-----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, N9ppgs3DtcaFAVqBBudvkkBj8qK6xju4okZX0KwFeDc4HRcV0g83R0lQDAtsey52 LaX0EsOfBLC+0erSrqKdWA== 0000950129-98-002092.txt : 19980515 0000950129-98-002092.hdr.sgml : 19980515 ACCESSION NUMBER: 0000950129-98-002092 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980514 SROS: NASD 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: 98619702 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. - 03/31/98 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ________ Commission file number 0-21513 DXP ENTERPRISES, INC. (Exact name of registrant as specified in its charter) Texas 76-0509661 (State or other jurisdiction of incorporation (I.R.S. Employer or organization) Identification No.) 580 Westlake Park Boulevard, Suite 1100 77079 Houston, Texas (Zip Code) (Address of principal executive offices) 281/531-4214 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- APPLICABLE ONLY TO CORPORATE ISSUERS: Number of shares outstanding of each of the issuer's classes of common stock, as of May 7, 1998: Common Stock: 8,314,845 2 Item 1: Financial Statement DXP ENTERPRISES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In Thousands, except Per Share Amounts)
March 31, December 31, 1998 1997 ----------- ------------ (Unaudited) Assets Current assets: Cash $ 2,259 $ 736 Trade accounts receivable, net of allowance for doubtful accounts of $608 and $476, respectively 26,830 25,707 Inventory 28,922 26,018 Prepaid expenses and other current assets 1,107 996 Deferred income taxes 796 722 -------- -------- Total current assets 59,914 54,179 Property, plant and equipment, net 10,384 10,403 Other assets 6,864 3,054 -------- -------- Total assets 77,162 67,636 ======== ======== Liabilities and Shareholders' Equity Current liabilities: Trade accounts payable 18,197 14,368 Employee compensation 1,224 1,384 Other accrued liabilities 1,082 704 Current portion of long-term debt 1,198 1,461 -------- ------ Total current liabilities 21,701 17,917 Long-term debt, less current portion 38,245 33,395 Deferred compensation 739 739 Deferred income taxes 514 479 Equity subject to redemption: Series A preferred stock--1,122 shares 112 112 Common stock, 280,428 shares 1,963 1,963 Shareholders' Equity: Series A preferred stock, 1/10th vote per share; $1.00 par value; liquidation preference of $100 per share; 1,000,000 shares authorized; 2,992 shares issued and outstanding: 2 2 Series B convertible preferred stock, 1/10th vote per share; $1.00 par value; $100 stated value; liquidation preference of $100 per share; 1,000,000 shares authorized; 17,700 shares issued and outstanding 18 18 Common stock, $.01 par value, 50,000,000 shares authorized; 8,375,717 shares issued, of which 8,034,417 shares are outstanding, 280,428 shares are equity subject to redemption, and 60,872 shares are treasury stock 80 80 Paid-in capital 852 852 Retained earnings 13,516 12,659 Treasury stock (580) (580) -------- -------- Total shareholders' equity 13,888 13,031 Total liabilities and shareholders' equity $ 77,162 $ 67,636 ======== ========
See notes to condensed consolidated financial statements. 2 3 DXP ENTERPRISES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (In Thousands, except Per Share Amounts)
Three Months Ended March 31 1998 1997 -------- -------- Sales $ 49,004 $ 30,129 Cost of sales 36,419 21,756 -------- -------- Gross Profit 12,585 8,373 Selling, general and administrative expenses 10,508 7,043 -------- -------- Operating income 2,077 1,330 Other income 176 429 Interest expense (785) (539) -------- -------- Income before income taxes 1,468 1,220 Provision for income taxes 590 429 -------- -------- Net income $ 878 $ 791 Preferred stock dividend 21 38 -------- -------- Net Income attributable to common Shareholders $ 857 $ 753 ======== ======== Basic earnings per common share $ .10 $ .09 -------- -------- Common shares outstanding 8,315 7,994 -------- -------- Diluted earnings per share $ .08 $ .07 -------- -------- Common and common equivalent shares outstanding 11,401 10,984 -------- --------
See notes to condensed consolidated financial statements. 3 4 DXP ENTERPRISES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In Thousands)
Three Months Ended March 31, 1998 1997 -------- -------- OPERATING ACTIVITIES: Net cash provided by operating activities $ 3,415 $ 1,006 INVESTING ACTIVITIES: Purchase of Tri-Electric Supply net assets (6,208) -- Purchase of property and equipment (250) (227) -------- -------- Net cash used in investing activities (6,458) (227) FINANCING ACTIVITIES: Proceeds from debt 53,634 29,205 Principal payments on revolving line of credit, long-term and Subordinated debt, and notes payable to bank (49,047) (29,844) Dividends paid (21) (38) -------- -------- Net cash provided by financing activities 4,566 (677) -------- -------- INCREASE(DECREASE) IN CASH 1,523 102 CASH AT BEGINNING OF PERIOD 736 876 -------- -------- CASH AT END OF PERIOD $ 2,259 $ 979 ======== ========
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. The Company believes that the presentations and disclosures herein are adequate to make the information not misleading. The condensed consolidated financial statements reflect all elimination entries and adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the interim periods. The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full year. These condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements included in the Company's 10-K Annual Report for the year ended December 31,1997, filed with the Securities and Exchange Commission. Note 2: The Company DXP Enterprises, Inc. (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 56 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:
3/31/98 12/31/97 -------- -------- (in thousands) Finished goods $ 29,976 $ 27,280 Work in process 2,697 2,276 -------- -------- Inventories at FIFO 32,673 29,556 Less - LIFO allowance (3,751) (3,538) -------- -------- Inventories $ 28,922 $ 26,018 ======== ========
5 6 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. The results of operations of Tri-Electric are included in the consolidated statements of income from the date of acquisition. Goodwill of $3.9 million was recorded in connection with the acquisition. The acquisition has been accounted for using the purchase method of accounting. The Company is continuing its evaluation of the acquisition of Tri-Electric as it relates to the purchase price allocation. The allocation of the purchase price is based on the best estimates of the Company using information currently available. Certain adjustments relating to this acquisition are subject to change based upon the final determination of the fair values of the net assets acquired. Note 5: Long-Term Debt The Company has secured lines of credit for up to $40 million with an institutional lender. The rate of interest ranges from LIBOR plus 2.25 percent to prime plus .50 percent (8.50 percent at March 31, 1998). The line of credit is secured by receivables, inventory, and machinery and equipment and matures January, 1999. 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 borrowings available under the existing lines of credit at March 31, 1998 approximated $3.1 million. This facility includes loan covenants, which, among other things, require the Company to maintain a positive cash flow and other financial ratios, which are measured monthly. During April 1998, the Company amended its Credit Facility. (See Note 6) Note 6: Subsequent Events Effective April 29th, 1998, the Company amended its lines of credit with its lender. The restructure provided for a combined line of credit for up to $50 million. Additionally, the loan restructure increased the Company's term loan from $4.9 million to $9.9 million upon conversion of $5.0 million of the amounts outstanding under the revolving loan to the term loan. The amended credit facility provides for a $15.0 million acquisition term loan to be used for acquisitions provided certain customary provisions related to combined cash flows and acquisition pricing are met. Additionally, interest rates will range from LIBOR plus 1.50 to LIBOR plus 3.00 depending upon the relationship of the Company's debt to cash flow and financial covenants tied to debt service levels and cash flow. 6 7 Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Three Months Ended March 31, 1998 Compared to Three Months Ended March 31, 1997 Revenues for the three months ended March 31, 1998 increased 62.7% to $49.0 million from the three months ended March 31, 1997. The Company's acquisitions during the period accounted for $14.5 million of the $18.9 million increase in revenues. Sales of bearings and power transmission equipment for the quarter ended March 31, 1998 increased 19.6%, or $2.4 million over the comparable period in 1997, accounting for 7.8% of the revenue increase. Sales of valve and valve automation equipment increased 39.8%, or $.7 million over the comparable period in 1997, accounting for 2.2% of the revenue increase. During the three months ended March 31, 1998, sales of pumps and pump products increased 4.5%, or $1.3 million, over the comparable period in 1997, accounting for 5.6% of the revenue increase. Gross margins decreased 2.1% for the first quarter of 1998 as compared to the first quarter of 1997, from 27.8% of sales to 25.7%. The decrease in gross margin is attributable to lower margins associated with the two businesses acquired in May, 1997 and a third in February, 1998. The Company currently expects some increase in manufacturers prices to continue due to increased raw material costs and strong market conditions. Although the Company intends to attempt to pass on these price increases to its customers to maintain current gross margins, there can be no assurances that the Company will be successful in this regard. Selling, general and administrative expense decreased as a percentage of revenues by 1.9% for the first quarter of 1998 as compared to the first quarter of 1997. Operating income for the three month period ended March 31, 1998 was consistent as a percentage of revenues as compared to the first quarter of 1997. Interest expense during the first quarter of 1998 increased by $246,000 to $785,000 compared to the first quarter of 1997. Long-term debt at March 31, 1998 increased by $15.5 million as a result of the financing of two acquisitions during the second quarter of 1997 and a third during the first quarter of 1998, resulting in greater interest costs. Average interest rates were consistent during the three months ended March 31, 1998 as compared to the same period in 1997. The Company's provision for income taxes for the three months ended March 31, 1998 increased by $161,000 compared to the same period of 1997, as a result of the increase in profits. Net income for the three month period ended March 31, 1998, increased $87,000 from the three month period ended March 31, 1997 due to the increase in revenue volume and the decrease of selling, general and administrative expenses as a percentage of revenue. Liquidity and Capital Resources Under the Company's loan agreements with its bank lender (the "Credit Facility"), all available cash is generally applied to reduce outstanding borrowings, with operations funded through borrowings under the credit facility. The Company's policy is to maintain low levels of cash and cash equivalents and to use borrowings under its line of credit for working capital. The Company had $3.1 million available for borrowings under its working capital line of credit at March 31, 1998. Working capital at March 31, 1998 and December 31, 1997 was $38.2 million and $36.5 million, respectively. During the first three months of 1998 and the year 1997, the Company collected its trade receivables in approximately 49 and 46 days, respectively, and turned its inventory approximately five times on an annualized basis. 7 8 Subsequent to the end of the first quarter of 1998, the Company amended the Credit Facility and currently has a combined line of credit for up to $50 million. Additionally, the loan restructure increased the Company's term loan from $4.9 million to $9.9 million upon conversion of $5.0 million of the amounts outstanding under the revolving loan to the term loan. The amended credit facility provides for a $15.0 million acquisition term loan to be used for acquisitions provided certain customary provisions related to combined cash flows and acquisition pricing are met. Additionally, interest rates will range from LIBOR plus 1.50 to LIBOR plus 3.00 depending upon the relationship of the Company's debt to cash flow and financial covenants tied to debt service levels and cash flow. The line of credit is secured by receivables, inventory, and machinery and equipment and matures January, 2000. The facility contains customary affirmative and negative covenants as well as financial covenants that require the Company to maintain a positive cash flow and other financial ratios, such as tangible net worth less than five to one and current assets to current liabilities greater than two to one. The Company generated cash from operating activities of $3.4 million in the first three months of 1998 as compared to $1.0 million during the first three months of 1997 due primarily to a reduction in the net working capital components during the first three months of 1998. The Company had capital expenditures of approximately $250,000 for the first three months of 1998 as compared to $227,000 during the same period of 1997. Capital expenditures in the first three months of 1998 were primarily related to computer hardware ($136,000). Capital expenditures for 1997 were predominantly for the expansion of a facility in LaPorte, Texas ($80,000), leasehold improvements and furniture and fixtures at the corporate office and for office equipment and computer automation. On February 26, 1998, a wholly-owned subsidiary of the Company acquired substantially all of the assets of Tri-Electric Supply, Ltd ("Tri-Electric"). The purchase price consisted of $6.2 million in cash, assumption of 1.6 million of trade payables and other accrued expenses and a deferred payment of up to a maximum of $275,000 based on the earnings before interest and taxes and depreciation of the acquired Company to be paid on March 31, 1999, if earned. The results of operations of Tri-Electric are included in the consolidated statements of income 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 expects that its software will be year 2000 compatible by the end of 1998. The upgrading of the Company's software to address year 2000 issues is being handled through new releases of current software. All costs associated with year 2000 issues will be included as part of normal software upgrades or operating costs, as appropriate. The Company does not believe that any of the costs associated with year 2000 issues will be material to its financial condition or results of operations. The Company believes that cash generated from operations and available under its Credit Facility will meet its future ongoing operational and liquidity needs and capital requirements. Funding of the Company's acquisition program and integrated supply strategy will require capital in the form of the issuance of additional equity or debt financing. There can be no assurance that such financing will be available to the Company or as to the terms thereof. Item 3: Quantitative and Qualitative Disclosures About Market Price Not Applicable Part II: Other Information Item 1. Legal Proceedings From time to time, the Company is a party to legal proceedings arising in the ordinary course of business. The Company is not currently a party to any litigation that it believes could have a material adverse effect on the results of operations or financial condition of the Company. Item 2. Changes in Securities-None Item 3. Defaults upon Senior Securities - None Item 4. Submission of Matters to a Vote of Security Holders-None Item 5. Other Information 8 9 CAUTIONARY STATEMENTS The Company's expectations with respect to future results of operations that may be embodied in oral and written forward-looking statements, including any forward-looking statements that may be contained in this Quarterly Report on Form 10-Q, are subject to risks and uncertainties that must be considered when evaluating the likelihood of the Company's realization of such expectations. The Company's actual results could differ materially. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below. Risks Associated With Acquisition Strategy Future results for the company will depend in part on the success of the Company in implementing its acquisition strategy. This strategy includes taking advantage of a consolidation trend in the industry and effecting acquisitions of distributors with complementary or desirable new product lines, strategic distribution locations and attractive customer bases and manufacturer relationships. The ability of the Company to implement this strategy will be dependent on its ability to identify, consummate and successfully assimilate acquisitions on economically favorable terms. Although the Company is actively seeking acquisitions that would meet its strategic objectives, there can be no assurance that the Company will be successful in these efforts. In addition, acquisitions involve a number of specific risks, including possible adverse effects on the Company's operating results, diversion of management's attention and failure to retain key acquired personnel, all of which could have a material adverse effect on the Company's business, financial condition and results of operations. There can be no assurance that the Company or other industrial supply distributors acquired in the future will achieve anticipated revenues and earnings. In addition, the Credit Facility contains certain restrictions that could adversely affect its ability to implement its acquisition strategy. Such restrictions include a provision prohibiting the Company from merging or consolidating with, or acquiring all or a substantial part of the properties or capital stock of, any other entity without the prior written consent of the lender. There can be no assurance that the Company will be able to obtain the lender's consent to any of its proposed acquisitions. Risks Related to Acquisition Financing The Company currently intends to finance acquisitions by using shares of its common stock, par value $.01 per share (the "Common Stock"), for a portion or all of the consideration to be paid. In the event that the Common Stock does not maintain a sufficient market value, or potential acquisition candidates are otherwise unwilling to accept Common Stock as part of the consideration for the sale of their business, the Company may be required to use more of its cash resources, if available, to maintain its acquisition program. If the Company does not have sufficient cash resources, its growth could be limited unless it is able to obtain additional capital through debt or equity financing. Under the Credit Facility, all available cash generally is applied to reduce outstanding borrowings. As of March 31, 1998, the Company had $3.1 million available under the Credit Facility, and there can be no assurance that the Company will be able to obtain additional financing on a timely basis or on terms the Company deems acceptable. