<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 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 0-20797
---------------------
RUSH ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Texas 74-1733016
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
8810 I.H. 10 East
San Antonio, Texas 78219
(Address of principal executive offices)
(Zip Code)
(210) 661-4511
(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
--- ---
Indicated below is the number of shares outstanding of the registrant's
only class of common stock, as of August 7, 1998.
Number of
Shares
Title of Class Outstanding
-------------- -----------
Common Stock, $.01 Par Value 6,643,730
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RUSH ENTERPRISES, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
----
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets - June 30, 1998 (unaudited) and December 31, 1997. . . . . . . . . . . . . . 3
Consolidated Statements of Income - For the Three and Six Months
Ended June 30, 1998 and 1997 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows - For the Three and Six Months Ended
June 30, 1998 and 1997 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
PART II. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
2
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RUSH ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
ASSETS (UNAUDITED) (AUDITED)
----------- ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 25,814 $ 19,816
Accounts receivable, net 18,805 20,894
Inventories 84,575 66,757
Prepaid expenses and other 648 381
-------- --------
Total current assets 129,842 107,848
PROPERTY AND EQUIPMENT, net 41,741 34,158
OTHER ASSETS, net 14,044 13,472
-------- --------
Total assets $185,627 $155,478
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Floorplan notes payable $ 73,573 $ 63,268
Current maturities of long-term debt 4,965 2,439
Advances outstanding under lines of credit 10 20
Trade accounts payable 5,102 5,751
Accrued expenses 15,830 12,556
Note payable to shareholder 10,600 5,450
-------- --------
Total current liabilities 110,080 89,484
DEFERRED INCOME TAX LIABILITY, net 1,527 1,180
LONG-TERM DEBT, net of current maturities 27,881 22,742
SHAREHOLDERS' EQUITY
Rush Enterprises, Inc., common stock, par value $.01 per share;
25,000,000 shares authorized; 6,643,730 outstanding at June 30, 1998 and
December 31, 1997 66 66
Additional paid-in-capital 33,342 33,342
Retained earnings 12,731 8,664
-------- --------
Total shareholders' equity 46,139 42,072
-------- --------
Total liabilities and shareholders' equity $185,627 $155,478
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
3
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RUSH ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE - UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- ---------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES:
New and used truck sales $117,392 $ 71,831 $202,379 $133,636
Parts and service 27,047 19,051 50,376 35,346
Construction equipment sales 9,962 -- 17,913 --
Lease and rental 4,145 3,448 8,975 6,656
Finance and insurance 3,039 1,056 5,397 2,081
Other 4,398 386 7,018 965
-------- -------- -------- --------
Total revenues 165,983 95,772 292,058 178,684
COST OF PRODUCTS SOLD 139,464 81,301 243,827 151,044
-------- -------- -------- --------
GROSS PROFIT 26,519 14,471 48,231 27,640
SELLING, GENERAL AND ADMINISTRATIVE 19,279 11,716 36,510 22,500
DEPRECIATION AND AMORTIZATION 1,119 715 2,074 1,343
-------- -------- -------- --------
OPERATING INCOME 6,121 2,040 9,647 3,797
INTEREST EXPENSE 1,570 433 2,868 923
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 4,551 1,607 6,779 2,874
PROVISION FOR INCOME TAXES 1,821 610 2,712 1,092
-------- -------- -------- --------
NET INCOME $ 2,730 $ 997 $ 4,067 $ 1,782
======== ======== ======== ========
Basic and diluted income from operations per share $ 0.41 $ 0.15 $ 0.61 $ 0.27
======== ======== ======== ========
Weighted average shares outstanding
Basic 6,644 6,644 6,644 6,644
======== ======== ======== ========
Diluted 6,660 6,644 6,660 6,644
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
4
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RUSH ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS - UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------
1998 1997
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,067 $ 1,782
Adjustments to reconcile net income to cash provided
by (used in) continuing operations
Depreciation and amortization 2,074 1,343
Gain on sale of property, plant and equipment (62) (84)
Provision for deferred income tax expense 347 95
Change in receivables 2,814 4,895
Change in inventories (13,388) 4,277
Change in other current assets (260) 924
Change in accounts payable (817) 896
Change in accrued liabilities 2,681 (3,987)
-------- --------
Net cash provided by (used in) operating activities (2,544) 10,141
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (7,719) (4,292)
Proceeds from the sale of property and equipment 186 1,297
Business Acquisitions (5,817) (7,915)
Changes in other assets 532 (108)
-------- --------
Net cash used in investing activities (12,818) (11,018)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 14,105 5,998
Principal payments on notes payable (3,050) (2,067)
Draws (payments) on floor plan financing, net 10,305 (9,419)
-------- --------
Net cash provided by (used in) financing activities 21,360 (5,488)
-------- --------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 5,998 (6,365)
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 19,816 21,507
-------- --------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 25,814 $ 15,142
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during year for interest $ 2,958 $ 945
======== ========
Cash paid during year for taxes $ 2,205 $ 737
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
5
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RUSH ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1 - PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The interim consolidated financial statements included herein have been
prepared by Rush Enterprises, Inc. and its subsidiaries (collectively referred
to as the "Company"), without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission ("SEC"). All adjustments have been made
to the accompanying interim consolidated financial statements which are, in the
opinion of the Company's management, necessary for a fair presentation of the
Company's operating results. All adjustments are of a normal recurring nature.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations. It is
recommended that these interim consolidated financial statements be read in
conjunction with the consolidated financial statements and the notes thereto
included in the Company's Annual Report on form 10-K for the year ended December
31, 1997.
2 - ACQUISITION
In March 1998 the Company acquired all of the issued and outstanding
capital stock of D & D Farm and Ranch Supermarket Inc., for approximately $10.5
million. The acquisition was accounted for as a purchase. The results of
operations have been included in the Company's financial statements since the
date of acquisition. No pro forma financial information with regard to this
acquisition has been presented as the acquisition does not have a significant
impact on the Company's prior or current period financial position or results of
operations.
3 - COMMITMENTS AND CONTINGENCIES
The Company is contingently liable to certain finance companies for
certain promissory notes and finance contracts, related to the sale of trucks,
sold to such finance companies. The Company's recourse liability related to sold
finance contracts is limited to 15 to 25 percent of the outstanding balance of
each note sold to a finance company, with the aggregate recourse liability for
1998 limited to $600,000.
The Company provides an allowance for repossession losses and early
repayment penalties.
The Company is involved in various claims and legal actions arising in
the ordinary course of business. The Company believes it is unlikely that the
final outcome of any of the claims or proceedings to which to Company is a party
would have a material adverse effect on the Company's financial position or
results of operations, however, due to the inherent uncertainty of litigation,
there can be no assurance that the resolution of any particular claim or
proceeding would not have a material adverse effect on the Company's results of
operations for the fiscal period in which such resolution occurred.
The Company has consulting agreements with certain individuals for an
aggregate monthly payment of $25,725. The agreements expire at various times
between 1999 through 2001.
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4 - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1998 1997 1998 1997
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Numerator:
Net income - numerator for basic and diluted
earnings per share $2,730,000 $ 997,000 $4,067,000 $1,782,000
Denominator:
Denominator for basic earnings per share -
weighted average shares 6,643,730 6,643,730 6,643,730 6,643,730
Effect of dilutive securities:
Employee and Director stock options 16,637 -- 16,637 --
---------- ---------- ---------- ----------
Denominator for diluted earnings per
share-adjusted weighted average shares 6,660,367 6,643,730 6,660,367 6,643,730
========== ========== ========== ==========
Basic earnings per share $ .41 $ .15 $ .61 $ .27
========== ========== ========== ==========
Diluted earnings per share $ .41 $ .15 $ .61 $ .27
========== ========== ========== ==========
</TABLE>
5 - SEGMENT INFORMATION
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 131 "Disclosures about Segments of an Enterprise and
Related Information" (SFAS 131). This statement requires that public business
enterprises report certain information about operating segments in complete sets
of financial statements of the enterprise and in condensed financial statements
of interim periods issued to shareholders. It also requires that public business
enterprises report certain information about their products and services, the
geographic areas in which they operate, and their major customers. The effective
date for SFAS No. 131 is for fiscal years beginning after December 15, 1997.
The Company has two reportable segments: the Heavy Duty Truck segment,
and the Construction Equipment segment. The Heavy Duty Truck segment operates a
regional network of truck centers that provides an integrated one-stop source
for the trucking needs of its customers, including retail sales of new Peterbilt
and used heavy-duty trucks; after-market parts, service and body shop
facilities; and a wide array of financial services, including the financing of
new and used truck purchases, insurance products and truck leasing and rentals.
The Heavy Duty Truck segment has locations in Texas, California, Colorado,
Oklahoma and Louisiana. The Construction Equipment segment, formed during 1997,
operates a full-service John Deere dealership that serves the Houston, Texas
Metropolitan and surrounding areas. Dealership operations include the retail
sale of new and used construction equipment, after-market parts and service
facilities, equipment rentals, and the financing of new and used equipment. The
Company had only one segment prior to the October 1997 acquisition of such John
Deere dealership, thus for the three and six month periods ended June 30, 1997
results depict only the Heavy Duty Truck segment.
The accounting policies of the segments are the same as those described
in the summary of significant accounting policies included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1997. The Company
evaluates performance based on income before income taxes not including
extraordinary items.
The Company accounts for intersegment sales and transfers at current
market prices as if the sales or transfers were to third parties. There were no
intersegment sales during the three and six month periods ended June 30, 1998.
7
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The Company's reportable segments are strategic business units that
offer different products and services. They are managed separately because each
business requires different technology and marketing strategies. Business units
were maintained through expansion and acquisitions. The following table contains
summarized information about reportable segment profit or loss and segment
assets, for the three and six month periods ended June 30, 1998: (in thousands)
<TABLE>
<CAPTION>
HEAVY-DUTY CONSTRUCTION
TRUCK EQUIPMENT
SEGMENT SEGMENT ALL OTHER TOTALS
---------- ------------- --------- ------
<S> <C> <C> <C> <C>
Three months ended June 30, 1998
Revenues from external customers $146,795 $ 12,420 $ 6,768 $165,983
Segment income before taxes 4,161 222 168 4,551
Segment assets 130,313 36,696 18,618 185,627
Six months ended June 30, 1998
Revenues from external customers $257,659 $ 24,276 $ 10,123 $292,058
Segment income before taxes 6,252 224 303 6,779
Segment assets 130,313 36,696 18,618 185,627
</TABLE>
Revenues from segments below the reportable quantitative thresholds are
attributable to four operating segments of the Company. Those segments include a
tire company, a farm and ranch retail center, an insurance company, and a
hunting lease operation. None of those segments has ever met any of the
quantitative thresholds for determining reportable segments.
6 - SUBSEQUENT EVENTS
In July 1998, the Company, through its construction equipment division,
Rush Equipment Centers, Inc., signed a Definitive Purchase Agreement with
Klooster Equipment, Inc. to purchase the assets of three John Deere dealerships
in western Michigan. The acquisition, subject to regulatory approval, the
approval of John Deere Construction Equipment Company and customary closing
conditions, is expected to close on or about September 1, 1998.
7 - RECENTLY ISSUED PRONOUNCEMENTS
In February 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 132, "Employers' Disclosures
about Pensions and Other Post-retirement Benefits" (FAS 132"). FAS 132
standardizes the disclosure requirements for pensions and other post-retirement
benefits to the extent practicable, requires additional information on changes
in the benefit obligations and fair values of plan assets, and eliminates
certain disclosures that are no longer useful. This statement is effective for
financial statements for periods beginning after December 15, 1997. The Company
does not provide post-retirement or post-employment benefits to its employees.
In April 1998, the Accounting Standards Executive Committee ("AsSEC")
issued Statement of Position 98-5 "Reporting on the Costs of Start-up
Activities" (SOP 98-5"). SOP 98-5 requires all start-up activities, as defined,
to be expensed as incurred. The SOP is effective for fiscal years beginning
after December 15, 1998. Earlier application is encouraged, initial application
will be reported as a cumulative effect of a change in accounting principle and
restatement of previously issued financial statements is not permitted. The SOP
will not have a material impact on the financial statements of the Company.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Certain statements contained in this Form 10-Q are "forward-looking
statements" within the meaning of the Section 27A of the Securities Act of 1933,
as amended and Section 21E of the Exchange Act of 1934, as amended.
Specifically, all statements other than statements of historical fact included
in this Form 10-Q regarding the Company's financial position, business strategy
and plans and objectives of management of the Company for future operations are
forward-looking statements. These forward-looking statements are based on the
beliefs of the Company's management, as well as assumptions made by and
information currently available to the Company's management. When used in this
report, the words "anticipate," "believe," "estimate," "expect" and "intend" and
words or phrases of similar import, as they relate to the Company or its
subsidiaries or Company management, are intended to identify forward-looking
statements. Such statements reflect the current view of the Company with respect
to future events and are subject to certain risks, uncertainties and assumptions
related to certain factors including, without limitation, competitive factors,
general economic conditions, customer relations, relationships with vendors, the
interest rate environment, governmental regulation and supervision, seasonality,
distribution networks, product introductions and acceptance, technological
change, changes in industry practices, onetime events and other factors
described herein and in the Company's Registration Statement on Form S-1 (File
No. 333-3346) and in the Company's annual, quarterly and other reports filed
with the Securities and Exchange Commission (collectively, "cautionary
statements"). Although the Company believes that its expectations are
reasonable, it can give no assurance that such expectations will prove to be
correct. Based upon changing conditions, should any one or more of these risks
or uncertainties materialize, or should any underlying assumptions prove
incorrect, actual results may vary materially from those described herein as
anticipated, believed, estimated, expected, or intended. All subsequent written
and oral forward-looking statements attributable to the Company or persons
acting on its behalf are expressly qualified in their entirety by the applicable
cautionary statements. The Company does not intend to update these
forward-looking statements.
