-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HY5m6XA+Au1TkZwdSf7T0Ay0Dsg0e7g5pxdljifAiio/70tuUkiUf0omLdgT1PJa DVhfdOBEoCQTgyCdI4wxVA== 0000950144-98-003373.txt : 19980330 0000950144-98-003373.hdr.sgml : 19980330 ACCESSION NUMBER: 0000950144-98-003373 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 18 CONFORMED PERIOD OF REPORT: 19980103 FILED AS OF DATE: 19980327 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MARK VII INC CENTRAL INDEX KEY: 0000795425 STANDARD INDUSTRIAL CLASSIFICATION: TRUCKING (NO LOCAL) [4213] IRS NUMBER: 431074964 STATE OF INCORPORATION: MO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-14810 FILM NUMBER: 98575454 BUSINESS ADDRESS: STREET 1: 10100 NW EXECUTIVE HILLS BLVD STREET 2: STE 200 CITY: KANSAS CITY STATE: MO ZIP: 64153 BUSINESS PHONE: 9017674455 FORMER COMPANY: FORMER CONFORMED NAME: MNX INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: MNX TRUCKING DATE OF NAME CHANGE: 19870512 10-K 1 MARK VII, INC. FORM 10-K FYE: 1-3-98 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended January 3, 1998 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) of the SECURITIES EXCHANGE ACT OF 1934 For the transition period from to . ---------- ----------- Commission File No. 0-14810 MARK VII, INC. (Exact name of Registrant as specified in its charter) Delaware (State or other jurisdiction 43-1074964 of incorporation or organization) (I.R.S. Employer Identification No.) 965 Ridge Lake Boulevard, Suite 103 Memphis, Tennessee 38120 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (901) 767-4455 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.05 par value (Title of Class) 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 ( ) Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of Common Stock, $.05 par value, held by non-affiliates of the Registrant on March 6, 1998, based upon the last sale price of such stock on that date was $145,821,852. At March 6, 1998, 8,938,572 shares of Common Stock, $.05 par value, were outstanding. DOCUMENTS INCORPORATED BY REFERENCE
Documents Form 10-K Reference - ------------------ ------------------- Notice of 1998 Annual Meeting of Shareholders and Proxy Statement Part III, Items 10, 11, 12 and 13 to be filed within 120 days of January 3, 1998, excluding therefrom the sections titled "Board Compensation Committee Report on Executive Compensation" and "Performance Graph"
2 MARK VII, INC. AND SUBSIDIARIES 1997 ANNUAL REPORT ON FORM 10-K TABLE OF CONTENTS
PART I Page ---- Item 1. Business........................................................................................ 2 Item 2. Properties...................................................................................... 5 Item 3. Legal Proceedings............................................................................... 5 Item 4. Submission of Matters to a Vote of Security Holders............................................. 5 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters........................... 6 Item 6. Selected Financial Data......................................................................... 7 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations........... 8 Item 8. Financial Statements and Supplementary Data..................................................... 10 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures........... 10 PART III Item 10. Directors and Executive Officers of the Registrant.............................................. 10 Item 11. Executive Compensation.......................................................................... 10 Item 12. Security Ownership of Certain Beneficial Owners and Management.................................. 10 Item 13. Certain Relationships and Related Transactions.................................................. 10 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K................................ 11
1 3 NOTE REGARDING FORWARD-LOOKING STATEMENTS Except for the historical information contained herein, this document contains forward-looking statements based on management's current expectations of the Company's near term results, based on current information available pertaining to the Company. Actual future results and trends may differ materially depending on a variety of factors, including competition in the marketplace, changes in the carrier base, changes in capacity and changes in government regulations. PART I ITEM 1. BUSINESS GENERAL Mark VII, Inc. (the "Company") is a holding company, the principal assets of which are its transportation services subsidiary, Mark VII Transportation Company, Inc. ("Mark VII") and Mark VII's subsidiaries. The Company is a Delaware corporation, but was originally organized in 1976 as a Missouri corporation. The Company is a service organization that acts as a provider of transportation and logistics services. As a provider of transportation services, the Company arranges for domestic and international transportation, using a number of different transportation modes, including rail, truck, ship and air. As a logistics manager, the Company provides its customers with value-added elements of the distribution chain, such as private fleet management, warehousing and regional and local distribution. The Company has established a network of transportation sales personnel and logistics managers at its headquarters in Memphis, Tennessee and 133 branch sales offices in 37 states. The majority of the Company's branch offices are operated by independent commission agents responsible for the client relationships, office expenses and billing. The Company supports its agency offices by providing expertise in multiple transportation modes, rate negotiation and logistics design, as well as administrative and credit services. The Company acts as a link between shippers and carriers. Shippers use transportation services companies to complement in-house transportation departments. The Company augments in-house shipping departments by providing expertise in multiple modes of transportation, providing access to additional transportation equipment, negotiating transportation rates and increasing the productivity of in-house personnel. The Company provides shippers with an opportunity to outsource all or part of the transportation function, thereby allowing them to devote assets and personnel to their primary business. The Company's services are also used by transportation carriers to supplement their in-house sales departments and to improve equipment utilization. The Company maintains close relationships with major railroads, trucklines, shipping lines and air freight carriers. SERVICES PROVIDED The Company's transportation services can be broadly classified into the following categories: Transaction Based Services. "Transaction based services" are identified with the traditional freight brokerage business where a shipper calls a transportation services company to arrange for service on a shipment-by-shipment basis. The transportation services company then assumes responsibility for the transportation carrier's obligations to perform in accordance with the shipper's specifications. Similarly, a carrier may call the transportation services company when it has resources available to transport freight. The transportation services company arranges a match and adds a fee to the carrier's rate. Logistics Management Services. "Logistics management services" include both process based and information/knowledge based services. Process based services involve the Company taking responsibility for all transactions of a particular type for a shipper or carrier. The Company's expertise in intermodal service and trucking has led shippers and carriers to request the Company to regularly arrange shipments for a pre-arranged fee. Both shippers and carriers avail themselves of this service, often realizing financial savings due to the Company's volume and information base and its ability to arrange shipments more efficiently. The Company can help trucklines maintain competitive positions, including allowing them to supplement their sales and marketing efforts without incremental fixed costs. Process based services generally are a result of the full or partial outsourcing of internal traffic department functions. For example, the Company currently coordinates the time-sensitive raw potato delivery for a number of processing plants of a major potato chip manufacturer. 2 4 Other examples of process based services currently executed by the Company are the procurement of truck and rail services for a substantial portion of a customer's shipments from a particular location, procurement of backhaul shipments for private fleets, freight consolidation and forwarding for a customer with complex logistical needs, and utilization management of an equipment owner's fleet and operation of small dedicated fleets to serve several logistics customers. Information/knowledge based services involve management and consultation on any and all aspects of transportation for a shipper or carrier, including dedicated fleet and warehousing. The Company utilizes its sales network to design transportation and distribution programs for customers with complex logistical needs. For example, ERX Logistics, L.L.C., a joint venture between the Company and a warehousing firm, provides a major household appliance manufacturer with warehousing and time-sensitive delivery of its appliances to its dealers and building contractor customers. TRANSPORTATION MODES Transportation modes used by the Company have been organized into product lines. Each product line has one or more managers to provide marketing and operational support to the Company's network of sales people and logistics professionals. Rail Services. Intermodal services involve arranging for the pick up and delivery of shipments by trucks, and the shipments' transport by railroads, in a coordinated manner. Other rail services involve rail transport by boxcar or flatcar for shippers' heavy or bulky freight. Related services may include load stabilization, load expediting and equipment selection. Truck Services. Truck services involve arranging for the pick up and delivery of shipments that will be transported over the road using trucks. In addition to locating appropriate equipment to meet shippers' needs, trucklines actively solicit shipments from the Company's sales offices. Although the Company owns or leases only a limited equipment base, it has access to an abundant supply of truckload units provided by trucklines meeting the Company's safety and service criteria. NVOCC Brokerage. Ocean freight brokerage involves acting as agents for shippers and importers under non-vessel operating common carrier authority (NVOCC), issued by the Federal Maritime Commission, to arrange for the services of ocean carriers. Other Services. Other services, such as air freight forwarding, local truckload and heavy equipment transport, are important to the Company's strategy because they respond to a customer's total transportation needs and provide the Company's network of sales personnel and logistics managers a complete range of services to sell. AGENCY NETWORK AND OPERATIONS The Company's operations are decentralized and are conducted primarily in branch offices. Of the 133 branch offices, 25 are operated by the Company and 108 are operated under agency agreements. Contracts with agents have a duration of ten years and are terminable by either party on each anniversary of the agreement by giving 30 days' notice. Although the Company's contracts with its agents are non-exclusive, the Company's agents generally do not provide services on behalf of other transportation services companies. Agency offices operate as independent businesses, responsible for all costs associated with sales, operations, billing and any related overhead for these items and are compensated by a percentage of fees associated with transportation arranged. Each of the agency branches is responsible for obtaining its own office facilities. Offices operated by employees, rather than agents, are structured as stand-alone business units. Most offices have one to four operations people, who are responsible for controlling all aspects of executing the shipment, including (i) taking the order from the customer, (ii) arranging for transportation services, (iii) monitoring progress of the shipment and reporting back to the customer and (iv) billing the customer on the Company's invoices. To foster the growth of its agency network, the Company provides new agents with advances to cover start-up and initial operating costs. These advances are typically repaid over 24 months. Typically, a sales person identifies a potential customer and determines its transportation requirements. The sales person then prepares a rate proposal from pricing data negotiated by the Company with representatives of the carriers and the providers of other services that may be required. Before any freight is handled for a customer, credit approval must be obtained from the Company's corporate credit department. Upon customer acceptance of a rate proposal, the operations unit in the branch office assumes responsibility for executing individual shipment orders for that customer. 3 5 The Company provides administrative support, such as computer systems, sales support, credit services, collection services and accounts payable services, to its branch office operations on a centralized basis. Specialty operations such as the design and management of dedicated trucking operations and truck brokerage are available to the logistics management services operations. The Company currently uses a Data General model MV9600 computer and customized software which integrates shipment tracking, customer records and billing, accounts payable and general accounting. A new system currently being developed, which is year 2000 compliant, will greatly expand the Company's capabilities in the area of information systems. Scheduled to be implemented during the second half of 1998, the system will employ the latest in client/server technologies. Components of the system include a powerful Informix Dynamic Server relational database; a SUN Ultra Enterprise Server operating on SUN's Solaris UNIX Operating System with attached data storage facilities capable of providing over one terabyte of available capacity, using both magnetic and optical media; Microsoft NT Servers; and Windows 95 and Windows NT workstations. High speed document imaging, electronic document interchange, electronic mail, integrated electronic FAX, internet and networking capabilities will greatly improve the Company's efficiency in processing thousands of shipments per day as well as enhancing certain customer service offerings. SEASONALITY Results of operations in the transportation industry generally show a seasonal pattern, as customers reduce shipments during and after the winter holiday season. In recent years, the Company's operating income and earnings have been higher in the second and third quarters than in the first and fourth quarters. COMPETITION The transportation services industry is highly competitive. The Company competes against other integrated logistics companies, as well as transportation companies. The Company also competes against carriers' internal sales forces. This competition is based primarily on freight rates, quality of service (such as damage free shipments, on-time delivery and consistent transit times), reliable pickup and delivery and scope of operations. Other logistics companies and transportation services companies and numerous carriers have substantially greater financial and other resources than the Company. The Company also competes with transportation services companies for the services of independent commission agents. GOVERNMENT REGULATION The Company is licensed by the United States Department of Transportation (the "DOT") to engage in operations as a broker in arranging for the transportation, by motor vehicle, of general commodities between points in the United States. The DOT prescribes qualifications for acting in this capacity, including certain surety bonding requirements. The Company also acts as a common and contract motor carrier regulated by the DOT. Interstate motor carrier operations are subject to safety requirements prescribed by the DOT. Matters such as weight and dimensions of equipment are also subject to federal regulations. In its ocean freight forwarding business, the Company is licensed as an ocean freight forwarder and as a non-vessel operating common carrier by the Federal Maritime Commission (the "FMC"). The FMC prescribes qualifications for acting as a shipping agent, including the filing of tariffs and surety bonding requirements. The Company's air freight forwarding business is subject to regulation, as an indirect air cargo carrier, under the Federal Aviation Act (the "Act") by the DOT. The DOT's Economic Aviation Regulations exempt domestic air freight forwarders from most, but not all, of the Act's requirements. The major provisions of the Act that remain applicable to the Company forbid solicitation of certain rebates, require the carrier to provide safe service, equipment and facilities, prohibit discrimination with respect to foreign air cargo transportation, prohibit unfair or deceptive practices and authorize the DOT to inquire into the carrier's management for certain purposes. In certain foreign markets in which the Company operates, the air freight forwarding business is subject to rate schedules and other restrictions which in the first instance are agreed to by the International Air Transport Association and subsequently approved by the governments concerned. The Company also is subject to certain foreign regulations. Management does not believe that current regulation of its activities imposes significant economic restraints upon its operations or upon the entry of new competitors into the industry in general or into the markets that are served by the Company in particular. 4 6 EMPLOYEES The Company employed 308 individuals at March 6, 1998. The employees were not represented by a collective bargaining unit. Management considers relations with its employees to be good. ITEM 2. PROPERTIES All of the Company's operations at the 25 company branch locations are conducted in office space under leases with terms of less than four years. Although the Company owns the land and building which houses its administrative offices in Indianapolis, Indiana, the Company's other principal administrative office is located in leased space in Memphis, Tennessee. Each of the 108 agency branches is responsible for obtaining its own office facilities. The Company also owns, and is holding for sale or lease, office, maintenance and fuel facilities in St. Joseph, Missouri, and Joplin, Missouri, and a four acre tract in Los Angeles, California. The Los Angeles property has been leased through December 2000 and the Joplin property has been leased through June 2002. ITEM 3. LEGAL PROCEEDINGS The Company is involved in various legal proceedings generally incidental to its business. While the result of any litigation contains an element of uncertainty, the Company presently believes that the outcome of any known pending or threatened legal proceedings or claims, or all of them combined, will not have a material adverse effect on its results of operations or consolidated financial position. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a) A Special Meeting of Shareholders of the Company was held on November 7, 1997. (b) Not Applicable (c) 1. Amendment to the Certificate of Incorporation to Increase Authorized Shares. The Company's Certificate of Incorporation was amended to increase the number of authorized shares of common stock from 10 million shares to 20 million shares and to reduce the par value from $.10 per share to $.05 per share pursuant to the following vote: Votes in Favor Withheld/Against Abstained -------------- ---------------- --------- 3,529,417 1,066,455 2,100 (d) Not Applicable 5 7 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS PRICE RANGE OF COMMON STOCK The Company's common stock trades on the Nasdaq Stock Market's National Market System under the symbol: MVII. The following table sets forth the high and low sale prices per share of the common stock for the periods indicated, as reported by the Nasdaq Stock Market:
High Low ---- --- 1996 ---- First Quarter..............................$ 8 15/16 $ 8 Second Quarter............................. 10 5/16 8 5/8 Third Quarter.............................. 11 10 1/16 Fourth Quarter............................. 14 3/4 10 11/16 1997 ---- First Quarter..............................$ 16 1/4 $ 13 13/16 Second Quarter............................. 16 7/8 13 7/8 Third Quarter.............................. 16 3/4 14 5/8 Fourth Quarter............................. 19 13 1/2 1998 ---- First Quarter (through March 6, 1998)......$ 19 $ 14 3/4
On March 6, 1998, the last sale price per share of the common stock was $18. At March 6, 1998, there were 190 holders of record, representing an estimated 1,300 individual holders of the Company's common stock. On November 7, 1997, the Company's Board of Directors authorized a two-for-one stock split. All references in the accompanying financial statements to the number of common shares and per share amounts for periods prior to November 7, 1997 have been restated to reflect the stock split. DIVIDENDS The Company has never paid a cash dividend on its common stock. It is the intention of the Board of Directors to continue to retain earnings to finance the growth of the Company's business rather than to pay cash dividends. Future payments of cash dividends will depend upon the financial condition, results of operations and capital commitments of the Company, as well as other factors deemed relevant by the Board of Directors. The Company and its subsidiaries are currently subject to a line of credit which limits the payment of dividends. 6 8 ITEM 6. SELECTED FINANCIAL DATA The following selected consolidated financial data as of and for each of the years in the five-year period ended January 3, 1998 are derived from the Company's consolidated financial statements which have been audited by Arthur Andersen LLP, independent public accountants. The following selected consolidated financial data should be read in conjunction with the Consolidated Financial Statements of the Company and Notes thereto, and Report of Independent Public Accountants thereon, for the most recent three years, included elsewhere in this Annual Report.
