-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TcAPCiu8cR2HHazJfxOOcszhGxMT5cMSlnLYq3DFxeWyaPn0bshyyCdSdscmNmMB QiUEshRtTjF3lKIXZn639g== 0000950129-99-002194.txt : 19990517 0000950129-99-002194.hdr.sgml : 19990517 ACCESSION NUMBER: 0000950129-99-002194 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DXP ENTERPRISES INC CENTRAL INDEX KEY: 0001020710 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-INDUSTRIAL MACHINERY & EQUIPMENT [5084] IRS NUMBER: 760509661 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-21513 FILM NUMBER: 99621248 BUSINESS ADDRESS: STREET 1: 580 WESTLAKE PARK BLVD STREET 2: SUITE 1100 CITY: HOUSTON STATE: TX ZIP: 77079 BUSINESS PHONE: 713-531-42 MAIL ADDRESS: STREET 1: 580 WESTLAKE PARK BLVD STREET 2: SUITE 1100 CITY: HOUSTON STATE: TX ZIP: 77079 FORMER COMPANY: FORMER CONFORMED NAME: INDEX INC DATE OF NAME CHANGE: 19960808 10-Q 1 DXP ENTERPRISES, INC. - 3/31/99 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 MARCH 31, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 0-21513 --------------------- DXP ENTERPRISES, INC. (Exact name of registrant as specified in its charter) TEXAS 76-0509661 (State or other jurisdiction of incorporation (I.R.S. Employer or organization) Identification No.) 7272 PINEMONT HOUSTON, TEXAS 77040 (Address of principal executive offices) (Zip Code)
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 May 12, 1999: COMMON STOCK: 4,211,072 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 ITEM 1: FINANCIAL STATEMENTS DXP ENTERPRISES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS) ASSETS
MARCH 31, DECEMBER 31, 1999 1998 ----------- ------------ (UNAUDITED) Current assets: Cash...................................................... $ 999 $ 1,625 Trade accounts receivable, net of allowance for doubtful accounts of $1,322 and $1,155, respectively............ 25,966 24,367 Inventory................................................. 31,455 28,926 Prepaid expenses and other................................ 2,079 1,453 Deferred income taxes..................................... 958 870 ------- ------- Total current assets.............................. 61,457 57,241 Property, plant and equipment, net.......................... 13,095 13,160 Goodwill, net............................................... 10,351 10,447 Other assets................................................ 471 484 ------- ------- Total assets...................................... 85,374 81,332 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Trade accounts payable.................................... 18,279 14,826 Employee compensation..................................... 1,024 1,449 Other accrued liabilities................................. 331 99 Current portion of long-term debt......................... 3,838 3,782 ------- ------- Total current liabilities......................... 23,472 20,156 Long-term debt, less current portion........................ 44,097 42,910 Deferred compensation....................................... 739 739 Deferred income taxes....................................... 580 563 Equity subject to redemption: Series A preferred stock -- 1,122 shares.................. 112 112 Common stock, -0- and 140,214 shares...................... -- 1,245 Shareholders' Equity: Series A preferred stock, 1/10th vote per share; $1.00 par value; liquidation preference of $100 per share; 1,000,000 shares authorized; 2,992 shares issued and outstanding:........................................... 2 2 Series B convertible preferred stock, 1/10th vote per share; $1.00 par value; $100 stated value; liquidation preference of $100 per share; 1,000,000 shares authorized; 17,700 shares issued and 15,000 shares outstanding............................................ 18 18 Common stock, $.01 par value, 100,000,000 shares authorized; 4,211,072 shares issued, of which 4,075,621 shares are outstanding, and 135,451 shares are treasury stock.................................................. 41 40 Paid-in capital........................................... 2,152 908 Retained earnings......................................... 15,679 15,443 Treasury stock............................................ (1,518) (804) ------- ------- Total shareholders' equity........................ 16,374 15,607 ------- ------- Total liabilities and shareholders' equity........ $85,374 $81,332 ======= =======
See notes to condensed consolidated financial statements. 2 3 DXP ENTERPRISES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED MARCH 31, ------------------- 1999 1998 -------- -------- (UNAUDITED) Sales....................................................... $48,410 $49,004 Cost of sales............................................... 35,648 36,419 ------- ------- Gross Profit................................................ 12,762 12,585 Selling, general and administrative expenses................ 11,825 10,508 ------- ------- Operating income............................................ 937 2,077 Other income................................................ 508 176 Interest expense............................................ (929) (785) ------- ------- Income before income taxes.................................. 516 1,468 Provision for income taxes.................................. 258 590 ------- ------- Net income.................................................. $ 258 $ 878 Preferred stock dividend.................................... 23 21 ------- ------- Net Income attributable to common Shareholders.............. $ 235 $ 857 ======= ======= Basic earnings per common share............................. $ .06 $ .21 ------- ------- Common shares outstanding................................... 4,129 4,157 ------- ------- Diluted earnings per share.................................. $ .05 $ .15 ------- ------- Common and common equivalent shares outstanding............. 5,552 5,701 ------- -------
See notes to condensed consolidated financial statements. 3 4 DXP ENTERPRISES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
THREE MONTHS ENDED MARCH 31, ------------------- 1999 1998 -------- -------- (UNAUDITED) OPERATING ACTIVITIES: Net cash provided by operating activities................... $ (866) $ 3,415 INVESTING ACTIVITIES: Purchase of Tri-Electric Supply net assets.................. -- (6,208) Proceeds on the sale of assets, at cost..................... 267 -- Purchase of property and equipment.......................... (534) (250) -------- -------- Net cash used in investing activities....................... (267) (6,458) FINANCING ACTIVITIES: Proceeds from debt.......................................... 48,040 53,634 Principal payments on revolving line of credit, long-term and Subordinated debt, and notes payable to bank.......... (46,796) (49,047) Acquisition of common stock................................. (714) -- Dividends paid.............................................. (23) (21) -------- -------- Net cash provided by financing activities................... 507 4,566 -------- -------- INCREASE (DECREASE) IN CASH................................. (626) 1,523 CASH AT BEGINNING OF PERIOD................................. 1,625 736 -------- -------- CASH AT END OF PERIOD....................................... $ 999 $ 2,259 ======== ========
See notes to condensed consolidated financial statements. 4 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 results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full year. These condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements included in the Company's 10-K Annual Report for the year ended December 31, 1998, filed with the Securities and Exchange Commission. NOTE 2: THE COMPANY The Company was incorporated on July 26, 1996 in the State of Texas. The Company is a leading supplier of maintenance, repair and operating ("MRO") products, equipment and services to industrial customers. The Company provides MRO products in the following categories: fluid handling equipment, bearings and power transmission equipment, general mill and safety supplies and electrical supplies. The Company also offers a line of valve and valve automation products to its customers. NOTE 3: INVENTORY The Company uses the last-in, first-out ("LIFO") method of inventory valuation for approximately 63 percent of its inventories. Remaining inventories are accounted for using the first-in, first-out ("FIFO") method. An actual valuation of inventory under the LIFO method can be made only at the end of each year based on the inventory levels and costs at that time. Accordingly, interim LIFO calculations must necessarily be based on management's estimates of expected year-end inventory levels and costs. Because these are subject to many forces beyond management's control, interim results are subject to the final year-end LIFO inventory valuation. The reconciliation of FIFO inventory to LIFO basis is as follows:
MARCH 31, 1999 DECEMBER 31, 1998 -------------- ----------------- (IN THOUSANDS) Finished goods........................................ $30,689 $29,717 Work in process....................................... 4,794 3,093 ------- ------- Inventories at FIFO................................... 35,483 32,810 Less -- LIFO allowance................................ (4,028) (3,884) ------- ------- Inventories........................................... $31,455 $28,926 ======= =======
NOTE 4: ACQUISITION On February 26, 1998, a wholly-owned subsidiary of the Company acquired substantially all the assets of Tri-Electric Supply, Ltd ("Tri-Electric"). The purchase price consisted of $6.2 million in cash, assumption of $1.6 million of trade payables and other accrued expenses and a deferred payment up to a maximum of $275,000 based on the earnings before interest and taxes and depreciation of the acquired company to be paid on March 31, 1999, if earned. No deferred payment was required to be made. Tri-Electric did not meet the deferred payment requirements based on the earnings before interest and taxes and depreciation for the twelve month period ended March 31, 1999. The results of operations of Tri-Electric are included in the consolidated 5 6 DXP ENTERPRISES INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) statements of income from the date of acquisition. The acquisition has been accounted for using the purchase method of accounting. Goodwill of $3.9 million was recorded in connection with the acquisition. NOTE 5: LONG-TERM DEBT The Company has secured lines of credit for up to $44 million with an institutional lender (the "Credit Facility"). The Credit Facility was amended by the Company and its lender effective March 30, 1999, which now provides for borrowings up to an aggregate of the lessor of (i) a percentage of the collateral value based on a formula set forth therein and (ii) $44.0 million. Additionally, the LIBOR pricing, set to expire as of June 30, 1999, was cancelled and therefore all of the borrowings under the Credit Facility will bear interest at prime. The Credit Facility is secured by receivables, inventory, and machinery and equipment and matures April 2000. An executive officer of the Company, who is also a shareholder of the Company, has personally guaranteed up to $500,000 of the obligations of the Company under the line of credit. Additionally, certain shares held in trust for this executive officer's children are also pledged to secure this line of credit. The available borrowings under the Credit Facility at March 31, 1999 were approximately $2.8 million. The Credit Facility includes loan covenants that are measured monthly, which, among other things, require the Company to maintain a certain cash flow and other financial ratios. NOTE 6: SUBSEQUENT EVENTS The Company amended the Credit Facility, effective May 13, 1999, to extend its maturity date from January 2, 2000 to April 1, 2000. All other terms and conditions remain as stated above. On April 27, 1999, the Company entered into an agreement to sell certain assets of Wesco Equipment, a division that specializes in valve and valve automation products, for approximately $3.173 million. The sale is expected to be completed by the second quarter of 1999. The assets being sold include inventory and personal property. The Company will retain and collect the customer accounts receivable balances. Upon completion of this transaction, the Company will no longer be in the valve automation business. 6 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. The Company also offers a line of valve and valve automation products within the pipe, valve and fittings category but has entered into an agreement to sell its valve automation products business. Upon completion of this transaction, the Company will no longer derive revenues from the valve automation business. The Company offers its customers a single source of integrated services and supply on an efficient and competitive basis by being a first-tier distributor which purchases its products directly from the manufacturer. The Company also provides integrated services such as system design, fabrication, installation, repair and maintenance for its customers. The Company offers a wide range of industrial MRO products, equipment and services through a complete continuum of customized and efficient MRO solutions, ranging from traditional distribution to fully integrated supply contracts. The integrated solution is tailored to satisfy the customer's unique needs. The Company's products and services are marketed in 16 states to over 25,000 customers that are engaged in a variety of industries, many of which may be counter cyclical to each other. Demand for the Company's products generally is subject to changes in the United States economy and economic trends affecting the Company's customers and the industries in which they compete in particular. Certain of these industries, such as the oil and gas industry, are subject to volatility while others, such as the petrochemical industry, are cyclical and materially affected by changes in the economy. As a result, the Company may within particular markets and product categories experience changes in demand as changes occur in the markets of its customers. The Company's strategy is focused on addressing current trends in the industrial distribution market through a combination of acquisitions and internal growth. The Company seeks acquisitions that will provide the Company access to additional product lines and customers to enhance its position as a single source industrial distributor with first-tier distribution capabilities. Key elements of the Company's internal growth strategy include leveraging existing customer relationships, expanding product offerings from existing locations, reducing costs through consolidated purchasing programs and combined product distribution centers, designing and implementing innovative solutions to address the procurement and supply needs of the Company's customers and using the Company's traditional distribution and integrated supply capabilities to increase sales in each area. Future results for the Company will be dependent on the success of the Company in implementing its acquisition and internal growth strategy. RESULTS OF OPERATIONS Three Months Ended March 31, 1999 compared to Three Months Ended March 31, 1998 Revenues for the three months ended March 31, 1999 decreased 1.2% to $48.4 million from the three months ended March 31, 1998. The Company's acquisitions in 1998 accounted for $5.3 million of the $48.4 million in revenues during the period ended March 31, 1999. Sales of fluid handling equipment increased 16.1%, or $2.9 million, over the comparable period in 1998, due in part to the $1.7 million in revenues generated by Smith Equipment Company, the fluid handling equipment business acquired in May 1998. Sales of bearings and power transmission equipment for the quarter ended March 31, 1999 decreased 28.7%, or $4.1 million over the comparable period in 1998, due primarily to the effects of lower oil prices and its affects on the oil industry. Sales of valve and valve automation equipment decreased 18.1%, or $.4 million over the comparable period in 1998. During the three months ended March 31, 1999, sales of general mill and safety supplies decreased 11.5%, or $1.5 million over the comparable period in 1998. A comparison of electrical supplies is not presented because the product category did not exist during the entire comparative prior period. Gross margins increased .7% for the first quarter of 1999 as compared to the first quarter of 1998, from 25.7% of sales to 26.4%. The increase in gross margin is attributable to higher margins associated with the two 7 8 businesses acquired in the second quarter of 1998. The Company currently expects some increase in manufacturers' prices to continue due to increased raw material costs and market conditions. Although the Company intends to attempt to pass on these price increases to its customers to maintain current gross margins, there can be no assurances that the Company will be successful in this regard. Selling, general and administrative expense for the first quarter of 1999 increased as a percentage of revenues by 3.0%, or $1.3 million, as compared to the first quarter of 1998. This was due in large part to the selling expenses ($.7 million) generated by the acquired companies, Tri-Electric, in the first quarter of 1998 as well as M.W. Smith Equipment, Inc. and Lucky Electric & Supply, Inc. in the second quarter of 1998. Also contributing to the increase was the focus and investment ($.6 million) in the areas of marketing and information technologies in an effort to improve the Company's future position in the industrial distribution market. Operating income for the three month period ended March 31, 1999 decreased as a percent of revenues by 2.3%, from $2.1 million to $.9 million as compared to the first quarter of 1998, due to the decrease in revenue volume and the increase of selling, general and administrative expenses as a percentage of revenue. Interest expense during the first quarter of 1999 increased by $.1 million to $.9 million compared to the first quarter of 1998. The increase was primarily due to greater interest expense resulting from additional borrowings incurred to finance an acquisition late in the first quarter of 1998 and two acquisitions during the second quarter of 1998 and the purchase of real property used as the Company's corporate headquarters. Average interest rates were slightly lower during the three months ended March 31, 1999 as compared to the same period in 1998. The Company's provision for income taxes for the three months ended March 31, 1999 decreased by $.3 million compared to the same period of 1998, as a result of the decrease in profits. Net income for the three month period ended March 31, 1999, decreased $.6 million from the three month period ended March 31, 1998 due to the decrease in revenue volume and the increase of selling, general and administrative expenses as a percentage of revenue. LIQUIDITY AND CAPITAL RESOURCES General Under the Company's loan agreements with its bank lender, all available cash is generally applied to reduce outstanding borrowings, with operations funded through borrowings under the Credit Facility. The Company's policy is to maintain low levels of cash and cash equivalents and to use borrowings under its line of credit for working capital. The Company had $2.8 million available for borrowings under the Credit Facility at March 31, 1999. Working capital at March 31, 1999 and December 31, 1998 was $38.0 million and $37.1 million, respectively. During the first three months of 1999 and the year 1998, the Company collected its trade receivables in approximately 48 and 49 days, respectively, and turned its inventory approximately four times on an annualized basis. In the first and again in the second quarter of 1999, the Company and its lender amended the Credit Facility effective March 30, 1999 and May 13, 1999, which now provides for borrowings up to an aggregate of the lessor of (i) a percentage of the collateral value based on a formula set forth therein and (ii) $44.0 million. Additionally, the LIBOR pricing, set to expire as of June 30, 1999, was cancelled and therefore all of the borrowings under the Credit Facility will bear interest at prime (7.75 percent at March 31, 1999). The line of credit is secured by receivables, inventory, and machinery and equipment. The Company and its lender further amended the Credit Facility, effective May 13, 1999 to extend the maturity date to April 1, 2000. The Credit Facility contains customary affirmative and negative covenants as well as financial covenants that are measured monthly and require the Company to maintain a certain cash flow and other financial ratios. The Company expended cash through operating activities of $.9 million in the first three months of 1999 as compared to $3.4 million in cash generation during the first three months of 1998, due primarily to a decrease in earnings along with an increase in both accounts receivable and inventory. 