<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number 0-21513
DXP ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
Texas 76-0509661
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
580 Westlake Park Boulevard, Suite 1100 77079
Houston, Texas (Zip Code)
(Address of principal executive offices)
281/531-4214
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No ____
APPLICABLE ONLY TO CORPORATE ISSUERS:
Number of shares outstanding of each of the issuer's classes of common stock as
of November 7, 1997:
Common Stock: 8,168,551
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ITEM 1. FINANCIAL STATEMENTS
DXP ENTERPRISES, INC. AND SUBSIDIARIES
(CONDENSED CONSOLIDATED BALANCE SHEETS)
(IN THOUSANDS)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
--------------------------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash $ 556 $ 876
Trade accounts receivable, net of allowance for doubtful
accounts of $310,000 and $210,000, respectively 26,891 17,125
Inventory 28,027 17,175
Prepaid expenses and other current assets 151 539
Deferred income taxes 638 511
-----------------------------------
Total current assets 56,263 36,226
Property and equipment, net 10,552 7,818
Other assets 3,170 998
-----------------------------------
Total assets $ 69,985 $ 45,042
===================================
Liabilities and Shareholders' Equity
Current liabilities:
Trade accounts payable $ 15,782 $ 6,963
Employee compensation 1,427 1,296
Other accrued liabilities 682 601
Current portion of long-term debt 917 609
Current portion of subordinated debt -- 1,145
-----------------------------------
Total current liabilities 18,808 10,614
Long-term debt, less current portion 35,793 22,300
Deferred compensation 739 739
Deferred income taxes 433 330
Equity subject to redemption: Note 9
Series A Preferred stock--1,122 and 1,496 shares 112 150
Series B convertible preferred stock -- 1,800 and 4,500 shares 180 450
Common Stock -- 280,428 shares 1,963 --
Shareholders' Equity:
Series A preferred stock, 1/10th vote per share; $1.00 par
value; liquidation preference of $100 per share; 1,000,000
shares authorized; 3,366 shares issued and outstanding: 2 2
Series B convertible preferred stock, 1/10th vote per share;
$1.00 par value; $100 stated value; liquidation preference of
$100 per share; 1,000,000 shares authorized; 19,500 shares
issued and outstanding 18 15
Common stock, $.01 par value, 100,000,000 shares authorized;
7,993,997 shares issued and outstanding (7,993,997
outstanding at December 31, 1996) 80 80
Paid-in capital 673 368
Retained earnings 11,765 9,994
-----------------------------------
12,538 10,459
Less: treasury stock, 374 shares series A preferred, 2,700 shares
series B preferred, and 60,872 shares common stock (581) --
-----------------------------------
Total shareholders' equity 11,957 10,459
Total liabilities and shareholders' equity $ 69,985 $ 45,042
===================================
</TABLE>
See notes to condensed consolidated financial statements.
2
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DXP ENTERPRISES, INC. AND SUBSIDIARIES
(CONDENSED CONSOLIDATED STATEMENTS OF INCOME)
(Unaudited)
(In Thousands, except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales $ 48,806 $ 32,193 $ 118,277 $ 95,214
Cost of sales 36,334 23,784 86,706 70,574
---------------------------------------------------
Gross Profit 12,472 8,409 31,571 24,640
Selling, general and administrative expenses 11,295 7,424 27,642 22,230
---------------------------------------------------
Operating income 1,177 985 3,929 2,410
Other income 86 129 981 643
Interest expense (793) (548) (1,960) (1,556)
---------------------------------------------------
(707) (419) (979) (913)
---------------------------------------------------
Income before income taxes 470 566 2,950 1,497
Provision for income taxes 182 230 1,070 607
---------------------------------------------------
$ 288 $ 336 $ 1,880 $ 890
Net income
38 23 109 68
Preferred Stock Dividend
---------------------------------------------------
Net Income Attributable to Common
Shareholders $250 $313 $ 1,771 $ 822
====================================================
Primary net income per common and
common equivalent shares $0.02 $0.04 $0.17 $0.10
====================================================
Number of shares used to compute primary
net income per common and common
equivalent shares 10,251 8,580 10,251 8,580
====================================================
Fully diluted net income per common and
common equivalent share $0.02 $0.04 $0.17 $0.09
====================================================
Number of shares used to compute fully
diluted net income per common and
common equivalent shares 10,251 9,724 11,192 9,724
====================================================
</TABLE>
See notes to condensed consolidated financial statements.
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DXP ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1997 1996
--------------- ------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net cash provided by operating activities ($2,081) $ 2,118
INVESTING ACTIVITIES
Proceeds from sale of property and equipment -- 7
Purchase of Austin Bearing net assets -- (550)
Purchase of Strategic Supply net assets (4,118) --
Purchase of Pelican State Supply common stock (1,070) --
Purchase of property and equipment (648) (971)
-------------------------------
Net cash used in investing activities (5,836) (1,514)
FINANCING ACTIVITIES
Proceeds from debt 133,488 93,856
Principal payments on revolving line of credit, long-term
and subordinated debt, and notes payable to bank (125,314) (95,884)
Acquisition of common stock (581) --
Dividends paid (109) (68)
-------------------------------
Net cash used in financing activities 7,597 (2,095)
-------------------------------
INCREASE(DECREASE) IN CASH (320) (1,491)
CASH AT BEGINNING OF PERIOD 876 1,492
-------------------------------
CASH AT END OF PERIOD $ 556 $ 1
===============================
</TABLE>
See notes to condensed consolidated financial statements
4
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DXP ENTERPRISES, INC. AND SUBSIDIARIES
As used herein, references to the "Company" are to DXP Enterprises, Inc. and
its subsidiaries, unless the context otherwise indicates.
Notes to Condensed Consolidated Financial Statements
Note 1: Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been omitted. The Company
believes that the presentations and disclosures herein are adequate to make the
information not misleading. The condensed consolidated financial statements
reflect all elimination entries and adjustments (consisting of normal recurring
adjustments) necessary for a fair presentation of the interim periods.
The results of operations for the interim periods are not necessarily
indicative of the results of operations to be expected for the full year.
These condensed consolidated financial statements should be read in conjunction
with the Company's audited consolidated financial statements included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996, as
amended by Amendment No. 1 to Form 10-K on Form 10-K/A.
Note 2: The Company
The Company was incorporated on July 26, 1996 in the State of Texas. The
Company was formed to facilitate a proposed reorganization transaction whereby
subsequent to July 31, 1996 the Company became a public holding company and
acquired 100% of the outstanding capital stock of SEPCO Industries, Inc.
("SEPCO"), a private distribution company with revenues of approximately $125
million, and Newman Communications Corporation ("Newman"), an inactive public
entity with nominal net tangible assets.
The Company filed a registration statement on Form S-4 with the Securities and
Exchange Commission to register 9,292,200 shares of its Common Stock (on a
post-reverse stock split basis), 19,500 shares of its Series B Convertible
Preferred Stock and 3,366 shares of its Series A Preferred Stock. This
registration statement became effective on November 12, 1996. Because the
Company (prior to the reorganization) and Newman were non-operating entities
with nominal tangible net assets, the transaction was accounted for as a
recapitalization of SEPCO into the Company and an issuance of shares for the
net tangible assets of Newman. Accordingly, the historical financial
statements for the Company prior to December 4, 1996 are those of SEPCO.
Note 3. Per Share Amounts
Net income per common and common equivalent share has been computed for the
three- and nine-month periods ended September 30, 1996, as if the
reorganization had occurred between the Company and SEPCO on January 1, 1996.
These amounts were determined by dividing net income applicable to common stock
by the weighted average number of shares of common stock and common stock
equivalents outstanding during the period. To the extent they are dilutive,
options to purchase common stock issued by the Company within the twelve months
preceding the filing of the registration statement referenced above have been
included in the calculation of common equivalent shares outstanding (using the
treasury stock method) as if they were outstanding for all periods presented.
The computation of fully diluted net income per common and common equivalent
share assumes the Class A convertible preferred stock was converted as of the
beginning of the period, unless the results are anti-dilutive.
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In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS No. 128").
Under SFAS No. 128, primary earnings per share ("Primary EPS") will be replaced
by basic earnings per share ("Basic EPS"), and fully diluted earnings per share
("Fully Diluted EPS") will be replaced with diluted earnings per share ("Diluted
EPS"). Basic EPS differs from Primary EPS in that it only includes the weighted
average impact of outstanding shares of the Company's Common Stock (i.e., it
excludes common stock equivalents and the dilutive effect of options, etc.).
Diluted EPS is substantially similar to Fully Diluted EPS as previously
reported. The provisions of SFAS No. 128 will result in the retroactive
restatement of previously reported Primary EPS and Fully Diluted EPS figures,
but SFAS No. 128 prohibits such restatement prior to December 31, 1997. Based
on the Company's computations, the adoption of SFAS 128 is not expected to
materially impact earnings per share amounts reported during the current quarter
or any recent prior period.
On or about April 30, 1997, a proxy statement was furnished to the holders of
the Company's Common Stock, Series A Preferred Stock and Series B Preferred
Stock, in connection with a solicitation of consents by the Board of Directors
of the Company for the adoption of an amendment to the Restated Articles of
Incorporation of the Company to effect a two-to-one reverse split of the
issued and outstanding shares of Common Stock and change the name of the
Company from Index, Inc. to DXP Enterprises, Inc. The shareholders approved
the two-to-one reverse stock split and name change, which became effective
after the close of market on May 12, 1997.
Common stock and earnings per share have been restated to give effect to
the two-to-one reverse stock split.