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources". Risks Related to Growth Strategy Future results for the Company also will depend in part on the Company's success in implementing its internal growth strategy, which includes expanding existing product lines and adding new product lines. The ability of the Company to implement this strategy will depend on its success in acquiring and integrating new product lines and marketing integrated forms of supply arrangements such as those being pursued by the Company through its SmartSource and American MRO programs. The Company acquired the assets of two companies in the second quarter of 1997 and another in the first 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. 9 10 Substantial Competition The Company's business is highly competitive. The Company competes with a variety of industrial supply distributors, some of which may have greater financial and other resources than the Company. Although many of the Company's traditional distribution competitors are small enterprises selling to customers in a limited geographic area, the Company also competes with larger distributors that provide integrated supply programs such as those offered through outsourcing services similar to those that are being offered by the Company's SmartSource and American MRO programs. Some of these large distributors may be able to supply their products in a more timely and cost-efficient manner than the Company. The Company's competitors include direct mail suppliers, large warehouse stores and, to a lesser extent, certain manufacturers. Risks of Economic Trends Demand for the Company's products is subject to changes in the United States economy in general and economic trends affecting the Company's customer and the industries in which they compete in particular. Many of these industries, such as the oil and gas industry, are subject to volatility while others, such as the petrochemical industry, are cyclical and materially affected by changes in the economy. As a result, the Company may experience changes in demand for its products as changes occur in the markets of its customers. Dependence on Key Personnel The Company will continue to be dependent to a significant extent upon the efforts and ability of David R. Little, its Chairman of the Board, President and Chief Executive Officer. The loss of the services of Mr. Little or any other executive officer of the company could have a material adverse effect on the Company's financial condition and results of operations. The Company does not maintain key-man life insurance on Mr. Little or on the lives of its other executive officers. In addition, the Company's ability to grow successfully will be dependent upon its ability to attract and retain qualified management and technical and operational personnel. The failure to attract and retain such persons could materially adversely effect the Company's business, financial condition and results of operations. Dependence on Supplier Relationships The Company has distribution rights for certain product lines and depends on these distribution rights for a substantial portion of its business. Many of these distribution rights are pursuant to contracts that are subject to cancellation upon little or no prior notice. The termination or limitation by any key supplier of its relationship with the Company could have a material adverse affect on the Company's business, financial condition and results of operations. Risks Associated with Hazardous Materials Certain of the Company's operations are subject to federal, state and local laws and regulations controlling the discharge of materials into or otherwise relating to the protection of the environment. Although the Company believes that it has adequate procedures to comply with applicable discharge and other environmental laws, the risks of accidental contamination or injury from the discharge of controlled or hazardous materials and chemicals cannot be eliminated completely. In the event of such an accident, the Company could be held liable for any damages that result and any such liability could have a material adverse effect on the Company's business, financial condition and results of operations. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 10.1 Sixth Amendment to Second Amended and Restated Loan and Security Agreement and Amendment to Other Agreements dated April 29, 1998, by and among SEPCO Industries, Inc., Bayou Pumps, Inc. and American MRO, Inc. and Fleet Capital Corporation. 10.2 Amendment to Loan and Security Agreement dated April 29, 1998, by and between Pelican State Supply Company, Inc. and Fleet Capital Corporation. 10.3 Amendment to Loan and Security Agreement dated April 29, 1998, by and between DXP Acquisition, Inc., d/b/a Strategic Acquisition, Inc. and Fleet Capital Corporation. 10.4 Secured Promissory Note dated April 29, 1998, payable by SEPCO Industries, Inc., Bayou Pumps, Inc. and American MRO, Inc. to Fleet Capital Corporation. 11.1 Statement re: Computation of Per Share Earnings 27.1 Financial Data Schedule 27.2 Restated Financial Data Schedules (b) Reports on Form 8-K None 10 11 Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. DXP Enterprises, Inc. Date: May 14, 1998 By: /s/ GARY A. ALLCORN --------------------------------------- Gary A. Allcorn Senior Vice President/Finance and Chief Financial Officer (Duly authorized officer and principal financial officer) 11 12 Exhibit Number EXHIBIT INDEX ------- ------------- 10.1 Sixth Amendment to Second Amended and Restated Loan and Security Agreement and Amendment to Other Agreements dated April 29, 1998, by and among SEPCO Industries, Inc., Bayou Pumps, Inc. and American MRO, Inc. and Fleet Capital Corporation. 10.2 Amendment to Loan and Security Agreement dated April 29, 1998, by and between Pelican State Supply Company, Inc. and Fleet Capital Corporation. 10.3 Amendment to Loan and Security Agreement dated April 29, 1998, by and between DXP Acquisition, Inc., d/b/a Strategic Acquisition, Inc. and Fleet Capital Corporation. 10.4 Secured Promissory Note dated April 29, 1998, payable by SEPCO Industries, Inc., Bayou Pumps, Inc. and American MRO, Inc. to Fleet Capital Corporation. 11.1 Statement re: Computation of Per Share Earnings 27.1 Financial Data Schedule 27.2 Restated Financial Data Schedules EX-10.1 2 6TH AMEND TO 2ND AMENDED AND RESTATED LOAN AGMT 1 EXHIBIT 10.1 SIXTH AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT AND AMENDMENT TO OTHER AGREEMENTS THIS SIXTH AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT AND AMENDMENT TO OTHER AGREEMENTS (this "Amendment") is made and entered into this 29th day of April, 1998, to be effective as of the respective date herein indicated, by and among SEPCO INDUSTRIES, INC., a Texas corporation ("Sepco"), BAYOU PUMPS, INC., a Texas corporation ("Bayou") and AMERICAN MRO, INC., a Nevada corporation ("American") (Sepco, Bayou and American being hereinafter individually and collectively referred to as "Borrower", as governed by the provisions of Section 1.4, Section 1.5, and Section 1.6 of the Loan Agreement, as hereinafter defined), and FLEET CAPITAL CORPORATION, a Rhode Island corporation ("Lender"), successor-in-interest by merger to Fleet Capital Corporation, a Connecticut corporation (Fleet Capital Corporation, a Connecticut corporation, having been, formerly known as Shawmut Capital Corporation, and having been the successor-in-interest by assignment to Barclays Business Credit, Inc., a Connecticut corporation). RECITALS A. Sepco and Barclays Business Credit, Inc., have entered into that certain Second Amended and Restated Loan and Security Agreement, dated as of April 1, 1994, as amended by that certain First Amendment to Second Amended and Restated Loan and Security Agreement and Secured Promissory Note, dated May, 1995, executed by Sepco and Fleet Capital Corporation, a Connecticut corporation (at that time known as Shawmut Capital Corporation), and as amended by that certain Second Amendment to Second Amended and Restated Loan and Security Agreement, entered into on April 3, 1996, executed by Sepco and Fleet Capital Corporation, a Connecticut corporation, and as amended by that certain Third Amendment to Second Amended and Restated Loan and Security Agreement, dated September 9, 1996, executed by Sepco, Bayou and Lender, and as amended by that certain Fourth Amendment to Second Amended and Restated Loan and Security Agreement, dated October 24, 1996, executed by Lender and Borrower, and as amended by that certain letter agreement dated November 4, 1996, entered into by Lender and Borrower, and as amended by that certain Fifth Amendment to Second Amended and Restated Loan and Security Agreement, dated June 2, 1997, executed by Lender and Borrower (as amended, the "Loan Agreement"). B. Lender, effective May 1, 1996, as successor-in-interest by merger to Fleet Capital Corporation, a Connecticut corporation, succeeded to, and today remains the present holder of, all right, title and interest of Fleet Capital Corporation, a Connecticut corporation, in the Loan Agreement and each of the Other Agreements. C. Borrower and Lender desire to further amend the Loan Agreement and the Other Agreements as hereinafter set forth. NOW, THEREFORE, in consideration of the premises herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties, intending to be legally bound, agree as follows: SIXTH AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT - PAGE 1 2 AGREEMENT ARTICLE I DEFINITIONS 1.01 Capitalized terms used in this Amendment are defined in the Loan Agreement, as amended hereby, unless otherwise stated. ARTICLE II AMENDMENTS Effective as of the respective date herein indicated, the Loan Agreement and the Other Agreements are hereby respectively amended as follows: 2.01 REFERENCES TO "INDEX, INC." AND "INDEX" IN THE LOAN AGREEMENT AND THE OTHER AGREEMENTS. The Loan Agreement and the Other Agreements are hereby amended by (i) deleting any and all references to "Index, Inc." therefrom and substituting "DXP Enterprises, Inc." in lieu thereof, and (ii) deleting any and all references to "Index" therefrom and substituting "DXP" in lieu thereof. Index, Inc., a Texas corporation, has changed its name to DXP Enterprises, Inc. 2.02 AMENDMENT TO SECTION 1.1 OF THE LOAN AGREEMENT; ADDITION OF CERTAIN DEFINITIONS. Effective as of the date of execution of this Amendment, Section 1.1 of the Loan Agreement is hereby amended by adding the following new definitions thereto, to be inserted in their proper alphabetical order: ACQUISITION TERM LOANS - the Loans described in Section 2.2(A) of this Agreement. ACQUISITION TERM LOANS CONDITIONS - with respect to the making of a specific Acquisition Term Loan pursuant to Section 2.2(A) of this Agreement, the following conditions precedent must be satisfied in a manner satisfactory to Lender: (i) No Event of Default or Default shall exist or will exist after giving effect to the requested Acquisition Term Loan; (ii) Since the date of execution of the Sixth Amendment, there shall not have occurred any material adverse change in the business, financial condition or results of operations of Borrower or the existence or value of any Collateral or any event, condition or state of facts which would reasonably be expected to materially and adversely affect the business, financial condition or results of operations of Borrower; (iii) Lender shall have received and reviewed (a) the audited financial statements of the relevant Target Company for the most recent fiscal year of such Target Company (or if such Target Company does not have audited annual financial statements, such unaudited annual financial statements of such Target Company as shall be satisfactory to Lender, in Lender's sole discretion); and (b) the most recent interim financial statements of such Target Company, all of which such financial statements shall be in form and substance satisfactory to Lender; SIXTH AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT - PAGE 2 3 (iv) After giving effect to the acquisition to be funded by such Acquisition Term Loan, Borrower shall be in compliance with each of the financial covenants set forth in Section 9.3 of this Agreement, as calculated as of the most recent financial covenant test date; (v) After giving effect to the acquisition to be funded by such Acquisition Term Loan, the ratio of (a) the aggregate principal amount of all Senior Debt outstanding on the date of such acquisition to (b) the EBITDA calculated for the twelve calendar month period ending on the date of such acquisition, shall be equal to or less than 4.00 to 1.00; and (vi) Lender shall have received the following documents, certificates and items, each in form and substance satisfactory to Lender: (a) A collateral assignment of the relevant asset purchase agreement or stock purchase agreement, as the case may be, relating to the acquisition to be funded by such Acquisition Term Loan, duly executed by Borrower in favor of Lender and duly accepted by the relevant seller; (b) A copy of the executed asset purchase agreement or stock purchase agreement, as the case may be, relating to such acquisition, together with copies of all other documentation relating thereto; (c) Evidence satisfactory to Lender, in its sole discretion, that Lender has a perfected first priority Lien in such of the assets of the Target Company being transferred to Borrower in connection with the acquisition as shall be required by Lender; and (d) Such other documents, certificates and items as shall be required by Lender. ACQUISITION TERM LOANS NOTE - the Secured Promissory Note (Acquisition Term Loans), to be executed by Borrower on or about the date of execution of the Sixth Amendment, in favor of Lender, to evidence the Acquisition Term Loans, which shall be in the form of Exhibit A attached to the Sixth Amendment. CAPITALIZED LEASE OBLIGATION - any Indebtedness represented by obligations under a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP. DOMESTIC MARGIN - at all times up to and including June 30, 1998 - 0.50% per annum. Thereafter, 0.00% per annum. DXP - DXP Enterprises, Inc., a Texas corporation, formerly known as Index, Inc. EBITDA - for any fiscal period of Borrower, means the sum of (i) the Adjusted Net Earnings From Operations of DXP and its Subsidiaries for such period, plus (ii) non-cash charges of DXP and its Subsidiaries in respect to depreciation and amortization for such period, plus (iii) Tax Expense of DXP and its Subsidiaries for period, plus (iv) SIXTH AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT - PAGE 3 4 Interest Expense of DXP and its Subsidiaries for such period, all of the above being determined on a consolidated basis in accordance with GAAP. EURODOLLAR ADJUSTMENT DATE - initially, July 1, 1998, and thereafter, the first Business Day of the calendar month during which Lender receives the Compliance Certificate required by Section 9.1(J) hereof having a calculation date as of the last day of September, December, March, or June, as the case may be (referred to in this Agreement as "Quarterly Compliance Certificate"), beginning with the Compliance Certificate having the calculation date as of September 30, 1998. EURODOLLAR MARGIN - (i) for all Revolving Credit Loans which are Eurodollar Loans and are outstanding during the period ending on June 30, 1998, 2.00% per annum (no portion of the Term Loans being able to be Eurodollar Loans prior to July 1, 1998), and thereafter (ii) for all Eurodollar Loans outstanding during the period beginning on a Eurodollar Adjustment Date and ending on the day preceding the subsequent Eurodollar Adjustment Date, the applicable percent per annum set forth in the pricing table below respectively for Revolving Credit Loans and for the Term Loans opposite the ratio of (i) the aggregate principal amount of all Senior Debt outstanding on the calculation date of the applicable Quarterly Compliance Certificate to (ii) the EBITDA calculated for the trailing twelve calendar month period ending on the calculation date of the applicable Quarterly Compliance Certificate (which EBITDA may contain adjustments for the Target Company EBITDA of any Target Company purchased with an Acquisition Term Loan during the relevant twelve calendar month period, provided that any such adjustment must be consented to by Lender, which consent shall be given or withheld by Lender in its sole discretion, and such adjustment must also be calculated in a manner satisfactory to Lender, in Lender's sole discretion). PRICING TABLE
EURODOLLAR MARGIN FOR REVOLVING EURODOLLAR MARGIN RATIO OF SENIOR DEBT CREDIT LOANS FOR TERM LOANS TO EBITDA - ----------------------------------------- ---------------- ------------------ (i) Greater than or equal to 4.50 (i) 2.50% (i) 3.00% to 1.00 (ii) Less than 4.50 to 1.00, but (ii) 2.25% (ii) 2.75% greater than or equal to 4.00 to 1.00 (iii) Less than 4.00 to 1.00, but (iii) 2.00% (iii) 2.50% greater than or equal to 3.50 to 1.00 (iv) Less than 3.50 to 1.00, but (iv) 1.75% (iv) 2.25% greater than or equal to 3.00 to 1.00 (v) Less than 3.00 to 1.00 (v) 1.50% (v) 2.00%