8 9 The Company had capital expenditures of approximately $.53 million for the first three months of 1999 as compared to $.25 million during the same period of 1998. Capital expenditures in the first three months of 1999 were primarily related to computer hardware ($.27 million) and furniture and fixtures ($.22 million). Capital expenditures for 1998 were primarily related to computer hardware ($.14 million). On February 26, 1998, a wholly-owned subsidiary of the Company acquired substantially all the assets of an electrical supply business. The purchase price consisted of $6.2 million in cash, assumption of $1.6 million of trade payables and other accrued expenses. The results of operations of the business are included in the consolidated statements of income from the date of acquisition. The acquisition has been accounted for using the purchase method of accounting. Goodwill of $3.9 million was recorded in connection with the acquisition. The Company believes that cash generated from operations and available under its Credit Facility will meet its future ongoing operational and liquidity needs and capital requirements. Funding of the Company's acquisition efforts will require capital in the form of the issuance of additional equity or debt financing. There can be no assurance that such financing will be available to the Company or as to the terms thereof. Year 2000 Readiness Disclosure Many existing computer systems and applications and other control devices use only two digits to identify a year in the date field, without considering the impact of the upcoming change in the century. The Year 2000 issue is the risk that systems, products and equipment utilizing date-sensitive software or computer chips with two-digit date fields will fail to properly recognize the Year 2000. Such failures by the Company's software or hardware or that of government entities, customers, major vendors and other third parties with whom the Company has material relationships could result in interruptions of the Company's business which could have a material adverse effect on the Company. In response to the Year 2000 issue, the Company has implemented a company-wide Year 2000 program designed to identify, assess and address significant Year 2000 issues in the Company's key business operations, including products and services, business applications, information technology systems and facilities and to identify the Company's customers, major vendors and other third parties with whom the Company has material relationships that may have Year 2000 issues. The Company's Year 2000 program is an integrated, multi-phase process covering information technology systems and hardware as well as equipment and products with embedded computer chips technology. The primary phases of the program are (1) inventorying existing equipment and systems; (2) analyzing equipment and systems to identify those which are not Year 2000 ready and to prioritize critical items; (3) communicating with customers, major vendors and other third parties with whom the Company has material relationships regarding their Year 2000 readiness; (4) remediating, repairing or replacing equipment and systems that are not Year 2000 ready; and (5) testing to verify that Year 2000 readiness has been achieved for the Company's equipment and systems. Phases (1) and (2) of the Company's Year 2000 program have been completed. In support of phase (3) of the Company's Year 2000 program, the Company has developed and implemented a vendor/client Year 2000 questionnaire on the Company web-site, as well as the development of a paper based version of the questionnaire. Phase (3) is well under way with an initial mailing to over 20,000 customers/vendors. The Company will continue communicating with customers, major vendors and other third parties with whom the Company has material relationships to determine if they will be ready for the Year 2000 by the end of 1999. Although the most likely worst case scenario faced by the Company would require the Company to carry additional inventory levels to mitigate vendor complications, to the extent the Company's customers, vendors and other third parties are not compliant by the Year 2000 and unexpected complications result therefrom, it could have a material adverse effect upon the Company's results of operations and financial condition. With respect to phase (4), the Company is addressing Year 2000 software issues through the implementation of Year 2000 compliant upgrades to, or new releases of, current software. The Company installed the latest upgrade to its main business system software on the 8th of May 1999, at which time the main business system supporting the Company became Year 2000 compliant. Cost incurred to date relative to the conversions and upgrades have been minimal and are expected to continue to be minimal in future periods, as the Company 9 10 policy has been, and continues to be to maintain the most current version of its business software packages for maintainability and interoperability considerations. The Company will continue to analyze systems and services that utilize date imbedded codes that may experience operational problems when the Year 2000 is reached. The Company began phase (5) at the end of the first quarter of 1999 and expects to complete testing and verification efforts by the end of the second quarter of 1999. All costs associated with the Year 2000 issues will be included as part of the normal software upgrades or operating costs, as appropriate. The foregoing statements of this subsection are intended to be and are hereby designated "Year 2000 Readiness Disclosure" statements within the meaning of the Year 2000 Information and Readiness Disclosure Act. ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. None. PART II: OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. From time to time, the Company is a party to legal proceedings arising in the ordinary course of business. The Company is not currently a party to any litigation that it believes could have a material adverse effect on the results of operations or financial condition of the Company. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. ITEM 5. OTHER INFORMATION. None. CAUTIONARY STATEMENTS The Company's expectations with respect to future results of operations that may be embodied in oral and written forward-looking statements, including any forward-looking statements that may be contained in this Quarterly Report on Form 10-Q, are subject to risks and uncertainties that must be considered when evaluating the likelihood of the Company's realization of such expectations. The Company's actual results could differ materially. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below. Ability to Comply with Financial Covenants of Credit Facility The Credit Facility requires the Company to comply with certain specified covenants, restrictions, financial ratios and other financial and operating tests. The Company's ability to comply with any of the foregoing restrictions will depend on its future performance, which will be subject to prevailing economic conditions and other factors, including factors beyond the Company's control. A failure to comply with any of these obligations could result in an event of default under the Credit Facility, which could permit acceleration of the Company's indebtedness under the Credit Facility. The Company from time to time has been unable to comply with some of the financial covenants contained in the Credit Facility (relating to, among other things, 10 11 the maintenance of prescribed financial ratios) and has, when necessary, obtained waivers or amendments to the covenants from its lender. Although the Company expects to be able to comply with the covenants, including the financial covenants, of the Credit Facility, there can be no assurance that in the future the Company will be able to do so or that its lender will be willing to waive such compliance or further amend such covenants. Risks Associated With Acquisition Strategy Future results for the Company will depend in part on the success of the Company in implementing its acquisition strategy. This strategy includes taking advantage of a consolidation trend in the industry and effecting acquisitions of distributors with complementary or desirable new product lines, strategic distribution locations and attractive customer bases and manufacturer relationships. The ability of the Company to implement this strategy will be dependent on its ability to identify, consummate and successfully assimilate acquisitions on economically favorable terms. Although the Company is actively seeking acquisitions that would meet its strategic objectives, there can be no assurance that the Company will be successful in these efforts. In addition, acquisitions involve a number of special risks, including possible adverse effects on the Company's operating results, diversion of management's attention, failure to retain key acquired personnel, risks associated with unanticipated events or liabilities, expenses associated with obsolete inventory of an acquired company and amortization of acquired intangible assets, some or all of which could have a material adverse effect on the Company's business, financial condition and results of operations. There can be no assurance that the Company or other industrial supply distributors acquired in the future will achieve anticipated revenues and earnings. In addition, the Credit Facility contains certain restrictions that could adversely affect its ability to implement its acquisition strategy. Such restrictions include a provision prohibiting the Company from merging or consolidating with, or acquiring all or a substantial part of the properties or capital stock of, any other entity without the prior written consent of the lender. There can be no assurance that the Company will be able to obtain the lender's consent to any of its proposed acquisitions. Risks Related to Acquisition Financing The Company currently intends to finance acquisitions by using shares of Common Stock for a portion or all of the consideration to be paid. In the event that the Common Stock does not maintain a sufficient market value, or potential acquisition candidates are otherwise unwilling to accept Common Stock as part of the consideration for the sale of their businesses, the Company may be required to use more of its cash resources, if available, to maintain its acquisition program. If the Company does not have sufficient cash resources, its growth could be limited unless it is able to obtain additional capital through debt or equity financings. Under the Credit Facility, all available cash generally is applied to reduce outstanding borrowings. As of March 31, 1999, the Company had approximately $2.8 million available under the Credit Facility, and there can be no assurance that the Company will be able to obtain additional financing on a timely basis or on terms the Company deems acceptable. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources". Risks Related to Internal Growth Strategy Future results for the Company also will depend in part on the Company's success in implementing its internal growth strategy, which includes expanding existing product lines and adding new product lines. The ability of the Company to implement this strategy will depend on its success in acquiring and integrating new product lines and marketing integrated forms of supply arrangements such as those being pursued by the Company through its SmartSource program. The Company acquired two businesses in the second quarter of 1997, a third in the first quarter of 1998 and two additional businesses in the second quarter of 1998 and plans to acquire other distributors with complementary or desirable product lines and customer bases. Although the Company intends to increase sales and product offerings to the customers of these and other acquired companies, reduce costs through consolidating certain administrative and sales functions and integrate the acquired companies' management information systems with the Company's system, there can be no assurance that the Company will be successful in these efforts. 11 12 Substantial Competition The Company's business is highly competitive. The Company competes with a variety of industrial supply distributors, some of which may have greater financial and other resources than the Company. Although many of the Company's traditional distribution competitors are small enterprises selling to customers in a limited geographic area, the Company also competes with larger distributors that provide integrated supply programs such as those offered through outsourcing services similar to those that are offered by the Company's SmartSource program. Some of these large distributors may be able to supply their products in a more timely and cost-efficient manner than the Company. The Company's competitors include direct mail suppliers, large warehouse stores and, to a lesser extent, certain manufacturers. Risks of Economic Trends Demand for the Company's products is subject to changes in the United States economy in general and economic trends affecting the Company's customers and the industries in which they compete in particular. Many of these industries, such as the oil and gas industry, are subject to volatility while others, such as the petrochemical industry, are cyclical and materially affected by changes in the economy. As a result, the Company may experience changes in demand for its products as changes occur in the markets of its customers. Dependence on Key Personnel The Company will continue to be dependent to a significant extent upon the efforts and ability of David R. Little, its Chairman of the Board, President and Chief Executive Officer. The loss of the services of Mr. Little or any other executive officer of the Company could have a material adverse effect on the Company's financial condition and results of operations. The Company does not maintain key-man life insurance on the life of Mr. Little or on the lives of its other executive officers. In addition, the Company's ability to grow successfully will be dependent upon its ability to attract and retain qualified management and technical and operational personnel. The failure to attract and retain such persons could materially adversely affect the Company's financial condition and results of operations. Dependence on Supplier Relationships The Company has distribution rights for certain product lines and depends on these distribution rights for a substantial portion of its business. Many of these distribution rights are pursuant to contracts that are subject to cancellation upon little or no prior notice. Although the Company believes that it could obtain alternate distribution rights in the event of such a cancellation, the termination or limitation by any key supplier of its relationship with the Company could result in a temporary disruption on the Company's business and, in turn, could adversely affect results of operations and financial condition. Year 2000 Issues Many existing computer systems and applications and other control devices use only two digits to identify a year in the date field, without considering the impact of the upcoming change in the century. As a result, such systems and applications could fail or create erroneous results unless corrected so that they can process data related to the Year 2000. The Company relies on its computer systems and software for financial reporting, customer account information and inventory management and replenishment. The Company is in the process of assessing its state of readiness for the Year 2000 and expects its software to be Year 2000 compliant by the end of the third quarter of 1999 upon completion of the upgrading of its software and verification testing efforts. Additionally, the Company has developed and implemented a web-based questionnaire along with a standard questionnaire in order to communicate with customers, major vendors and other third parties with whom it has material relationships to determine if they will be ready for the Year 2000. To the extent unexpected problems associated with the Year 2000 arise during the implementation phase of the Company's Year 2000 program or due to the fact that the Company's customers, vendors and other third parties are not compliant by the Year 2000, it could have a material adverse effect upon the Company's 12 13 business, financial condition and results of operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Year 2000 Readiness Disclosure." Risks Associated With Hazardous Materials Certain of the Company's operations are subject to federal, state and local laws and regulations controlling the discharge of materials into or otherwise relating to the protection of the environment. Although the Company believes that it has adequate procedures to comply with applicable discharge and other environmental laws, the risks of accidental contamination or injury from the discharge of controlled or hazardous materials and chemicals cannot be eliminated completely. In the event of such an accident, the Company could be held liable for any damages that result and any such liability could have a material adverse effect on the Company's financial condition and results of operations. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits. 10.1 -- Waiver and Amendment dated March 30, 1999 between SEPCO Industries, Inc., Bayou Pumps, Inc., American MRO, Inc. and Fleet Capital Corporation. 10.2 -- Waiver and Amendment dated March 30, 1999 between Pelican State Supply Company, Inc. and Fleet Capital Corporation. 10.3 -- Waiver and Amendment dated March 30, 1999 between DXP Acquisition, Inc., d/b/a Strategic Acquisition, Inc. and Fleet Capital Corporation. 10.4 -- May 1999 Amendment to Second Amended and Restated Loan and Security Agreement and Modification to Other Agreements dated May 13, 1999, by and among SEPCO Industries, Inc., Bayou Pumps, Inc., American MRO, Inc. and Fleet Capital Corporation. 10.5 -- May 1999 Amendment to Loan and Security Agreement dated May 13, 1999, by and among Pelican State Supply Company, Inc. and Fleet Capital Corporation. 10.6 -- May 1999 Amendment to Loan and Security Agreement dated May 13, 1999, by and among DXP Acquisition, Inc., d/b/a Strategic Acquisition, Inc. and Fleet Capital Corporation. 11.1 -- Statement re: Computation of Per Share Earnings. 27.1 -- Financial Data Schedule.
(b) Reports on Form 8-K. None. 13 14 Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. DXP ENTERPRISES, INC. By: /s/ GARY A. ALLCORN ---------------------------------- Gary A. Allcorn Senior Vice President/Finance and Chief Financial Officer (Duly authorized officer and principal financial officer) Date: May 13, 1999 14 15 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.1 -- Waiver and Amendment dated March 30, 1999 between SEPCO Industries, Inc., Bayou Pumps, Inc., American MRO, Inc. and Fleet Capital Corporation. 10.2 -- Waiver and Amendment dated March 30, 1999 between Pelican State Supply Company, Inc. and Fleet Capital Corporation. 10.3 -- Waiver and Amendment dated March 30, 1999 between DXP Acquisition, Inc., d/b/a Strategic Acquisition, Inc. and Fleet Capital Corporation. 10.4 -- May 1999 Amendment to Second Amended and Restated Loan and Security Agreement and Modification to Other Agreements dated May 13, 1999, by and among SEPCO Industries, Inc., Bayou Pumps, Inc., American MRO, Inc. and Fleet Capital Corporation. 10.5 -- May 1999 Amendment to Loan and Security Agreement dated May 13, 1999, by and among Pelican State Supply Company, Inc. and Fleet Capital Corporation. 10.6 -- May 1999 Amendment to Loan and Security Agreement dated May 13, 1999, by and among DXP Acquisition, Inc., d/b/a Strategic Acquisition, Inc. and Fleet Capital Corporation. 11.1 -- Statement re: Computation of Per Share Earnings. 27.1 -- Financial Data Schedule.