Note 4: Inventory
The Company uses the last-in, first-out ("LIFO") method of inventory valuation
for approximately 59% of its inventories. Remaining inventories are accounted
for using the first-in, first-out ("FIFO") method. An actual valuation of
inventory under the LIFO method can be made only at the end of each year based
on the inventory levels and costs at that time. Accordingly, interim LIFO
calculations must necessarily be based on management's estimates of expected
year-end inventory levels and costs. Because these are subject to many forces
beyond management's control, interim results are subject to the final year-end
LIFO inventory valuation. The reconciliation of FIFO inventory to LIFO basis
is as follows:
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
---------------------------------------
(in thousands)
<S> <C> <C>
Finished Goods $ 28,188 $ 18,215
Work in process 3,284 2,405
------------------ -------------------
Inventories at FIFO 31,472 20,620
Less - LIFO allowance (3,445) (3,445)
------------------- -------------------
Inventories $ 28,027 $ 17,175
------------------- -------------------
</TABLE>
Note 5: Acquisition
Effective February 2, 1996, the Company acquired the net assets of Austin
Bearing Corporation. The purchase price totaled approximately $578,000 and
consisted of (i) issuance of a $249,000 note, bearing interest at 9%, payable
monthly over five years and (ii) cash of $329,000. The acquisition has been
accounted for using the purchase method of accounting. Goodwill of $84,000 was
recorded in connection
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with the acquisition.
Effective May 30, 1997, the Company acquired 100% of the
outstanding stock of Pelican State Supply Company ("Pelican"). The purchase
price totaled approximately $3.0 million and consisted of 280,428 shares of the
Company's Common Stock and cash of approximately $1.0 million. The acquisition
has been accounted for using the purchase method of accounting. Goodwill of
approximately $2.0 million was recorded in connection with the acquisition.
On June 2, 1997, a wholly owned subsidiary of the Company acquired
substantially all the assets of Strategic Supply, Inc. ("Strategic"). The
purchase price, which is subject to adjustments, consisted of approximately
$4.1 million in cash, assumption of $4.7 million of trade payables and other
accrued expenses, $2.8 million in promissory notes payable to the seller and
earn-out payments (based on the earnings before interest and taxes of
Strategic) to be paid over a period of approximately six years, up to a maximum
of $3.5 million. The acquisition has been accounted for using the purchase
method of accounting. Goodwill of $50,000 was recorded in connection with the
acquisition. Goodwill may be adjusted based upon the final purchase price.
The acquisitions discussed above were accounted for using the purchase method
of accounting. The results of operations of the companies acquired are included
in the consolidated statements of income from the date of acquisition of such
companies. The Company is continuing its evaluation of the acquisitions of
Pelican and Strategic as it relates to the purchase price allocations. The
allocation of the respective purchase prices are based on the estimates of the
Company using information currently available. Certain adjustments relating to
these acquisitions are subject to change based upon the final determination of
the fair values of the net assets acquired.
Note 6: Commitments and Contingencies
In September 1997 the Company reached a settlement with the Internal Revenue
Service ("IRS") which had asserted claims against one of the Company's
subsidiaries for additional taxes and penalties of approximately $1 million
plus interest of approximately $328,000. The claims related primarily to a
challenge by the IRS of the Company's use of the LIFO method of accounting for
inventory. The September 1997 settlement with the IRS resulted in a payment by
the Company of approximately $52,000 in additional tax plus interest of
approximately $18,000. The Company had accrued sufficiently for this expense
at December 31, 1996 and, therefore, the payment will have no impact on current
period earnings.
Note 7: Stock Options
Prior to and during 1995, the Company issued non-qualified, book value plan
stock options to certain officers of the Company to purchase shares of its
Class A common stock, which had exercise prices equal to the book value of the
common stock on the date of the grant. The option agreement allowed the
employee to put the stock acquired back to the Company at the book value at
that time. The Company recognized compensation expense for increases in the
book value of the stock while the options were outstanding.
Effective March 31, 1996, the stock option agreements were amended to become
non-qualified, market value plan stock options. Under the amended agreement,
the employees can no longer put the acquired stock back to the Company. In
connection with these changes, the Company recognized approximately $618,000 of
compensation expense in the three months ended March 31, 1996.
Note 8: Long-Term Debt
In September 1996, the Company amended its credit facility which increased the
existing balance of the term loan from $123,898 to $5.0 million upon conversion
of approximately $4.9 million of the amounts outstanding under the revolving
loan to the term loan. In May 1997, the Company further amended its credit
facility to increase the borrowing base from $20 million to $25 million.
7
<PAGE> 8
Also in May 1997, the Company secured two additional lines of credit from its
existing lender in amounts of $3.0 million and $12.0 million for the purpose
of financing two acquisitions and providing for working capital needs of the
newly acquired companies. The two new subsidiaries are the borrowers under
these lines of credit and the Company has guaranteed the indebtedness
thereunder. The interest rate on the new lines of credit
range from LIBOR plus 2.25% to prime plus .50%. Each line of credit is secured
by accounts receivable, inventory, machinery and equipment and real estate of
the respective subsidiary and matures January 1999.
The borrowings available under the Company's credit facilities at September 30,
1997 approximated $3.5 million.
Note 9: Equity Subject to Redemption
The Company is obligated to repurchase certain of its Series A and Series B
preferred stock owned by certain employees upon the occurrence of certain
events which would result in the employee no longer being employed by the
Company. Additionally, the shares of Common Stock issued pursuant to the
purchase of Pelican are subject to a put option whereby any time between
November 30, 1998 and November 30, 2000 the Company may be required to purchase
all or part of such shares at a price of $7.00 per share. The shares issued
for the purchase of Pelican are subject to certain rights of offset pursuant to
terms of the purchase agreement.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion of operations and financial condition of the Company
should be read in conjunction with the Financial Statements and Notes thereto
included elsewhere in this Quarterly Report on Form 10-Q. Special Note:
Certain statements set forth below constitute "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended,
and the Securities Exchange Act of 1934, as amended. See "Special Note
Regarding Forward- Looking Statements" and "Cautionary Statements".
RESULTS OF OPERATIONS
Three Months Ended September 30, 1997 Compared to Three Months Ended September
30, 1996
Revenues for the three months ended September 30, 1997 increased 51.6% to $48.8
million from the three months ended September 30, 1996. The Company's
acquisitions during the period accounted for $13.8 million of the increase in
revenues. Sales of bearings and power transmission equipment for the quarter
ended September 30, 1997 increased 3.3%, or $430,000 over the comparable period
in 1996, accounting for $1.3% of the revenue increase. Sales of valve and valve
automation equipment declined by $128,000 over the comparable period in 1996
due primarily to increased competition. During the three months ended
September 30, 1997, sales of pumps and pump products increased 15.0%, or $2.5
million, over the comparable period in 1996, accounting for 7.8% of the revenue
increase.
Gross margins decreased .5% for the third quarter of 1997 as compared to the
third quarter of 1996, from 26.1% of sales to 25.6%. The decrease in gross
margin is attributable to lower margins associated with the two acquisitions in
May 1997. The Company currently expects some increase in manufacturers' prices
to continue due to increased raw material costs and strong market conditions.
Although the Company intends to attempt to pass on these price increases to its
customers to maintain current gross margins, there can be no assurance that the
Company will be successful in this regard.
Selling, general and administrative expense were consistent as a percentage of
revenues for the third quarter of 1997 as compared to the third quarter of
1996.
Operating income for the three month period ended September 30, 1997 decreased
as a percentage of revenues from 3.0% to 2.4%, due to the various factors
discussed above and absorption of the acquisition of Pelican and Strategic.
Interest expense during the third quarter of 1997 increased by $245,000 to
$793,000 compared to the third quarter of 1996. Long-term debt at September
30, 1997 increased by $14.0 million as a result of the financing of two
acquisitions during the second quarter of 1997, resulting in greater interest
costs. Excluding the increased debt incurred in connection with these
acquisitions, long-term debt levels were substantially unchanged. Average
interest rates were slightly lower during the three months ended September 30,
1997 as compared to 1996.
The Company's provision for income taxes for the three months ended September
30, 1997 decreased by $48,000 compared to the same period of 1996, as a result
of a decrease in pre-tax income.
Net income for the three month period ended September 30, 1997 decreased
$48,000, or 14.3%, from the three month period ended September 30, 1996, due
primarily to the factors discussed above.
Nine Months Ended September 30, 1997 Compared to Nine Months Ended September
30, 1996
Revenues for the nine months ended September 30, 1997 increased 24.2% to $118.3
million from the nine
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months ended September 30, 1996. The Company's acquisitions during the period
accounted for $18.5 million or 19.4% of this increase in revenues. Sales of
bearings and power transmission equipment for the nine months ended September
30, 1997 increased 5.0%, or $1.9 million over the comparable period in 1996
accounting for 2.0% of the overall revenue increase. Sales of valve and valve
automation equipment declined by $1.6 million over the comparable period in 1996
due primarily to increased competition. During the nine months ended September
30, 1997, sales of pumps and pump products increased 8.6%, or $4.3 million over
the comparable period in 1996, accounting for 4.5% of the overall revenue
increase.
Gross margin increased $6.9 million, or 28.1% in the first nine months of 1997
as compared to the same period in 1996, from 25.9% of sales to 26.7%. The
increase in gross margin is attributable to the Company's avoidance of
low-margin sales, the ability to pass on manufacturer price increases and
reductions in cost-of-sales overhead expenses. Gross margins for the first nine
months of 1997 as compared to the same period in 1996 were affected by lower
average margins associated with the acquisition of Pelican and Strategic.
Selling, general and administrative expenses as a percentage of revenues
remained consistent at 23.3% in the first nine months of 1997 compared to the
same period in 1996. However, both nine month periods experienced substantial
expenditures unique to each period. For the nine month period ended September
30, 1996, the Company recognized $618,000 in compensation expense as a result
of amending its stock option agreements from being book value to market value
options. For the nine month period ended September 30, 1997, selling,
general, and administrative costs were increased by administrative costs
related to the Company's expansion of its administrative personnel in an effort
to provide expanded services to its customers.