FISCAL YEAR (1) ---------------------------------------------------------------------------- 1993 1994 1995 1996 1997 ---------- ---------- ---------- ---------- ---------- (in thousands, except per share data) STATEMENTS OF INCOME INFORMATION: Operating revenues.........................$ 341,532 $ 428,772 $ 459,160 $ 563,913 $ 667,374 Transportation costs....................... 296,656 370,232 391,845 489,292 582,843 ---------- ---------- ---------- ---------- ---------- Net revenues............................... 44,876 58,540 67,315 74,621 84,531 Operating income........................... 4,457 6,847 8,489 10,205 12,358 Income from continuing operations before income taxes..................... 4,199 6,267 8,024 9,952 12,717 Income from continuing operations..........$ 2,490 $ 3,667 $ 4,734 $ 5,772 $ 7,376 ========== ========== ========== ========== ========== Income from continuing operations per common share (2).....................$ .26 $ .38 $ .49 $ .63 $ .80 ========== ========== ========== ========== ========== Income from continuing operations per common share, assuming dilution (2)..$ .26 $ .37 $ .47 $ .60 $ .76 ========== ========== ========== ========== ========== Average common shares and equivalents outstanding: Basic................................... 9,534 9,558 9,674 9,211 9,185 Diluted................................. 9,682 9,802 9,990 9,616 9,699 BALANCE SHEET DATA: Total assets...............................$ 65,151 $ 70,837 $ 76,152 $ 93,597 $ 108,010 Total debt................................. 11,337 10,787 1,588 747 580 Shareholders' investment................... 21,047 23,473 25,888 30,038 32,122
(1) The Company's fiscal year ends on the Saturday nearest December 31. Fiscal years 1993, 1994, 1995 and 1996 included 52 weeks and fiscal year 1997 included 53 weeks. (2) Effective January 3, 1998, the Company adopted Statement of Financial Accounting Standards No. 128, "Earnings per Share". Earnings per share have been restated for the periods presented to conform to the new accounting standard. In addition, on November 7, 1997, the Company's Board of Directors authorized a two-for-one stock split, thereby increasing the number of shares issued by 5,003,000 and decreasing the par value of each share to $.05. All references to the number of common shares and per share amounts for the periods presented have been restated to reflect the stock split. 7 9 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NOTE REGARDING FORWARD-LOOKING STATEMENTS Except for the historical information contained herein, this document contains forward-looking statements based on management's current expectations of the Company's near term results, based on current information available pertaining to the Company. Actual future results and trends may differ materially depending on a variety of factors, including competition in the marketplace, changes in the carrier base, changes in capacity and changes in government regulations. RESULTS OF OPERATIONS Fiscal Years 1997 Compared to 1996 and 1996 Compared to 1995 The following table sets forth the percentage relationship of the Company's revenue and expense items to operating revenues for the periods indicated:
FISCAL YEAR ----------------------------------------------------- 1997 1996 1995 --------- --------- --------- Operating revenues......................... 100.0% 100.0% 100.0% Transportation costs....................... 87.3 86.8 85.3 -------- -------- -------- Net revenues............................... 12.7 13.2 14.7 Operating expenses: Salaries and related costs........... 2.7 2.9 3.5 Selling, general and administrative.. 8.1 8.5 9.4 -------- -------- -------- Total operating expenses......... 10.8 11.4 12.9 -------- -------- -------- Operating income........................... 1.9 1.8 1.8 Interest and other expense................. - - .1 -------- -------- -------- Income from continuing operations before income taxes.................. 1.9% 1.8% 1.7% ======== ======== ========
General - The transportation services operation contracts with carriers for the transportation of freight by rail, truck, ocean or air for shippers. Operating revenues include the carriers' charges for carrying shipments plus commissions and fees, as well as revenues from fixed fee arrangements on a portion of the Company's integrated logistics projects. The carriers with whom the Company contracts provide transportation equipment, the charge for which is included in transportation costs. As a result, the primary operating costs incurred by the transportation services operations and logistics projects are for purchased transportation. Net revenues include only the commissions and fees. Selling, general and administrative expenses primarily consist of the percentage of net revenue paid to agencies and independent sales contractors as consideration for providing sales and marketing, arranging for movement of shipments, entering billing and accounts payable information on shipments and maintaining customer relations, as well as other company operating expenses. Certain costs incurred by the Company's dedicated trucking fleets are also reported in salaries and related costs and selling, general and administrative expenses. Revenues - The Company's total number of shipments were 627,000, 503,000, and 414,000 in 1997, 1996 and 1995, respectively. Increases in shipments of 25% and 21% in 1997 and 1996, respectively, were the result of expanded services to both new and existing customers. The Company also increased the number of sales offices by 11 offices in 1996 and 20 offices in 1997. Net Revenues. The Company's net revenues as a percentage of operating revenues were 12.7%, 13.2% and 14.7%, in 1997, 1996 and 1995, respectively. During 1996, the Company closed several of its unprofitable dedicated trucking operations, resulting in decreased net revenues as a percentage of operating revenues in 1996 and 1997. These decreases in net revenues as a percentage of operating revenues have been offset by proportionate changes in operating expenses as a percentage of operating revenues. 8 10 In recent years, truck related services have grown at a faster rate than rail and other modes. This increase in truck shipments has been fueled by the Company's growth of comprehensive logistics management services which have higher levels of over-the-road freight than other modes. Since operating revenue per truck shipment averages about 60% of operating revenue per rail shipment, the shipment count growth rate exceeded the operating revenue growth rate for 1997. The net revenue as a percentage of operating revenue is slightly higher for truck shipments than rail shipments, however, any resulting increases in net revenues as a percentage of operating revenues have been offset by the Company's downsizing of dedicated trucking operations in recent years. Operating Expenses - As discussed above in net revenues, the closing of certain dedicated trucking fleets has resulted in fluctuations in operating expenses as a percentage of operating revenues. In general, the Company's dedicated trucking fleets have relatively higher fixed costs compared to operating revenues than the Company's transportation services and logistics management operations. Interest and Other Expense, Net - Cash flow from operations has been adequate to cover the Company's operating needs and capital requirements in recent years, resulting in decreased interest expense and increased interest income in 1997 and 1996. Provision for Income Taxes - The Company's effective tax rates were 42% in 1997 and 1996 and 41% in 1995. LIQUIDITY AND CAPITAL RESOURCES In recent years, the Company's cash flows from operations have exceeded its working capital needs. In addition, the Company has available a $25,000,000 unsecured revolving credit facility (the "Facility"). On January 3, 1998, there were no borrowings under the Facility, but letters of credit totaling $3,953,000 had been issued on the Company's behalf to secure insurance deductibles and purchases of operating services, resulting in unused borrowing capacity of $21,047,000. The interest rate for borrowings under the Facility is a variable rate based upon the 30 day LIBOR Funding Rate, as defined, plus 50 to 125 basis points. The Company pays a varying fee of .35% to 1.00% on outstanding letters of credit and a varying commitment fee of .15% to .30% on the unused portion of the Facility, as defined. At January 3, 1998, the interest rate was 6.46% and the letter of credit fee and commitment fee were .35% and .15%, respectively. The line of credit expires on July 1, 2000, but may be extended by mutual agreement of the lender and the Company, for subsequent periods of one year each. Among the covenants contained in the Facility are maintenance of certain financial ratios, including debt to net worth, cash plus accounts receivable to current liabilities plus debt and debt to earnings before income taxes, depreciation and amortization (all as defined). Other covenants include the level of capital and lease expenditures, acquisitions and mergers, dividends and redemptions of stock. At January 3, 1998, the Company had a ratio of current assets to current liabilities of approximately 1.24 to 1. Management believes that the Company will have sufficient cash flow from operations and borrowing capacity to cover its operating needs and capital requirements for the foreseeable future. OTHER INFORMATION In response to expanding capabilities in the area of information systems and issues related to the year 2000, the Company is designing a new financial and administrative system scheduled for implementation during the second half of 1998. The total cost of this system is not expected to exceed $1,500,000, the majority of which was expended in 1997. Additionally, the Company is performing an in-depth review of the year 2000 compliance aspects of all peripheral systems not included in the above system. Management is uncertain at this time what additional costs, if any, may be incurred in connection with these peripheral systems. Management is confident that all issues relating to the Company's internal information systems arising from the year 2000 will be addressed during the course of these two projects. The Company is also in the process of seeking information concerning year 2000 compliance from vendors, customers and other third parties upon whom the Company relies. Results of operations in the transportation industry generally show a seasonal pattern, as customers reduce shipments during and after the winter holiday season. In recent years, the Company's operating income and earnings have been higher in the second and third quarters than in the first and fourth quarters. 9 11 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements required under this item and set forth elsewhere in this Form 10-K as indicated in the following index are incorporated herein by reference.
Index to Consolidated Financial Statements Page ---- Consolidated Balance Sheets................................... 15 Consolidated Statements of Income............................. 16 Consolidated Statements of Shareholders' Investment........... 17 Consolidated Statements of Cash Flows......................... 18 Notes to Consolidated Financial Statements.................... 19 Report of Independent Public Accountants...................... 26
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY The sections entitled "Election of Directors" and "Executive Officers and Key Employees" of the Company's Notice of the 1998 Annual Meeting of Shareholders and Proxy Statement which will be filed within 120 days of January 3, 1998 are incorporated herein by reference. COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934 The information required hereunder is incorporated by reference from the section entitled "Compliance with Section 16(a) of the Securities Exchange Act of 1934" of the Company's Notice of the 1998 Annual Meeting of Shareholders and Proxy Statement which will be filed within 120 days of January 3, 1998. ITEM 11, 12, AND 13. EXECUTIVE COMPENSATION, SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT, AND CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required under these items is incorporated by reference from the Company's Notice of the 1998 Annual Meeting of Shareholders and Proxy Statement which will be filed within 120 days of January 3, 1998. 10 12 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a)(1) Financial Statements All financial statements of the Registrant as set forth under Item 8 of this Annual Report on Form 10-K. (2) Financial Statement Schedules
Schedule Number Description Page of 1997 10-K -------- ----------- ----------------- II Valuation and Qualifying Accounts 27
The report of the Registrant's independent public accountants with respect to the above-listed financial statements and financial statement schedule appears on page 26 of this Annual Report on Form 10-K. All other financial schedules not listed above have been omitted since the required information is included in the consolidated financial statements or the notes thereto, or is not applicable or required. (3) Exhibits
Exhibit Page Number or Incorporation Number Description by Reference to - ------- ----------- ---------------------------- 2 Agreement and Plan of Merger dated as of May 2, Annex A to Proxy Statement for 1996 between Mark VII, Inc., a Missouri 1996 Annual Meeting of Shareholders corporation ("Mark VII Missouri"), and Mark VII, Inc., a Delaware corporation and wholly owned subsidiary of Mark VII Missouri. 3(a) Certificate of Incorporation Annex B to Proxy Statement for 1996 Annual Meeting of Shareholders 3(b) By-Laws of Mark VII, Inc. Annex C to Proxy Statement for 1996 Annual Meeting of Shareholders 10.1 * MNX Incorporated Amended and Restated 1986 Exhibit 10(g) to 1990 Annual Incentive Stock Option Plan Report on Form 10-K 10.2 * Amendment No. 5 to the MNX Incorporated Exhibit 10(g) to 1991 Annual Amended and Restated 1986 Incentive Stock Report on Form 10-K Option Plan 10.3 * MNX Incorporated 1992 Non-Qualified Stock Exhibit 10(s) to 1991 Annual Option Plan Report on Form 10-K 10.4 * MNX Incorporated Stock Appreciation Rights Exhibit 10(o) to 1992 Annual Program, dated April 24, 1990 Report on Form 10-K 10.5 * Employment and Noncompete Agreement between Exhibit 3 to Current Report on Form R.C. Matney and the Registrant dated as of 8-K dated May 9, 1995 April 1, 1992. Revised Addendum to Employment and Noncompete Agreement dated as of July 1, 1994 10.6 * Addendum No. 2 to Employment and Noncompete Filed herewith Agreement between R.C. Matney and the Registrant dated as of October 1, 1997
11 13
Exhibit Page Number or Incorporation Number Description by Reference to - ------- ----------- ---------------------------- 10.7 * Employment and Noncompete Agreement between Filed herewith Philip L. Dunavant and the Registrant dated as of May 16, 1997 10.8 * Employment and Noncompete Agreement between Filed herewith David H. Wedaman and the Registrant dated as of January 1, 1997. Addendum to Employment and Noncompete Agreement dated as of May 15, 1997 10.9 * Employment and Noncompete Agreement between Exhibit 6 to Current Report on Form Robert E. Liss and Jupiter Transportation, Inc., 8-K dated May 9, 1995 an indirect wholly owned subsidiary of the Registrant, dated as of July 1, 1994 10.10 * Employment and Noncompete Agreement between Exhibit 7 to Current Report on Form James T. Graves and the Registrant dated as of 8-K dated May 9, 1995 August 1, 1992 10.11 * Employment and Noncompete Agreement between Exhibit 10.10 to 1995 Annual Report Michael J. Musacchio and Mark VII Logistics, a on Form 10-K Division of Mark VII Transportation Co., Inc., a wholly owned subsidiary of the Registrant dated as of June 1, 1995. Addendum to Employment and Noncompete Agreement between Michael J. Musacchio and Mark VII Logistics dated as of September 1, 1995 10.12 * Amendment Number 1 to the Mark VII, Inc. 1992 Exhibit 99.1 to Registration Non-Qualified Stock Option Plan (formerly the MNX Statement on Form S-8 (SEC File Incorporated 1992 Non-Qualified Stock Option Plan) No. 33-86174) dated September 22, 1994 10.13 Asset Purchase Agreement dated June 17, 1994 by Appendix B to Proxy Statement for and among Swift Transportation Co., Inc. (Nevada), 1994 Annual Meeting of Shareholders Swift Transportation Co., Inc. (Arizona), Mark VII, Inc., MNX Carriers, Inc., and Missouri-Nebraska Express, Inc. 10.14 Amendment No. 1 to Asset Purchase Agreement Exhibit 10.14 to 1994 Annual dated September 30, 1994 by and among Swift Report on Form 10-K Transportation Co., Inc. (Nevada), Swift Transportation Co., Inc. (Arizona), Mark VII, Inc., MNX Carriers, Inc., and Missouri-Nebraska Express, Inc. 10.15 Mark VII, Inc. 1995 Omnibus Stock Incentive Appendix A to Proxy Statement for Plan 1995 Annual Meeting of Shareholders 10.16 Amendment No. 1 to the Mark VII, Inc. 1995 Annex E to Proxy Statement for 1995 Omnibus Stock Incentive Plan Annual Meeting of Shareholders
12 14
Exhibit Page Number or Incorporation Number Description by Reference to - ------- ----------- ---------------------------- 10.17 Revolving Loan and Promissory Note dated Filed herewith July 29, 1997 by and among NationsBank of Tennessee, N.A., Mark VII, Inc. and Mark VII Transportation Co., Inc. 10.18 Loan Agreement dated as of July 29, 1997 by and Filed herewith among NationsBank of Tennessee, N.A., Mark VII, Inc. and Mark VII Transportation Co., Inc. 10.19 First Modification of Loan Agreement dated as of Filed herewith October 20, 1997 by and among NationsBank of Tennessee, N.A., Mark VII, Inc. and Mark VII Transportation Co., Inc. 21 Subsidiaries of Registrant Filed herewith 23 Consent of Independent Public Accountants Filed herewith 27 Financial Data Schedule (SEC Use Only) Filed herewith
- ------------ * Management contracts or compensatory plans (b) Reports on Form 8-K None 13 15 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MARK VII, INC. By: /s/ R.C. Matney --------------------------------- R. C. Matney Chairman of the Board, President and Chief Executive Officer Date: March 26, 1998 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE /s/ R.C. Matney Chairman of the Board, President, March 26, 1998 - ------------------------------- Chief Executive Officer and Director R. C. Matney /s/ Philip L. Dunavant Executive Vice President, Chief Financial March 26, 1998 - ------------------------------- Officer (Principal Financial and Accounting Philip L. Dunavant Officer) /s/ James T. Graves Vice Chairman, Secretary, General Counsel March 26, 1998 - ------------------------------- and Director James T. Graves /s/ David H. Wedaman Executive Vice President, Chief Operating March 26, 1998 - ------------------------------- Officer and Director David H. Wedaman /s/ Douglass Wm. List Director March 26, 1998 - ------------------------------- Douglass Wm. List /s/ William E. Greenwood Director March 26, 1998 - ------------------------------- William E. Greenwood /s/ Jay U. Sterling Director March 26, 1998 - ------------------------------- Dr. Jay U. Sterling /s/ Thomas J. Fitzgerald Director March 26, 1998 - ------------------------------- Thomas J. Fitzgerald
14 16 MARK VII, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except share amounts)
JANUARY 3, DECEMBER 28, 1998 1996 ---------- ------------ ASSETS Current Assets: Cash and cash equivalents................................................................. $ 3,732 $ 959 Accounts receivable, less allowances of $2,641 and $1,693 in 1997 and 1996, respectively .................................................. 82,917 73,315 Notes and other receivables, less allowances of $537 and $1,611 in 1997 and 1996, respectively............................................... 4,399 7,583 Other current assets...................................................................... 1,755 1,131 ---------- ---------- Total current assets.................................................................... 92,803 82,988 ---------- ---------- Deferred Income Taxes........................................................................ 1,262 946 ---------- ---------- Property and Equipment, at cost: Transportation equipment.................................................................. 4,394 4,915 Computer equipment, furniture and other................................................... 7,026 3,817 ---------- ---------- 11,420 8,732 Less: Accumulated depreciation........................................................... 4,829 4,214 ---------- ---------- Net property and equipment.............................................................. 6,591 4,518 ---------- ---------- Intangible and Other Assets.................................................................. 7,354 5,145 ---------- ---------- $ 108,010 $ 93,597 ========== ========== LIABILITIES AND SHAREHOLDERS' INVESTMENT Current Liabilities: Accrued transportation charges........................................................... $ 63,094 $ 52,734 Deferred income taxes..................................................................... 5,591 2,193 Other current and accrued liabilities..................................................... 6,258 8,031 ---------- ---------- Total current liabilities............................................................... 74,943 62,958 ---------- ---------- Long-Term Obligations........................................................................ 945 601 ---------- ---------- Contingencies and Commitments (Note 5) Shareholders' Investment: Common stock, $.05 par value, authorized 20,000,000 shares; issued 10,009,822 shares in 1997 and 9,901,044 shares in 1996............................................. 501 495 Paid-in capital........................................................................... 29,623 28,665 Retained earnings ........................................................................ 14,108 6,732 ---------- ---------- 44,232 35,892 Less: Treasury stock, at cost, 1,071,250 shares in 1997 and 664,000 shares in 1996....... (12,110) (5,854) ---------- ---------- Total shareholders' investment.......................................................... 32,122 30,038 ---------- ---------- $ 108,010 $ 93,597 ========== ==========
The accompanying notes are an integral part of these balance sheets. 15 17 MARK VII, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts)