The following comments should be read in conjunction with the Company's
consolidated financial statements and related notes included elsewhere in this
Quarterly Report on Form 10-Q.
GENERAL
Rush Enterprises, Inc. was incorporated in Texas in 1965 and currently
consists of two reportable segments: the Heavy Duty Truck segment, and the
Construction Equipment segment.
The Heavy Duty Truck segment operates a regional network of truck
centers that provide an integrated one-stop source for the trucking needs of its
customers, including retail sales of new Peterbilt and used heavy-duty trucks;
after-market parts, service and body shop facilities; and a wide array of
financial services, including the financing of new and used truck purchases,
insurance products and truck leasing and rentals. The Company's truck centers
are strategically located in high truck traffic areas on or near major highways
in Texas, California, Oklahoma, Colorado and Louisiana. The Company is the
largest Peterbilt truck dealer in the United States, representing approximately
14.7% of all new Peterbilt truck sales in 1997, and is the sole authorized
vendor for new Peterbilt trucks and replacement parts in its market areas. The
Company was named Peterbilt Dealer of the Year for North America for the
1993-1994 year. The criteria used to determine the recipients of this award
include, among others, image, customer satisfaction, sales activity and
profitability.
The Construction Equipment segment, formed during 1997, operates a
full-service John Deere dealership (the "Rush Equipment Center") that serves the
Houston, Texas Metropolitan and surrounding areas. Dealership operations include
the retail sale of new and used construction equipment, after-market parts and
service facilities, equipment rentals, and the financing of new and used
construction equipment. The Company believes the construction equipment industry
is highly-fragmented and offers opportunities for consolidation. As a result,
the Company's growth strategy is to realize economies of scale, favorable
9
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purchasing power, and cost savings by developing a network of John Deere
dealerships through acquisitions and growth inside existing territories. The
Company currently operates two construction equipment dealerships in Houston,
and Beaumont, Texas and has recently signed a Definitive Purchase Agreement to
acquire three dealerships in western Michigan. There can be no assurance that
the Company will be able to successfully develop a network of construction
equipment dealerships or, if such network of construction equipment dealerships
is established, that it will realize economies of scale, favorable purchasing
power or cost savings.
In March 1997, the Company acquired the assets of Denver Peterbilt,
Inc., which consisted of two full service Peterbilt dealerships in Denver and
Greeley, Colorado. The purchase price was approximately $7.9 million, funded by
cash and borrowings under the Company's floor plan financing arrangement.
In September 1997, the Company opened a Rush Truck Center in Pharr,
Texas. This full-service Peterbilt dealership serves the Texas Rio Grande Valley
area.
In October 1997, the Company acquired certain assets and assumed
certain liabilities from C. Jim Stewart & Stevenson, Inc., which consisted of
its full service John Deere construction equipment dealership serving the
Houston, Texas metropolitan and surrounding areas. The purchase price was
approximately $30.2 million funded by cash, borrowings from various creditors,
and a note payable issued to the seller.
In March 1998, the Company acquired all of the outstanding capital
stock of D & D Farm and Ranch Supermarket, Inc. ("D & D"), for consideration of
approximately $10.5 million. D & D operates a retail farm and ranch superstore
in the San Antonio, Texas metropolitan and surrounding area.
RESULTS OF OPERATIONS
The following discussion and analysis includes the Company's historical
results of operations for the three and six months ended June 30, 1998 and 1997.
The following table sets forth for the periods indicated certain
financial data as a percentage of total revenues:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ------------------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
New and used truck sales 70.7% 75.0% 69.3 % 74.8 %
Parts and service 16.3 19.9 17.3 19.8
Construction equipment sales 6.0 -- 6.1 --
Lease and rental 2.5 3.6 3.1 3.7
Finance and insurance 1.8 1.1 1.8 1.2
Other 2.7 0.4 2.4 0.5
------ ------ ------ ------
Total revenues 100.0 100.0 100.0 100.0
Cost of products sold 84.0 84.9 83.5 84.5
------ ------ ------ ------
Gross profit 16.0 15.1 16.5 15.5
Selling, general and administrative expenses 11.6 12.2 12.5 12.6
Depreciation and amortization 0.7 0.8 0.7 0.8
------ ------ ------ ------
Operating income 3.7 2.1 3.3 2.1
Interest expense 1.0 0.5 1.0 0.5
------ ------ ------ ------
Income before income taxes 2.7 1.7 2.3 1.6
Provision for income taxes 1.1 0.6 0.9 0.6
------ ------ ------ ------
Net income 1.6% 1.0% 1.4% 1.0%
====== ====== ====== ======
</TABLE>
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THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997
Revenues
Revenues increased by approximately $70.2 million, or 73.3%, from $95.8
million to $166.0 million from the second quarter of 1997 to the second quarter
of 1998. Approximately, $21.6 million in sales is attributable to the addition
of the Pharr heavy-duty truck dealership, the John Deere construction equipment
dealership, and D & D Farm and Ranch Supermarket, while the remaining increase
of $48.6 million, or 50.7%, is attributable to same store growth. Sales of new
and used trucks increased by approximately $45.6 million, or 63.5%, from $71.8
million to $117.4 million from the second quarter of 1997 to the second quarter
of 1998. Unit sales of new and used trucks increased by 60.1% and 19.0%,
respectively, from the second quarter of 1997 to the second quarter of 1998,
while new truck average revenue per unit increased by 9.5% and used truck
average revenue per unit increased by 13.5%. Average new truck prices increased
due to a change in product mix and customary price increases. Used truck prices
increased due to product mix and increased demand for late model product.
Parts and service sales increased by approximately $8.0 million, or
42.1% from $19.0 million to $27.0 million . The increase was due to same store
growth of 30.4% and parts and service sales associated with the addition of the
Pharr heavy-duty truck dealership, and the John Deere construction equipment
dealership.
Lease and rental revenues increased by approximately $697,000, or
20.5%, from $3.4 million to $4.1 million. The increase was due to $378,000 of
lease and rental revenues generated by the John Deere dealership acquired in
October 1997, and same store growth in revenues of $319,000 or 9.4%.
Finance and insurance revenues increased by approximately $2.0 million,
or 200.0%, from $1.0 million to $3.0 million from the second quarter of 1997 to
the second quarter of 1998. The majority of the increase resulted from the
increase in new and used truck deliveries. Finance and insurance revenues have
limited direct costs and, therefore, contribute a disproportionate share of
operating profits.
Other income increased by approximately $4.0 million, or 1039.4%, from
$386,000 to $4.4 million from the second quarter of 1997 to the second quarter
of 1998. The increase is entirely due to the acquisition of D & D Farm and Ranch
Supermarket, Inc., in March 1998, which recorded sales of approximately $4.2
million during the second quarter of 1998.
Gross Profit
Gross profit increased by approximately $12.0 million, or 82.8%, from
$14.5 million to $26.5 million from the second quarter of 1997 to the second
quarter of 1998. Gross profit as a percentage of sales increased from 15.1% in
the second quarter of 1997 to 16.0% in the second quarter of 1998. The increase
in gross profit, as a percentage of sales, was a result of a change in sales
mix. Finance and insurance revenues increased as a percentage of sales, gross
margin percentages on used trucks, parts, service and body shop sales increased,
and Rush Equipment Center, the Company's John Deere dealership, achieved a gross
margin of 21.6%. These margin increases were offset by slight decreases in gross
margins on new trucks.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased by approximately
$7.6 million, from $11.7 million to $19.3 million, or 65.0%, from the second
quarter of 1997 to the second quarter of 1998. Selling, general and
administrative expenses as a percentage of revenue decreased from 12.2% in the
second quarter of 1997 to 11.6% in the second quarter of 1998. The changes in
selling, general and administrative expenses are due mainly to the large
increase in revenue in the second quarter of 1998.
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Interest Expense
Interest expense increased by approximately $1.1 million or 254.0%,
from $433,000 to $1.6 million, from the second quarter of 1997 to the second
quarter of 1998, primarily as the result of increased levels of indebtedness due
to higher floor plan liability levels and the refinancing of certain real
property owned by the Company during the fourth quarter of 1997.
Income before Income Taxes
Income before income taxes increased by $2.9 million, or 181.3%, from
$1.6 million to $4.5 million from the second quarter of 1997 to the second
quarter of 1998, as a result of the factors described above.
Income Taxes
The Company has provided for taxes at a 40% effective rate.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
Revenues
Revenues increased by approximately $113.4 million, or 63.5%, from
$178.7 million to $292.1 million from the first six months of 1997 to the first
six months of 1998. Sales of new and used trucks increased by approximately
$68.8 million, or 51.5%, from $133.6 million to $202.4 million from the first
six months of 1997 to the first six months of 1998. Unit sales of new and used
trucks increased by 43.5% and 26.4%, respectively, from the first six months of
1997 to the first six months of 1998, while new and used truck average revenue
per unit increased by 8.2% and 17.6%, respectively . Average new truck prices
increased due to a change in product mix and customary price increases. Used
truck prices increased due to product mix and increased demand for late model
products.
Parts and service sales increased by approximately $15.0 million, or
42.4%, from $35.4 million to $50.4 million. The increase was due to incentive
pay plans implemented in the parts departments and the expansion of our outside
parts sales force. The increase consisted of same store growth of $7.5 million
or 21.2% and parts and service sales associated with addition of the Pharr
heavy-duty truck dealership and the John Deere construction equipment
dealership.
Lease and rental revenues increased by approximately $2.3 million, or
34.3% from $6.7 million to $9.0 million. The increase was due to $1.6 million of
lease and rental revenues generated by the John Deere dealership acquired in
October 1997, and same store growth in revenues of $715,000 or 10.7%.
Finance and insurance revenues increased by approximately $3.3 million,
or 157.1%, from $2.1 million to $5.4 million from the first six months of 1997
to the first six months of 1998. The majority of the increase resulted from the
increase in new and used truck deliveries. Finance and insurance revenues have
limited direct costs and, therefore, contribute a disproportionate share of
operating profits.
Other income increased by approximately $6.0 million, or 600%, from
$1.0 million to $7.0 million from the first six months of 1997 to the first six
months of 1998. The increase was primarily due to the acquisition of D & D Farm
and Ranch Supermarket, Inc., in March 1998, which recorded sales of
approximately $5.6 million during the first six months of 1998.
12
<PAGE> 13
Gross Profit
Gross profit increased by approximately $20.6 million, or 74.6%, from
$27.6 million to $48.2 million from the first six months of 1997 to the first
six months of 1998. Gross profit as a percentage of sales increased from 15.5%
to 16.5% from the first six months of 1997 to the first six months of 1998. The
increase in gross profit as a percentage of sales was a result of a change in
sales mix. Finance and insurance revenues increased as a percentage of sales,
gross margin percentages on used trucks, parts, service and body shop sales
increased, and Rush Equipment Center achieved a gross margin of 20.6%. These
margin increases were offset by slight decreases in gross margins on new trucks.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased by approximately
$14.0 million, from $22.5 million to $36.5 million, or 62.2%, from the first six
months of 1997 to the first six months of 1998. The increase resulted from
approximately $6.4 million of selling, general and administrative expenses
related to the acquisition and integration of Denver Peterbilt Inc., the newly
opened Pharr heavy-duty truck dealership, the John Deere construction equipment
dealership, and D & D Farm and Ranch Supermarket, Inc.. Additionally,
commissions increased due to increased gross margins. Selling, general and
administrative expenses as a percentage of revenue decreased from 12.6% in the
first six months of 1997 to 12.5% in the first six months of 1998.
Interest Expense
Interest expense increased by approximately $1.9 million from $923,000
to $2.9 million, or 205.9%, from the first six months of 1997 to the first six
months of 1998, primarily as the result of increased levels of indebtedness due
to higher floor plan liability levels and the refinancing of certain real
property owned by the Company during the fourth quarter of 1997.
Income before Income Taxes
Income before income taxes increased by $3.9 million, or 134.5% from
$2.9 million to $6.8 million from the first six months of 1997 to the first six
months of 1998, as a result of the factors described above.
Income Taxes
The Company has provided for taxes at a 40% effective rate.
LIQUIDITY AND CAPITAL RESOURCES
The Company's short-term cash needs are primarily for working capital,
including inventory requirements, expansion of existing facilities and
acquisitions. These short-term cash needs have historically been financed with
retained earnings and borrowings under credit facilities available to the
Company.
In June 1996, the Company completed an initial public offering of
2,875,000 shares of common stock and received net proceeds of approximately
$32.1 million.
As a result of the initial public offering, working capital levels have
generally increased. At June 30, 1998, the Company had working capital of
approximately $19.8 million, including $25.8 million in cash and cash
equivalents, $18.8 million in accounts receivable, $84.6 million in inventories,
and $648,000 in prepaid expenses, less $20.9 million of accounts payable and
accrued expenses, $5.0 million of current maturities on long-term debt, $10.6
million in a note payable to a shareholder, and $73.6 million outstanding under
floor plan financing. The aggregate maximum borrowing limits under working
capital lines of credit with various lending institutions are approximately $8.0
million. The Company's floor plan agreements with its primary lender limit the
aggregate amount of borrowings based on the number of new and used trucks and
the book value of construction equipment inventory.