Operating income for the nine month period ended September 30, 1997 increased
63.0% from the corresponding period in 1996, from $2.4 million to $3.9
million. As a percentage of revenues, operating income increased from 2.5% of
sales to 3.3%, due to the various factors discussed above.
Interest expense for the first nine months of 1997 increased by $404,000, or
26.0%, from the first nine months of 1996 as a result of increased debt levels
associated with the Company's acquisitions during 1997, and due to greater
investments in working capital components during the period. Average interest
rates were slightly lower during the nine months ended September 30, 1997 as
compared to 1996.
The Company's provision for income taxes for the nine months ended September
30, 1997 increased by $463,000 compared to the same period of 1996 as a result
of an increase of approximately $1.5 million in pre-tax income. Results
attributable to the Company's acquisitions during the first nine months of 1997
reduced pre-tax income by approximately $796,000, resulting in a decrease in
taxes of approximately $271,000.
Net income for the nine month period ended September 30, 1997 increased
$990,000, or 111%, from the nine month period ended September 30, 1996.
Increased net income for the first nine months of 1997 as compared to the same
period in 1996 can be primarily attributed to an increase in gross margins.
These increases in gross profits were slightly offset by increased
administrative costs associated with the Company's expansion of its corporate
administrative expenses, expenses associated with its expansion program, and
higher interest costs and losses associated with the absorption of two
acquisitions made in June 1997.
LIQUIDITY AND CAPITAL RESOURCES
Under the Company's credit facilities, all available cash generally is applied
to reduce outstanding borrowings, with operations funded through borrowings
under the credit facilities. The Company's policy is to maintain low levels of
cash and cash equivalents and to use borrowings under its lines of credit for
working capital. The Company had $3.5 million available for borrowings under
its working capital line of credit at September 30, 1997. Working capital at
September 30, 1997 and December 31, 1996 was $37 million and $26 million,
respectively. During the first nine months of 1997 and the year ended December
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31, 1996, the Company collected its trade receivables in approximately 55 and
48 days, respectively, and turned its inventory approximately five times on an
annualized basis.
The Company currently has $40.0 million in secured lines of credit with an
institutional lender. The lines of credit provided for interest rates ranging
from LIBOR plus 2.25% to prime plus .5% (9.0% at September 30, 1997). The lines
of credit are secured by receivables, inventory and machinery and equipment and
mature in January 1999. The facilities contain customary affirmative and
negative covenants as well as financial covenants that require the Company to
maintain a positive cash flow and other financial ratios, such as aggregate
indebtedness to tangible net worth less than five to one and current assets to
current liabilities greater than two to one. The Company currently expects to
renew the lines of credit at their maturity.
The Company utilized cash from operating activities of $2.1 million in the
first nine months of 1997 as compared to generating cash from operating
activities of $2.1 million during the first nine months of 1996, due primarily
to a greater investment in the net working capital components for the first
nine months of 1997 as compared to the first nine months of 1996. Investment in
working capital components such as inventory and receivables resulting in a use
of cash from operating activities does not result in a violation of any of the
loan covenants. The cash flow covenant is computed by increasing earnings for
depreciation and amortization and subtracting acquisition of fixed assets,
principal payments and dividends.
The Company had capital expenditures of approximately $648,000 for the first
nine months of 1997 as compared to $971,000 during the same period of 1996.
Capital expenditures in the first nine months of 1997 were predominantly for
the expansion of a facility in Laporte, Texas ($144,000), and for computers and
related equipment($131,000). Capital expenditures for 1996 were primarily for
office and shop equipment and computer automation.
In the second quarter of 1997, the Company acquired the common stock of
Pelican, with the cash portion of the purchase price totaling approximately
$1.1 million. Also in the second quarter of 1997, the Company acquired certain
assets of Strategic for cash of approximately $4.1 million.
In September 1997 the Company reached a settlement with the Internal Revenue
Service ("IRS") which had asserted claims against one of the Company's
subsidiaries for additional taxes and penalties of approximately $1 million
plus interest of approximately $328,000. The claims related primarily to a
challenge by the IRS of the Company's use of the LIFO method of accounting for
inventory. The September 1997 settlement with the IRS resulted in a payment by
the Company of approximately $52,000 in additional tax plus interest of
approximately $18,000. The Company had accrued sufficiently for this expense
at December 31, 1996 and, therefore, the payment will have no impact on current
period earnings.
The Company's software will be Year 2000 compliant by the end of the first
quarter of 1998. These compliance issues and associated costs are being handled
through new releases of current software. Such costs are part of normal software
upgrades and normal operating costs. The Company expects that any costs related
to ensuring Year 2000 compliance will not be material to the financial condition
or results of operations of the Company.
The Company believes that cash generated from operations and available under
its credit facility will meet its future ongoing operational and liquidity
needs and capital requirements. Funding of the Company's acquisition program
and integrated supply strategy will require capital in the form of the issuance
of additional equity or debt financing. There can be no assurance that such
financing will be available to the Company or as to the terms thereof.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET PRICE
Not Applicable
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PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In September 1997 the Company reached a settlement with the Internal Revenue
Service ("IRS") which had asserted claims against one of the Company's
subsidiaries for additional taxes and penalties of approximately $1 million
plus interest of approximately $328,000. The claims related primarily to a
challenge by the IRS of the Company's use of the LIFO method of accounting for
inventory. The September 1997 settlement with the IRS resulted in a payment
by the Company of approximately $52,000 in additional tax plus interest of
approximately $18,000. The Company had accrued sufficiently for this expense
at December 31, 1996 and, therefore, the payment will have no impact on current
period earnings.
From time to time, the Company is a party to legal proceedings arising in the
ordinary course of business. The Company is not currently a party to any
litigation that it believes could have a material adverse effect on the results
of operations or financial condition of the Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
Special Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q includes "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. All statements
other than statements of historical facts included in this Report, including
without limitation, statements regarding the Company's financial position,
business strategy, products, products under development, markets, budgets and
plans and objectives of management for future operations, are forward-looking
statements. Although the Company believes that the expectations reflected in
such forward-looking statements are reasonable, it can give no assurance that
such expectations will prove to have been correct. Important factors that
could cause actual results to differ materially from the Company's expectations
("Cautionary Statements") are disclosed under "Cautionary Statements" and
elsewhere in this Report, including, without limitation, in conjunction with
the forward-looking statements included in this Report. All subsequent written
and oral forward-looking statements attributable to the Company, or persons on
its behalf, are expressly qualified in their entirety by the Cautionary
Statements.
12
<PAGE> 13
Cautionary Statements
See "Special Note Regarding Forward-Looking Statements".
Substantial Competition
The Company's business is highly competitive. The Company competes with a
variety of industrial supply distributors, some of which may have greater
financial and other resources than the Company. Although many of the Company's
traditional distribution competitors are small enterprises selling to customers
in a limited geographic area, the Company also competes with larger
distributors that provide integrated supply programs such as those offered
through the iPower Consortium and outsourcing services similar to those that
are being offered by American MRO, Inc. ("AMRO"), a wholly owned subsidiary of
the Company. Some of these large distributors may be able to supply their
products in a more timely and cost-efficient manner than the Company. The
Company's competitors include direct mail suppliers, large warehouse stores
and, to a lesser extent, certain manufacturers.
Risks Associated with Implementation of Corporate Strategy
Future results for the Company also will be dependent on the success of the
Company in implementing its acquisition and growth strategy. This strategy
includes taking advantage of a consolidation in the industry and effecting
acquisitions of distributors with complementary or desirable new product lines,
strategic distribution locations and attractive customer bases and manufacturer
relations. The Company's strategy also includes expanding its product lines,
adding new product lines and establishing alliances and joint ventures with
other suppliers in order to provide the Company's customers with a source of
integrated supply. The ability of the Company to implement this strategy will
depend on its ability to identify, consummate and assimilate acquisitions on
economic terms, to acquire and successfully integrate new product lines and to
establish and successfully market new integrated forms of supply arrangements
such as that being pursued by AMRO. Although the Company is actively seeking
acquisitions and integrated supply arrangements that would meet its strategic
objectives, there can be no assurance that the Company will be successful in
these efforts. Further, the ability of the Company to effect its strategic
plans will depend on obtaining financing for its planned expansions and
acquisitions. There can be no assurance that such financing will be available
on a timely basis or on terms satisfactory to the Company. The Company plans
to examine appropriate methods of financing any such acquisition, including
issuance of additional capital stock, debt or other securities or a combination
of both. If the Company were to issue shares of its capital stock in any
acquisition, such issuance could be dilutive to existing shareholders.
Dependence on Key Personnel
The Company will continue to be dependent to a significant extent upon the
efforts and ability of David R. Little, its Chairman of the Board and Chief
Executive Officer. The loss of the services of Mr. Little or any other
executive officer of the Company could have a material adverse effect on the
Company's financial condition and results of operations. The Company does not
maintain key-man life insurance on Mr. Little or on the lives of its other
executive officers. In addition, the Company's ability to grow successfully
will be dependent upon its ability to attract and retain qualified management
and technical and operational personnel. The failure to attract and retain
such persons could materially adversely affect the Company's financial
condition and results of operation.
Risks Associated with Hazardous Materials
Certain of the Company's activities involve the controlled use of hazardous
materials and chemicals. Although the Company believes that its safety
procedures for handling and disposing of such materials comply with the
standards prescribed by state and federal regulations, the risk of accidental
contamination or injury from these materials cannot be eliminated completely.
In the event of such an accident, the
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Company could be held liable for any damages that result and any such liability
could exceed the resources of the Company.
Limitations on Ability to Pay Dividends
The Company anticipates that future earnings, except for dividends payable on
the Series B Convertible Preferred Stock, will be retained to finance the
continuing development of its business. Accordingly, the Company does not
anticipate paying cash dividends on the Common Stock in the foreseeable future.