SIXTH AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT - PAGE 4 5 If Borrower shall fail to deliver a Quarterly Compliance Certificate by the date required pursuant to Section 9.1(J) of this Agreement, then effective as of the date such Quarterly Compliance Certificate becomes delinquent, the applicable Eurodollar Margin shall be conclusively presumed to equal the highest applicable Eurodollar Margin specified in the pricing table set forth above, such automatic adjustment to remain in effect until the first Business Day of the calendar month during which such delinquent Quarterly Compliance Certificate is delivered. From and after the first Business Day of the calendar month during which such delinquent Quarterly Compliance Certificate is delivered and until the next Eurodollar Adjustment Date, the Eurodollar Margin shall be determined by reference to such delinquent Quarterly Compliance Certificate and the pricing table set forth above. FIXED CHARGE RATIO - for any fiscal period of Borrower means, the ratio of (i) an amount equal to (a) the sum of (1) the Adjusted Net Earnings From Operations of DXP and its Subsidiaries for such period, plus (2) non-cash charges of DXP and its Subsidiaries in respect to depreciation and amortization for such period, plus (3) Interest Expense of DXP and its Subsidiaries for such period minus (4) Capital Expenditures made by DXP and its Subsidiaries during such period, to (ii) Fixed Charges of DXP and its Subsidiaries for such period, all of the above being determined on a consolidated basis in accordance with GAAP. FIXED CHARGES - for any fiscal period of Borrower means the sum of (i) scheduled principal payments required to be made by DXP and its Subsidiaries during such period in respect to Indebtedness, plus (ii) Interest Expense of DXP and its Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP. INTEREST EXPENSE - with respect to any fiscal period, the interest expense incurred for such period as determined in accordance with GAAP plus Letter of Credit and LC Guaranty fees owing for such period. MONEY BORROWED - means (i) Indebtedness arising from the lending of money by any Person to DXP or any Subsidiary of DXP, (ii) Indebtedness, whether or not in any such case arising from the lending by any Person of money to DXP or any Subsidiary of DXP (A) which is represented by notes payable or drafts accepted that evidence extensions of credit, (B) which constitutes obligations evidenced by bonds, debentures, notes or similar instruments or (C) upon which interest charges are customarily paid (other than accounts payable) or that was issued or assumed as full or partial payment for Property; (iii) Indebtedness that constitutes a Capitalized Lease Obligation; (iv) reimbursement obligations with respect to letters of credit or guaranties of letters of credit; and (v) Indebtedness of DXP or any Subsidiary of DXP under any guaranty of obligations that would constitute Indebtedness for Money Borrowed under clauses (i) through (iv) hereof, if owed directly by DXP or such Subsidiary of DXP. NOTES - the Term Note and the Acquisition Term Loans Note. SENIOR DEBT - means all Money Borrowed, excluding Subordinated Debt. SIXTH AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT - PAGE 5 6 SENIOR INTEREST COVERAGE RATIO - for any fiscal period of Borrower means, the ratio of (i) an amount equal to the sum of (a) the Adjusted Net Earnings From Operations of DXP and its Subsidiaries for such period, plus (b) Tax Expense of DXP and its Subsidiaries for such period, plus (c) Interest Expense of DXP and its Subsidiaries for such period in respect of Senior Debt, to (ii) Interest Expense of DXP and its Subsidiaries for such period in respect of Senior Debt, all as determined on a consolidated basis in accordance with GAAP. SIXTH AMENDMENT - the Sixth Amendment to Second Amended and Restated Loan and Security Agreement, by and between Lender and Borrower. STOCK OFFERING - the secondary stock offering of capital stock in DXP which is expected to raise approximately $25,000,000 in net proceeds for DXP. TARGET COMPANY - shall have the meaning set forth in Section 2.2(A) of this Agreement. TARGET COMPANY ADJUSTED NET EARNINGS FROM OPERATIONS - with respect to any fiscal period, means the consolidated (in accordance with GAAP) net earnings (or loss) of the Target Company and its Subsidiaries after provision for income taxes for such fiscal period of the Target Company, all as reflected on the consolidated financial statement of the Target Company and its Subsidiaries supplied to Lender by Borrower but excluding: (a) any gain or loss arising from the sale of capital assets; (b) any gain arising from any write-up of assets; (c) earnings of any Subsidiary accrued prior to the date it became a Subsidiary; (d) earnings of any corporation, substantially all the assets of which have been acquired in any manner by the Target Company or a Subsidiary of the Target Company, realized by such corporation prior to the date of such acquisition; (e) net earnings of any business entity (other than a Subsidiary) in which the Target Company or a Subsidiary of the Target Company has an ownership interest unless such net earnings shall have actually been received by the Target Company or such Subsidiary of the Target Company in the form of cash distributions; (f) any portion of the net earnings of any Subsidiary which for any reason is unavailable for payment of dividends to the Target Company or a Subsidiary of the Target Company; (g) the earnings of any Person to which any assets of the Target Company or any Subsidiary of the Target Company shall have been sold, transferred or disposed of, or into which the Target Company or a Subsidiary of the Target Company shall have merged, or been a party to any consolidation or other form of reorganization, prior to the date of such transaction; (h) any gain arising from the acquisition of any Securities of the Target Company or a Subsidiary of the Target Company; and (i) any gain arising from extraordinary or non-recurring items. TARGET COMPANY EBITDA - for any fiscal period of the relevant Target Company, means the sum of (i) the Target Company Adjusted Net Earnings From Operations for such period, plus (ii) non-cash charges of such Target Company and its Subsidiaries in respect to depreciation and amortization for such period, plus (iii) Tax Expense of such Target Company and its Subsidiaries for such period, plus (iv) interest expense of such Target Company and its Subsidiaries for such period, all of the above being determined on a consolidated basis in accordance with GAAP. SIXTH AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT - PAGE 6 7 TAX EXPENSE - with respect to any fiscal period, the tax expense incurred for such period as determined in accordance with GAAP." 2.03 AMENDMENT TO DEFINITION OF "BORROWING BASE" IN SECTION 1.1 OF THE LOAN AGREEMENT. Effective as of the date of execution of this Amendment, Section 1.1 of the Loan Agreement is hereby amended and restated to read in its entirety as follows: "BORROWING BASE - as at any date of determination thereof, an amount equal to the lesser of: (a) Forty Million Dollars ($40,000,000), minus the aggregate unpaid principal balance of the Term Loan and of the Acquisition Term Loans at such date; or (b) an amount equal to: (i) 85% of the net amount of eligible Accounts outstanding at such date (as determined by Lender in its sole discretion); PLUS (ii) the lesser of (A) Twelve Million Five Hundred Thousand Dollars ($12,500,000) or (B) 50% of the value of Eligible Inventory (as determined by Lender in its sole discretion) at such date consisting of finished goods, calculated on the basis of the lower of cost or fair market value (as determined by Lender in its sole discretion) with the cost of finished goods calculated on a first-in, first-out basis; MINUS (subtract from the sum of clauses (i) and (ii) above) (iii) an amount equal to the sum of (A) the face amount of all LC Guaranties and Letters of Credit issued by Lender or Affiliates of Lender and outstanding at such date and (B) any amounts which Lender may be obligated to pay in the future for the account of Borrower pursuant to this Agreement, the Other Agreements or otherwise. For purposes hereof, the net amount of Eligible Accounts at any time shall be the face amount of such Eligible Accounts less any and all returns, rebates, discounts (which may, at Lender's option, be calculated on shortest terms), credits, allowances or excise taxes of any nature at any time issued, owing, claimed by Account Debtors, granted, outstanding or payable in connection with such Accounts at such time." 2.04 AMENDMENT TO DEFINITION OF "COMMITMENT" IN SECTION 1.1 OF THE LOAN AGREEMENT. Effective as of the date of execution of this Amendment, the definition of "Commitment" contained in Section 1.1 of the Loan Agreement is amended and restated to read in its entirety as follows: "Commitment - Forty Million Dollars ($40,000,000.00)." SIXTH AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT - PAGE 7 8 2.05 AMENDMENT TO DEFINITION OF "LOANS" IN SECTION 1.1 OF THE LOAN AGREEMENT. Effective as of the date of execution of this Amendment, the definition of "Loans" contained in Section 1.1 of the Loan Agreement is hereby amended and restated to read in its entirety as follows: "LOANS - all loans and advances made by Lender pursuant to this Agreement, including, without limitation, all Revolving Credit Loans and the Term Loan and the Acquisition Term Loans." 2.06 AMENDMENT TO DEFINITION OF "TERM NOTE" IN SECTION 1.1 OF THE LOAN AGREEMENT. Effective as of the date of execution of this Amendment, the definition of "Term Note" in Section 1.1 of the Loan Agreement is hereby amended and restated to read in its entirety as follows: "TERM NOTE - that certain Secured Promissory Note, dated March 1, 1994, in the original principal amount of $1,329,277.37, executed by Sepco, and payable to the order of Lender, as renewed, extended, modified and restated from time to time, including, without limitation, as modified and extended by (i) the Third Amendment Modification Agreements (which Third Amendment Modification Agreements, among other things, modified the Term Note to reflect the increase of the Term Loan to $5,000,000), and (ii) the Sixth Amendment (which Sixth Amendment, among other things, modified the Term Note to reflect the increase of the Term Loan to $9,887,000.00)." 2.07 AMENDMENT TO SECTION 2.2 OF THE LOAN AGREEMENT. - Effective as of the date of execution of this Amendment, Section 2.2 of the Loan Agreement is hereby amended and restated to read in its entirety as follows: "2.2 TERM LOAN. The parties hereto agree that effective as of April 1, 1994, (i) Lender made to Sepco that certain term loan in the original principal amount of $1,329,277.37, evidenced by that certain Secured Promissory Note, dated April 1, 1994, in the original principal amount of $1,329,277.37, executed by Sepco, and payable to the order of Lender, and (ii) as of the date of execution of the Third Amendment, the unpaid principal amount of such term loan was $82,231.76, and that in connection with the Third Amendment, at the request of Sepco Lender converted $4,917,768.24 of the principal amount of Revolving Credit Loans made to Sepco by Lender outstanding on the date of execution of the Third Amendment to a term loan, which term loan was combined and consolidated with the outstanding principal amount of the term loan made to Sepco on April 1, 1994, such that the combined term loan was in the aggregate principal amount of $5,000,000. Sepco further agrees, represents and warrants that as of the date of execution of the Sixth Amendment, the unpaid principal amount of such term loan is $4,887,000.00, and that there are no claims or offsets against, or defenses or counterclaims to, payment of such amount to Lender. Sepco further agrees, represents and warrants that it has requested that Lender make on the date of execution of the Sixth Amendment an additional $5,000,000 term loan to Sepco, the proceeds of which will be used to replace working capital used by Sepco to acquire assets of Tri-Electric Supply, Ltd., and that such additional $5,000,000 term loan be combined and consolidated with the existing term loan, such that the combined and consolidated term loan shall be in the aggregate principal amount of $9,887,000.00 (such combined and consolidated term loan being referred to in this Agreement as the 'Term Loan'). Subject to the terms and conditions of this Agreement, Lender agrees to make the Term Loan to Sepco, and in connection therewith to advance on the date of execution the Sixth Amendment an additional $5,000,000.00. The Term Loan shall be repayable in accordance with the terms of the Term Note, and shall be secured by the Collateral. SIXTH AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT - PAGE 8 9 The parties hereto agree that the Term Loan represents a portion of the 'Sepco Obligations' referred to and defined in Section 1.5 of this Agreement. If Sepco sells any of its Equipment or real Property, or if any of the other Property owned by Sepco is taken by condemnation, Sepco shall pay to Lender, unless otherwise agreed to by Lender, as and when received by Sepco and as a mandatory prepayment of the Term Loan (or, at Lender's option, such of the other Obligations as Lender may elect), a sum equal to the proceeds received by Sepco from such sale or condemnation, less any state or federal income tax directly attributable thereto 2.08 ADDITION OF A NEW SECTION 2.2(A) TO THE LOAN AGREEMENT. Effective as of the date of execution of this Amendment, a new section, Section 2.2(A), is hereby added to the Loan Agreement to read in its entirety as follows: "(A) ACQUISITION TERM LOANS. Subject to all of the terms and conditions of this Agreement, for so long as no Default or Event of Default exists and Borrower has satisfied the Acquisition Term Loans Conditions, Lender may from time to time during the period beginning the date of execution of the Sixth Amendment and continuing until January 1, 2000, make Loans (referred to in this Agreement as the 'Acquisition Term Loans') to Borrower to finance Borrower's acquisition of assets of a company engaged in the business of supplying or distributing maintenance, repair, and/or operating products, equipment and services to industrial customers (each such company being referred to in this Agreement as a 'Target Company'), provided that the aggregate principal amount of the Acquisition Term Loans advanced by Lender to Borrower under this Agreement shall not exceed $15,000,000, Lender's commitment to make up to $15,000,000 in Acquisition Term Loans being a multiple advance term loan facility and not a revolving credit facility. Each Acquisition Term Loan shall be subject to approval in Lender's sole discretion, and shall be in such amount as may be mutually agreed upon by Borrower and Lender, but in no event shall the Acquisition Term Loan exceed 100% of the purchase price of such assets of the Target Company; provided, however, such purchase price shall not exceed (i) six times (ii) the Target Company EBITDA for such Target Company for the twelve calendar month period of such Target Company ending on the calculation date of the most recent acceptable financial statements of such Target Company provided to Lender. The Acquisition Term Loans shall be secured by the Collateral and shall be repaid as set forth in the Acquisition Term Loans Note." 2.09 AMENDMENT TO SECTION 3.1(A) OF THE LOAN AGREEMENT. Effective as of the date of execution of this Amendment, the first two sentences of Section 3.1(A) of the Loan Agreement are amended and restated to read in their entirety as follows: "(A) Outstanding principal on the Loans shall bear interest, calculated daily, at the following rates per annum (individually called, as applicable, an 'Applicable Annual Rate'): (i) Eurodollar Loans shall bear interest at a rate per annum equal to the applicable Eurodollar Margin plus the Eurodollar Base Rate for the Eurodollar Interest Period applicable thereto, and (ii) all other Loans shall bear interest at a rate per annum equal to the applicable Domestic Margin plus the Base Rate. All Loans shall bear interest at a rate per annum equal to the applicable Domestic Margin plus the Base Rate unless the Borrower provides a Eurodollar Borrowing Notice to the Lender in accordance with Section 3.7(A) irrevocably electing that all or a portion of the Loans are to bear interest at a Eurodollar Base Rate; provided, however, prior to July 1, 1998, no portion of the Term Loans may be elected by Borrower to bear interest at a Eurodollar Base Rate. Each Loan that is not a Eurodollar Loan shall be increased or decreased, as SIXTH AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT - PAGE 9 10 the case may be, by an amount equal to any increase or decrease in the Base Rate, with such adjustments to be effective as of the opening of business on the day that any such change in the Base Rate becomes effective." 2.10 AMENDMENT TO SECTION 3.1(B) OF THE LOAN AGREEMENT. Effective as of the date of execution of this Amendment, Section 3.1(B) of the Loan Agreement is hereby amended by amending and restating clause (ii) of such Section 3.1(B) in its entirety as follows: "(ii) unless preempted by federal law, the Applicable Annual Rate or Default Rate, as applicable, from time to time in effect hereunder may not exceed the applicable 'weekly ceiling' (as such term is defined in Chapter 303 of the Texas Finance Code [Vernon's Texas Codes Annotated], as amended from time to time) from time to time in effect." 2.11 AMENDMENT TO SECTION 3.3 OF THE LOAN AGREEMENT. Effective as of the date of execution of this Amendment, Section 3.3 of the Loan Agreement is amended as follows: (i) Section 3.3(A) is amended by deleting therefrom the reference to the date "January 2, 1999" and substituting therefor the date "January 2, 2000." (ii) Section 3.3(C) is amended and restated to read in its entirety as follows: "(C) At the effective date of any such termination by Borrower, Borrower shall pay to Lender (in addition to the then outstanding principal, accrued interest and other charges owing under this Agreement and any of the Other Agreements), as liquidated damages for the loss of the bargain and not as a penalty, an amount equal to $50,000 if termination occurs at any time prior to January 2, 2000 or during any Renewal Term thereafter. If termination occurs on the last day of the Original Term or the last day of any Renewal Term, no termination charge shall be payable." 2.12 AMENDMENT TO SECTION 3.4 OF THE LOAN AGREEMENT. Effective as of the date of execution of this Amendment, the first sentence of Section 3.4 of the Loan Agreement is amended and restated to read in its entirety as follows: "Principal and interest on the Term Loan shall be payable as provided in the Term Note, and principal and interest on the Acquisition Term Loans shall be payable as provided in the Acquisition Term Loans Note." 2.13 AMENDMENT TO SECTION 9.3 OF THE LOAN AGREEMENT. Effective as of the date of execution of this Amendment, Section 9.3 of the Loan Agreement is hereby amended and restated to read in its entirety as follows: "9.3. SPECIFIC FINANCIAL COVENANTS. During the term of this Agreement, and thereafter for so long as there are any Obligations to Lender, Borrower covenants that, unless otherwise consented to by Lender in writing, DXP and its Subsidiaries shall: (A) Maintain, on a consolidated basis in accordance with GAAP, as of the end of each fiscal quarter, beginning with the fiscal quarter ending on June 30, 1998, for the twelve calendar month period ending on such date, a Fixed Charge Ratio of not less than 1.50 to 1.00. SIXTH AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT - PAGE 10 11 (B) Achieve, on a consolidated basis in accordance with GAAP, on the last day of each fiscal quarter, set forth below, for the twelve calendar month period ending on such date, a Senior Interest Coverage Ratio equal to or greater than the ratio set forth below for the twelve calendar month period ending on the date corresponding thereto:
DATE RATIO --------------------------- -------------------- (i) June 30, 1998 (i) 2.75 to 1.00 (ii) September 30, 1998 (ii) 2.75 to 1.00 (iii) December 31, 1998 (iii) 2.75 to 1.00 (iv) Each March 31, June 30, (iv) 3.00 to 1.00 September 30 and December 31 thereafter occurring
(C) Maintain, on a consolidated basis in accordance with GAAP, as of the last day of each fiscal quarter set forth below (the 'Calculation Date'), a ratio of (i) the Senior Debt of DXP and its Subsidiaries on such Calculation Date, to (ii) an amount equal to (a) the EBITDA of DXP and its Subsidiaries for the twelve calendar month period ending on such Calculation Date, minus (b) Capital Expenditures made by DXP and its Subsidiaries during such period, of not greater than the ratio set forth below on the Calculation Date corresponding thereto:
CALCULATION DATE RATIO ---------------- ----- (i) June 30, 1998 (i) 4.50 to 1.00 (ii) September 30, 1998 (ii) 4.50 to 1.00 (iii) December 31, 1998 (iii) 4.50 to 1.00 (iv) Each March 31, June 30, (iv) 4.00 to 1.00 September 30, and December 31 thereafter occurring
Notwithstanding the foregoing, beginning with the first Calculation Date to occur after the consummation of the Stock Offering, and continuing on each subsequent Calculation Date, the relevant maximum ratio shall be 3.00 to 1.00." 2.14 AMENDMENT TO SECTION 11.1(A) OF THE LOAN AGREEMENT. Effective as of the date of execution of this Amendment, Section 11.1(A) of the Loan Agreement is amended by adding after the words "Term Note" but before the word "within," the words "and/or the Acquisition Term Loans Note". 2.15 AMENDMENT TO SECTION 11.1(B) OF THE LOAN AGREEMENT. Effective as of the date of execution of this Amendment, Section 11.1(B) of the Loan Agreement is amended by adding after the words "Term Note," but before the word "on," the words "or the Acquisition Term Loans Note". 2.16 AMENDMENT TO SECTION 11.1 OF THE LOAN AGREEMENT; ADDITION OF NEW SECTIONS 11.1(P), 11.1(Q), 11.1(R) AND 11.1(S). Effective as of the date of execution of this Amendment, Sections 11.1(P), (Q), (R) and (S) are hereby added to Section 11.1 of the Loan Agreement to read in their entirety as follows: SIXTH AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT - PAGE 11 12 "(P) Borrower ceases to be a Subsidiary of DXP, unless due to the merger of Borrower into DXP, with DXP being the surviving entity; or (Q) Each of Borrower, American MRO, Inc., Bayou Pumps, Inc., Pelican State Supply Company, Inc. and DXP Acquisition, Inc., d/b/a Strategic Acquisition, Inc. has not by October 1, 1998, been merged into DXP, with DXP being the surviving entity, upon terms and conditions and pursuant to documentation satisfactory to Lender; or (R) The occurrence of an 'Event of Default,' as such term is defined in that certain Loan and Security Agreement, dated May 29, 1997, executed by Lender and Pelican State Supply Company, Inc., as renewed, extended, modified and restated from time to time; or (S) The occurrence of an 'Event of Default,' as such term is defined in that certain Loan and Security Agreement, dated June 16, 1997, executed by Lender and DXP Acquisition, Inc., d/b/a Strategic Acquisition, Inc., as renewed, extended, modified and restated from time to time." 2.17 AMENDMENT TO SECTION 12.10 OF THE LOAN AGREEMENT. Effective as of the date of execution of this Amendment, Section 12.10 of the Loan Agreement is amended such that copies of all notices to Lender shall hereafter also be sent to the following address: "Patton Boggs, L.L.P. 2200 Ross Avenue, Suite 900 Dallas, Texas 75201-2774 Attention: Kenneth M. Vesledahl, Esq. Facsimile No. (214) 871-2688" 2.18 AMENDMENT TO SECTION 12.16 OF THE LOAN AGREEMENT. Effective as of the date of execution of this Amendment, Section 12.16 of the Loan Agreement is hereby amended and restated to read in its entirety as follows: "12.16 NONAPPLICABILITY OF CHAPTER 303 OF TEXAS FINANCE CODE. Borrower and Lender hereby agree that the provisions of Chapter 346 of the Texas Finance Code [Vernon's Texas Codes Annotated] (which regulates certain revolving loan accounts and revolving triparty accounts) shall not apply to this Agreement or any of the other Loan Documents." 2.19 EXTENSION OF MATURITY OF TERM NOTE. The maturity of the Term Note is hereby renewed and extended until January 2, 2000. 2.20 AMENDMENT TO PRINCIPAL BALANCE OF TERM NOTE. Borrower and Lender hereby amend the Term Note such that (i) each reference in the Term Note to the dollar amount "$5,000,000.00" is deleted and substituted therefor is the dollar amount "$9,887,000.00", and (ii) the reference to the phrase "FIVE MILLION AND NO/100 DOLLARS" is deleted and substituted therefor is the phrase "NINE MILLION EIGHT HUNDRED EIGHTY SEVEN THOUSAND AND NO/100 DOLLARS." 2.21 AMENDMENT TO INTEREST RATE PROVISIONS IN THE TERM NOTE. Borrower and Lender hereby amend the Term Note as follows: SIXTH AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT - PAGE 12 13 (a) The first paragraph on the first page of the Term Note is amended by deleting therefrom the phrase "0.50% above the Base Rate (the 'Annual Term Rate')," and substituting therefor the phrase "the Applicable Annual Rate (as defined in the Loan Agreement)", and each other reference in the Term Note to the words "Annual Term Rate" is deleted and substituted therefor are the words "Applicable Annual Rate." (b) The last paragraph on page one of the Term Note (as it carries forward on page two of the Term Note) is hereby amended and restated to read in its entirety as follows: "Borrower acknowledges and understands that the Base Rate merely serves as a basis upon which effective rates of interest are calculated for loans making reference to the per annum rate of interest established by Bank from time to time as its base rate and that such rate may not be the lowest or best rate at which Bank calculates interest or extends credit. Each portion of the outstanding principal amount of this Note that is not a Eurodollar Loan (as defined in the Loan Agreement) shall be increased or decreased, as the case may be, by an amount equal to any increase or decrease in the Base Rate, with such adjustments to be effective as of the opening of business on the date that any such change in the Base Rate becomes effective. The Base Rate in effect on the date hereof shall be the Base Rate effective as of the opening of business on the date hereof, but if this Note is executed on a day that is not a Business Day, the Base Rate in effect on the date hereof shall be the Base Rate effective as of the opening of business on the last Business Day immediately preceding the date hereof. The rate of interest in effect hereunder may be increased in accordance with the provisions of the Loan Agreement. Interest on this Note shall be calculated on a daily basis (computed on the actual number of days elapsed over a year of 360 days); provided, however, interest due at the Maximum Legal Rate shall be calculated on the basis of actual days elapsed over a year of 365 or 366 days, as the case may be." (c) The first full paragraph on page two of the Term Note is amended by deleting therefrom the words "Base Rate" and substituting therefor the words "Applicable Annual Rate." 2.22 AMENDMENT TO PAYMENT TERMS IN THE TERM NOTE. Effective as of the date of execution of this Amendment, the last paragraph on page two of the Term Note is amended and restated to read in its entirety as follows: "The principal amount of and accrued interest on this Note shall be due and payable on the dates and in the manner hereinafter set forth: (a) interest shall be due and payable monthly, in arrears, on the first day of each month, commencing on August 1, 1996, and continuing until such time as the full principal balance, together with all other amounts owing hereunder, shall have been paid in full; (b) the principal shall be due and payable in equal monthly installments of EIGHTY-TWO THOUSAND FIVE HUNDRED AND NO/100 DOLLARS ($82,500.00) each, commencing on October 1, 1998, and continuing on the first day of each month thereafter to and including the first day of December, 1999; and SIXTH AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT - PAGE 13 14 (c) the entire unpaid principal balance hereof, together with any and all other amounts due hereunder, shall be due and payable on January 2, 2000." 2.23 AMENDMENT TO PREPAYMENT PREMIUM PROVISION IN THE TERM NOTE. The Term Note is further amended by deleting the third sentence presently found in the second full paragraph of page three of the Term Note and substituting therefor the following new sentence: "If Borrower terminates the Loan Agreement pursuant to Section 3.3(B) thereof, then, upon the effective date of such termination, Borrower shall pay to Lender (in addition to any other charges due under the terms of the Loan Agreement) the termination charge provided for in Section 3.3(C) of the Loan Agreement." ARTICLE III NO WAIVERS 3.01 Nothing contained herein shall be construed as a waiver by Lender of any covenant or provision of the Loan Agreement, the Other Agreements, this Amendment or of any other contract or instrument between Borrower and Lender, and the failure of Lender at any time or times hereafter to require strict performance by Borrower of any provision thereof shall not waive, affect or diminish any right of Lender to thereafter demand strict compliance therewith. Lender hereby reserves all rights granted under the Loan Agreement, the Other Agreements, this Amendment and any other contract or instrument between Borrower and Lender. ARTICLE IV CONDITIONS PRECEDENT 4.01 CONDITIONS TO EFFECTIVENESS. The effectiveness of this Amendment is subject to the satisfaction of the following conditions precedent in a manner satisfactory to Lender, unless specifically waived in writing by Lender: (a) Lender shall have received each of the following, each in form and substance satisfactory to Lender, in its sole discretion, and, where applicable, each duly executed by each party thereto, other than Lender: (i) This Amendment, duly executed by Borrower, together with the relevant Consent, Ratification, and Amendment, respectively duly executed by David R. Little, individually, Gary A. Allcorn, Trustee for Kacey Joyce Little, Nicholas David Little and Andrea Rae Little 1988 Trusts, DXP Enterprises, Inc. ("Parent"), DXP Acquisition, Inc., d/b/a Strategic Acquisition, Inc. and Pelican State Supply Company, Inc.; (ii) The Acquisition Term Loans Note, in the form of Exhibit A attached hereto, duly executed by Borrower; (iii) UCC-1 Financing Statements covering all of the assets of American MRO, Inc., duly executed by American MRO, Inc., in favor of Lender, for filing in the relevant filing offices in Alabama, Arkansas, Colorado, Louisiana, Nevada, New Mexico, Oklahoma and Texas; SIXTH AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT - PAGE 14 15 (iv) Original stock powers, duly executed by the Andrea Rae Little 1988 Trust, the Kacey Joyce Little 1988 Trust, the Nicholas David Little 1988 Trust and Parent, covering the Parent stock certificates owned by such entities; (v) Original stock powers, duly executed by Parent, covering the Pelican State Supply Company, Inc. and DXP Acquisition, Inc., d/b/a Strategic Acquisition, Inc. and Sepco stock certificates owned by Parent; (vi) An Amendment to each of the existing Parent Stock Pledge Agreements, duly executed by Parent; (vii) Pelican State Supply Company, Inc. shall have executed amendment documentation satisfactory to Lender regarding the credit facility provided by Lender to Pelican State Supply Company, Inc.; (viii) DXP Acquisition, Inc., d/b/a Strategic Acquisition, Inc. shall have executed amendment documentation satisfactory to Lender regarding the credit facility provided by Lender to DXP Acquisition, Inc., d/b/a Strategic Acquisition, Inc.; and (ix) All other documents Lender may request with respect to any matter relevant to this Amendment or the transactions contemplated hereby; (b) Lender shall have received in immediately available funds from Borrower payment of $50,000 of the $100,000 restructuring fee described in Section 5.03 of this Amendment; (c) 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; (d) 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 (e) All corporate proceedings taken in connection with the transactions contemplated by this Amendment and all documents, instruments and other legal matters incident thereto shall be satisfactory to Lender and its legal counsel. ARTICLE V RATIFICATIONS, REPRESENTATIONS AND WARRANTIES 5.01 RATIFICATIONS. The terms and provisions set forth in this Amendment shall modify and supersede all inconsistent terms and provisions set forth in the Loan Agreement and the Other Agreements, and, except as expressly modified and superseded by this Amendment, the terms and provisions of the Loan Agreement and the Other Agreements are ratified and confirmed and shall continue in full force and effect. Each Borrower and Lender agree that the Loan Agreement and the Other Agreements, as amended hereby, shall continue to be legal, valid, binding and enforceable in accordance with their respective terms. SIXTH AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT - PAGE 15 16 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. 5.03 RESTRUCTURING FEE. In consideration for the agreements of Lender contained herein including, without limitation, extending the Original Term, and restructuring and increasing the Term Loan, and providing for the Acquisition Term Loans facility, but subject to the provisions of Section 3.1(C) of the Loan Agreement, Sepco agrees to pay Lender a fee of $100,000. Such fee shall be fully earned on the date of execution of this Amendment. This fee shall be paid in three installments. The first such installment shall be in the amount of $50,000 and shall be due and payable on the date of execution of this Amendment. The second installment shall be in the amount of $25,000, and shall be due and payable on the earlier to occur of (i) the effective date of termination of this Agreement or (ii) September 30, 1998; provided, however, this $25,000 installment of such fee shall be waived by Lender provided that by the earlier of such dates each of the following events shall have occurred: (i) (a) the Stock Offering shall have been consummated, (b) Parent shall have received at least $23,500,000 in net proceeds from the Stock Offering, and (c) all of such net proceeds shall have been applied to payment of the Revolving Credit Loans; and (ii) David R. Little shall have paid in full all outstanding indebtedness of David R. Little to Lender. The third installment shall be in the amount of $25,000, and shall be due and payable on the earlier to occur of (i) the effective date of termination of this Agreement, or (ii) March 31, 1999; provided, however, this $25,000 installment of such fee shall be waived by Lender provided that by the earlier of such dates each of the following events shall have occurred: (i) (a) the Stock Offering shall have been consummated, (b) Parent shall have received at least $23,500,000 in net proceeds from the Stock Offering, and (c) all of such net proceeds shall have been applied to payment of the Revolving Credit Loans, and (ii) David R. Little shall have paid in full all outstanding indebtedness of David R. Little to Lender. 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. SIXTH AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT - PAGE 16 17 6.02 REFERENCE TO LOAN AGREEMENT. Each of the Loan Agreement and the Other Agreements, and any and all other agreements, documents or instruments now or hereafter executed and delivered pursuant to the terms hereof or pursuant to the terms of the Loan Agreement, as amended hereby, are hereby amended so that any reference in the Loan Agreement and such Other Agreements to the Loan Agreement shall mean a reference to the Loan Agreement as amended hereby. 6.03 EXPENSES OF LENDER. As provided in the Loan Agreement, each Borrower agrees to pay on demand all costs and expenses incurred by Lender in connection with the preparation, negotiation, and execution of this Amendment and the Other Agreements executed pursuant hereto and any and all amendments, modifications, and supplements thereto, including, without limitation, the costs and fees of Lender's legal counsel, and all costs and expenses incurred by Lender in connection with the enforcement or preservation of any rights under the Loan Agreement, as amended hereby, or any Other Agreements, including, without, limitation, the costs and fees of Lender's legal counsel. 6.04 SEVERABILITY. Any provision of this Amendment held by a court of competent jurisdiction to be invalid or unenforceable shall not impair or invalidate the remainder of this Amendment and the effect thereof shall be confined to the provision so held to be invalid or unenforceable. 6.05 SUCCESSORS AND ASSIGNS. This Amendment is binding upon and shall inure to the benefit of Lender and each Borrower and their respective successors and assigns, except that no Borrower may assign or transfer any of its rights or obligations hereunder without the prior written consent of Lender. 6.06 COUNTERPARTS. This Amendment may be executed in one or more counterparts, each of which when so executed shall be deemed to be an original, but all of which when taken together shall constitute one and the same instrument. 6.07 EFFECT OF WAIVER. No consent or waiver, express or implied, by Lender to or for any breach of or deviation from any covenant or condition by any Borrower shall be deemed a consent to or waiver of any other breach of the same or any other covenant, condition or duty. 6.08 HEADINGS. The headings, captions, and arrangements used in this Amendment are for convenience only and shall not affect the interpretation of this Amendment. 