FOR THE YEARS ENDED --------------------------------------------- JANUARY 3, DECEMBER 28, DECEMBER 30, 1998 1996 1995 ---------- ------------ ------------ Operating Revenues ........................................................ $ 667,374 $ 563,913 $ 459,160 Transportation Costs....................................................... 582,843 489,292 391,845 ---------- ---------- ---------- Net Revenues............................................................... 84,531 74,621 67,315 Operating Expenses: Salaries and related costs.............................................. 17,894 16,501 16,170 Selling, general and administrative .................................... 54,279 47,915 42,656 ---------- ---------- ---------- Total Operating Expenses.............................................. 72,173 64,416 58,826 ---------- ---------- ---------- Operating Income .......................................................... 12,358 10,205 8,489 Other Expense (Income): Interest expense........................................................ 171 266 494 Interest income......................................................... (711) (177) (193) Other .................................................................. 181 164 164 ---------- ----------- ---------- Total Other Expense (Income), Net..................................... (359) 253 465 ---------- ---------- ---------- Income Before Provision For Income Taxes................................... 12,717 9,952 8,024 Provision For Income Taxes................................................. 5,341 4,180 3,290 ---------- ---------- ---------- Net Income................................................................. $ 7,376 $ 5,772 $ 4,734 ========== ========== ========== Net Income Per Common Share................................................ $ .80 $ .63 $ .49 ========== ========== ========== Net Income Per Common Share, Assuming Dilution............................. $ .76 $ .60 $ .47 ========== ========== ========== Average Common Shares and Equivalents Outstanding: Basic................................................................. 9,185 9,211 9,674 Diluted............................................................... 9,699 9,616 9,990
The accompanying notes are an integral part of these statements. 16 18 MARK VII, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT (In thousands)
COMMON STOCK --------------------- PAID-IN RETAINED TREASURY SHARES AMOUNT CAPITAL EARNINGS STOCK TOTAL -------- --------- -------- ---------- ---------- ---------- Balance, December 31, 1994................ 9,562 $ 478 $ 26,769 $ (3,774) $ - $ 23,473 Net income............................. - - - 4,734 - 4,734 Issuance of common stock under stock-based compensation plans....... 214 11 1,106 - - 1,117 Purchase of treasury stock (400 shares)......................... - - - - (3,436) (3,436) -------- --------- -------- ---------- ---------- ---------- Balance, December 30, 1995................ 9,776 489 27,875 960 (3,436) 25,888 Net income............................. - - - 5,772 - 5,772 Issuance of common stock under stock-based compensation plans....... 125 6 790 - - 796 Purchase of treasury stock (264 shares)......................... - - - - (2,418) (2,418) -------- --------- -------- ---------- ---------- ---------- Balance, December 28, 1996................ 9,901 495 28,665 6,732 (5,854) 30,038 Net income............................. - - - 7,376 - 7,376 Issuance of common stock under stock-based compensation plans....... 109 6 958 - - 964 Purchase of treasury stock (407 shares)......................... - - - - (6,256) (6,256) -------- --------- -------- ---------- ---------- ---------- Balance, January 3, 1998.................. 10,010 $ 501 $ 29,623 $ 14,108 $ (12,110) $ 32,122 ======== ========= ======== ========== ========== ==========
The accompanying notes are an integral part of these statements. 17 19 MARK VII, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands)
FOR THE YEARS ENDED ----------------------------------------------- JANUARY 3, DECEMBER 28, DECEMBER 30, 1998 1996 1995 ----------- ------------ ------------ Operating Activities: Net income ............................................................. $ 7,376 $ 5,772 $ 4,734 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation........................................................ 1,054 1,130 1,154 Amortization........................................................ 250 254 330 Provision for doubtful accounts and notes receivable................ 2,672 2,014 2,102 Provision for deferred income taxes................................. 1,737 1,803 2,139 Changes in assets and liabilities: Accounts receivable............................................... (11,205) (19,009) (5,171) Accrued transportation charges.................................... 10,360 9,488 9,599 Other ............................................................ (536) 3,249 (3,676) ---------- ---------- ---------- Net cash provided by operating activities............................... 11,708 4,701 11,211 ---------- ---------- ---------- Investing Activities: Additions to property and equipment..................................... (3,600) (1,821) (767) Retirements of property and equipment................................... 473 572 524 ---------- ---------- ---------- Net cash used for investing activities.................................. (3,127) (1,249) (243) ---------- ---------- ---------- Financing Activities: Exercise of stock options............................................... 615 494 769 Repayments of long-term obligations..................................... (135) (183) (1,419) Net repayments under line of credit..................................... (32) (658) (7,856) Purchase of treasury stock.............................................. (6,256) (2,418) (3,436) ---------- ---------- ---------- Net cash used for financing activities.................................. (5,808) (2,765) (11,942) ---------- ---------- ---------- Net increase (decrease) in cash and cash equivalents....................... 2,773 687 (974) Cash and cash equivalents: Beginning of year....................................................... 959 272 1,246 ---------- ---------- ---------- End of year............................................................. $ 3,732 $ 959 $ 272 ========== ========== ========== Supplemental Disclosure of Cash Flow Information: Cash paid during the year for: Interest.............................................................. $ 150 $ 196 $ 361 Income taxes, net of refunds received................................. 2,930 2,731 1,180 Supplemental Schedule of Non-cash Financing Activities: Direct financings under debt and capital lease obligations.............. $ - $ - $ 77
The accompanying notes are an integral part of these statements. 18 20 MARK VII, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES REPORTING ENTITY AND PRINCIPLES OF CONSOLIDATION The consolidated financial statements include Mark VII, Inc., a Delaware corporation, and its wholly owned subsidiaries, collectively referred to herein as the "Company." The Company is a sales, marketing and service organization that acts as a provider of transportation services and a transportation logistics manager. The Company has a network of transportation sales personnel that provides services throughout the United States, as well as Mexico and Canada. The principal operations of the Company are conducted by its transportation services subsidiary, Mark VII Transportation Company, Inc. ("Mark VII"). REVENUE Revenues earned as a third party agent include the carriers' charges for carrying the shipment plus commissions and fees, as well as revenues from fixed fee arrangements on a portion of the Company's integrated logistics projects. Revenues and related expenses are recognized on completion of the Company's service obligation. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation and amortization of property and equipment are provided using the straight-line method based on the estimated useful lives of the respective assets as follows: Transportation equipment 3 to 7 years Computer equipment, furniture and other 3 to 10 years The accompanying financial statements include depreciation expense of $1,054,000, $1,130,000 and $1,154,000 in 1997, 1996 and 1995, respectively. CASH AND CASH EQUIVALENTS The Company considers cash on hand, deposits in banks, certificates of deposit and short-term marketable securities with maturities of 90 days or less when purchased, as cash and cash equivalents. The Company utilizes a cash management system under which cash overdrafts exist in the book balances of its primary disbursing accounts. These overdrafts represent the uncleared checks in the disbursing accounts. The cash amounts presented in the consolidated financial statements represent balances on deposit at other locations, prior to their transfer to the primary disbursing accounts. Uncleared checks of $2,851,000 and $6,515,000 are included in accrued transportation charges at January 3, 1998 and December 28, 1996, respectively. INTANGIBLE ASSETS Goodwill and other intangible assets are being amortized on the straight-line basis over 10 to 20 years. Goodwill and other intangible assets consisted of the following:
1997 1996 -------- -------- (in thousands) Goodwill and other intangible assets............. $ 5,121 $ 3,321 Less accumulated amortization.................... 1,674 1,437 -------- -------- $ 3,447 $ 1,884 ======== ========
19 21 FISCAL YEAR The Company's fiscal year ends on the Saturday nearest December 31. Fiscal years 1995 and 1996 included 52 weeks and fiscal year 1997 included 53 weeks. EARNINGS PER SHARE Effective January 3, 1998, the Company adopted Statement of Financial Accounting Standards No. 128, "Earnings per Share". Earnings per share have been restated for the periods presented to conform to the new accounting standard. In addition, on November 7, 1997, the Company's Board of Directors authorized a two-for-one stock split, thereby increasing the number of shares issued by 5,003,000 and decreasing the par value of each share to $ .05. All references to the number of common shares and per share amounts for the periods presented have been restated to reflect the stock split. A reconciliation between basic earnings per share and diluted earnings per share follows:
1997 1996 1995 -------- -------- -------- (in thousands, except per share amounts) Net income..................................................$ 7,376 $ 5,772 $ 4,734 ======== ======== ======== Average common shares and equivalents outstanding: Basic..................................................... 9,185 9,211 9,674 Effect of dilutive options................................ 514 405 316 -------- -------- -------- Diluted................................................... 9,699 9,616 9,990 ======== ======== ======== Per share amounts: Net income per common share...............................$ .80 $ .63 $ .49 ======= ======== ======== Net income per common share, assuming dilution............$ .76 $ .60 $ .47 ======= ======== ========
RECLASSIFICATIONS Certain reclassifications have been made to the 1996 and 1995 financial statements to conform to the 1997 presentation. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (2) CREDIT FACILITY The Company has a $25 million unsecured revolving credit facility (the "Facility"). The Facility bears a variable interest rate based upon the 30 day LIBOR Funding Rate, as defined, plus 50 to 125 basis points. The Company pays a varying fee of .35% to 1.00% on outstanding letters of credit and a varying commitment fee of .15% to .30% on the unused portion of the Facility, as defined. At January 3, 1998, the interest rate was 6.46% and the letter of credit fee and commitment fee were .35% and .15%, respectively. The line of credit expires on July 1, 2000, but may be extended by mutual agreement of the lender and the Company, for subsequent periods of one year each. 20 22 The following is a summary of data on the credit facility:
1997 1996 1995 ------ ------- -------- (dollars in thousands) Balance outstanding at end of period...........$ - $ 32 $ 690 Average amount outstanding..................... - 75 1,596 Maximum month end balance outstanding.......... - 1,750 9,310 Interest rate at year end...................... 6.46% 8.8% 9.0% Weighted average interest rate................. - 8.8% 9.3%
Among the covenants contained in the Facility are maintenance of certain financial ratios, including debt to net worth, cash plus accounts receivable to current liabilities plus debt and debt to earnings before income taxes, depreciation and amortization (all as defined). Other covenants include the level of capital and lease expenditures, acquisitions and mergers, dividends and redemptions of stock. (3) INCOME TAXES Components of the provision for income taxes consisted of the following:
1997 1996 1995 -------- -------- -------- (in thousands) Federal - Currently payable ............................$ 2,856 $ 1,833 $ 709 Deferred...................................... 1,562 1,610 1,910 -------- -------- -------- Total federal.............................. 4,418 3,443 2,619 -------- -------- -------- State - Currently payable............................. 748 544 442 Deferred...................................... 175 193 229 -------- -------- -------- Total state................................ 923 737 671 -------- -------- -------- $ 5,341 $ 4,180 $ 3,290 ======== ======== ========
A reconciliation between the provision for income taxes and the expected taxes using the federal statutory income tax rate follows:
1997 1996 1995 --------- -------- -------- (in thousands) Federal statutory rate........................... 34.2% 34% 34% Tax at statutory rate............................$ 4,349 $ 3,384 $ 2,728 Increase from - State income taxes, net....................... 609 486 443 Other......................................... 383 310 119 -------- -------- -------- $ 5,341 $ 4,180 $ 3,290 ======== ======== ========
21 23 Deferred tax assets (liabilities) are comprised of the following:
1997 1996 -------- -------- (in thousands) Deferred Tax Assets: Claims and other reserves............................$ 2,140 $ 2,381 Basis difference on property and equipment........... 778 892 Other................................................ 503 158 -------- -------- Total deferred tax assets........................... 3,421 3,431 -------- -------- Deferred Tax Liabilities: Prepaid expenses..................................... (35) (1) Deferred revenue..................................... (4,910) (4,573) Other................................................ (2,805) (104) -------- -------- Total deferred tax liabilities...................... (7,750) (4,678) -------- -------- Net deferred tax liabilities........................$ (4,329) $ (1,247) ======== ========
(4) LONG-TERM DEBT AND OPERATING LEASES Long-term debt included the following:
1997 1996 -------- --------- (in thousands) Capital lease obligations for transportation equipment, 9.1%, payable through 2002.............................. $ 580 $ 715 Less - Current maturities................................. 116 114 -------- -------- $ 464 $ 601 ======== ========
Property and equipment included the following amounts related to capital lease obligations:
1997 1996 -------- --------- (in thousands) Transportation equipment...................................$ 915 $ 991 Less - Accumulated depreciation............................ 371 329 -------- -------- $ 544 $ 662 ======== ========
Scheduled annual payments on the Company's long-term obligations and commitments for operating leases are as follows:
Capital Leases ------------------------------------ Future Interest Principal Operating Payments Portion Portion Leases -------- -------- --------- --------- (in thousands) 1998..................... $ 155 $ 39 $ 116 $ 1,834 1999..................... 161 36 125 1,692 2000..................... 161 25 136 1,664 2001..................... 162 13 149 1,158 2002..................... 55 1 54 157 ------- -------- -------- -------- $ 694 $ 114 $ 580 $ 6,505 ======= ======== ======== ========
Excluded from the operating lease commitments are scheduled rentals on tractors, trailers and containers with lease terms of one to five years which have annual cancellation provisions. If these leases are not canceled, the additional future lease payments would be approximately $1,403,000, $903,000, $825,000, $268,000 and $114,000 in 1998, 1999, 2000, 2001 and 2002, respectively. The accompanying financial statements include rent expense of $5,025,000, $5,737,000 and $6,220,000 in 1997, 1996 and 1995, respectively. 22 24 (5) CONTINGENCIES AND COMMITMENTS The Company is involved in various legal proceedings generally incidental to its business. While the result of any litigation contains an element of uncertainty, the Company presently believes that the outcome of any known pending or threatened legal proceedings or claims, or all of them combined, will not have a material adverse effect on its results of operations or consolidated financial position. (6) STOCK COMPENSATION PLANS At January 3, 1998, the Company has three stock-based compensation plans: The 1995 Omnibus Stock Incentive Plan (the "1995 Plan"), the 1992 Non-qualified Stock Option Plan (the "1992 Plan"), and the Amended and Restated 1986 Incentive Stock Option Plan (the "1986 Plan"). No awards may be granted under the 1992 and 1986 Plans. The Company applies Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees," and related Interpretations in accounting for its plans. Accordingly, no compensation cost has been recognized for its stock option plans. Had compensation cost for the Company's stock-based compensation plans been determined consistent with Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation," the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below (dollars in thousands, except per share amounts):
1997 1996 1995 ------ ------ ------ Net Income: As reported $7,376 $5,772 $4,734 Pro forma $7,053 $5,617 $4,694 Net Income Per Common Share: As reported $.80 $.63 $.49 Pro forma $.77 $.61 $.49 Net Income Per Common Share, Assuming Dilution: As reported $.76 $.60 $.47 Pro forma $.73 $.58 $.47
The effects of applying SFAS No. 123 in this pro forma disclosure may not be indicative of future amounts because SFAS No. 123 does not apply to awards prior to January 1, 1995, and additional awards in future years are anticipated. Under the provisions of the Company's 1995 Plan, options may be granted to employees of the Company and to directors who are not employees of the Company to purchase shares of common stock at a price not less than 100% of its fair market value at the date of grant. At January 3, 1998, 2,122,748 shares of common stock were reserved for issuance under all of the Company's stock option plans. Options granted have a maximum life of 10 years. Vesting requirements are determined at the discretion of the Compensation/Stock Option Committee of the Board of Directors. Presently, option vesting periods range from immediate vesting to vesting over 8 years. Beginning with the grants issued on or after January 1, 1995, the fair value of each stock option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:
1997 1996 1995 --------- --------- -------- Dividend yield none none none Expected volatility 43.0% 41.0% 43.0% Risk-free interest rate 6.5% 6.8% 6.0% Expected lives 7.5 years 6.5 years 7.7 years
23 25 A summary of the status of stock options granted under the Company's stock option plans as of January 3, 1998, December 28, 1996 and December 30, 1995 and changes during the years ended on those dates is presented below:
1997 1996 1995 ---------------------- ----------------------- ---------------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Stock Options Shares Price Shares Price Shares Price - ------------- --------- ---------- --------- --------- --------- -------- Outstanding at beginning of year 1,217,976 $ 6.11 1,244,698 $ 5.54 1,365,500 $ 5.05 Granted 160,000 14.60 93,000 11.11 98,000 7.94 Exercised (100,778) 4.94 (119,722) 4.11 (213,404) 3.60 Canceled (4,000) 5.63 - - (5,398) 2.13 --------- --------- --------- Outstanding at end of year 1,273,198 $ 7.27 1,217,976 $ 6.11 1,244,698 $ 5.54 ========= ========= ========= Options exercisable at year-end 674,031 612,176 581,598 ========= ========= ========= Options available for future grant 849,550 1,017,550 1,114,350 ========= ========= ========= Weighted average fair value of options granted during the year $ 8.37 $ 5.35 $ 4.53 ========= ========= =========
The following table summarizes information about stock options outstanding at January 3, 1998:
Options Outstanding Options Exercisable ----------------------------------------- ------------------------ Wgtd. Avg. Range of Number Remaining Wgtd. Avg. Number Wgtd. Avg Exercise Outstanding Contractual Exercise Exercisable Exercise Prices at 1/3/98 Life Price at 1/3/98 Price - ---------------- ----------- ----------- ---------- ----------- ---------- $ 2.13 to $ 5.63 430,198 4.5 years $ 3.91 400,198 $ 3.78 $ 6.88 to $10.00 606,000 6.2 years 7.21 245,500 7.31 $10.63 to $14.63 237,000 8.1 years 13.54 28,333 12.81 --------- --------- ------- ------- -------- $ 2.13 to $14.63 1,273,198 6.0 years $ 7.27 674,031 $ 5.44 ========= ========= ======= ======= ========
In 1990, the Company granted stock appreciation rights for 52,000 shares of the Company's common stock at a base price of $2.13 per share to key employees of the Company. On October 1, 1997, the Company issued stock appreciation rights for an additional 6,000 shares at a base price of $14.50. Stock appreciation rights for 34,000 shares were outstanding at January 3, 1998. The rights provide for cash payments to holders of the rights for increases in the market price of the Company's common stock as of April 1 of each year until and including April 1, 2000. The base price is adjusted each April 1 if the market closing price on that date is greater than the previous base price. The adjusted base prices as of April 1, 1997, 1996 and 1995 were $15.25, $8.63 and $8.63 per share, respectively. Compensation of $128,000, $203,000 and $47,000 was expensed under this plan in 1997, 1996 and 1995, respectively. The 1997 compensation has been accrued based on the closing market price of $16.75 per share on January 3, 1998. 24 26 QUARTERLY FINANCIAL DATA (Unaudited): The results of operations for each of the four quarters of 1997 and 1996 are summarized below. Effective January 3, 1998, the Company adopted Statement of Financial Accounting Standards No. 128, "Earnings per Share". Earnings per share have been restated for 1996 to conform to the new accounting standard. The amounts below are unaudited, but, in the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of such periods have been made (in thousands, except per share data).