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<PAGE> 15
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1* Employment Agreement dated dated effective as of July
1, 1996, by and between Sepco Industries, Inc. and
Gary A. Allcorn, as amended.
10.2* Employment Agreement dated effective as of July 1,
1996, by and between Sepco Industries, Inc. and
Jerry J. Jones, as amended.
11.1* Statement re: Computation of Per Share Earnings
27.1* Financial Data Schedule
________________
* Filed herewith.
(b) Reports on Form 8-K
Current Report on Form 8-K dated June 2, 1997, as amended by
Amendment No. 1 to Current Report on Form 8-K on Form 8-K/A
and Amendment No. 2 to Current Report on Form 8-K on Form
8-K/A, reporting the acquisition by the Company of Strategic
Supply, Inc., the audited historical financial statements of
Strategic Supply, Inc. and the pro forma financial statements
of the Company including Strategic Supply, Inc.
.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
DXP Enterprises, Inc.
Date: November 14, 1997 By: /s/ GARY A. ALLCORN
-----------------------------------
Gary A. Allcorn
Senior Vice President/Finance
(Duly authorized officer and
principal financial officer)
<PAGE> 17
EXHIBIT INDEX
Exhibit
No. Description
-- -----------
10.1* Employment Agreement dated effective as of July 1, 1996, by
and between Sepco Industries, Inc. and Gary A. Allcorn, as
amended.
10.2* Employment Agreement dated effective as of July 1, 1996, by
and between Sepco Industries, Inc. and Jerry J. Jones, as
amended.
11.1* Statement re: Computation of Per Share Earnings
27.1* Financial Data Schedule
____________________
* Filed herewith.
<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement) by and between SEPCO
INDUSTRIES, INC., a Texas corporation (the "Company"), and GARY A. ALLCORN (the
"Executive") is made and entered into as of the Effective Date set forth in
Section 1.3 below:
RECITALS
A. The Company desires to employ the Executive in the capacity
set forth on Exhibit A pursuant to the provisions of this
Agreement; and
B. The Executive desires employment as an employee of the Company
pursuant to the provisions of this Agreement.
ARTICLE I.
TERMS OF EMPLOYMENT
The terms of employment are as follows:
1.1 Employment. The Company hereby employs the Executive for and
during the term hereof in the capacity set forth on Exhibit A, but Company may
subsequently assign Executive to a different position or modify Executive's
duties and responsibilities. The Executive hereby accepts employment under the
terms and conditions set forth in this Agreement.
1.2 Duties of Executive. The Executive shall perform in the
capacity described in Section 1.1 hereof and shall have such duties,
responsibilities, and authorities as may be designated for such office. The
Executive agrees to devote the Executive's best efforts, abilities, knowledge,
experience and full business time to the faithful performance of the duties,
responsibilities, and authorities which may be assigned to the Executive.
Executive may not engage, directly or indirectly, in any other business,
investment, or activity that interferes with Executive's performance of
Executive's duties hereunder, is contrary to the interests of the Company, or
requires any significant portion of Executives's business time. Executive
shall at all times comply with and be subject to such policies and procedures
as the Company may establish from time to time. Executive acknowledges and
agrees that Executive owes a fiduciary duty of loyalty, fidelity and allegiance
to act at all times in the best interests of the Company and to do no act which
would injure Company's business, its interests, or its reputation.
1.3 Term. This Agreement shall become effective as of the 1st day
of July, 1996 (the "Effective Date") and shall continue in force and effect for
one (1) year unless sooner terminated as provided in Section 2.1 hereof.
Unless this Agreement is terminated before its annual anniversary date, the
term hereof shall be automatically extended for one (1) year unless this
Agreement is renewed or extended by written agreement between the Company and
the Executive pursuant to terms and conditions mutually acceptable.
1.4 Compensation. The Company shall pay the Executive, as
"Compensation" for services rendered by the Executive under this Agreement the
following Salary plus Bonus.
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(a) Salary: A base salary per month as set forth on Exhibit A,
prorated for any partial period of employment ("Salary"). Such Salary
shall be paid in installments in accordance with the Company's regular
payroll practices.
(b) Bonus: A bonus as set forth in Exhibit "A" ("Bonus").
1.5 Employment Benefits. In addition to the Salary payable to the
Executive hereunder, the Executive shall be entitled to the following benefits:
(a) Employment Benefits. As an employee of the Company,
the Executive shall participate in and receive all general employee
benefit plans and programs, as may be in effect from time to time,
upon satisfaction by the Executive of the eligibility requirements
therefor. Nothing in this Agreement is to be construed or interpreted
to provide greater rights, participation, coverage, or benefits under
such benefit plans or programs than provided to similarly situated
employees pursuant to the terms and conditions of such benefit plans
and programs.
(b) Working Facilities. During the term of this
Agreement, the Company shall provide, at its expense, office space,
furniture, equipment, supplies and personnel as shall be adequate for
the Executive's use in performing Executive's duties and
responsibilities under this Agreement.
(c) Automobile Allowance. During the term of this
Agreement, the Company shall provide Executive with a vehicle in
accordance with the Company's vehicle policy.
(d) Limitations. Company shall not by reason of this
Article 1.5 be obligated to institute, maintain, or refrain from
changing, amending, or discontinuing, any such incentive
compensation or employee benefit program or plan, so long as such
actions are similarly applicable to covered employees similarly
situated.
ARTICLE II.
TERMINATION
2.1 Termination. Notwithstanding anything herein to the contrary,
this Agreement and the Executive's employment hereunder may be terminated
without any breach of this Agreement at any time during the term hereof by
reason of and in accordance with the following provisions:
(a) Death. If the Executive dies during the term of this
Agreement and while in the employ of the Company, this Agreement shall
automatically terminate as of the date of the Executive's death, and
the Company shall have no further liability hereunder to the Executive
or Executive's estate, except to the extent set forth in Section
2.2(a) hereof.
(b) Disability. If, during the term of this Agreement,
the Executive shall be prevented from performing the Executive's
duties hereunder by reason of becoming disabled as hereinafter
defined, the Company may terminate this Agreement immediately
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<PAGE> 3
upon written notice to the Executive without any further liability
hereunder to the Executive except as set forth in Section 2.2(b)
hereof. For purposes of this Agreement, the Executive shall be deemed
to have become disabled when the Board of Directors of the Company,
upon the written report of a qualified physician designated by the
Board of Directors of the Company or by its insurers, shall have
determined that the Executive has become mentally, physically and/or
emotionally incapable of performing Executive's duties and services
under this Agreement.
(c) Termination by the Company for Cause. Prior to the
expiration of the term of this Agreement, the Company may discharge
the Executive for cause and terminate this Agreement immediately upon
written notice to the Executive without any further liability
hereunder to the Executive, except to the extent set forth in Section
2.1(c) hereof. For purposes of this Agreement, a "discharge for
cause" shall mean termination of the Executive upon written notice to
the Executive limited, however, to one or more of the following
reasons:
(1) Conviction of the Executive by a court of
competent jurisdiction of a felony or a crime involving moral
turpitude;
(2) The Executive's failure or refusal to comply
with the Company's policies, standards, and regulations of the
Company, which from time to time may be established;
(3) The Executive's engaging in conduct amounting
to fraud, dishonesty, gross negligence, willful misconduct or
conduct that is unprofessional, unethical, or detrimental to
the reputation, character or standing of the Company; or
(4) The Executive's failure to faithfully and
diligently perform the duties required hereunder or to comply
with the provisions of this Agreement.
Prior to terminating this Agreement pursuant to
Section 2.1(c), (2), or (4), the Company shall furnish the
Executive written notice of the Executive's alleged failure to
abide by or alleged breach of this Agreement. The Executive
shall have thirty (30) days after the Executive's receipt of
such notice to cure such failure to abide or breach and the
Company's Board of Directors shall determine if the failure to
abide or breach is cured.
(d) Termination by the Company with Notice. The Company
may terminate this Agreement at any time, for any reason, other than
as set forth in Subparagraphs (a), (b) or (c) of this Section 2.1,
with or without cause, in the Company's sole discretion, immediately
upon written notice to the Executive without any further liability
hereunder to the Executive, except to the extent set forth in Section
2.2(d) hereof.
(e) Termination by the Executive for Good Reason. The
Executive may terminate this Agreement at any time for Good Reason (as
hereinafter defined) in which event the Company shall have no further
liability hereunder to the Executive except to
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<PAGE> 4
the extent set forth in Section 2.2(e) hereof. For purposes of this
Agreement, the term "Good Reason" shall mean, without the Executive's
express written consent, the occurrence of any of the following
circumstances:
(1) The Company's failure to pay the Executive
the Compensation pursuant to the terms of this Agreement that
has not been cured within thirty (30) days after notice of
such noncompliance has been given by the Executive to the
Company;
(2) The failure of the Company to obtain an
agreement, from any successor to assume and agree to perform
this Agreement; or
(3) Any failure by the Company to comply with any
material provision of this Agreement that has not been cured
within thirty (30) days after notice of such noncompliance has
been given by the Executive to the Company.
(f) Termination by the Executive with Notice. The
Executive may terminate this Agreement for any reason other than Good
Reason on thirty (30) days prior written notice, in the sole
discretion of the Executive, in which event the Company shall have no
further liability hereunder to the Executive, except to the extent set
forth in Section 2.2(f) hereof.
2.2 Compensation upon Termination.
(a) Death. In the event the Executive's employment
hereunder is terminated pursuant to the provisions of Section 2.1(a)
hereof due to the death of the Executive, the Company shall have no
further obligation to the Executive or Executive's estate, except to
pay to the Executive's spouse, or if none, to the estate of the
Executive any accrued, but unpaid, Salary and any vacation or sick
leave benefits, which have accrued as of the date of death but were
then unpaid or unused. Any amount due the Executive hereunder shall
be paid in a lump sum in cash within thirty (30) days after the death
of the Executive.