13
<PAGE> 14
For the first six months of 1998, operating activities used $2.5
million of cash. Net income of $4.1 million, a decrease in accounts receivable
of $2.8 million, an increase in accrued expenses of $2.7 million and provisions
for depreciation, amortization, and deferred taxes totaling $2.4 million was
more than offset by a decrease in other current assets of $260,000, and
increases in inventories of $13.4 million and accounts payable of $817,000.
For the first six months of 1997, operating activities provided $10.1
million of cash. Operating increases included net income of $1.8 million,
decreases in accounts receivable, inventories and other assets of $4.9 million,
$4.3 million, and $924,000 respectively, and increases in depreciation and
amortization and accounts payable of $1.3 million and $896,000 respectively.
Operating decreases resulted from decreases in the provision for deferred income
tax liability and accrued liabilities of $1.0 million and $2.9 million
respectively.
During the first six months of 1998, the Company used $12.8 million for
investing activities, primarily due to property and equipment additions and the
acquisition of D & D Farm and Ranch Supermarket, Inc.
During the first six months of 1997, the Company used $11.0 million for
investing activities, primarily due to the acquisition of Denver Peterbilt,
Inc., and property and equipment additions.
For the first half of 1998, net cash provided by financing activities
amounted to $21.4 million. Increases in notes payable and floor plan liability
of $14.1 million and $10.3 million, respectively, more than offset principal
payments on notes payable of $3.0 million.
For the first half of 1997, net cash used in financing activities
amounted to $5.5 million. Payments on floor plan financing and principal on
notes payable more than offset the increase in notes payable.
Substantially all of the Company's truck purchases from PACCAR are made
on terms requiring payment within 15 days or less from the date of shipment from
the factory. The Company finances all, or substantially all, of the purchase
price of its new truck inventory, and 75% of the loan value of its used truck
inventory, under a floor plan arrangement with GMAC under which GMAC pays PACCAR
directly with respect to new trucks. The Company makes monthly interest payments
on the amount financed but is not required to commence loan principal repayments
to GMAC prior to the sale of new vehicles for a period of 12 months and for used
vehicles for a period of three months. At June 30, 1998, the Company had
approximately $49.4 million outstanding under its floor plan financing
arrangement with GMAC. GMAC permits the Company to earn, for up to 62.5% of the
amount borrowed under its floor plan financing arrangement with GMAC, interest
at the prime rate less one-half percent on overnight funds deposited by the
Company with GMAC.
The Company finances all, or substantially all, of the purchase price
of its new construction equipment inventory under its floor plan facilities with
John Deere and Associates Commercial Corp.. The agreement with John Deere
provides for an immediate 3% discount if the equipment is paid for within 30
days from the date of purchase, or interest free financing for five months,
after which time the amount financed is required to be paid in full. When the
equipment is sold prior to the expiration of the five month period, the Company
is required to repay the principal within approximately 15 days of date of the
sale. Should the equipment financed by John Deere not be sold within the five
month period, such financing is transferred to the Associates Commercial Corp.
floor plan arrangement. The Company makes principal payments to Associates
Commercial Corp., for sold inventory, and interest payments for all inventory,
on the 15th day of each month. Used and rental equipment, to a maximum of book
value, is financed under a floor plan arrangement with Associates Commercial
Corp. The Company makes monthly interest payments on the amount financed and is
required to commence loan principal repayments on rental equipment as book value
reduces. Principal payments, for sold inventory, on used equipment are made the
15th day of each month following the sale. The loans are collateralized by a
lien on the equipment. The Company's floor plan agreements limit the aggregate
amount of borrowings based on the book value of new and used equipment units. As
of June 30, 1998, the Company's floor plan arrangement with Associates
Commercial Corp. permits the financing with Associates Commercial Corp. of up to
$25 million in construction equipment. At June 30, 1998, the Company had $5.2
million and $19.0 million, outstanding under its floor plan financing
arrangements with John Deere and Associates Commercial Corp., respectively.
14
<PAGE> 15
Backlogs
The Company enters firm orders into its backlog at the time the order
is received. Currently, customer orders are being filled in approximately six to
nine months and customers have historically placed orders expecting delivery
within three to six months. However, certain customers, including fleets and
governments, typically place orders up to one year in advance of their desired
delivery date. Certain employees of the Company's supplier of new Peterbilt
trucks, commenced a work stoppage in May 1998 and were subsequently replaced by
new, non-union workers by such supplier. At June 30, 1998, such labor relations
issues of such supplier have had no effect on the Company's business, financial
condition, or results of operations. Such supplier has advised the company that
it does not anticipate its labor relations to cause a material adverse effect on
the Company's business, operations or financial condition. However, no
assurances can be made that future developments in this matter, which are beyond
the control of the Company, will not occur and which could have a material
adverse effect on the Company's business, financial condition and results of
operations. The Company in the past has typically allowed customers to cancel
orders at any time prior to delivery, and the Company's level of cancellations
is affected by general economic conditions, economic recessions and customer
business cycles. As a percentage of orders, cancellations historically have
ranged from 5% to 12% of annual order volume. The Company's backlogs as of June
30, 1998, and 1997, were approximately $175 million and $113.0 million,
respectively. Backlogs increased principally due to increased order volume at
June 30, 1998, compared to June 30, 1997.
Seasonality
The Company's heavy-duty truck business is moderately seasonal.
Seasonal effects on new truck sales related to the seasonal purchasing patterns
of any single customer type are mitigated by the Company's diverse customer
base, which includes small and large fleets, governments, corporations and owner
operators. However, truck, parts and service operations historically have
experienced higher volumes of sales in the second and third quarters. The
Company has historically received benefits from volume purchases and meeting
vendor sales targets in the form of cash rebates, which are typically recognized
when received. Approximately 40% of such rebates are typically received in the
fourth quarter, resulting in a seasonal increase in gross profit.
Seasonal effects in the construction equipment business are primarily
driven by weather conditions. As the Rush Equipment Center is located in
Houston, Texas, where winters are mild, seasonality currently does not have a
material effect on the Company's construction equipment segment. Additionally,
any seasonal effects, on construction equipment sales related to the seasonal
purchasing patterns of any single customer type are mitigated by the Company's
diverse customer base that includes contractors, for both residential and
commercial construction, utility companies, federal, state and local government
agencies, and various petrochemical, industrial and material supply type
businesses that require construction equipment in their daily operations.
Cyclicality
The Company's business, as well as the entire retail heavy-duty truck
and construction equipment industries, are dependent on a number of factors
relating to general economic conditions, including fuel prices, interest rate
fluctuations, economic recessions and customer business cycles. In addition,
unit sales of new trucks and construction equipment have historically been
subject to substantial cyclical variation based on such general economic
conditions. Although the Company believes that its geographic expansion and
diversification into truck and construction equipment related services,
including financial services, leasing, rentals and service and parts, will
reduce the overall impact to the Company resulting from general economic
conditions affecting heavy-duty truck sales, the Company's operations may be
materially and adversely affected by any continuation or renewal of general
downward economic pressures or adverse cyclical trends.
15
<PAGE> 16
Effects of Inflation
The Company believes that the relatively moderate inflation over the
last few years has not had a significant impact on the Company's revenue or
profitability. The Company does not expect inflation to have any near-term
material effect on the sales of its products, although there can be no assurance
that such an effect will not occur in the future.
Year 2000
The efficient operation of the Company's business is dependent on its
computer software programs and operating systems (collectively, "Programs and
Systems"). These Programs and Systems are used in several key areas of the
Company's business, including information management services and financial
reporting, as well as in various administrative functions. The Company has been
evaluating its Programs and Systems to identify potential year 2000 compliance
problems, as well as manual processes, external interfaces with customers, and
services supplied by vendors to coordinate year 2000 compliance and conversion.
The year 2000 problem refers to the limitations of the programming code in
certain existing software programs to recognize date sensitive information for
the year 2000 and beyond. Unless modified prior to the year 2000, such systems
may not properly recognize such information and could generate erroneous data or
cause a system to fail to operate properly.
Based on current information, the Company expects to attain year 2000
compliance and institute appropriate testing of its modifications and
replacements in a timely fashion and in advance of the year 2000 date change. It
is anticipated that modification or replacement of the Company's Programs and
Systems will be performed by Company and/or contract personnel. The Company
believes that, with modifications to existing software and conversions to new
software, the year 2000 problem will not pose a significant operational problem
for the Company. However, because most computer systems are, by their very
nature, interdependent, it is possible that non-compliant third party computers
may not interface properly with the Company's computer systems. The Company
could be adversely affected by the year 2000 problem if it or unrelated parties
fail to successfully address this issue. Management of the Company currently
anticipates that the expenses and capital expenditures associated with its year
2000 compliance project, including costs associated with modifying the Programs
and Systems as well as the cost of purchasing or leasing certain hardware and
software, will not have a material effect on its business, financial position or
results of operations and are expenses and capital expenditures the Company
anticipated incurring in the ordinary course of business regardless of the year
2000 problem. Purchased hardware and software has been and will continue to be
capitalized in accordance with normal accounting policy. Personnel and other
costs related to this process are being expensed as incurred.
The costs of year 2000 compliance and the expected completion dates are
the best estimates of Company management and are believed to be reasonably
accurate. In the event the Company's plan to address the year 2000 problem is
not successfully or timely implemented, the Company may need to devote more
resources to the process and additional costs may be incurred, which could have
a material adverse effect on the Company's financial condition and results of
operations. Problems encountered by the Company's vendors, customers and other
third parties also may have a material adverse effect on the Company's financial
condition and results of operations.
In the event the Company determines following the year 2000 date change
that its Programs and Systems are not year 2000 compliant, the Company will
likely experience considerable delays in processing customer orders and
invoices, compiling information required for financial reporting and performing
various administrative functions. In the event of such occurrence, the Company's
contingency plans call for it to switch vendors to obtain hardware and/or
software that is 2000 compliant, and until such hardware and/or software can be
obtained, the Company will plan to use non-computer systems for its business,
including information management services and financial reporting, as well as
its various administrative functions.
16
<PAGE> 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable
Item 2. Changes in Securities
Not Applicable
Item 3. Defaults upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Shareholders was held on May 20,
1998.
(b) The following directors were elected to serve until the
next Annual Meeting of Shareholders on until their
successors have been elected and qualified:
W. Marvin Rush W.M. "Rusty" Rush
Robin M. Rush Joseph M. Dunn
Ronald J. Krause John D. Rock
(c) (1) The director's in (b) above were elected by the
following number of votes:
<TABLE>
<CAPTION>
NAME NUMBER OF VOTES NUMBER OF VOTES WITHHELD
---- --------------- ------------------------
<S> <C> <C>
W. Marvin Rush 6,123,986 3,684
W.M. "Rusty" Rush 6,124,464 3,206
Robin M. Rush 6,124,464 3,206
Ronald J. Krause 6,124,464 3,206
John D. Rock 6,124,464 3,206
Joseph M. Dunn 6,124,364 3,306
</TABLE>
(2) The proposal to approve the adoption of the Company's
Long Term Incentive Plan (the "Plan"), as amended,
was approved as 5,483,824 shares of Common Stock were
voted "For", 627,546 shares of Common Stock were
voted "Against", 5,900 shares of Common Stock
abstained from voting and 10,400 shares of Common
Stock were unvoted.
(3) Of the 6,116,270 number of shares of Common Stock
voting at the meeting, 6,106,910 shares voted for the
ratification of the appointment of the firm Arthur
Andersen L.L.P. as the Company's independent
accountants for 1998. The number of shares that voted
against the ratification was 1,100, the holders of
8,260 shares abstained from the voting, and 11,400
shares were unvoted.
Item 5. Other Information
Not Applicable
17
<PAGE> 18
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number
-------
<S> <C>
10.1* Employment agreement, dated April 1, 1998,
between Daryl J. Gorup and Rush
Administrative Services, Inc.
10.2* Employment agreement, dated June 12, 1996,
between Brent Hughes and Rush Administrative
Services, Inc.
10.3* Employment agreement, dated June 12, 1996,
between David C. Orf and Rush Administrative
Services, Inc.
27.1* Financial data schedule
* Filed herewith
</TABLE>
b) Reports on Form 8-K
None
18
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
RUSH ENTERPRISES, INC.
Date: August 13, 1998 By: /s/ W. MARVIN RUSH
---------------------------------------
Name: W. Marvin Rush
Title: Chairman and Chief Executive Officer
(Principal Executive Officer)
Date: August 13, 1998 By: /s/ Martin A. Naegelin, Jr.
---------------------------------------
Name: Martin A. Naegelin, Jr.
Title: Vice President and Chief Financial
Officer (Principal Financial and
Accounting Officer)
19
<PAGE> 20
Exhibit Index
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
10.1* Employment agreement, dated April 1, 1998, between Daryl J. Gorup
and Rush Administrative Services, Inc.
10.2* Employment agreement, dated June 12, 1996, between Brent Hughes
and Rush Administrative Services, Inc.
10.3* Employment agreement, dated June 12, 1996, between David C. Orf
and Rush Administrative Services, Inc.
27.1* Financial data schedule
</TABLE>
* Filed herewith
<PAGE> 1
EXHIBIT 10.1
DISPUTES RELATING TO THIS AGREEMENT ARE REQUIRED TO BE SETTLED
PURSUANT TO CERTAIN DISPUTE RESOLUTION PROCEDURES AS PROVIDED IN
ARTICLE 7 AND APPENDIX A OF THIS AGREEMENT.