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. SIXTH AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT - PAGE 17 18 6.11 RELEASE. EACH BORROWER HEREBY ACKNOWLEDGES THAT IT HAS NO DEFENSE, COUNTERCLAIM, OFFSET, CROSS-COMPLAINT, CLAIM OR DEMAND OF ANY KIND OR NATURE WHATSOEVER THAT CAN BE ASSERTED TO REDUCE OR ELIMINATE ALL OR ANY PART OF ITS LIABILITY TO REPAY THE "OBLIGATIONS" OR TO SEEK AFFIRMATIVE RELIEF OR DAMAGES OF ANY KIND OR NATURE FROM LENDER. EACH BORROWER HEREBY VOLUNTARILY AND KNOWINGLY RELEASES AND FOREVER DISCHARGES LENDER, ITS PREDECESSORS, AGENTS, EMPLOYEES, SUCCESSORS AND ASSIGNS, FROM ALL POSSIBLE CLAIMS, DEMANDS, ACTIONS, CAUSES OF ACTION, DAMAGES, COSTS, EXPENSES, AND LIABILITIES WHATSOEVER, KNOWN OR UNKNOWN, ANTICIPATED OR UNANTICIPATED, SUSPECTED OR UNSUSPECTED, FIXED, CONTINGENT, OR CONDITIONAL, AT LAW OR IN EQUITY, ORIGINATING IN WHOLE OR IN PART ON OR BEFORE THE DATE THIS AMENDMENT IS EXECUTED, WHICH ANY BORROWER MAY NOW OR HEREAFTER HAVE AGAINST LENDER, ITS PREDECESSORS, AGENTS, EMPLOYEES, SUCCESSORS AND ASSIGNS, IF ANY, AND IRRESPECTIVE OF WHETHER ANY SUCH CLAIMS ARISE OUT OF CONTRACT, TORT, VIOLATION OF LAW OR REGULATIONS, OR OTHERWISE, AND ARISING FROM ANY "LOANS", INCLUDING, WITHOUT LIMITATION, ANY CONTRACTING FOR, CHARGING, TAKING, RESERVING, COLLECTING OR RECEIVING INTEREST IN EXCESS OF THE HIGHEST LAWFUL RATE APPLICABLE, THE EXERCISE OF ANY RIGHTS AND REMEDIES UNDER THE LOAN AGREEMENT OR OTHER AGREEMENTS, AND NEGOTIATION FOR AND EXECUTION OF THIS AMENDMENT. 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 V.P./Finance ---------------------------- BAYOU PUMPS, INC. By: /s/ GARY A. ALLCORN ------------------------------- Name Gary A. Allcorn ------------------------------ Title: Senior V.P./Finance ---------------------------- SIXTH AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT - PAGE 18 19 AMERICAN MRO, INC. By: /s/ GARY A. ALLCORN ------------------------------ Name Gary A. Allcorn ---------------------------- Title Senior V.P./Finance --------------------------- "LENDER" FLEET CAPITAL CORPORATION By: /s/ H. MICHAEL WILLS ------------------------------ Name H. Michael Wills ----------------------------- Title: VP -------------------------- 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. SIXTH AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT - PAGE 19 20 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 Sixth Amendment to Second Amended and Restated Loan and Security Agreement and Amendment to Other Agreements 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 SIXTH AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT - Page 1 21 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: April 29, 1998. /s/ GARY A. ALLCORN ---------------------------------------- [Assistant] Secretary of the Corporation ANNEX A-1 TO SIXTH AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT - Page 2 22 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 Sixth Amendment to Second Amended and Restated Loan and Security Agreement and Amendment 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 SIXTH AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT - Page 1 23 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: April 29, 1998. /s/ GARY A. ALLCORN --------------------------------------- [Assistant] Secretary of the Corporation ANNEX A-2 TO SIXTH AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT - Page 2 24 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 Sixth Amendment to Second Amended and Restated Loan and Security Agreement and Amendment 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 SIXTH AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT - Page 1 25 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: April 29, 1998. /s/ GARY A. ALLCORN ---------------------------------------- [Assistant] Secretary of the Corporation ANNEX A-3 TO SIXTH AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT - Page 2 26 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 Sixth Amendment to Second Amended and Restated Loan and Security Agreement and Amendment to Other Agreements, dated as of April 29, 1998 (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: April 29, 1998. /s/ DAVID R. LITTLE ------------------------------------- David R. Little, individually CONSENT AND RATIFICATION TO SIXTH AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AND SECURITY - Page 1 27 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 Sixth Amendment to Second Amended and Restated Loan and Security Agreement and Amendment to Other Agreements, dated as of April 29, 1998 (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: April, 1998. /s/ GARY A. ALLCORN --------------------------------------- GARY A. ALLCORN, TRUSTEE FOR KACEY JOYCE LITTLE, NICHOLAS DAVID LITTLE AND ANDREA RAE LITTLE 1988 TRUSTS CONSENT AND RATIFICATION TO SIXTH AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AND SECURITY - Page 2 28 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 Sixth Amendment to Second Amended and Restated Loan and Security Agreement and Amendment to Other Agreements, dated as of April 29, 1998 (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: 29, 1998. DXP ENTERPRISES, INC., formerly known as Index, Inc. By: /s/ GARY A. ALLCORN -------------------------------- Name Gary A. Allcorn -------------------------------- Title: Senior V.P./Finance ------------------------------ CONSENT AND RATIFICATION TO SIXTH AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AND SECURITY - Page 1 29 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 Sixth Amendment to Second Amended and Restated Loan and Security Agreement and Amendment to Other Agreements, dated as of April 29, 1998 (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: April 29, 1998. DXP ACQUISITION, INC., d/b/a STRATEGIC ACQUISITION, INC. By: /s/ Gary A. Allcorn -------------------------------- Name Gary A. Allcorn ------------------------------- Title: Senior V.P./Finance ----------------------------- CONSENT AND RATIFICATION TO SIXTH AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AND SECURITY - Page 1 30 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 Sixth Amendment to Second Amended and Restated Loan and Security Agreement and Amendment to Other Agreements, dated as of April 29, 1998 (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: April 29, 1998. PELICAN STATE SUPPLY COMPANY, INC. By: /s/ GARY A. ALLCORN -------------------------------- Name Gary A. Allcorn ------------------------------- Title: Senior V.P./Finance ------------------------------ CONSENT AND RATIFICATION TO SIXTH AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AND SECURITY - Page 1 EX-10.2 3 AMENDMENT TO LOAN AND SECURITY AGREEMENT 1 EXHIBIT 10.2 AMENDMENT TO LOAN AND SECURITY AGREEMENT [Pelican State Supply Company, Inc.] THIS AMENDMENT TO LOAN AND SECURITY AGREEMENT (this "Amendment") is made and entered into this 29th day of April, 1998, to be effective as of the respective date herein indicated, by and between PELICAN STATE SUPPLY COMPANY, INC., a Nevada corporation ("Borrower") and FLEET CAPITAL CORPORATION, a Rhode Island corporation ("Lender"). RECITALS A. Borrower and Lender have entered into that certain Loan and Security Agreement, dated as of May 29, 1997 (the "Loan Agreement"). B. Borrower and Lender desire to amend the Loan Agreement and the other Loan Documents as hereinafter set forth. NOW, THEREFORE, in consideration of the premises herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties, intending to be legally bound, agree as follows: AGREEMENT ARTICLE I DEFINITIONS 1.01 Capitalized terms used in this Amendment are defined in the Loan Agreement, as amended hereby, unless otherwise stated. ARTICLE II AMENDMENTS TO LOAN AGREEMENT Effective as of the respective date herein indicated, the Loan Agreement is hereby amended as follows: 2.01 AMENDMENT TO SECTION 1.1; ADDITION OF CERTAIN DEFINITIONS. Effective as of the date of execution of this Amendment, Section 1.1 of the Loan Agreement is hereby amended by adding the following new definitions thereto, to be inserted in their proper alphabetical order: "ACQUISITION TERM LOAN - shall have the same meaning as in the Sepco Loan Agreement. CAPITALIZED LEASE OBLIGATION - any Indebtedness represented by obligations under a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP." DOMESTIC MARGIN - at all times up to and including June 30, 1998-0.50% per annum. Thereafter, 0.00% per annum. AMENDMENT TO LOAN AND SECURITY AGREEMENT - Page 1 2 EBITDA - for any fiscal period of Borrower, means the sum of (i) the Adjusted Net Earnings From Operations of Parent and its Subsidiaries for such period, plus (ii) non-cash charges of Parent and its Subsidiaries in respect to depreciation and amortization for such period, plus (iii) Tax Expense of Parent and its Subsidiaries for such period, plus (iv) Interest Expense of Parent and its Subsidiaries for such period, all of the above being determined on a consolidated basis in accordance with GAAP. EURODOLLAR ADJUSTMENT DATE - initially, July 1, 1998, and thereafter, the first Business Day of the calendar month during which Lender receives the Compliance Certificate required by Section 9.1(J) hereof having a calculation date as of the last day of September, December, March or June, as the case may be (referred to in this Agreement as a 'Quarterly Compliance Certificate'), beginning with the Compliance Certificate having the calculation date as of September 30, 1998. EURODOLLAR MARGIN - (i) for all Eurodollar Loans outstanding during the period ending on June 30, 1998, 2.00% per annum, and thereafter (ii) for all Eurodollar Loans outstanding during the period beginning on a Eurodollar Adjustment Date and ending on the day preceding the subsequent Eurodollar Adjustment Date, the applicable percent per annum set forth in the pricing table below opposite the ratio of (i) the aggregate principal amount of all Senior Debt outstanding on the calculation date of the applicable Compliance Certificate to (ii) the EBITDA calculated for the trailing twelve calendar month period ending on the calculation date of the applicable Compliance Certificate (which EBITDA may contain adjustments for the Target Company EBITDA of any Target Company purchased by Sepco with an Acquisition Term Loan during the relevant twelve calendar month period, provided that any such adjustment must be consented to by Lender, which consent shall be given or withheld by Lender in its sole discretion, and such adjustment must also be calculated in a manner satisfactory to Lender, in Lender's sole discretion). PRICING TABLE
RATIO OF SENIOR DEBT EURODOLLAR TO EBITDA MARGIN - ------------------------------------------- ------------ (i) Greater than 4.50 to 1.00 (i) 2.50% (ii) Equal to or less than 4.50 to (ii) 2.25% 1.00, but greater than 4.00 to 1.00 (iii) Equal to or less than 4.00 to (iii) 2.00% 1.00, but greater than 3.50 to 1.00 (iv) Equal to or less than 3.50 to (iv) 1.75% 1.00, but greater than 3.00 to 1.00 (v) Equal to or less than 3.00 to (v) 1.50% 1.00
If Borrower shall fail to deliver a Quarterly Compliance Certificate by the date required pursuant to Section 9.1(J) of this Agreement, then effective as of the date such AMENDMENT TO LOAN AND SECURITY AGREEMENT - Page 2 3 Quarterly Compliance Certificate becomes delinquent, the applicable Eurodollar Margin shall be conclusively presumed to equal the highest applicable Eurodollar Margin specified in the pricing table set forth above, such automatic adjustment to remain in effect until the first Business Day of the calendar month during which such delinquent Quarterly Compliance Certificate is delivered. From and after the first Business Day of the calendar month during which such delinquent Quarterly Compliance Certificate is delivered and until the next Eurodollar Adjustment Date, the Eurodollar Margin shall be determined by reference to such delinquent Quarterly Compliance Certificate and the pricing table set forth above. FIXED CHARGE RATIO - for any fiscal period of Borrower means, the ratio of (i) an amount equal to (a) the sum of (1) the Adjusted Net Earnings From Operations of Parent and its Subsidiaries for such period, plus (2) non-cash charges of Parent and its Subsidiaries in respect to depreciation and amortization for such period, plus (3) Interest Expense of Parent and its Subsidiaries for such period, minus (4) Capital Expenditures made by Parent and its Subsidiaries during such period, to (ii) Fixed Charges of Parent and its Subsidiaries for such period, all of the above being determined on a consolidated basis in accordance with GAAP. FIXED CHARGES - for any fiscal period of Borrower means the sum of scheduled principal payments required to be made by Parent and its Subsidiaries during such period in respect to Indebtedness, plus (ii) Interest Expense of Parent and its Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP. INTEREST EXPENSE - with respect to any fiscal period, the interest expense incurred for such period as determined in accordance with GAAP plus Letter of Credit and LC Guaranty fees owing for such period. MONEY BORROWED - means (i) Indebtedness arising from the lending of money by any Person to Parent or any Subsidiary of Parent, (ii) Indebtedness, whether or not in any such case arising from the lending by any Person of money to Parent or any Subsidiary of Parent (A) which is represented by notes payable or drafts accepted that evidence extensions of credit, (B) which constitutes obligations evidenced by bonds, debentures, notes or similar instruments or (C) upon which interest charges are customarily paid (other than accounts payable) or that was issued or assumed as full or partial payment for Property; (iii) Indebtedness that constitutes a Capitalized Lease Obligation; (iv) reimbursement obligations with respect to letters of credit or guaranties of letters of credit; and (v) Indebtedness of Parent or any Subsidiary of Parent under any guaranty of obligations that would constitute Indebtedness for Money Borrowed under clauses (i) through (iv) hereof, if owed directly by Parent or such Subsidiary of Parent. SENIOR DEBT means all Money Borrowed, excluding Subordinated Debt. SENIOR INTEREST COVERAGE RATIO - for any fiscal period of Borrower means, the ratio of (i) an amount equal to the sum of (a) the Adjusted Net Earnings From Operations of Parent and its Subsidiaries for such period, plus (b) Tax Expense of Parent and its Subsidiaries for such period, plus (c) Interest Expense of Parent and its Subsidiaries for such period in respect of Senior Debt, to (ii) Interest Expense of Parent and its Subsidiaries for such period in respect of Senior Debt, all as determined on a consolidated basis in accordance with GAAP. AMENDMENT TO LOAN AND SECURITY AGREEMENT - Page 3 4 STOCK OFFERING - the secondary stock offering of capital stock in Parent which is expected to raise approximately $25,000,000 in net proceeds for Parent. TARGET COMPANY - shall have the same meaning as in the Sepco Loan Agreement. TARGET COMPANY EBITDA - shall have the same meaning as in the Sepco Loan Agreement. TAX EXPENSE - with respect to any fiscal period, the tax expense incurred for such period as determined in accordance with GAAP." 2.02 AMENDMENT TO DEFINITION OF "BORROWING BASE" IN SECTION 1.1. Effective as of the date of execution of this Amendment, the definition of "Borrowing Base" contained in Section 1.1 of the Loan Agreement is hereby amended by (i) deleting therefrom the phrase "Three Million Dollars ($3,000,000)" and substituting therefor the phrase "Two Million Five Hundred Thousand Dollars ($2,500,000)", and (ii) deleting therefrom the phrase "One Million Two Hundred Fifty Thousand Dollars ($1,250,000)" and substituting therefor the phrase "One Million Five Hundred Thousand Dollars ($1,500,000)." 2.03 AMENDMENT TO DEFINITIONS OF "COMMITMENT" IN SECTION 1.1. Effective as of the date of execution of this Amendment, the definition of "Commitment" contained in Section 1.1 of the Loan Agreement is hereby amended and restated to read in its entirety as follows: "Commitment - Two Million Five Hundred Thousand Dollars ($2,500,000.00)." 2.04 AMENDMENT TO SECTION 3.1(A). Effective as of the date of execution of this Amendment, the first two sentences of Section 3.1(A) of the Loan Agreement are amended and restated to read in their entirety as follows: "(A) Interest shall accrue on the principal amount of the Revolving Credit Loans outstanding at the end of each day, at the following rates per annum (individually called, as applicable, an 'Applicable Annual Rate'): (i) Eurodollar Loans shall bear interest at a rate per annum equal to the applicable Eurodollar Margin plus the Eurodollar Base Rate for the Eurodollar Interest Period applicable thereto and (ii) all other Revolving Credit Loans shall bear interest at a rate per annum equal to the applicable Domestic Margin plus the Base Rate. Revolving Credit Loans shall bear interest at a rate per annum equal to the applicable Domestic Margin plus the Base Rate unless the Borrower provides a Eurodollar Borrowing Notice to the Lender in accordance with Section 3.7(A) irrevocably electing that all or a portion of the Revolving Credit Loans are to bear interest at a Eurodollar Base Rate." 2.05 AMENDMENT TO SECTION 3.1(B). Effective as of the date of execution of this Amendment, Section 3.1(B) of the Loan Agreement is hereby amended by amending and restating clause (ii) of such Section 3.1(B) in its entirety as follows: "(ii) unless preempted by federal law, the Applicable Annual Rate or Default Rate, as applicable, from time to time in effect hereunder may not exceed the applicable 'weekly ceiling' (as such term is defined in Chapter 303 of the Texas Finance Code AMENDMENT TO LOAN AND SECURITY AGREEMENT - Page 4 5 [Vernon's Texas Codes Annotated], as amended from time to time) from time to time in effect." 2.06 AMENDMENT TO SECTION 3.3. Effective as of the date of execution of this Amendment, Section 3.3 of the Loan Agreement is amended as follows: "(i) Section 3.3(A) is amended by deleting therefrom the reference to the date "January 2, 1999" and substituting therefor the date "January 2, 2000." (ii) Section 3.3(D) is amended and restated to read in its entirety as follows: "(D) At the effective date of any termination of this Agreement, Borrower shall pay to Lender (in addition to the then outstanding principal, accrued interest and other charges owing under this Agreement and any of the Other Agreements), as liquidated damages for the loss of the bargain and not as a penalty, an amount equal to $50,000, if termination occurs at any time prior to January 2, 2000 or during any Renewal Term thereafter. If termination occurs on the last day of the Original Term or the last day of any Renewal Term, no termination charge shall be payable. In addition, no termination charge shall be payable hereunder if the Sepco Loan Agreement is terminated on the same effective date as the termination of this Agreement and the $50,000 termination charge payable by Sepco under the Sepco Loan Agreement has been paid by Sepco." 2.07 AMENDMENT TO SECTION 9.3. Effective as of the date of execution of this Amendment, Section 9.3 of the Loan Agreement is hereby amended and restated to read in its entirety as follows: "9.3. Specific Financial Covenants. During the term of this Agreement, and thereafter for so long as there are any Obligations to Lender, Borrower covenants that, unless otherwise consented to by Lender in writing, Parent and its Subsidiaries shall: (A) Maintain, on a consolidated basis in accordance with GAAP, as of the end of each fiscal quarter, beginning with the fiscal quarter ending on June 30, 1998, for the twelve calendar month period ending on such date, a Fixed Charge Ratio of not less than 1.50 to 1.00. (B) Achieve, on a consolidated basis in accordance with GAAP, on the last day of each fiscal quarter set forth below, for the twelve calendar month period ending on such date, a Senior Interest Coverage Ratio equal to or greater than the ratio set forth below for the twelve calendar month period ending on the date corresponding thereto:
DATE RATIO ---- ----- (i) June 30, 1998 (i) 2.75 to 1.00 (ii) September 30, 1998 (ii) 2.75 to 1.00 (iii) December 31, 1998 (iii) 2.75 to 1.00 (iv) Each March 31, June 30, (iv) 3.00 to 1.00 September 30 and December 31 thereafter occurring
AMENDMENT TO LOAN AND SECURITY AGREEMENT - Page 5 6 (C) Maintain, on a consolidated basis in accordance with GAAP, as of the last day of each fiscal quarter set forth below (the 'Calculation Date'), a ratio of (i) the Senior Debt of Parent and its Subsidiaries on such Calculation Date, to (ii) an amount equal to (a) the EBITDA of Parent and its Subsidiaries for the twelve calendar month period ending on such Calculation Date, minus (b) Capital Expenditures made by Parent and its Subsidiaries during such period, of not greater than the ratio set forth below on the Calculation Date corresponding thereto:
CALCULATION DATE RATIO ---------------- ----- (i) June 30, 1998 (i) 4.50 to 1.00 (ii) September 30, 1998 (ii) 4.50 to 1.00 (iii) December 31, 1998 (iii) 4.50 to 1.00 (iv) Each March 31, June 30, (iv) 4.00 to 1.00 September 30 and December 31 thereafter occurring
Notwithstanding the foregoing, beginning with the first Calculation Date to occur after the consummation of the Stock Offering, and continuing on each subsequent Calculation Date, the relevant maximum ratio shall be 3.00 to 1.00." 2.08 AMENDMENT TO SECTION 11.1(P). Effective as of the date of execution of this Amendment, Section 11.1(P) of the Loan Agreement is hereby amended and restated to read in its entirety as follows: "(P) Borrower and/or Sepco ceases to be a Subsidiary of Parent, unless due to the merger of Borrower and/or Sepco into Parent, with Parent being the surviving entity;" 2.09 AMENDMENT TO SECTION 11.1; ADDITION OF A NEW SECTION 11.1(R). Effective as of the date of execution of this Amendment, Section 11.1 of the Loan Agreement is amended by adding thereto a new Section 11.1(R), to read in its entirety as follows: "(R) Each of Borrower, American MRO, Bayou, Sepco, and DXP Acquisition, Inc., d/b/a Strategic Acquisition, Inc. have not by October 1, 1998, been merged into Parent, with Parent being the surviving entity, upon terms and conditions and pursuant to documentation satisfactory to Lender." 2.10 AMENDMENT TO SECTION 11.1; ADDITION OF A NEW SECTION 11.1(S). Effective as of the date of execution of this Amendment, Section 11.1 of the Loan Agreement is amended by adding thereto a new Section 11.1(S) to read in its entirety as follows: "(S) The occurrence of an 'Event of Default,' as such term is defined in that certain Loan and Security Agreement, dated June 16, 1997, executed by Lender and DXP Acquisition, Inc., d/b/a Strategic Acquisition, Inc., as renewed, extended, modified and restated from time to time." AMENDMENT TO LOAN AND SECURITY AGREEMENT - Page 6 7 2.11 AMENDMENT TO SECTION 12.10. Effective as of the date of execution of this Amendment, Section 12.10 of the Loan Agreement is amended by deleting therefrom the reference to: "Hughes & Luce, L.L.P. 1717 Main Street, Suite 2800 Dallas, Texas 75201 Attention: Kenneth M. Vesledahl, Esq." and substituting therefor the following: "Patton Boggs, L.L.P. 2200 Ross Avenue, Suite 900 Dallas, Texas 75201-2774 Attention: Kenneth M. Vesledahl, Esq. Facsimile No. (214) 871-2688" 2.12 AMENDMENT TO SECTION 12.16. Effective as of the date of execution of this Amendment, Section 12.16 of the Loan Agreement is hereby amended and restated to read in its entirety as follows: "12.16. Nonapplicability of Chapter 303 of Texas Finance Code. Borrower and Lender hereby agree that the provisions of Chapter 346 of the Texas Finance Code + [Vernon's Texas Codes Annotated] (which regulates certain revolving loan accounts and revolving triparty accounts) shall not apply to this Agreement or any of the other Loan Documents." ARTICLE III NO WAIVERS 3.01 Nothing contained herein shall be construed as a waiver by Lender of any covenant or provision of the Loan Agreement, the other Loan Documents, this Amendment or of any other contract or instrument between Borrower and Lender, and the failure of Lender at any time or times hereafter to require strict performance by Borrower of any provision thereof shall not waive, affect or diminish any right of Lender to thereafter demand strict compliance therewith. Lender hereby reserves all rights granted under the Loan Agreement, the other Loan Documents, this Amendment and any other contract or instrument between Borrower and Lender. ARTICLE IV CONDITIONS PRECEDENT 4.01 CONDITIONS TO EFFECTIVENESS. The effectiveness of this Amendment is subject to the satisfaction of the following conditions precedent in a manner satisfactory to Lender, unless specifically waived in writing by Lender: (a) Lender shall have received each of the following, each in form and substance satisfactory to Lender, in its sole discretion, and, where applicable, each duly executed by each party thereto, other than Lender: (i) This Amendment, duly executed by Lender, together with the relevant Consent, Ratification, and Amendment, respectively duly executed by Sepco Industries, AMENDMENT TO LOAN AND SECURITY AGREEMENT - Page 7 8 Inc., Bayou Pumps, Inc., American MRO, Inc., DXP Acquisition, Inc. d/b/a Strategic Acquisition, Inc. and DXP Enterprises, Inc.; (ii) All other documents Lender may request with respect to any matter relevant to this Amendment or the transactions contemplated hereby; (b) The representations and warranties contained herein and in the Loan Agreement and the other Loan Documents, as each is amended hereby, shall be true and correct as of the date hereof, as if made on the date hereof; (c) No Default or Event of Default shall have occurred and be continuing, unless such Default or Event of Default has been otherwise specifically waived in writing by Lender; and (d) All corporate proceedings taken in connection with the transactions contemplated by this Amendment and all documents, instruments and other legal matters incident thereto shall be satisfactory to Lender and its legal counsel. ARTICLE V RATIFICATIONS, REPRESENTATIONS AND WARRANTIES 5.01 RATIFICATIONS. The terms and provisions set forth in this Amendment shall modify and supersede all inconsistent terms and provisions set forth in the Loan Agreement and the other Loan Documents, and, except as expressly modified and superseded by this Amendment, the terms and provisions of the Loan Agreement and the other Loan Documents are ratified and confirmed and shall continue in full force and effect. Each Borrower and Lender agree that the Loan Agreement and the other Loan Documents, as amended hereby, shall continue to be legal, valid, binding and enforceable in accordance with their respective terms. 5.02 REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and warrants to Lender that (a) the execution, delivery and performance of this Amendment and any and all other Loan Documents executed and/or delivered in connection herewith have been authorized by all requisite corporate action on the part of Borrower and will not violate the Articles of Incorporation or Bylaws of Borrower; (b) attached hereto as Annex A is a true, correct and complete copy of presently effective resolutions of Borrower's Board of Directors authorizing the execution, delivery and performance of this Amendment and any and all other Loan Documents executed and/or delivered in connection herewith, certified by the Assistant Secretary of Borrower; (c) the representations and warranties contained in the Loan Agreement, as amended hereby, and any other Loan Documents are true and correct on and as of the date hereof and on and as of the date of execution hereof as though made on and as of each such date; (d) no Default or Event of Default under the Loan Agreement, as amended hereby, has occurred and is continuing, unless such Default or Event of Default has been specifically waived in writing by Lender; (e) Borrower is in full compliance with all covenants and agreements contained in the Loan Agreement and the other Loan Documents, as amended hereby; and (f) Borrower has not amended its Articles of Incorporation or its Bylaws since the date of the Loan Agreement. ARTICLE VI MISCELLANEOUS PROVISIONS 6.01 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and warranties made in the Loan Agreement or any other Loan Documents, including, without limitation, any document AMENDMENT TO LOAN AND SECURITY AGREEMENT - Page 8 9 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. 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 AMENDMENT TO LOAN AND SECURITY AGREEMENT - Page 9 10 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 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 V.P./Finance ------------------- "LENDER" FLEET CAPITAL CORPORATION By: /s/ H. Michael Wills -------------------- Name: H. Michael Wills -------------------- Title: VP ------------------- ANNEXES: A-1 - Certified Resolutions of Pelican State Supply Company, Inc. AMENDMENT TO LOAN AND SECURITY AGREEMENT - Page 10 11 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 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: April 29, 1998. /s/ GARY A. ALLCORN ---------------------------------------- [Assistant] Secretary of the Corporation CONSENT AND RATIFICATION TO AMENDMENT TO LOAN AND SECURITY - Page 1 12 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 Amendment to Loan and Security Agreement, dated as of April 29, 1998 (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: April 29, 1998. SEPCO INDUSTRIES, INC. By: /s/ GARY A. ALLCORN ------------------------ Name: Gary A. Allcorn ------------------------ Title: Senior V.P./Finance ------------------------ CONSENT AND RATIFICATION TO AMENDMENT TO LOAN AND SECURITY - Page 1 13 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 Amendment to Loan and Security Agreement, dated as of April 29, 1998 (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: April 29, 1998. AMERICAN MRO, INC. By: /s/ GARY A. ALLCORN ------------------------ Name: Gary A. Allcorn ------------------------ Title: Senior V.P./Finance ------------------------ CONSENT AND RATIFICATION TO AMENDMENT TO LOAN AND SECURITY - Page 1 14 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 Amendment to Loan and Security Agreement, dated as of April 29, 1998 (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: April 29, 1998. BAYOU PUMPS, INC. By: /s/ GARY A. ALLCORN ------------------------ Name: Gary A. Allcorn ------------------------ Title: Senior V.P./Finance ------------------------ CONSENT AND RATIFICATION TO AMENDMENT TO LOAN AND SECURITY - Page 1 15 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 Amendment to Loan and Security Agreement, dated as of April 29, 1998 (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: April 29, 1998. DXP ACQUISITION, INC. D/B/A STRATEGIC ACQUISITION, INC. By: /s/ GARY A. ALLCORN ------------------------ Name: Gary A. Allcorn ------------------------ Title: Senior V.P./Finance ------------------------ CONSENT AND RATIFICATION TO AMENDMENT TO LOAN AND SECURITY - Page 1 16 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 Amendment to Loan and Security Agreement, dated as of April 29, 1998 (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: April 29, 1998. DXP ENTERPRISES, INC. By: /s/ GARY A. ALLCORN ------------------------ Name: Gary A. Allcorn ------------------------ Title: Senior V.P./Finance ------------------------ CONSENT AND RATIFICATION TO AMENDMENT TO LOAN AND SECURITY - Page 1 EX-10.3 4 AMENDMENT TO LOAN AND SECURITY AGREEMENT 1 EXHIBIT 10.3 AMENDMENT TO LOAN AND SECURITY AGREEMENT [DXP Acquisition, Inc., d/b/a Strategic Acquisition, Inc.] THIS AMENDMENT TO LOAN AND SECURITY AGREEMENT (this "Amendment") is made and entered into this 29th day of April, 1998, to be effective as of the respective date herein indicated, by and between DXP ACQUISITION, INC., D/B/A STRATEGIC ACQUISITION, INC., a Nevada corporation ("Borrower") and FLEET CAPITAL CORPORATION, a Rhode Island corporation ("Lender"). RECITALS A. Borrower and Lender have entered into that certain Loan and Security Agreement, dated as of June 16, 1997 (the "Loan Agreement"). B. Borrower and Lender desire to amend the Loan Agreement and the other Loan Documents as hereinafter set forth. NOW, THEREFORE, in consideration of the premises herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties, intending to be legally bound, agree as follows: AGREEMENT ARTICLE I DEFINITIONS 1.01 Capitalized terms used in this Amendment are defined in the Loan Agreement, as amended hereby, unless otherwise stated. ARTICLE II AMENDMENTS TO LOAN AGREEMENT Effective as of the respective date herein indicated, the Loan Agreement is hereby amended as follows: 2.01 AMENDMENT TO SECTION 1.1; ADDITION OF CERTAIN DEFINITIONS. Effective as of the date of execution of this Amendment, Section 1.1 of the Loan Agreement is hereby amended by adding the following new definitions thereto, to be inserted in their proper alphabetical order: "ACQUISITION TERM LOAN - shall have the same meaning as in the Sepco Loan Agreement. CAPITALIZED LEASE OBLIGATION - any Indebtedness represented by obligations under a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP." DOMESTIC MARGIN - at all times up to and including June 30, 1998-0.50% per annum. Thereafter, 0.00% per annum. AMENDMENT TO LOAN AND SECURITY AGREEMENT - PAGE 1 2 EBITDA - for any fiscal period of Borrower, means the sum of (i) the Adjusted Net Earnings From Operations of Parent and its Subsidiaries for such period, plus (ii) non-cash charges of Parent and its Subsidiaries in respect to depreciation and amortization for such period, plus (iii) Tax Expense of Parent and its Subsidiaries for such period, plus (iv) Interest Expense of Parent and its Subsidiaries for such period, all of the above being determined on a consolidated basis in accordance with GAAP. EURODOLLAR ADJUSTMENT DATE - initially, July 1, 1998, and thereafter, the first Business Day of the calendar month during which Lender receives the Compliance Certificate required by Section 9.1(J) hereof having a calculation date as of the last day of September, December, March or June, as the case may be (referred to in this Agreement as a 'Quarterly Compliance Certificate'), beginning with the Compliance Certificate having the calculation date as of September 30, 1998. EURODOLLAR MARGIN - (i) for all Eurodollar Loans outstanding during the period ending on June 30, 1998, 2.00% per annum, and thereafter (ii) for all Eurodollar Loans outstanding during the period beginning on a Eurodollar Adjustment Date and ending on the day preceding the subsequent Eurodollar Adjustment Date, the applicable percent per annum set forth in the pricing table below opposite the ratio of (i) the aggregate principal amount of all Senior Debt outstanding on the calculation date of the applicable Compliance Certificate to (ii) the EBITDA calculated for the trailing twelve calendar month period ending on the calculation date of the applicable Compliance Certificate (which EBITDA may contain adjustments for the Target Company EBITDA of any Target Company purchased by Sepco with an Acquisition Term Loan during the relevant twelve calendar month period, provided that any such adjustment must be consented to by Lender, which consent shall be given or withheld by Lender in its sole discretion, and such adjustment must also be calculated in a manner satisfactory to Lender, in Lender's sole discretion). PRICING TABLE
RATIO OF SENIOR DEBT EURODOLLAR TO EBITDA MARGIN ------------------------------------ -------------- (i) Greater than 4.50 to (i) 2.50% 1.00 (ii) Equal to or less than 4.50 to (ii) 2.25% 1.00, but greater than 4.00 to 1.00 (iii) Equal to or less than 4.00 to (iii) 2.00% 1.00, but greater than 3.50 to 1.00 (iv) Equal to or less than 3.50 to (iv) 1.75% 1.00, but greater than 3.00 to 1.00 (v) Equal to or less than 3.00 to (v) 1.50% 1.00