(b) Disability. In the event the Executive's employment
hereunder is terminated pursuant to the provisions of Section 2.1(b)
hereof due to Disability of the Executive, the Company shall be
relieved of all of its obligations under this Agreement, except to pay
the Executive any accrued, but unpaid Salary, and vacation or sick
leave benefits which have accrued as of the date on which such
permanent disability is determined, but then remain unpaid. The
provisions of the preceding sentence shall not affect the Executive's
rights to receive payments under the Company's disability insurance
plan, if any. Any amount due the Executive hereunder shall be paid in
a lump sum in cash within thirty (30) days after the termination of
the Executive's employment hereunder.
(c) Cause. In the event the Executive's employment
hereunder is terminated by the Company for Cause pursuant to the
provisions of Section 2.1(c) hereof, the Company shall have no further
obligation to the Executive under this Agreement except
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<PAGE> 5
to pay the Executive any accrued, but unpaid, Salary and any vacation
or sick leave benefits, which have accrued as of the date of
termination of this Agreement, but were then unpaid or unused. Any
amount due the Executive hereunder shall be paid in a lump sum in cash
within sixty (60) days after the termination of the Executive's
employment hereunder.
(d) Termination Pursuant to Section 2.1(d). In the event
the Executive's employment hereunder is terminated by the Company
pursuant to the provisions of Section 2.1(d) hereof, the Executive
shall be entitled to receive (i) any accrued, but unpaid, Salary and
any vacation or sick leave benefits, which have accrued as of the date
of termination of this Agreement, but were then unpaid or unused, (ii)
an amount payable in monthly installments equal to the Executive's
full monthly Salary payable for a period of twelve (12) months and
(iii) the Termination Bonus set forth in Exhibit A. Any amount due
the Executive hereunder (i) of this Section shall be paid in a lump
sum in cash within thirty (30) days after the termination of the
Executive's employment hereunder.
(e) Termination by the Executive for Good Reason. In the
event this Agreement is terminated by the Executive pursuant to the
provisions of Section 2.1(e) hereof, the Executive shall be entitled
to receive (i) any accrued, but unpaid, Salary and any vacation or
sick leave benefits which have accrued as of the date of
termination-of the Agreement, but were then unpaid or unused, (ii) the
full monthly Salary payable hereunder for a period of twelve (12)
months after this Agreement is terminated by the Executive in
accordance with the Company's regular payroll periods or over such
lesser period as the Company may determine and (iii) the Termination
Bonus set forth in Exhibit A. Any amount due the Executive hereunder
(i) of this Section shall be paid in a lump sum in cash within thirty
(30) days after the termination of the Executive's employment
hereunder.
(f) Termination Pursuant to Section 2.1(f). In the event
the Executive's employment hereunder is terminated by the Executive
pursuant to the provisions of Section 2.1(f) hereof, all future
compensation to which Executive is entitled and all future benefits
for which Executive is eligible shall cease and terminate as of the
date of termination. Executive shall be entitled to pro rata Salary
through the date of termination. Any amount due the Executive
hereunder shall be paid in a lump sum in cash within sixty (60) days
after the termination of Executive's Employment hereunder.
(g) Termination of Obligations of the Company Upon
Payment of Compensation. Upon payment of the amount, if any, due the
Executive pursuant to the preceding provisions of this Section, the
Company shall have no further obligation to the Executive under this
Agreement.
2.3 Merger or Acquisition. In the event the Company should
consolidate, or merge into another corporation, or transfer all or
substantially all of its assets to another entity, or divide its assets among a
number of entities, this Agreement shall continue in full force and effect.
The Company will require any and all successors (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to expressly assume and agree
pursuant to an
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appropriate written assumption agreement to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place. Failure of the Company to obtain such
agreement prior to or contemporaneously with the effectiveness of any such
successor shall be a breach of the Agreement and shall entitle the Executive,
as his or her sole remedy, to terminate Executive's employment and this
Agreement for Good Reason.
2.4 Offset. The Company shall have the right to deduct from any
amounts due the Executive hereunder any obligations owed by the Executive to
the Company.
ARTICLE III.
PROTECTION OF INFORMATION AND NON-COMPETITION
Protective Covenants. The Executive recognizes that his employment by
the Company is one of the highest trust and confidence because (i) the
Executive will become fully familiar with all aspects of the Company's business
during the period of his employment with the Company, (ii) certain information
of which the Executive will gain knowledge during his employment is proprietary
and confidential information which is special and peculiar value to the
Company, and (iii) if any such proprietary and confidential information were
imparted to or became known by any person, including the Executive, engaging
in a business in competition with that of the Company, hardship, loss or
irreparable injury and damage could result to the Company, the measurement of
which would be difficult if not impossible to ascertain. The Executive
acknowledges that the Company has developed unique skills, concepts, designs,
marketing programs, marketing strategy, business practices, methods of
operation, trademarks, licenses, hiring and training methods, financial and
other confidential and proprietary information concerning its operations and
expansion plans ("Trade Secrets"). Therefore, the Executive agrees that it is
necessary for the Company to protect its business from such damage, and the
Executive further agrees that the following covenants constitute a reasonable
and appropriate means, consistent with the best interest of both the Executive
and the Company, to protect the Company against such damage and shall apply to
and be binding upon the Executive as provided herein:
(a) Trade Secrets. The Executive recognizes that his
position with the Company is one of the highest trust and confidence
by reason by of the Executive's access to and contact with certain
Trade Secrets of the Company. The Executive agrees and covenants to
use his best efforts and exercise utmost diligence to protect and
safeguard the Trade Secrets of the Company. The Executive further
agrees and covenants that, except as may be required by the Company in
connection with this Agreement, or with the prior written consent of
the Company, the Executive shall not, either during the term of this
Agreement or thereafter, directly or indirectly, use for the
Executive's own benefit or for the benefit of another, or disclose,
disseminate, or distribute to another, any Trade Secret (whether or
not acquired, learned, obtained, or developed by the Executive alone
or in conjunction with others) of the Company or of others with whom
the Company has a business relationship. All memoranda, notes,
records, drawings, documents, or other writings whatsoever made,
compiled, acquired, or received by the Executive during the term of
this Agreement, arising out of, in connection with, or related to any
activity or business of the Company, including, but
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not limited to, the Company's operations, the marketing of the
Company's products, the Company's customers, suppliers, or others with
whom the Company has a business relationship, the Company's
arrangements with such parties, and the Company's pricing and
expansion policies and strategy, are, and shall continue to be, the
sole and exclusive property of the Company, and shall, together with
all copies thereof and all advertising literature, be returned and
delivered to the Company by the Executive immediately, without demand,
upon the termination of this Agreement, or at any time upon the
Company's demand.
(b) Restriction on Soliciting Employees of the Company.
The Executive covenants that during the term of this Agreement and for
a period of twelve (12) months following the termination of this
Agreement, he will not, either directly or indirectly, call on,
solicit, or take away, or attempt to call on, solicit, induce or take
away any employee of the Company, either for himself or for any other
person, firm, corporation or other entity. Further, Executive shall
not induce any employee of the Company to terminate his or her
employment with the Company.
(c) Covenant Not to Compete. The Executive hereby
covenants and agrees that during the term of this Agreement and for
the period set forth in Exhibit "A" following the termination of this
Agreement ("Non- Compete Period"), he will not, directly or
indirectly, either as an employee, employer, consultant, agent,
principal, partner, shareholder (other than through ownership of
publicly-traded capital stock of a corporation which represents less
than five percent (5%) of the outstanding capital stock of such
corporation), corporate officer, director, investor, financier or in
any other individual or representative capacity, engage or participate
in any business competitive with the business conducted by the Company
within Texas, Oklahoma or Louisiana.
(d) Survival of Covenants. Each covenant of the
Executive set forth in this Article III shall survive the termination
of this Agreement and shall be construed as an agreement independent
of any other provision of this Agreement, and the existence of any
claim or cause of action of the Executive against the Company whether
predicated on this Agreement or otherwise shall not constitute a
defense to the enforcement by the Company of said covenant.
(e) Remedies. In the event of breach or threatened breach
by the Executive of any provision of this Article III, the Company
shall be entitled to relief by temporary restraining order, temporary
injunction, or permanent injunction or otherwise, in addition to other
legal and equitable relief to which it may be entitled, including any
and all monetary damages which the Company may incur as a result of
said breach, violation or threatened breach or violation. The Company
may pursue any remedy available to it concurrently or consecutively in
any order as to any breach, violation, or threatened breach or
violation, and the pursuit of one of such remedies at any time will not
be deemed an election of remedies or waiver of the right to pursue any
other of such remedies as to such breach, violation, or threatened
breach or violation, or as to any other breach, violation, or
threatened breach or violation.
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The Executive hereby acknowledges that the Executive's agreement to be
bound by the protective covenants set forth in this Article III was a material
inducement for the Company entering into this Agreement and agreeing to pay the
Executive the compensation and benefits set forth herein. Further, Executive
understands the foregoing restrictions may limit his or her ability to engage
in certain businesses during the period of time provided for, but acknowledges
that Executive will receive sufficiently high remuneration and other benefits
under this Agreement to justify such restriction.
ARTICLE IV.
GENERAL PROVISIONS
4.1 Notices. all notices, requests, consents, and other
communications under this Agreement shall be in writing and shall be deemed to
have been delivered on the date personally delivered or on the date deposited
in a receptacle maintained by the United States Postal Service for such
purpose, postage prepaid, by certified mail, return receipt requested,
addressed to the respective parties as follows:
If to the Executive: As set forth in Exhibit "A"
If to the Company: Sepco Industries, Inc.