EX-10.1 2 WAIVER AND AMENDMENT - SEPCO INDUSTRIES, INC. 1 EXHIBIT 10.1 March 30, 1999 Sepco Industries, Inc. Bayou Pumps, Inc. American MRO, Inc. 580 Westlake Park Boulevard, Suit 110 Houston, Texas 77079 Attention: Chief Financial Officer Re: WAIVER OF VIOLATION OF SECTIONS 9.3(A), (B) AND (C) OF THE SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT WITH FLEET CAPITAL CORPORATION AND AMENDMENT TO DEFINITIONS OF "BORROWING BASE", "COMMITMENT" AND "AVAILABILITY" IN THE SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT AND POSSIBLE INCREASE IN APPLICABLE ANNUAL RATE UNDER THE SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT AND ADDITION OF TWO NEW COVENANTS RELATING TO MONTHLY FIXED CHARGE RATIO AND MONTHLY AVERAGE AVAILABILITY AND DELETION OF RIGHT TO REQUEST EURODOLLAR LOANS. Gentlemen: Reference is hereby made to that certain Second Amended and Restated Loan and Security Agreement, dated as of April 1, 1994, executed by Sepco Industries, Inc. ("Sepco") and Barclays Business Credit, Inc. (as amended from time to time, the "Loan Agreement"). Unless otherwise indicated, all terms used herein shall have the same meanings as in the Loan Agreement. Sepco, Bayou Pumps, Inc. ("Bayou"), and American MRO, Inc. ("American") (Sepco, Bayou and American are hereinafter collectively referred to as the "Borrower") and Fleet Capital Corporation (successor-in-interest to Barclays Business Credit, Inc. and being hereinafter referred to as the "Lender") are the present parties to the Loan Agreement. The Borrower has informed Lender that as of the measurement periods ended December 31, 1998, and March 31, 1999, respectively, the Borrower was in violation of the financial covenants contained in Sections 9.3(A), (B) and (C) of the Loan Agreement (collectively, the "Financial Covenant Violations"), and has requested that Lender waive such Financial Covenant Violations. In addition, Borrower hereby agrees and acknowledges that it has requested, effective as of the date hereof, that (i) Lender agree to amend the definition of "Borrowing Base" contained in Section 1.1 of the Loan Agreement by deleting therefrom the phrase "Forty Million Dollars ($40,000,000)" and substituting therefor the phrase "Thirty Six Million Eight Hundred Thousand Dollars ($36,800,000)", (ii) Lender agree to amend and restate the definition of "Commitment" contained in Section 1.1 of the Loan Agreement to read in its entirety as follows: "Commitment - Thirty Six Million Eight Hundred Thousand Dollars ($36,800,000).", (iii) Lender agree to amend and restate the definition of "Availability" contained in Section 1.1 of the Loan Agreement to read in its entirety as follows: "Availability - The amount of money which Borrower is entitled to borrow from time to time as Revolving Credit Loans, such amount being the difference derived when the sum of the principal amount of revolving Credit Loans then outstanding (including any amounts which Lender may have paid for the account of Borrower pursuant to any of the Loan Documents and which have not been reimbursed by Borrower) and the undrawn amount of all LC Guaranties then outstanding is subtracted from the Borrowing Base, as the calculation is determined by Lender. If the amount outstanding is equal to or greater than the Borrowing Base, Availability is 0.", 2 DXP Acquisition, Inc. March 30, 1999 Page 2 (iv) the following sentence shall be added to Section 3.7(A) of the Loan Agreement: "The Borrower agrees that Borrower shall no longer have the right to request a Eurodollar Loan under the Loan Agreement, and Lender shall not be required to make a Eurodollar Loan to Borrower.", and (v) Lender agree to add the following two financial covenants to Section 9.3 of the Loan Agreement, which shall be added as a new Section 9.3(D) and a new Section 9.3(E), which shall read and be as follows in their entirety: "(D) Maintain, on a consolidated basis in accordance with GAAP, as of the end of each fiscal month, beginning with the fiscal month ending on March 31, 1999, a Fixed Charge Ratio of not less than 1.00 to 1.00, for each such month. (E) Maintain average monthly Availability on a consolidated basis of not less than $3,000,000. For purposes of meeting this requirement, up to$1,000,000 of the Borrowing Base which is in excess of the combined Commitments of DXP Enterprises, Inc., Pelican State Supply Company, Inc., and Sepco Industries, Inc., Bayou Pumps, Inc. and America MRO, Inc. can be used to meet this average monthly Availability requirement." Lender hereby waives the Financial Covenant Violations and agrees to the revisions to the Loan Agreement set forth above; provided, however, that (i) such agreement to the above-described revisions to the Loan Agreement and such waiver shall not apply to or constitute a consent to any future amendment to any other provision of the Loan Agreement or a waiver of any other past, present or future violation or violations of any other provision of the Loan Agreement, and (ii) Lender's agreement to the above-described revisions to the Loan Agreement and Lender's failure to exercise any right, privilege or remedy as a result of the violation set forth above shall not directly or indirectly in any way whatsoever either: (a) impair, prejudice or otherwise adversely affect Lender's right at any time to exercise any right, privilege, or remedy in connection with the Loan Agreement, any other agreement, or any other contract or instrument, or (b) amend or alter any provision of the Loan Agreement, any other agreement, or any other contract or instrument, or (c) constitute any course of dealing or other basis for altering any obligation of Borrower or any right, privilege, or remedy of Lender under the Loan Agreement, any other agreement, or any other contract or instrument. Except as expressly set forth herein, all of the other terms, provisions and conditions of the Loan Agreement and other agreements shall remain and continue in full force and effect. Except as expressly stated herein, Lender reserves all of its rights, privileges and remedies under the Loan Agreement, each other agreement and any other contracts or instruments executed by Borrower and/or for the benefit of Lender. In order to induce Lender to execute this letter, Borrower accepts and agrees to each provision of this letter. Notwithstanding any provision of this letter to the contrary, this letter shall not be directly or indirectly effective against Lender for any purpose unless and until Lender receives a copy of this letter which has been duly signed by the Borrower. 3 DXP Acquisition, Inc. March 30, 1999 Page 3 Yours very truly, FLEET CAPITAL CORPORATION By: /s/ H. MICHAEL WILLS ------------------------------ Its: Senior Vice President ------------------------------ AGREED AND ACCEPTED: SEPCO INDUSTRIES, INC. By: /s/ GARY A. ALLCORN ------------------------------- Its: Senior Vice President/Finance ------------------------------- BAYOU PUMPS, INC. By: /s/ GARY A. ALLCORN ------------------------------- Its: Senior Vice President/Finance ------------------------------- AMERICAN MRO, INC. By: /s/ GARY A. ALLCORN ------------------------------- Its: Senior Vice President/Finance ------------------------------- EX-10.2 3 WAIVER AND AMENDMENT - PELICAN STATE SUPPLY CO. 1 EXHIBIT 10.2 March 30, 1999 Pelican State Supply Company, Inc. 580 Westlake Park Boulevard Suite 1100 Houston, Texas 77079 Attention: Chief Financial Officer Re: WAIVER OF VIOLATION OF SECTIONS 9.3(A), (B) AND (C) OF THE LOAN AND SECURITY AGREEMENT WITH FLEET CAPITAL CORPORATION AND AMENDMENT TO DEFINITIONS OF "BORROWING BASE", "COMMITMENT" AND AVAILABILITY IN THE LOAN AND SECURITY AGREEMENT AND POSSIBLE INCREASE IN APPLICABLE ANNUAL RATE UNDER THE LOAN AND SECURITY AGREEMENT AND ADDITION OF TWO NEW COVENANTS RELATING TO MONTHLY FIXED CHARGE RATIO AND MONTHLY AVERAGE AVAILABILITY AND DELETION OF RIGHT TO REQUEST EURODOLLAR LOANS. Gentlemen: Reference is hereby made to that certain Loan and Security Agreement, dated as of May 29, 1997, executed by Fleet Capital Corporation, a Rhode Island corporation ("Lender") and Pelican State Supply Company, Inc., a Nevada corporation ("Borrower") (as amended from time to time, the "Loan Agreement"). Unless otherwise indicated, all terms used herein shall have the same meanings as in the Loan Agreement. The Borrower has informed Lender that as of the measurement periods ended December 31, 1998, and March 31, 1999, respectively, the Borrower was in violation of the financial covenants contained in Sections 9.3(A), (B) and (C) of the Loan Agreement (collectively, the "Financial Covenant Violations"), and has requested that Lender waive such violations. In addition, Borrower hereby agrees and acknowledges that it has requested, effective as of the date hereof, that (i) Lender agree to amend the definition of "Borrowing Base" contained in Section 1.1 of the Loan Agreement by (a) deleting therefrom the phrase "Two Million Five Hundred Thousand Dollars ($2,500,000)" and substituting therefor the phrase "One Million Four Hundred Thousand Dollars ($1,400,000)," and (b) by deleting the phrase "One Million Five Hundred Thousand Dollars ($1,500,000)" and substituting therefor the phrase "One Million Four Hundred Thousand Dollars ($1,400,000), (ii) Lender agree to amend and restate the definition of "Commitment" contained in Section 1.1 of the Loan Agreement to read in its entirety as follows: "Commitment - One Million Four Hundred Thousand Dollars ($1,400,000)", (iii) Lender agree to amend and restate the definition of "Availability" contained in Section 1.1 of the Loan Agreement to read in its entirety as follows: "Availability - The amount of money which Borrower is entitled to borrow from time to time as Revolving Credit Loans, such amount being the difference derived when the sum of the principal amount of revolving Credit Loans then outstanding (including any amounts which Lender may have paid for the account of Borrower pursuant to any of the Loan Documents and which have not been reimbursed by Borrower) and the undrawn amount of all LC Guaranties then outstanding is subtracted from the Borrowing Base, as 2 Pelican State Supply Company, Inc. March 30, 1999 Page 2 the calculation is determined by Lender. If the amount outstanding is equal to or greater than the Borrowing Base, Availability is 0.", (iv) the following sentence shall be added to Section 3.7(A) of the Loan Agreement: "The Borrower agrees that Borrower shall no longer have the right to request a Eurodollar Loan under the Loan Agreement, and Lender shall not be required to make a Eurodollar Loan to Borrower.", and (v) Lender agree to add the following two financial covenants to Section 9.3 of the Loan Agreement, which shall be added as a new Section 9.3(D) and a new Section 9.3(E), which shall read and be as follows in their entirety: "(D) Maintain, on a consolidated basis in accordance with GAAP, as of the end of each fiscal month, beginning with the fiscal month ending on March 31, 1999, a Fixed Charge Ratio of not less than 1.00 to 1.00, for each such month. (E) Maintain average monthly Availability on a consolidated basis of not less than $3,000,000. For purposes of meeting this requirement, up to$1,000,000 of the Borrowing Base which is in excess of the combined Commitments of DXP Enterprises, Inc., Pelican State Supply Company, Inc., and Sepco Industries, Inc., Bayou Pumps, Inc. and America MRO, Inc. can be used to meet this average monthly Availability requirement." Lender hereby waives the Financial Covenant Violations and agrees to the revisions to the Loan Agreement set forth above; provided, however, that (i) such agreement to the above-described revisions to the Loan Agreement and such waiver shall not apply to or constitute a consent to any future amendment to any other provision of the Loan Agreement or a waiver of any other past, present or future violation or violations of any other provision of the Loan Agreement, and (ii) Lender's agreement to the above-described revisions to the Loan Agreement and Lender's failure to exercise any right, privilege or remedy as a result of the violation set forth above shall not directly or indirectly in any way whatsoever either: (a) impair, prejudice or otherwise adversely affect Lender's right at any time to exercise any right, privilege, or remedy in connection with the Loan Agreement, any other agreement, or any other contract or instrument, or (b) amend or alter any provision of the Loan Agreement, any other agreement, or any other contract or instrument, or (c) constitute any course of dealing or other basis for altering any obligation of Borrower or any right, privilege, or remedy of Lender under the Loan Agreement, any other agreement, or any other contract or instrument. Except as expressly set forth herein, all of the other terms, provisions and conditions of the Loan Agreement and other agreements shall remain and continue in full force and effect. Except as expressly stated herein, Lender reserves all of its rights, privileges and remedies under the Loan Agreement, each other agreement and any other contracts or instruments executed by Borrower 3 Pelican State Supply Company, Inc. March 30, 1999 Page 3 and/or for the benefit of Lender. In order to induce Lender to execute this letter, Borrower accepts and agrees to each provision of this letter. Notwithstanding any provision of this letter to the contrary, this letter shall not be directly or indirectly effective against Lender for any purpose unless and until Lender receives a copy of this letter which has been duly signed by the Borrower. Yours very truly, FLEET CAPITAL CORPORATION By: H. MICHAEL WILLS ------------------------------ Its: Senior Vice President ------------------------------ AGREED AND ACCEPTED: PELICAN STATE SUPPLY COMPANY, INC. By: GARY A. ALLCORN -------------------------------- Its: Senior Vice President/Finance -------------------------------- EX-10.3 4 WAIVER AND AMENDMENT - DXP ACQUISITION, INC. 1 EXHIBIT 10.3 March 30, 1999 DXP Acquisition, Inc. d/b/a Strategic Acquisition, Inc. 580 Westlake Park Boulevard Suite 1100 Houston, Texas 77079 Attention: Chief Financial Officer Re: WAIVER OF VIOLATION OF SECTIONS 9.3(A), (B) AND (C) OF THE LOAN AND SECURITY AGREEMENT WITH FLEET CAPITAL CORPORATION AND AMENDMENT TO DEFINITIONS OF "BORROWING BASE", "COMMITMENT", AND AVAILABILITY IN THE LOAN AND SECURITY AGREEMENT AND POSSIBLE INCREASE IN APPLICABLE ANNUAL RATE UNDER THE LOAN AND SECURITY AGREEMENT AND ADDITION OF TWO NEW COVENANTS RELATING TO MONTHLY FIXED CHARGE RATIO AND MONTHLY AVERAGE AVAILABILITY AND DELETION OF RIGHT TO REQUEST EURODOLLAR LOANS. Gentlemen: Reference is hereby made to that certain Loan and Security Agreement, dated June 16, 1997, executed by Fleet Capital Corporation, a Rhode Island corporation ("Lender") and DXP Acquisition, Inc. d/b/a Strategic Acquisition, Inc., a Nevada corporation ("Borrower") (as amended from time to time, the "Loan Agreement"). Unless otherwise indicated, all terms used herein shall have the same meanings as in the Loan Agreement. The Borrower has informed Lender that as of the measurement periods ended December 31, 1998, and March 31, 1999, respectively, the Borrower was in violation of each of the financial covenants contained in Sections 9.3(A), (B) and (C) of the Loan Agreement (collectively, the "Financial Covenant Violations"), and has requested that Lender waive such Financial Covenant Violations. In addition, Borrower hereby agrees and acknowledges that it has requested, effective as of the date hereof, that (i) Lender agree to amend the definition of "Borrowing Base" contained in Section 1.1 of the Loan Agreement (a) by deleting therefrom the phrase "Seven Million Five Hundred Thousand Dollars ($7,500,000)" and substituting therefor the phrase "Five Million Eight Hundred Thousand Dollars ($5,800,000)", and (b) by deleting therefrom the phrase "Six Million Dollars ($6,000,000) and substituting therefor the phrase "Five Million Eight Hundred Thousand Dollars ($5,800,000)", (ii) Lender agrees to amend and restate the definition of "Commitment" contained in Section 1.1 of the Loan Agreement to read in its entirety as follows: "Commitment" - Five Million Eight Hundred Thousand Dollars ($5,800,000).", (iii) Lender agree to amend and restate the definition of "Availability" contained in Section 1.1 of the Loan Agreement to read in its entirety as follows: "Availability - The amount of money which Borrower is entitled to borrow from time to time as Revolving Credit Loans, such amount being the difference derived when the sum of the principal amount of revolving Credit Loans then outstanding (including any 2 DXP Acquisition, Inc. March 30, 1999 Page 2 amounts which Lender may have paid for the account of Borrower pursuant to any of the Loan Documents and which have not been reimbursed by Borrower) and the undrawn amount of all LC Guaranties then outstanding is subtracted from the Borrowing Base, as the calculation is determined by Lender. If the amount outstanding is equal to or greater than the Borrowing Base, Availability is 0.", (iv) the following sentence shall be added to Section 3.7(A) of the Loan Agreement: "The Borrower agrees that Borrower shall no longer have the right to request a Eurodollar Loan under the Loan Agreement, and Lender shall not be required to make a Eurodollar Loan to Borrower.", and (v) Lender agree to add the following two financial covenants to Section 9.3 of the Loan Agreement, which shall be added as a new Section 9.3(D) and a new Section 9.3(E), which shall read and be as follows in their entirety: "(D) Maintain, on a consolidated basis in accordance with GAAP, as of the end of each fiscal month, beginning with the fiscal month ending on March 31, 1999, a Fixed Charge Ratio of not less than 1.00 to 1.00, for each such month. (E) Maintain average monthly Availability on a consolidated basis of not less than $3,000,000. For purposes of meeting this requirement, up to $1,000,000 of the Borrowing Base which is in excess of the combined Commitments of DXP Enterprises, Inc., Pelican State Supply Company, Inc., and Sepco Industries, Inc., Bayou Pumps, Inc. and America MRO, Inc. can be used to meet this average monthly Availability requirement." Lender hereby waives the Financial Covenant Violations and agrees to the revisions to the Loan Agreement set forth above; provided, however, that (i) such agreement to the above-described revisions to the Loan Agreement and such waiver shall not apply to or constitute a consent to any future amendment to any other provision of the Loan Agreement or a waiver of any other past, present or future violation or violations of any other provision of the Loan Agreement, and (ii) Lender's agreement to the above-described revisions to the Loan Agreement and Lender's failure to exercise any right, privilege or remedy as a result of the violation set forth above shall not directly or indirectly in any way whatsoever either: (a) impair, prejudice or otherwise adversely affect Lender's right at any time to exercise any right, privilege, or remedy in connection with the Loan Agreement, any other agreement, or any other contract or instrument, or (b) amend or alter any provision of the Loan Agreement, any other agreement, or any other contract or instrument, or (c) constitute any course of dealing or other basis for altering any obligation of Borrower or any right, privilege, or remedy of Lender under the Loan Agreement, any other agreement, or any other contract or instrument. Except as expressly set forth herein, all of the other terms, provisions and conditions of the Loan Agreement and other agreements shall remain and continue in full force and effect. 