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is entered into effective
as of the 1st day of April 1998, between Daryl J. Gorup ("Employee"), and Rush
Administrative Services, Inc., a Delaware corporation (the "Company"), whose
principal executive offices are located in San Antonio, Texas.
WHEREAS, the Company desires to employ Employee, and Employee desires
to be employed by the Company, on terms hereinafter set forth;
NOW, THEREFORE, in consideration for the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE 1
DUTIES
1.1 Employment. During the term of this Agreement, the Company
agrees to employ Employee, and Employee accepts such employment, on the terms
and conditions set forth in this Agreement.
1.2 Extent of Service. During the term of this Agreement,
Employee shall devote his or her full-time business time, energy and skill to
the affairs of the Company and its affiliated companies, and Employee shall not
be engaged in any other business or consulting activities pursued for gain,
profit or other pecuniary advantage, except for Employee's medical or clinical
practice activities or related educational activities which do not, in the
aggregate, interfere with the performance of Employee's duties hereunder. The
foregoing shall not prevent Employee from making monetary investments in
businesses, provided that such investments do not involve any services on the
part of Employee in the operation or affairs of such businesses.
1.3 Duties. Employee's duties hereunder shall include such duties
as may be prescribed from time to time by Employee's supervisors or the Board
of Directors of the Company (the "Board"). Employee shall also perform,
without additional compensation, such duties for the Company's affiliated
companies.
1.4 Access to and Use of Proprietary Information. Employee
recognizes and the Company agrees that, to assist Employee in the performance
of his or her duties hereunder, Employee will be provided access to and limited
use of proprietary and confidential information of the Company. Employee
further recognizes that, as a part of his or her employment with the Company,
Employee will benefit from and Employee's qualifications will be enhanced by
additional training, education and experience which will be provided to
Employee by the Company directly and/or as a
<PAGE> 2
result of work projects assigned by the Company in which proprietary and
confidential information of the Company is utilized by Employee.
ARTICLE 2
TERM OF EMPLOYMENT
The term of this Agreement shall commence on the date hereof and
continue until terminated pursuant to Article 4 hereof.
ARTICLE 3
COMPENSATION
3.1 Monthly Base Salary. As compensation for services rendered
under this Agreement, Employee shall be entitled to receive from the Company a
monthly base salary (before standard deductions) equal to $15,000, subject to
periodic review and upward adjustment by the Board in its sole discretion
(downward adjustment shall not be permitted). Employee's monthly base salary
shall be payable at regular intervals (at least semi-monthly) in accordance
with the prevailing practice and policy of the Company.
3.2 Discretionary Performance Bonus. As additional compensation
for services rendered under this Agreement, Employee shall also be eligible to
receive a discretionary performance bonus if, as and when declared by the Board
in its sole discretion.
3.3 Benefits. Employee shall, in addition to the compensation
provided for herein, be entitled to the following additional benefits:
(a) Medical, Health and Disability Benefits. Employee
shall be entitled to receive all medical, health and disability
benefits that may, from time to time, be provided by the Company to
all employees of the Company as a group.
(b) Other Benefits. Employee shall also be entitled to
receive any other benefits that may, from time to time, be provided by
the Company to all employees of Company as a group.
(c) Vacation. Employee shall be entitled to an annual
vacation as determined in accordance with the prevailing practice and
policy of the Company.
(d) Holidays. Employee shall be entitled to holidays in
accordance with the prevailing practice and policy of the Company.
(e) Reimbursement of Expenses. The Company shall
reimburse Employee for all expenses reasonably incurred by Employee in
conjunction with the rendering of services at the Company's request,
provided that such expenses are incurred in accordance with the
prevailing practice and policy of the Company and are properly
deductible by the Company for federal income tax purposes. As a
condition to such reimbursement, Employee shall submit an
-2-
<PAGE> 3
itemized accounting of such expenses in reasonable detail, including
receipts where required under federal income tax laws.
(f) Annual Physical. Employee shall be entitled to
receive an annual physical, which shall be paid for by the Company on
Employee's behalf.
ARTICLE 4
TERMINATION
4.1 Termination With Notice. This Agreement may be terminated by
the Company, without cause, upon 12 months' prior written notice thereof given
by the Company to Employee. In the event of termination pursuant to this
Section 4.1, the Company shall pay Employee his or her monthly base salary
(subject to standard deductions) earned pro rata to the date of such
termination and the Company shall have no further obligations to Employee
hereunder. Notwithstanding the foregoing, in lieu of continuing the employment
of Employee for a period of 12 months after notice of termination is given
under this Section 4.1, the Company may, in its sole discretion, elect to
terminate this Agreement immediately and pay Employee a lump-sum equal to (a)
Employee's monthly base salary (subject to standard deductions) for the month
of termination earned pro rata to the date of such notification of termination,
plus (b) 12 months of Employee's then effective base salary (subject to
standard deductions), plus (c) an amount equal to (subject to standard
deductions) a percentage of the bonus received by Employee in connection with
services rendered during the calendar year immediately preceding the date of
termination (without regard to the year in which actual payment of such bonus
is made), with such percentage being (i) 0% if Employee has been employed by
the Company on a continuous basis for less than three years, (ii) 16.67% if the
Employee has been employed by the Company on a continuous basis for at least
three years but less than four years, (iii) 33.34% if Employee has been
employed by the Company on a continuous basis for at least four years but less
than five years, and (iv) 50% if Employee has been employed by the Company on a
continuous basis for five or more years. Continuous service as described in
the previous sentence shall include all continuous service to the Company,
whether provided before or after the date of this Agreement, as determined in
the sole discretion of the Company. In addition, Employee shall be entitled to
continue to be covered under the Company's group health insurance program
pursuant to benefit continuation as prescribed in the Consolidated Omnibus
Budget Reconciliation Act ("COBRA"). Such COBRA benefits shall commence on the
date of termination and the Company shall pay, on Employee's behalf, any and
all costs associated with extending such group health benefits under COBRA for
a period of 12 months following the termination date. Upon payment of the
foregoing, the Company shall have no further obligations to Employee hereunder.
4.2 Termination For Cause. This Agreement may be terminated by
the Company for "Cause" (hereinafter defined) upon written notice thereof given
by the Company to Employee. In the event of termination pursuant to this
Section 4.2, the Company shall pay Employee his or her monthly base salary
(subject to standard deductions) earned pro rata to the date of such
termination and the Company shall have no further obligations to Employee
hereunder. The term "Cause" shall include, without limitation, the following,
as determined by the Board in its sole judgment: (i) Employee breaches any of
the terms of this Agreement; (ii) Employee is convicted of
-3-
<PAGE> 4
a felony; (iii) Employee fails, after at least one warning, to perform duties
assigned under this Agreement (other than a failure due to death or physical or
mental disability); (iv) Employee intentionally engages in conduct which is
demonstrably and materially injurious to the Company; (v) Employee commits
fraud or theft of personal or Company property from Company premises; (vi)
Employee falsifies Company documents or records; (vii) Employee engages in acts
of gross carelessness or willful negligence to endanger life or property on
Company premises; (viii) Employee uses, distributes or is under the influence
of illegal drugs, alcohol or any other intoxicant on Company premises; (ix)
Employee possesses or stores hand guns on Company premises; or (x) Employee
intentionally violates state, federal or local laws and regulations.
4.3 Termination Upon Death or Disability. In the event that
Employee dies, this Agreement shall terminate upon Employee's death. Likewise,
if Employee becomes unable to perform the essential functions of his or her
duties hereunder, with or without reasonable accommodation, on account of
illness, disability or other reason whatsoever for a period of more than 180
consecutive or nonconsecutive days in any 12-month period, the Company may,
upon notice to Employee, terminate this Agreement. In the event of termination
pursuant to this Section 4.3, Employee (or his or her legal representatives)
shall be entitled only to his or her monthly base salary earned pro rata for
services actually rendered prior to the date of such termination; provided,
however, Employee shall not be entitled to his or her monthly base salary for
any period with respect to which Employee has received short-term or long-term
disability benefits under employee benefit plans maintained from time to time
by the Company.
4.4 Survival of Provisions. The covenants and provisions of
Articles 5, 6 and 7 hereof shall survive any termination of this Agreement and
continue for the periods indicated, regardless of how such termination may be
brought about.
ARTICLE 5
PROPRIETARY PROPERTY; CONFIDENTIAL INFORMATION
5.1 Proprietary Property; Confidential Information. Employee
acknowledges that in and as a result of Employee's employment hereunder,
Employee will be making use of, acquiring and/or adding to confidential
information and proprietary property of a special and unique nature and value
relating to such matters as the Company's trade secrets, systems, procedures,
manuals, confidential reports and lists of customers ("Confidential
Information"). As a material inducement to the Company to enter into this
Agreement and to pay to Employee the compensation and benefits stated herein,
the Employee covenants and agrees that Employee shall not, at any time during
or following the term of Employee's employment, directly or indirectly, divulge
or disclose for any purpose whatsoever any Confidential Information or
proprietary information of the Company. Upon termination of this Agreement,
regardless of how such termination may be brought about, Employee shall deliver
to the Company any and all documents, instruments, notes, papers or other
expressions or embodiments of confidential information which are in Employee's
possession or control.
5.2 Publicity. During the term of this Agreement and for a period
of ten years thereafter, Employee shall not, directly or indirectly, originate
or participate in the
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<PAGE> 5
origination of any publicity, news release or other public announcements,
written or oral, whether to the public press or otherwise, relating to this
Agreement, to any amendment hereto, to Employee's employment hereunder or to
the Company, without the prior written approval of the Company.
ARTICLE 6
RESTRICTIVE COVENANTS
6.1 Non-Competition. In consideration of the benefits of this
Agreement, including Employee's access to and limited use of proprietary and
confidential information of the Company, as well as training, education and
experience provided to Employee by the Company directly and/or as a result of
work projects assigned by the Company with respect thereto, Employee hereby
covenants and agrees that during the term of this Agreement and for a period of
12 months following termination of this Agreement, regardless of how such
termination may be brought about, Employee shall not, directly or indirectly,
as proprietor, partner, stockholder, director, officer, employee, consultant,
joint venturer, investor or in any other capacity, engage in, or own, manage,
operate or control, or participate in the ownership, management, operation or
control, of any entity which engages in one of the Company's major geographical
or commercial markets in the business of selling, servicing, renting, leasing,
insuring or financing new or used Class 3 through 8 trucks or any other
business activity in which the Company participates during Employee's
employment with the Company; provided, however, the foregoing shall not, in any
event, prohibit Employee from purchasing and holding as an investment not more
than 1% of any class of publicly traded securities of any entity which conducts
a business in competition with the business of the Company, so long as Employee
does not participate in any way in the management, operation or control of such
entity. It is further recognized and agreed that, even though an activity may
not be restricted under the foregoing provision, Employee shall not during the
term of this Agreement and for a period of 12 months following termination of
this Agreement, regardless of how such termination may be brought about,
provide any services to any person or entity which may be used against, or in
conflict with the interests of, the Company or its customers or clients.
6.2 Judicial Reformation. Employee acknowledges that, given the
nature of the Company's business, the covenants contained in Section 6.1
establish reasonable limitations as to time, geographic area and scope of
activity to be restrained and do not impose a greater restraint than is
reasonably necessary to protect and preserve the goodwill of the Company's
business and to protect its legitimate business interests. If, however,
Section 6.1 is determined by any court of competent jurisdiction to be
unenforceable by reason of its extending for too long a period of time or over
too large a geographic area or by reason of it being too extensive in any other
respect or for any other reason, it will be interpreted to extend only over the
longest period of time for which it may be enforceable and/or over the largest
geographic area as to which it may be enforceable and/or to the maximum extent
in all other aspects as to which it may be enforceable, all as determined by
such court.
6.3 Customer Lists; Non-Solicitation. In consideration of the
benefits of this Agreement, including Employee's access to and limited use of
proprietary and confidential information of the Company, as well as training,
education and experience
-5-
<PAGE> 6
provided to Employee by the Company directly and/or as a result of work
projects assigned by the Company with respect thereto, Employee hereby further
covenants and agrees that for a period of 12 months following the termination
of this Agreement, regardless of how such termination may be brought about,
Employee shall not, directly or indirectly, (a) use or make known to any person
or entity the names or addresses of any clients or customers of the Company or
any other information pertaining to them, (b) call on, solicit, take away or
attempt to call on, solicit or take away any clients or customers of the
Company on whom Employee called or with whom he or she became acquainted during
his or her employment with the Company, nor (c) recruit, hire or attempt to
recruit or hire any employees of the Company.
ARTICLE 7
ARBITRATION
Except for the provisions of Articles 5 and 6 of this Agreement
dealing with proprietary property, confidential information and restrictive
covenants, with respect to which the Company expressly reserves the right to
petition a court directly for injunctive and other relief, any claim, dispute
or controversy of any nature whatsoever, including but not limited to tort
claims or contract disputes between the parties to this Agreement or their
respective heirs, executors, administrators, legal representatives, successors
and assigns, as applicable, arising out of or related to Employee's employment
or the terms and conditions of this Agreement, including the implementation,
applicability or interpretation thereof, shall be resolved in accordance with
the dispute resolution procedures set forth in Appendix A attached hereto and
made a part hereof.