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER ---------- --------- ---------- ---------- 1997 - ---- Operating revenues..................................... $ 145,914 $ 164,877 $ 168,011 $ 188,572 Operating income ...................................... 2,113 3,462 3,452 3,331 Income before income taxes............................. 2,127 3,563 3,615 3,412 Net income............................................. 1,234 2,066 2,097 1,979 Net income per common share............................ $ .13 $ .22 $ .23 $ .22 Net income per common share, assuming dilution......... $ .13 $ .21 $ .22 $ .21 1996 - ---- Operating revenues..................................... $ 122,030 $ 142,755 $ 143,701 $ 155,427 Operating income ...................................... 1,739 2,870 2,990 2,606 Income before income taxes............................. 1,646 2,790 2,947 2,569 Net income............................................. 955 1,618 1,709 1,490 Net income per common share............................ $ .10 $ .18 $ .19 $ .16 Net income per common share, assuming dilution......... $ .10 $ .17 $ .18 $ .15
25 27 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders of Mark VII, Inc.: We have audited the accompanying consolidated balance sheets of MARK VII, INC. (a Delaware corporation) AND SUBSIDIARIES as of January 3, 1998, and December 28, 1996, and the related consolidated statements of income, shareholders' investment and cash flows for each of the three years in the period ended January 3, 1998. These financial statements and the schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Mark VII, Inc. and Subsidiaries as of January 3, 1998, and December 28, 1996, and the results of their operations and their cash flows for each of the three years in the period ended January 3, 1998 in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. Schedule II is presented for purposes of complying with the Securities and Exchange Commission's rules and is not a required part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in our audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic consolidated financial statements taken as a whole. /s/ Arthur Andersen LLP Memphis, Tennessee, February 11, 1998 26 28 SCHEDULE II MARK VII, INC. AND SUBSIDIARIES SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
BALANCE AT ADDITIONS BEGINNING CHARGED TO BALANCE AT OF YEAR EXPENSE DEDUCTIONS OTHER END OF YEAR ---------- ---------- ---------- ----- ----------- Allowance for doubtful accounts (deducted from accounts receivable): 1995 ...................................... $ 1,285 $ 581 $ 530 $ - $ 1,336 1996 ...................................... 1,336 1,472 1,115 - 1,693 1997 ...................................... 1,693 1,603 655 - 2,641 Allowance for uncollectible notes (deducted from notes and other receivables): 1995 ...................................... $ 517 $ 1,521 $ - $ - $ 2,038 1996 ...................................... 2,038 542 969 - 1,611 1997 ...................................... 1,611 1,069 2,143 - 537
27 29 EXHIBIT INDEX
Exhibit Number Description ------- ----------- 10.6 Addendum No. 2 to Employment and Noncompete Agreement between R.C. Matney and the Registrant dated as of October 1, 1997 10.7 Employment and Noncompete Agreement between Philip L. Dunavant and the Registrant dated as of May 16, 1997 10.8 Employment and Noncompete Agreement between David H. Wedaman and the Registrant dated as of January 1, 1997. Addendum to Employment and Noncompete Agreement dated as of May 15, 1997 10.17 Revolving Loan and Promissory Note dated July 29, 1997 by and among NationsBank of Tennessee, N.A., Mark VII, Inc. and Mark VII Transportation Co., Inc. 10.18 Loan Agreement dated as of July 29, 1997 by and among NationsBank of Tennessee, N.A., Mark VII, Inc. and Mark VII Transportation Co., Inc. 10.19 First Modification of Loan Agreement dated as of October 20, 1997 by and among NationsBank of Tennessee, N.A., Mark VII, Inc. and Mark VII Transportation Co., Inc. 21 Subsidiaries of Registrant 23 Consent of Independent Public Accountants 27 Financial Data Schedule (SEC Use Only)
EX-10.6 2 ADDENDUM #2 TO EMPLOYMENT AGREEMENT/R.C. MATNEY 1 Exhibit 10.6 ADDENDUM NO. 2 TO EMPLOYMENT AND NON-COMPETE AGREEMENT R. C. MATNEY THIS AGREEMENT dated this 1st day of October, 1997 is made by and between R. C. MATNEY, resident of the State of Indiana ("Executive") and MARK VII, INC. now a Delaware corporation (originally incorporated in Missouri), ("Employer"). RECITALS Executive and Employer entered into an Employment and Non-Compete Agreement dated April 1, 1992 ("Agreement") which superseded an earlier Employment Agreement dated March 31, 1989 in its entirety. Thereafter, the April 1, 1992 Agreement was modified to the extent expressly stated in an Addendum dated July 1, 1994. Parties hereto hereby undertake and agree to modify the April 1, 1992 Agreement and the Addendum dated July 1, 1994 to the extent expressly stated herein. In all other respects, said April 1, 1992 Agreement and July 1, 1994 Addendum shall remain as originally stated. AGREEMENT In consideration of the mutual promises, covenants, and agreements herein contained and in the underlying agreement and its addendum, the parties do hereby further agree as follows: I. BASE SALARY. The base salary of Executive shall be $280,000 a year commencing January 1, 1998. II. MONTHLY SHAREHOLDER VALUE BONUS. Commencing January 1, 1998, Executive shall be paid a monthly bonus equal in amount to the current average fair-market value of the Company's common stock during the month for which the bonus is paid multiplied by 600. III. ANNUAL PERFORMANCE BONUSES. Commencing in 1998 Executive shall be paid two annual cash bonuses. A. Bonus based upon Employer's increase in consolidated income from continuing operations before income tax compared to Plan. This bonus shall be paid immediately following the completion of the annual audit of the fiscal year based upon the increase in consolidated income from continuing operations before income tax ("net pre-tax income") for the fiscal year. 1. In a fiscal year when the increase in net pre-tax income over the prior year equals that specified in the operating Plan, as approved by the Employer's Board of Directors, Executive's bonus shall be equal to 50% of his annual base salary. 2. In a fiscal year when the increase in net pre-tax income over the prior year is greater or lesser than the amount specified in the operating 2 Plan approved by the Board of Directors, Executive shall be paid the same pro-rata share or percentage of the bonus specified in the above paragraph as the portion or percentage of Plan increase in net income actually attained by Employer. 3. For any fiscal year when 25% of the Plan increase in net operating profit compared to the previous fiscal year is not attained, none of this bonus shall be paid. Schedule A attached provides examples of the calculation of this bonus. B. Bonus based on stock price performance. The second bonus shall not exceed half of the base salary of the Executive and shall be paid immediately following June 30 each year in an amount equal to that percentage of the base salary of the Executive by which the increase (if any) in the per share price of the common stock of Mark VII, Inc. from July 1, 1997 to June 30, 1998 and each subsequent year thereafter during the term hereof,exceeds the increase in the average of per share prices of the common stock of certain other companies in the Employer's industry (the "Transportation Services Peer Group"). Employer's Board of Directors shall identify those companies deemed to constitute Employer's "Peer Group" from time-to-time in its sole discretion. It is agreed, however, that currently said "Peer Group" is deemed by said Board to constitute the following companies: Circle Financial Corp. (Harper Group) The Hub Group Air Express International Corporation Expediter's International, Inc. Fritz Companies, Inc. V. PARAGRAPHS 3.02 AND 3.03 OF THE APRIL 1, 1992 AGREEMENT. Paragraph 3.02 "Bonus" and 3.03 "Fringe Benefits" are hereby deleted in their entirety. In lieu thereof, 3.03 "Fringe Benefits" shall instead read as follows: "Executive shall receive standard Employer's fringe benefits, including 3 weeks of vacation pay each year, a car allowance and medical plan benefits." VI. RELEASE AS TO "BONUS" AND "FRINGE BENEFITS". Executive does hereby and discharge the Employer from any and all claims based upon, arising out of, or related to paragraphs 3.02 and 3.03 as originally provided in the agreement of April 1, 1992. IN WITNESS WHEREOF, the parties hereto have executed this Addendum and Release on the 8th day of December, 1997 to be effective on the day and year first above written. 3 "EXECUTIVE" /s/ R. C. Matney ----------------------------------------- R. C. Matney "EMPLOYER" MARK VII, INC. a Delaware Corporation By: /s/ James T. Graves -------------------------------------- James T. Graves, Vice-Chairman & Secretary EX-10.7 3 EMPLOYMENT AGREEMENT/PHILIP L. DUNAVANT 1 Exhibit 10.7 EMPLOYMENT AND NONCOMPETE AGREEMENT THIS AGREEMENT, dated this 16th day of May, 1997, is made by and among PHILIP L. DUNAVANT, a resident of the State of Tennessee ("Executive"); MARK VII TRANSPORTATION COMPANY, INC., a Delaware corporation ("Employer"), a wholly owned subsidiary of MARK VII , INC., a Delaware corporation ("MARK VII"). RECITALS A. Employer, MARK VII, and its subsidiaries, are engaged in the business of freight transportation services, both providing and arranging transportation of goods. Subsequent references to Employer herein shall be deemed to also include MARK VII and its subsidiary corporations. B. Executive desires to continue to be employed by Employer as its Executive Vice President and Chief Financial Officer and Employer desires to employ Executive in such capacity under the terms set forth herein. AGREEMENT In consideration of the mutual promises, covenants and agreements contained herein and other good and valuable consideration, sufficiency of which is hereby acknowledged by Executive and Employer, the parties agree as follows: 1. Employment and Term of Employment. Employer hereby employs Executive and Executive hereby accepts employment which Employer for the term commencing on the date hereof and continuing until December 31, 2000, unless sooner terminated as provided in Section 5. 2. Duties and Authority. 2.01 Duties and Position of Executive. (a) Executive shall undertake and assume the responsibility for those duties that Employer's Board of Directors shall, from time to time, assign to Executive. Executive's principal duties as of the date of this Agreement shall be and are those typically performed by an Executive Vice President and Chief Financial Officer of a company. 2 (b) By appropriate action of Employer's Board of Directors, Executive has been elected as Executive Vice President and Chief Financial Officer of Employer. Executive shall be permitted to continue to serve as Executive Vice President and Chief Financial Officer of Employer for the duration of this Agreement provided and for so long as the performance standards of Paragraph 5.02 (c) below are attained. (c) Executive shall, at all times, faithfully and to the best of his ability, experience and talents, perform the duties set forth herein or to which Executive may, in the future, be assigned, always acting solely in the best interests of the Employer. 2.02 Time Devoted to Employment. Executive shall devote full time and attention to performance of assigned employment duties; provided, however, he shall be allowed to also pursue those separate and personal business interests which do not conflict or compete with the business of the employer directly or indirectly and which do not require personal services of the Executive. During the term of this Agreement, the Executive will not be involved in any transportation ventures other than those of the employer without the advance written authorization of the Employer's Board of Directors. It is also understood that the Executive is not hereby precluded from engaging in limited appropriate civic, charitable or religious activities. In the event the Employer's Board of Directors shall reassign the duties of Executive as Executive Vice President and Chief Financial Officer to another person, the Executive shall thereafter continue to serve the Employer engaged in the consultation, performance and management of those specific projects or duties to which he is assigned by the Employer and which are consistent with his experience and competence. 3. Compensation. During the term of this Agreement, Employer shall pay to Executive the following compensation: 3.01 Base Salary. Executive shall be paid an initial base salary of One Hundred Twenty-Five Thousand Dollars and No/100 Dollars ($125,000) per year ("Base Salary") payable in equal weekly installments of $2403.85. The Compensation Committee of the Employer's Board of Directors ("Committee") may review Executive's performance and adjust his Base Salary in its sole and absolute discretion. The Committee may increase the salary of the Executive at any time; provided, however, that the Committee may not reduce the Base Salary fixed in this Agreement. 3.02 Bonus. In addition to the Base Salary, in each fiscal year (commencing with the fiscal year ending December 31, 1997), in which consolidated pre-tax profit (calculated on the basis of generally accepted accounting principles consistently applied) earned by Mark VII is equal to the consolidated Business Plan (as defined at 5.02 (c)) or exceeds 120% of the consolidated pre-tax profit earned in the previous fiscal year, Employer will pay Executive within 90 days following the close of the fiscal year a bonus equal to 40% of his base salary. 3 Provided, however, in any fiscal year in which Mark VII does not attain Business Plan results but in which Mark VII earns consolidated pre-tax profit greater than the 1997 consolidated Business Plan, Executive shall be paid a minimum alternative bonus equal to 25% of his base salary for that fiscal year. In each plan year business plan revenue or business plan pre-tax profit shall be adjusted by the amount of the following items: (a) All charges of Employer to any affiliated company for services rendered shall be at present standards with any new services to be to charged at cost; (b) Any gain on the sale, casualty or other disposition of any capital asset of the Employer shall be deducted; (c) Any other income which was not the result of ordinary operations of the Employer shall be excluded; (d) Services of affiliated companies or business units shall be at cost or as agreed. If not, Executive may cause Employer to purchase such goods or services from unaffiliated sources. "Pre-tax profit", as defined above shall be based upon generally accepted accounting principles consistently applied and as finally determined by the Company's independent CPA auditing firm. 3.03 Car Allowance. In addition, the Executive shall receive $500 a month as a car allowance, plus the costs he incurs in operating his private automobile with respect to insurance, fuel, oil, filters, hoses, belts, license tags, one set of tires every four years and sales tax upon acquisition. 3.04 Fringe Benefits/Vacation. Executive shall receive standard Mark VII fringe benefits, including three (3) weeks of vacation with pay each year. 3.05 Reimbursement of Expenses. Employer shall reimburse Executive for ordinary, necessary and reasonable business expenses incurred to conduct or promote Employer's business, including travel and entertainment, provided Executive submits an itemization of such expenses and supporting documentation thereof, all according to Employer's generally applicable procedures. 3.06 Stock Options and Stock Appreciation Rights. All Stock Options and Stock Appreciation Rights related to the Common Stock of Mark VII previously granted to the Executive by agreement between Mark VII and the Executive shall continue in full force and effect in accordance with their respective terms and conditions. By separate agreement, Employer shall provide Executive with an additional non-qualified option to purchase 10,000 shares of the common stock of Mark VII, Inc. exercisable at $29 per share. The option shall vest in three equal annual installments of 3,333 shares each commencing on May 16, 1998. Each portion of the option shall be exercisable subsequent to vesting and the entire option shall lapse on May 16, 2007, ten years subsequent to the effective date of grant. In addition, Executive will receive 3,000 stock appreciation rights under a separate agreement with an effective date of May 16, 1997 at a strike price of $29. 4. Nondisclosure and Noncompetition. Executive hereby covenants and agrees as follows: 4 4.01 Confidentiality. Executive acknowledges that as a result of his employment by Employer, he has, in the past, used and acquired and, in the future, will use and acquire knowledge and information used by Employer in its business and which is not generally available to the public or to persons in the transportation industry, including, without limitation, its future products, services, patents and trademarks; designs; plans; specifications; models; computer software programs; test results; data; manuals; methods of accounting; financial information; devices; systems; procedures; manuals; internal reports; lists of shippers and carriers; methods used for and preferred by its customers; and the pricing structure of its existing and contemplated products and service, except such information known by Executive prior to his employment by Employer ("Confidential Information"). As a material inducement to Employer to enter into this Agreement, and to pay to Executive the compensation set forth herein, Executive agrees that, during the term of this Agreement and, subject to the provisions of section 6.05 below, for a period of three (3) years after the termination of this Agreement, Executive shall not, directly or indirectly, divulge or disclose to any person, for any purpose, any Confidential Information, except to those persons authorized by Employer to receive Confidential Information and then only if use by such person is for Employer's benefit. 4.02 Covenant Against Competition. During the term of this Agreement and for a period of three (3) years after the termination of this Agreement and subject to the provisions of section 6.05 below, Executive shall not have any interest in or be engaged by any business or enterprise that is in the business of providing motor freight transportation services or arranging for the transportation of goods, including any business that acts as a licensed property broker or shipper's agent, which is directly competitive with any aspect of the business Employer now conducts or which Employer is conducting or is in the process of developing at the time of any competitive actions by Executive ("Prohibited Activity") except to the extent provided in section 2. For purposes of this Section 4.02, Executive shall be deemed to have an "interest in or be engaged by a business or enterprise" if Executive acts (a) individually, (b) as a partner, officer, director, shareholder, employee, associate, agent or owner of any entity or (c) as an advisor, consultant, lender or other person related, directly or indirectly, to any business or entity that is engaging in, or is planning to engage in, any Prohibited Activity. Ownership of less than five percent (5%) of the outstanding capital stock of a publicly traded entity that engages in any Prohibited Activity shall not be a violation of this Section 4.02. 4.03 Employment of Other Employees by Executive. During the term of this Agreement and, subject to the provisions of section 6.05 below, for a period of three (3) years after the termination of this Agreement, Executive shall not directly or indirectly solicit for employment, or employ, except on behalf of Employer, any person who was an employee of Employer at any time during the six (6) months preceding such solicitation or employment. 4.04 Judicial Amendment. If a court of competent jurisdiction determines any of the limitations contained in this Agreement are unreasonable and may not be enforced as herein agreed, the parties hereto expressly agree this Agreement shall be amended to delete all limitations judicially determined to be unreasonable and to substitute for those limitations found to be unreasonable the maximum limitations such court finds to be reasonable under the circumstances. 5 4.05 Irreparable Injury. Executive acknowledges that his abilities and the services he will provide to Employer are unique and that his failure to perform his obligations under this Section 4 would cause Employer irreparable harm and injury. Executive further acknowledges that the only adequate remedy is one that would prevent him from breaching the terms of Section 4. As a result, Executive and Employer agree that Employer's remedies may include preliminary injunction, temporary restraining order or other injunction relief against any threatened or continuing breach of this Section 4 by Executive. Nothing contained in this Section 4.05 shall prohibit Employer from seeking and obtaining any other remedy, including monetary damages, to which it may be entitled. 