3 DXP Acquisition, Inc. March 30, 1999 Page 3 Except as expressly stated herein, Lender reserves all of its rights, privileges and remedies under the Loan Agreement, each other agreement and any other contracts or instruments executed by Borrower and/or for the benefit of Lender. In order to induce Lender to execute this letter, Borrower accepts and agrees to each provision of this letter. Notwithstanding any provision of this letter to the contrary, this letter shall not be directly or indirectly effective against Lender for any purpose unless and until Lender receives a copy of this letter which has been duly signed by the Borrower. Yours very truly, FLEET CAPITAL CORPORATION By: H. MICHAEL WILLS -------------------------------- Its: Senior Vice President -------------------------------- AGREED AND ACCEPTED: DXP ACQUISITION, INC., d/b/a STRATEGIC ACQUISITION, INC. By: GARY A. ALLCORN -------------------------------- Its: Senior Vice President/Finance -------------------------------- EX-10.4 5 AMEND. TO 2ND AMENDED LOAN & SECURITY AGMT. 1 EXHIBIT 10.4 MAY 1999 AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT AND MODIFICATION TO OTHER AGREEMENTS THIS MAY 1999 AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT AND MODIFICATION TO OTHER AGREEMENTS (this "Amendment") is made and entered into this 13th day of May, 1999, to be effective as of the respective date herein indicated, by and among SEPCO INDUSTRIES, INC., a Texas corporation ("Sepco"), BAYOU PUMPS, INC., a Texas corporation ("Bayou") and AMERICAN MRO, INC., a Nevada corporation ("American") (Sepco, Bayou and American being hereinafter individually and collectively referred to as "Borrower", as governed by the provisions of Section 1.4, Section 1.5, and Section 1.6 of the Loan Agreement, as hereinafter defined), and FLEET CAPITAL CORPORATION, a Rhode Island corporation ("Lender"), successor-in-interest by merger to Fleet Capital Corporation, a Connecticut corporation (Fleet Capital Corporation, a Connecticut corporation, having been, formerly known as Shawmut Capital Corporation, and having been the successor-in-interest by assignment to Barclays Business Credit, Inc., a Connecticut corporation). RECITALS A. Sepco and Barclays Business Credit, Inc., have entered into that certain Second Amended and Restated Loan and Security Agreement, dated as of April 1, 1994, as amended by that certain First Amendment to Second Amended and Restated Loan and Security Agreement and Secured Promissory Note, dated May, 1995, executed by Sepco and Fleet Capital Corporation, a Connecticut corporation (at that time known as Shawmut Capital Corporation), and as amended by that certain Second Amendment to Second Amended and Restated Loan and Security Agreement, entered into on April 3, 1996, executed by Sepco and Fleet Capital Corporation, a Connecticut corporation, and as amended by that certain Third Amendment to Second Amended and Restated Loan and Security Agreement, dated September 9, 1996, executed by Sepco, Bayou and Lender, and as amended by that certain Fourth Amendment to Second Amended and Restated Loan and Security Agreement, dated October 24, 1996, executed by Lender and Borrower, and as amended by that certain letter agreement dated November 4, 1996, entered into by Lender and Borrower, and as amended by that certain Fifth Amendment to Second Amended and Restated Loan and Security Agreement, dated June 2, 1997, executed by Lender and Borrower, and as amended by that certain Sixth Amendment to Second Amended and Restated Loan and Security Agreement and Amendment to Other Agreements executed by Borrower and Lender, and as amended by that certain Seventh Amendment to Second Amended and Restated Loan and Security Agreement, entered into on June 30, 1998, executed by Borrower and Lender, and as amended by that certain Eighth Amendment to Second Amended and Restated Loan and Security Agreement and Modification to Other Agreements, entered into on October 20, 1998, executed by Borrower and Lender, and as amended by that certain letter agreement dated March 30, 1999, executed by Borrower and Lender (as amended, the "Loan Agreement"). B. Lender, effective May 1, 1996, as successor-in-interest by merger to Fleet Capital Corporation, a Connecticut corporation, succeeded to, and today remains the present holder of, all right, title and interest of Fleet Capital Corporation, a Connecticut corporation, in the Loan Agreement and each of the Other Agreements. MAY 1999 AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT - PAGE 1 2 C. Borrower and Lender desire to further amend the Loan Agreement and the Other Agreements as hereinafter set forth. NOW, THEREFORE, in consideration of the premises herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties, intending to be legally bound, agree as follows: AGREEMENT ARTICLE I DEFINITIONS 1.01 Capitalized terms used in this Amendment are defined in the Loan Agreement, as amended hereby, unless otherwise stated. ARTICLE II AMENDMENTS AND MODIFICATION Effective as of the respective date herein indicated, the Loan Agreement and the Other Agreements are hereby respectively amended as follows: 2.01 AMENDMENT TO SECTION 2.2(A) OF THE LOAN AGREEMENT. Effective as of the date of execution of this Amendment, Section 2.2(A) of the Loan Agreement is amended by deleting therefrom the reference to the date "January 1, 2000" and substituting therefor the date "March 31, 2000." 2.02 AMENDMENT TO SECTION 3.3. Effective as of the date of execution of this Amendment, Section 3.3 of the Loan Agreement is hereby amended as follows: (i) Section 3.3(A) is amended by deleting therefrom the reference to the date "January 2, 2000" and substituting therefor the date "April 1, 2000." (ii) Section 3.3(C) is amended by deleting therefrom the reference to the date "January 2, 2000" and substituting therefor the date "April 1, 2000." 2.03 EXTENSION OF MATURITY OF TERM NOTE. Effective as of the date of execution of this Amendment, the maturity of the Term Note is hereby renewed and extended until April 1, 2000. 2.04 AMENDMENT TO PAYMENT TERMS IN THE TERM NOTE. Borrower and Lender hereby agree that effective as of the date of execution of this Amendment, the last paragraph on page two of the Term Note is amended by deleting therefrom the date "January 2, 2000" and substituting therefor the date "April 1, 2000." ARTICLE III LIMITED WAIVER 3.01 Borrower has informed Lender that Borrower has violated the following covenants contained in the Loan Agreement and has requested that Lender waive such violations: (i) Borrower failed to maintain as of the end of the fiscal month ending March 31, 1999, a Fixed Charge Ratio of not MAY 1999 AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT - PAGE 2 3 less than the relevant ratio provided for in Section 9.3(D) of the Loan Agreement, and (ii) Borrower failed to maintain average monthly Availability for the fiscal month ending April 30, 1999 of not less than the relevant amount provided for in Section 9.3(E) of the Loan Agreement. Subject to the satisfaction of the conditions precedent set forth in Section 4.01 of this Amendment and to the other terms, conditions and provisions of this Amendment, Lender hereby waives each of the above-described violations of the above-described Sections of the Loan Agreement; provided, however, that the waiver described in this Section 3.01 of this Amendment is strictly limited to the Sections of the Loan Agreement described above and to the specific occurrences described above. Except as otherwise specifically provided for in this Amendment, nothing contained herein shall be construed as a waiver by Lender of any covenant or provision of the Loan Agreement, the Other Agreements, this Amendment or of any other contract or instrument between Borrower and Lender, and the failure of Lender at any time or times hereafter to require strict performance by Borrower of any provision thereof shall not waive, affect or diminish any right of Lender to thereafter demand strict compliance therewith. Lender hereby reserves all rights granted under the Loan Agreement, the Other Agreements, this Amendment and any other contract or instrument between Borrower and Lender. ARTICLE IV CONDITIONS PRECEDENT 4.01 CONDITIONS TO EFFECTIVENESS. The effectiveness of this Amendment is subject to the satisfaction of the following conditions precedent in a manner satisfactory to Lender, unless specifically waived in writing by Lender: (a) Lender shall have received each of the following, each in form and substance satisfactory to Lender, in its sole discretion, and, where applicable, each duly executed by each party thereto, other than Lender: (i) This Amendment, duly executed by Borrower, together with the relevant Consent, Ratification, and Amendment, respectively duly executed by David R. Little, individually, Gary A. Allcorn, Trustee for Kacey Joyce Little, Nicholas David Little and Andrea Rae Little 1988 Trusts, DXP Enterprises, Inc. ("Parent"), DXP Acquisition, Inc., d/b/a Strategic Acquisition, Inc. and Pelican State Supply Company, Inc.; and (ii) All other documents Lender may request with respect to any matter relevant to this Amendment or the transactions contemplated hereby; (b) The representations and warranties contained herein and in the Loan Agreement and the Other Agreements, as each is amended hereby, shall be true and correct as of the date hereof, as if made on the date hereof; (c) No Default or Event of Default shall have occurred and be continuing, unless such Default or Event of Default has been otherwise specifically waived in writing by Lender; and (d) All corporate proceedings taken in connection with the transactions contemplated by this Amendment and all documents, instruments and other legal matters incident thereto shall be satisfactory to Lender and its legal counsel. MAY 1999 AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT - PAGE 3 4 ARTICLE V RATIFICATIONS, REPRESENTATIONS AND WARRANTIES 5.01 RATIFICATIONS. The terms and provisions set forth in this Amendment shall modify and supersede all inconsistent terms and provisions set forth in the Loan Agreement and the Other Agreements, and, except as expressly modified and superseded by this Amendment, the terms and provisions of the Loan Agreement and the Other Agreements are ratified and confirmed and shall continue in full force and effect. Each Borrower and Lender agree that the Loan Agreement and the Other Agreements, as amended hereby, shall continue to be legal, valid, binding and enforceable in accordance with their respective terms. 5.02 REPRESENTATIONS AND WARRANTIES. Each Borrower hereby represents and warrants to Lender that (a) the execution, delivery and performance of this Amendment and any and all Other Agreements executed and/or delivered in connection herewith have been authorized by all requisite corporate action on the part of such Borrower and will not violate the Articles of Incorporation or Bylaws of such Borrower; (b) attached hereto as Annex A is a true, correct and complete copy of presently effective resolutions of each Borrower's Board of Directors authorizing the execution, delivery and performance of this Amendment and any and all Other Agreements executed and/or delivered in connection herewith, certified by the Assistant Secretary of Borrower; (c) the representations and warranties contained in the Loan Agreement, as amended hereby, and any Other Agreement are true and correct on and as of the date hereof and on and as of the date of execution hereof as though made on and as of each such date; (d) no Default or Event of Default under the Loan Agreement, as amended hereby, has occurred and is continuing, unless such Default or Event of Default has been specifically waived in writing by Lender; (e) each Borrower is in full compliance with all covenants and agreements contained in the Loan Agreement and the Other Agreements, as amended hereby; (f) Sepco has not amended its Articles of Incorporation or its Bylaws since the date of the Loan Agreement, (g) Bayou has not amended its Articles of Incorporation or its Bylaws since the date of incorporation of Bayou and (h) American has not amended its Articles of Incorporation or its Bylaws since the date of incorporation of American. ARTICLE VI MISCELLANEOUS PROVISIONS 6.01 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and warranties made in the Loan Agreement or any Other Agreement, including, without limitation, any document furnished in connection with this Amendment, shall survive the execution and delivery of this Amendment and the Other Agreements, and no investigation by Lender or any closing shall affect the representations and warranties or the right of Lender to rely upon them. 6.02 REFERENCE TO LOAN AGREEMENT. Each of the Loan Agreement and the Other Agreements, and any and all other agreements, documents or instruments now or hereafter executed and delivered pursuant to the terms hereof or pursuant to the terms of the Loan Agreement, as amended hereby, are hereby amended so that any reference in the Loan Agreement and such Other Agreements to the Loan Agreement shall mean a reference to the Loan Agreement as amended hereby. 6.03 EXPENSES OF LENDER. As provided in the Loan Agreement, each Borrower agrees to pay on demand all costs and expenses incurred by Lender in connection with the preparation, negotiation, and execution of this Amendment and the Other Agreements executed pursuant hereto and any and all amendments, modifications, and supplements thereto, including, without limitation, the costs and fees of MAY 1999 AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT - PAGE 4 5 Lender's legal counsel, and all costs and expenses incurred by Lender in connection with the enforcement or preservation of any rights under the Loan Agreement, as amended hereby, or any Other Agreements, including, without, limitation, the costs and fees of Lender's legal counsel. 6.04 SEVERABILITY. Any provision of this Amendment held by a court of competent jurisdiction to be invalid or unenforceable shall not impair or invalidate the remainder of this Amendment and the effect thereof shall be confined to the provision so held to be invalid or unenforceable. 6.05 SUCCESSORS AND ASSIGNS. This Amendment is binding upon and shall inure to the benefit of Lender and each Borrower and their respective successors and assigns, except that no Borrower may assign or transfer any of its rights or obligations hereunder without the prior written consent of Lender. 6.06 COUNTERPARTS. This Amendment may be executed in one or more counterparts, each of which when so executed shall be deemed to be an original, but all of which when taken together shall constitute one and the same instrument. 6.07 EFFECT OF WAIVER. No consent or waiver, express or implied, by Lender to or for any breach of or deviation from any covenant or condition by any Borrower shall be deemed a consent to or waiver of any other breach of the same or any other covenant, condition or duty. 6.08 HEADINGS. The headings, captions, and arrangements used in this Amendment are for convenience only and shall not affect the interpretation of this Amendment. 6.09 APPLICABLE LAW. THIS AMENDMENT AND ALL OTHER AGREEMENTS EXECUTED PURSUANT HERETO SHALL BE DEEMED TO HAVE BEEN MADE AND TO BE PERFORMABLE IN AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS. 6.10 FINAL AGREEMENT. THE LOAN AGREEMENT AND THE OTHER AGREEMENTS, EACH AS AMENDED HEREBY, REPRESENT THE ENTIRE EXPRESSION OF THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF ON THE DATE THIS AMENDMENT IS EXECUTED. THE LOAN AGREEMENT AND THE OTHER AGREEMENTS, AS AMENDED HEREBY, MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. NO MODIFICATION, RESCISSION, WAIVER, RELEASE OR AMENDMENT OF ANY PROVISION OF THIS AMENDMENT SHALL BE MADE, EXCEPT BY A WRITTEN AGREEMENT SIGNED BY EACH BORROWER AND LENDER. 6.11 RELEASE. EACH BORROWER HEREBY ACKNOWLEDGES THAT IT HAS NO DEFENSE, COUNTERCLAIM, OFFSET, CROSS-COMPLAINT, CLAIM OR DEMAND OF ANY KIND OR NATURE WHATSOEVER THAT CAN BE ASSERTED TO REDUCE OR ELIMINATE ALL OR ANY PART OF ITS LIABILITY TO REPAY THE "OBLIGATIONS" OR TO SEEK AFFIRMATIVE RELIEF OR DAMAGES OF ANY KIND OR NATURE FROM LENDER. EACH BORROWER HEREBY VOLUNTARILY AND KNOWINGLY RELEASES AND FOREVER DISCHARGES LENDER, ITS PREDECESSORS, AGENTS, EMPLOYEES, SUCCESSORS AND ASSIGNS, FROM ALL POSSIBLE CLAIMS, DEMANDS, ACTIONS, CAUSES OF ACTION, DAMAGES, COSTS, EXPENSES, AND LIABILITIES WHATSOEVER, KNOWN OR UNKNOWN, MAY 1999 AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT - PAGE 5 6 ANTICIPATED OR UNANTICIPATED, SUSPECTED OR UNSUSPECTED, FIXED, CONTINGENT, OR CONDITIONAL, AT LAW OR IN EQUITY, ORIGINATING IN WHOLE OR IN PART ON OR BEFORE THE DATE THIS AMENDMENT IS EXECUTED, WHICH ANY BORROWER MAY NOW OR HEREAFTER HAVE AGAINST LENDER, ITS PREDECESSORS, AGENTS, EMPLOYEES, SUCCESSORS AND ASSIGNS, IF ANY, AND IRRESPECTIVE OF WHETHER ANY SUCH CLAIMS ARISE OUT OF CONTRACT, TORT, VIOLATION OF LAW OR REGULATIONS, OR OTHERWISE, AND ARISING FROM ANY "LOANS", INCLUDING, WITHOUT LIMITATION, ANY CONTRACTING FOR, CHARGING, TAKING, RESERVING, COLLECTING OR RECEIVING INTEREST IN EXCESS OF THE HIGHEST LAWFUL RATE APPLICABLE, THE EXERCISE OF ANY RIGHTS AND REMEDIES UNDER THE LOAN AGREEMENT OR OTHER AGREEMENTS, AND NEGOTIATION FOR AND EXECUTION OF THIS AMENDMENT. MAY 1999 AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT - PAGE 6 7 IN WITNESS WHEREOF, this Amendment has been executed and is effective as of the date first above-written. "BORROWER" SEPCO INDUSTRIES, INC. By: /s/ GARY A. ALLCORN ------------------------------- Name Gary A. Allcorn ------------------------------- Title: Senior Vice President/Finance ------------------------------- BAYOU PUMPS, INC. By: /s/ GARY A. ALLCORN ----------------------------- Name Gary A. Allcorn ----------------------------- Title: Senior Vice President/Finance ----------------------------- AMERICAN MRO, INC. By: /s/ GARY A. ALLCORN ------------------------------ Name Gary A. Allcorn ------------------------------ Title: Senior Vice President/Finance ------------------------------ "LENDER" FLEET CAPITAL CORPORATION By: /s/ H. MICHAEL WILLS ---------------------------- Name H. Michael Wills ---------------------------- Title: Senior Vice President ---------------------------- ANNEXES: A-1 - Certified Resolutions of Sepco Industries, Inc. A-2 - Certified Resolutions of Bayou Pumps, Inc. A-3 - Certified Resolutions of American MRO, Inc. MAY 1999 AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT - PAGE 7 8 ANNEX A-1 CERTIFIED RESOLUTIONS OF SEPCO INDUSTRIES, INC.'S BOARD OF DIRECTORS RESOLVED: That any officer of Sepco Industries, Inc., a Texas corporation (the "Corporation"), acting alone, by his signature be, and the same hereby is, authorized and directed, in the name of and on behalf of the Corporation (a) to amend the Corporation's existing Second Amended and Restated Loan and Security Agreement by and between the Corporation and Fleet Capital Corporation, a