6500 Brittmoore
Houston, Texas 77041
ATTN: David R. Little
Either party hereto may designate a different address by providing written
notice of such new address to the other party hereto.
4.2 Severability. If any provision contained in this Agreement is
determined by a court of competent jurisdiction or an arbitrator pursuant to
Section 5 below to be void, illegal or unenforceable, in whole or in part, then
the other provisions contained herein shall remain in full force and effect as
if the provision which was determined to be void, illegal, or unenforceable had
not been contained herein. If the restrictions contained in Article III are
found by a court to be unreasonable or overly broad as to geographic area or
time, or otherwise unenforceable, the parties intend for said restrictions to
be modified by said court so as to be reasonable and enforceable and, as so
modified, to be fully enforced.
4.3 Waiver Modification, and Integration. The waiver by any party
hereto of a breach of any provision of this Agreement shall not operate or be
construed as a waiver of any subsequent breach by any party. This instrument
contains the entire agreement of the parties concerning employment and
supersedes all prior and contemporaneous representations, understandings and
agreements, either oral or in writing, between the parties hereto with respect
to the employment of the Executive by the Company and all such prior or
contemporaneous
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<PAGE> 9
representations, understandings and agreements, both oral and written, are
hereby terminated. This Agreement may not be modified, altered or amended
except by written agreement of all the parties hereto.
4.4 Binding Effect. This Agreement shall be binding and effective
upon the parties and their respective successors. Neither party shall assign
this Agreement without the prior written consent of the other party, except
that the Company shall have the right to assign this Agreement to an entity.
4.5 Governing Law. The parties intend that the laws of the State
of Texas should govern the validity of this Agreement, the construction of its
terms, and the interpretation of the rights and duties of the parties hereto.
4.6 Representation of Executive. The Executive hereby represents
and warrants to the Company that the Executive has not previously assumed any
obligations inconsistent with those contained in this Agreement. The Executive
further represents and warrants to the Company that the Executive has entered
into this Agreement pursuant to Executive's own initiative and that this
Agreement is not in contravention of any existing commitments. The Executive
acknowledges that the Company has entered into this Agreement in reliance upon
the foregoing representations of the Executive.
4.7 Counterpart Execution. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute but one and the same instrument.
4.8 Company. For the purposes of this Agreement, Company shall
include any parent, subsidiary division of the Company, or any entity, who
directly or indirectly, controls, is controlled by, or is under common control
with the Company.
ARTICLE V.
ARBITRATION
5.1 Resolution of Disputes. In any dispute between the Parties,
the Parties shall cooperate in good faith to resolve the dispute. If the
parties cannot resolve the dispute between themselves, they shall each, within
ten (10) days, select one mediator to help resolve the dispute. If a resolution
of the dispute does not occur through mediation within thirty (30) days after
the selection of the two mediators, any Party may demand binding arbitration.
5.2 Arbitration. In the event any dispute cannot be resolved
through mediation the Parties agree to submit such dispute to binding
arbitration. Any such arbitration arising hereunder shall be conducted in
Houston, Texas in accordance with the rules of the American Arbitration
Association then in effect. The costs of arbitration shall be borne equally by
the Parties. However, each Party shall be responsible for such Party's own
attorneys' fees.
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ARTICLE VI.
CONFIDENTIALITY
6.1 Confidentiality. This Agreement is confidential, and the
substance may be disclosed only as mutually agreed by the Parties or as may be
required by law.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written effective as of the Effective Date.
THE COMPANY:
SEPCO INDUSTRIES, INC., a Texas corporation
By: /s/ DAVID R. LITTLE
-----------------------------------------
Printed Name: DAVID R. LITTLE
----------------------
Title: Chairman & CEO
-----------------------------
EXECUTIVE:
By: /s/ GARY A. ALLCORN
-----------------------------------------
GARY A. ALLCORN
Senior Vice President and
Chief Financial Officer
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<PAGE> 11
EXHIBIT "A"
TO
EMPLOYMENT AGREEMENT
<TABLE>
<S> <C>
NAME: Gary A. Allcorn
POSITION: Senior Vice President
Chief Financial Officer
MONTHLY BASE: $9,425.00
BONUS: One percent (1%) of the monthly profit before tax of DXP
Enterprises, Inc., excluding sales of fixed assets and extra-
ordinary items, as determined by DXP, which shall be payable
monthly in accordance with the Company's regular bonus
practices
NON-COMPETE PERIOD: Twelve (12) months
HOME ADDRESS: 23210 Gate Creek Court
Katy, TX 77494
TERMINATION BONUS: The sum equal to the total of twelve (12) previous monthly bonus
payments made to Employee in accordance with Section 1.4(b) of this
Agreement
</TABLE>
<PAGE> 1
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement) by and between SEPCO
INDUSTRIES, INC., a Texas corporation (the "Company"), and JERRY J. JONES (the
"Executive") is made and entered into as of the Effective Date set forth in
Section 1.3 below:
RECITALS
A. The Company desires to employ the Executive in the capacity
set forth on Exhibit A pursuant to the provisions of this
Agreement; and
B. The Executive desires employment as an employee of the Company
pursuant to the provisions of this Agreement.
ARTICLE I.
TERMS OF EMPLOYMENT
The terms of employment are as follows:
1.1 Employment. The Company hereby employs the Executive for and
during the term hereof in the capacity set forth on Exhibit A, but Company may
subsequently assign Executive to a different position or modify Executive's
duties and responsibilities. The Executive hereby accepts employment under the
terms and conditions set forth in this Agreement.
1.2 Duties of Executive. The Executive shall perform in the
capacity described in Section 1.1 hereof and shall have such duties,
responsibilities, and authorities as may be designated for such office. The
Executive agrees to devote the Executive's best efforts, abilities, knowledge,
experience and full business time to the faithful performance of the duties,
responsibilities, and authorities which may be assigned to the Executive.
Executive may not engage, directly or indirectly, in any other business,
investment, or activity that interferes with Executive's performance of
Executive's duties hereunder, is contrary to the interests of the Company, or
requires any significant portion of Executives's business time. Executive
shall at all times comply with and be subject to such policies and procedures
as the Company may establish from time to time. Executive acknowledges and
agrees that Executive owes a fiduciary duty of loyalty, fidelity and allegiance
to act at all times in the best interests of the Company and to do no act which
would injure Company's business, its interests, or its reputation.
1.3 Term. This Agreement shall become effective as of the 1st day
of July, 1996 (the "Effective Date") and shall continue in force and effect for
one (1) year unless sooner terminated as provided in Section 2.1 hereof.
Unless this Agreement is terminated before its annual anniversary date, the
term hereof shall be automatically extended for one (1) year unless this
Agreement is renewed or extended by written agreement between the Company and
the Executive pursuant to terms and conditions mutually acceptable.
1.4 Compensation. The Company shall pay the Executive, as
"Compensation" for services rendered by the Executive under this Agreement the
following Salary plus Bonus.
-1-
<PAGE> 2
(a) Salary: A base salary per month as set forth on Exhibit A,
prorated for any partial period of employment ("Salary"). Such Salary
shall be paid in installments in accordance with the Company's regular
payroll practices.
(b) Bonus: A bonus as set forth in Exhibit "A" ("Bonus").
1.5 Employment Benefits. In addition to the Salary payable to the
Executive hereunder, the Executive shall be entitled to the following benefits:
(a) Employment Benefits. As an employee of the Company,
the Executive shall participate in and receive all general employee
benefit plans and programs, as may be in effect from time to time,
upon satisfaction by the Executive of the eligibility requirements
therefor. Nothing in this Agreement is to be construed or interpreted
to provide greater rights, participation, coverage, or benefits under
such benefit plans or programs than provided to similarly situated
employees pursuant to the terms and conditions of such benefit plans
and programs.
(b) Working Facilities. During the term of this
Agreement, the Company shall provide, at its expense, office space,
furniture, equipment, supplies and personnel as shall be adequate for
the Executive's use in performing Executive's duties and
responsibilities under this Agreement.
(c) Automobile Allowance. During the term of this
Agreement, the Company shall provide Executive with a vehicle in
accordance with the Company's vehicle policy.
(d) Limitations. Company shall not by reason of this Article
1.5 be obligated to institute, maintain, or refrain from changing,
amending, or discontinuing, any such incentive compensation or
employee benefit program or plan, so long as such actions are
similarly applicable to covered employees similarly situated.
ARTICLE II.
TERMINATION
2.1 Termination. Notwithstanding anything herein to the contrary,
this Agreement and the Executive's employment hereunder may be terminated
without any breach of this Agreement at any time during the term hereof by
reason of and in accordance with the following provisions:
(a) Death. If the Executive dies during the term of this
Agreement and while in the employ of the Company, this Agreement shall
automatically terminate as of the date of the Executive's death, and
the Company shall have no further liability hereunder to the Executive
or Executive's estate, except to the extent set forth in Section
2.2(a) hereof.
(b) Disability. If, during the term of this Agreement,
the Executive shall be prevented from performing the Executive's
duties hereunder by reason of becoming disabled as hereinafter
defined, the Company may terminate this Agreement immediately
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<PAGE> 3
upon written notice to the Executive without any further liability
hereunder to the Executive except as set forth in Section 2.2(b)
hereof. For purposes of this Agreement, the Executive shall be deemed
to have become disabled when the Board of Directors of the Company,
upon the written report of a qualified physician designated by the
Board of Directors of the Company or by its insurers, shall have
determined that the Executive has become mentally, physically and/or
emotionally incapable of performing Executive's duties and services
under this Agreement.
