The conversion of any convertible
securities of the Company shall not be deemed to have been "effected without
receipt of consideration by the Company". Such adjustment shall be made by the
Board, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Stock subject to an Option.
(c) Sale or Merger of the Company Where the Company is Not the Survivor;
Dissolution or Liquidation of the Company. In the event of a Corporate Change,
no later than (x) ten days after the approval by the stockholders of the Company
of the Corporate Change or (y) thirty days after the occurrence of a Corporate
Change for which no approval by the stockholder of the Company is required, the
Committee, acting in its sole discretion without the consent or approval of any
Optionee, shall act to effect one or more of the following alternatives, which
may vary among individual Optionees and which may vary among Options held by any
individual Optionee: (1) accelerate the time at which Options then outstanding
may be exercised so that such Options may be exercised in full for a limited
period of time on or before a specified date (before or after the Corporate
Change) fixed by the Committee, after which specified date all unexercised
Options and all rights of Optionees thereunder shall terminate, (2) require the
mandatory surrender to the Company by selected Optionees of some or all of the
outstanding Options held by such Optionees(irrespective of whether such Options
are then exercisable under the provisions of the Plan) as of a date, before or
after such Corporate Change, specified by the Committee, in which event the
Committee shall thereupon cancel such Options and the Company shall pay to each
Optionee an amount of cash per share equal to the excess, if any, of the Change
of Control Value of the shares subject to such Options over the exercise
price(s) under such Options for such shares, (3) make any adjustments to Options
then outstanding as the Committee deems appropriate, or (4) provide that the
number and class of shares of Stock covered by an Optionee theretofore granted
shall be adjusted so that such Optionee shall thereafter cover the number and
class of shares of stock or other securities or property (including, without
limitation, cash) to which the Optionee would have been entitled pursuant to the
terms of the agreement of merger, consolidation or sale of assets and
dissolution if, immediately prior to such merger, consolidation or sale of
assets and dissolution, the Optionee had been the holder of record of the number
of shares of Stock then covered by such Option.
(d) Merger of the Company Where the Company is the Survivor. After a merger
of one or more corporations into the Company or after a consolidation of the
Company and one or more corporations in which the Company shall be the surviving
corporation, each Optionee shall be entitled to have his Option appropriately
adjusted based on the manner in which the Stock was adjusted under the terms of
the agreement of merger or consolidation.
5
<PAGE> 9
ARTICLE V
OPTIONS
5.1 Type of Option. The Committee shall specify in an Option Agreement
whether a given Option is an Incentive Option or a Nonqualified Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value (determined as of the time an Incentive Option is granted) of the Stock
with respect to which incentive stock options first become exercisable by an
Employee during any calendar year (under the Plan and any other incentive stock
option plan(s) of the Company or any Affiliate) exceeds $100,000.00, the
Incentive Option shall be treated as a Nonqualified Option. In making this
determination, incentive stock options shall be taken into account in the order
in which they were granted.
5.2 Exercise Price. The price at which Stock may be purchased under an
Incentive Option or Nonqualified Option shall not be less than 100 percent of
the Fair Market Value of the shares of Stock on the date the Option is granted.
In the case of any Ten Percent Stockholder, the price at which shares of Stock
may be purchased under an Incentive Option shall not be less than 110 percent of
the Fair Market Value of the Stock on the date the Incentive Option is granted.
In its discretion, the Committee may provide that the price at which shares of
Stock may be purchased under an Option shall be more than the minimum price
specified above.
5.3 Duration of Options. No Option shall be exercisable after the
expiration of ten years from the date the Option is granted. In the case of a
Ten Percent Stockholder, no Incentive Option shall be exercisable after the
expiration of five years from the date the Incentive Option is granted.
5.4 Amount Exercisable. Each Option may be exercised at the time, in the
manner and subject to the conditions the Committee specifies in the Option
Agreement in its sole discretion. If specified in the Option Agreement, an
Option will be exercisable in full upon the occurrence of a Change of Control.
5.5 Exercise of Options. Each Option shall be exercised by the delivery of
written notice to the Committee setting forth the number of shares of Stock with
respect to which the Option is to be exercised, together with: (a) cash,
certified check, bank draft, or postal or express money order payable to the
order of the Company for an amount equal to the exercise price under the Option,
(b) Mature Shares with a Fair Market Value on the date of exercise equal to the
exercise price under the Option, (c) an election to make a cashless exercise
through a registered broker-dealer (if approved in advance by the Committee),
and/or (d) any other form of payment which is acceptable to the Committee, and
specifying the address to which the certificates for the shares are to be
mailed. As promptly as practicable after receipt of written notification and
payment, the Company shall deliver to the Optionee certificates for the number
of shares with respect to which the Option has been exercised, issued in the
Optionee's name. If Mature Shares are used for payment by the Optionee, the
aggregate Fair Market Value of the shares of Stock tendered must be equal to or
less than the aggregate exercise price of the shares being purchased upon
exercise of the Option, and any difference must be paid by cash, certified
check, bank draft, or postal or express money order payable to the order of the
Company. Delivery of the shares shall be deemed effected for all purposes when a
stock transfer agent of the Company shall have deposited the certificates in the
United States mail, addressed to the Optionee, at the address specified by the
Optionee.
Whenever an Option is exercised by exchanging Mature Shares owned by the
Optionee, the Optionee shall deliver to the Company certificates registered in
the name of the Optionee representing a number of shares of Stock legally and
beneficially owned by the Optionee, free of all liens, claims, and encumbrances
of every kind, accompanied by stock powers duly endorsed in blank by the record
holder of the shares represented by the certificates (with signature guaranteed
by a commercial bank or trust company or by a brokerage firm having a membership
on a registered national stock exchange). The delivery of certificates upon the
exercise of Options is subject to the condition that the person exercising the
Option provide the Company with the information the Company might reasonably
request pertaining to exercise, sale or other disposition.
The Committee may permit an Optionee to elect to pay the exercise price
upon exercise of an Option by authorizing a third-party broker to sell all or a
portion of the shares of Stock acquired upon exercise of the
6
<PAGE> 10
Option and remit to the Company a sufficient portion of the sale proceeds to pay
the exercise price and any applicable tax withholding resulting from such
exercise.
An Option may not be exercised for a fraction of a share of Stock.
5.6 Exercise on Termination of Employment.
(a) Termination of Employment Other Than As a Result of Retirement, Death
or Disability. Unless it is expressly provided otherwise in the Option
Agreement, an Option shall terminate one day less than three months after the
severance of employment or affiliation relationship between the Optionee and the
Company and all Affiliates for any reason, with or without cause, other than
Retirement, death or Disability. Whether authorized leave of absence or absence
on military or government service shall constitute severance of the employment
of an Employee shall be determined by the Committee at that time.
(b) Retirement. Unless it is expressly provided otherwise in the Option
Agreement, an Option shall terminate one day less than one year after the
Retirement of the Optionee.
(c) Death. After the death of the Optionee, his executors, administrators
or any persons to whom his Option may be transferred by will or by the laws of
descent and distribution shall have the right, at any time prior to the earlier
of the Option's expiration or one day less than one year after the death of the
Optionee, to exercise it, to the extent to which he was entitled to exercise it
immediately prior to his death, unless it is expressly provided otherwise in the
Option Agreement.
(d) Disability. If, before the expiration of an Option, the Optionee shall
be severed from the employ of or affiliation with the Company and all Affiliates
due to Disability, the Option shall terminate on the earlier of the Optionee's
expiration date or one day less than one year after the date of his severance
due to Disability, unless it is expressly provided otherwise in the Option
Agreement. In the event that the Optionee shall be severed from the employ of or
affiliation with the Company and all Affiliates for Disability, the Optionee
shall have the right prior to the termination of the Option to exercise the
Option, to the extent to which he was entitled to exercise it immediately prior
to his severance of employment or affiliation due to Disability, unless it is
expressly provided otherwise in the Option Agreement.
(e) Employment With an Entity in a Section 424(a) Transaction. In
determining the employment relationship between the Company and/or any Affiliate
and an Employee, employment by a corporation issuing or assuming a stock option
in a transaction to which section 424(a) of the Code applies shall be considered
employment by the Company or an Affiliate.
5.7 Substitution Options. Options may be granted under the Plan from time
to time in substitution for stock options held by employees of other
corporations who are about to become employees of or affiliated with the Company
or any Affiliate as the result of a merger or consolidation of the employing
corporation with the Company or any Affiliate, or the acquisition by the Company
or any Affiliate of the assets of the employing corporation, or the acquisition
by the Company or any Affiliate of stock of the employing corporation as the
result of which it becomes an Affiliate of the Company. The terms and conditions
of the substitute Options granted may vary from the terms and conditions set out
in the Plan to the extent the Committee, at the time of grant, may deem
appropriate to conform, in whole or in part, to the provisions of the stock
options in substitution for which they are granted.
5.8 No Rights as Stockholder. No Optionee shall have any rights as a
stockholder with respect to Stock covered by his Option until the date a stock
certificate is issued for the Stock.
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<PAGE> 11
ARTICLE VI
ADMINISTRATION
The Plan shall be administered by the Committee. All questions of
interpretation and application of the Plan and Options shall be subject to the
determination of the Committee. A majority of the members of the Committee shall
constitute a quorum. All determinations of the Committee shall be made by a
majority of its members. Any decision or determination reduced to writing and
signed by a majority of the members shall be as effective as if it had been made
by a majority vote at a meeting properly called and held. The Plan shall be
administered in such a manner as to permit the Options which are designated to
be Incentive Options to qualify as Incentive Options. In carrying out its
authority under the Plan, the Committee shall have full and final authority and
discretion, including but not limited to the following rights, powers and
authorities, to:
(a) determine the persons to whom and the time or times at which
Options will be granted,
(b) determine the number of shares and the exercise price of Stock
covered in each Option, subject to the terms of the Plan,
(c) determine the terms, provisions and conditions of each Option,
which need not be identical,
(d) accelerate the time at which any outstanding Option may be
exercised,
(e) define the effect, if any, on an Optionee of the death,
disability, retirement, or termination of employment or affiliation
relationship between the Optionee and the Company and Affiliates,
(f) prescribe, amend and rescind rules and regulations relating to
administration of the Plan, and
(g) make all other determinations and take all other actions deemed
necessary, appropriate, or advisable for the proper administration of the
Plan.