Rhode Island corporation ("Lender"), successor-in-interest by merger to Fleet Capital Corporation, a Connecticut corporation (Fleet Capital Corporation, a Connecticut Corporation having been formerly known as Shawmut Capital Corporation and having been the successor-in-interest by assignment to Barclays Business Credit, Inc.), (b) to execute and deliver to Lender with such changes in the terms and provisions thereof as the officer executing same shall, in his sole discretion, deem advisable, (i) a certain proposed May 1999 Amendment to Second Amended and Restated Loan and Security Agreement and Modification to Other Agreements and to be executed by Corporation, Bayou Pumps, Inc., American MRO, Inc. and Lender, a draft of which has been reviewed and discussed by the Board of Directors of the Corporation, and (ii) such other agreements, instruments, statements and writings as the officer or officers executing the same may deem desirable or necessary in connection therewith, and (c) to perform such other acts as the officer or officers performing such acts on behalf of the Corporation may deem desirable or necessary in connection therewith; and be it FURTHER RESOLVED: That said agreements will benefit the Corporation, both directly and indirectly, and are in the best interests of the Corporation; and be it FURTHER RESOLVED: That said agreements and other statements in writing executed in the name and on behalf of the Corporation by any officer of the Corporation shall be presumed conclusively to be the instruments, the execution of which is authorized by these resolutions; and be it FURTHER RESOLVED: That the officers of the Corporation be, and the same hereby are, authorized and directed to execute, in the name of and on behalf of the Corporation, security agreements, financing statements, assignments, collateral reports, loan statements, confirmations of delivery, lien statements, pledge certificates, release certificates, removal reports, guaranties, cross- collateralization agreements and such other writings and to take such other actions as are necessary in their dealings with Lender, and any such papers executed and any such actions taken by any of them prior to this time are approved, ratified and confirmed; and be it FURTHER RESOLVED: That the Secretary or any Assistant Secretary of the Corporation, by the signature of any one or more of them, be, and the same hereby are, authorized and directed to attest the execution by the Corporation of the papers signed pursuant to these resolutions, to affix the seal of the Corporation thereto, if required by Lender, and to certify to Lender the adoption of these resolutions. ANNEX A-1 TO MAY 1999 AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT - Page 1 9 CERTIFICATION The undersigned hereby certifies that the within and foregoing resolutions are in effect as of the date hereof, without modification, and that the person signing the within and foregoing Amendment on behalf of the Corporation is the duly elected officer stated below his name, that he is authorized to sign such Amendment, and that his signature thereon is genuine. DATED: May , 1999. ---- ---------------------------------------- [Assistant] Secretary of the Corporation ANNEX A-1 TO MAY 1999 AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT - Page 2 10 ANNEX A-2 CERTIFIED RESOLUTIONS OF BAYOU PUMPS, INC.'S BOARD OF DIRECTORS RESOLVED: That any officer of Bayou Pumps, Inc., a Texas corporation (the "Corporation"), acting alone, by his signature be, and the same hereby is, authorized and directed, in the name of and on behalf of the Corporation (a) to become a party to and amend that certain Second Amended and Restated Loan and Security Agreement by and between Sepco Industries, Inc. ("Sepco") and Fleet Capital Corporation, a Rhode Island corporation ("Lender"), successor-in-interest by merger to Fleet Capital Corporation, a Connecticut corporation (Fleet Capital Corporation, a Connecticut Corporation having been formerly known as Shawmut Capital Corporation and having been the successor-in-interest by assignment to Barclays Business Credit, Inc.), as thereafter amended (Corporation being a present party to such Second Amended and Restated Loan and Security Agreement), (b) to execute and deliver to Lender with such changes in the terms and provisions thereof as the officer executing same shall, in his sole discretion, deem advisable, (i) a certain proposed May 1999 Amendment to Second Amended and Restated Loan and Security Agreement and Modification to Other Agreements to be executed by Corporation, Sepco, American MRO, Inc. and Lender, a draft of which has been reviewed and discussed by the Board of Directors of the Corporation, and (ii) such other agreements, instruments, statements and writings as the officer or officers executing the same may deem desirable or necessary in connection therewith, and (c) to perform such other acts as the officer or officers performing such acts on behalf of the Corporation may deem desirable or necessary in connection therewith; and be it FURTHER RESOLVED: That said agreements will benefit the Corporation, both directly and indirectly, and are in the best interests of the Corporation; and be it FURTHER RESOLVED: That said agreements and other statements in writing executed in the name and on behalf of the Corporation by any officer of the Corporation shall be presumed conclusively to be the instruments, the execution of which is authorized by these resolutions; and be it FURTHER RESOLVED: That the officers of the Corporation be, and the same hereby are, authorized and directed to execute, in the name of and on behalf of the Corporation, security agreements, financing statements, assignments, collateral reports, loan statements, confirmations of delivery, lien statements, pledge certificates, release certificates, removal reports, guaranties, cross- collateralization agreements and such other writings and to take such other actions as are necessary in their dealings with Lender, and any such papers executed and any such actions taken by any of them prior to this time are approved, ratified and confirmed; and be it FURTHER RESOLVED: That the Secretary or any Assistant Secretary of the Corporation, by the signature of any one or more of them, be, and the same hereby are, authorized and directed to attest the execution by the Corporation of the papers signed pursuant to these resolutions, to affix the seal of the Corporation thereto, if required by Lender, and to certify to Lender the adoption of these resolutions. ANNEX A-2 TO MAY 1999 AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT - Page 1 11 CERTIFICATION The undersigned hereby certifies that the within and foregoing resolutions are in effect as of the date hereof, without modification, and that the person signing the within and foregoing Amendment on behalf of the Corporation is the duly elected officer stated below his name, that he is authorized to sign such Amendment, and that his signature thereon is genuine. DATED: May , 1999. ---- ----------------------------------------, [Assistant] Secretary of the Corporation ANNEX A-2 TO MAY 1999 AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT - Page 2 12 ANNEX A-3 CERTIFIED RESOLUTIONS OF AMERICAN MRO, INC.'S BOARD OF DIRECTORS RESOLVED: That any officer of American MRO, Inc., a Nevada corporation (the "Corporation"), acting alone, by his signature be, and the same hereby is, authorized and directed, in the name of and on behalf of the Corporation (a) to amend that certain Second Amended and Restated Loan and Security Agreement by and between Sepco Industries, Inc. ("Sepco") and Fleet Capital Corporation, a Rhode Island corporation ("Lender"), successor-in-interest by merger to Fleet Capital Corporation, a Connecticut corporation (Fleet Capital Corporation, a Connecticut Corporation having been formerly known as Shawmut Capital Corporation and having been the successor-in-interest by assignment to Barclays Business Credit, Inc.), (b) to execute and deliver to Lender with such changes in the terms and provisions thereof as the officer executing same shall, in his sole discretion, deem advisable, (i) a certain proposed May 1999 Amendment to Second Amended and Restated Loan and Security Agreement and Modification to Other Agreements to be executed by Corporation, Sepco, Bayou Pumps, Inc. and Lender, a draft of which has been reviewed and discussed by the Board of Directors of the Corporation, and (ii) such other agreements, instruments, statements and writings as the officer or officers executing the same may deem desirable or necessary in connection therewith, and (c) to perform such other acts as the officer or officers performing such acts on behalf of the Corporation may deem desirable or necessary in connection therewith; and be it FURTHER RESOLVED: That said agreements will benefit the Corporation, both directly and indirectly, and are in the best interests of the Corporation; and be it FURTHER RESOLVED: That said agreements and other statements in writing executed in the name and on behalf of the Corporation by any officer of the Corporation shall be presumed conclusively to be the instruments, the execution of which is authorized by these resolutions; and be it FURTHER RESOLVED: That the officers of the Corporation be, and the same hereby are, authorized and directed to execute, in the name of and on behalf of the Corporation, security agreements, financing statements, assignments, collateral reports, loan statements, confirmations of delivery, lien statements, pledge certificates, release certificates, removal reports, guaranties, cross- collateralization agreements and such other writings and to take such other actions as are necessary in their dealings with Lender, and any such papers executed and any such actions taken by any of them prior to this time are approved, ratified and confirmed; and be it FURTHER RESOLVED: That the Secretary or any Assistant Secretary of the Corporation, by the signature of any one or more of them, be, and the same hereby are, authorized and directed to attest the execution by the Corporation of the papers signed pursuant to these resolutions, to affix the seal of the Corporation thereto, if required by Lender, and to certify to Lender the adoption of these resolutions. ANNEX A-3 TO MAY 1999 AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT - Page 1 13 CERTIFICATION The undersigned hereby certifies that the within and foregoing resolutions are in effect as of the date hereof, without modification, and that the person signing the within and foregoing Amendment on behalf of the Corporation is the duly elected officer stated below his name, that he is authorized to sign such Amendment, and that his signature thereon is genuine. DATED: May , 1999. ---- ----------------------------------------, [Assistant] Secretary of the Corporation ANNEX A-3 TO MAY 1999 AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT - Page 2 14 CONSENT, RATIFICATION, AND AMENDMENT The undersigned, DAVID R. LITTLE, has executed that certain Amended and Restated Unconditional Guaranty, dated September 16, 1994 (the "Guaranty"), in favor of FLEET CAPITAL CORPORATION, a Rhode Island corporation ("Lender"), successor-in-interest by merger to Fleet Capital Corporation, a Connecticut corporation (Fleet Capital Corporation, a Connecticut corporation, having formerly been known as Shawmut Capital Corporation and having been the successor-in-interest by assignment to Barclays Business Credit, Inc.). The undersigned hereby (i) consents and agrees to the terms of the May 1999 Amendment to Second Amended and Restated Loan and Security Agreement and Modification to Other Agreements, dated on or about the date hereof (the "Loan Amendment"), by and among Sepco Industries, Inc., a Texas corporation, Bayou Pumps, Inc., a Texas corporation, American MRO, Inc., a Nevada corporation, and Lender, a copy of which has been reviewed by the undersigned, and (ii) agrees that the Guaranty shall remain in full force and effect and shall continue to be the legal, valid and binding obligation of the undersigned enforceable against it in accordance with its terms. Furthermore, the undersigned hereby agrees and acknowledges that (a) the obligations, indebtedness and liabilities arising in connection with the Loan Amendment comprise some, but not all, of the "Obligations" as such term is used in the Guaranty, (b) the Guaranty is an "Other Agreement", as such term is defined in the Loan Agreement, (c) the Guaranty, is not as of this date subject to any claims, defenses or offsets, (d) nothing contained in the Loan Agreement or any Other Agreement entered into prior to or as of the date hereof shall adversely affect any right or remedy of Lender under the Guaranty, and (e) the execution and delivery of the Loan Amendment shall in no way reduce, impair or discharge any obligations of the undersigned as guarantor pursuant to the Guaranty and shall not constitute a waiver by Lender of any of Lender's rights against the undersigned. Dated: May 13, 1999. /s/ DAVID R. LITTLE ----------------------------- David R. Little, individually CONSENT AND RATIFICATION TO MAY 1999 AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AND SECURITY - Page 1 15 CONSENT, RATIFICATION, AND AMENDMENT The undersigned, GARY A. ALLCORN, TRUSTEE FOR KACEY JOYCE LITTLE, NICHOLAS DAVID LITTLE AND ANDREA RAE LITTLE 1988 TRUSTS, has executed that certain Amended and Restated Pledge Agreement dated September 16, 1994 (the "Pledge Agreement"), in favor of FLEET CAPITAL CORPORATION, a Rhode Island corporation ("Lender"), successor-in-interest by merger to Fleet Capital Corporation, a Connecticut corporation (Fleet Capital Corporation, a Connecticut corporation, having been formerly known as Shawmut Capital Corporation and having been the successor-in-interest by assignment to Barclays Business Credit, Inc.). The undersigned hereby (i) consents and agrees to the terms of the May 1999 Amendment to Second Amended and Restated Loan and Security Agreement and Modification to Other Agreements, dated on or about the date hereof (the "Loan Amendment"), executed by Sepco Industries, Inc., a Texas corporation, Bayou Pumps, Inc., a Texas corporation, American MRO, Inc., a Nevada corporation, and Lender, a copy of which has been reviewed by the undersigned, and (ii) agrees that the Pledge Agreement shall remain in full force and effect and shall continue to be the legal, valid and binding obligation of the undersigned enforceable against it in accordance with its terms. Furthermore, the undersigned hereby agrees and acknowledges that (a) the obligations, indebtedness and liabilities arising in connection with the Loan Amendment comprise some, but not all, of the "Secured Indebtedness" as such term is used in the Pledge Agreement, (b) the Pledge Agreement is an "Other Agreement" as such term is defined in the Loan Agreement, (c) the Pledge Agreement, is not as of the date hereof subject to any claims, defenses or offsets, (d) nothing contained in this Agreement or any Other Agreement entered into prior to or as of the date hereof shall adversely affect any right or remedy of Lender under the Pledge Agreement, and (e) the execution and delivery of the Loan Amendment shall in no way reduce, impair or discharge any obligations of the undersigned pursuant to the Pledge Agreement and shall not constitute a waiver by Lender of any of Lender's rights against the undersigned. Dated: May 13, 1999. /s/ GARY A. ALLCORN ---------------------------- GARY A. ALLCORN, TRUSTEE FOR KACEY JOYCE LITTLE, NICHOLAS DAVID LITTLE AND ANDREA RAE LITTLE 1988 TRUSTS CONSENT AND RATIFICATION TO MAY 1999 AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AND SECURITY - Page 2 16 CONSENT, RATIFICATION, AND AMENDMENT The undersigned has executed each of the following guaranty agreements in favor of FLEET CAPITAL CORPORATION, a Rhode Island corporation ("Lender") (each such guaranty agreement being hereinafter referred to as a "Guaranty"): (1) Continuing Guaranty Agreement [Indebtedness of Sepco Industries, Inc.], dated as of October 24, 1996; (2) Continuing Guaranty Agreement [Indebtedness of Bayou Pumps, Inc.], dated as of October 24, 1996; and (3) Continuing Guaranty Agreement [Indebtedness of American MRO, Inc.], dated as of October 24, 1996. The undersigned hereby (i) consents and agrees to the terms of the May 1999 Amendment to Second Amended and Restated Loan and Security Agreement and Modification to Other Agreements, dated on or about the date hereof (the "Loan Amendment"), by and among Sepco Industries, Inc., a Texas corporation, Bayou Pumps, Inc., a Texas corporation, American MRO, Inc., a Nevada corporation, and Lender, a copy of which has been reviewed by the undersigned, and (ii) agrees that each Guaranty shall remain in full force and effect and shall continue to be the legal, valid and binding obligation of the undersigned enforceable against it in accordance with its terms. Furthermore, the undersigned hereby agrees and acknowledges that (a) the obligations, indebtedness and liabilities arising in connection with the Loan Amendment comprise some, but not all, of the "Obligations" as such term is used in each Guaranty, (b) each Guaranty is an "Other Agreement", as such term is defined in the Loan Agreement, (c) no Guaranty is as of this date subject to any claims, defenses or offsets, (d) nothing contained in the Loan Agreement or any Other Agreement entered into prior to or as of the date hereof shall adversely affect any right or remedy of Lender under any Guaranty, and (e) the execution and delivery of the Loan Amendment shall in no way reduce, impair or discharge any obligations of the undersigned as guarantor pursuant to each Guaranty and shall not constitute a waiver by Lender of any of Lender's rights against the undersigned. Dated: May 13, 1999. DXP ENTERPRISES, INC., formerly known as Index, Inc. By: /s/ GARY A. ALLCORN ---------------------------------- Name Gary A. Allcorn --------------------------------- Title: Senior Vice President/Finance ------------------------------- CONSENT AND RATIFICATION TO MAY 1999 AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AND SECURITY - Page 1 17 CONSENT, RATIFICATION, AND AMENDMENT The undersigned has executed each of the following guaranty agreements in favor of FLEET CAPITAL CORPORATION, a Rhode Island corporation ("Lender") (each such guaranty agreement being hereinafter referred to as a "Guaranty"): (1) Continuing Guaranty Agreement [Indebtedness of Sepco Industries, Inc.], dated as of June 16, 1997; (2) Continuing Guaranty Agreement [Indebtedness of Bayou Pumps, Inc.], dated as of June 16, 1997; and (3) Continuing Guaranty Agreement [Indebtedness of American MRO, Inc.], dated as of June 16, 1997. The undersigned hereby (i) consents and agrees to the terms of the May 1999 Amendment to Second Amended and Restated Loan and Security Agreement and Modification to Other Agreements, dated on or about the date hereof (the "Loan Amendment"), by and among Sepco Industries, Inc., a Texas corporation, Bayou Pumps, Inc., a Texas corporation, American MRO, Inc., a Nevada corporation, and Lender, a copy of which has been reviewed by the undersigned, and (ii) agrees that each Guaranty shall remain in full force and effect and shall continue to be the legal, valid and