5. Termination. 5.01 Events Causing Termination. This Agreement shall terminate upon the first of the following events to occur: a) Lapse of the term hereof on December 31, 2000 b) On the date of Executive's death; c) At Employer's option, upon Executive's disability as defined in section 5.02 (a) below, effective on the day Executive receives notice from Employer that it is exercising its option granted by this Section to terminate this Agreement; d) On the day Executive receives written notice from Employer that Executive's employment is being terminated for cause, as defined in section 5.02 (b) below; e) Subject only to an exception specified in Section 5.02 (d) below, fifteen (15) days after receipt by Executive of notice from Employer specifying any act of insubordination or failure to comply with any instructions of the Chief Executive Officer of Mark VII or any act or omission that the Chief Executive Officer believes, in good faith, does, or may, adversely affect Employer's business or operations provided Executive fails to remedy or cease said acts within said fifteen (15) day period; f) On the date Executive resigns or, at the Employer's option, the date Executive commits any act that is a material breach of this Agreement; and g) At Executive's option, on the date Employer commits any act that is a material breach of this Agreement. h) At Employer's option, upon the failure of Executive to attain the performance standards of Section 5.02 (c) below. 5.02 Definitions. For purposes of Section 5.01 the following definitions shall apply: a) "Disability" means Executive's inability, because of sickness or other incapacity, whether physical or mental, to perform his duties under this Agreement for a period in excess of one hundred eight (180) substantially consecutive days, as professionally determined by two medical doctors licensed to practice medicine, one of which is selected by the Employer and one of which is selected by the Executive. In the event the doctors should disagree as to 6 whether the Executive is disabled, they shall select a third licensed medical doctor to make such termination which shall be binding on the parties hereto. b) "Cause" means (i) a willful failure by Executive to substantially perform his duties hereunder, other than a failure resulting from Executive's incapacity to do so because of physical or mental illness (ii) a willful act by Executive that constitutes gross misconduct and which is materially injurious to Employer, (iii) Executive's commitment of any act of dishonesty toward Employer, theft of corporate property or unethical business conduct or (iv) Executive's conviction of any felony involving dishonest, or immoral conduct. c) "Business Plan" means that the Executive has participated in the preparation of a business plan of Mark VII for 1997, which has been submitted to, and approved by, the Board of Directors of MARK VII and Executive. For each calendar year thereafter, through and including 2000, annual business plans shall be submitted to, and approved by, the Board of Directors of MARK VII and Executive, which shall constitute the basis of annual performance reviews. If, at the time of any such annual performance review, Employer has attained less than 50% of the pre-tax profit projected in plan, then the Employer shall, in its sole and exclusive discretion, have the right to terminate this Agreement pursuant to Section 5.01 (h) above. For any year in which the Executive does not approve of the plan adopted by the Board, the performance standard shall amount to 110% of the previous year's consolidated pre-tax profit as defined in Paragraph 3.02 above. 6. Payments Upon Termination. 6.01 Payments Upon Executive's Death, Disability or Failure to Make Plan. Upon the termination of this Agreement pursuant to Section 5.01 (b) (death), Section 5.01 (c) (disability) or Section 5.01 (h) (failure to make plan), Employer shall pay, or cause to be paid, to Executive, his designated beneficiary or his legal representative, a) the current Base Salary as provided in Section 3.02 and fringe benefits as set forth in Section 3.04 through the period ending twelve (12) months after occurrence of the event causing termination; and b) all necessary, ordinary, and reasonable business expenses incurred by Executive prior to termination of this Agreement. c) plus in the event of death or disability, bonus pursuant to Section 3.02 pro-rated to the date of termination. Employer shall not be obligated to make any other payments to Executive. 6.02 Payments Upon Termination for Cause, Insubordination, Resignation or Breach by Executive. Upon termination of this Agreement pursuant to Section 5.01 (d) (cause), Section 5.01 (e) (insubordination), or Section 5.01 (f) (resignation or breach by Executive), Employer shall pay, or cause to be paid, to Executive, a) the Base Salary and fringe benefits (not including bonus) for the period ending on the date this Agreement is terminated pursuant to the appropriate subsection of Section 5.01; and b) all necessary, ordinary, and reasonable business expenses incurred by Executive prior to termination hereof. 7 Employer shall not be obligated to make any other payments to Executive. 6.03 Payments Upon Expiration of Term or Termination for Breach by Employer. Upon termination of this Agreement pursuant to Section 5.01 (g) (Employer's breach), Employer shall pay to Executive the Base Salary set forth in Section 3.01, through December 31, 2000 plus bonus pursuant to Section 3.02. All compensation paid by Employer under the terms of this Section 6.03 shall be paid in the manner set forth in Section 3. 6.04 Payment of Amounts Due Upon Termination and Mitigation. If Executive is entitled to payment of Base Salary, fringe benefits or business expenses upon termination of this Agreement, Employer shall make said payments within the ordinary course of its business and pursuant to the terms hereof. All compensation to which the Executive is entitled following termination such payment shall be reduced by the amount of compensation earned by the Executive from other employment. 6.05 Effect of Termination on Nondisclosure, Noncompete and Nonsolicitation Provisions. a) The provisions of Sections 4.01, 4.02 and 4.03 (confidentiality, non-compete and nonemployment of other employees) of this Agreement shall survive termination hereof pursuant to Section 5.01 (d) (cause), Section 5.01 (e) (insubordination) or Section 5.01 (f) (resignation) even though the remaining terms and provisions of this Agreement shall be void, including the terms of Section 3 (compensation). b) Upon termination of this Agreement pursuant to Section 5.01 (a) (lapse of term) or Section 5.01 (h) (failure to make plan), Employer may elect to continue the obligations of Executive set forth in Section 4 (confidentiality, noncompete and nonemployment of other employees) for so long as the Employer continues to provide 125% of all compensation set forth in Section 3, but not to exceed three years subsequent to termination. c) Upon termination pursuant to Section 5.01 (c) (disability) the provisions of Section 4 (confidentiality, noncompete and nonemployment of other employees) shall survive for one year thereafter. d) Upon termination of this Agreement pursuant to Section 5.01 (g) (Employer breach), all of the provisions of Section 4 (confidentiality, noncompete and nonemployment of other employees) shall be void. 7. Conflict of Interest. During the term of this Agreement, Executive shall not, directly or indirectly, have any interest in any business which is a supplier of Employer without the express written consent of Employer's Board of Directors. Such interest shall include, without limitation, an interest as a partner, officer, director, stockholder, advisor or employee of or lender to such a supplier. An ownership interest of less than five percent (5%) in a supplier whose stock is publicly held or regularly traded shall not be a violation of this Section 7. 8. Indemnification of Executive. The Employer will indemnify the Executive and hold him harmless (including reasonable attorney fees and expenses) to the fullest extent now or hereafter 8 permitted by law in connection with any actual or threatened civil, criminal, administrative or investigative action, suit or proceeding in which the Executive is a party or witness as a result of his employment with the Employer. This indemnification shall survive the termination of this Agreement. 9. General Provisions. 9.01 Location of Employment. Executive's principal office shall be located at Memphis, Tennessee, or at such other location where Employer and Executive shall mutually agree. 9.02 Assignment. Neither party may assign any of the rights or obligations under this Agreement without the express written consent of the other party. For purposes of the foregoing sentence, the term "assign" shall not include an assignment of this Agreement by written agreement or by operation of law to any of Employer's wholly owned subsidiaries. 9.03 Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties' heirs, successors and assigns, to the extent allowed herein. 9.04 Severability. The provisions of this Agreement are severable. The invalidity or unenforceability of any one or more of the provisions hereof shall not affect the validity or enforceability of any other part of this Agreement. 9.05 Waiver. Waiver of any provision of this Agreement or any breach thereof by either party shall not be construed to be a waiver of any other provision or any subsequent breach of this Agreement. 9.06 Notices. Any notice or other communication required or permitted herein shall be sufficiently given if delivered in person or sent by certified mail, return receipt requested, postage prepaid addressed to: Employer: R. C. Matney, Chairman Mark VII, Inc. 600 N. Emerson Greenwood, IN 46143 cc: James T. Graves Vice Chairman and General Counsel Mark VII, Inc. 5310 St. Joseph Avenue St. Joseph, Missouri 64505 Executive: Philip L. Dunavant 1586 Quail Pointe Cir. W. Memphis, Tennessee 38120 or such other address as shall be furnished in writing by any such party. Any notice sent by the above-described method shall be deemed to have been received on the date personally delivered or so mailed. Notices sent by any other method shall be deemed to have been received when actually received by the addressee or its or his authorized agent. 9 9.07 Applicable Law. Except to the extent preempted by federal law, this Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Tennessee, without considering its laws or rules related to choice of law. 9.08 Ownership and Return of Documents and Objects. Every plan, drawing, blueprint, flowchart, listing of source or object code, notation, record, diary, memorandum, worksheet, manual or other document, magnetic media and every physical object created or acquired by Executive as part of his employment by Employer, or which relates to any aspect of Employer's business, is and shall be the sole and exclusive property of Employer. Executive shall, immediately upon Employer's request or upon termination of this Agreement for any reason, deliver to Employer each and every original, copy, complete or partial reproduction, abstract or summary, however reproduced, of all documents and all original and complete or partial reproductions of all magnetic media or physical objects owned by Employer then in Executives' possession. 9.09 Arbitration. Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration in accordance with the Commercial Arbitration rules of the American Arbitration Association and judgement upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof. 9.10 Attorney's Fees. If either party initiates arbitration proceedings to enforce the terms hereof, the prevailing party in such proceeding, on arbitration hearing, judicial trial or appeal, shall be entitled to its reasonable attorney's fees, costs and expenses to be paid by the losing party as fixed by the arbitrator. WITNESS WHEREOF, the parties have executed this Agreement on the 10th day of April, 1997 to be effective on the day and year first above written. THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE ENFORCED BY THE PARTIES. MARK VII, INC. By: /s/ R. C. Matney ---------------------------------- R. C. Matney, Chairman MARK VII TRANSPORTATION CO., INC. By: /s/ R. C. Matney ----------------------------------- R. C. Matney, Chairman /s/ Philip L. Dunavant --------------------------------------- Philip L. Dunavant, in his individual capacity (Executive) EX-10.8 4 EMPLOYMENT AGREEMENT/DAVID H. WEDAMAN 1 Exhibit 10.8 EMPLOYMENT AND NONCOMPETE AGREEMENT THIS AGREEMENT, dated this first day of January, 1997, is made by and among DAVID H. WEDAMAN, a resident of the State of Tennessee ("Executive"); MARK VII TRANSPORTATION COMPANY, INC., a Delaware corporation ("Employer"), a wholly owned subsidiary of MARK VII , INC., a Delaware corporation ("MARK VII"). RECITALS A. Employer, MARK VII, and its subsidiaries, are engaged in the business of freight transportation services, both providing and arranging transportation of goods. Subsequent references to Employer herein shall be deemed to also include MARK VII and its subsidiary corporations. B. Executive desires to continue to be employed by Employer as its President and Chief Operating Officer and Employer desires to employ Executive in such capacity under the terms set forth herein. AGREEMENT In consideration of the mutual promises, covenants and agreements contained herein and other good and valuable consideration, sufficiency of which is hereby acknowledged by Executive and Employer, the parties agree as follows: 1. Employment and Term of Employment. Employer hereby employs Executive and Executive hereby accepts employment which Employer for the term commencing on the date hereof and continuing for a period of three (3) years subsequent to January 1, 1997, unless sooner terminated as provided in Section 5. 2. Duties and Authority. 2.01 Duties and Position of Executive. (a) Executive shall undertake and assume the responsibility for those duties that Employer's Board of Directors shall, from time to time, assign to Executive. Executive's principal duties as of the date of this Agreement shall be and are those typically performed by an the President and Chief Operating Officer of a company. 2 (b) By appropriate action of Employer's Board of Directors, Executive has been elected as President and Chief Operating Officer of Employer. Executive shall be permitted to continue to serve as President and Chief Operating Officer of Employer for the duration of this Agreement provided and for so long as the performance standards of Paragraph 5.02 (c) below are attained. (c) Executive shall, at all times, faithfully and to the best of his ability, experience and talents, perform the duties set forth herein or to which Executive may, in the future, be assigned, always acting solely in the best interests of the Employer. 2.02 Time Devoted to Employment. Executive shall devote full time and attention to performance of assigned employment duties; provided, however, he shall be allowed to also pursue those separate and personal business interests which do not conflict or compete with the business of the employer directly or indirectly and which do not require personal services of the Executive. During the term of this Agreement, the Executive will not be involved in any transportation ventures other than those of the employer without the advance written authorization of the Employer's Board of Directors. It is also understood that the Executive is not hereby precluded from engaging in limited appropriate civic, charitable or religious activities. In the event the Employer's Board of Directors shall reassign the duties of Executive as President and Chief Operating Officer to another person, the Executive shall thereafter continue to serve the Employer engaged in the consultation, performance and management of those specific projects or duties to which he is assigned by the Employer and which are consistent with his experience and competence. 3. Compensation. During the term of this Agreement, Employer shall pay to Executive the following compensation: 3.01 Base Salary. Executive shall be paid an initial base salary of Two Hundred Forty Thousand Dollars and No/100 Dollars ($240,000) per year ("Base Salary") payable in equal weekly installments of $4,615.38. The Compensation Committee of the Employer's Board of Directors ("Committee") may review Executive's performance and adjust his Base Salary in its sole and absolute discretion. The Committee may increase the salary of the Executive at any time; provided, however, that the Committee may not reduce the Base Salary fixed in this Agreement. 3.02 Bonus. In addition to the Base Salary, in each fiscal year (commencing with the fiscal year ending December 31, 1997), Employee will provide a bonus to Executive payable within 90 days following the close of the employer's fiscal year. The annual bonus shall be based upon pre-tax profit (computed on the basis of generally accepted accounting principles consistently applied) earned by Employer (exclusive of operating divisions assigned to the management supervision of others) as compared to the pre-tax profit earned in the prior year. For example, and based upon pre-tax profit of $10,750,00 for the Base Year 1996: 3 Base Year 1996 - Estimated Pre-Tax $10,750,000.00 Year 1997 110% of base or $11,825,000 bonus earned equals 30% of salary 115% of base or $12,362,000 bonus earned equals 40% of salary 120% of base or $12,900,000 bonus earned equals 50% of salary 125% of base or $13,437,000 bonus earned equals 70% of salary Year 1998 if 1997 Base is $12,900,000 110% of base or $14,190,000 bonus earned equals 35% 115% of base or $14,835,000 bonus earned equals 50% 120% of base or $15,480,000 bonus earned equals 60% 125% of base or $16,125,000 bonus earned equals 70% Year 1999 if 1998 Base is $15,000,000 110% of base or $16,500,000 bonus earned equals 35% 115% of base or $17,250,000 bonus earned equals 50% 120% of base or $18,000,000 bonus earned equals 60% 125% of base or $18,750,000 bonus earned equals 70% Provided, however, in any year in which results equal to the 1997 business plan pre-tax profit are attained, Executive shall receive a minimum alternative bonus equal to 25% of base salary. In each plan year business plan revenue or business plan pre-tax profit shall be adjusted by the amount of the following items: (a) All charges of Employer to any affiliated company for services rendered shall be at present standards with any new services to be to charged at cost; (b) Any gain on the sale, casualty or other disposition of any capital asset of the Employer shall be deducted; (c) Any other income which was not the result of ordinary operations of the Employer shall be excluded; (d) Services of affiliated companies or business units shall be at cost or as agreed. If not, Executive may cause Employer to purchase such goods or services from unaffiliated sources. "Pre-tax profit", as defined above shall be based upon generally accepted accounting principles consistently applied and as finally determined by the Company's independent CPA auditing firm. 3.03 Car Allowance. In addition, the Executive shall receive $500 a month as a car allowance, plus the costs he incurs in operating his private automobile with respect to insurance, fuel, oil, filters, hoses, belts, license tags, one set of tires every four years and sales tax upon acquisition. 3.04 Fringe Benefits/Vacation. Executive shall receive standard Mark VII fringe benefits, including three (3) weeks of vacation with pay each year. 4 3.05 Reimbursement of Expenses. Employer shall reimburse Executive for ordinary, necessary and reasonable business expenses incurred to conduct or promote Employer's business, including travel and entertainment, provided Executive submits an itemization of such expenses and supporting documentation thereof, all according to Employer's generally applicable procedures. 3.06 Stock Options and Stock Appreciation Rights. All Stock Options and Stock Appreciation Rights related to the Common Stock of Mark VII previously granted to the Executive by agreement between Mark VII and the Executive shall continue in full force and effect in accordance with their respective terms and conditions. By separate agreement, Employer shall provide Executive with an additional non-qualified option to purchase 20,000 shares of the common stock of Mark VII, Inc. exercisable at $29.25 per share. The option shall vest in five equal annual installments of 4,000 shares each commencing on April 10, 1998. Each portion of the option shall be exercisable one year subsequent to vesting and the entire option shall lapse on April 9, 2007, ten years subsequent to the effective date of grant. 