The actions of the Committee in exercising all of the rights, powers, and
authorities set out in this Article and all other Articles of the Plan, when
performed in good faith and in its sole judgment, shall be final, conclusive and
binding on all parties.
ARTICLE VII
AMENDMENT OR TERMINATION OF PLAN
The Board may amend, terminate or suspend the Plan at any time, in its sole
and absolute discretion; provided, however, that to the extent required to
maintain the status of any Incentive Option under the Code, no amendment that
would: (a) change the aggregate number of shares of Stock which may be issued
under Incentive Options, (b) change the class of employees eligible to receive
Incentive Options, or (c) decrease the exercise price for Incentive Options
below the Fair Market Value of the Stock at the time it is granted, shall be
made without the approval of the Company's stockholders. Subject to the
preceding sentence, the Board shall have the power to make any changes in the
Plan and in the regulations and administrative provisions under it or in any
outstanding Incentive Option as in the opinion of counsel for the Company may be
necessary or appropriate from time to time to enable any Incentive Option
granted under the Plan to continue to qualify as an incentive stock option or
such other stock option as may be defined under the Code so as to receive
preferential federal income tax treatment.
8
<PAGE> 12
ARTICLE VIII
MISCELLANEOUS
8.1 No Establishment of a Trust Fund. No property shall be set aside nor
shall a trust fund of any kind be established to secure the rights of any
Optionee under the Plan. All Optionees shall at all times rely solely upon the
general credit of the Company for the payment of any benefit which becomes
payable under the Plan.
8.2 No Employment or Affiliation Obligation. The granting of any Option
shall not constitute an employment contract, express or implied, nor impose upon
the Company or any Affiliate any obligation to employ or continue to employ, or
utilize the services of, any Optionee. The right of the Company or any Affiliate
to terminate the employment of any person shall not be diminished or affected by
reason of the fact that an Option has been granted to him.
8.3 Forfeiture. Notwithstanding any other provisions of the Plan, if the
Committee finds by a majority vote after full consideration of the facts that
the Optionee, before or after termination of his employment or affiliation
relationship with the Company or an Affiliate for any reason (a) committed or
engaged in fraud, embezzlement, theft, commission of a felony, or proven
dishonesty in the course of his employment by the Company or an Affiliate, which
conduct damaged the Company or Affiliate, or disclosed trade secrets of the
Company or an Affiliate, or (b) participated, engaged in or had a material,
financial or other interest, whether as an employee, officer, director,
consultant, contractor, stockholder, owner, or otherwise, in any commercial
endeavor in the United States which is competitive with the business of the
Company or an Affiliate without the written consent of the Company or Affiliate,
the Optionee shall forfeit all outstanding Options, and including all exercised
Options and other situations pursuant to which the Company has not yet delivered
a stock certificate. Clause (b) shall not be deemed to have been violated solely
by reason of the Optionee's ownership of stock or securities of any publicly
owned corporation, if that ownership does not result in effective control of the
corporation.
The decision of the Committee as to the cause of the Optionee's discharge,
the damage done to the Company or an Affiliate, and the extent of the Optionee's
competitive activity shall be final. No decision of the Committee, however,
shall affect the finality of the discharge of the Optionee by the Company or an
Affiliate in any manner.
8.4 Tax Withholding. The Company or any Affiliate shall be entitled to
deduct from other compensation payable to each Optionee any sums required by
federal, state, or local tax law to be withheld with respect to the grant or
exercise of an Option, or lapse of restrictions on Restricted Stock. In the
alternative, the Company may require the Optionee to pay such sums for taxes
directly to the Company or any Affiliate in cash or by check within ten days
after the date of exercise or lapse of restrictions. In the discretion of the
Committee, an Optionee may use shares of Stock received by the Optionee upon the
exercise of a Nonqualified Option to satisfy any required tax withholding
obligations of the Company or an Affiliate that result from the exercise. The
Company shall have no obligation upon exercise of any Option until the Company
or an Affiliate has received payment sufficient to cover all tax withholding
amounts due with respect to that exercise. Neither the Company nor any Affiliate
shall be obligated to advise an Optionee of the existence of the tax or the
amount which it will be required to withhold.
8.5 Written Agreement. Each Option shall be embodied in a written
agreement which shall be subject to the terms and conditions of the Plan and
shall be signed by the Optionee and by a member of the Committee on behalf of
the Committee and the Company or an executive officer of the Company, other than
the Optionee, on behalf of the Company. The agreement may contain any other
provisions that the Committee in its discretion shall deem advisable which are
not inconsistent with the terms of the Plan.
8.6 Indemnification of the Committee and the Board. With respect to
administration of the Plan, the Company shall indemnify each present and future
member of the Committee and the Board against, and each member of the Committee
and the Board shall be entitled without further act on his part to indemnity
from the Company for, all expenses (including attorney's fees, the amount of
judgments and the amount of
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<PAGE> 13
approved settlements made with a view to the curtailment of costs of litigation,
other than amounts paid to the Company itself) reasonably incurred by him in
connection with or arising out of any action, suit, or proceeding in which he
may be involved by reason of his being or having been a member of the Committee
and/or the Board, whether or not he continues to be a member of the Committee
and/or the Board at the time of incurring the expenses -- including, without
limitation, matters as to which he shall be finally adjudged in any action, suit
or proceeding to have been found to have been negligent in the performance of
his duty as a member of the Committee or the Board. However, this indemnity
shall not include any expenses incurred by any member of the Committee and/or
the Board in respect of matters as to which he shall be finally adjudged in any
action, suit or proceeding to have been guilty of gross negligence or willful
misconduct in the performance of his duty as a member of the Committee and the
Board. In addition, no right of indemnification under the Plan shall be
available to or enforceable by any member of the Committee and the Board unless,
within 60 days after institution of any action, suit or proceeding, he shall
have offered the Company, in writing, the opportunity to handle and defend same
at its own expense. This right of indemnification shall inure to the benefit of
the heirs, executors or administrators of each member of the Committee and the
Board and shall be in addition to all other rights to which a member of the
Committee and the Board may be entitled as a matter of law, contract, or
otherwise.
8.7 Gender. If the context requires, words of one gender when used in the
Plan shall include the other and words used in the singular or plural shall
include the other.
8.8 Headings. Headings of Articles and Sections are included for
convenience of reference only and do not constitute part of the Plan and shall
not be used in construing the terms of the Plan.
8.9 Other Compensation Plans. The adoption of the Plan shall not affect
any other stock option, incentive or other compensation or benefit plans in
effect for the Company or any Affiliate, nor shall the Plan preclude the Company
from establishing any other forms of incentive or other compensation for
employees of the Company or any Affiliate.
8.10 Other Options. The grant of an Option shall not confer upon the
Optionee the right to receive any future Options under the Plan, whether or not
Options may be granted to similarly situated Optionees, or the right to receive
future Options upon the same terms or conditions as previously granted.
8.11 Governing Law. The provisions of the Plan shall be construed,
administered, and governed under the laws of the State of Texas.
10
<PAGE> 1
EXHIBIT 10.2
DXP ENTERPRISES, INC.
1999 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
<PAGE> 2
DXP ENTERPRISES, INC.
1999 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION
-------
<S> <C>
ARTICLE I
DEFINITIONS
Board....................................................... 1.1
Change of Control Value..................................... 1.2
Company..................................................... 1.3
Corporate Change............................................ 1.4
Disability.................................................. 1.5
Fair Market Value........................................... 1.6
Non-Employee Director....................................... 1.7
Option...................................................... 1.8
Option Agreement............................................ 1.9
Optionee.................................................... 1.10
Plan........................................................ 1.11
Retire or Retirement........................................ 1.12
Stock....................................................... 1.13
ARTICLE II
GENERAL PROVISIONS RELATING TO OPTIONS
Dedicated Shares............................................ 2.1
Non-Transferability......................................... 2.2
Requirements of Law......................................... 2.3
Recapitalization or Reorganization of the Company........... 2.4
Options Conditioned Upon Shareholder Approval............... 2.5
ARTICLE III
OPTIONS
Automatic Annual Grants..................................... 3.1
Amount Exercisable -- Automatic Annual Grants............... 3.2
Grants for Persons Who are Directors on September 1, 1998... 3.3
Grants for New Directors.................................... 3.4
Amount Exercisable -- Grants for New Directors.............. 3.5
Option Price................................................ 3.6
Duration of Options......................................... 3.7
Death of an Optionee........................................ 3.8
Exercise of Options......................................... 3.9
Form of Options............................................. 3.10
Written Agreement........................................... 3.11
No Rights as Shareholder.................................... 3.12
ARTICLE IV
AMENDMENT OR TERMINATION OF PLAN
ARTICLE V
MISCELLANEOUS
No Retention Obligation..................................... 5.1
Taxes....................................................... 5.2
Gender...................................................... 5.3
Headings.................................................... 5.4
Other Compensation.......................................... 5.5
Other Options............................................... 5.6
Arbitration of Disputes..................................... 5.7
Governing Law............................................... 5.8
</TABLE>
<PAGE> 3
DXP ENTERPRISES, INC.
1999 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
This DXP Enterprises, Inc. 1999 Non-Employee Director Stock Option Plan
(the "Plan") is adopted for the benefit of the directors of DXP Enterprises,
Inc., a Texas corporation (the "Company"), who, at the time of their service,
are not employees of the Company or any of its subsidiaries. The Plan is
intended to advance the interest of the Company by providing such directors with
an additional incentive to serve the Company by increasing their proprietary
interest in the success of the Company.
ARTICLE I
DEFINITIONS
The words and phrases defined in this Article shall have the meaning set
out in these definitions throughout this Plan, unless the context in which any
such word or phrase appears reasonably requires a broader, narrower, or
different meaning.
1.1 "Board" means the board of directors of the Company.