binding obligation of the undersigned enforceable against it in accordance with its terms. Furthermore, the undersigned hereby agrees and acknowledges that (a) the obligations, indebtedness and liabilities arising in connection with the Loan Amendment comprise some, but not all, of the "Obligations" as such term is used in each Guaranty, (b) each Guaranty is an "Other Agreement", as such term is defined in the Loan Agreement, (c) no Guaranty is as of this date subject to any claims, defenses or offsets, (d) nothing contained in the Loan Agreement or any Other Agreement entered into prior to or as of the date hereof shall adversely affect any right or remedy of Lender under any Guaranty, and (e) the execution and delivery of the Loan Amendment shall in no way reduce, impair or discharge any obligations of the undersigned as guarantor pursuant to each Guaranty and shall not constitute a waiver by Lender of any of Lender's rights against the undersigned. Dated: May 13, 1999 DXP ACQUISITION, INC., d/b/a STRATEGIC ACQUISITION, INC. By: /s/ GARY A. ALLCORN -------------------------------- Name: Gary A. Allcorn ------------------------------ Title: Senior Vice President/Finance ------------------------------ CONSENT AND RATIFICATION TO MAY 1999 AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AND SECURITY - Page 1 18 CONSENT, RATIFICATION, AND AMENDMENT The undersigned has executed each of the following guaranty agreements in favor of FLEET CAPITAL CORPORATION, a Rhode Island corporation ("Lender") (each such guaranty agreement being hereinafter referred to as a "Guaranty"): (1) Continuing Guaranty Agreement [Indebtedness of Sepco Industries, Inc.], dated as of May 29, 1997; (2) Continuing Guaranty Agreement [Indebtedness of Bayou Pumps, Inc.], dated as of May 29, 1997; and (3) Continuing Guaranty Agreement [Indebtedness of American MRO, Inc.], dated as of May 29, 1997. The undersigned hereby (i) consents and agrees to the terms of the May 1999 Amendment to Second Amended and Restated Loan and Security Agreement and Modification to Other Agreements, dated on or about the date hereof (the "Loan Amendment"), by and among Sepco Industries, Inc., a Texas corporation, Bayou Pumps, Inc., a Texas corporation, American MRO, Inc., a Nevada corporation, and Lender, a copy of which has been reviewed by the undersigned, and (ii) agrees that each Guaranty shall remain in full force and effect and shall continue to be the legal, valid and binding obligation of the undersigned enforceable against it in accordance with its terms. Furthermore, the undersigned hereby agrees and acknowledges that (a) the obligations, indebtedness and liabilities arising in connection with the Loan Amendment comprise some, but not all, of the "Obligations" as such term is used in each Guaranty, (b) each Guaranty is an "Other Agreement", as such term is defined in the Loan Agreement, (c) no Guaranty is as of this date subject to any claims, defenses or offsets, (d) nothing contained in the Loan Agreement or any Other Agreement entered into prior to or as of the date hereof shall adversely affect any right or remedy of Lender under any Guaranty, and (e) the execution and delivery of the Loan Amendment shall in no way reduce, impair or discharge any obligations of the undersigned as guarantor pursuant to each Guaranty and shall not constitute a waiver by Lender of any of Lender's rights against the undersigned. Dated: May 13, 1999. PELICAN STATE SUPPLY COMPANY, INC. By: /s/ GARY A. ALLCORN --------------------------------- Name: Gary A. Allcorn ------------------------------ Title: Senior Vice President/Finance ----------------------------- CONSENT AND RATIFICATION TO MAY 1999 AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AND SECURITY - Page 1 EX-10.5 6 AMEND. TO LOAN AND SECURITY AGREEMENT 1 EXHIBIT 10.5 MAY 1999 AMENDMENT TO LOAN AND SECURITY AGREEMENT [Pelican State Supply Company, Inc.] THIS MAY 1999 AMENDMENT TO LOAN AND SECURITY AGREEMENT (this "Amendment") is made and entered into this 13th day of May, 1999, to be effective as of the respective date herein indicated, by and between PELICAN STATE SUPPLY COMPANY, INC., a Nevada corporation ("Borrower") and FLEET CAPITAL CORPORATION, a Rhode Island corporation ("Lender"). RECITALS A. Borrower and Lender have entered into that certain Loan and Security Agreement, dated as of May 29, 1997 (as amended, the "Loan Agreement"). B. Borrower and Lender desire to amend the Loan Agreement and the other Loan Documents as hereinafter set forth. NOW, THEREFORE, in consideration of the premises herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties, intending to be legally bound, agree as follows: AGREEMENT ARTICLE I DEFINITIONS 1.01 Capitalized terms used in this Amendment are defined in the Loan Agreement, as amended hereby, unless otherwise stated. ARTICLE II AMENDMENTS TO LOAN AGREEMENT Effective as of the respective date herein indicated, the Loan Agreement is hereby amended as follows: 2.01 AMENDMENT TO SECTION 3.3. Effective as of the date of execution of this Amendment, Section 3.3 of the Loan Agreement is hereby amended as follows: (i) Section 3.3(A) is amended by deleting therefrom the reference to the date "January 2, 2000" and substituting therefor the date "April 1, 2000." (ii) Section 3.3(D) is amended by deleting therefrom the reference to the date "January 2, 2000" and substituting therefor the date "April 1, 2000." ARTICLE III LIMITED WAIVER 3.01 Borrower has informed Lender that Borrower has violated the following covenants contained in the Loan Agreement and has requested that Lender waive such violations: (i) Borrower MAY 1999 AMENDMENT TO LOAN AND SECURITY AGREEMENT - Page 1 2 failed to maintain as of the end of the fiscal month ending March 31, 1999, a Fixed Charge Ratio of not less than the relevant ratio provided for in Section 9.3(D) of the Loan Agreement, and (ii) Borrower failed to maintain average monthly Availability for the fiscal month ending April 30, 1999 of not less than the relevant amount provided for in Section 9.3(E) of the Loan Agreement. Subject to the satisfaction of the conditions precedent set forth in Section 4.01 of this Amendment and to the other terms, conditions and provisions of this Amendment, Lender hereby waives each of the above-described violations of the above-described Sections of the Loan Agreement; provided, however, that the waiver described in this Section 3.01 of this Amendment is strictly limited to the Sections of the Loan Agreement described above and to the specific occurrences described above. Except as otherwise specifically provided for in this Amendment, nothing contained herein shall be construed as a waiver by Lender of any covenant or provision of the Loan Agreement, the other Loan Documents, this Amendment or of any other contract or instrument between Borrower and Lender, and the failure of Lender at any time or times hereafter to require strict performance by Borrower of any provision thereof shall not waive, affect or diminish any right of Lender to thereafter demand strict compliance therewith. Lender hereby reserves all rights granted under the Loan Agreement, the other Loan Documents, this Amendment and any other contract or instrument between Borrower and Lender. ARTICLE IV CONDITIONS PRECEDENT 4.01 CONDITIONS TO EFFECTIVENESS. The effectiveness of this Amendment is subject to the satisfaction of the following conditions precedent in a manner satisfactory to Lender, unless specifically waived in writing by Lender: (a) Lender shall have received each of the following, each in form and substance satisfactory to Lender, in its sole discretion, and, where applicable, each duly executed by each party thereto, other than Lender: (i) This Amendment, duly executed by Lender, together with the relevant Consent, Ratification, and Amendment, respectively duly executed by Sepco Industries, Inc., Bayou Pumps, Inc., American MRO, Inc., DXP Acquisition, Inc. d/b/a Strategic Acquisition, Inc. and DXP Enterprises, Inc.; and (ii) All other documents Lender may request with respect to any matter relevant to this Amendment or the transactions contemplated hereby; (b) The representations and warranties contained herein and in the Loan Agreement and the other Loan Documents, as each is amended hereby, shall be true and correct as of the date hereof, as if made on the date hereof; (c) No Default or Event of Default shall have occurred and be continuing, unless such Default or Event of Default has been otherwise specifically waived in writing by Lender; and (d) All corporate proceedings taken in connection with the transactions contemplated by this Amendment and all documents, instruments and other legal matters incident thereto shall be satisfactory to Lender and its legal counsel. MAY 1999 AMENDMENT TO LOAN AND SECURITY AGREEMENT - Page 2 3 ARTICLE V RATIFICATIONS, REPRESENTATIONS AND WARRANTIES 5.01 RATIFICATIONS. The terms and provisions set forth in this Amendment shall modify and supersede all inconsistent terms and provisions set forth in the Loan Agreement and the other Loan Documents, and, except as expressly modified and superseded by this Amendment, the terms and provisions of the Loan Agreement and the other Loan Documents are ratified and confirmed and shall continue in full force and effect. Each Borrower and Lender agree that the Loan Agreement and the other Loan Documents, as amended hereby, shall continue to be legal, valid, binding and enforceable in accordance with their respective terms. 5.02 REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and warrants to Lender that (a) the execution, delivery and performance of this Amendment and any and all other Loan Documents executed and/or delivered in connection herewith have been authorized by all requisite corporate action on the part of Borrower and will not violate the Articles of Incorporation or Bylaws of Borrower; (b) attached hereto as Annex A is a true, correct and complete copy of presently effective resolutions of Borrower's Board of Directors authorizing the execution, delivery and performance of this Amendment and any and all other Loan Documents executed and/or delivered in connection herewith, certified by the Assistant Secretary of Borrower; (c) the representations and warranties contained in the Loan Agreement, as amended hereby, and any other Loan Documents are true and correct on and as of the date hereof and on and as of the date of execution hereof as though made on and as of each such date; (d) no Default or Event of Default under the Loan Agreement, as amended hereby, has occurred and is continuing, unless such Default or Event of Default has been specifically waived in writing by Lender; (e) Borrower is in full compliance with all covenants and agreements contained in the Loan Agreement and the other Loan Documents, as amended hereby; and (f) Borrower has not amended its Articles of Incorporation or its Bylaws since the date of the Loan Agreement. ARTICLE VI MISCELLANEOUS PROVISIONS 6.01 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and warranties made in the Loan Agreement or any other Loan Documents, including, without limitation, any document furnished in connection with this Amendment, shall survive the execution and delivery of this Amendment and the other Loan Documents, and no investigation by Lender or any closing shall affect the representations and warranties or the right of Lender to rely upon them. 6.02 REFERENCE TO LOAN AGREEMENT. Each of the Loan Agreement and the other Loan Documents, and any and all other Loan Documents, documents or instruments now or hereafter executed and delivered pursuant to the terms hereof or pursuant to the terms of the Loan Agreement, as amended hereby, are hereby amended so that any reference in the Loan Agreement and such other Loan Documents to the Loan Agreement shall mean a reference to the Loan Agreement as amended hereby. 6.03 EXPENSES OF LENDER. As provided in the Loan Agreement, Borrower agrees to pay on demand all costs and expenses incurred by Lender in connection with the preparation, negotiation, and execution of this Amendment and the other Loan Documents executed pursuant hereto and any and all amendments, modifications, and supplements thereto, including, without limitation, the costs and fees of Lender's legal counsel, and all costs and expenses incurred by Lender in connection with the enforcement or preservation of any rights under the Loan Agreement, as amended hereby, or any other Loan Documents, including, without, limitation, the costs and fees of Lender's legal counsel. MAY 1999 AMENDMENT TO LOAN AND SECURITY AGREEMENT - Page 3 4 6.04 SEVERABILITY. Any provision of this Amendment held by a court of competent jurisdiction to be invalid or unenforceable shall not impair or invalidate the remainder of this Amendment and the effect thereof shall be confined to the provision so held to be invalid or unenforceable. 6.05 SUCCESSORS AND ASSIGNS. This Amendment is binding upon and shall inure to the benefit of Lender and Borrower and their respective successors and assigns, except that Borrower may not assign or transfer any of its rights or obligations hereunder without the prior written consent of Lender. 6.06 COUNTERPARTS. This Amendment may be executed in one or more counterparts, each of which when so executed shall be deemed to be an original, but all of which when taken together shall constitute one and the same instrument. 6.07 EFFECT OF WAIVER. No consent or waiver, express or implied, by Lender to or for any breach of or deviation from any covenant or condition by Borrower shall be deemed a consent to or waiver of any other breach of the same or any other covenant, condition or duty. 6.08 HEADINGS. The headings, captions, and arrangements used in this Amendment are for convenience only and shall not affect the interpretation of this Amendment. 6.09 APPLICABLE LAW. THIS AMENDMENT AND ALL OTHER LOAN DOCUMENTS EXECUTED PURSUANT HERETO SHALL BE DEEMED TO HAVE BEEN MADE AND TO BE PERFORMABLE IN AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS. 6.10 FINAL AGREEMENT. THE LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS, EACH AS AMENDED HEREBY, REPRESENT THE ENTIRE EXPRESSION OF THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF ON THE DATE THIS AMENDMENT IS EXECUTED. THE LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS AMENDED HEREBY, MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. NO MODIFICATION, RESCISSION, WAIVER, RELEASE OR AMENDMENT OF ANY PROVISION OF THIS AMENDMENT SHALL BE MADE, EXCEPT BY A WRITTEN AGREEMENT SIGNED BY BORROWER AND LENDER. 6.11 RELEASE. BORROWER HEREBY ACKNOWLEDGES THAT IT HAS NO DEFENSE, COUNTERCLAIM, OFFSET, CROSS-COMPLAINT, CLAIM OR DEMAND OF ANY KIND OR NATURE WHATSOEVER THAT CAN BE ASSERTED TO REDUCE OR ELIMINATE ALL OR ANY PART OF ITS LIABILITY TO REPAY THE "OBLIGATIONS" OR TO SEEK AFFIRMATIVE RELIEF OR DAMAGES OF ANY KIND OR NATURE FROM LENDER. BORROWER HEREBY VOLUNTARILY AND KNOWINGLY RELEASES AND FOREVER DISCHARGES LENDER, ITS PREDECESSORS, AGENTS, EMPLOYEES, SUCCESSORS AND ASSIGNS, FROM ALL POSSIBLE CLAIMS, DEMANDS, ACTIONS, CAUSES OF ACTION, DAMAGES, COSTS, EXPENSES, AND LIABILITIES WHATSOEVER, KNOWN OR UNKNOWN, ANTICIPATED OR UNANTICIPATED, SUSPECTED OR UNSUSPECTED, FIXED, CONTINGENT, OR CONDITIONAL, AT LAW OR IN EQUITY, ORIGINATING IN WHOLE OR IN PART ON OR BEFORE THE DATE THIS AMENDMENT IS EXECUTED, WHICH BORROWER MAY NOW OR HEREAFTER HAVE AGAINST LENDER, ITS PREDECESSORS, AGENTS, EMPLOYEES, SUCCESSORS AND ASSIGNS, IF ANY, AND IRRESPECTIVE OF WHETHER ANY SUCH CLAIMS ARISE OUT OF MAY 1999 AMENDMENT TO LOAN AND SECURITY AGREEMENT - Page 4 5 CONTRACT, TORT, VIOLATION OF LAW OR REGULATIONS, OR OTHERWISE, AND ARISING FROM ANY "LOANS", INCLUDING, WITHOUT LIMITATION, ANY CONTRACTING FOR, CHARGING, TAKING, RESERVING, COLLECTING OR RECEIVING INTEREST IN EXCESS OF THE HIGHEST LAWFUL RATE APPLICABLE, THE EXERCISE OF ANY RIGHTS AND REMEDIES UNDER THE LOAN AGREEMENT OR OTHER LOAN DOCUMENTS, AND NEGOTIATION FOR AND EXECUTION OF THIS AMENDMENT. IN WITNESS WHEREOF, this Amendment has been executed and is effective as of the date first above-written. "BORROWER" PELICAN STATE SUPPLY COMPANY, INC. By: /s/ GARY A. ALLCORN ---------------------------------- Name: Gary A. Allcorn -------------------------------- Title: Senior Vice President/Finance ------------------------------- "LENDER" FLEET CAPITAL CORPORATION By: /s/ H. MICHAEL WILLS ---------------------------------- Name: H. Michael Wills -------------------------------- Title: Senior Vice President ------------------------------- ANNEXES: A-1 - Certified Resolutions of Pelican State Supply Company, Inc. MAY 1999 AMENDMENT TO LOAN AND SECURITY AGREEMENT - Page 5 6 ANNEX A-1 CERTIFIED RESOLUTIONS OF PELICAN STATE SUPPLY COMPANY, INC.'S BOARD OF DIRECTORS RESOLVED: That any officer of Pelican State Supply Company, Inc., a Nevada corporation (the "Corporation"), acting alone, by his signature be, and the same hereby is, authorized and directed, in the name of and on behalf of the Corporation (a) to amend the Corporation's existing Loan and Security Agreement by and between the Corporation and Fleet Capital Corporation, a Rhode Island corporation ("Lender"), (b) to execute and deliver to Lender with such changes in the terms and provisions thereof as the officer executing same shall, in his sole discretion, deem advisable, (i) a certain proposed May 1999 Amendment to Loan and Security Agreement to be executed by Corporation and Lender, a draft of which has been reviewed and discussed by the Board of Directors of the Corporation, and (ii) such other Loan Documents, instruments, statements and writings as the officer or officers executing the same may deem desirable or necessary in connection therewith, and (c) to perform such other acts as the officer or officers performing such acts on behalf of the Corporation may deem desirable or necessary in connection therewith; and be it FURTHER RESOLVED: That said agreements will benefit the Corporation, both directly and indirectly, and are in the best interests of the Corporation; and be it FURTHER RESOLVED: That said agreements and other statements in writing executed in the name and on behalf of the Corporation by any officer of the Corporation shall be presumed conclusively to be the instruments, the execution of which is authorized by these resolutions; and be it FURTHER RESOLVED: That the officers of the Corporation be, and the same hereby are, authorized and directed to execute, in the name of and on behalf of the Corporation, security agreements, financing statements, assignments, collateral reports, loan statements, confirmations of delivery, lien statements, pledge certificates, release certificates, removal reports, guaranties, cross- collateralization agreements and such other writings and to take such other actions as are necessary in their dealings with Lender, and any such papers executed and any such actions taken by any of them prior to this time are approved, ratified and confirmed; and be it FURTHER RESOLVED: That the Secretary or any Assistant Secretary of the Corporation, by the signature of any one or more of them, be, and the same hereby are, authorized and directed to attest the execution by the Corporation of the papers signed pursuant to these resolutions, to affix the seal of the Corporation thereto, if