ARTICLE 8
MISCELLANEOUS
8.1 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed to have been duly given if delivered
personally, mailed by certified mail (return receipt requested) or sent by an
overnight delivery service with tracking procedures or by facsimile to the
parties at the following addresses or at such other addresses as shall be
specified by the parties by like notice: If to Employee, at the address set
forth below his or her name on the signature page hereof; and if to the
Company, at 8810 I.H. 10 East, San Antonio, Texas 78219, Attention: Chairman of
the Board and Chief Executive Officer.
8.2 Equitable Relief. In the event of a breach or a threatened
breach by Employee of any of the provisions contained in Article 5 or 6 of this
Agreement, Employee acknowledges that the Company will suffer irreparable
injury not fully compensable by money damages and, therefore, will not have an
adequate remedy available at law. Accordingly, the Company shall be entitled
to obtain such injunctive relief or other equitable remedy from any court of
competent jurisdiction as may be necessary or appropriate to prevent or curtail
any such breach, threatened or actual. The foregoing shall be in addition to
and without prejudice to any other rights that the Company may have under this
Agreement, at law or in equity, including, without limitation, the right to sue
for damages.
-6-
<PAGE> 7
8.3 No Rights in Contracts. Employee acknowledges and agrees that
he or she shall not have any rights in or to any contracts entered into with
clients or customers of the Company in connection with services provided by
Employee hereunder (including those in which Employee may be specifically named
with the Company), unless otherwise agreed to in writing by the Company.
8.4 Assignment. The rights and obligations of the Company under
this Agreement shall inure to the benefit of and shall be binding upon the
successors and assigns of the Company. Employee's rights under this Agreement
are not assignable and any attempted assignment thereof shall be null and void.
8.5 Governing Law; Venue. This Agreement shall be subject to and
governed by the laws of the State of Texas. Non-exclusive venue for any action
permitted hereunder shall be proper in San Antonio, Bexar County, Texas, and
Employee hereby consents to such venue.
8.6 Entire Agreement; Amendments. This Agreement constitutes the
entire agreement between the parties and supersedes all other agreements
between the parties which may relate to the subject matter contained in this
Agreement. This Agreement may not be amended or modified except by an
agreement in writing which refers to this Agreement and is signed by both
parties.
8.7 Headings. The headings of sections and subsections of this
Agreement are for convenience only and shall not in any way affect the
interpretation of any provision of this Agreement or of the Agreement itself.
8.8 Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law. If any provision of this Agreement shall be prohibited
by 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 the remaining provisions of this Agreement.
8.9 Waiver. The waiver by any party of a breach of any provision
hereof shall not be deemed to constitute the waiver of any prior or subsequent
breach of the same provision or any other provisions hereof. Further, the
failure of any party to insist upon strict adherence to any term of this
Agreement on one or more occasions shall not be considered a waiver or deprive
that party of the right thereafter to insist upon strict adherence to that term
or any other term of this Agreement unless such party expressly waives such
provision pursuant to a written instrument which refers to this Agreement and
is signed by such party.
-7-
<PAGE> 8
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
RUSH ADMINISTRATIVE SERVICES, INC.
By:
----------------------------------------
W. Marvin Rush,
Chief Executive Officer
EMPLOYEE:
-------------------------------------------
Daryl J. Gorup
Address:
------------------------------
------------------------------
-8-
<PAGE> 9
APPENDIX A
DISPUTE RESOLUTION PROCEDURES
Re: Employment Agreement dated April 1, 1998 (including any
amendments, the "Agreement"), between Rush Administrative Services, Inc., a
Delaware corporation (the "Company"), and Daryl J. Gorup ("Employee"). Unless
otherwise defined in this Appendix A, terms defined in the Agreement and used
herein shall have the meanings set forth therein.
A. Negotiations. If any claim, dispute or controversy described in
Article 7 of the Agreement (collectively, the "Dispute") arises, either party
may, by written notice to the party, have the Dispute referred to the persons
designated below for attempted resolution by good faith negotiations within 45
days after such written notice is received. Such designated persons are as
follows:
1. Company. The Chairman of the Board and Chief Executive
officer or his designee; and
2. Employee. Employee or his or her designee.
Any settlement reached by the parties under this paragraph A shall not be
binding until reduced to writing and signed by both parties. When reduced to
writing, such settlement agreement shall supersede all other agreements,
written or oral, to the extent such agreements specifically pertain to the
matters so settled. If the above-designated persons are unable to resolve such
dispute within such 45-day period, either party may invoke the provisions of
paragraph B below.
B. Arbitration. All Disputes shall be settled by negotiation among
the parties as described in paragraph A above or, if such negotiation is
unsuccessful, by binding arbitration in accordance with procedures set forth in
paragraphs C and D below.
C. Notice. Notice of demand for binding arbitration by one party
shall be given in writing to the other party pursuant to the Agreement. In no
event may a notice of demand of any kind be filed more than one (1) year after
the date the Dispute is first asserted in writing to the other party pursuant
to paragraph A above, and if such demand is not timely filed, the Dispute
referenced in the notice given pursuant to paragraph A above shall be deemed
released, waived, barred and unenforceable for all time, and barred as if by
statute of limitations.
D. Binding Arbitration. Upon filing of a notice of demand for
binding arbitration by either party, arbitration shall be commenced and
conducted as follows:
1. Arbitrators. All Disputes and related matters in question
shall be referred to and decided and settled by a panel of three arbitrators,
one selected by the Company, one selected by Employee and the third selected by
the two arbitrators so selected. Selection of the arbitrators to be selected
the Company and Employee shall be made within ten (10) business days after the
date of giving of a notice of demand for
A-1
<PAGE> 10
arbitration, and the two arbitrators so appointed shall appoint the third
within 10 business days following their appointment.
2. Cost of Arbitration. The cost of arbitration proceedings,
including without limitation the arbitrators' compensation and expenses,
hearing room charges, court reporter transcript charges etc., shall be borne by
the parties equally or otherwise as the arbitrators may determine. The
arbitrators may award the prevailing party its reasonable attorneys' fees and
costs incurred in connection with the arbitration. The arbitrators are
specifically instructed to award attorneys' fees for instances of abuse in the
discovery process.
3. Location of Proceedings. The arbitration proceedings shall be
held in San Antonio, Texas, unless the parties agree otherwise.
4. Pre-hearing Discovery. The parties shall have the right to
conduct and enforce pre-hearing discovery in accordance with the then current
Federal Rules of Civil Procedure, subject to these limitations:
(a) Each party may serve no more than one set of
interrogatories limited to 30 questions, including sub-parts;
(b) Each party may depose the other party's expert
witnesses who will be called to testify at the hearing, plus two fact
witnesses without regard to whether they will be called to testify (each
party will be entitled to a total of no more than 24 hours of deposition
time of the other party's witnesses), provided however, that the
arbitrators may provide for additional depositions upon showing of good
cause; and
(c) Document discovery and other discovery shall be under
the control of and enforceable by the arbitrators.
5. Discovery disputes. All discovery disputes shall be decided
by the arbitrators. The arbitrators are empowered;
(a) to issue subpoenas to compel pre-hearing document or
deposition discovery;
(b) to enforce the discovery rights and obligations of the
parties; and
(c) to otherwise to control the scheduling and conduct of
the proceedings.
Notwithstanding any contrary foregoing provisions, the arbitrators shall have
the power and authority to, and to the fullest extent practicable shall,
abbreviate arbitration discovery in a manner which is fair to all parties in
order to expedite the conclusion of each alternative dispute resolution
proceeding.
6. Pre-hearing Conference. Within fifteen (15) days after
selection of the third arbitrator, or as soon thereafter as is mutually
convenient to the arbitrators, the
A-2
<PAGE> 11
arbitrators shall hold a pre-hearing conference to establish schedules for
completion of discovery, for exchange of exhibit and witness lists, for
arbitration briefs and for the hearing, and to decide procedural matters and
address all other questions that may be presented.
7. Hearing Procedures. The hearing shall be conducted to
preserve its privacy and to allow reasonable procedural due process. Rules of
evidence need not be strictly followed, and the hearing shall be streamlined as
follows:
(a) Documents shall be self-authenticating, subject to
valid objection by the opposing party;
(b) Expert reports, witness biographies, depositions and
affidavits may be utilized, subject to the opponent's right of a live
cross-examination of the witness in person;
(c) Charts, graphs and summaries shall be utilized to
present voluminous data, provided (i) that the underlying data is made
available to the opposing party thirty (30) days prior to the hearing,
and (ii) that the preparer of each chart, graph or summary is available
for explanation and live cross-examination in person;
(d) The hearing should be held on consecutive business days
without interruption to the maximum extent practicable; and
(e) The arbitrators shall establish all other procedural
rules for the conduct of the arbitration in accordance with the rules of
arbitration of the Center for Public Resources.
8. Governing Law. This arbitration provision shall be governed
by, and all rights and obligations specifically enforceable under and pursuant
to, the Federal Arbitration Act (9 U.S.C. Section 1, et seq.)
9. Consolidation. No arbitration shall include, by
consolidation, joinder or in any other manner, any additional person not a
party to the Agreement, except by written consent of both parties containing a
specific reference to these provisions.
10. Award. The arbitrators are empowered to render an award of
general compensatory damages and equitable relief (including, without
limitations, injunctive relief), but are not empowered to award exemplary,
special or punitive damages. The award rendered by the arbitrators (a) shall
be final, (b) shall not constitute a basis for collateral estoppel as to any
issue and (c) shall not be subject to vacation or modification.
11. Confidentiality. The parties hereto will maintain the
substance of any proceedings hereunder in confidence and the arbitrators, prior
to any proceedings hereunder, will sign an agreement whereby the arbitrators
agree to keep the substance of any proceedings hereunder in confidence.
A-3
<PAGE> 1
EXHIBIT 10.2
DISPUTES RELATING TO THIS AGREEMENT ARE REQUIRED TO BE SETTLED
PURSUANT TO CERTAIN DISPUTE RESOLUTION PROCEDURES AS PROVIDED IN
ARTICLE 7 AND APPENDIX A OF THIS AGREEMENT.
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is entered into effective
as of the 12th day of June, 1996, between Brent Hughes ("Employee"), and Rush
Administrative Services, Inc., a Delaware corporation (the "Company"), whose
principal executive offices are located in San Antonio, Texas.
WHEREAS, the Company desires to employ Employee, and Employee desires
to be employed by the Company, on terms hereinafter set forth;
NOW, THEREFORE, in consideration for the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE 1
DUTIES
1.1 Employment. During the term of this Agreement, the Company
agrees to employ Employee, and Employee accepts such employment, on the terms
and conditions set forth in this Agreement.
1.2 Extent of Service. During the term of this Agreement,
Employee shall devote his or her full-time business time, energy and skill to
the affairs of the Company and its affiliated companies, and Employee shall not
be engaged in any other business or consulting activities pursued for gain,
profit or other pecuniary advantage, except for Employee's medical or clinical
practice activities or related educational activities which do not, in the
aggregate, interfere with the performance of Employee's duties hereunder. The
foregoing shall not prevent Employee from making monetary investments in
businesses, provided that such investments do not involve any services on the
part of Employee in the operation or affairs of such businesses.
1.3 Duties. Employee's duties hereunder shall include such duties
as may be prescribed from time to time by Employee's supervisors or the Board
of Directors of the Company (the "Board"). Employee shall also perform,
without additional compensation, such duties for the Company's affiliated
companies.
1.4 Access to and Use of Proprietary Information. Employee
recognizes and the Company agrees that, to assist Employee in the performance
of his or her duties hereunder, Employee will be provided access to and limited
use of proprietary and confidential information of the Company. Employee
further recognizes that, as a part
<PAGE> 2
of his or her employment with the Company, Employee will benefit from and
Employee's qualifications will be enhanced by additional training, education
and experience which will be provided to Employee by the Company directly
and/or as a result of work projects assigned by the Company in which
proprietary and confidential information of the Company is utilized by
Employee.
ARTICLE 2
TERM OF EMPLOYMENT
The term of this Agreement shall commence on the date hereof and
continue until terminated pursuant to Article 4 hereof.
ARTICLE 3
COMPENSATION
3.1 Monthly Base Salary. As compensation for services rendered
under this Agreement, Employee shall be entitled to receive from the Company a
monthly base salary (before standard deductions) equal to $131,400, subject to
periodic review and adjustment by the Board in its sole discretion. Employee's
monthly base salary shall be payable at regular intervals (at least
semi-monthly) in accordance with the prevailing practice and policy of the
Company.
3.2 Discretionary Performance Bonus. As additional compensation
for services rendered under this Agreement, Employee shall also be eligible to
receive a discretionary performance bonus if, as and when declared by the Board
in its sole discretion.
3.3 Benefits. Employee shall, in addition to the compensation
provided for herein, be entitled to the following additional benefits:
(a) Medical, Health and Disability Benefits. Employee
shall be entitled to receive all medical, health and disability
benefits that may, from time to time, be provided by the Company to
all employees of the Company as a group.
(b) Other Benefits. Employee shall also be entitled to
receive any other benefits that may, from time to time, be provided by
the Company to all employees of Company as a group.
(c) Vacation. Employee shall be entitled to an annual
vacation as determined in accordance with the prevailing practice and
policy of the Company.
(d) Holidays. Employee shall be entitled to holidays in
accordance with the prevailing practice and policy of the Company.