1.2 "Change of Control Value" means the amount determined in clause (i),
(ii) or (iii), whichever is applicable, as follows: (i) the per share price
offered to shareholders of the Company in the merger, consolidation,
reorganization, sale of assets or dissolution transaction, (ii) the price per
share offered to shareholders of the Company in any tender offer or exchange
offer whereby a Corporate Change takes place, or (iii) if a Corporate Change
occurs other than pursuant to a tender or exchange offer, the fair market value
per share of the shares into which such Options being surrendered are
exercisable, as determined by the Board as of the date determined by the Board
to be the date of cancellation and surrender of such Options. If the
consideration offered to shareholders of the Company in any transaction
described above consists of anything other than cash, the Board shall determine
the fair cash equivalent of the portion of the consideration offered which is
other than cash.
1.3 "Company" means DXP Enterprises, Inc., a Texas corporation.
1.4 "Committee" means a committee appointed by the Board to administer the
Plan, which Committee shall consist of not less than two members of the Board
and shall be comprised solely of members of the Board who qualify as
non-employee directors as defined in Rule 16b-3(b)(3) of the Securities Exchange
Act of 1934, as amended.
1.5 "Corporate Change" means that any of the following shall have
occurred: (i) the Company shall not be the surviving entity in any merger,
consolidation or other reorganization (or survives only as a subsidiary of an
entity other than a previously wholly owned subsidiary of the Company), (ii) the
Company sells, leases or exchanges or agrees to sell, lease or exchange all or
substantially all of its assets to any other person or entity (other than a
wholly owned subsidiary of the Company), (iii) the Company is to be dissolved
and liquidated, (iv) any person or entity, including a "group" as contemplated
by Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, acquires
or gains ownership or control of more than 50 percent of the shares of the
Stock, or (v) as a result of or in connection with a contested election of
directors, the persons who were directors of the Company before such election
shall cease to constitute a majority of the Board.
1.6 "Disability" means a mental or physical disability of the Optionee
which, in the opinion of a physician selected by the Committee, (i) shall
prevent the Optionee from adequately performing his services as a director of
the Company and (ii) can be expected to result in death or has lasted or can be
expected to last for a continuous period of not less than 12 months.
1.7 "Fair Market Value" of the Stock as of any date means the closing sale
price of the Stock on that date (or, if there was no sale on such date, the next
preceding date on which there was such a sale) on the Nasdaq National Market or
the principal securities exchange on which the Stock is listed.
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1.8 "Non-Employee Director" means a director of the Company who, while a
director, is not an employee of the Company, or a corporation, of which a
majority of voting securities is owned, directly or indirectly, by the Company.
1.9 "Option" means an option granted under this Plan to purchase shares of
Stock.
1.10 "Option Agreement" means the written agreement which sets out the
terms of an Option.
1.11 "Optionee" means a person who is granted an Option under this Plan.
1.12 "Plan" means the DXP Enterprises, Inc. 1999 Non-Employee Director
Stock Option Plan, as set out in this document and as it may be amended from
time to time.
1.13 "Retire" or "Retirement" means the cessation of an Optionee's
services as a director on the Board after completing either six full terms or
six years of service as a director on the Board.
1.14 "Stock" means the common stock of the Company, $.01 par value.
ARTICLE II
GENERAL PROVISIONS RELATING TO OPTIONS
2.1 Dedicated Shares. The total number of shares of Stock with respect to
which Options may be granted under the Plan shall be 200,000 shares. The shares
may be treasury shares or authorized but unissued shares. The number of shares
stated in this Section 2.1 shall be subject to adjustment in accordance with the
provisions of Section 2.4.
If any outstanding Option expires or terminates for any reason or any
Option is surrendered, the shares of Stock allocable to the unexercised portion
of that Option may again be subject to an Option under the Plan.
2.2 Non-Transferability. Except as expressly provided otherwise in an
Optionee's Option Agreement, Options shall not be transferable by the Optionee
otherwise than by will or under the laws of descent and distribution, and shall
be exercisable, during the Optionee's lifetime, only by him.
2.3 Requirements of Law. The Company shall not be required to sell or
issue any Stock under any Option if issuing that Stock would constitute or
result in a violation by the Optionee or the Company of any provision of any
law, statute, or regulation of any governmental authority. Specifically, in
connection with any applicable statute or regulation relating to the
registration of securities, upon exercise of any Option, the Company shall not
be required to issue any Stock unless the Committee has received evidence
satisfactory to it to the effect that the holder of that Option will not
transfer the Stock except in accordance with applicable law, including receipt
of an opinion of counsel satisfactory to the Company to the effect that any
proposed transfer complies with applicable law. The determination by the
Committee on this matter shall be final, binding and conclusive. The Company
may, but shall in no event be obligated to, register any Stock covered by this
Plan pursuant to applicable securities laws of any country or any political
subdivision. In the event the Stock issuable on exercise of an Option is not
registered, the Company may imprint on the certificate evidencing the Stock any
legend that counsel for the Company considers necessary or advisable to comply
with applicable law. The Company shall not be obligated to take any other
affirmative action in order to cause the exercise of an Option and the issuance
of shares thereunder, to comply with any law or regulation of any governmental
authority.
2.4 Recapitalization or Reorganization of the Company.
(a) No Limitations on Company's Rights to Effect Changes. The existence of
outstanding Options shall not affect in any way the right or power of the
Company or its shareholders to make or authorize any or all adjustments,
recapitalizations, reorganizations or other changes in the Company's capital
structure or its business, or any merger or consolidation of the Company, or any
issue of bonds, debentures, preferred or prior preference stock ahead of or
affecting the Stock or its rights, or the dissolution or liquidation of the
Company, or any sale or transfer of all or any part of its assets or business,
or any other corporate act or proceeding, whether of a similar character or
otherwise.
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(b) Increase or Reduction of Outstanding Shares. If a stock split, reverse
stock split, stock dividend, combination, recapitalization or reclassification
of the Stock, or any other increase or decrease in the number of shares of the
Stock outstanding, is effected without receipt of consideration by the Company,
then (i) the number, class, and per share price of shares of Stock subject to
outstanding Options under the Plan shall be appropriately adjusted in such a
manner as to entitle an Employee to receive upon exercise of an Option, for the
same aggregate cash consideration, the equivalent total number and class of
shares he would have received had he exercised his Option in full immediately
prior to the event requiring the adjustment and (ii) the number and class of
shares of Stock then reserved to be issued under the Plan shall be adjusted by
substituting for the total number and class of shares of Stock then reserved,
that number and class of shares of Stock that would have been received by the
owner of an equal number of outstanding shares of each class of Stock as the
result of the event requiring the adjustment. The conversion of any convertible
securities of the Company shall not be deemed to have been "effected without
receipt of consideration by the Company". Such adjustment shall be made by the
Committee, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Stock subject to an Option.
(c) Sale or Merger of the Company Where the Company is Not the Survivor;
Dissolution or Liquidation of the Company. In the event of a Corporate Change,
no later than (i) ten days after the approval by the shareholders of the Company
of the Corporate Change or (ii) thirty days after the occurrence of a Corporate
Change for which no approval by the shareholders of the Company is required, the
Committee, acting in its sole discretion without the consent or approval of any
Optionee, shall act to effect one or more of the following alternatives, which
may vary among individual Optionees and which may vary among Options held by any
individual Optionee: (i) accelerate the time at which Options then outstanding
may be exercised so that such Options may be exercised in full for a limited
period of time on or before a specified date (before or after the Corporate
Change) fixed by the Committee, after which specified date all unexercised
Options and all rights of Optionees thereunder shall terminate, (ii) require the
mandatory surrender to the Company by selected Optionees of some or all of the
outstanding Options held by such Optionees (irrespective of whether such Options
are then exercisable under the provisions of the Plan) as of a date, before or
after such Corporate Change, specified by the Committee, in which event the
Committee shall thereupon cancel such Options and the Company shall pay to each
Optionee an amount of cash per share equal to the excess, if any, of the Change
of Control Value of the shares subject to such Options over the exercise
price(s) under such Options for such shares, (iii) make any adjustments to
Options then outstanding as the Committee deems appropriate, or (iv) provide
that the number and class of shares of Stock covered by an Option theretofore
granted shall be adjusted so that such Option shall thereafter cover the number
and class of shares of stock or other securities or property (including, without
limitation, cash) to which the Optionee would have been entitled pursuant to the
terms of the agreement of merger, consolidation or sale of assets and
dissolution if, immediately prior to such merger, consolidation or sale of
assets and dissolution, the Optionee had been the holder of record of the number
of shares of Stock then covered by such Option.
(d) Merger of the Company Where the Company is the Survivor. After a merger
of one or more corporations into the Company or after a consolidation of the
Company and one or more corporations in which the Company shall be the surviving
corporation, each Optionee shall be entitled to have his Option appropriately
adjusted based on the manner in which the Stock was adjusted under the terms of
the agreement of merger or consolidation.
2.5 Options Conditioned Upon Shareholder Approval. No Option granted under
the Plan will be exercisable before the shareholders of the Company approve the
Plan.
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ARTICLE III
OPTIONS
3.1 Automatic Annual Grants. Subject to the availability under the Plan of
a sufficient number of shares of Stock that may be issued upon the exercise of
outstanding Options, each Non-Employee Director who is a director of the Company
on any July 1 while this Plan is in effect shall be granted on each such July 1
an Option to purchase 1,000 shares of Stock.
3.2 Amount Exercisable -- Automatic Annual Grants. Subject to Section 2.5,
each Option granted pursuant to Section 3.1 is exercisable in full immediately
upon the date of grant.
3.3 Grants For Persons Who are Directors on September 1, 1998. There shall
be granted under the Plan to each Non-Employee Director who is serving as a
director of the Company on September 1, 1998, an Option to purchase 1,000 shares
of Stock. Nothing in this Section 3.3 shall affect the eligibility of an
Optionee to receive an Option pursuant to Section 3.1.
3.4 Grants for New Directors. Subject to the availability under the Plan
of a sufficient number of shares of Stock that may be issued upon the exercise
of outstanding options, each person who shall become a Non-Employee Director
after June 8, 1999 shall be granted, on the date of his election, whether by the
shareholders of the Company or the Board in accordance with applicable law, an
Option under the Plan to purchase 5,000 shares of Stock. Notwithstanding the
foregoing, no Non-Employee Director who has received an Option pursuant to
Section 3.3 shall be eligible to receive an Option pursuant to this Section 3.4.