required by Lender, and to certify to Lender the adoption of these resolutions. CERTIFICATION The undersigned hereby certifies that the within and foregoing resolutions are in effect as of the date hereof, without modification, and that the person signing the within and foregoing Amendment on behalf of the Corporation is the duly elected officer stated below his name, that he is authorized to sign such Amendment, and that his signature thereon is genuine. DATED: May , 1999. ---- ---------------------------------------- [Assistant] Secretary of the Corporation CONSENT AND RATIFICATION TO MAY 1999 AMENDMENT TO LOAN AND SECURITY - Page 1 7 CONSENT, RATIFICATION, AND AMENDMENT The undersigned, SEPCO INDUSTRIES, INC., has executed that certain Continuing Guaranty Agreement, dated May 29, 1997 (the "Guaranty"), in favor of FLEET CAPITAL CORPORATION, a Rhode Island corporation ("Lender"). The undersigned hereby (i) consents and agrees to the terms of the May 1999 Amendment to Loan and Security Agreement, dated on or about the date hereof (the "Loan Amendment"), by and between Pelican State Supply Company, Inc., a Nevada corporation, and Lender, a copy of which has been reviewed by the undersigned, and (ii) agrees that the Guaranty shall remain in full force and effect and shall continue to be the legal, valid and binding obligation of the undersigned enforceable against it in accordance with its terms. Furthermore, the undersigned hereby agrees and acknowledges that (a) the obligations, indebtedness and liabilities arising in connection with the Loan Amendment comprise some, but not all, of the "Obligations" as such term is used in the Guaranty, (b) the Guaranty is an "Other Agreement", as such term is defined in the Loan Agreement, (c) the Guaranty is not as of this date subject to any claims, defenses or offsets, (d) nothing contained in the Loan Agreement or any Other Agreement entered into prior to or as of the date hereof shall adversely affect any right or remedy of Lender under the Guaranty, and (e) the execution and delivery of the Loan Amendment shall in no way reduce, impair or discharge any obligations of the undersigned as guarantor pursuant to the Guaranty and shall not constitute a waiver by Lender of any of Lender's rights against the undersigned. Dated: May , 1999. ---- SEPCO INDUSTRIES, INC. By: /s/ GARY A. ALLCORN ---------------------------------- Name: Gary A. Allcorn -------------------------------- Title: Senior Vice President/Finance ------------------------------- CONSENT AND RATIFICATION TO MAY 1999 AMENDMENT TO LOAN AND SECURITY - Page 1 8 CONSENT, RATIFICATION, AND AMENDMENT The undersigned, AMERICAN MRO, INC., has executed that certain Continuing Guaranty Agreement, dated May 29, 1997 (the "Guaranty"), in favor of FLEET CAPITAL CORPORATION, a Rhode Island corporation ("Lender"). The undersigned hereby (i) consents and agrees to the terms of the May 1999 Amendment to Loan and Security Agreement, dated on or about the date hereof (the "Loan Amendment"), by and between Pelican State Supply Company, Inc., a Nevada corporation, and Lender, a copy of which has been reviewed by the undersigned, and (ii) agrees that the Guaranty shall remain in full force and effect and shall continue to be the legal, valid and binding obligation of the undersigned enforceable against it in accordance with its terms. Furthermore, the undersigned hereby agrees and acknowledges that (a) the obligations, indebtedness and liabilities arising in connection with the Loan Amendment comprise some, but not all, of the "Obligations" as such term is used in the Guaranty, (b) the Guaranty is an "Other Agreement", as such term is defined in the Loan Agreement, (c) the Guaranty is not as of this date subject to any claims, defenses or offsets, (d) nothing contained in the Loan Agreement or any Other Agreement entered into prior to or as of the date hereof shall adversely affect any right or remedy of Lender under the Guaranty, and (e) the execution and delivery of the Loan Amendment shall in no way reduce, impair or discharge any obligations of the undersigned as guarantor pursuant to the Guaranty and shall not constitute a waiver by Lender of any of Lender's rights against the undersigned. Dated: May , 1999. ---- AMERICAN MRO, INC. By: /s/ GARY A. ALLCORN ---------------------------------- Name: Gary A. Allcorn -------------------------------- Title: Senior Vice President/Finance ------------------------------- CONSENT AND RATIFICATION TO MAY 1999 AMENDMENT TO LOAN AND SECURITY - Page 1 9 CONSENT, RATIFICATION, AND AMENDMENT The undersigned, BAYOU PUMPS, INC., has executed that certain Continuing Guaranty Agreement, dated May 29, 1997 (the "Guaranty"), in favor of FLEET CAPITAL CORPORATION, a Rhode Island corporation ("Lender"). The undersigned hereby (i) consents and agrees to the terms of the May 1999 Amendment to Loan and Security Agreement, dated on or about the date hereof (the "Loan Amendment"), by and between Pelican State Supply Company, Inc., a Nevada corporation, and Lender, a copy of which has been reviewed by the undersigned, and (ii) agrees that the Guaranty shall remain in full force and effect and shall continue to be the legal, valid and binding obligation of the undersigned enforceable against it in accordance with its terms. Furthermore, the undersigned hereby agrees and acknowledges that (a) the obligations, indebtedness and liabilities arising in connection with the Loan Amendment comprise some, but not all, of the "Obligations" as such term is used in the Guaranty, (b) the Guaranty is an "Other Agreement", as such term is defined in the Loan Agreement, (c) the Guaranty is not as of this date subject to any claims, defenses or offsets, (d) nothing contained in the Loan Agreement or any Other Agreement entered into prior to or as of the date hereof shall adversely affect any right or remedy of Lender under the Guaranty, and (e) the execution and delivery of the Loan Amendment shall in no way reduce, impair or discharge any obligations of the undersigned as guarantor pursuant to the Guaranty and shall not constitute a waiver by Lender of any of Lender's rights against the undersigned. Dated: May , 1999. ---- BAYOU PUMPS, INC. By: /s/ GARY A. ALLCORN ---------------------------------- Name: Gary A. Allcorn -------------------------------- Title: Senior Vice President/Finance ------------------------------- CONSENT AND RATIFICATION TO MAY 1999 AMENDMENT TO LOAN AND SECURITY - Page 1 10 CONSENT, RATIFICATION, AND AMENDMENT The undersigned, DXP ACQUISITION, INC. D/B/A STRATEGIC ACQUISITION, INC., has executed that certain Continuing Guaranty Agreement, dated June 16, 1997 (the "Guaranty"), in favor of FLEET CAPITAL CORPORATION, a Rhode Island corporation ("Lender"). The undersigned hereby (i) consents and agrees to the terms of the May 1999 Amendment to Loan and Security Agreement, dated on or about the date hereof (the "Loan Amendment"), by and between Pelican State Supply Company, Inc., a Nevada corporation, and Lender, a copy of which has been reviewed by the undersigned, and (ii) agrees that the Guaranty shall remain in full force and effect and shall continue to be the legal, valid and binding obligation of the undersigned enforceable against it in accordance with its terms. Furthermore, the undersigned hereby agrees and acknowledges that (a) the obligations, indebtedness and liabilities arising in connection with the Loan Amendment comprise some, but not all, of the "Obligations" as such term is used in the Guaranty, (b) the Guaranty is an "Other Agreement", as such term is defined in the Loan Agreement, (c) the Guaranty is not as of this date subject to any claims, defenses or offsets, (d) nothing contained in the Loan Agreement or any Other Agreement entered into prior to or as of the date hereof shall adversely affect any right or remedy of Lender under the Guaranty, and (e) the execution and delivery of the Loan Amendment shall in no way reduce, impair or discharge any obligations of the undersigned as guarantor pursuant to the Guaranty and shall not constitute a waiver by Lender of any of Lender's rights against the undersigned. Dated: May , 1999. ---- DXP ACQUISITION, INC. D/B/A STRATEGIC ACQUISITION, INC. By: /s/ GARY A. ALLCORN ---------------------------------- Name: Gary A. Allcorn -------------------------------- Title: Senior Vice President ------------------------------- CONSENT AND RATIFICATION TO MAY 1999 AMENDMENT TO LOAN AND SECURITY - Page 1 11 CONSENT, RATIFICATION AND AMENDMENT The undersigned, DXP ENTERPRISES, INC., has executed (x) that certain Continuing Guaranty Agreement, dated May 29, 1997 (the "Guaranty"), in favor of FLEET CAPITAL CORPORATION, a Rhode Island corporation ("Lender"), and (y) that certain Stock Pledge Agreement, dated as of May 29, 1997, executed by the undersigned and Fleet (the "Security Agreement"). The undersigned hereby (i) consents and agrees to the terms of the May 1999 Amendment to Loan and Security Agreement, dated on or about the date hereof (the "Loan Amendment"), by and between Pelican State Supply Company, Inc., a Nevada corporation, and Lender, a copy of which has been reviewed by the undersigned, and (ii) agrees that each of the Guaranty and the Security Agreement shall remain in full force and effect and shall continue to be the legal, valid and binding obligation of the undersigned, enforceable against it in accordance with its terms. Furthermore, the undersigned hereby agrees and acknowledges that (a) the obligations, indebtedness and liabilities arising in connection with the Loan Amendment comprise some, but not all, of the "Obligations", as such term is used in the Guaranty, and some, but not all, of the "Secured Obligations", as such term is used in the Security Agreement, (b) each of the Guaranty and the Security Agreement is an "Other Agreement", as such term is defined in the Loan Agreement, (c) neither the Guaranty nor the Security Agreement is, as of the date hereof, subject to any claims, defenses or offsets, (d) nothing contained in the Loan Agreement or any Other Agreement entered into prior to or as of the date hereof shall adversely affect any right or remedy of Lender under the Guaranty or under the Security Agreement, and (e) the execution and delivery of the Loan Amendment shall in no way reduce, impair or discharge any obligations of the undersigned as guarantor pursuant to the Guaranty or as debtor pursuant to the Security Agreement and shall not constitute a waiver by Lender of any of Lender's rights against the undersigned. Dated: May , 1999. ---- DXP ENTERPRISES, INC. By: /s/ GARY A. ALLCORN ---------------------------------- Name: Gary A. Allcorn -------------------------------- Title: Senior Vice President/Finance ------------------------------- CONSENT AND RATIFICATION TO MAY 1999 AMENDMENT TO LOAN AND SECURITY - Page 1 EX-10.6 7 AMEND. TO LOAN AND SECURITY AGREEMENT 1 EXHIBIT 10.6 MAY 1999 AMENDMENT TO LOAN AND SECURITY AGREEMENT [DXP Acquisition, Inc., d/b/a Strategic Acquisition, Inc.] THIS MAY 1999 AMENDMENT TO LOAN AND SECURITY AGREEMENT (this "Amendment") is made and entered into this 13th day of May, 1999, to be effective as of the respective date herein indicated, by and between DXP ACQUISITION, INC., D/B/A STRATEGIC ACQUISITION, INC., a Nevada corporation ("Borrower") and FLEET CAPITAL CORPORATION, a Rhode Island corporation ("Lender"). RECITALS A. Borrower and Lender have entered into that certain Loan and Security Agreement, dated as of June 16, 1997 (as amended, the "Loan Agreement"). B. Borrower and Lender desire to amend the Loan Agreement and the other Loan Documents as hereinafter set forth. NOW, THEREFORE, in consideration of the premises herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties, intending to be legally bound, agree as follows: AGREEMENT ARTICLE I DEFINITIONS 1.01 Capitalized terms used in this Amendment are defined in the Loan Agreement, as amended hereby, unless otherwise stated. ARTICLE II AMENDMENTS TO LOAN AGREEMENT Effective as of the respective date herein indicated, the Loan Agreement is hereby amended as follows: 2.01 AMENDMENT TO SECTION 3.3. Effective as of the date of execution of this Amendment, Section 3.3 of the Loan Agreement is hereby amended as follows: (i) Section 3.3(A) is amended by deleting therefrom the reference to the date "January 2, 2000" and substituting therefor the date "April 1, 2000." (ii) Section 3.3(D) is amended by deleting therefrom the reference to the date "January 2, 2000" and substituting therefor the date "April 1, 2000." ARTICLE III LIMITED WAIVER 3.01 Borrower has informed Lender that Borrower has violated the following covenants contained in the Loan Agreement and has requested that Lender waive such violations: (i) Borrower MAY 1999 AMENDMENT TO LOAN AND SECURITY AGREEMENT - Page 1 2 failed to maintain as of the end of the fiscal month ending March 31, 1999, a Fixed Charge Ratio of not less than the relevant ratio provided for in Section 9.3(D) of the Loan Agreement, and (ii) Borrower failed to maintain average monthly Availability for the fiscal month ending April 30, 1999 of not less than the relevant amount provided for in Section 9.3(E) of the Loan Agreement. Subject to the satisfaction of the conditions precedent set forth in Section 4.01 of this Amendment and to the other terms, conditions and provisions of this Amendment, Lender hereby waives each of the above-described violations of the above-described Sections of the Loan Agreement; provided, however, that the waiver described in this Section 3.01 of this Amendment is strictly limited to the Sections of the Loan Agreement described above and to the specific occurrences described above. Except as otherwise specifically provided for in this Amendment, nothing contained herein shall be construed as a waiver by Lender of any covenant or provision of the Loan Agreement, the other Loan Documents, this Amendment or of any other contract or instrument between Borrower and Lender, and the failure of Lender at any time or times hereafter to require strict performance by Borrower of any provision thereof shall not waive, affect or diminish any right of Lender to thereafter demand strict compliance therewith. Lender hereby reserves all rights granted under the Loan Agreement, the other Loan Documents, this Amendment and any other contract or instrument between Borrower and Lender. ARTICLE IV CONDITIONS PRECEDENT 4.01 CONDITIONS TO EFFECTIVENESS. The effectiveness of this Amendment is subject to the satisfaction of the following conditions precedent in a manner satisfactory to Lender, unless specifically waived in writing by Lender: (a) Lender shall have received each of the following, each in form and substance satisfactory to Lender, in its sole discretion, and, where applicable, each duly executed by each party thereto, other than Lender: (i) This Amendment, duly executed by Lender, together with the relevant Consent, Ratification, and Amendment, respectively duly executed by Sepco Industries, Inc., Bayou Pumps, Inc., American MRO, Inc., Pelican State Supply Company, Inc. and DXP Enterprises, Inc.; and (ii) All other documents Lender may request with respect to any matter relevant to this Amendment or the transactions contemplated hereby; (b) The representations and warranties contained herein and in the Loan Agreement and the other Loan Documents, as each is amended hereby, shall be true and correct as of the date hereof, as if made on the date hereof; (c) No Default or Event of Default shall have occurred and be continuing, unless such Default or Event of Default has been otherwise specifically waived in writing by Lender; and (d) All corporate proceedings taken in connection with the transactions contemplated by this Amendment and all documents, instruments and other legal matters incident thereto shall be satisfactory to Lender and its legal counsel. MAY 1999 AMENDMENT TO LOAN AND SECURITY AGREEMENT - Page 2 3 ARTICLE V RATIFICATIONS, REPRESENTATIONS AND WARRANTIES 5.01 RATIFICATIONS. The terms and provisions set forth in this Amendment shall modify and supersede all inconsistent terms and provisions set forth in the Loan Agreement and the other Loan Documents, and, except as expressly modified and superseded by this Amendment, the terms and provisions of the Loan Agreement and the other Loan Documents are ratified and confirmed and shall continue in full force and effect. Each Borrower and Lender agree that the Loan Agreement and the other Loan Documents, as amended hereby, shall continue to be legal, valid, binding and enforceable in accordance with their respective terms. 5.02 REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and warrants to Lender that (a) the execution, delivery and performance of this Amendment and any and all other Loan Documents executed and/or delivered in connection herewith have been authorized by all requisite corporate action on the part of Borrower and will not violate the Articles of Incorporation or Bylaws of Borrower; (b) attached hereto as Annex A is a true, correct and complete copy of presently effective resolutions of Borrower's Board of Directors authorizing the execution, delivery and performance of this Amendment and any and all other Loan Documents executed and/or delivered in connection herewith, certified by the Assistant Secretary of Borrower; (c) the representations and warranties contained in the Loan Agreement, as amended hereby, and any other Loan Documents are true and correct on and as of the date hereof and on and as of the date of execution hereof as though made on and as of each such date; (d) no Default or Event of Default under the Loan Agreement, as amended hereby, has occurred and is continuing, unless such Default or Event of Default has been specifically waived in writing by Lender; (e) Borrower is in full compliance with all covenants and agreements contained in the Loan Agreement and the other Loan Documents, as amended hereby; and (f) Borrower has not amended its Articles of Incorporation or its Bylaws since the date of the Loan Agreement. ARTICLE VI MISCELLANEOUS PROVISIONS 6.01 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and warranties made in the Loan Agreement or any other Loan Documents, including, without limitation, any document furnished in connection with this Amendment, shall survive the execution and delivery of this Amendment and the other Loan Documents, and no investigation by Lender or any closing shall affect the representations and warranties or the right of Lender to rely upon them. 6.02 REFERENCE TO LOAN AGREEMENT. Each of the Loan Agreement and the other Loan Documents, and any and all other Loan Documents, documents or instruments now or hereafter executed and delivered pursuant to the terms hereof or pursuant to the terms of the Loan Agreement, as amended hereby, are hereby amended so that any reference in the Loan Agreement and such other Loan Documents to the Loan Agreement shall mean a reference to the Loan Agreement as amended hereby. 