UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
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FORM
8-K
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CURRENT
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
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Commission
File Number 0-21513
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DXP
ENTERPRISES, INC.
(Exact
name of registrant as specified in its charter)
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Texas
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76-0509661
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(State
or other jurisdiction of incorporation or organization)
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(I.R.S.
Employer Identification Number)
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7272
Pinemont, Houston, Texas 77040
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(Address
of principal executive offices)
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_________________________
Registrant’s
telephone number, including area code:
(713)
996-4700
_________________________
Check
the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions:
[ ] Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
[ ] Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[ ] Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
[ ] Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
ITEM
1.01. Entry into a Material Definitive Agreement
On
September 10, 2007 DXP Enterprises, Inc. (“DXP”) entered into a credit agreement
(the “Facility”) with Wells Fargo Bank, National Association, as Lead Arranger
and Administrative Agent for the Lenders. The Facility consists of a revolving
credit facility that provides a $130 million line of credit to the
Company. This new line of credit replaces the Company’s prior credit
facility, which was last amended and restated on May 3, 2007 and
consisted of a $50 million revolving credit facility.
The
new
Facility expires on September 9, 2012. The Facility contains
financial covenants defining various financial measures and levels of these
measures with which the company must comply. Covenant compliance is
assessed as of each quarter end. EBITDA is defined under the Facility
for financial covenant purposes as means, without duplication, for any period
the consolidated net income (excluding any extraordinary gains or losses)
of the
Borrower and its Subsidiaries plus, to the extent deducted in calculating
consolidated net income, depreciation, amortization, other non-cash items
and
non-recurring items, Interest Expense, and tax expense for taxes based on
income
and minus, to the extent added in calculating consolidated net income,
any non-cash items and non-recurring items; provided that, if the
Borrower or any of its Subsidiaries acquires the Equity Interests or assets
of
any Person during such period under circumstances permitted under Section
6.15 hereof, EBITDA shall be adjusted to give pro forma effect to such
acquisition assuming that such transaction had occurred on the first day
of such
period and provided further that, if the Borrower or any of its
Subsidiaries divests the Equity Interests or assets of any Person during
such
period under circumstances permitted under this Agreement, EBITDA shall be
adjusted to give pro forma effect to such divestiture assuming that such
transaction had occurred on the first day of such period. Add-backs
allowed pursuant to Article 11, Regulation S-X, of the Securities Act of
1933
will also be included in the calculation of EBITDA.
The
Company’s borrowings and letters of credit outstanding under the Facility at
each month-end must be less than an asset test measured as of the same
month-end. The asset test is defined under the Facility as the sum of 85%
of the
Company’s net accounts receivable, 60% of net inventory, and 50% of non real
estate property or equipment. The Company’s borrowing and letter of credit
capacity under the Facility at any given time is $130 million less borrowings
and letters of credit outstanding, subject to the asset test described
above. The asset test for the Facility calculated as of June 30, 2007
was $113.7 million.
The
Facility provides the option of interest at LIBOR plus a margin ranging from
0.75% to 1.50% or prime plus a margin of 0.0% to 12.5%. The initial
LIBOR based rate is LIBOR plus 125 basis points. The initial prime
based rate is prime. Commitment fees of .125 to .25 percent per annum
are payable on the portion of the Facility capacity not in use for borrowings
or
letters of credit at any given time. Borrowings under the Facility
are secured by all of the Company’s accounts receivable, inventory and general
intangibles.
The
Facility’s principal financial covenants include:
Fixed
Charge Coverage Ratio – The Facility requires that the Fixed Charge
Coverage Ratio be not less than 1.5 to 1.0 as of each fiscal quarter end,
determined on a rolling 4 quarter basis, with “Fixed Charge Coverage Ratio”
defined as the ratio of (a) EBITDA for the 12 months ending on such date
minus Capital Expenditures for such period (excluding Acquisitions) to
(b) Fixed Charges for such 12-month period, determined in each case on a
consolidated basis for Borrower and its Subsidiaries.
Leverage
Ratio - The Facility requires that the Company’s Leverage Ratio, determined
on a rolling four quarter basis, not exceed 3.5 to 1.0 as of each quarter
end,
stepping down to 3.0 to 1.0 beginning the quarter ending December 31,
2009. Leverage Ratio is defined as the outstanding Total Funded Debt
divided by rolling four quarter EBITDA. Total Funded Debt is defined
under the Facility for financial covenant purposes as: a) all obligations
of the
Borrower and its subsidiaries for borrowed money including but not limited
to
senior bank debt, senior notes, and subordinated debt; b) capital leases;
c)
issued and outstanding letters of credit; and d) contingent obligations for
funded indebtedness.
The
foregoing description does not purport to be a complete statement of the
parties’ rights and obligations under the Facility. The above description is
qualified in its entirety by reference to the Credit Agreement by and among
DXP
Enterprises, Inc., as borrower, and Wells Fargo Bank, as Bank, dated as of
September 10, 2007, which is filed as Exhibit 10.1 to this current
report.
ITEM
1.02 Termination of a Material Definitive Agreement
See
the
disclosure in Item 1.01 above regarding the Company’s prior credit facility and
termination of this prior facility.
ITEM
2.01
Completion of Acquisition or Disposition of Assets
On
September 10, 2007, the Company completed its acquisition of Precision
Industries, Inc. Pursuant to the terms of a Stock Purchase
Agreement, effective as of August 19, 2007 (the “Purchase Agreement”), among the
Company and the stockholders (the “Sellers”) of Precision Industries, Inc., the
Company acquired all of the issued and outstanding ownership interests of
Precision Industries, Inc. from the Sellers for an aggregate purchase price
of
approximately $106 million in cash. Five million dollars of the
Purchase Price was deposited into an escrow fund to satisfy indemnification
obligations of the Sellers under the Purchase Agreement. The Purchase
Price is subject to a post-closing adjustment based on the actual net working
capital of Precision as finally determined within a specified period following
closing. The Purchase Agreement provides for earnouts based upon
performance metrics in 2008 and 2009.
The
Purchase Price paid by the Company in the transaction was financed primarily
by
borrowings under the Facility described in Item 1.01 of this Form
8-K.
Any
financial statements and pro forma financial information that may be required
to
be filed as exhibits to this Form 8-K will be filed by amendment to this
Form
8-K as soon as practicable, but in any event not later than 71 calendar days
after the date that this Form 8-K must be filed with the SEC.
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ITEM
9.01. Financial Statements and
Exhibits
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The
following exhibits are included
herein:
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10.1
– Credit Agreement by and among DXP Enterprises, Inc., as Borrower,
and
Wells Fargo Bank, National Association, as Lead Arranger and
Administrative Agent for the Lenders, as Bank, dated as of September
10,
2007.
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99.1
– Press Release dated September 10,
2007.
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SIGNATURES
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, thereunto
duly authorized.
DXP
ENTERPRISES, INC.
(Registrant)
By:
/s/MAC McCONNELL
Mac
McConnell
Senior
Vice-President/Finance and
Chief
Financial Officer
Dated: September
12, 2007