Upon the receipt of an Option under the Plan pursuant to this Section 3.4, the
Optionee shall not be eligible to receive another Option for new Non-Employee
Directors pursuant to this Section 3.4. Nothing in this Section 3.4 shall affect
the eligibility of an Optionee to receive an Option pursuant to Section 3.1.
3.5 Amount Exercisable -- Grants for New Directors. Each Option Agreement
for an Option granted pursuant to Section 3.3 or Section 3.4 shall contain the
following terms of exercise:
(a) No Option granted under Section 3.3 or Section 3.4 of the Plan may
be exercised until the Optionee has served as a director of the Company for
one year following the date of grant;
(b) beginning on the day after the first anniversary of the date of
grant, the Option may be exercised up to 1/3 of the shares subject to the
Option;
(c) after the expiration of each succeeding anniversary date of the
date of grant, the Option may be exercised up to an additional 1/3 of the
shares subject to the Option, so that after the expiration of the third
anniversary of the date of grant, the Option shall be exercisable in full;
and
(d) to the extent not exercised, installments shall be cumulative and
may be exercised in whole or in part until the Option expires on the tenth
anniversary of the date of the grant.
3.6 Option Price. The price at which Stock may be purchased under an
Option shall be equal to 100 percent of the Fair Market Value of the shares of
Stock on the date the Option is granted.
3.7 Duration of Options.
Each Option awarded, to the extent it shall not previously have been
exercised, shall terminate on the earlier of the following dates:
(i) on the last day within the three-year period commencing on the
date on which the Optionee ceases to be a director of the Company, for
any reason other than death, Retirement or Disability; or
(ii) ten years after the date of grant of such Option.
If the Optionee ceases to be a director of the Company for any reason other
than his death, Disability or Retirement, his Option shall not continue to vest
after such cessation of service as a director. If the Optionee ceases to be a
director of the Company due to his death, Disability or Retirement, his Option
shall continue to vest after such cessation of service as a director until the
Option expires ten years after the grant of the Option.
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3.8 Death of an Optionee. Upon the death of an Optionee prior to the
expiration of his Option, his executors, administrators or any person or persons
to whom his Option may be transferred by will or by the laws of descent and
distribution, shall have the right, at any time prior to the expiration date of
the Option to exercise the Option with respect to the number of shares that the
Optionee would have been entitled to exercise if he were still alive.
3.9 Exercise of Options. An Optionee may exercise his Option by delivering
to the Company a written notice stating (i) that he wishes to exercise such
Option on the date such notice is so delivered, (ii) the number of shares of
Stock with respect to which such Option is to be exercised and (iii) the address
to which the certificate representing such shares of Stock should be mailed. In
order to be effective, such written notice shall be accompanied by payment of
the option price of such shares of Stock. Each such payment shall be made by
cashier's check drawn on a national banking association and payable to the order
of the Company in United States dollars.
If, at the time of receipt by the Company of such written notice, (i) the
Company has unrestricted surplus in an amount not less than the option price of
such shares of Stock, (ii) all accrued cumulative preferential dividends and
other current preferential dividends on all outstanding shares of preferred
Stock of the Company have been fully paid, (iii) the acquisition by the Company
of its own shares of Stock for the purpose of enabling such Optionee to exercise
such Option is otherwise permitted by applicable law and without any vote or
consent of any shareholder of the Company, and (iv) there shall have been
adopted, and there shall be in full force and effect, a resolution of the Board
of Directors of the Company authorizing the acquisition by the Company of its
own shares of Stock for such purpose, then such Optionee may deliver to the
Company, in payment of the option price of the shares of Stock with respect to
which such Option is exercised, (x) certificates registered in the name of such
Optionee that represent a number of shares of Stock legally and beneficially
owned by such Optionee (free of all liens, claims and encumbrances of every
kind) and having a Fair Market Value on the date of receipt by the Company of
such written notice that is not greater than the option price of the shares of
Stock with respect to which such Option is to be exercised, such certificates to
be accompanied by Stock powers duly endorsed in blank by the record holder of
the shares of Stock represented by such certificates, with the signature of such
record holder guaranteed by a national banking association, and (y) if the
option price of the shares of Stock with respect to which such Option is to be
exercised exceeds such Fair Market Value, a cashier's check drawn on a national
banking association and payable to the order of the Company in an amount, in
United States dollars, equal to the amount of such excess. Notwithstanding the
provisions of the immediately preceding sentence, the Treasurer of the Company,
in his sole discretion, may refuse to accept shares of Stock in payment of the
option price of the shares of Stock with respect to which such Option is to be
exercised and, in that event, any certificates representing shares of Stock that
were received by the Company with such written notice shall be returned to such
Optionee, together with notice by the Company to such Optionee of the refusal of
the Treasurer of the Company to accept such shares of Stock. If, at the
expiration of seven business days after the delivery to such Optionee of such
written notice from the Company, such Optionee shall not have delivered to the
Company a cashier's check drawn on a national banking association and payable to
the order of the Company in an amount, in United States dollars, equal to the
option price of the shares of Stock with respect to which such Option is to be
exercised, such written notice from the Optionee to the Company shall be
ineffective to exercise such Option.
As promptly as practicable after the receipt by the Company of (i) such
written notice from the Optionee and (ii) payment, in the form required by the
foregoing provisions of this Section 3.9, of the option price of the shares of
Stock with respect to which such Option is to be exercised, a certificate
representing the number of shares of Stock with respect to which such Option has
been so exercised, such certificate to be registered in the name of such
Optionee, provided that such delivery shall be considered to have been made when
such certificate shall have been mailed, postage prepaid, to such Optionee at
the address specified for such purpose in such written notice from the Optionee
to the Company.
3.10 Form of Options. All Options granted under this Plan will be
nonqualified stock options that are not intended to qualify as incentive stock
options under section 422 of the Internal Revenue Code of 1986, as amended.
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3.11 Written Agreement. Each Option shall be embodied in a written Option
Agreement which shall be subject to the terms and conditions of this Plan and
shall be signed by the Optionee and by an officer of the Company.
3.12 No Rights as Shareholder. No Optionee shall have any rights as a
shareholder with respect to Stock covered by his Option until the date a stock
certificate is issued for the Stock.
ARTICLE IV
AMENDMENT OR TERMINATION OF PLAN
The Board may amend or terminate this Plan at any time, in its sole and
absolute discretion; provided, however, that no amendment shall decrease the
exercise price for Options below the Fair Market Value of the Stock at the time
it is granted.
ARTICLE V
MISCELLANEOUS
5.1 No Retention Obligation. The granting of any Option shall not impose
upon the Company any obligation to continue to retain the Optionee's services as
a director of the Company.
5.2 Taxes. The Company shall not be obligated to advise an Optionee of the
existence of any tax that may apply with respect to the grant or exercise of an
Option.
5.3 Gender. If the context requires, words of one gender when used in this
Plan shall include the other and words used in the singular or plural shall
include the other.
5.4 Headings. Headings of Articles and Sections are included for
convenience of reference only and do not constitute part of this Plan and shall
not be used in construing the terms of this Plan.
5.5 Other Compensation. The adoption of this Plan shall not affect any
other compensation in effect for the Non-Employee Directors, nor shall this Plan
preclude the Company from establishing any other forms of compensation for
Non-Employee Directors.
5.6 Other Options. The grant of an Option shall not confer upon an
Optionee the right to receive any future or other Options under this Plan.
5.7 Arbitration of Disputes. Any controversy arising out of or relating to
the Plan or an Option Agreement shall be resolved by arbitration conducted
pursuant to the arbitration rules of the American Arbitration Association. The
arbitration shall be final and binding on the parties.
5.8 Governing Law. The provisions of this Plan shall be construed,
administered, and governed under the laws of the State of Texas.
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EXHIBIT 10.3
AUGUST 1999 AMENDMENT TO LOAN AND SECURITY AGREEMENT
[DXP Acquisition, Inc., d/b/a Strategic Acquisition, Inc.]
THIS AUGUST 1999 AMENDMENT TO LOAN AND SECURITY AGREEMENT (this
"Amendment") is made and entered into this 13th day of August, 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 1.1 OF THE LOAN AGREEMENT; AMENDMENT AND
RESTATEMENT OF THE DEFINITION "DOMESTIC MARGIN". Effective as of the date of
execution of this Amendment, the definition of "Domestic Margin" contained in
Section 1.1 of the Loan Agreement is amended and restated to read in its
entirety as follows:
"Domestic Margin - shall mean 0.50% per annum".
2.02 AMENDMENT TO SECTION 3.3(A). Effective as of the date of execution
of this Amendment, Section 3.3(A) of the Loan Agreement is hereby amended by
deleting therefrom the reference to the date "April 1, 2000" and substituting
therefor the date "April 1, 2001."
2.03 AMENDMENT TO SECTION 9.3(E). Effective as of the date of execution
of this Amendment, Section 9.3(E) of the Loan Agreement is amended and restated
to read in its entirety as follows:
AUGUST 1999 AMENDMENT TO LOAN AND SECURITY AGREEMENT - Page 1
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<PAGE> 2
"(E) Maintain average Availability on a consolidated basis of
not less than $1,000,000. 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 Acquisition, Inc., Pelican State Supply Company,
Inc., Sepco Industries, Inc., Bayou Pumps, Inc. and American MRO, Inc.
can be used to meet this average Availability requirement."