<PAGE> 3
(e) Reimbursement of Expenses. The Company shall
reimburse Employee for all expenses reasonably incurred by Employee in
conjunction with the rendering of services at the Company's request,
provided that such expenses are incurred in accordance with the
prevailing practice and policy of the Company and are properly
deductible by the Company for federal income tax purposes. As a
condition to such reimbursement, Employee shall submit an itemized
accounting of such expenses in reasonable detail, including receipts
where required under federal income tax laws.
ARTICLE 4
TERMINATION
4.1 Termination With Notice. This Agreement may be terminated by
the Company or Employee, without cause, upon six months' prior written notice
thereof given by one party to the other party. In the event of termination
pursuant to this Section 4.1, the Company shall pay Employee his or her monthly
base salary (subject to standard deductions) earned pro rata to the date of
such termination and the Company shall have no further obligations to Employee
hereunder. Notwithstanding the foregoing, in lieu of continuing the
employment of Employee for a period of six months after notice of termination
is given under this Section 4.1, the Company may, in its sole discretion, elect
to terminate this Agreement immediately and pay Employee a lump-sum equal to
(a) Employee's monthly base salary (subject to standard deductions) earned pro
rata to the date of such notification of termination plus (b) six months of
Employee's then effective base salary (subject to standard deductions),
whereupon the Company shall no further obligations to Employee hereunder.
4.2 Termination For Cause. This Agreement may be terminated by
the Company for "Cause" (hereinafter defined) upon written notice thereof given
by the Company to Employee. In the event of termination pursuant to this
Section 4.2, the Company shall pay Employee his or her monthly base salary
(subject to standard deductions) earned pro rata to the date of such
termination and the Company shall have no further obligations to Employee
hereunder. The term "Cause" shall include, without limitation, the following,
as determined by the Board in its sole judgment: (i) Employee breaches any of
the terms of this Agreement; (ii) Employee is convicted of a felony; (iii)
Employee fails, after at least one warning, to perform duties assigned under
this Agreement (other than a failure due to death or physical or mental
disability); (iv) Employee intentionally engages in conduct which is
demonstrably and materially injurious to the Company; (v) Employee commits
fraud or theft of personal or Company property from Company premises; (vi)
Employee falsifies Company documents or records; (vii) Employee engages in acts
of gross carelessness or willful negligence to endanger life or property on
Company premises; (viii) Employee engages in sexual harassment; (ix) Employee
uses, distributes, possesses or is under the influence of illegal drugs,
alcohol or any other intoxicant on Company premises; (x) Employee possesses or
stores lethal weapons, firearms or illegal knives on Company premises; or (xi)
Employee intentionally violates state, federal or local laws and regulations.
<PAGE> 4
4.3 Termination Upon Death or Disability. In the event that
Employee dies, this Agreement shall terminate upon Employee's death. Likewise,
if Employee becomes unable to perform the essential functions of his or her
duties hereunder, with or without reasonable accommodation, on account of
illness, disability or other reason whatsoever for a period of more than 180
consecutive or nonconsecutive days in any 12-month period, the Company may,
upon notice to Employee, terminate this Agreement. In the event of termination
pursuant to this Section 4.3, Employee (or his or her legal representatives)
shall be entitled only to his or her monthly base salary earned pro rata for
services actually rendered prior to the date of such termination; provided,
however, Employee shall not be entitled to his or her monthly base salary for
any period with respect to which Employee has received short-term or long-term
disability benefits under employee benefit plans maintained from time to time
by the Company.
4.4 Survival of Provisions. The covenants and provisions of
Articles 5, 6 and 7 hereof shall survive any termination of this Agreement and
continue for the periods indicated, regardless of how such termination may be
brought about.
ARTICLE 5
PROPRIETARY PROPERTY; CONFIDENTIAL INFORMATION
5.1 Proprietary Property; Confidential Information. Employee
acknowledges that in and as a result of Employee's employment hereunder,
Employee will be making use of, acquiring and/or adding to confidential
information and proprietary property of a special and unique nature and value
relating to such matters as the Company's trade secrets, systems, procedures,
manuals, confidential reports and lists of customers ("Confidential
Information"). As a material inducement to the Company to enter into this
Agreement and to pay to Employee the compensation and benefits stated herein,
the Employee covenants and agrees that Employee shall not, at any time during
or following the term of Employee's employment, directly or indirectly, divulge
or disclose for any purpose whatsoever any Confidential Information or
proprietary information of the Company. Upon termination of this Agreement,
regardless of how such termination may be brought about, Employee shall deliver
to the Company any and all documents, instruments, notes, papers or other
expressions or embodiments of confidential information which are in Employee's
possession or control.
5.2 Publicity. During the term of this Agreement and for a period
of ten years thereafter, Employee shall not, directly or indirectly, originate
or participate in the origination of any publicity, news release or other
public announcements, written or oral, whether to the public press or
otherwise, relating to this Agreement, to any amendment hereto, to Employee's
employment hereunder or to the Company, without the prior written approval of
the Company.
<PAGE> 5
ARTICLE 6
RESTRICTIVE COVENANTS
6.1 Non-Competition. In consideration of the benefits of this
Agreement, including Employee's access to and limited use of proprietary and
confidential information of the Company, as well as training, education and
experience provided to Employee by the Company directly and/or as a result of
work projects assigned by the Company with respect thereto, Employee hereby
covenants and agrees that during the term of this Agreement and for a period of
six months following termination of this Agreement, regardless of how such
termination may be brought about, Employee shall not, directly or indirectly,
as proprietor, partner, stockholder, director, officer, employee, consultant,
joint venturer, investor or in any other capacity, engage in, or own, manage,
operate or control, or participate in the ownership, management, operation or
control, of any entity which engages in one of the Company's major geographical
or commercial markets in the business of selling, servicing, renting, leasing,
insuring or financing new or used Class 3 through 8 trucks or any other
business activity in which the Company participates during Employee's
employment with the Company; provided, however, the foregoing shall not, in any
event, prohibit Employee from purchasing and holding as an investment not more
than 1% of any class of publicly traded securities of any entity which conducts
a business in competition with the business of the Company, so long as Employee
does not participate in any way in the management, operation or control of such
entity. It is further recognized and agreed that, even though an activity may
not be restricted under the foregoing provision, Employee shall not during the
term of this Agreement and for a period of one year following termination of
this Agreement, regardless of how such termination may be brought about,
provide any services to any person or entity which may be used against, or in
conflict with the interests of, the Company or its customers or clients.
6.2 Judicial Reformation. Employee acknowledges that, given the
nature of the Company's business, the covenants contained in Section 6.1
establish reasonable limitations as to time, geographic area and scope of
activity to be restrained and do not impose a greater restraint than is
reasonably necessary to protect and preserve the goodwill of the Company's
business and to protect its legitimate business interests. If, however,
Section 6.1 is determined by any court of competent jurisdiction to be
unenforceable by reason of its extending for too long a period of time or over
too large a geographic area or by reason of it being too extensive in any other
respect or for any other reason, it will be interpreted to extend only over the
longest period of time for which it may be enforceable and/or over the largest
geographic area as to which it may be enforceable and/or to the maximum extent
in all other aspects as to which it may be enforceable, all as determined by
such court.
6.3 Customer Lists; Non-Solicitation. In consideration of the
benefits of this Agreement, including Employee's access to and limited use of
proprietary and confidential information of the Company, as well as training,
education and experience provided to Employee by the Company directly and/or as
a result of work projects assigned by the Company with respect thereto,
Employee hereby further covenants and
<PAGE> 6
agrees that for a period of two years following the termination of this
Agreement, regardless of how such termination may be brought about, Employee
shall not, directly or indirectly, (a) use or make known to any person or
entity the names or addresses of any clients or customers of the Company or any
other information pertaining to them, (b) call on, solicit, take away or
attempt to call on, solicit or take away any clients or customers of the
Company on whom Employee called or with whom he or she became acquainted during
his or her employment with the Company, nor (c) recruit, hire or attempt to
recruit or hire any employees of the Company.
ARTICLE 7
ARBITRATION
Except for the provisions of Articles 5 and 6 of this Agreement
dealing with proprietary property, confidential information and restrictive
covenants, with respect to which the Company expressly reserves the right to
petition a court directly for injunctive and other relief, any claim, dispute
or controversy of any nature whatsoever, including but not limited to tort
claims or contract disputes between the parties to this Agreement or their
respective heirs, executors, administrators, legal representatives, successors
and assigns, as applicable, arising out of or related to Employee's employment
or the terms and conditions of this Agreement, including the implementation,
applicability or interpretation thereof, shall be resolved in accordance with
the dispute resolution procedures set forth in Appendix A attached hereto and
made a part hereof.
ARTICLE 8
MISCELLANEOUS
8.1 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed to have been duly given if delivered
personally, mailed by certified mail (return receipt requested) or sent by an
overnight delivery service with tracking procedures or by facsimile to the
parties at the following addresses or at such other addresses as shall be
specified by the parties by like notice: If to Employee, at the address set
forth below his or her name on the signature page hereof; and if to the
Company, at 8810 I.H. 10 East, San Antonio, Texas 78219, Attention: Chairman of
the Board and Chief Executive Officer.
8.2 Equitable Relief. In the event of a breach or a threatened
breach by Employee of any of the provisions contained in Article 5 or 6 of this
Agreement, Employee acknowledges that the Company will suffer irreparable
injury not fully compensable by money damages and, therefore, will not have an
adequate remedy available at law. Accordingly, the Company shall be entitled
to obtain such injunctive relief or other equitable remedy from any court of
competent jurisdiction as may be necessary or appropriate to prevent or curtail
any such breach, threatened or actual. The foregoing shall be in addition to
and without prejudice to any other rights that the Company may have under this
Agreement, at law or in equity, including, without limitation, the right to sue
for damages.
<PAGE> 7
8.3 No Rights in Contracts. Employee acknowledges and agrees that
he or she shall not have any rights in or to any contracts entered into with
clients or customers of the Company in connection with services provided by
Employee hereunder (including those in which Employee may be specifically named
with the Company), unless otherwise agreed to in writing by the Company.
8.4 Assignment. The rights and obligations of the Company under
this Agreement shall inure to the benefit of and shall be binding upon the
successors and assigns of the Company. Employee's rights under this Agreement
are not assignable and any attempted assignment thereof shall be null and void.
8.5 Governing Law; Venue. This Agreement shall be subject to and
governed by the laws of the State of Texas. Non-exclusive venue for any action
permitted hereunder shall be proper in San Antonio, Bexar County, Texas, and
Employee hereby consents to such venue.
8.6 Entire Agreement; Amendments. This Agreement constitutes the
entire agreement between the parties and supersedes all other agreements
between the parties which may relate to the subject matter contained in this
Agreement. This Agreement may not be amended or modified except by an
agreement in writing which refers to this Agreement and is signed by both
parties.
8.7 Headings. The headings of sections and subsections of this
Agreement are for convenience only and shall not in any way affect the
interpretation of any provision of this Agreement or of the Agreement itself.
8.8 Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law. If any provision of this Agreement shall be prohibited
by 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 the remaining provisions of this Agreement.
8.9 Waiver. The waiver by any party of a breach of any provision
hereof shall not be deemed to constitute the waiver of any prior or subsequent
breach of the same provision or any other provisions hereof. Further, the
failure of any party to insist upon strict adherence to any term of this
Agreement on one or more occasions shall not be considered a waiver or deprive
that party of the right thereafter to insist upon strict adherence to that term
or any other term of this Agreement unless such party expressly waives such
provision pursuant to a written instrument which refers to this Agreement and
is signed by such party.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
RUSH ADMINISTRATIVE SERVICES, INC.
By:
-----------------------------------------------
W. Marvin Rush,
Chief Executive Officer
EMPLOYEE:
--------------------------------------------------
Brent Hughes
Address: 3 White Church Lane
San Antonio, Texas 78257
<PAGE> 8
APPENDIX A
DISPUTE RESOLUTION PROCEDURES
Re: Employment Agreement dated June 12, 1996 (including any
amendments, the "Agreement"), between Rush Administrative Services, Inc., a
Delaware corporation (the "Company"), and Brent Hughes ("Employee"). Unless
otherwise defined in this Appendix A, terms defined in the Agreement and used
herein shall have the meanings set forth therein.
A. Negotiations. If any claim, dispute or controversy described in
Article 7 of the Agreement (collectively, the "Dispute") arises, either party
may, by written notice to the party, have the Dispute referred to the persons
designated below for attempted resolution by good faith negotiations within 45
days after such written notice is received. Such designated persons are as
follows:
1. Company. The Chairman of the Board and Chief Executive
Officer or his designee; and
2. Employee. Employee or his or her designee.
Any settlement reached by the parties under this paragraph A shall not be
binding until reduced to writing and signed by both parties. When reduced to
writing, such settlement agreement shall supersede all other agreements,
written or oral, to the extent such agreements specifically pertain to the
matters so settled. If the above-designated persons are unable to resolve such
dispute within such 45-day period, either party may invoke the provisions of
paragraph B below.
B. Arbitration. All Disputes shall be settled by negotiation among
the parties as described in paragraph A above or, if such negotiation is
unsuccessful, by binding arbitration in accordance with procedures set forth in
paragraphs C and D below.
C. Notice. Notice of demand for binding arbitration by one party
shall be given in writing to the other party pursuant to the Agreement. In no
event may a notice of demand of any kind be filed more than one (1) year after
the date the Dispute is first asserted in writing to the other party pursuant
to paragraph A above, and if such demand is not timely filed, the Dispute
referenced in the notice given pursuant to paragraph A above shall be deemed
released, waived, barred and unenforceable for all time, and barred as if by
statute of limitations.