4. Nondisclosure and Noncompetition. Executive hereby covenants and agrees as follows: 4.01 Confidentiality. Executive acknowledges that as a result of his employment by Employer, he has, in the past, used and acquired and, in the future, will use and acquire knowledge and information used by Employer in its business and which is not generally available to the public or to persons in the transportation industry, including, without limitation, its future products, services, patents and trademarks; designs; plans; specifications; models; computer software programs; test results; data; manuals; methods of accounting; financial information; devices; systems; procedures; manuals; internal reports; lists of shippers and carriers; methods used for and preferred by its customers; and the pricing structure of its existing and contemplated products and service, except such information known by Executive prior to his employment by Employer ("Confidential Information"). As a material inducement to Employer to enter into this Agreement, and to pay to Executive the compensation set forth herein, Executive agrees that, during the term of this Agreement and, subject to the provisions of section 6.05 below, for a period of three (3) years after the termination of this Agreement, Executive shall not, directly or indirectly, divulge or disclose to any person, for any purpose, any Confidential Information, except to those persons authorized by Employer to receive Confidential Information and then only if use by such person is for Employer's benefit. 4.02 Covenant Against Competition. During the term of this Agreement and for a period of three (3) years after the termination of this Agreement and subject to the provisions of section 6.05 below, Executive shall not have any interest in or be engaged by any business or enterprise that is in the business of providing motor freight transportation services or arranging for the transportation of goods, including any business that acts as a licensed property broker or shipper's agent, which is directly competitive with any aspect of the business Employer now conducts or which Employer is conducting or is in the process of developing at the time of any competitive actions by Executive ("Prohibited Activity") except to the extent provided in section 2. For purposes of this Section 4.02, Executive shall be deemed to have an "interest in or be engaged by a business or enterprise" if Executive acts (a) individually, (b) as a partner, officer, director, shareholder, employee, associate, agent or owner of any entity or (c) as an advisor, consultant, lender or other person 5 related, directly or indirectly, to any business or entity that is engaging in, or is planning to engage in, any Prohibited Activity. Ownership of less than five percent (5%) of the outstanding capital stock of a publicly traded entity that engages in any Prohibited Activity shall not be a violation of this Section 4.02. 4.03 Employment of Other Employees by Executive. During the term of this Agreement and, subject to the provisions of section 6.05 below, for a period of three (3) years after the termination of this Agreement, Executive shall not directly or indirectly solicit for employment, or employ, except on behalf of Employer, any person who was an employee of Employer at any time during the six (6) months preceding such solicitation or employment. 4.04 Judicial Amendment. If a court of competent jurisdiction determines any of the limitations contained in this Agreement are unreasonable and may not be enforced as herein agreed, the parties hereto expressly agree this Agreement shall be amended to delete all limitations judicially determined to be unreasonable and to substitute for those limitations found to be unreasonable the maximum limitations such court finds to be reasonable under the circumstances. 4.05 Irreparable Injury. Executive acknowledges that his abilities and the services he will provide to Employer are unique and that his failure to perform his obligations under this Section 4 would cause Employer irreparable harm and injury. Executive further acknowledges that the only adequate remedy is one that would prevent him from breaching the terms of Section 4. As a result, Executive and Employer agree that Employer's remedies may include preliminary injunction, temporary restraining order or other injunction relief against any threatened or continuing breach of this Section 4 by Executive. Nothing contained in this Section 4.05 shall prohibit Employer from seeking and obtaining any other remedy, including monetary damages, to which it may be entitled. 5. Termination. 5.01 Events Causing Termination. This Agreement shall terminate upon the first of the following events to occur: a) At the end of three (3) years subsequent to January 1, 1997; b) On the date of Executive's death; c) At Employer's option, upon Executive's disability as defined in section 5.02 (a) below, effective on the day Executive receives notice from Employer that it is exercising its option granted by this Section to terminate this Agreement; (d) On the day Executive receives written notice from Employer that Executive's employment is being terminated for cause, as defined in section 5.02 (b) below; (e) Subject only to an exception specified in Section 5.02 (d) below, fifteen (15) days after receipt by Executive of notice from Employer specifying any act of insubordination or failure to comply with any instructions of the Chief Executive Officer of Mark VII or any act or omission that the Chief Executive Officer believes, in good faith, does, or may, adversely affect 6 Employer's business or operations provided Executive fails to remedy or cease said acts within said fifteen (15) day period; (f) On the date Executive resigns or, at the Employer's option, the date Executive commits any act that is a material breach of this Agreement; and (g) At Executive's option, on the date Employer commits any act that is a material breach of this Agreement. (h) At Employer's option, upon the failure of Executive to attain the performance standards of Section 5.02 (c) below. 5.02 Definitions. For purposes of Section 5.01 the following definitions shall apply: a) "Disability" means Executive's inability, because of sickness or other incapacity, whether physical or mental, to perform his duties under this Agreement for a period in excess of one hundred eight (180) substantially consecutive days, as professionally determined by two medical doctors licensed to practice medicine, one of which is selected by the Employer and one of which is selected by the Executive. In the event the doctors should disagree as to whether the Executive is disabled, they shall select a third licensed medical doctor to make such termination which shall be binding on the parties hereto. b) "Cause" means (i) a willful failure by Executive to substantially perform his duties hereunder, other than a failure resulting from Executive's incapacity to do so because of physical or mental illness (ii) a willful act by Executive that constitutes gross misconduct and which is materially injurious to Employer, (iii) Executive's commitment of any act of dishonesty toward Employer, theft of corporate property or unethical business conduct or (iv) Executive's conviction of any felony involving dishonest, or immoral conduct. c) "Business Plan" means that the Executive has participated in the preparation of a business plan of Mark VII for 1997, which has been submitted to, and approved by, the Board of Directors of MARK VII and Executive. For each calendar year thereafter, through and including 1999, annual business plans shall be submitted to, and approved by, the Board of Directors of MARK VII and Executive, which shall constitute the basis of annual performance reviews. If, at the time of any such annual performance review, Employer has attained less that 50% of the pre-tax profit projected in plan, then the Employer shall, in its sole and exclusive discretion, have the right to terminate this Agreement pursuant to Section 5.01 (h) above. For any year in which the Executive does not approve of the plan adopted by the Board, the performance standard shall amount to 110% of the previous year's pre-tax profit as defined in Paragraph 3.02 above. d) Whenever, as the result of a change of control of Mark VII, Inc. consisting of either a change in ownership of 50% or more of the outstanding voting shares or a majority of the members of the Board of Directors, R. C. Matney no longer serves as Chief Executive Officer of Mark VII, Inc., in the event Executive is thereafter terminated for insubordination by failure to comply with any direction or order given by the successor Chief Executive Officer which controvenes prior business policy or established practice or procedure of Employer, then Executive shall, not withstanding the provisions of Sections 6.02 (a) and 6.05 (a), be entitled to receive all compensation provided by Paragraph 3 for the balance of the term hereof and shall no longer be subject to the requirements to not compete set forth in Sections 4.02 and 6.05 (a). 7 6. Payments Upon Termination. 6.01 Payments Upon Executive's Death, Disability or Failure to Make Plan. Upon the termination of this Agreement pursuant to Section 5.01 (b) (death), Section 5.01 (c) (disability) or Section 5.01 (h) (failure to make plan), Employer shall pay, or cause to be paid, to Executive, his designated beneficiary or his legal representative, a) the current Base Salary as provided in Section 3.02 and fringe benefits as set forth in Section 3.04 through the period ending twelve (12) months after occurrence of the event causing termination; and b) all necessary, ordinary, and reasonable business expenses incurred by Executive prior to termination of this Agreement. c) plus in the event of death or disability, bonus pursuant to Section 3.02 pro-rated to the date of termination. Employer shall not be obligated to make any other payments to Executive. 6.02 Payments Upon Termination for Cause, Insubordination, Resignation or Breach by Executive. Upon termination of this Agreement pursuant to Section 5.01 (d) (cause), Section 5.01 (e) (insubordination), or Section 5.01 (f) (resignation or breach by Executive), Employer shall pay, or cause to be paid, to Executive, a) the Base Salary and fringe benefits (not including bonus) for the period ending on the date this Agreement is terminated pursuant to the appropriate subsection of Section 5.01; and b) all necessary, ordinary, and reasonable business expenses incurred by Executive prior to termination hereof. Employer shall not be obligated to make any other payments to Executive. 6.03 Payments Upon Expiration of Term or Termination for Breach by Employer. Upon termination of this Agreement pursuant to Section 5.01 (g) (Employer's breach), Employer shall pay to Executive the Base Salary set forth in Section 3.01, through December 31, 1999 plus bonus pursuant to Section 3.02. All compensation paid by Employer under the terms of this Section 6.03 shall be paid in the manner set forth in Section 3. 6.04 Payment of Amounts Due Upon Termination and Mitigation. If Executive is entitled to payment of Base Salary, fringe benefits or business expenses upon termination of this Agreement, Employer shall make said payments within the ordinary course of its business and pursuant to the terms hereof. All compensation to which the Executive is entitled following termination such payment shall be reduced by the amount of compensation earned by the Executive from other employment. 6.05 Effect of Termination on Nondisclosure, Noncompete and Nonsolicitation Provisions. a) The provisions of Sections 4.01, 4.02 and 4.03 (confidentiality, non-compete and nonemployment of other employees) of this Agreement shall 8 survive termination hereof pursuant to Section 5.01 (d) (cause), Section 5.01 (e) (insubordination) or Section 5.01 (f) (resignation) even though the remaining terms and provisions of this Agreement shall be void, including the terms of Section 3 (compensation). b) Upon termination of this Agreement pursuant to Section 5.01 (a) (lapse of term) or Section 5.01 (h) (failure to make plan), Employer may elect to continue the obligations of Executive set forth in Section 4 (confidentiality, noncompete and nonemployment of other employees) for so long as the Employer continues to provide all compensation set forth in Section 3, but not to exceed three years subsequent to termination. c) Upon termination pursuant to Section 5.01 (c) (disability) the provisions of Section 4 (confidentiality, noncompete and nonemployment of other employees) shall survive for one year thereafter. d) Upon termination of this Agreement pursuant to Section 5.01 (g) (Employer breach), all of the provisions of Section 4 (confidentiality, noncompete and nonemployment of other employees) shall be void. 7. Conflict of Interest. During the term of this Agreement, Executive shall not, directly or indirectly, have any interest in any business which is a supplier of Employer without the express written consent of Employer's Board of Directors. Such interest shall include, without limitation, an interest as a partner, officer, director, stockholder, advisor or employee of or lender to such a supplier. An ownership interest of less than five percent (5%) in a supplier whose stock is publicly held or regularly traded shall not be a violation of this Section 7. 8. Indemnification of Executive. The Employer will indemnify the Executive and hold him harmless (including reasonable attorney fees and expenses) to the fullest extent now or hereafter permitted by law in connection with any actual or threatened civil, criminal, administrative or investigative action, suit or proceeding in which the Executive is a party or witness as a result of his employment with the Employer. This indemnification shall survive the termination of this Agreement. 9. General Provisions. 9.01 Location of Employment. Executive's principal office shall be located at Memphis, Tennessee, or at such other location where Employer and Executive shall mutually agree. 9.02 Assignment. Neither party may assign any of the rights or obligations under this Agreement without the express written consent of the other party. For purposes of the foregoing sentence, the term "assign" shall not include an assignment of this Agreement by written agreement or by operation of law to any of Employer's wholly owned subsidiaries. 9.03 Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties' heirs, successors and assigns, to the extent allowed herein. 9 9.04 Severability. The provisions of this Agreement are severable. The invalidity or unenforceability of any one or more of the provisions hereof shall not affect the validity or enforceability of any other part of this Agreement. 9.05 Waiver. Waiver of any provision of this Agreement or any breach thereof by either party shall not be construed to be a waiver of any other provision or any subsequent breach of this Agreement. 9.06 Notices. Any notice or other communication required or permitted herein shall be sufficiently given if delivered in person or sent by certified mail, return receipt requested, postage prepaid addressed to: Employer: R. C. Matney, Chairman Mark VII, Inc. 600 N. Emerson Greenwood, IN 46143 cc: James T. Graves Vice Chairman and General Counsel Mark VII, Inc. 5310 St. Joseph Avenue St. Joseph, Missouri 64505 Executive: David H. Wedaman 1847 Woodridge Cove Memphis, Tennessee 38138 or such other address as shall be furnished in writing by any such party. Any notice sent by the above-described method shall be deemed to have been received on the date personally delivered or so mailed. Notices sent by any other method shall be deemed to have been received when actually received by the addressee or its or his authorized agent. 9.07 Applicable Law. Except to the extent preempted by federal law, this Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Tennessee, without considering its laws or rules related to choice of law. 9.08 Ownership and Return of Documents and Objects. Every plan, drawing, blueprint, flowchart, listing of source or object code, notation, record, diary, memorandum, worksheet, manual or other document, magnetic media and every physical object created or acquired by Executive as part of his employment by Employer, or which relates to any aspect of Employer's business, is and shall be the sole and exclusive property of Employer. Executive shall, immediately upon Employer's request or upon termination of this Agreement for any reason, deliver to Employer each and every original, copy, complete or partial reproduction, abstract or summary, however reproduced, of all documents and all original and complete or partial reproductions of all magnetic media or physical objects owned by Employer then in Executives' possession. 9.09 Arbitration. Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration in accordance with the Commercial Arbitration rules of the American Arbitration 10 Association and judgement upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof. 9.10 Attorney's Fees. If either party initiates arbitration proceedings to enforce the terms hereof, the prevailing party in such proceeding, on arbitration hearing, judicial trial or appeal, shall be entitled to its reasonable attorney's fees, costs and expenses to be paid by the losing party as fixed by the arbitrator. WITNESS WHEREOF, the parties have executed this Agreement on the 10th day of April, 1997 to be effective on the day and year first above written. THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE ENFORCED BY THE PARTIES. MARK VII, INC. By:/s/ R. C. Matney ------------------------------- R. C. Matney, Chairman MARK VII TRANSPORTATION CO., INC. By:/s/ R. C. Matney ------------------------------- R. C. Matney, Chairman /s/ David H. Wedaman -------------------------------------- David H. Wedaman, in his individual capacity (Executive) 11 ADDENDUM TO EMPLOYMENT AND NONCOMPETE AGREEMENT DAVID H. WEDAMAN THIS AGREEMENT; dated this 15th day of May , 1997 is made by and among David H. Wedaman, a resident of the State of Tennessee ("Executive"); Mark VII Transportation Company, Inc. a Delaware corporation ("Employer"), a wholly owned subsidiary of Mark VII, Inc., a Delaware corporation ("Mark VII"). RECITALS A. Executive, Employer and Mark VII previously entered into an "Employment and Noncompete Agreement" on April 10, 1997 effective January 1, 1997 ("Agreement"). The parties hereby undertake and agree to modify said Agreement to the extent expressly stated herein. In other respects, said Agreement shall remain as originally stated and executed. B. The changes expressed in this Addendum are occasioned by the assignment of an operating division, Mark VII Consumer Delivery Network ("CDN"), to the management supervision of Executive. AGREEMENT In consideration of the mutual promises, covenants and agreements contained herein and in the underlying Agreement, the parties do hereby further agree as follows: I. Management Responsibility for Consumer Delivery Network. In September of 1996, Mark VII Transportation Company, Inc. acquired the assets of Consumer Delivery Network, Inc. which have been subsequently operated as a division of Mark VII Transportation Company, Inc. under the direct management supervision of R. C. Matney, Chairman. Effective May 16, 1997, principal management supervision responsibility of Consumer Delivery Network, an operating division of Mark VII Transportation Company, Inc. was transferred to Executive by mutual agreement. II. Impact on Bonus Calculation. The results of operation of CDN division shall not be included in the calculation of pre-tax profit upon which Executive's bonus is based pursuant to Paragraph 3.02 of his Agreement until July 1, 1998. 12 IN WITNESS WHEREOF, the parties hereto have executed this Addendum on the day and year first above written. MARK VII, INC. BY:/s/ R. C. Matney ---------------------------------- R. C. Matney, Chairman MARK VII TRANSPORTATION CO, INC. BY:/s/ R. C. Matney ---------------------------------- R. C. Matney, Chairman /s/ David H. Wedaman ------------------------------------- David H. Wedaman, in his individual capacity (Executive) EX-10.17 5 REVOLVING LOAN & PROMISSORY AGREEMENT 1 Exhibit 10.17 NationsBank of Tennessee, N.A. REVOLVING LOAN PROMISSORY NOTE July 29, 1997 $25,000,000.00 Maturity Date: July 1, 2000 Bank: Borrower: NationsBank of Tennessee, N.A. Mark VII, Inc. 6363 Poplar Avenue Mark VII Transportation Company, Inc. Memphis, TN 38119 965 Ridge Lake Boulevard Memphis, TN 38120 FOR VALUE RECEIVED, the undersigned Borrower unconditionally (and jointly and severally, if more than one) promises to pay to the order of Bank, its successors and assigns, without setoff, at its offices indicated at the beginning of this Note, or at such other place as may be designated by Bank, the principal amount of Twenty-Five Million and No/100 Dollars ($25,000,000.00), or so much thereof as may be advanced from time to time in immediately available funds as set forth in that certain Loan Agreement of even date herewith (the "Loan Agreement"), together with interest computed daily on the outstanding principal balance hereunder, at an annual interest rate, and in accordance with the payment schedule, indicated below. 1. RATE. The unpaid principal balance of this Note from day to day outstanding which is not past due shall bear interest at a rate per annum equal to the lesser of (i) the Maximum Rate (hereinafter defined) or (ii) the Stated Rate (hereinafter defined) fixed for periods of one (1) month each and computed on the Annual Basis (hereinafter defined). (a) The term "Stated Rate" means the LIBOR Funding Rate plus the Applicable Margin (as hereinafter set forth). (b) The term "LIBOR Funding Rate" means the thirty (30) day rate of interest set by Bank as the LIBOR Funding Rate as of and at any time during the second Business Day immediately preceding the first day of such Interest Period, for a term comparable to such Interest Period, as adjusted from time to time in Bank's sole discretion for then applicable reserve requirements, deposit insurance assessment rates and other regulatory costs. (c) The term "Business Day" shall mean a day on which Bank is open for business and dealing in deposits in Memphis, Tennessee. (d) The term "Interest Period" shall mean, with respect to any LIBOR Borrowing (hereinafter defined), a period from the 15th day of each month in which the LIBOR Funding Rate shall become effective as to such LIBOR Borrowing to the 14th day of the following month, subject however to the following: (i) if any Interest Period would otherwise end on a day which is not a Business Day, the LIBOR Funding Rate shall be determined the immediately preceding business day; and (ii) no Interest Period shall extend beyond the final maturity date; and (e) The term " Applicable Margin" means the percentage added to the LIBOR Funding Rate and shall be a function of the Funded Debt/EBITDA ratio as follows: 2