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) Parent and its Subsidiaries failed to
maintain, for the twelve calendar month period ending on June 30, 1999, a Fixed
Charge Ratio of not less than the relevant ratio provided for in Section 9.3(A)
of the Loan Agreement; (ii) Parent and its Subsidiaries failed to achieve, for
the twelve calendar month period ending on June 30, 1999, a Senior Interest
Coverage Ratio at least equal to the ratio set forth in Section 9.3(B) of the
Loan Agreement; (iii) Parent and its Subsidiaries failed to maintain, as of June
30, 1999, the ratio of (a) Senior Debt of Parent and its Subsidiaries on such
date to (b) an amount equal to (x) the EBITDA of Parent and its Subsidiaries for
the twelve calendar month period ending on such date, minus (y) Capital
Expenditures made by Parent and its Subsidiaries during such period, of not
greater than the ratio set forth in Section 9.3(C) of the Loan Agreement; and
(iv) Parent and its Subsidiaries failed to maintain as of the end of the fiscal
month ending April 30, 1999, the fiscal month ending May 31, 1999, and the
fiscal month ending June 30, 1999, a Fixed Charge Ratio of not less than the
relevant ratio provided for in Section 9.3(D) 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
AUGUST 1999 AMENDMENT TO LOAN AND SECURITY AGREEMENT - Page 2
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<PAGE> 3
(ii) All other documents Lender may request with
respect to any matter relevant to this Amendment or the
transactions contemplated hereby;
(b) The representations and warranties contained herein and in
the Loan Agreement and the other Loan Documents, as each is amended
hereby, shall be true and correct as of the date hereof, as if made on
the date hereof;
(c) No Default or Event of Default shall have occurred and be
continuing, unless such Default or Event of Default has been otherwise
specifically waived in writing by Lender; and
(d) All corporate proceedings taken in connection with the
transactions contemplated by this Amendment and all documents,
instruments and other legal matters incident thereto shall be
satisfactory to Lender and its legal counsel.
ARTICLE V
RATIFICATIONS, REPRESENTATIONS AND WARRANTIES
5.01 RATIFICATIONS. The terms and provisions set forth in this
Amendment shall modify and supersede all inconsistent terms and provisions set
forth in the Loan Agreement and the other Loan Documents, and, except as
expressly modified and superseded by this Amendment, the terms and provisions of
the Loan Agreement and the other Loan Documents are ratified and confirmed and
shall continue in full force and effect. Each Borrower and Lender agree that the
Loan Agreement and the other Loan Documents, as amended hereby, shall continue
to be legal, valid, binding and enforceable in accordance with their respective
terms.
5.02 REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and
warrants to Lender that (a) the execution, delivery and performance of this
Amendment and any and all other Loan Documents executed and/or delivered in
connection herewith have been authorized by all requisite corporate action on
the part of Borrower and will not violate the Articles of Incorporation or
Bylaws of Borrower; (b) attached hereto as Annex A is a true, correct and
complete copy of presently effective resolutions of Borrower's Board of
Directors authorizing the execution, delivery and performance of this Amendment
and any and all other Loan Documents executed and/or delivered in connection
herewith, certified by the Assistant Secretary of Borrower; (c) the
representations and warranties contained in the Loan Agreement, as amended
hereby, and any other Loan Documents are true and correct on and as of the date
hereof and on and as of the date of execution hereof as though made on and as of
each such date; (d) no Default or Event of Default under the Loan Agreement, as
amended hereby, has occurred and is continuing, unless such Default or Event of
Default has been specifically waived in writing by Lender; (e) Borrower is in
full compliance with all covenants and agreements contained in the Loan
Agreement and the other Loan Documents, as amended hereby; and (f) Borrower has
not amended its Articles of Incorporation or its Bylaws since the date of the
Loan Agreement.
ARTICLE VI
MISCELLANEOUS PROVISIONS
6.01 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties made in the Loan Agreement or any other Loan Documents,
including, without limitation, any document furnished in connection with this
Amendment, shall survive the execution and delivery of this Amendment and the
other Loan Documents, and no investigation by Lender or any closing shall affect
the representations and warranties or the right of Lender to rely upon them.
AUGUST 1999 AMENDMENT TO LOAN AND SECURITY AGREEMENT - Page 3
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<PAGE> 4
6.02 REFERENCE TO LOAN AGREEMENT. Each of the Loan Agreement and the
other Loan Documents, and any and all other Loan Documents, documents or
instruments now or hereafter executed and delivered pursuant to the terms hereof
or pursuant to the terms of the Loan Agreement, as amended hereby, are hereby
amended so that any reference in the Loan Agreement and such other Loan
Documents to the Loan Agreement shall mean a reference to the Loan Agreement as
amended hereby.
6.03 EXPENSES OF LENDER. As provided in the Loan Agreement, Borrower
agrees to pay on demand all costs and expenses incurred by Lender in connection
with the preparation, negotiation, and execution of this Amendment and the other
Loan Documents executed pursuant hereto and any and all amendments,
modifications, and supplements thereto, including, without limitation, the costs
and fees of Lender's legal counsel, and all costs and expenses incurred by
Lender in connection with the enforcement or preservation of any rights under
the Loan Agreement, as amended hereby, or any other Loan Documents, including,
without, limitation, the costs and fees of Lender's legal counsel.
6.04 SEVERABILITY. Any provision of this Amendment held by a court of
competent jurisdiction to be invalid or unenforceable shall not impair or
invalidate the remainder of this Amendment and the effect thereof shall be
confined to the provision so held to be invalid or unenforceable.
6.05 SUCCESSORS AND ASSIGNS. This Amendment is binding upon and shall
inure to the benefit of Lender and Borrower and their respective successors and
assigns, except that Borrower may not assign or transfer any of its rights or
obligations hereunder without the prior written consent of Lender.
6.06 COUNTERPARTS. This Amendment may be executed in one or more
counterparts, each of which when so executed shall be deemed to be an original,
but all of which when taken together shall constitute one and the same
instrument.
6.07 EFFECT OF WAIVER. No consent or waiver, express or implied, by
Lender to or for any breach of or deviation from any covenant or condition by
Borrower shall be deemed a consent to or waiver of any other breach of the same
or any other covenant, condition or duty.
6.08 HEADINGS. The headings, captions, and arrangements used in this
Amendment are for convenience only and shall not affect the interpretation of
this Amendment.
6.09 APPLICABLE LAW. THIS AMENDMENT AND ALL OTHER LOAN DOCUMENTS
EXECUTED PURSUANT HERETO SHALL BE DEEMED TO HAVE BEEN MADE AND TO BE PERFORMABLE
IN AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF TEXAS.
6.10 FINAL AGREEMENT. THE LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS,
EACH AS AMENDED HEREBY, REPRESENT THE ENTIRE EXPRESSION OF THE PARTIES WITH
RESPECT TO THE SUBJECT MATTER HEREOF ON THE DATE THIS AMENDMENT IS EXECUTED. THE
LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS AMENDED HEREBY, MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. NO
MODIFICATION, RESCISSION, WAIVER, RELEASE OR AMENDMENT OF ANY PROVISION OF THIS
AMENDMENT SHALL BE MADE, EXCEPT BY A WRITTEN AGREEMENT SIGNED BY BORROWER AND
LENDER.
AUGUST 1999 AMENDMENT TO LOAN AND SECURITY AGREEMENT - Page 4
- ----------------------------------------------------
<PAGE> 5
6.11 RELEASE. BORROWER HEREBY ACKNOWLEDGES THAT IT HAS NO DEFENSE,
COUNTERCLAIM, OFFSET, CROSS-COMPLAINT, CLAIM OR DEMAND OF ANY KIND OR NATURE
WHATSOEVER THAT CAN BE ASSERTED TO REDUCE OR ELIMINATE ALL OR ANY PART OF ITS
LIABILITY TO REPAY THE "OBLIGATIONS" OR TO SEEK AFFIRMATIVE RELIEF OR DAMAGES OF
ANY KIND OR NATURE FROM LENDER. BORROWER HEREBY VOLUNTARILY AND KNOWINGLY
RELEASES AND FOREVER DISCHARGES LENDER, ITS PREDECESSORS, AGENTS, EMPLOYEES,
SUCCESSORS AND ASSIGNS, FROM ALL POSSIBLE CLAIMS, DEMANDS, ACTIONS, CAUSES OF
ACTION, DAMAGES, COSTS, EXPENSES, AND LIABILITIES WHATSOEVER, KNOWN OR UNKNOWN,
ANTICIPATED OR UNANTICIPATED, SUSPECTED OR UNSUSPECTED, FIXED, CONTINGENT, OR
CONDITIONAL, AT LAW OR IN EQUITY, ORIGINATING IN WHOLE OR IN PART ON OR BEFORE
THE DATE THIS AMENDMENT IS EXECUTED, WHICH BORROWER MAY NOW OR HEREAFTER HAVE
AGAINST LENDER, ITS PREDECESSORS, AGENTS, EMPLOYEES, SUCCESSORS AND ASSIGNS, IF
ANY, AND IRRESPECTIVE OF WHETHER ANY SUCH CLAIMS ARISE OUT OF CONTRACT, TORT,
VIOLATION OF LAW OR REGULATIONS, OR OTHERWISE, AND ARISING FROM ANY "LOANS",
INCLUDING, WITHOUT LIMITATION, ANY CONTRACTING FOR, CHARGING, TAKING, RESERVING,
COLLECTING OR RECEIVING INTEREST IN EXCESS OF THE HIGHEST LAWFUL RATE
APPLICABLE, THE EXERCISE OF ANY RIGHTS AND REMEDIES UNDER THE LOAN AGREEMENT OR
OTHER LOAN DOCUMENTS, AND NEGOTIATION FOR AND EXECUTION OF THIS AMENDMENT.
IN WITNESS WHEREOF, this Amendment has been executed and is effective
as of the date first above-written.
"BORROWER"
DXP ACQUISITION, INC.,
D/B/A STRATEGIC ACQUISITION, INC.
By: /s/ GARY A. ALLCORN
-------------------------------------
Name: Gary A. Allcorn
-------------------------------------
Title: Senior Vice President/Finance
-------------------------------------
"LENDER"
FLEET CAPITAL CORPORATION
By: /s/ HANCE VANBEBER
-------------------------------------
Name: Hance VanBeber
-------------------------------------
Title: Senior Vice President
-------------------------------------
ANNEXES:
A-1 - Certified Resolutions of DXP Acquisition, Inc., d/b/a Strategic
Acquisition, Inc.
AUGUST 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 August 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: August ____, 1999.
----------------------------------------
[Assistant] Secretary of the Corporation
CONSENT AND RATIFICATION TO
- ---------------------------
AUGUST 1999 AMENDMENT TO LOAN AND SECURITY - Page 1
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<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 August 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: August 13, 1999.