6.03 EXPENSES OF LENDER. As provided in the Loan Agreement, Borrower agrees to pay on demand all costs and expenses incurred by Lender in connection with the preparation, negotiation, and execution of this Amendment and the other Loan Documents executed pursuant hereto and any and all amendments, modifications, and supplements thereto, including, without limitation, the costs and fees of Lender's legal counsel, and all costs and expenses incurred by Lender in connection with the enforcement or preservation of any rights under the Loan Agreement, as amended hereby, or any other Loan Documents, including, without, limitation, the costs and fees of Lender's legal counsel. MAY 1999 AMENDMENT TO LOAN AND SECURITY AGREEMENT - Page 3 4 6.04 SEVERABILITY. Any provision of this Amendment held by a court of competent jurisdiction to be invalid or unenforceable shall not impair or invalidate the remainder of this Amendment and the effect thereof shall be confined to the provision so held to be invalid or unenforceable. 6.05 SUCCESSORS AND ASSIGNS. This Amendment is binding upon and shall inure to the benefit of Lender and Borrower and their respective successors and assigns, except that Borrower may not assign or transfer any of its rights or obligations hereunder without the prior written consent of Lender. 6.06 COUNTERPARTS. This Amendment may be executed in one or more counterparts, each of which when so executed shall be deemed to be an original, but all of which when taken together shall constitute one and the same instrument. 6.07 EFFECT OF WAIVER. No consent or waiver, express or implied, by Lender to or for any breach of or deviation from any covenant or condition by Borrower shall be deemed a consent to or waiver of any other breach of the same or any other covenant, condition or duty. 6.08 HEADINGS. The headings, captions, and arrangements used in this Amendment are for convenience only and shall not affect the interpretation of this Amendment. 6.09 APPLICABLE LAW. THIS AMENDMENT AND ALL OTHER LOAN DOCUMENTS EXECUTED PURSUANT HERETO SHALL BE DEEMED TO HAVE BEEN MADE AND TO BE PERFORMABLE IN AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS. 6.10 FINAL AGREEMENT. THE LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS, EACH AS AMENDED HEREBY, REPRESENT THE ENTIRE EXPRESSION OF THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF ON THE DATE THIS AMENDMENT IS EXECUTED. THE LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS AMENDED HEREBY, MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. NO MODIFICATION, RESCISSION, WAIVER, RELEASE OR AMENDMENT OF ANY PROVISION OF THIS AMENDMENT SHALL BE MADE, EXCEPT BY A WRITTEN AGREEMENT SIGNED BY BORROWER AND LENDER. 6.11 RELEASE. BORROWER HEREBY ACKNOWLEDGES THAT IT HAS NO DEFENSE, COUNTERCLAIM, OFFSET, CROSS-COMPLAINT, CLAIM OR DEMAND OF ANY KIND OR NATURE WHATSOEVER THAT CAN BE ASSERTED TO REDUCE OR ELIMINATE ALL OR ANY PART OF ITS LIABILITY TO REPAY THE "OBLIGATIONS" OR TO SEEK AFFIRMATIVE RELIEF OR DAMAGES OF ANY KIND OR NATURE FROM LENDER. BORROWER HEREBY VOLUNTARILY AND KNOWINGLY RELEASES AND FOREVER DISCHARGES LENDER, ITS PREDECESSORS, AGENTS, EMPLOYEES, SUCCESSORS AND ASSIGNS, FROM ALL POSSIBLE CLAIMS, DEMANDS, ACTIONS, CAUSES OF ACTION, DAMAGES, COSTS, EXPENSES, AND LIABILITIES WHATSOEVER, KNOWN OR UNKNOWN, ANTICIPATED OR UNANTICIPATED, SUSPECTED OR UNSUSPECTED, FIXED, CONTINGENT, OR CONDITIONAL, AT LAW OR IN EQUITY, ORIGINATING IN WHOLE OR IN PART ON OR BEFORE THE DATE THIS AMENDMENT IS EXECUTED, WHICH BORROWER MAY NOW OR HEREAFTER HAVE AGAINST LENDER, ITS PREDECESSORS, AGENTS, EMPLOYEES, SUCCESSORS AND ASSIGNS, IF ANY, AND IRRESPECTIVE OF WHETHER ANY SUCH CLAIMS ARISE OUT OF MAY 1999 AMENDMENT TO LOAN AND SECURITY AGREEMENT - Page 4 5 CONTRACT, TORT, VIOLATION OF LAW OR REGULATIONS, OR OTHERWISE, AND ARISING FROM ANY "LOANS", INCLUDING, WITHOUT LIMITATION, ANY CONTRACTING FOR, CHARGING, TAKING, RESERVING, COLLECTING OR RECEIVING INTEREST IN EXCESS OF THE HIGHEST LAWFUL RATE APPLICABLE, THE EXERCISE OF ANY RIGHTS AND REMEDIES UNDER THE LOAN AGREEMENT OR OTHER LOAN DOCUMENTS, AND NEGOTIATION FOR AND EXECUTION OF THIS AMENDMENT. IN WITNESS WHEREOF, this Amendment has been executed and is effective as of the date first above-written. "BORROWER" DXP ACQUISITION, INC., D/B/A STRATEGIC ACQUISITION, INC. By: /s/ GARY A. ALLCORN ----------------------------------- Name: Gary A. Allcorn --------------------------------- Title: Senior Vice President/Finance -------------------------------- "LENDER" FLEET CAPITAL CORPORATION By: /s/ H. MICHAEL WILLS ----------------------------------- Name: H. Michael Wills --------------------------------- Title: Senior Vice President -------------------------------- ANNEXES: A-1 - Certified Resolutions of DXP Acquisition, Inc., d/b/a Strategic Acquisition, Inc. MAY 1999 AMENDMENT TO LOAN AND SECURITY AGREEMENT - Page 5 6 ANNEX A-1 CERTIFIED RESOLUTIONS OF DXP ACQUISITION, INC., D/B/A STRATEGIC ACQUISITION, INC.'S BOARD OF DIRECTORS RESOLVED: That any officer of DXP Acquisition, Inc., d/b/a Strategic Acquisition, Inc., a Nevada corporation (the "Corporation"), acting alone, by his signature be, and the same hereby is, authorized and directed, in the name of and on behalf of the Corporation (a) to amend the Corporation's existing Loan and Security Agreement by and between the Corporation and Fleet Capital Corporation, a Rhode Island corporation ("Lender"), (b) to execute and deliver to Lender with such changes in the terms and provisions thereof as the officer executing same shall, in his sole discretion, deem advisable, (i) a certain proposed May 1999 Amendment to Loan and Security Agreement to be executed by Corporation and Lender, a draft of which has been reviewed and discussed by the Board of Directors of the Corporation, and (ii) such other Loan Documents, instruments, statements and writings as the officer or officers executing the same may deem desirable or necessary in connection therewith, and (c) to perform such other acts as the officer or officers performing such acts on behalf of the Corporation may deem desirable or necessary in connection therewith; and be it FURTHER RESOLVED: That said agreements will benefit the Corporation, both directly and indirectly, and are in the best interests of the Corporation; and be it FURTHER RESOLVED: That said agreements and other statements in writing executed in the name and on behalf of the Corporation by any officer of the Corporation shall be presumed conclusively to be the instruments, the execution of which is authorized by these resolutions; and be it FURTHER RESOLVED: That the officers of the Corporation be, and the same hereby are, authorized and directed to execute, in the name of and on behalf of the Corporation, security agreements, financing statements, assignments, collateral reports, loan statements, confirmations of delivery, lien statements, pledge certificates, release certificates, removal reports, guaranties, cross- collateralization agreements and such other writings and to take such other actions as are necessary in their dealings with Lender, and any such papers executed and any such actions taken by any of them prior to this time are approved, ratified and confirmed; and be it FURTHER RESOLVED: That the Secretary or any Assistant Secretary of the Corporation, by the signature of any one or more of them, be, and the same hereby are, authorized and directed to attest the execution by the Corporation of the papers signed pursuant to these resolutions, to affix the seal of the Corporation thereto, if required by Lender, and to certify to Lender the adoption of these resolutions. CERTIFICATION The undersigned hereby certifies that the within and foregoing resolutions are in effect as of the date hereof, without modification, and that the person signing the within and foregoing Amendment on behalf of the Corporation is the duly elected officer stated below his name, that he is authorized to sign such Amendment, and that his signature thereon is genuine. DATED: May , 1999. ---- ----------------------------------------- [Assistant] Secretary of the Corporation CONSENT AND RATIFICATION TO MAY 1999 AMENDMENT TO LOAN AND SECURITY - Page 1 7 CONSENT, RATIFICATION, AND AMENDMENT The undersigned, SEPCO INDUSTRIES, INC., has executed that certain Continuing Guaranty Agreement, dated June 16, 1997 (the "Guaranty"), in favor of FLEET CAPITAL CORPORATION, a Rhode Island corporation ("Lender"). The undersigned hereby (i) consents and agrees to the terms of the May 1999 Amendment to Loan and Security Agreement, dated on or about the date hereof (the "Loan Amendment"), by and between DXP Acquisition, Inc., d/b/a Strategic Acquisition, Inc., a Nevada corporation, and Lender, a copy of which has been reviewed by the undersigned, and (ii) agrees that the Guaranty shall remain in full force and effect and shall continue to be the legal, valid and binding obligation of the undersigned enforceable against it in accordance with its terms. Furthermore, the undersigned hereby agrees and acknowledges that (a) the obligations, indebtedness and liabilities arising in connection with the Loan Amendment comprise some, but not all, of the "Obligations" as such term is used in the Guaranty, (b) the Guaranty is an "Other Agreement", as such term is defined in the Loan Agreement, (c) the Guaranty is not as of this date subject to any claims, defenses or offsets, (d) nothing contained in the Loan Agreement or any Other Agreement entered into prior to or as of the date hereof shall adversely affect any right or remedy of Lender under the Guaranty, and (e) the execution and delivery of the Loan Amendment shall in no way reduce, impair or discharge any obligations of the undersigned as guarantor pursuant to the Guaranty and shall not constitute a waiver by Lender of any of Lender's rights against the undersigned. Dated: May , 1999. ---- SEPCO INDUSTRIES, INC. By: /s/ GARY A. ALLCORN ----------------------------------- Name: Gary A. Allcorn --------------------------------- Title: Senior Vice President/Finance -------------------------------- CONSENT AND RATIFICATION TO MAY 1999 AMENDMENT TO LOAN AND SECURITY - Page 1 8 CONSENT, RATIFICATION, AND AMENDMENT The undersigned, AMERICAN MRO, INC., has executed that certain Continuing Guaranty Agreement, dated June 16, 1997 (the "Guaranty"), in favor of FLEET CAPITAL CORPORATION, a Rhode Island corporation ("Lender"). The undersigned hereby (i) consents and agrees to the terms of the May 1999 Amendment to Loan and Security Agreement, dated on or about the date hereof (the "Loan Amendment"), by and between DXP Acquisition, Inc., d/b/a Strategic Acquisition, Inc., a Nevada corporation, and Lender, a copy of which has been reviewed by the undersigned, and (ii) agrees that the Guaranty shall remain in full force and effect and shall continue to be the legal, valid and binding obligation of the undersigned enforceable against it in accordance with its terms. Furthermore, the undersigned hereby agrees and acknowledges that (a) the obligations, indebtedness and liabilities arising in connection with the Loan Amendment comprise some, but not all, of the "Obligations" as such term is used in the Guaranty, (b) the Guaranty is an "Other Agreement", as such term is defined in the Loan Agreement, (c) the Guaranty is not as of this date subject to any claims, defenses or offsets, (d) nothing contained in the Loan Agreement or any Other Agreement entered into prior to or as of the date hereof shall adversely affect any right or remedy of Lender under the Guaranty, and (e) the execution and delivery of the Loan Amendment shall in no way reduce, impair or discharge any obligations of the undersigned as guarantor pursuant to the Guaranty and shall not constitute a waiver by Lender of any of Lender's rights against the undersigned. Dated: May , 1999. ---- AMERICAN MRO, INC. By: /s/ GARY A. ALLCORN ----------------------------------- Name: Gary A. Allcorn --------------------------------- Title: Senior Vice President/Finance -------------------------------- CONSENT AND RATIFICATION TO MAY 1999 AMENDMENT TO LOAN AND SECURITY - Page 1 9 CONSENT, RATIFICATION, AND AMENDMENT The undersigned, BAYOU PUMPS, INC., has executed that certain Continuing Guaranty Agreement, dated June 16, 1997 (the "Guaranty"), in favor of FLEET CAPITAL CORPORATION, a Rhode Island corporation ("Lender"). The undersigned hereby (i) consents and agrees to the terms of the May 1999 Amendment to Loan and Security Agreement, dated on or about the date hereof (the "Loan Amendment"), by and between DXP Acquisition, Inc., d/b/a Strategic Acquisition, Inc., a Nevada corporation, and Lender, a copy of which has been reviewed by the undersigned, and (ii) agrees that the Guaranty shall remain in full force and effect and shall continue to be the legal, valid and binding obligation of the undersigned enforceable against it in accordance with its terms. Furthermore, the undersigned hereby agrees and acknowledges that (a) the obligations, indebtedness and liabilities arising in connection with the Loan Amendment comprise some, but not all, of the "Obligations" as such term is used in the Guaranty, (b) the Guaranty is an "Other Agreement", as such term is defined in the Loan Agreement, (c) the Guaranty is not as of this date subject to any claims, defenses or offsets, (d) nothing contained in the Loan Agreement or any Other Agreement entered into prior to or as of the date hereof shall adversely affect any right or remedy of Lender under the Guaranty, and (e) the execution and delivery of the Loan Amendment shall in no way reduce, impair or discharge any obligations of the undersigned as guarantor pursuant to the Guaranty and shall not constitute a waiver by Lender of any of Lender's rights against the undersigned. Dated: May , 1999. ---- BAYOU PUMPS, INC. By: /s/ GARY A. ALLCORN ----------------------------------- Name: Gary A. Allcorn --------------------------------- Title: Senior Vice President/Finance -------------------------------- CONSENT AND RATIFICATION TO MAY 1999 AMENDMENT TO LOAN AND SECURITY - Page 1 10 CONSENT, RATIFICATION, AND AMENDMENT The undersigned, PELICAN STATE SUPPLY COMPANY, INC., has executed that certain Continuing Guaranty Agreement, dated June 16, 1997 (the "Guaranty"), in favor of FLEET CAPITAL CORPORATION, a Rhode Island corporation ("Lender"). The undersigned hereby (i) consents and agrees to the terms of the May 1999 Amendment to Loan and Security Agreement, dated on or about the date hereof (the "Loan Amendment"), by and between DXP Acquisition, Inc., d/b/a Strategic Acquisition, Inc., a Nevada corporation, and Lender, a copy of which has been reviewed by the undersigned, and (ii) agrees that the Guaranty shall remain in full force and effect and shall continue to be the legal, valid and binding obligation of the undersigned enforceable against it in accordance with its terms. Furthermore, the undersigned hereby agrees and acknowledges that (a) the obligations, indebtedness and liabilities arising in connection with the Loan Amendment comprise some, but not all, of the "Obligations" as such term is used in the Guaranty, (b) the Guaranty is an "Other Agreement", as such term is defined in the Loan Agreement, (c) the Guaranty is not as of this date subject to any claims, defenses or offsets, (d) nothing contained in the Loan Agreement or any Other Agreement entered into prior to or as of the date hereof shall adversely affect any right or remedy of Lender under the Guaranty, and (e) the execution and delivery of the Loan Amendment shall in no way reduce, impair or discharge any obligations of the undersigned as guarantor pursuant to the Guaranty and shall not constitute a waiver by Lender of any of Lender's rights against the undersigned. Dated: May , 1999. ---- PELICAN STATE SUPPLY COMPANY, INC. By: /s/ GARY A. ALLCORN ----------------------------------- Name: Gary A. Allcorn --------------------------------- Title: Senior Vice President/Finance -------------------------------- CONSENT AND RATIFICATION TO MAY 1999 AMENDMENT TO LOAN AND SECURITY - Page 1 11 CONSENT, RATIFICATION AND AMENDMENT The undersigned, DXP ENTERPRISES, INC., has executed (x) that certain Continuing Guaranty Agreement, dated June 16, 1997 (the "Guaranty"), in favor of FLEET CAPITAL CORPORATION, a Rhode Island corporation ("Lender"), and (y) that certain Stock Pledge Agreement, dated as of June 16, 1997, executed by the undersigned and Fleet (the "Security Agreement"). The undersigned hereby (i) consents and agrees to the terms of the May 1999 Amendment to Loan and Security Agreement, dated on or about the date hereof (the "Loan Amendment"), by and between DXP Acquisition, Inc., d/b/a Strategic Acquisition, Inc., a Nevada corporation, and Lender, a copy of which has been reviewed by the undersigned, and (ii) agrees that each of the Guaranty and the Security Agreement shall remain in full force and effect and shall continue to be the legal, valid and binding obligation of the undersigned, enforceable against it in accordance with its terms. Furthermore, the undersigned hereby agrees and acknowledges that (a) the obligations, indebtedness and liabilities arising in connection with the Loan Amendment comprise some, but not all, of the "Obligations", as such term is used in the Guaranty, and some, but not all, of the "Secured Obligations", as such term is used in the Security Agreement, (b) each of the Guaranty and the Security Agreement is an "Other Agreement", as such term is defined in the Loan Agreement, (c) neither the Guaranty nor the Security Agreement is, as of the date hereof, subject to any claims, defenses or offsets, (d) nothing contained in the Loan Agreement or any Other Agreement entered into prior to or as of the date hereof shall adversely affect any right or remedy of Lender under the Guaranty or under the Security Agreement, and (e) the execution and delivery of the Loan Amendment shall in no way reduce, impair or discharge any obligations of the undersigned as guarantor pursuant to the Guaranty or as debtor pursuant to the Security Agreement and shall not constitute a waiver by Lender of any of Lender's rights against the undersigned. Dated: May , 1999. ---- DXP ENTERPRISES, INC. By: /s/ GARY A. ALLCORN ----------------------------------- Name: Gary A. Allcorn --------------------------------- Title: Senior Vice President/Finance -------------------------------- CONSENT AND RATIFICATION TO MAY 1999 AMENDMENT TO LOAN AND SECURITY - Page 1 EX-11.1 8 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS 1 Exhibit 11.1: Statement re: Computation of Per Share Earnings.
Three Months Ended March 31, 1999 1998 Basic: Average shares outstanding 4,129,097 4,157,423 Net Income $ 235,000 $ 857,000 Per share amount $ .0569 $ .2061 Dilutive: Average shares outstanding 4,129,097 4,157,423 Net effect of dilutive stock options -- based on the treasure stock method using period-end market price, if higher than average market price 1,003,277 1,123,122 Assumed conversion of Class A convertible Preferred Stock 420,000 420,000 Total 5,552,374 5,700,545 Net Income $ 258,000 $ 878,000 Per share amount $ .0465 $ .1540
EX-27.1 9 FINANCIAL DATA SCHEDULE
5 This schedule contains summary Financial Information extracted from the unaudited condensed financial statements of DXP Enterprises, Inc. as of March 31, 1999 and is qualified in its entirety by reference to such statements. 1,000 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 999 0 27,288 1,322 31,455 61,457 23,923 10,828 85,374 23,472 0 112 0 41 16,333 85,374 48,410 48,410 35,648 35,648 11,825 0 929 516 258 258 0 0 0 258 .06 .05
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