(c) Termination by the Company for Cause. Prior to the
expiration of the term of this Agreement, the Company may discharge
the Executive for cause and terminate this Agreement immediately upon
written notice to the Executive without any further liability
hereunder to the Executive, except to the extent set forth in Section
2.1(c) hereof. For purposes of this Agreement, a "discharge for
cause" shall mean termination of the Executive upon written notice to
the Executive limited, however, to one or more of the following
reasons:
(1) Conviction of the Executive by a court of
competent jurisdiction of a felony or a crime involving moral
turpitude;
(2) The Executive's failure or refusal to comply
with the Company's policies, standards, and regulations of the
Company, which from time to time may be established;
(3) The Executive's engaging in conduct amounting
to fraud, dishonesty, gross negligence, willful misconduct or
conduct that is unprofessional, unethical, or detrimental to
the reputation, character or standing of the Company; or
(4) The Executive's failure to faithfully and
diligently perform the duties required hereunder or to comply
with the provisions of this Agreement.
Prior to terminating this Agreement pursuant to
Section 2.1(c), (2), or (4), the Company shall furnish the
Executive written notice of the Executive's alleged failure to
abide by or alleged breach of this Agreement. The Executive
shall have thirty (30) days after the Executive's receipt of
such notice to cure such failure to abide or breach and the
Company's Board of Directors shall determine if the failure to
abide or breach is cured.
(d) Termination by the Company with Notice. The Company
may terminate this Agreement at any time, for any reason, other than
as set forth in Subparagraphs (a), (b) or (c) of this Section 2.1,
with or without cause, in the Company's sole discretion, immediately
upon written notice to the Executive without any further liability
hereunder to the Executive, except to the extent set forth in Section
2.2(d) hereof.
(e) Termination by the Executive for Good Reason. The
Executive may terminate this Agreement at any time for Good Reason (as
hereinafter defined) in which event the Company shall have no further
liability hereunder to the Executive except to
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<PAGE> 4
the extent set forth in Section 2.2(e) hereof. For purposes of this
Agreement, the term "Good Reason" shall mean, without the Executive's
express written consent, the occurrence of any of the following
circumstances:
(1) The Company's failure to pay the Executive
the Compensation pursuant to the terms of this Agreement that
has not been cured within thirty (30) days after notice of
such noncompliance has been given by the Executive to the
Company;
(2) The failure of the Company to obtain an
agreement, from any successor to assume and agree to perform
this Agreement; or
(3) Any failure by the Company to comply with any
material provision of this Agreement that has not been cured
within thirty (30) days after notice of such noncompliance has
been given by the Executive to the Company.
(f) Termination by the Executive with Notice. The
Executive may terminate this Agreement for any reason other than Good
Reason on thirty (30) days prior written notice, in the sole
discretion of the Executive, in which event the Company shall have no
further liability hereunder to the Executive, except to the extent set
forth in Section 2.2(f) hereof.
2.2 Compensation upon Termination.
(a) Death. In the event the Executive's employment
hereunder is terminated pursuant to the provisions of Section 2.1(a)
hereof due to the death of the Executive, the Company shall have no
further obligation to the Executive or Executive's estate, except to
pay to the Executive's spouse, or if none, to the estate of the
Executive any accrued, but unpaid, Salary and any vacation or sick
leave benefits, which have accrued as of the date of death but were
then unpaid or unused. Any amount due the Executive hereunder shall
be paid in a lump sum in cash within thirty (30) days after the death
of the Executive.
(b) Disability. In the event the Executive's employment
hereunder is terminated pursuant to the provisions of Section 2.1(b)
hereof due to Disability of the Executive, the Company shall be
relieved of all of its obligations under this Agreement, except to pay
the Executive any accrued, but unpaid Salary, and vacation or sick
leave benefits which have accrued as of the date on which such
permanent disability is determined, but then remain unpaid. The
provisions of the preceding sentence shall not affect the Executive's
rights to receive payments under the Company's disability insurance
plan, if any. Any amount due the Executive hereunder shall be paid in
a lump sum in cash within thirty (30) days after the termination of
the Executive's employment hereunder.
(c) Cause. In the event the Executive's employment
hereunder is terminated by the Company for Cause pursuant to the
provisions of Section 2.1(c) hereof, the Company shall have no further
obligation to the Executive under this Agreement except
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<PAGE> 5
to pay the Executive any accrued, but unpaid, Salary and any vacation
or sick leave benefits, which have accrued as of the date of
termination of this Agreement, but were then unpaid or unused. Any
amount due the Executive hereunder shall be paid in a lump sum in cash
within sixty (60) days after the termination of the Executive's
employment hereunder.
(d) Termination Pursuant to Section 2.1(d). In the event
the Executive's employment hereunder is terminated by the Company
pursuant to the provisions of Section 2.1(d) hereof, the Executive
shall be entitled to receive (i) any accrued, but unpaid, Salary and
any vacation or sick leave benefits, which have accrued as of the date
of termination of this Agreement, but were then unpaid or unused, (ii)
an amount payable in monthly installments equal to the Executive's
full monthly Salary payable for a period of twelve (12) months and
(iii) the Termination Bonus set forth in Exhibit A. Any amount due
the Executive hereunder (i) of this Section shall be paid in a lump
sum in cash within thirty (30) days after the termination of the
Executive's employment hereunder.
(e) Termination by the Executive for Good Reason. In the
event this Agreement is terminated by the Executive pursuant to the
provisions of Section 2.1(e) hereof, the Executive shall be entitled
to receive (i) any accrued, but unpaid, Salary and any vacation or
sick leave benefits which have accrued as of the date of
termination-of the Agreement, but were then unpaid or unused, (ii) the
full monthly Salary payable hereunder for a period of twelve (12)
months after this Agreement is terminated by the Executive in
accordance with the Company's regular payroll periods or over such
lesser period as the Company may determine and (iii) the Termination
Bonus set forth in Exhibit A. Any amount due the Executive hereunder
(i) of this Section shall be paid in a lump sum in cash within thirty
(30) days after the termination of the Executive's employment
hereunder.
(f) Termination Pursuant to Section 2.1(f). In the event
the Executive's employment hereunder is terminated by the Executive
pursuant to the provisions of Section 2.1(f) hereof, all future
compensation to which Executive is entitled and all future benefits
for which Executive is eligible shall cease and terminate as of the
date of termination. Executive shall be entitled to pro rata Salary
through the date of termination. Any amount due the Executive
hereunder shall be paid in a lump sum in cash within sixty (60) days
after the termination of Executive's Employment hereunder.
(g) Termination of Obligations of the Company Upon
Payment of Compensation. Upon payment of the amount, if any, due the
Executive pursuant to the preceding provisions of this Section, the
Company shall have no further obligation to the Executive under this
Agreement.
2.3 Merger or Acquisition. In the event the Company should
consolidate, or merge into another corporation, or transfer all or
substantially all of its assets to another entity, or divide its assets among a
number of entities, this Agreement shall continue in full force and effect.
The Company will require any and all successors (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to expressly assume and agree
pursuant to an
-5-
<PAGE> 6
appropriate written assumption agreement to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place. Failure of the Company to obtain such
agreement prior to or contemporaneously with the effectiveness of any such
successor shall be a breach of the Agreement and shall entitle the Executive,
as his or her sole remedy, to terminate Executive's employment and this
Agreement for Good Reason.
2.4 Offset. The Company shall have the right to deduct from any
amounts due the Executive hereunder any obligations owed by the Executive to
the Company.
ARTICLE III.
PROTECTION OF INFORMATION AND NON-COMPETITION
Protective Covenants. The Executive recognizes that his employment by
the Company is one of the highest trust and confidence because (i) the
Executive will become fully familiar with all aspects of the Company's business
during the period of his employment with the Company, (ii) certain information
of which the Executive will gain knowledge during his employment is proprietary
and confidential information which is special and peculiar value to the
Company, and (iii) if any such proprietary and confidential information were
imparted to or became known by any person, including the Executive, engaging
in a business in competition with that of the Company, hardship, loss or
irreparable injury and damage could result to the Company, the measurement of
which would be difficult if not impossible to ascertain. The Executive
acknowledges that the Company has developed unique skills, concepts, designs,
marketing programs, marketing strategy, business practices, methods of
operation, trademarks, licenses, hiring and training methods, financial and
other confidential and proprietary information concerning its operations and
expansion plans ("Trade Secrets"). Therefore, the Executive agrees that it is
necessary for the Company to protect its business from such damage, and the
Executive further agrees that the following covenants constitute a reasonable
and appropriate means, consistent with the best interest of both the Executive
and the Company, to protect the Company against such damage and shall apply to
and be binding upon the Executive as provided herein:
(a) Trade Secrets. The Executive recognizes that his
position with the Company is one of the highest trust and confidence
by reason by of the Executive's access to and contact with certain
Trade Secrets of the Company. The Executive agrees and covenants to
use his best efforts and exercise utmost diligence to protect and
safeguard the Trade Secrets of the Company. The Executive further
agrees and covenants that, except as may be required by the Company in
connection with this Agreement, or with the prior written consent of
the Company, the Executive shall not, either during the term of this
Agreement or thereafter, directly or indirectly, use for the
Executive's own benefit or for the benefit of another, or disclose,
disseminate, or distribute to another, any Trade Secret (whether or
not acquired, learned, obtained, or developed by the Executive alone
or in conjunction with others) of the Company or of others with whom
the Company has a business relationship. All memoranda, notes,
records, drawings, documents, or other writings whatsoever made,
compiled, acquired, or received by the Executive during the term of
this Agreement, arising out of, in connection with, or related to any
activity or business of the Company, including, but
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<PAGE> 7
not limited to, the Company's operations, the marketing of the Company's
products, the Company's customers, suppliers, or others with whom the Company
has a business relationship, the Company's arrangements with such parties, and
the Company's pricing and expansion policies and strategy, are, and shall
continue to be, the sole and exclusive property of the Company, and shall,
together with all copies thereof and all advertising literature, be returned
and delivered to the Company by the Executive immediately, without demand, upon
the termination of this Agreement, or at any time upon the Company's demand.