SEPCO INDUSTRIES, INC.
By: /s/ GARY A. ALLCORN
-------------------------------------
Name: Gary A. Allcorn
-------------------------------------
Title: Senior Vice President/Finance
-------------------------------------
CONSENT AND RATIFICATION TO
- ---------------------------
AUGUST 1999 AMENDMENT TO LOAN AND SECURITY - Page 2
- ------------------------------------------
<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 August 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: August 13, 1999.
AMERICAN MRO, INC.
By: /s/ GARY A. ALLCORN
-------------------------------------
Name: Gary A. Allcorn
-------------------------------------
Title: Senior Vice President/Finance
-------------------------------------
CONSENT AND RATIFICATION TO
- ---------------------------
AUGUST 1999 AMENDMENT TO LOAN AND SECURITY - Page 3
- ------------------------------------------
<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 August 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: August 13, 1999.
BAYOU PUMPS, INC.
By: /s/ GARY A. ALLCORN
-------------------------------------
Name: Gary A. Allcorn
-------------------------------------
Title: Senior Vice President/Finance
-------------------------------------
CONSENT AND RATIFICATION TO
- ---------------------------
AUGUST 1999 AMENDMENT TO LOAN AND SECURITY - Page 4
- ------------------------------------------
<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 August 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: August 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
- ---------------------------
AUGUST 1999 AMENDMENT TO LOAN AND SECURITY - Page 5
- ------------------------------------------
<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 August 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: August 13, 1999.
DXP ENTERPRISES, INC.
By: /s/ GARY A. ALLCORN
-------------------------------------
Name: Gary A. Allcorn
-------------------------------------
Title: Senior Vice President/Finance
-------------------------------------
CONSENT AND RATIFICATION TO
- ---------------------------
AUGUST 1999 AMENDMENT TO LOAN AND SECURITY - Page 6
- ------------------------------------------
<PAGE> 1
EXHIBIT 10.4
AUGUST 1999 AMENDMENT TO SECOND AMENDED AND
RESTATED LOAN AND SECURITY AGREEMENT
AND MODIFICATION TO OTHER AGREEMENTS
THIS AUGUST 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 August, 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, and as amended
by that certain letter agreement, dated May 13, 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.
AUGUST 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 1.1 OF THE LOAN AGREEMENT; ADDITION OF A NEW
DEFINITION "BLOCK AMOUNT". Effective as of the date of execution of this
Amendment, a new definition "Block Amount" is hereby added to Section 1.1 of the
Loan Agreement to read as follows:
"Block Amount - $1,250,000."
2.02 AMENDMENT TO SECTION 1.1 OF THE LOAN AGREEMENT; AMENDMENT AND
RESTATEMENT OF THE DEFINITION OF "BORROWING BASE". Effective as of the date of
execution of this Amendment, Section 1.1 of the Loan Agreement is hereby amended
and restated to read in its entirety as follows:
"Borrowing Base - as at any date of determination thereof, an
amount equal to the lesser of:
(a) Thirty-Six Million Eight Hundred Thousand Dollars
($36,800,000), minus the aggregate unpaid principal balance of
the Term Loan and of the Acquisition Term Loans at such date,
minus the aggregate face amount of all LC Guaranties and
Letters of Credit issued by Lender or Affiliates of Lender
outstanding at such date, minus the Block Amount at such date;
or
(b) an amount equal to:
(i) 85% of the net amount of eligible
Accounts outstanding at such date (as determined by
Lender in its sole discretion);
PLUS
(ii) the lesser of (A) Twelve Million Five
Hundred Thousand Dollars ($12,500,000), or (B) 50% of
the value of Eligible
AUGUST 1999 AMENDMENT TO SECOND AMENDED AND RESTATED
- ----------------------------------------------------
LOAN AND SECURITY AGREEMENT - PAGE 2
- ---------------------------
<PAGE> 3
Inventory (as determined by Lender in its sole
discretion) at such date consisting of finished
goods, calculated on the basis of the lower of cost
or fair market value (as determined by Lender in its
sole discretion) with the cost of finished goods
calculated on a first-in, first-out basis;
MINUS (subtract from the sum of clauses (i)
and (ii) above)
(iii) an amount equal to the sum of (A) the
face amount of all LC Guaranties and Letters of
Credit issued by Lender or Affiliates of Lender and
outstanding at such date, and (B) any amounts which
Lender may be obligated to pay in the future for the
account of Borrower pursuant to this Agreement, the
Other Agreements or otherwise, and (C) the Block
Amount at such date.
For purposes hereof, the net amount of Eligible Accounts at
any time shall be the face amount of such Eligible Accounts less any
and all returns, rebates, discounts (which may, at Lender's option, be
calculated on shortest terms), credits, allowances or excise taxes of
any nature at any time issued, owing, claimed by Account Debtors,
granted, outstanding or payable in connection with such Accounts at
such time."
2.03 AMENDMENT TO SECTION 1.1 OF THE LOAN AGREEMENT; AMENDMENT AND
RESTATEMENT OF THE DEFINITION OF "DOMESTIC MARGIN". Effective as of the date of
execution of this Amendment, the definition of "Domestic Margin" contained in
Section 1.1 of the Loan Agreement is amended and restated to read in its
entirety as follows:
"Domestic Margin - (i) as to the Revolving Credit Loans shall
mean 0.50% per annum, and (ii) as to the Term Loan and the Acquisition Term
Loans shall mean 1.00% per annum."
2.04 AMENDMENT TO SECTION 1.1 OF THE LOAN AGREEMENT; AMENDMENT TO
DEFINITION OF "ELIGIBLE Accounts". Effective as of the date of execution of this
Amendment, the definition of "Eligible Account" contained in Section 1.1 of the
Loan Agreement is amended by amending and restating paragraph (o) of such
definition to read in its entirety as follows:
"(o) the goods giving rise to such Account have not been
delivered to and accepted by the Account Debtor or the services giving
rise to such Account have not been performed by Borrower and accepted
by the Account Debtor or the Account otherwise does not represent a
final sale; provided, however, that the foregoing provisions of this
paragraph (o) shall not apply to an Account arising in the ordinary
course of Borrower's business from the sale of goods or the rendition
of services in connection with a written contract between Borrower and
the relevant Account Debtor pursuant to which progress payments are
billed by the Borrower to the relevant Account Debtor; further
provided, however, that in order to be an Eligible Account, such billed
progress payment must otherwise constitute an Eligible Account pursuant
to the other provisions of the definition of `Eligible Account' and
that to the extent the aggregate amount of all such billed progress
payments exceed at any time $4,000,000, the billed progress payments in
excess of $4,000,000 shall not constitute Eligible Accounts; or".
AUGUST 1999 AMENDMENT TO SECOND AMENDED AND RESTATED
- ----------------------------------------------------
LOAN AND SECURITY AGREEMENT - PAGE 3
- ---------------------------
<PAGE> 4
2.05 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 "March 31, 2000" and
substituting therefor the date "March 31, 2001."
2.06 AMENDMENT TO SECTION 3.3(A) OF THE LOAN AGREEMENT. Effective as of
the date of execution of this Amendment, Section 3.3(A) of the Loan Agreement is
hereby amended by deleting therefrom the reference to the date "April 1, 2000"
and substituting therefor the date "April 1, 2001."
2.07 AMENDMENT TO SECTION 9.2 OF THE LOAN AGREEMENT; ADDING SECTION
9.2(S). Effective as of the date of execution of this Amendment, Section 9.2 of
the Loan Agreement is amended by adding thereto a new Section 9.2(S) to read in
its entirety as follows:
"(S) Fail by September 15, 1999, to deliver to Lender, a
written comprehensive plan (i) forecasting by month for the remaining
calendar year 1999 the consolidated income statement of DXP and its
Subsidiaries, and (ii) forecasting by month for the remaining calendar
year 1999 the consolidated balance sheet of DXP and its Subsidiaries,
and (iii) forecasting by month for the remaining calendar year 1999 the
consolidated statement of cash flows of DXP and its Subsidiaries."
2.08 AMENDMENT TO SECTION 9.3(E) OF THE LOAN AGREEMENT. Effective as of
the date of execution of this Amendment, Section 9.3(E) of the Loan Agreement is
amended and restated to read in its entirety as follows:
"(E) Maintain average Availability on a consolidated basis of
not less than $1,000,000. 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 Acquisition, Inc., Pelican State Supply Company,
Inc. and Sepco Industries, Inc., Bayou Pumps, Inc. and American MRO,
Inc. can be used to meet this average Availability requirement."
2.09 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, 2001.
2.10 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 and restated to read in
its entirety as follows:
"The principal amount of and accrued interest on this
Note shall be due and payable ton the dates and in the manner
hereinafter set forth:
(a) interest shall be due and payable monthly, in
arrears, on the first day of each month, continuing until such
time as the full principal balance, together with all other
amounts owing hereunder, shall have been paid in full;
(b) the principal shall be due and payable as
follows:
(i) Monthly installments of FIFTY-THREE
THOUSAND SIX AND 20/100 DOLLARS ($53,006.20) each
shall be due and payable on September 1, 1999,
October 1, 1999 and November 1, 1999; and
(ii) Monthly installments of ONE HUNDRED
THREE THOUSAND SIX AND 20/100 DOLLARS ($103,006.20)
each
AUGUST 1999 AMENDMENT TO SECOND AMENDED AND RESTATED
- ----------------------------------------------------
LOAN AND SECURITY AGREEMENT - PAGE 4
- ---------------------------
<PAGE> 5
shall be due and payable on December 1, 1999, and on
the first day of each month thereafter to and
including the first day of March, 2001; and
(c) the entire unpaid principal balance hereof,
together with any and all other amounts due hereunder, shall
be due and payable on April 1, 2001."