Funded Debt/EBITDA LIBOR Applicable Margin (i) less than 1.00 0.50% (ii) greater than = 1.00 and less than 1.50 x .75% (iii) greater than = 1.50 and less than 2.00 x 1.00% (iv) greater than = 2.00 and less than 2.25 1.25%
(f) The term "LIBOR Borrowing" as used herein means a separate and distinct portion of the indebtedness evidenced by the Note bearing interest at a LIBOR Funding Rate. The term "Maximum Rate" as used in this Note means the maximum nonusurious rate of interest per annum permitted by whichever of applicable United States federal law or the law of the state of Tennessee permits the higher interest rate, including to the extent permitted by applicable law, any amendments thereof hereafter or any new law hereafter coming into effect to the extent a higher Maximum Rate is permitted thereby. The Maximum Rate shall be applied by taking into account all amounts characterized by applicable law as interest on the debt evidenced by this Note, so that the aggregate of all interest does not exceed the maximum nonusurious amount permitted by applicable law. Notwithstanding any provision of this Note, Bank does not intend to charge and Borrower shall not be required to pay any amount of interest or other charges in excess of the Maximum Rate; if any higher rate ceiling is lawful, then that higher rate ceiling shall apply. Any payment in excess of such Maximum Rate shall be refunded to Borrower or credited against principal, at the option of Bank. 2. ANNUAL BASIS OR ACCRUAL METHOD. "Annual Basis" means computation of interest at the Rate set forth above using a 365/360 day method (a daily amount of interest is computed for a hypothetical year of 360 days; that amount is multiplied by the actual number of days for which any principal is outstanding hereunder). 3. RATE CHANGE DATE. The Stated Rate will change on the 15th day of each month. 4. PAYMENT SCHEDULE. All payments received hereunder shall be applied first to the payment of any expense or charges payable hereunder or under any other loan documents executed in connection with this Note, then to interest due and payable, with the balance applied to principal, or in such other order as Bank shall determine at its option. Availability under the revolving loan shall terminate on July 1, 2000, at which time the entire outstanding principal balance, plus all accrued and unpaid interest, shall be due and payable in full. Interest calculated at the variable rate set forth above shall be paid monthly (if not earlier paid as set forth in Section 6 hereof) commencing on the 1st day of August, 1997, and continuing on the same day of each and every month thereafter until maturity. 5. REVOLVING FEATURE. Borrower may borrow, repay and reborrow hereunder at any time, up to a maximum aggregate outstanding balance allowed at any one time of Twenty-Five Million and No/100 Dollars ($25,000,000.00) provided that Borrower is not in default under any provision of this Note, the Loan Agreement, any other documents executed in connection with this Note, or any other note or other loan documents now or hereafter executed in connection with any other obligation of Borrower to Bank, and provided that the borrowings hereunder do not exceed any borrowing base or other limitation on borrowings by Borrower. Bank shall incur no liability for its refusal to advance funds based upon its determination that any conditions of such further advances have not been met. Bank records of the amounts borrowed from time to time shall be conclusive proof thereof. 6. AUTOMATIC BORROWING AND PAYMENT. Borrower has elected to authorize Bank to effect payment of sums due under this Note by means of debiting Borrower's account number 1800816405. Excess collected deposit balances shall be applied daily to any accrued interest or principal balances, or used to advance funds as needed if no sums are outstanding under the loan. This authorization shall not affect the obligation of Borrower to pay such sums when due, without notice, if there are insufficient funds in such account to make such payment in full on the due date thereof, or if Bank fails to debit the account. 7. WAIVERS, CONSENTS AND COVENANTS. Borrower, any indorser or guarantor hereof, or any other party hereto (individually an "Obligor" and collectively "Obligors") and each of them jointly and severally: (a) waive presentment, demand, protest, notice of demand, notice of intent to accelerate, notice of acceleration of maturity, notice of protest, notice of nonpayment, notice of dishonor, and any other notice required to be given under the law to any Obligor in connection with the delivery, acceptance, performance, default or enforcement of this Note, any indorsement or guaranty of this Note, or any other documents executed in connection with this Note or any other note or other loan documents now or hereafter executed in connection with any obligation of Borrower to 3 Bank (the "Loan Documents"); (b) consent to all delays, extensions, renewals or, other modifications of this Note or the Loan Documents, or waivers of any term hereof or of the Loan Documents, or release or discharge by Bank of any of Obligors, or release, substitution or exchange of any security for the payment hereof, or the failure to act on the part of Bank, or any indulgence shown by Bank (without notice to or further assent from any of Obligors), and agree that no such action, failure to act or failure to exercise any right or remedy by Bank shall in any way affect or impair the obligations of any Obligors or be construed as a waiver by Bank of, or otherwise affect, any of Bank's rights under this Note, under any indorsement or guaranty of this Note or under any of the Loan Documents; and (c) agree to pay, on demand, all costs and expenses of collection or defense of this Note or of any indorsement or guaranty hereof and/or the enforcement or defense of Bank's rights with respect to, or the administration, supervision, preservation, or protection of, or realization upon, any property securing payment hereof, including, without limitation, reasonable attorney's fees, including fees related to any suit, mediation or arbitration proceeding, out of court payment agreement, trial, appeal, bankruptcy proceedings or other proceeding, in such amount as may be determined reasonable by any arbitrator or court, whichever is applicable. 8. PREPAYMENTS. Prepayments may be made in whole or in part at any time without penalty. 9. DELINQUENCY CHARGE. To the extent permitted by law, a delinquency charge may be imposed in an amount not to exceed four percent (4%) of any payment that is more than fifteen (15) days late. 10. EVENTS OF DEFAULT. The following are events of default hereunder: (a) the failure to pay or perform any obligation, liability or indebtedness of any Obligor to Bank, or to any affiliate or subsidiary of NationsBank Corporation, whether under this Note, the Loan Agreement, or any of the other Loan Documents, as and when due (whether upon demand, at maturity or by acceleration) which failure to pay is not cured within five (5) days of the date when due, and which failure to perform is not cured within thirty (30) days after notice from Bank to Borrower; (b) the failure to pay or perform any other obligation, liability or indebtedness of any Obligor to any other party and such failure is not cured within any applicable cure period; (c) the commencement of a proceeding against any Obligor for dissolution or liquidation, the voluntary or involuntary termination or dissolution of any Obligor or the merger or consolidation of any Obligor with or into another entity (except as permitted by the Loan Documents); (d) the insolvency of, the business failure of, the appointment of a custodian, trustee, liquidator or receiver for or for any of the property of, the assignment for the benefit of creditors by, or the filing of a petition under bankruptcy, insolvency or debtor's relief law or the filing of a petition for any adjustment of indebtedness, composition or extension by or against any Obligor which is not dismissed within sixty (60) days after such filing; (e) the determination by Bank that any representation or warranty made to Bank by any Obligor in any Loan Documents or otherwise is or was, when it was made, untrue or materially misleading; (f) the failure of any Obligor to timely deliver such financial statements, including tax returns, other statements of condition or other information, as Bank shall reasonably request from time to time; or (g) the seizure or forfeiture of, or the issuance of any writ of possession, garnishment or attachment, or any turnover order for any property of any Obligor; (h) the entry of a judgment against any Obligor which Bank deems to be of a material nature, in Bank's reasonable discretion, which judgment is not appealed within the time period allowed by applicable law; (i) the reasonable determination by Bank that it is insecure for any reason; (j) the reasonable determination by Bank that a material adverse change has occurred in the financial condition of any Obligor; or (k) the failure of Borrower's business to comply in all material respects with any law or regulation controlling its operation. 11. REMEDIES UPON DEFAULT. Whenever there is a default under this Note (a) the entire balance outstanding hereunder and all other obligations of any Obligor to Bank (however acquired or evidenced) shall, at the option of Bank, become immediately due and payable and any obligation of Bank to permit further borrowing under this Note shall immediately cease and terminate, and/or (b) to the extent permitted by law, the Rate of interest on the unpaid principal shall be increased at Bank's discretion up to the Maximum Rate, or if none, 25% per annum (the "Default Rate"). The provisions herein for a Default Rate shall not be deemed to extend the time for any payment hereunder or to constitute a "grace period" giving Obligors a right to cure any default. At Bank's option, any accrued and unpaid interest, fees or charges may, for purposes of computing and accruing interest on a daily basis after the due date of the Note or any installment thereof, be deemed to be a part of the principal balance, and interest shall accrue on a daily compounded basis after such date at the Default Rate provided in this Note until the entire outstanding balance of principal and interest is paid in full. Upon a default under this Note, Bank is hereby authorized at any time, at its option and without notice or demand, to set off and charge against any deposit accounts of any Obligor, (as well as any money, instruments, securities, documents, chattel paper, credits, claims, demands, income and any other property, rights and interests of any Obligor), which at any time shall come into the possession or custody or under the control of Bank or any of its agents, affiliates or correspondents, any and all obligations due hereunder. Additionally, Bank shall have all rights and remedies available under each of the Loan Documents, as well as all rights and remedies available at law or in equity. 12. NON-WAIVER. The failure at any time of Bank to exercise any of its options or any other rights hereunder shall not constitute a waiver thereof, nor shall it be a bar to the exercise of any of its options or rights at a later date. All rights and remedies of Bank shall be cumulative and may be pursued singly, successively or together, at the option of Bank. The acceptance by Bank of any partial payment shall not constitute a waiver of any default or of any of Bank's rights under this Note. No waiver of any of its rights hereunder, and no modification or amendment of this Note, shall be deemed to be made by Bank unless the same shall be in writing, 4 duly signed on behalf of Bank; each such waiver shall apply only with respect to the specific instance involved, and shall in no way impair the rights of Bank or the obligations of Obligors to Bank in any other respect at any other time. 13. APPLICABLE LAW, VENUE AND JURISDICTION. This Note and the rights and obligations of Borrower and Bank shall be governed by and interpreted in accordance with the law of the State of Tennessee. In any litigation in connection with or to enforce this Note or any indorsement or guaranty of this Note or any Loan Documents, Obligors, and each of them, irrevocably consent to and confer personal jurisdiction on the courts of the State of Tennessee or the United States located within the State of Tennessee and expressly waive any objections as to venue in any such courts. Nothing contained herein shall, however, prevent Bank from bringing any action or exercising any rights within any other state or jurisdiction or from obtaining personal jurisdiction by any other means available under applicable law. 14. PARTIAL INVALIDITY. The unenforceability or invalidity of any provision of this Note shall not affect the enforceability or validity of any other provision herein and the invalidity or unenforceability of any provision of this Note or of the Loan Documents to any person or circumstance shall not affect the enforceability or validity of such provision as it may apply to other persons or circumstances. 15. BINDING EFFECT. This Note shall be binding upon and inure to the benefit of Borrower, Obligors and Bank and their respective successors, assigns, heirs and personal representatives, provided, however, that no obligations of Borrower or Obligors hereunder can be assigned without prior written consent of Bank. 16. CONTROLLING DOCUMENT. To the extent that this Note conflicts with or is in any way incompatible with any other document related specifically to the loan evidenced by this Note, this Note shall control over any other such document, and if this Note does not address an issue, then each other such document shall control to the extent that it deals most specifically with an issue. 17. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT OR ANY RELATED INSTRUMENTS, AGREEMENTS OR DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE LAW), THE RULES OF PRACTICE AND PROCEDURE FOR THE ARBITRATION OF COMMERCIAL DISPUTES OF J.A.M.S./ENDISPUTE OR ANY SUCCESSOR THEREOF ("J.A.M.S."), AND THE "SPECIAL RULES" SET FORTH BELOW. IN THE EVENT OF ANY INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS AGREEMENT APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH ACTION. A. SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE COUNTY OF ANY BORROWER'S DOMICILE AT THE TIME OF THE EXECUTION OF THIS INSTRUMENT, AGREEMENT OR DOCUMENT AND ADMINISTERED BY J.A.M.S. WHO WILL APPOINT AN ARBITRATOR; IF J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN THE AMERICAN ARBITRATION ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90 DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL 60 DAYS. B. RESERVATION OF RIGHTS. NOTHING IN THIS ARBITRATION PROVISION SHALL BE DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS INSTRUMENT, AGREEMENT OR DOCUMENT; OR (II) BE A WAIVER BY BANK OF THE PROTECTION AFFORDED TO IT BY 12 U.S.C. SEC. 91 OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE RIGHT OF BANK HERETO (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED TO) SETOFF, OR (B) TO FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY COLLATERAL, OR (C) TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT OF A RECEIVER. BANK MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE UPON SUCH PROPERTY, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT. NEITHER THIS EXERCISE OF SELF HELP REMEDIES NOR THE INSTITUTION OR MAINTENANCE OF AN ACTION FOR FORECLOSURE OR PROVISIONAL OR ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN ANY SUCH ACTION, TO ARBITRATE THE MERITS OF THE CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH REMEDIES. 5 BORROWER REPRESENTS TO BANK THAT THE PROCEEDS OF THIS LOAN ARE TO BE USED PRIMARILY FOR BUSINESS, COMMERCIAL OR AGRICULTURAL PURPOSES. BORROWER ACKNOWLEDGES HAVING READ AND UNDERSTOOD, AND AGREES TO BE BOUND BY, ALL TERMS AND CONDITIONS OF THIS NOTE. NOTICE OF FINAL AGREEMENT. THIS WRITTEN PROMISSORY NOTE REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. MARK VII, INC. By: /s/ Philip L. Dunavant ----------------------------------------- Name: Philip L. Dunavant ----------------------------------------- Title: E.V.P. - C.F.O. ----------------------------------------- /s/ Carol L. Clement ----------------------------------------- Attest A.V.P. MARK VII TRANSPORTATION COMPANY, INC. By: /s/ Philip L. Dunavant ----------------------------------------- Name: Philip L. Dunavant ----------------------------------------- Title: E.V.P. - Finance ----------------------------------------- /s/ Carol L. Clement ----------------------------------------- Attest A.V.P. EX-10.18 6 LOAN AGREEMENT 1 Exhibit 10.18 NATIONSBANK OF TENNESSEE, N.A. LOAN AGREEMENT This Loan Agreement (the "Agreement") dated as of July 29, 1997, by and among NATIONSBANK OF TENNESSEE, N.A., a national banking association ("Bank"); and MARK VII, INC., a Delaware corporation, and MARK VII TRANSPORTATION COMPANY, INC., a Delaware corporation (collectively "Borrower"). RECITALS: A. Borrower has applied to Bank for a revolving line of credit facility (the "Loan") in the principal amount of $25,000,000. B. One of the conditions of the Loan from Bank to Borrower is the execution of this Agreement setting forth the terms and conditions of the Loan. NOW THEREFORE, in consideration of the Loan described below and the mutual covenants and agreements contained herein, and intending to be legally bound hereby, Bank and Borrower agree as follows: 1. DEFINITIONS AND REFERENCE TERMS. In addition to any other terms defined herein, the following terms shall have the meaning set forth with respect thereto: A. ACCOUNT DEBTOR: Account Debtor means any Person (as herein defined) which is now or hereafter obligated or indebted to Borrower on any Account Receivable. B. ACCOUNTS RECEIVABLE: Accounts Receivable means all amounts owed to Borrower on account of sales, leases or rentals of goods or services rendered in the ordinary course of trade or business to or on behalf of any Person (as herein defined) which is now or hereafter obligated or indebted to Borrower (i) which arise from goods theretofore sold and delivered or services or rentals theretofore rendered or made, as the case may be, to an Account Debtor (as herein defined); (ii) with respect to which no setoffs, counterclaims or defenses are claimed by the Account Debtor; (iii) which constitute the binding obligation of an Account Debtor which Bank deems, in the exercise of its reasonable business judgment, to be solvent, to be financially able to pay its debts and obligations as they become due and to be paying its debts and obligations as they become due; (iv) which, in the case of "dated invoices" which specify a due date for the payment thereof, do not remain unpaid more than ninety (90) days after the end of the month in which such due date falls, and in the case of all other invoices, do not remain unpaid more than ninety (90) days after the date of such invoice; (v) with respect to which the Account Debtor is not an officer, director, agent or employee of Borrower; and (vi) which do not arise from a "sale on approval," "sale or return," "guaranteed sale" or "consignment." C. BORROWER: Mark VII, Inc., a Delaware corporation, and Mark VII Transportation Company, Inc., a Delaware corporation; collectively. 