(b) Restriction on Soliciting Employees of the Company.
The Executive covenants that during the term of this Agreement and for
a period of twelve (12) months following the termination of this
Agreement, he will not, either directly or indirectly, call on,
solicit, or take away, or attempt to call on, solicit, induce or take
away any employee of the Company, either for himself or for any other
person, firm, corporation or other entity. Further, Executive shall
not induce any employee of the Company to terminate his or her
employment with the Company.
(c) Covenant Not to Compete. The Executive hereby
covenants and agrees that during the term of this Agreement and for
the period set forth in Exhibit "A" following the termination of this
Agreement ("Non- Compete Period"), he will not, directly or
indirectly, either as an employee, employer, consultant, agent,
principal, partner, shareholder (other than through ownership of
publicly-traded capital stock of a corporation which represents less
than five percent (5%) of the outstanding capital stock of such
corporation), corporate officer, director, investor, financier or in
any other individual or representative capacity, engage or participate
in any business competitive with the business conducted by the Company
within Texas, Oklahoma or Louisiana.
(d) Survival of Covenants. Each covenant of the
Executive set forth in this Article III shall survive the termination
of this Agreement and shall be construed as an agreement independent
of any other provision of this Agreement, and the existence of any
claim or cause of action of the Executive against the Company whether
predicated on this Agreement or otherwise shall not constitute a
defense to the enforcement by the Company of said covenant.
(e) Remedies. In the event of breach or threatened
breach by the Executive of any provision of this Article III, the
Company shall be entitled to relief by temporary restraining order,
temporary injunction, or permanent injunction or otherwise, in
addition to other legal and equitable relief to which it may be
entitled, including any and all monetary damages which the Company may
incur as a result of said breach, violation or threatened breach or
violation. The Company may pursue any remedy available to it
concurrently or consecutively in any order as to any breach,
violation, or threatened breach or violation, and the pursuit of one
of such remedies at any time will not be deemed an election of
remedies or waiver of the right to pursue any other of such remedies
as to such breach, violation, or threatened breach or violation, or as
to any other breach, violation, or threatened breach or violation.
-7-
<PAGE> 8
The Executive hereby acknowledges that the Executive's agreement to be
bound by the protective covenants set forth in this Article III was a material
inducement for the Company entering into this Agreement and agreeing to pay the
Executive the compensation and benefits set forth herein. Further, Executive
understands the foregoing restrictions may limit his or her ability to engage
in certain businesses during the period of time provided for, but acknowledges
that Executive will receive sufficiently high remuneration and other benefits
under this Agreement to justify such restriction.
ARTICLE IV.
GENERAL PROVISIONS
4.1 Notices. all notices, requests, consents, and other
communications under this Agreement shall be in writing and shall be deemed to
have been delivered on the date personally delivered or on the date deposited
in a receptacle maintained by the United States Postal Service for such
purpose, postage prepaid, by certified mail, return receipt requested,
addressed to the respective parties as follows:
If to the Executive: As set forth in Exhibit "A"
If to the Company: Sepco Industries, Inc.
6500 Brittmoore
Houston, Texas 77041
ATTN: David R. Little
Either party hereto may designate a different address by providing written
notice of such new address to the other party hereto.
4.2 Severability. If any provision contained in this Agreement is
determined by a court of competent jurisdiction or an arbitrator pursuant to
Section 5 below to be void, illegal or unenforceable, in whole or in part, then
the other provisions contained herein shall remain in full force and effect as
if the provision which was determined to be void, illegal, or unenforceable had
not been contained herein. If the restrictions contained in Article III are
found by a court to be unreasonable or overly broad as to geographic area or
time, or otherwise unenforceable, the parties intend for said restrictions to
be modified by said court so as to be reasonable and enforceable and, as so
modified, to be fully enforced.
4.3 Waiver Modification, and Integration. The waiver by any party
hereto of a breach of any provision of this Agreement shall not operate or be
construed as a waiver of any subsequent breach by any party. This instrument
contains the entire agreement of the parties concerning employment and
supersedes all prior and contemporaneous representations, understandings and
agreements, either oral or in writing, between the parties hereto with respect
to the employment of the Executive by the Company and all such prior or
contemporaneous
-8-
<PAGE> 9
representations, understandings and agreements, both oral and written, are
hereby terminated. This Agreement may not be modified, altered or amended
except by written agreement of all the parties hereto.
4.4 Binding Effect. This Agreement shall be binding and effective
upon the parties and their respective successors. Neither party shall assign
this Agreement without the prior written consent of the other party, except
that the Company shall have the right to assign this Agreement to an entity.
4.5 Governing Law. The parties intend that the laws of the State
of Texas should govern the validity of this Agreement, the construction of its
terms, and the interpretation of the rights and duties of the parties hereto.
4.6 Representation of Executive. The Executive hereby represents
and warrants to the Company that the Executive has not previously assumed any
obligations inconsistent with those contained in this Agreement. The Executive
further represents and warrants to the Company that the Executive has entered
into this Agreement pursuant to Executive's own initiative and that this
Agreement is not in contravention of any existing commitments. The Executive
acknowledges that the Company has entered into this Agreement in reliance upon
the foregoing representations of the Executive.
4.7 Counterpart Execution. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute but one and the same instrument.
4.8 Company. For the purposes of this Agreement, Company shall
include any parent, subsidiary division of the Company, or any entity, who
directly or indirectly, controls, is controlled by, or is under common control
with the Company.
ARTICLE V.
ARBITRATION
5.1 Resolution of Disputes. In any dispute between the Parties,
the Parties shall cooperate in good faith to resolve the dispute. If the
parties cannot resolve the dispute between themselves, they shall each, within
ten (10) days, select one mediator to help resolve the dispute. If a resolution
of the dispute does not occur through mediation within thirty (30) days after
the selection of the two mediators, any Party may demand binding arbitration.
5.2 Arbitration. In the event any dispute cannot be resolved
through mediation the Parties agree to submit such dispute to binding
arbitration. Any such arbitration arising hereunder shall be conducted in
Houston, Texas in accordance with the rules of the American Arbitration
Association then in effect. The costs of arbitration shall be borne equally by
the Parties. However, each Party shall be responsible for such Party's own
attorneys' fees.
-9-
<PAGE> 10
ARTICLE VI.
CONFIDENTIALITY
6.1 Confidentiality. This Agreement is confidential, and the
substance may be disclosed only as mutually agreed by the Parties or as may be
required by law.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written effective as of the Effective Date.
THE COMPANY:
SEPCO INDUSTRIES, INC., a Texas corporation
By: /s/ DAVID R. LITTLE
----------------------------------------
Printed Name: DAVID R. LITTLE
-------------------------
Title: Chairman & CEO
--------------------------------
EXECUTIVE:
By: /s/ JERRY J. JONES
----------------------------------------
JERRY J. JONES
Senior Vice President
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<PAGE> 11
EXHIBIT "A"
TO
EMPLOYMENT AGREEMENT
NAME: Jerry J. Jones
POSITION: Senior Vice President
MONTHLY BASE: $10,833.42
BONUS: Two percent (2%) of the monthly
profit before tax of DXP
Enterprises, Inc., excluding sales
of fixed assets and extra-ordinary
items, as determined by DXP, which
shall be payable monthly in
accordance with the Company's
regular bonus practices
NON-COMPETE PERIOD: Twelve (12) months
HOME ADDRESS: 507 Timber Circle
Houston, TX 77079
TERMINATION BONUS: The sum equal to the total of twelve
(12) previous monthly bonus payments
made to Employee in accordance with
Section 1.4(b) of this Agreement
<PAGE> 1
Exhibit 11.1: Statement re: Computation of Per Share Earnings.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Primary:
Average shares outstanding 8,087,963 7,993,947 8,087,963 7,993,947
Net effect of dilutive stock options -- based
on the treasury stock method using 2,163,222 586,232 2,163,222 586,232
average market price
Total common and common stock
equivalents 10,251,185 8,580,179 10,251,185 8,580,179
Net income attributable to common
shareholders $ 250,000 $ 313,000 $1,771,000 $822,000
Per share amount $ .0244 $ .0365 $ 0.1728 $ 0.0958
Fully diluted
Average shares outstanding 8,087,963 7,993,947 8,087,963 7,993,947
Net effect of dilutive stock options --
based on the treasure stock method
using period-end market price, if higher
than average market price 2,163,222 637,840 2,163,222 637,840
Assumed conversion of Class A convertible
Preferred Stock(1) -- 1,092,000 940,800 1,092,000
Total 10,251,185 9,723,787 11,191,985 9,723,787
Net Income $ 250,000 $ 336,000 $1,880,000 $890,000
Per share amount $ .0244 $ .0346 $ .1680 $ .0915
</TABLE>
(1) Conversion would be anti-dilutive and, therefore, not applicable.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF DXP ENTERPRISES, INC.
AS OF SEPTEMBER 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 556
<SECURITIES> 0
<RECEIVABLES> 27,201
<ALLOWANCES> 310
<INVENTORY> 28,027
<CURRENT-ASSETS> 789
<PP&E> 19,351
<DEPRECIATION> 8,799
<TOTAL-ASSETS> 69,985
<CURRENT-LIABILITIES> 18,808
<BONDS> 35,793
292
20
<COMMON> 80
<OTHER-SE> 11,857
<TOTAL-LIABILITY-AND-EQUITY> 69,985
<SALES> 118,277
<TOTAL-REVENUES> 118,277
<CGS> 86,706
<TOTAL-COSTS> 86,706
<OTHER-EXPENSES> 26,661
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,960
<INCOME-PRETAX> 2,950
<INCOME-TAX> 1,070
<INCOME-CONTINUING> 1,880
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,880
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
</TABLE>