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) DXP and its Subsidiaries failed to maintain,
for the twelve calendar month period ending on June 30, 1999, a Fixed Charge
Ratio of not less than the relevant ratio provided for in Section 9.3(A) of the
Loan Agreement; (ii) DXP and its Subsidiaries failed to achieve, for the twelve
calendar month period ending on June 30, 1999, a Senior Interest Coverage Ratio
at least equal to the ratio set forth in Section 9.3(B) of the Loan Agreement;
(iii) DXP and its Subsidiaries failed to maintain, as of June 30, 1999, the
ratio of (a) Senior Debt of DXP and its Subsidiaries on such date to (b) an
amount equal to (x) the EBITDA of DXP and its Subsidiaries for the twelve
calendar month period ending on such date, minus (y) Capital Expenditures made
by DXP and its Subsidiaries during such period, of not greater than the ratio
set forth in Section 9.3(C) of the Loan Agreement; and (iv) DXP and its
Subsidiaries failed to maintain as of the end of the fiscal month ending April
30, 1999, the fiscal month ending May 31, 1999, and the fiscal month ending June
30, 1999, a Fixed Charge Ratio of not less than the relevant ratio set forth in
Section 9.3(D) 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:
AUGUST 1999 AMENDMENT TO SECOND AMENDED AND RESTATED
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LOAN AND SECURITY AGREEMENT - PAGE 5
- ---------------------------
<PAGE> 6
(a) Lender shall have received each of the following, each in
form and substance satisfactory to Lender, in its sole discretion, and,
where applicable, each duly executed by each party thereto, other than
Lender:
(i) This Amendment, duly executed by Borrower,
together with the relevant Consent, Ratification, and
Amendment, respectively duly executed by David R. Little,
individually, Gary A. Allcorn, Trustee for Kacey Joyce Little,
Nicholas David Little and Andrea Rae Little 1988 Trusts, DXP
Enterprises, Inc. ("Parent"), DXP Acquisition, Inc., d/b/a
Strategic Acquisition, Inc. and Pelican State Supply Company,
Inc.; and
(ii) All other documents Lender may request with
respect to any matter relevant to this Amendment or the
transactions contemplated hereby;
(b) The representations and warranties contained herein and in
the Loan Agreement and the Other Agreements, as each is amended hereby,
shall be true and correct as of the date hereof, as if made on the date
hereof;
(c) No Default or Event of Default shall have occurred and be
continuing, unless such Default or Event of Default has been otherwise
specifically waived in writing by Lender; and
(d) All corporate proceedings taken in connection with the
transactions contemplated by this Amendment and all documents,
instruments and other legal matters incident thereto shall be
satisfactory to Lender and its legal counsel.
ARTICLE V
RATIFICATIONS, REPRESENTATIONS AND WARRANTIES
5.01 RATIFICATIONS. The terms and provisions set forth in this
Amendment shall modify and supersede all inconsistent terms and provisions set
forth in the Loan Agreement and the Other Agreements, and, except as expressly
modified and superseded by this Amendment, the terms and provisions of the Loan
Agreement and the Other Agreements are ratified and confirmed and shall continue
in full force and effect. 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
AUGUST 1999 AMENDMENT TO SECOND AMENDED AND RESTATED
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LOAN AND SECURITY AGREEMENT - PAGE 6
- ---------------------------
<PAGE> 7
writing by Lender; (e) each Borrower is in full compliance with all covenants
and agreements contained in the Loan Agreement and the Other Agreements, as
amended hereby; (f) Sepco has not amended its Articles of Incorporation or its
Bylaws since the date of the Loan Agreement, (g) Bayou has not amended its
Articles of Incorporation or its Bylaws since the date of incorporation of Bayou
and (h) American has not amended its Articles of Incorporation or its Bylaws
since the date of incorporation of American.
ARTICLE VI
MISCELLANEOUS PROVISIONS
6.01 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties made in the Loan Agreement or any Other Agreement, including,
without limitation, any document furnished in connection with this Amendment,
shall survive the execution and delivery of this Amendment and the Other
Agreements, and no investigation by Lender or any closing shall affect the
representations and warranties or the right of Lender to rely upon them.
6.02 REFERENCE TO LOAN AGREEMENT. Each of the Loan Agreement and the
Other Agreements, and any and all other agreements, documents or instruments now
or hereafter executed and delivered pursuant to the terms hereof or pursuant to
the terms of the Loan Agreement, as amended hereby, are hereby amended so that
any reference in the Loan Agreement and such Other Agreements to the Loan
Agreement shall mean a reference to the Loan Agreement as amended hereby.
6.03 EXPENSES OF LENDER. As provided in the Loan Agreement, each
Borrower agrees to pay on demand all costs and expenses incurred by Lender in
connection with the preparation, negotiation, and execution of this Amendment
and the Other Agreements executed pursuant hereto and any and all amendments,
modifications, and supplements thereto, including, without limitation, the costs
and fees of Lender's legal counsel, and all costs and expenses incurred by
Lender in connection with the enforcement or preservation of any rights under
the Loan Agreement, as amended hereby, or any Other Agreements, including,
without, limitation, the costs and fees of Lender's legal counsel.
6.04 SEVERABILITY. Any provision of this Amendment held by a court of
competent jurisdiction to be invalid or unenforceable shall not impair or
invalidate the remainder of this Amendment and the effect thereof shall be
confined to the provision so held to be invalid or unenforceable.
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.
AUGUST 1999 AMENDMENT TO SECOND AMENDED AND RESTATED
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LOAN AND SECURITY AGREEMENT - PAGE 7
- ---------------------------
<PAGE> 8
6.09 APPLICABLE LAW. THIS AMENDMENT AND ALL OTHER AGREEMENTS EXECUTED
PURSUANT HERETO SHALL BE DEEMED TO HAVE BEEN MADE AND TO BE PERFORMABLE IN AND
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
TEXAS.
6.10 FINAL AGREEMENT. THE LOAN AGREEMENT AND THE OTHER AGREEMENTS, EACH
AS AMENDED HEREBY, REPRESENT THE ENTIRE EXPRESSION OF THE PARTIES WITH RESPECT
TO THE SUBJECT MATTER HEREOF ON THE DATE THIS AMENDMENT IS EXECUTED. THE LOAN
AGREEMENT AND THE OTHER AGREEMENTS, AS AMENDED HEREBY, MAY NOT BE CONTRADICTED
BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. NO
MODIFICATION, RESCISSION, WAIVER, RELEASE OR AMENDMENT OF ANY PROVISION OF THIS
AMENDMENT SHALL BE MADE, EXCEPT BY A WRITTEN AGREEMENT SIGNED BY EACH BORROWER
AND LENDER.
6.11 RELEASE. EACH BORROWER HEREBY ACKNOWLEDGES THAT IT HAS NO DEFENSE,
COUNTERCLAIM, OFFSET, CROSS-COMPLAINT, CLAIM OR DEMAND OF ANY KIND OR NATURE
WHATSOEVER THAT CAN BE ASSERTED TO REDUCE OR ELIMINATE ALL OR ANY PART OF ITS
LIABILITY TO REPAY THE "OBLIGATIONS" OR TO SEEK AFFIRMATIVE RELIEF OR DAMAGES OF
ANY KIND OR NATURE FROM LENDER. EACH BORROWER HEREBY VOLUNTARILY AND KNOWINGLY
RELEASES AND FOREVER DISCHARGES LENDER, ITS PREDECESSORS, AGENTS, EMPLOYEES,
SUCCESSORS AND ASSIGNS, FROM ALL POSSIBLE CLAIMS, DEMANDS, ACTIONS, CAUSES OF
ACTION, DAMAGES, COSTS, EXPENSES, AND LIABILITIES WHATSOEVER, KNOWN OR UNKNOWN,
ANTICIPATED OR UNANTICIPATED, SUSPECTED OR UNSUSPECTED, FIXED, CONTINGENT, OR
CONDITIONAL, AT LAW OR IN EQUITY, ORIGINATING IN WHOLE OR IN PART ON OR BEFORE
THE DATE THIS AMENDMENT IS EXECUTED, WHICH ANY BORROWER MAY NOW OR HEREAFTER
HAVE AGAINST LENDER, ITS PREDECESSORS, AGENTS, EMPLOYEES, SUCCESSORS AND
ASSIGNS, IF ANY, AND IRRESPECTIVE OF WHETHER ANY SUCH CLAIMS ARISE OUT OF
CONTRACT, TORT, VIOLATION OF LAW OR REGULATIONS, OR OTHERWISE, AND ARISING FROM
ANY "LOANS", INCLUDING, WITHOUT LIMITATION, ANY CONTRACTING FOR, CHARGING,
TAKING, RESERVING, COLLECTING OR RECEIVING INTEREST IN EXCESS OF THE HIGHEST
LAWFUL RATE APPLICABLE, THE EXERCISE OF ANY RIGHTS AND REMEDIES UNDER THE LOAN
AGREEMENT OR OTHER AGREEMENTS, AND NEGOTIATION FOR AND EXECUTION OF THIS
AMENDMENT.
AUGUST 1999 AMENDMENT TO SECOND AMENDED AND RESTATED
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LOAN AND SECURITY AGREEMENT - PAGE 8
- ---------------------------
<PAGE> 9
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/ HANCE VANBEBER
-------------------------------------
Name: Hance VanBeber
-------------------------------------
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.
AUGUST 1999 AMENDMENT TO SECOND AMENDED AND RESTATED
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LOAN AND SECURITY AGREEMENT - PAGE 9
- ---------------------------
<PAGE> 10
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 August 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 AUGUST 1999 AMENDMENT TO SECOND AMENDED AND RESTATED
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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: August ____, 1999.
----------------------------------------
[Assistant] Secretary of the Corporation
ANNEX A-1 TO AUGUST 1999 AMENDMENT TO SECOND AMENDED AND RESTATED
- -----------------------------------------------------------------
LOAN AND SECURITY AGREEMENT - Page 2
- ---------------------------
<PAGE> 12
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 August
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 AUGUST 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: August ____, 1999.
----------------------------------------
[Assistant] Secretary of the Corporation
ANNEX A-2 TO AUGUST 1999 AMENDMENT TO SECOND AMENDED AND RESTATED
- -----------------------------------------------------------------
LOAN AND SECURITY AGREEMENT - Page 2
- ---------------------------
<PAGE> 14
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 August 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 AUGUST 1999 AMENDMENT TO SECOND AMENDED AND RESTATED
- -----------------------------------------------------------------
LOAN AND SECURITY AGREEMENT - Page 1
- ---------------------------
<PAGE> 15
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: August ____, 1999.