AMENDMENT TO LOAN AND SECURITY AGREEMENT - PAGE 2 3 If Borrower shall fail to deliver a Quarterly Compliance Certificate by the date required pursuant to Section 9.1(J) of this Agreement, then effective as of the date such Quarterly Compliance Certificate becomes delinquent, the applicable Eurodollar Margin shall be conclusively presumed to equal the highest applicable Eurodollar Margin specified in the pricing table set forth above, such automatic adjustment to remain in effect until the first Business Day of the calendar month during which such delinquent Quarterly Compliance Certificate is delivered. From and after the first Business Day of the calendar month during which such delinquent Quarterly Compliance Certificate is delivered and until the next Eurodollar Adjustment Date, the Eurodollar Margin shall be determined by reference to such delinquent Quarterly Compliance Certificate and the pricing table set forth above. FIXED CHARGE RATIO - for any fiscal period of Borrower means, the ratio of (i) an amount equal to (a) the sum of (1) the Adjusted Net Earnings From Operations of Parent and its Subsidiaries for such period, plus (2) non-cash charges of Parent and its Subsidiaries in respect to depreciation and amortization for such period, plus (3) Interest Expense of Parent and its Subsidiaries for such period, minus (4) Capital Expenditures made by Parent and its Subsidiaries during such period, to (ii) Fixed Charges of Parent and its Subsidiaries for such period, all of the above being determined on a consolidated basis in accordance with GAAP. FIXED CHARGES - for any fiscal period of Borrower means the sum of scheduled principal payments required to be made by Parent and its Subsidiaries during such period in respect to Indebtedness, plus (ii) Interest Expense of Parent and its Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP. INTEREST EXPENSE - with respect to any fiscal period, the interest expense incurred for such period as determined in accordance with GAAP plus Letter of Credit and LC Guaranty fees owing for such period. MONEY BORROWED - means (i) Indebtedness arising from the lending of money by any Person to Parent or any Subsidiary of Parent, (ii) Indebtedness, whether or not in any such case arising from the lending by any Person of money to Parent or any Subsidiary of Parent (A) which is represented by notes payable or drafts accepted that evidence extensions of credit, (B) which constitutes obligations evidenced by bonds, debentures, notes or similar instruments or (C) upon which interest charges are customarily paid (other than accounts payable) or that was issued or assumed as full or partial payment for Property; (iii) Indebtedness that constitutes a Capitalized Lease Obligation; (iv) reimbursement obligations with respect to letters of credit or guaranties of letters of credit; and (v) Indebtedness of Parent or any Subsidiary of Parent under any guaranty of obligations that would constitute Indebtedness for Money Borrowed under clauses (i) through (iv) hereof, if owed directly by Parent or such Subsidiary of Parent. SENIOR DEBT means all Money Borrowed, excluding Subordinated Debt. SENIOR INTEREST COVERAGE RATIO - for any fiscal period of Borrower means the ratio of (i) an amount equal to the sum of (a) the Adjusted Net Earnings From Operations of Parent and its Subsidiaries for such period, plus (b) Tax Expense of Parent and its Subsidiaries for such period, plus (c) Interest Expense of Parent and its Subsidiaries for such period in respect of Senior Debt, to (ii) Interest Expense of Parent and its 4 Subsidiaries for such period in respect of Senior Debt, all as determined on a consolidated basis in accordance with GAAP. AMENDMENT TO LOAN AND SECURITY AGREEMENT - PAGE 3 STOCK OFFERING - the secondary stock offering of capital stock in Parent which is expected to raise approximately $25,000,000 in net proceeds for Parent. TARGET COMPANY - shall have the same meaning as in the Sepco Loan Agreement. TARGET COMPANY EBITDA - shall have the same meaning as in the Sepco Loan Agreement. TAX EXPENSE - with respect to any fiscal period, the tax expense incurred for such period as determined in accordance with GAAP." 2.02 AMENDMENT TO DEFINITION OF "BORROWING BASE" IN SECTION 1.1. Effective as of the date of execution of this Amendment, the definition of "Borrowing Base" contained in Section 1.1 of the Loan Agreement is hereby amended by deleting therefrom the phrase "Twelve Million Dollars ($12,000,000)" and substituting therefor the phrase "Seven Million Five Hundred Thousand Dollars ($7,500,000)." 2.03 AMENDMENT TO DEFINITIONS OF "COMMITMENT" IN SECTION 1.1. Effective as of the date of execution of this Amendment, the definition of "Commitment" contained in Section 1.1 of the Loan Agreement is hereby amended and restated to read in its entirety as follows: "Commitment - Seven Million Five Hundred Thousand Dollars ($7,500,000.00)." 2.04 AMENDMENT TO SECTION 3.1(A). Effective as of the date of execution of this Amendment, the first two sentences of Section 3.1(A) of the Loan Agreement are amended and restated to read in their entirety as follows: "(A) Interest shall accrue on the principal amount of the Revolving Credit Loans outstanding at the end of each day, at the following rates per annum (individually called, as applicable, an 'Applicable Annual Rate'): (i) Eurodollar Loans shall bear interest at a rate per annum equal to the applicable Eurodollar Margin plus the Eurodollar Base Rate for the Eurodollar Interest Period applicable thereto and (ii) all other Revolving Credit Loans shall bear interest at a rate per annum equal to the applicable Domestic Margin plus the Base Rate. Revolving Credit Loans shall bear interest at a rate per annum equal to the applicable Domestic Margin plus the Base Rate unless the Borrower provides a Eurodollar Borrowing Notice to the Lender in accordance with Section 3.7(A) irrevocably electing that all or a portion of the Revolving Credit Loans are to bear interest at a Eurodollar Base Rate." 2.05 AMENDMENT TO SECTION 3.1(B). Effective as of the date of execution of this Amendment, Section 3.1(B) of the Loan Agreement is hereby amended by amending and restating clause (ii) of such Section 3.1(B) in its entirety as follows: "(ii) unless preempted by federal law, the Applicable Annual Rate or Default Rate, as applicable, from time to time in effect hereunder may not exceed the applicable 5 'weekly ceiling' (as such term is defined in Chapter 303 of the Texas Finance Code [Vernon's Texas Codes Annotated], as amended from time to time) from time to time in effect." AMENDMENT TO LOAN AND SECURITY AGREEMENT - PAGE 4 2.06 AMENDMENT TO SECTION 3.3. Effective as of the date of execution of this Amendment, Section 3.3 of the Loan Agreement is amended as follows: "(i) Section 3.3(A) is amended by deleting therefrom the reference to the date "January 2, 1999" and substituting therefor the date "January 2, 2000." (ii) Section 3.3(D) is amended and restated to read in its entirety as follows: "(D) At the effective date of any termination of this Agreement, Borrower shall pay to Lender (in addition to the then outstanding principal, accrued interest and other charges owing under this Agreement and any of the Other Agreements), as liquidated damages for the loss of the bargain and not as a penalty, an amount equal to $50,000 if termination occurs at any time prior to January 2, 2000 or during any Renewal Term thereafter. If termination occurs on the last day of the Original Term or the last day of any Renewal Term, no termination charge shall be payable. In addition, no termination charge shall be payable hereunder if the Sepco Loan Agreement is terminated on the same effective date as the termination of this Agreement and the $50,000 termination charge payable by Sepco under the Sepco Loan Agreement has been paid by Sepco." 2.07 AMENDMENT TO SECTION 9.3. Effective as of the date of execution of this Amendment, Section 9.3 of the Loan Agreement is hereby amended and restated to read in its entirety as follows: "9.3. Specific Financial Covenants. During the term of this Agreement, and thereafter for so long as there are any Obligations to Lender, Borrower covenants that, unless otherwise consented to by Lender in writing, Parent and its Subsidiaries shall: (A) Maintain, on a consolidated basis in accordance with GAAP, as of the end of each fiscal quarter, beginning with the fiscal quarter ending on June 30, 1998, for the twelve calendar month period ending on such date, a Fixed Charge Ratio of not less than 1.50 to 1.00. (B) Achieve, on a consolidated basis in accordance with GAAP, on the last day of each fiscal quarter set forth below, for the twelve calendar month period ending on such date, a Senior Interest Coverage Ratio equal to or greater than the ratio set forth below for the twelve calendar month period ending on the date corresponding thereto:
DATE RATIO ---- ----- (i) June 30, 1998 (i) 2.75 to 1.00 (ii) September 30, 1998 (ii) 2.75 to 1.00 (iii) December 31, 1998 (iii) 2.75 to 1.00 (iv) Each March 31, June 30, (iv) 3.00 to 1.00 September 30, and December 31 thereafter occurring
AMENDMENT TO LOAN AND SECURITY AGREEMENT - PAGE 5 6 (C) Maintain, on a consolidated basis in accordance with GAAP, as of the last day of each fiscal quarter set forth below (the 'Calculation Date'), a ratio of (i) the Senior Debt of Parent and its Subsidiaries on such Calculation Date, to (ii) an amount equal to (a) the EBITDA of Parent and its Subsidiaries for the twelve calendar month period ending on such Calculation Date, minus (b) Capital Expenditures made by Parent and its Subsidiaries during such period, of not greater than the ratio set forth below on the Calculation Date corresponding thereto:
CALCULATION DATE RATIO ---------------- ----- (i) June 30, 1998 (i) 4.50 to 1.00 (ii) September 30, 1998 (ii) 4.50 to 1.00 (iii) December 31, 1998 (iii) 4.50 to 1.00 (iv) Each March 31, June 30, (iv) 4.00 to 1.00 September 30, and December 31 thereafter occurring
Notwithstanding the foregoing, beginning with the first Calculation Date to occur after the consummation of the Stock Offering, and continuing on each subsequent Calculation Date, the relevant maximum ratio shall be 3.00 to 1.00." 2.08 AMENDMENT TO SECTION 11.1(P). Effective as of the date of execution of this Amendment, Section 11.1(P) of the Loan Agreement is hereby amended and restated to read in its entirety as follows: "(P) Borrower and/or Sepco ceases to be a Subsidiary of Parent, unless due to the merger of Borrower and/or Sepco into Parent, with Parent being the surviving entity;" 2.09 AMENDMENT TO SECTION 11.1; ADDITION OF A NEW SECTION 11.1(S). Effective as of the date of execution of this Amendment, Section 11.1 of the Loan Agreement is amended by adding thereto a new Section 11.1(R), to read in its entirety as follows: "(S) Each of Borrower, American MRO, Bayou, Sepco, and Pelican State Supply Company, Inc. have not by October 1, 1998, been merged into Parent, with Parent being the surviving entity, upon terms and conditions and pursuant to documentation satisfactory to Lender." 2.10 AMENDMENT TO SECTION 12.10. Effective as of the date of execution of this Amendment, Section 12.10 of the Loan Agreement is amended by deleting therefrom the reference to: "Hughes & Luce, L.L.P. 1717 Main Street, Suite 2800 Dallas, Texas 75201 Attention: Kenneth M. Vesledahl, Esq." AMENDMENT TO LOAN AND SECURITY AGREEMENT - PAGE 6 7 and substituting therefor the following: "Patton Boggs, L.L.P. 2200 Ross Avenue, Suite 900 Dallas, Texas 75201-2774 Attention: Kenneth M. Vesledahl, Esq. Facsimile No. (214) 871-2688" 2.11 AMENDMENT TO SECTION 12.16. Effective as of the date of execution of this Amendment, Section 12.16 of the Loan Agreement is hereby amended and restated to read in its entirety as follows: "12.16. Nonapplicability of Chapter 303 of Texas Finance Code. Borrower and Lender hereby agree that the provisions of Chapter 346 of the Texas Finance Code [Vernon's Texas Codes Annotated] (which regulates certain revolving loan accounts and revolving triparty accounts) shall not apply to this Agreement or any of the other Loan Documents." ARTICLE III NO WAIVERS 3.01 Nothing contained herein shall be construed as a waiver by Lender of any covenant or provision of the Loan Agreement, the other Loan Documents, this Amendment or of any other contract or instrument between Borrower and Lender, and the failure of Lender at any time or times hereafter to require strict performance by Borrower of any provision thereof shall not waive, affect or diminish any right of Lender to thereafter demand strict compliance therewith. Lender hereby reserves all rights granted under the Loan Agreement, the other Loan Documents, this Amendment and any other contract or instrument between Borrower and Lender. ARTICLE IV CONDITIONS PRECEDENT 4.01 CONDITIONS TO EFFECTIVENESS. The effectiveness of this Amendment is subject to the satisfaction of the following conditions precedent in a manner satisfactory to Lender, unless specifically waived in writing by Lender: (a) Lender shall have received each of the following, each in form and substance satisfactory to Lender, in its sole discretion, and, where applicable, each duly executed by each party thereto, other than Lender: (i) This Amendment, duly executed by Lender, together with the relevant Consent, Ratification, and Amendment, respectively duly executed by Sepco Industries, Inc., Bayou Pumps, Inc., American MRO, Inc., Pelican State Supply Company, Inc. and DXP Enterprises, Inc.; (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; AMENDMENT TO LOAN AND SECURITY AGREEMENT - PAGE 7 8 (c) No Default or Event of Default shall have occurred and be continuing, unless such Default or Event of Default has been otherwise specifically waived in writing by Lender; and (d) All corporate proceedings taken in connection with the transactions contemplated by this Amendment and all documents, instruments and other legal matters incident thereto shall be satisfactory to Lender and its legal counsel. ARTICLE V RATIFICATIONS, REPRESENTATIONS AND WARRANTIES 5.01 RATIFICATIONS. The terms and provisions set forth in this Amendment shall modify and supersede all inconsistent terms and provisions set forth in the Loan Agreement and the other Loan Documents, and, except as expressly modified and superseded by this Amendment, the terms and provisions of the Loan Agreement and the other Loan Documents are ratified and confirmed and shall continue in full force and effect. Each Borrower and Lender agree that the Loan Agreement and the other Loan Documents, as amended hereby, shall continue to be legal, valid, binding and enforceable in accordance with their respective terms. 5.02 REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and warrants to Lender that (a) the execution, delivery and performance of this Amendment and any and all other Loan Documents executed and/or delivered in connection herewith have been authorized by all requisite corporate action on the part of Borrower and will not violate the Articles of Incorporation or Bylaws of Borrower; (b) attached hereto as Annex A is a true, correct and complete copy of presently effective resolutions of Borrower's Board of Directors authorizing the execution, delivery and performance of this Amendment and any and all other Loan Documents executed and/or delivered in connection herewith, certified by the Assistant Secretary of Borrower; (c) the representations and warranties contained in the Loan Agreement, as amended hereby, and any other Loan Documents are true and correct on and as of the date hereof and on and as of the date of execution hereof as though made on and as of each such date; (d) no Default or Event of Default under the Loan Agreement, as amended hereby, has occurred and is continuing, unless such Default or Event of Default has been specifically waived in writing by Lender; (e) Borrower is in full compliance with all covenants and agreements contained in the Loan Agreement and the other Loan Documents, as amended hereby; and (f) Borrower has not amended its Articles of Incorporation or its Bylaws since the date of the Loan Agreement. ARTICLE VI MISCELLANEOUS PROVISIONS 6.01 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and warranties made in the Loan Agreement or any other Loan Documents, including, without limitation, any document furnished in connection with this Amendment, shall survive the execution and delivery of this Amendment and the other Loan Documents, and no investigation by Lender or any closing shall affect the representations and warranties or the right of Lender to rely upon them. 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. AMENDMENT TO LOAN AND SECURITY AGREEMENT - PAGE 8 9 6.03 EXPENSES OF LENDER. As provided in the Loan Agreement, Borrower agrees to pay on demand all costs and expenses incurred by Lender in connection with the preparation, negotiation, and execution of this Amendment and the other Loan Documents executed pursuant hereto and any and all amendments, modifications, and supplements thereto, including, without limitation, the costs and fees of Lender's legal counsel, and all costs and expenses incurred by Lender in connection with the enforcement or preservation of any rights under the Loan Agreement, as amended hereby, or any other Loan Documents, including, without, limitation, the costs and fees of Lender's legal counsel. 6.04 SEVERABILITY. Any provision of this Amendment held by a court of competent jurisdiction to be invalid or unenforceable shall not impair or invalidate the remainder of this Amendment and the effect thereof shall be confined to the provision so held to be invalid or unenforceable. 6.05 SUCCESSORS AND ASSIGNS. This Amendment is binding upon and shall inure to the benefit of Lender and Borrower and their respective successors and assigns, except that Borrower may not assign or transfer any of its rights or obligations hereunder without the prior written consent of Lender. 6.06 COUNTERPARTS. This Amendment may be executed in one or more counterparts, each of which when so executed shall be deemed to be an original, but all of which when taken together shall constitute one and the same instrument. 6.07 EFFECT OF WAIVER. No consent or waiver, express or implied, by Lender to or for any breach of or deviation from any covenant or condition by Borrower shall be deemed a consent to or waiver of any other breach of the same or any other covenant, condition or duty. 6.08 HEADINGS. The headings, captions, and arrangements used in this Amendment are for convenience only and shall not affect the interpretation of this Amendment. 6.09 APPLICABLE LAW. THIS AMENDMENT AND ALL OTHER LOAN DOCUMENTS EXECUTED PURSUANT HERETO SHALL BE DEEMED TO HAVE BEEN MADE AND TO BE PERFORMABLE IN AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS. 6.10 FINAL AGREEMENT. THE LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS, EACH AS AMENDED HEREBY, REPRESENT THE ENTIRE EXPRESSION OF THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF ON THE DATE THIS AMENDMENT IS EXECUTED. THE LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS AMENDED HEREBY, MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. NO MODIFICATION, RESCISSION, WAIVER, RELEASE OR AMENDMENT OF ANY PROVISION OF THIS AMENDMENT SHALL BE MADE, EXCEPT BY A WRITTEN AGREEMENT SIGNED BY BORROWER AND LENDER. 