D. Binding Arbitration. Upon filing of a notice of demand for
binding arbitration by either party, arbitration shall be commenced and
conducted as follows:
1. Arbitrators. All Disputes and related matters in question
shall be referred to and decided and settled by a panel of three arbitrators,
one selected by the Company, one selected by Employee and the third selected by
the two arbitrators so selected.
A-1
<PAGE> 9
Selection of the arbitrators to be selected the Company and Employee shall be
made within ten (10) business days after the date of giving of a notice of
demand for arbitration, and the two arbitrators so appointed shall appoint the
third within 10 business days following their appointment.
2. Cost of Arbitration. The cost of arbitration proceedings,
including without limitation the arbitrators' compensation and expenses,
hearing room charges, court reporter transcript charges etc., shall be borne by
the parties equally or otherwise as the arbitrators may determine. The
arbitrators may award the prevailing party its reasonable attorneys' fees and
costs incurred in connection with the arbitration. The arbitrators are
specifically instructed to award attorneys' fees for instances of abuse in the
discovery process.
3. Location of Proceedings. The arbitration proceedings shall be
held in San Antonio, Texas, unless the parties agree otherwise.
4. Pre-hearing Discovery. The parties shall have the right to
conduct and enforce pre-hearing discovery in accordance with the then current
Federal Rules of Civil Procedure, subject to these limitations:
(a) Each party may serve no more than one set of
interrogatories limited to 30 questions, including sub-parts;
(b) Each party may depose the other party's expert
witnesses who will be called to testify at the hearing, plus two fact
witnesses without regard to whether they will be called to testify (each
party will be entitled to a total of no more than 24 hours of deposition
time of the other party's witnesses), provided however, that the
arbitrators may provide for additional depositions upon showing of good
cause; and
(c) Document discovery and other discovery shall be under
the control of and enforceable by the arbitrators.
5. Discovery disputes. All discovery disputes shall be decided
by the arbitrators. The arbitrators are empowered;
(a) to issue subpoenas to compel pre-hearing document or
deposition discovery;
(b) to enforce the discovery rights and obligations of the
parties; and
(c) to otherwise to control the scheduling and conduct of
the proceedings.
Notwithstanding any contrary foregoing provisions, the arbitrators shall have
the power and authority to, and to the fullest extent practicable shall,
abbreviate
A-2
<PAGE> 10
arbitration discovery in a manner which is fair to all parties in order to
expedite the conclusion of each alternative dispute resolution proceeding.
6. Pre-hearing Conference. Within fifteen (15) days after
selection of the third arbitrator, or as soon thereafter as is mutually
convenient to the arbitrators, the arbitrators shall hold a pre-hearing
conference to establish schedules for completion of discovery, for exchange of
exhibit and witness lists, for arbitration briefs and for the hearing, and to
decide procedural matters and address all other questions that may be
presented.
7. Hearing Procedures. The hearing shall be conducted to
preserve its privacy and to allow reasonable procedural due process. Rules of
evidence need not be strictly followed, and the hearing shall be streamlined as
follows:
(a) Documents shall be self-authenticating, subject to
valid objection by the opposing party;
(b) Expert reports, witness biographies, depositions and
affidavits may be utilized, subject to the opponent's right of a live
cross-examination of the witness in person;
(c) Charts, graphs and summaries shall be utilized to
present voluminous data, provided (i) that the underlying data is made
available to the opposing party thirty (30) days prior to the hearing,
and (ii) that the preparer of each chart, graph or summary is available
for explanation and live cross-examination in person;
(d) The hearing should be held on consecutive business days
without interruption to the maximum extent practicable; and
(e) The arbitrators shall establish all other procedural
rules for the conduct of the arbitration in accordance with the rules of
arbitration of the Center for Public Resources.
8. Governing Law. This arbitration provision shall be governed
by, and all rights and obligations specifically enforceable under and pursuant
to, the Federal Arbitration Act (9 U.S.C. Section 1, et seq.)
9. Consolidation. No arbitration shall include, by
consolidation, joinder or in any other manner, any additional person not a
party to the Agreement, except by written consent of both parties containing a
specific reference to these provisions.
10. Award. The arbitrators are empowered to render an award of
general compensatory damages and equitable relief (including, without
limitations, injunctive relief), but are not empowered to award exemplary,
special or punitive damages. The award rendered by the arbitrators (a) shall
be final, (b) shall not constitute a basis for collateral estoppel as to any
issue and (c) shall not be subject to vacation or modification.
A-3
<PAGE> 11
11. Confidentiality. The parties hereto will maintain the
substance of any proceedings hereunder in confidence and the arbitrators, prior
to any proceedings hereunder, will sign an agreement whereby the arbitrators
agree to keep the substance of any proceedings hereunder in confidence.
A-4
<PAGE> 1
EXHIBIT 10.3
DISPUTES RELATING TO THIS AGREEMENT ARE REQUIRED TO BE SETTLED
PURSUANT TO CERTAIN DISPUTE RESOLUTION PROCEDURES AS PROVIDED IN
ARTICLE 7 AND APPENDIX A OF THIS AGREEMENT.
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is entered into effective
as of the 12th day of June, 1996, between David C. Orf ("Employee"), and Rush
Administrative Services, Inc., a Delaware corporation (the "Company"), whose
principal executive offices are located in San Antonio, Texas.
WHEREAS, the Company desires to employ Employee, and Employee desires
to be employed by the Company, on terms hereinafter set forth;
NOW, THEREFORE, in consideration for the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE 1
DUTIES
1.1 Employment. During the term of this Agreement, the Company
agrees to employ Employee, and Employee accepts such employment, on the terms
and conditions set forth in this Agreement.
1.2 Extent of Service. During the term of this Agreement,
Employee shall devote his or her full-time business time, energy and skill to
the affairs of the Company and its affiliated companies, and Employee shall not
be engaged in any other business or consulting activities pursued for gain,
profit or other pecuniary advantage, except for Employee's medical or clinical
practice activities or related educational activities which do not, in the
aggregate, interfere with the performance of Employee's duties hereunder. The
foregoing shall not prevent Employee from making monetary investments in
businesses, provided that such investments do not involve any services on the
part of Employee in the operation or affairs of such businesses.
1.3 Duties. Employee's duties hereunder shall include such duties
as may be prescribed from time to time by Employee's supervisors or the Board
of Directors of the Company (the "Board"). Employee shall also perform,
without additional compensation, such duties for the Company's affiliated
companies.
1.4 Access to and Use of Proprietary Information. Employee
recognizes and the Company agrees that, to assist Employee in the performance
of his or her duties hereunder, Employee will be provided access to and limited
use of proprietary and confidential information of the Company. Employee
further recognizes that, as a part
<PAGE> 2
of his or her employment with the Company, Employee will benefit from and
Employee's qualifications will be enhanced by additional training, education
and experience which will be provided to Employee by the Company directly
and/or as a result of work projects assigned by the Company in which
proprietary and confidential information of the Company is utilized by
Employee.
ARTICLE 2
TERM OF EMPLOYMENT
The term of this Agreement shall commence on the date hereof and
continue until terminated pursuant to Article 4 hereof.
ARTICLE 3
COMPENSATION
3.1 Monthly Base Salary. As compensation for services rendered
under this Agreement, Employee shall be entitled to receive from the Company a
monthly base salary (before standard deductions) equal to $129,000, subject to
periodic review and adjustment by the Board in its sole discretion. Employee's
monthly base salary shall be payable at regular intervals (at least
semi-monthly) in accordance with the prevailing practice and policy of the
Company.
3.2 Discretionary Performance Bonus. As additional compensation
for services rendered under this Agreement, Employee shall also be eligible to
receive a discretionary performance bonus if, as and when declared by the Board
in its sole discretion.
3.3 Benefits. Employee shall, in addition to the compensation
provided for herein, be entitled to the following additional benefits:
(a) Medical, Health and Disability Benefits. Employee
shall be entitled to receive all medical, health and disability
benefits that may, from time to time, be provided by the Company to
all employees of the Company as a group.
(b) Other Benefits. Employee shall also be entitled to
receive any other benefits that may, from time to time, be provided by
the Company to all employees of Company as a group.
(c) Vacation. Employee shall be entitled to an annual
vacation as determined in accordance with the prevailing practice and
policy of the Company.
(d) Holidays. Employee shall be entitled to holidays in
accordance with the prevailing practice and policy of the Company.
-2-
<PAGE> 3
(e) Reimbursement of Expenses. The Company shall
reimburse Employee for all expenses reasonably incurred by Employee in
conjunction with the rendering of services at the Company's request,
provided that such expenses are incurred in accordance with the
prevailing practice and policy of the Company and are properly
deductible by the Company for federal income tax purposes. As a
condition to such reimbursement, Employee shall submit an itemized
accounting of such expenses in reasonable detail, including receipts
where required under federal income tax laws.
ARTICLE 4
TERMINATION
4.1 Termination With Notice. This Agreement may be terminated by
the Company or Employee, without cause, upon six months' prior written notice
thereof given by one party to the other party. In the event of termination
pursuant to this Section 4.1, the Company shall pay Employee his or her monthly
base salary (subject to standard deductions) earned pro rata to the date of
such termination and the Company shall have no further obligations to Employee
hereunder. Notwithstanding the foregoing, in lieu of continuing the
employment of Employee for a period of six months after notice of termination
is given under this Section 4.1, the Company may, in its sole discretion, elect
to terminate this Agreement immediately and pay Employee a lump-sum equal to
(a) Employee's monthly base salary (subject to standard deductions) earned pro
rata to the date of such notification of termination plus (b) six months of
Employee's then effective base salary (subject to standard deductions),
whereupon the Company shall no further obligations to Employee hereunder.
4.2 Termination For Cause. This Agreement may be terminated by
the Company for "Cause" (hereinafter defined) upon written notice thereof given
by the Company to Employee. In the event of termination pursuant to this
Section 4.2, the Company shall pay Employee his or her monthly base salary
(subject to standard deductions) earned pro rata to the date of such
termination and the Company shall have no further obligations to Employee
hereunder. The term "Cause" shall include, without limitation, the following,
as determined by the Board in its sole judgment: (i) Employee breaches any of
the terms of this Agreement; (ii) Employee is convicted of a felony; (iii)
Employee fails, after at least one warning, to perform duties assigned under
this Agreement (other than a failure due to death or physical or mental
disability); (iv) Employee intentionally engages in conduct which is
demonstrably and materially injurious to the Company; (v) Employee commits
fraud or theft of personal or Company property from Company premises; (vi)
Employee falsifies Company documents or records; (vii) Employee engages in acts
of gross carelessness or willful negligence to endanger life or property on
Company premises; (viii) Employee engages in sexual harassment; (ix) Employee
uses, distributes, possesses or is under the influence of illegal drugs,
alcohol or any other intoxicant on Company premises; (x) Employee possesses or
stores lethal weapons, firearms or illegal knives on Company premises; or (xi)
Employee intentionally violates state, federal or local laws and regulations.
-3-
<PAGE> 4
4.3 Termination Upon Death or Disability. In the event that
Employee dies, this Agreement shall terminate upon Employee's death. Likewise,
if Employee becomes unable to perform the essential functions of his or her
duties hereunder, with or without reasonable accommodation, on account of
illness, disability or other reason whatsoever for a period of more than 180
consecutive or nonconsecutive days in any 12-month period, the Company may,
upon notice to Employee, terminate this Agreement. In the event of termination
pursuant to this Section 4.3, Employee (or his or her legal representatives)
shall be entitled only to his or her monthly base salary earned pro rata for
services actually rendered prior to the date of such termination; provided,
however, Employee shall not be entitled to his or her monthly base salary for
any period with respect to which Employee has received short-term or long-term
disability benefits under employee benefit plans maintained from time to time
by the Company.
4.4 Survival of Provisions. The covenants and provisions of
Articles 5, 6 and 7 hereof shall survive any termination of this Agreement and
continue for the periods indicated, regardless of how such termination may be
brought about.
ARTICLE 5
PROPRIETARY PROPERTY; CONFIDENTIAL INFORMATION
5.1 Proprietary Property; Confidential Information. Employee
acknowledges that in and as a result of Employee's employment hereunder,
Employee will be making use of, acquiring and/or adding to confidential
information and proprietary property of a special and unique nature and value
relating to such matters as the Company's trade secrets, systems, procedures,
manuals, confidential reports and lists of customers ("Confidential
Information"). As a material inducement to the Company to enter into this
Agreement and to pay to Employee the compensation and benefits stated herein,
the Employee covenants and agrees that Employee shall not, at any time during
or following the term of Employee's employment, directly or indirectly, divulge
or disclose for any purpose whatsoever any Confidential Information or
proprietary information of the Company. Upon termination of this Agreement,
regardless of how such termination may be brought about, Employee shall deliver
to the Company any and all documents, instruments, notes, papers or other
expressions or embodiments of confidential information which are in Employee's
possession or control.
5.2 Publicity. During the term of this Agreement and for a period
of ten years thereafter, Employee shall not, directly or indirectly, originate
or participate in the origination of any publicity, news release or other
public announcements, written or oral, whether to the public press or
otherwise, relating to this Agreement, to any amendment hereto, to Employee's
employment hereunder or to the Company, without the prior written approval of
the Company.