----------------------------------------
[Assistant] Secretary of the Corporation
ANNEX A-3 TO AUGUST 1999 AMENDMENT TO SECOND AMENDED AND RESTATED
- -----------------------------------------------------------------
LOAN AND SECURITY AGREEMENT - Page 2
- ---------------------------
<PAGE> 16
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 August 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: August 13, 1999.
/s/ DAVID R. LITTLE
-----------------------------
David R. Little, individually
CONSENT AND RATIFICATION TO AUGUST 1999 AMENDMENT TO
- ----------------------------------------------------
SECOND AMENDED AND RESTATED LOAN AND SECURITY - Page 1
- ---------------------------------------------
<PAGE> 17
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 August
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: August 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 AUGUST 1999 AMENDMENT TO
- ----------------------------------------------------
SECOND AMENDED AND RESTATED LOAN AND SECURITY - Page 2
- ---------------------------------------------
<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 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 August 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: August 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 AUGUST 1999 AMENDMENT TO
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SECOND AMENDED AND RESTATED LOAN AND SECURITY - Page 3
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<PAGE> 19
CONSENT, RATIFICATION, AND AMENDMENT
The undersigned has executed each of the following guaranty agreements
in favor of FLEET CAPITAL CORPORATION, a Rhode Island corporation ("Lender")
(each such guaranty agreement being hereinafter referred to as a "Guaranty"):
(1) Continuing Guaranty Agreement [Indebtedness of Sepco
Industries, Inc.], dated as of 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 August 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: August 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 AUGUST 1999 AMENDMENT TO
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SECOND AMENDED AND RESTATED LOAN AND SECURITY - Page 4
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<PAGE> 20
CONSENT, RATIFICATION, AND AMENDMENT
The undersigned has executed each of the following guaranty agreements
in favor of FLEET CAPITAL CORPORATION, a Rhode Island corporation ("Lender")
(each such guaranty agreement being hereinafter referred to as a "Guaranty"):
(1) Continuing Guaranty Agreement [Indebtedness of Sepco
Industries, Inc.], dated as of 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 August 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: August 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 AUGUST 1999 AMENDMENT TO
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SECOND AMENDED AND RESTATED LOAN AND SECURITY - Page 5
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<PAGE> 1
EXHIBIT 10.5
AUGUST 1999 AMENDMENT TO LOAN AND SECURITY AGREEMENT
[Pelican State Supply Company, Inc.]
THIS AUGUST 1999 AMENDMENT TO LOAN AND SECURITY AGREEMENT (this
"Amendment") is made and entered into this 13th day of August, 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 1.1 OF THE LOAN AGREEMENT; AMENDMENT AND
RESTATEMENT OF THE DEFINITION OF "DOMESTIC MARGIN". Effective as of the date of
execution of this Amendment, the definition of "Domestic Margin" contained in
Section 1.1 of the Loan Agreement is amended and restated to read in its
entirety as follows:
"Domestic Margin - shall mean 0.50% per annum".
2.02 AMENDMENT TO SECTION 3.3(A). Effective as of the date of execution
of this Amendment, Section 3.3(A) of the Loan Agreement is hereby amended by
deleting therefrom the reference to the date "April 1, 2000" and substituting
therefor the date "April 1, 2001."
2.03 AMENDMENT TO SECTION 9.3(E). Effective as of the date of execution
of this Amendment, Section 9.3(E) of the Loan Agreement is amended and restated
to read in its entirety as follows:
AUGUST 1999 AMENDMENT TO LOAN AND SECURITY AGREEMENT - Page 1
- ----------------------------------------------------
<PAGE> 2
"(E) Maintain average Availability on a consolidated basis of
not less than $1,000,000. 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 Acquisition, Inc., Pelican State Supply Company,
Inc. and Sepco Industries, Inc., Bayou Pumps, Inc. and American MRO,
Inc. can be used to meet this average Availability requirement."
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) Parent and its Subsidiaries failed to
maintain, for the twelve calendar month period ending on June 30, 1999, a Fixed
Charge Ratio of not less than the relevant ratio provided for in Section 9.3(A)
of the Loan Agreement; (ii) Parent and its Subsidiaries failed to achieve, for
the twelve calendar month period ending on June 30, 1999, a Senior Interest
Coverage Ratio at least equal to the ratio set forth in Section 9.3(B) of the
Loan Agreement; (iii) Parent and its Subsidiaries failed to maintain, as of June
30, 1999, the ratio of (a) Senior Debt of Parent and its Subsidiaries on such
date to (b) an amount equal to (x) the EBITDA of Parent and its Subsidiaries for
the twelve calendar month period ending on such date, minus (y) Capital
Expenditures made by Parent and its Subsidiaries during such period, of not
greater than the ratio set forth in Section 9.3(C) of the Loan Agreement; and
(iv) Parent and its Subsidiaries failed to maintain as of the end of the fiscal
month ending April 30, 1999, the fiscal month ending May 31, 1999 and the fiscal
month ending June 30, 1999, a Fixed Charge Ratio of not less than the relevant
ratio provided for in Section 9.3(D) 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,
AUGUST 1999 AMENDMENT TO LOAN AND SECURITY AGREEMENT - Page 2
- ----------------------------------------------------
<PAGE> 3
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.
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
AUGUST 1999 AMENDMENT TO LOAN AND SECURITY AGREEMENT - Page 3
- ----------------------------------------------------
<PAGE> 4
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.
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
AUGUST 1999 AMENDMENT TO LOAN AND SECURITY AGREEMENT - Page 4
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<PAGE> 5
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 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 written above.
"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/ HANCE VANBEBER
-------------------------------------
Name: Hance VanBeber
-------------------------------------
Title: Senior Vice President
-------------------------------------
ANNEXES:
A-1 - Certified Resolutions of Pelican State Supply Company, Inc.
AUGUST 1999 AMENDMENT TO LOAN AND SECURITY AGREEMENT - Page 5
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<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 August 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: August ____, 1999.
----------------------------------------
[Assistant] Secretary of the Corporation
CONSENT AND RATIFICATION TO
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AUGUST 1999 AMENDMENT TO LOAN AND SECURITY AGREEMENT - Page 1
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<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 August 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: August 13, 1999.
SEPCO INDUSTRIES, INC.
By: /s/ GARY A. ALLCORN
-------------------------------------
Name: Gary A. Allcorn
-------------------------------------
Title: Senior Vice President/Finance
-------------------------------------
CONSENT AND RATIFICATION TO
- ---------------------------
AUGUST 1999 AMENDMENT TO LOAN AND SECURITY AGREEMENT - Page 2
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<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 August 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: August 13, 1999.
AMERICAN MRO, INC.
By: /s/ GARY A. ALLCORN
-------------------------------------
Name: Gary A. Allcorn
-------------------------------------
Title: Senior Vice President/Finance
-------------------------------------
CONSENT AND RATIFICATION TO
- ---------------------------
AUGUST 1999 AMENDMENT TO LOAN AND SECURITY AGREEMENT - Page 3
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<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 August 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: August 13, 1999.
BAYOU PUMPS, INC.
By: /s/ GARY A. ALLCORN
-------------------------------------
Name: Gary A. Allcorn
-------------------------------------
Title: Senior Vice President/Finance
-------------------------------------
CONSENT AND RATIFICATION TO
- ---------------------------
AUGUST 1999 AMENDMENT TO LOAN AND SECURITY AGREEMENT - Page 4
- ----------------------------------------------------
<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 August 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: August 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
- ---------------------------
AUGUST 1999 AMENDMENT TO LOAN AND SECURITY AGREEMENT - Page 5
- ----------------------------------------------------
<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 August 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: August 13, 1999.
DXP ENTERPRISES, INC.
By: /s/ GARY A. ALLCORN
-------------------------------------
Name: Gary A. Allcorn
-------------------------------------
Title: Senior Vice President/Finance
-------------------------------------
CONSENT AND RATIFICATION TO
- ---------------------------
AUGUST 1999 AMENDMENT TO LOAN AND SECURITY AGREEMENT - Page 6
- ----------------------------------------------------
<PAGE> 1
EXHIBIT 11.1
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- -----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Basic:
Average shares outstanding................. 4,068,454 4,164,010 4,095,192 4,159,972
Net Income................................. $ (422,000) $1,102,000 $ (186,000) $1,959,000
Per share amount........................... $ (.1037) $ .2646 $ (.0454) $ .4709
Diluted:
Average shares outstanding................. 4,068,454 4,164,010 4,095,192 4,159,972
Net effect of dilutive stock
options -- based on the treasury stock
method using period-end market price, if
higher than average market price........ -- 1,090,816 -- 1,090,816
Assumed conversion of Class A convertible
Preferred Stock............................ -- 420,000 -- 420,000
Total.............................. 4,068,454 5,674,826 4,095,192 5,670,788
Net Income................................... $ (422,000) $1,125,000 $ (186,000) $2,003,000
Per share amount* $ (.1037) $ .1982 $ (.0454) $ .3532
</TABLE>
- ---------------
* Due to a loss for the quarter ended June 30, 1999 and for the six months ended
June 30, 1999, the conversion of common stock equivalents would be
anti-dilutive.
<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
JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,143
<SECURITIES> 0
<RECEIVABLES> 25,166
<ALLOWANCES> 1,491
<INVENTORY> 30,135
<CURRENT-ASSETS> 58,583
<PP&E> 25,023
<DEPRECIATION> 11,215
<TOTAL-ASSETS> 83,119
<CURRENT-LIABILITIES> 27,094
<BONDS> 0
112
0
<COMMON> 41
<OTHER-SE> 15,711
<TOTAL-LIABILITY-AND-EQUITY> 83,119
<SALES> 94,846
<TOTAL-REVENUES> 94,846
<CGS> 70,395
<TOTAL-COSTS> 70,395
<OTHER-EXPENSES> 22,959
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,865
<INCOME-PRETAX> 201
<INCOME-TAX> 342
<INCOME-CONTINUING> (141)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (141)
<EPS-BASIC> (.05)
<EPS-DILUTED> (.05)
</TABLE>