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 AMENDMENT TO LOAN AND SECURITY AGREEMENT - PAGE 9 10 VOLUNTARILY AND KNOWINGLY RELEASES AND FOREVER DISCHARGES LENDER, ITS PREDECESSORS, AGENTS, EMPLOYEES, SUCCESSORS AND ASSIGNS, FROM ALL POSSIBLE CLAIMS, DEMANDS, ACTIONS, CAUSES OF ACTION, DAMAGES, COSTS, EXPENSES, AND LIABILITIES WHATSOEVER, KNOWN OR UNKNOWN, ANTICIPATED OR UNANTICIPATED, SUSPECTED OR UNSUSPECTED, FIXED, CONTINGENT, OR CONDITIONAL, AT LAW OR IN EQUITY, ORIGINATING IN WHOLE OR IN PART ON OR BEFORE THE DATE THIS AMENDMENT IS EXECUTED, WHICH BORROWER MAY NOW OR HEREAFTER HAVE AGAINST LENDER, ITS PREDECESSORS, AGENTS, EMPLOYEES, SUCCESSORS AND ASSIGNS, IF ANY, AND IRRESPECTIVE OF WHETHER ANY SUCH CLAIMS ARISE OUT OF CONTRACT, TORT, VIOLATION OF LAW OR REGULATIONS, OR OTHERWISE, AND ARISING FROM ANY "LOANS", INCLUDING, WITHOUT LIMITATION, ANY CONTRACTING FOR, CHARGING, TAKING, RESERVING, COLLECTING OR RECEIVING INTEREST IN EXCESS OF THE HIGHEST LAWFUL RATE APPLICABLE, THE EXERCISE OF ANY RIGHTS AND REMEDIES UNDER THE LOAN AGREEMENT OR OTHER LOAN DOCUMENTS, AND NEGOTIATION FOR AND EXECUTION OF THIS AMENDMENT. IN WITNESS WHEREOF, this Amendment has been executed and is effective as of the date first above-written. "BORROWER" DXP ACQUISITION, INC., D/B/A STRATEGIC ACQUISITION, INC. By: /s/ GARY A. ALLCORN ------------------------ Name: Gary A. Allcorn ------------------------ Title: Senior V.P./Finance ------------------------ "LENDER" FLEET CAPITAL CORPORATION By: /s/ H. MICHAEL WILLS ------------------------ Name: H. Michael Wills ------------------------ Title: VP ------------------------ ANNEXES: A-1 - Certified Resolutions of DXP Acquisition, Inc., d/b/a Strategic Acquisition, Inc. AMENDMENT TO LOAN AND SECURITY AGREEMENT - PAGE 10 11 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 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: April 29, 1998. /s/ GARY A. ALLCORN ---------------------------------------- [Assistant] Secretary of the Corporation CONSENT AND RATIFICATION TO AMENDMENT TO LOAN AND SECURITY - Page 1 12 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 Amendment to Loan and Security Agreement, dated as of April 29, 1998 (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: April 29, 1998. SEPCO INDUSTRIES, INC. By: /s/ GARY A. ALLCORN ------------------------ Name: Gary A. Allcorn ------------------------ Title: Senior V.P./Finance ------------------------ CONSENT AND RATIFICATION TO AMENDMENT TO LOAN AND SECURITY - Page 1 13 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 Amendment to Loan and Security Agreement, dated as of April 29, 1998 (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: April 29, 1998. AMERICAN MRO, INC. By: /s/ GARY A. ALLCORN ------------------------ Name: Gary A. Allcorn ------------------------ Title: Senior V.P./Finance ------------------------ CONSENT AND RATIFICATION TO AMENDMENT TO LOAN AND SECURITY - Page 1 14 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 Amendment to Loan and Security Agreement, dated as of April 29, 1998 (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: April 29, 1998. BAYOU PUMPS, INC. By: /s/ GARY A. ALLCORN ------------------------ Name: Gary A. Allcorn ------------------------ Title: Senior V.P./Finance ------------------------ CONSENT AND RATIFICATION TO AMENDMENT TO LOAN AND SECURITY - Page 1 15 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 Amendment to Loan and Security Agreement, dated as of April 29, 1998 (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: April 29, 1998. PELICAN STATE SUPPLY COMPANY, INC. By: /s/ GARY A. ALLCORN ------------------------ Name: Gary A. Allcorn ------------------------ Title: Senior V.P./Finance ------------------------ CONSENT AND RATIFICATION TO AMENDMENT TO LOAN AND SECURITY - Page 1 16 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 Amendment to Loan and Security Agreement, dated as of April 29, 1998 (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: April 29, 1998. DXP ENTERPRISES, INC. By: /s/ GARY A. ALLCORN ------------------------ Name: Gary A. Allcorn ------------------------ Title: Senior V.P./Finance ------------------------ CONSENT AND RATIFICATION TO AMENDMENT TO LOAN AND SECURITY - Page 1 EX-10.4 5 SECURED PROMISSORY NOTE 1 EXHIBIT 10.4 SECURED PROMISSORY NOTE [ACQUISITION TERM LOANS] $15,000,000.00 DALLAS, TEXAS APRIL 29, 1998 FOR VALUE RECEIVED, each of the undersigned (collectively, "Borrower"), hereby jointly and severally promise to pay to the order of Fleet Capital Corporation, a Rhode Island corporation ("Lender"), at 2711 North Haskell, Suite 2100, LB 21, Dallas, Texas 75204, or at such other address as the holder hereof shall so notify Borrower, in such coin or currency of the United States which shall be legal tender in payment of all debts and dues, public and private, at the time of payment, the principal sum of FIFTEEN MILLION AND NO/100 DOLLARS ($15,000,000.00), or as much as may be advanced hereunder as Acquisition Term Loans (as defined in the Loan Agreement), together with interest from and after the date of the funding of the initial Acquisition Term Loan hereunder on the unpaid principal balance outstanding at a variable rate per annum equal to the lesser of (i) the Applicable Annual Rate (as defined in the Loan Agreement), or (ii) the Maximum Legal Rate. This Secured Promissory Note (this "Note") is the Acquisition Term Loans Note referred to in, and is issued pursuant to, that certain SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT between Sepco Industries, Inc. and Lender dated April 1, 1994 (as amended, renewed and extended from time to time, the "Loan Agreement"), and is entitled to all of the benefits and security of the Loan Agreement. All of the terms, covenants and conditions of the Loan Agreement and all other instruments evidencing or securing the indebtedness hereunder (including, without limitation, the "Other Agreements" as defined in the Loan Agreement) are hereby made a part of this Note and are deemed incorporated herein in full. All capitalized terms used in this Note, unless otherwise specifically defined herein, shall have the meanings ascribed to them in the Loan Agreement. Borrower acknowledges and understands that the Base Rate merely serves as a basis upon which effective rates of interest are calculated for loans making reference to the per annum rate of interest established by Bank from time to time as its base rate and that such rate may not be the lowest or best rate at which Bank calculates interest or extends credit. After the date of the funding of the initial Acquisition Term Loan hereunder, the rate of interest in effect hereunder on each portion of the outstanding principal amount of this Note that is not a Eurodollar Loan (as defined in the Loan Agreement) shall be increased or decreased, as the case may be, by an amount equal to any increase or decrease in the Base Rate, with such adjustments to be effective as of the opening of business on the date that any such change in the Base Rate becomes effective. The Base Rate in effect on the date of the funding of the initial Acquisition Term Loan hereunder shall be the Base Rate effective as of the opening of business on the date of funding. The rate of interest in effect hereunder may be increased in accordance with the provisions of the Loan Agreement. Interest on this Note shall be calculated on a daily basis (computed on the actual number of days elapsed over a year of 360 days); provided, however, interest due at the SECURED PROMISSORY NOTE - PAGE 1 2 Maximum Legal Rate shall be calculated on the basis of actual days elapsed over a year of 365 or 366 days, as the case may be. Upon and after the occurrence of an Event of Default, and during the continuation thereof, the principal amount of this Note shall bear interest, at a fluctuating rate per annum equal to the lesser of (i) 4% above the Applicable Annual Rate (the "Default Rate"), calculated daily (computed on the actual days elapsed over a year of 360 days), or (ii) the Maximum Legal Rate. If at any time the amount of such interest computed on the basis of the Applicable Annual Rate or the Default Rate, whichever is applicable (the "Applicable Rate"), would exceed the amount of such interest computed upon the basis of the maximum rate of interest permitted by applicable state or federal law in effect from time to time hereafter (the "Maximum Legal Rate"), the interest payable under this Note shall be computed upon the basis of the Maximum Legal Rate, but any subsequent reduction in the Applicable Rate shall not reduce such interest thereafter payable hereunder below the amount computed on the basis of the Maximum Legal Rate until the aggregate amount of such interest accrued and payable under this Note equals the total amount of interest which would have accrued if such interest had been at all times computed solely on the basis of the Applicable Rate. The principal amount and accrued interest of this Note shall be due and payable on the dates and in the manner hereinafter set forth: (a) interest shall be due and payable monthly, in arrears, on the first day of each month, commencing on the first day of the first month after the funding of the initial Acquisition Term Loan, and continuing until such time as the full principal balance, together with all other amounts owing hereunder, shall have been paid in full; (b) with respect to each Acquisition Term Loan funded hereunder prior to October 1, 1998, principal installments equal to 1/60 of the original principal amount of such Acquisition Term Loan shall be due and payable monthly, commencing on October 1, 1998, and continuing regularly thereafter on the first day of each succeeding month during the term of this Note; (c) with respect to each Acquisition Term Loan funded hereunder on or after October 1, 1998, principal installments equal to 1/60 of the original principal amount of such Acquisition Term Loan shall be due and payable monthly, commencing on the first day of the first month immediately succeeding the funding of such Acquisition Term Loan and continuing regularly thereafter on the first day of each succeeding month thereafter during the term of this Note; and (d) the entire unpaid principal balance hereof, together with any and all other amounts due hereunder, shall be due and payable in full on the last day of the Original Term or the Renewal Term, as applicable. SECURED PROMISSORY NOTE - PAGE 2 3 Notwithstanding the foregoing, the entire unpaid principal balance and accrued interest on this Note shall be due and payable immediately upon any termination of the Loan Agreement pursuant to Section 3.3 thereof or otherwise. The occurrence of an Event of Default under the Loan Agreement, including, without limitation, the failure to pay any installment of principal or interest on this Note in full on or within ten days after the due date thereof in accordance with the terms of this Note, shall constitute an event of default under this Note and shall entitle Lender, at its option, upon, or at any time after the occurrence of any such Event of Default, to declare the then outstanding principal balance and accrued interest hereof to be, and the same shall thereupon become, immediately due and payable without notice to or demand upon Borrower, all of which Borrower hereby expressly waives. If this Note is collected by or through an attorney at law, then Borrower shall be obligated to pay, in addition to the principal balance and accrued interest hereof, reasonable attorneys' fees and court costs. This Note shall be subject to mandatory prepayment, without premium or penalty, in accordance with the provisions of Section 3.4(D) of the Loan Agreement. Subject to the next sentence, Borrower may voluntarily prepay, without premium or penalty, this Note in whole at any time or in part from time to time upon ten days' prior written notice to Lender, provided that each such prepayment shall be made together with accrued interest on the principal amount so prepaid on the prepayment date, and any partial prepayment shall be in an amount equal to $100,000 or in $100,000 multiples thereof. If Borrower terminates the Loan Agreement pursuant to Section 3.3(B) thereof, then, upon the effective date of such termination, Borrower shall pay to Lender (in addition to any other charges due under the terms of the Loan Agreement) the termination charge provided for in Section 3.3(C) of the Loan Agreement. All partial prepayments, whether mandatory or voluntary, shall be applied to installments of principal in the inverse order of their maturities. No agreements, conditions, provisions or stipulations contained in the Loan Agreement, this Note or any other instrument, document or agreement between Borrower and Lender or default of Borrower, or the exercise by Lender of the right to accelerate the payment of the maturity of principal and interest, or to exercise any option whatsoever contained in the Loan Agreement, this Note or any other agreement between Borrower and Lender, or the arising from any contingency whatsoever, shall entitle Lender to charge or collect, in any event, interest exceeding the Maximum Legal Rate and in no event shall Borrower be obligated to pay interest exceeding such Maximum Legal Rate and all agreements, conditions or stipulations, if any, which may in any event or contingency whatsoever operate to bind, obligate or compel Borrower to pay a rate of interest exceeding the Maximum Legal Rate, shall be without binding force or effect, at law or in equity, to the extent only of the excess of interest over such Maximum Legal Rate. In the event any interest is charged or collected in excess of the Maximum Legal Rate ("Excess"), Borrower acknowledges and stipulates that any such charge or collection shall be the result of an accident and bona fide error, and such Excess shall be, first, applied to reduce the principal then unpaid hereunder; second, applied to reduce the Obligations; and third, returned to Borrower, it being the intention of the parties hereto not to enter at any time into a usurious or SECURED PROMISSORY NOTE - PAGE 3 4 otherwise illegal relationship. Borrower recognizes that, with fluctuations in the Applicable Annual Rate, the Default Rate and the Maximum Legal Rate, such an unintentional result could inadvertently occur. By the execution of this Note, Borrower covenants that (i) the credit or return of any Excess shall constitute the acceptance by Borrower of such Excess, and (ii) Borrower shall not seek or pursue any other remedy, legal or equitable, against Lender, based in whole or in part upon the charging or receiving of any interest in excess of the maximum authorized by applicable law. For the purpose of determining whether or not any Excess has been contracted for, charged or received by Lender, all interest at any time contracted for, charged or received by Lender in connection with this Note, shall be amortized, prorated, allocated and spread in equal parts during the entire term of this Agreement. Time is of the essence of this Note. To the fullest extent permitted by applicable law, Borrower, for itself and its legal representatives, successors and assigns, expressly waives presentment, demand, protest, notice of dishonor, notice of non-payment, notice of acceleration, notice of intent to accelerate, notice of maturity, notice of protest, presentment for the purpose of accelerating maturity, diligence in collection, and the benefit of any exemption or insolvency laws. Wherever possible each provision of this Note shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Note shall be prohibited or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity without invalidating the remainder of such provision or remaining provisions of this Note. No delay or failure on the part of Lender in the exercise of any right or remedy hereunder shall operate as a waiver thereof, nor as an acquiescence in any default, nor shall any single or partial exercise by Lender of any right or remedy preclude any other right or remedy. Lender, at its option, may enforce its rights against any collateral securing this Note without enforcing its rights against Borrower, any guarantor of the indebtedness evidenced hereby or any other property or indebtedness due or to become due to Borrower. Borrower agrees that, without releasing or impairing Borrower's liability hereunder, Lender may at any time release, surrender, substitute or exchange any collateral securing this Note and may at any time release any party primarily or secondarily liable for the indebtedness evidenced by this Note. This Note shall be governed by, and construed and enforced in accordance with, the laws of the State of Texas, as more fully provided in Section 12.18 of the Loan Agreement. [The remainder of this page intentionally left blank.] SECURED PROMISSORY NOTE - PAGE 4 5 IN WITNESS WHEREOF, Borrower has caused this Note to be duly executed and delivered on the date first above written. SEPCO INDUSTRIES, INC. By: /s/ Gary A. Allcorn --------------------- Name: Gary A. Allcorn --------------------- Title: Senior V.P./Finance --------------------- BAYOU PUMPS, INC. By: /s/ GARY A. ALLCORN --------------------- Name: Gary A. Allcorn --------------------- Title: Senior V.P./Finance --------------------- AMERICAN MRO, INC. By: /s/ Gary A. Allcorn --------------------- Name: Gary A. Allcorn --------------------- Title: Senior V.P./Finance --------------------- SECURED PROMISSORY NOTE - PAGE 5 EX-11.1 6 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS 1 Exhibit 11.1: Statement re: Computation of Per Share Earnings.
Three Months Ended March 31, 1998 1997 ----------- ------------ Basic: Average shares outstanding 8,314,845 7,993,947 Net Income 857,000 753,000 Per share amount $ .1031 $ .0942 Dilutive: Average shares outstanding 8,314,845 7,993,947 Net effect of dilutive stock options -- based on the treasure stock method using period-end market price, if higher than average market price 2,246,244 1,897,633 Assumed conversion of Class A convertible Preferred Stock 840,000 1,092,000 Total 11,401,089 10,983,580 Net Income $ 878,000 $ 791,000 Per share amount $ .0770 $ .0720
EX-27.1 7 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE UNAUDITED CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS OF DXP ENTERPRISES, INC. AS OF MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 OTHER DEC-31-1998 JAN-01-1998 MAR-31-1998 2,259 0 27,765 935 28,922 59,914 19,800 9,416 77,162 21,701 0 112 20 80 12,931 77,162 49,004 49,004 36,419 36,419 10,508 0 785 1,468 590 878 0 0 0 878 .10 .08
EX-27.2 8 RESTATED FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DXP ENTERPRISES, INC.'S UNAUDITED FINANCIAL STATEMENTS FOR THE QUARTER ENDED SEPTEMBER 30, 1996 AND MARCH 31, JUNE 30, AND SEPTEMBER 30, 1997 AND AUDITED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1996 AND DECEMBER 31, 1997. 1,000 9-MOS YEAR 3-MOS 6-MOS 9-MOS DEC-31-1996 DEC-31-1996 DEC-31-1997 DEC-31-1997 DEC-31-1997 JUL-01-1996 JAN-01-1996 JAN-01-1997 APR-01-1997 JUL-01-1997 SEP-30-1996 DEC-31-1996 MAR-31-1997 JUN-30-1997 SEP-30-1997 1 876 979 0 556 0 0 0 0 0 16,558 17,335 20,200 26,107 27,201 200 210 301 406 310 16,719 17,175 16,665 28,380 28,027 34,602 36,226 38,378 55,131 56,263 15,068 15,862 16,091 19,232 19,351 7,987 8,044 8,299 8,553 8,799 42,856 45,042 47,123 69,059 69,985 9,043 10,614 11,416 18,927 18,808 0 0 0 0 0 600 600 600 2,255 292 1,509 17 17 20 20 9 80 160 80 80 7,483 10,362 11,035 12,189 12,438 42,856 45,042 47,123 69,059 69,985 95,214 125,208 30,129 69,470 118,277 95,214 125,208 30,129 69,470 118,277 70,574 93,091 21,756 50,371 86,706 21,587 28,381 21,753 50,371 86,706 0 0 7,043 16,347 26,661 0 0 0 0 0 1,556 2,101 539 1,008 1,960 1,497 1,635 1,220 2,480 2,950 607 745 429 888 1,070 890 890 791 1,592 1,880 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 890 890 791 1,592 1,880 .10 .10 .09 .19 .22 .09 .09 .07 .14 .17
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