-4-
<PAGE> 5
ARTICLE 6
RESTRICTIVE COVENANTS
6.1 Non-Competition. In consideration of the benefits of this
Agreement, including Employee's access to and limited use of proprietary and
confidential information of the Company, as well as training, education and
experience provided to Employee by the Company directly and/or as a result of
work projects assigned by the Company with respect thereto, Employee hereby
covenants and agrees that during the term of this Agreement and for a period of
six months following termination of this Agreement, regardless of how such
termination may be brought about, Employee shall not, directly or indirectly,
as proprietor, partner, stockholder, director, officer, employee, consultant,
joint venturer, investor or in any other capacity, engage in, or own, manage,
operate or control, or participate in the ownership, management, operation or
control, of any entity which engages in one of the Company's major geographical
or commercial markets in the business of selling, servicing, renting, leasing,
insuring or financing new or used Class 3 through 8 trucks or any other
business activity in which the Company participates during Employee's
employment with the Company; provided, however, the foregoing shall not, in any
event, prohibit Employee from purchasing and holding as an investment not more
than 1% of any class of publicly traded securities of any entity which conducts
a business in competition with the business of the Company, so long as Employee
does not participate in any way in the management, operation or control of such
entity. It is further recognized and agreed that, even though an activity may
not be restricted under the foregoing provision, Employee shall not during the
term of this Agreement and for a period of one year following termination of
this Agreement, regardless of how such termination may be brought about,
provide any services to any person or entity which may be used against, or in
conflict with the interests of, the Company or its customers or clients.
6.2 Judicial Reformation. Employee acknowledges that, given the
nature of the Company's business, the covenants contained in Section 6.1
establish reasonable limitations as to time, geographic area and scope of
activity to be restrained and do not impose a greater restraint than is
reasonably necessary to protect and preserve the goodwill of the Company's
business and to protect its legitimate business interests. If, however,
Section 6.1 is determined by any court of competent jurisdiction to be
unenforceable by reason of its extending for too long a period of time or over
too large a geographic area or by reason of it being too extensive in any other
respect or for any other reason, it will be interpreted to extend only over the
longest period of time for which it may be enforceable and/or over the largest
geographic area as to which it may be enforceable and/or to the maximum extent
in all other aspects as to which it may be enforceable, all as determined by
such court.
6.3 Customer Lists; Non-Solicitation. In consideration of the
benefits of this Agreement, including Employee's access to and limited use of
proprietary and confidential information of the Company, as well as training,
education and experience provided to Employee by the Company directly and/or as
a result of work projects assigned by the Company with respect thereto,
Employee hereby further covenants and
-5-
<PAGE> 6
agrees that for a period of two years following the termination of this
Agreement, regardless of how such termination may be brought about, Employee
shall not, directly or indirectly, (a) use or make known to any person or
entity the names or addresses of any clients or customers of the Company or any
other information pertaining to them, (b) call on, solicit, take away or
attempt to call on, solicit or take away any clients or customers of the
Company on whom Employee called or with whom he or she became acquainted during
his or her employment with the Company, nor (c) recruit, hire or attempt to
recruit or hire any employees of the Company.
ARTICLE 7
ARBITRATION
Except for the provisions of Articles 5 and 6 of this Agreement
dealing with proprietary property, confidential information and restrictive
covenants, with respect to which the Company expressly reserves the right to
petition a court directly for injunctive and other relief, any claim, dispute
or controversy of any nature whatsoever, including but not limited to tort
claims or contract disputes between the parties to this Agreement or their
respective heirs, executors, administrators, legal representatives, successors
and assigns, as applicable, arising out of or related to Employee's employment
or the terms and conditions of this Agreement, including the implementation,
applicability or interpretation thereof, shall be resolved in accordance with
the dispute resolution procedures set forth in Appendix A attached hereto and
made a part hereof.
ARTICLE 8
MISCELLANEOUS
8.1 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed to have been duly given if delivered
personally, mailed by certified mail (return receipt requested) or sent by an
overnight delivery service with tracking procedures or by facsimile to the
parties at the following addresses or at such other addresses as shall be
specified by the parties by like notice: If to Employee, at the address set
forth below his or her name on the signature page hereof; and if to the
Company, at 8810 I.H. 10 East, San Antonio, Texas 78219, Attention: Chairman of
the Board and Chief Executive Officer.
8.2 Equitable Relief. In the event of a breach or a threatened
breach by Employee of any of the provisions contained in Article 5 or 6 of this
Agreement, Employee acknowledges that the Company will suffer irreparable
injury not fully compensable by money damages and, therefore, will not have an
adequate remedy available at law. Accordingly, the Company shall be entitled
to obtain such injunctive relief or other equitable remedy from any court of
competent jurisdiction as may be necessary or appropriate to prevent or curtail
any such breach, threatened or actual. The foregoing shall be in addition to
and without prejudice to any other rights that the Company may have under this
Agreement, at law or in equity, including, without limitation, the right to sue
for damages.
-6-
<PAGE> 7
8.3 No Rights in Contracts. Employee acknowledges and agrees that
he or she shall not have any rights in or to any contracts entered into with
clients or customers of the Company in connection with services provided by
Employee hereunder (including those in which Employee may be specifically named
with the Company), unless otherwise agreed to in writing by the Company.
8.4 Assignment. The rights and obligations of the Company under
this Agreement shall inure to the benefit of and shall be binding upon the
successors and assigns of the Company. Employee's rights under this Agreement
are not assignable and any attempted assignment thereof shall be null and void.
8.5 Governing Law; Venue. This Agreement shall be subject to and
governed by the laws of the State of Texas. Non-exclusive venue for any action
permitted hereunder shall be proper in San Antonio, Bexar County, Texas, and
Employee hereby consents to such venue.
8.6 Entire Agreement; Amendments. This Agreement constitutes the
entire agreement between the parties and supersedes all other agreements
between the parties which may relate to the subject matter contained in this
Agreement. This Agreement may not be amended or modified except by an
agreement in writing which refers to this Agreement and is signed by both
parties.
8.7 Headings. The headings of sections and subsections of this
Agreement are for convenience only and shall not in any way affect the
interpretation of any provision of this Agreement or of the Agreement itself.
8.8 Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law. If any provision of this Agreement shall be prohibited
by 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 the remaining provisions of this Agreement.
8.9 Waiver. The waiver by any party of a breach of any provision
hereof shall not be deemed to constitute the waiver of any prior or subsequent
breach of the same provision or any other provisions hereof. Further, the
failure of any party to insist upon strict adherence to any term of this
Agreement on one or more occasions shall not be considered a waiver or deprive
that party of the right thereafter to insist upon strict adherence to that term
or any other term of this Agreement unless such party expressly waives such
provision pursuant to a written instrument which refers to this Agreement and
is signed by such party.
-7-
<PAGE> 8
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
RUSH ADMINISTRATIVE SERVICES, INC.
By:
--------------------------------------------
W. Marvin Rush,
Chief Executive Officer
EMPLOYEE:
-----------------------------------------------
David C. Orf
Address: c/o Rush Enterprises, Inc.
P. O. Box 34630
San Antonio, Texas 78265
-8-
<PAGE> 9
APPENDIX A
DISPUTE RESOLUTION PROCEDURES
Re: Employment Agreement dated June 12, 1996 (including any
amendments, the "Agreement"), between Rush Administrative Services, Inc., a
Delaware corporation (the "Company"), and David C. Orf ("Employee"). Unless
otherwise defined in this Appendix A, terms defined in the Agreement and used
herein shall have the meanings set forth therein.
A. Negotiations. If any claim, dispute or controversy described in
Article 7 of the Agreement (collectively, the "Dispute") arises, either party
may, by written notice to the party, have the Dispute referred to the persons
designated below for attempted resolution by good faith negotiations within 45
days after such written notice is received. Such designated persons are as
follows:
1. Company. The Chairman of the Board and Chief Executive
Officer or his designee; and
2. Employee. Employee or his or her designee.
Any settlement reached by the parties under this paragraph A shall not be
binding until reduced to writing and signed by both parties. When reduced to
writing, such settlement agreement shall supersede all other agreements,
written or oral, to the extent such agreements specifically pertain to the
matters so settled. If the above-designated persons are unable to resolve such
dispute within such 45-day period, either party may invoke the provisions of
paragraph B below.
B. Arbitration. All Disputes shall be settled by negotiation among
the parties as described in paragraph A above or, if such negotiation is
unsuccessful, by binding arbitration in accordance with procedures set forth in
paragraphs C and D below.
C. Notice. Notice of demand for binding arbitration by one party
shall be given in writing to the other party pursuant to the Agreement. In no
event may a notice of demand of any kind be filed more than one (1) year after
the date the Dispute is first asserted in writing to the other party pursuant
to paragraph A above, and if such demand is not timely filed, the Dispute
referenced in the notice given pursuant to paragraph A above shall be deemed
released, waived, barred and unenforceable for all time, and barred as if by
statute of limitations.
D. Binding Arbitration. Upon filing of a notice of demand for
binding arbitration by either party, arbitration shall be commenced and
conducted as follows:
1. Arbitrators. All Disputes and related matters in question
shall be referred to and decided and settled by a panel of three arbitrators,
one selected by the Company, one selected by Employee and the third selected by
the two arbitrators so selected.
A-1
<PAGE> 10
Selection of the arbitrators to be selected the Company and Employee shall be
made within ten (10) business days after the date of giving of a notice of
demand for arbitration, and the two arbitrators so appointed shall appoint the
third within 10 business days following their appointment.
2. Cost of Arbitration. The cost of arbitration proceedings,
including without limitation the arbitrators' compensation and expenses,
hearing room charges, court reporter transcript charges etc., shall be borne by
the parties equally or otherwise as the arbitrators may determine. The
arbitrators may award the prevailing party its reasonable attorneys' fees and
costs incurred in connection with the arbitration. The arbitrators are
specifically instructed to award attorneys' fees for instances of abuse in the
discovery process.
3. Location of Proceedings. The arbitration proceedings shall be
held in San Antonio, Texas, unless the parties agree otherwise.
4. Pre-hearing Discovery. The parties shall have the right to
conduct and enforce pre-hearing discovery in accordance with the then current
Federal Rules of Civil Procedure, subject to these limitations:
(a) Each party may serve no more than one set of
interrogatories limited to 30 questions, including sub-parts;
(b) Each party may depose the other party's expert
witnesses who will be called to testify at the hearing, plus two fact
witnesses without regard to whether they will be called to testify (each
party will be entitled to a total of no more than 24 hours of deposition
time of the other party's witnesses), provided however, that the
arbitrators may provide for additional depositions upon showing of good
cause; and
(c) Document discovery and other discovery shall be under
the control of and enforceable by the arbitrators.
5. Discovery disputes. All discovery disputes shall be decided
by the arbitrators. The arbitrators are empowered;
(a) to issue subpoenas to compel pre-hearing document or
deposition discovery;
(b) to enforce the discovery rights and obligations of the
parties; and
(c) to otherwise to control the scheduling and conduct of
the proceedings.
Notwithstanding any contrary foregoing provisions, the arbitrators shall have
the power and authority to, and to the fullest extent practicable shall,
abbreviate
A-2
<PAGE> 11
arbitration discovery in a manner which is fair to all parties in order to
expedite the conclusion of each alternative dispute resolution proceeding.
6. Pre-hearing Conference. Within fifteen (15) days after
selection of the third arbitrator, or as soon thereafter as is mutually
convenient to the arbitrators, the arbitrators shall hold a pre-hearing
conference to establish schedules for completion of discovery, for exchange of
exhibit and witness lists, for arbitration briefs and for the hearing, and to
decide procedural matters and address all other questions that may be
presented.
7. Hearing Procedures. The hearing shall be conducted to
preserve its privacy and to allow reasonable procedural due process. Rules of
evidence need not be strictly followed, and the hearing shall be streamlined as
follows:
(a) Documents shall be self-authenticating, subject to
valid objection by the opposing party;
(b) Expert reports, witness biographies, depositions and
affidavits may be utilized, subject to the opponent's right of a live
cross-examination of the witness in person;
(c) Charts, graphs and summaries shall be utilized to
present voluminous data, provided (i) that the underlying data is made
available to the opposing party thirty (30) days prior to the hearing,
and (ii) that the preparer of each chart, graph or summary is available
for explanation and live cross-examination in person;
(d) The hearing should be held on consecutive business days
without interruption to the maximum extent practicable; and
(e) The arbitrators shall establish all other procedural
rules for the conduct of the arbitration in accordance with the rules of
arbitration of the Center for Public Resources.
8. Governing Law. This arbitration provision shall be governed
by, and all rights and obligations specifically enforceable under and pursuant
to, the Federal Arbitration Act (9 U.S.C. Section 1, et seq.)
9. Consolidation. No arbitration shall include, by
consolidation, joinder or in any other manner, any additional person not a
party to the Agreement, except by written consent of both parties containing a
specific reference to these provisions.
10. Award. The arbitrators are empowered to render an award of
general compensatory damages and equitable relief (including, without
limitations, injunctive relief), but are not empowered to award exemplary,
special or punitive damages. The award rendered by the arbitrators (a) shall be
final, (b) shall not constitute a basis for collateral estoppel as to any issue
and (c) shall not be subject to vacation or modification.
A-3
<PAGE> 12
11. Confidentiality. The parties hereto will maintain the
substance of any proceedings hereunder in confidence and the arbitrators, prior
to any proceedings hereunder, will sign an agreement whereby the arbitrators
agree to keep the substance of any proceedings hereunder in confidence.
A-4
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF RUSH ENTERPRISES, INC FOR THE SIX MONTHS ENDED JUNE 30,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-Q.
</LEGEND>
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0
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