2 D. BORROWER'S ADDRESS: 965 Ridge Lake Boulevard Memphis, Tennessee 38120 E. CURRENT LIABILITIES: Current Liabilities means the aggregate amount of all current liabilities as determined in accordance with GAAP, but in any event shall include all liabilities except those having a maturity date which is more than one year from the date as of which such computation is being made. F. EBITDA: EBITDA means, without duplication for any period, the following, each calculated for the trailing twelve (12) months of such period: (a) Net Income; plus (b) any provision for (or minus any benefit from) income or franchise taxes included in the determination of Net Income; plus (c) interest expense deducted in the determination of Net Income; plus (d) amortization and depreciation deducted in the determination of Net Income; plus (e) losses from (or minus gains from) non-cash items (excluding sales, expenses or losses related to current assets) included in the determination of Net Income; minus (f) after tax extraordinary gains (or plus after tax extraordinary losses) (in each case as defined under GAAP) included in the determination of Net Income. G. FUNDED DEBT: Funded Debt means the total indebtedness outstanding under all recourse notes payable of Borrower, plus funded or unfunded letters of credit issued pursuant to Borrower's application therefor, plus capital leases of Borrower. H. HAZARDOUS MATERIALS: Hazardous Materials include all materials defined as hazardous materials or substances under any local, state or federal environmental laws, rules or regulations, and petroleum, petroleum products, oil and asbestos. I. LOAN: Any loan described in Section 2 hereof and any subsequent loan which states that it is subject to this Loan Agreement. J. LOAN DOCUMENTS: Loan Documents means this Loan Agreement and any and all promissory notes executed by Borrower in favor of Bank and all other documents, instruments, guarantees, certificates and agreements executed and/or delivered by Borrower, any guarantor or third party in connection with any Loan. K. MATERIAL ADVERSE EFFECT: Material Adverse Effect means a material and adverse effect on the actual or prospective business, financial conditions or operations of Borrower, Borrower's ability to pay and perform its obligations under any of the Loan Documents or Bank's rights and remedies under any of the Loan Documents, all as determined in Bank's reasonable discretion. L. NET INCOME: Net Income means for any period, the net income (or loss) of Borrower and its Subsidiaries after provision for or benefit from income and franchise taxes determined in accordance with GAAP, but excluding: (i) the income (or loss) of any Person (other than a Subsidiary) - 2 - 3 in which Borrower has an ownership interest unless received by Borrower in a cash distribution; and (ii) the income (or loss) of any Person accrued prior to the date it is merged into or consolidated with Borrower. M. PERMITTED LIENS: Permitted Liens means any of the following: i. Liens, in an aggregate amount not to exceed One Million and No/100 Dollars ($1,000,000.00) outstanding at any one time, for taxes, assessments or government charges not delinquent or being contested in good faith by appropriate proceedings; ii. Liens arising out of deposits in connection with workers' compensation, unemployment insurance, old age pensions or other social security or retirement benefits legislation; iii. Deposits or pledges to secure bids, tenders, contracts, leases, statutory obligations, surety and appeal bonds, and other obligations of like nature arising in the ordinary course of Borrower's business; iv. Liens imposed by law, such as mechanics', workers', materialmen's, carriers' or other like liens arising in the ordinary course of Borrower's business which secure the payment of obligations which are not past due or which are being diligently contested in good faith by appropriate proceedings; v. Rights of way, zoning restrictions, easements and similar encumbrances affecting Borrower's real property which do not materially interfere with the use of such property; and vi. Purchase money security interests for the purchase of equipment to be used in Borrower's business, encumbering only the equipment so purchased, and which secures only the purchase money indebtedness incurred to acquire the equipment so purchased and which indebtedness is otherwise permitted under this Agreement. N. PERSON: Person means any individual, partnership, corporation, trust, unincorporated organization, limited liability company, association, joint venture or other legally recognized entity having the capacity to contract in its own name. O. SUBSIDIARIES: Subsidiaries means those entities the majority interest in which is now or hereafter owned, directly or indirectly, by Mark VII, Inc., including at the present time, those identified on Exhibit "A" attached hereto, as such list may be amended or restated from time to time. P. TANGIBLE NET WORTH. Tangible Net Worth means the amount by which total assets exceed total liabilities in accordance with GAAP. - 3 - 4 Q. ACCOUNTING TERMS. All accounting terms not specifically defined or specified herein shall have the meanings generally attributed to such terms under generally accepted accounting principles ("GAAP"), as in effect from time to time, consistently applied, with respect to the financial statements referenced in Section 3.H. hereof. 2. LOANS. Bank hereby agrees to make one or more loans to Borrower in the aggregate principal face amount of Twenty-Five Million and No/100 Dollars ($25,000,000.00). The obligation to repay the loans is evidenced by a promissory note or notes dated July 29, 1997, (the promissory note or notes together with any and all renewals, extensions or rearrangements thereof being hereafter collectively referred to as the "Note") having a maturity date, repayment terms and interest rate as set forth in the Note. A. REVOLVING LOAN FEATURE. The Loan shall consist of a revolving line of credit facility (the "Loan") under which Borrower may from time to time, borrow, repay and re-borrow funds. The Loan shall be repaid as set forth in the Note with a maturity date of July 1, 2000, at which time the entire outstanding principal balance, plus all accrued and unpaid interest, shall be due and payable in full. Interest shall be paid monthly as more fully provided in the Note. Notwithstanding the aggregate principal amount of the Loan, it is understood and agreed that availability under the Loan shall be limited to the aggregate principal sum outstanding at any time of Ten Million and no/100 Dollars ($10,000,000.00) until such time as Bank has completed to its reasonable satisfaction, and at the sole expense of Borrower (which Borrower agrees to pay upon demand), a field examination of Borrower's and any Subsidiaries' books and records, as well as their respective operations, the results of which field examination must be acceptable to Bank in its reasonable discretion. Bank shall use its best efforts to complete such field examination within thirty (30) days of the date hereof. B. LETTER OF CREDIT SUBFEATURE. As a subfeature under the Loan, Bank may from time to time issue letters of credit for the account of Borrower (each, a "Letter of Credit" and collectively, "Letters of Credit"); provided, however, that the form and substance of each Letter of Credit shall be subject to approval by Bank in its sole discretion. Each Letter of Credit shall be issued for an original term not to exceed 365 days, as designated by Borrower, provided, however, that no Letter of Credit shall have an expiration date subsequent to July 1, 2000. The undrawn amount of all Letters of Credit plus any and all amounts paid by Bank in connection with drawings under any Letter of Credit for which the Bank has not been reimbursed shall be reserved under the Loan and shall not be available for advances thereunder. Each draft paid by Bank under a Letter of Credit shall be deemed an advance under the Loan and shall be repaid in accordance with the terms of the Loan; provided however, that if the Loan is not available for any reason whatsoever, at the time any draft is paid by Bank, or if any advance is not available under the Loan in such amount due to any limitation of borrowing set forth herein, then the full amount of any such draft shall be immediately due and payable, together with interest thereon, from the date such amount is paid by Bank to the date such amount is fully repaid by Borrower, at that rate of interest applicable to advances under the Loan. In such event, Borrower agrees that Bank, at Bank's sole discretion may debit Borrower's deposit account with Bank for the amount of such draft. - 4 - 5 C. LETTER OF CREDIT FEE. Borrower will pay by debit to Borrower's account maintained at Bank a Letter of Credit fee payable in advance upon the issuance of any Letter of Credit for the time period from the date of issuance until the first day of the next calendar quarter, and thereafter on the first day of each calendar quarter, such fee to be paid at a rate per annum equal to (i) .35%, if the Funded Debt/EBITDA ratio is less than 1.0 to 1.0, (ii) .50%, if the Funded Debt/EBITDA ratio is equal to or greater than 1.0 to 1.0 and equal to or less than 1.5 to 1.0, (iii) .75%, if the Funded Debt/EBITDA ratio is greater than 1.5 to 1.0 and equal to or less than 2.0 to 1.0, or (iv) 1.00%, if the Funded Debt/EBITDA ratio is greater than 2.0 to 1.0, times the average daily amounts of any undrawn portions of any Letters of Credit during the preceding month. Also on the first of each calendar quarter, once the actual Funded Debt/EBITDA ratio for the preceding quarter is determined, Borrower will pay, or be credited with, by debit or credit to Borrower's account maintained at Bank, such amount as is necessary to compensate Bank for, or to refund to Borrower, any deficit, or surplus, in the Letter of Credit fee actually paid by Borrower at closing or at the first of the preceding quarter as applicable. D. UNUSED CREDIT FEE. Borrower will pay hereafter on August 1, 1997, and on the same day of each month thereafter for the period from and including the date the Loan was established to and including the maturity date of the Loan, an unused credit fee at a rate per annum equal to (i) .15%, if the Funded Debt/EBITDA ratio is less than 1.0 to 1.0, (ii) .20%, if such ratio is equal to or greater than 1.0 to 1.0 and equal to or less than 1.50 to 1.0, (iii) .25%, if such ratio is greater than 1.5 to 1.0 and equal to or less than 2.0 to 1.0, or (iv) .30%, if such ratio is greater than 2.0 to 1.0, times the average daily available portion of the Loan during the preceding month. The Borrower may at any time upon written notice to the Bank permanently reduce the amount of the Loan at which time the obligation of the Borrower to pay such unused credit fee shall thereupon correspondingly be reduced. 3. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and warrants to Bank as follows: A. GOOD STANDING. Each of the Persons composing Borrower and any Subsidiaries is duly organized, validly existing and in good standing under the laws of the state of its formation and has the power and authority to own its property and to carry on its business in each jurisdiction in which such Person does business, except where failure to have such power and authority would not have a Material Adverse Effect. B. AUTHORITY AND COMPLIANCE. Borrower has full power and authority to execute and deliver the Loan Documents and to incur and perform the obligations provided for therein, all of which have been duly authorized by all proper and necessary action of the appropriate governing body of Borrower. No consent or approval of any public authority or other third party is required as a condition to the validity of any Loan Document, and each Person composing Borrower, is in material compliance with all laws and regulatory requirements to which each is subject, except where failure to comply would not have a Material Adverse Effect. - 5 - 6 C. BINDING AGREEMENT. This Agreement and the other Loan Documents executed by Borrower constitute valid and legally binding obligations of Borrower, enforceable in accordance with their respective terms, except as enforceability may be limited by: (1) applicable bankruptcy, reorganization, insolvency, moratorium or other similar laws affecting the enforceability of creditors' rights generally; (2) the effect of applicable fraudulent conveyance and/or transfer laws, both state and federal; (3) general principles of equity (regardless of whether considered in a proceeding in equity or at law) including, without limitation, the possible unavailability of specific performance, injunctive relief or any other equitable remedy; and (4) concepts of materiality, reasonableness, good faith and fair dealing. D. LITIGATION. There is no proceeding involving Borrower pending or, to the knowledge of Borrower, threatened before any court or governmental authority, agency or arbitration authority, except as disclosed to Bank in writing and acknowledged by Bank prior to the date of this Agreement, which, if determined adversely to Borrower, would have a Material Adverse Effect on Borrower. E. NO CONFLICTING AGREEMENTS. There is no charter, bylaw, stock provision, t or other document pertaining to the organization, power or authority of Borrower, and no provision of any existing agreement, mortgage, indenture or contract binding on Borrower, or affecting its property, which would conflict with or in any way prevent the execution, delivery or carrying out of the terms of this Agreement and the other Loan Documents. F. OWNERSHIP OF ASSETS. Borrower has good title to its respective assets, and its assets are free and clear of liens, except for those granted to Bank, Permitted Liens and those liens disclosed to Bank in writing prior to the date of this Agreement. G. TAXES. All taxes and assessments due and payable by Borrower have been paid or are being contested in good faith by appropriate proceedings and Borrower has filed all tax returns which it is required to file, except where failure to pay such taxes or file such tax returns would not have a Material Adverse Effect. H. FINANCIAL STATEMENTS. The financial statements of Borrower heretofore delivered to Bank have been prepared in accordance with GAAP applied on a consistent basis throughout the period involved and fairly present Borrower's financial condition as of the date or dates thereof, and there has been no material adverse change in Borrower's financial condition or operations since March 29, 1997. All factual information furnished by Borrower to Bank in connection with this Agreement and the other Loan Documents is and will be accurate and complete in all material respects on the date as of which such information is delivered to Bank and is not and will not be incomplete by the omission of any material fact necessary to make such information not misleading. I. PLACE OF BUSINESS. Borrower's chief executive office is located at 965 Ridge Lake Boulevard Memphis, Tennessee 38120 - 6 - 7 J. ENVIRONMENTAL. The conduct of Borrower's business operations and the condition of Borrower's properties does not and will not violate in any material manner any federal laws, rules or ordinances for environmental protection, regulations of the Environmental Protection Agency, any applicable local or state law, rule, regulation or rule of common law or any judicial interpretation thereof relating primarily to the environment or Hazardous Materials. K. CONTINUATION OF REPRESENTATIONS AND WARRANTIES. All representations and warranties made under this Agreement shall be deemed to be made at and as of the date hereof and at and as of the date of any advance under the Loan. L. SUBSIDIARIES. Other than as shown on Exhibit "A" there are no other Subsidiaries. 4. AFFIRMATIVE COVENANTS. Until full payment and performance of all obligations of Borrower under the Loan Documents, Borrower will, on a consolidated basis together with any Subsidiaries, now or hereafter existing, unless Bank consents otherwise in writing (and without limiting any requirement of any other Loan Document): A. FINANCIAL CONDITION. Maintain at all times Borrower's financial condition as follows and determined, without duplication for any period, (and exclusive of any redemptions of capital stock made by Borrower prior to the date hereof) in accordance with GAAP applied on a consistent basis throughout the period involved except to the extent modified by the following: i. Maintain a ratio of Funded Debt to EBITDA of 2.25 to 1.0 or less. ii. Maintain a ratio of Funded Debt to Tangible Net Worth of 1.0 to 1.0 or less. iii. Maintain a ratio of cash (and cash equivalents) plus Accounts Receivable to Current Liabilities plus Funded Debt from the date hereof until January 2, 1998, of 0.9 to 1.0 or greater, from January 3, 1998, until July 3, 1998, of 0.95 to 1.0 or greater and thereafter of 1.0 to 1.0 or greater. B. FINANCIAL STATEMENTS AND OTHER INFORMATION. Maintain a system of accounting reasonably satisfactory to Bank and in accordance with GAAP applied on a consistent basis throughout the period involved, permit Bank's officers or authorized representatives to visit and inspect Borrower's books of account and other records at such reasonable times and as often as Bank may reasonably desire, and pay the reasonable fees and disbursements of any accountants or other agents of Bank selected by Bank for the foregoing purposes. Unless written notice of another location is given to Bank, Borrower's books and records will be located at Borrower's chief executive office set forth above. All financial statements called for below shall be prepared in form and content reasonably acceptable to Bank and by - 7 - 8 independent certified public accountants reasonably acceptable to Bank. In addition, Borrower will: i. Furnish to Bank audited financial statements of Borrower for each fiscal year of Borrower, within one hundred twenty (120) days after the close of each such fiscal year, prepared by a public accounting firm reasonably acceptable to Bank. ii. Furnish to Bank financial statements prepared by Borrower (including a balance sheet and profit and loss statement) of Borrower, for each quarter of each fiscal year of Borrower, within forty five (45) days after the close of each such period, such financial statements to be certified by the president, vice president, chief financial officer or controller of Borrower. iii. Furnish to Bank a compliance certificate for (and executed by an authorized representative of) Borrower in the form of Exhibit "B" attached hereto, concurrently with and dated as of the date of delivery of each of the financial statements as required in paragraphs i and ii above, and at such other times as Bank may reasonably request, containing (a) a certification that the financial statements of even date are true and correct and that the Borrower is not in default under the terms of this Agreement, and (b) computations and conclusions, in such detail as Bank may reasonably request, with respect to compliance with this Agreement, and the other Loan Documents, including computations of all quantitative covenants. iv. Furnish to Bank promptly such additional information, reports and statements respecting the business operations and financial condition of Borrower and its Subsidiaries, respectively, from time to time, as Bank may reasonably request. C. INSURANCE. Maintain insurance with responsible insurance companies on such of its properties, in such amounts and against such risks as is customarily maintained by similar businesses. D. EXISTENCE AND COMPLIANCE. Maintain its, as well as that of its Subsidiaries, existence, good standing and qualification to do business, where required, and comply in all material respects with all laws, regulations and governmental requirements including, without limitation, applicable environmental laws or regulations that are applicable to any of its or their property, business operations and transactions, except where failure to maintain such qualification to do business or comply with such laws, regulations or governmental requirements would not have a Material Adverse Effect. E. ADVERSE CONDITIONS OR EVENTS. Promptly advise Bank in writing of (i) any condition, event or act which comes to its attention that would have a Material Adverse Effect on Borrower's or any Subsidiary's financial condition or operations or Bank's rights under the Loan Documents, (ii) any litigation filed by or against Borrower or any Subsidiary, seeking damages in excess of One Hundred Thousand and No/100 Dollars ($100,000.00) (iii) any event that has occurred that would - 8 - 9 constitute an event of default under any Loan Documents and (iv) any uninsured or partially uninsured loss through fire, theft, liability or property damage in excess of an aggregate of Five Hundred Thousand and No/100 Dollars ($500,000.00) during any fiscal year. F. TAXES AND OTHER OBLIGATIONS. Pay all of its taxes, assessments and other obligations, including, but not limited to taxes, costs or other expenses arising out of this transaction, as the same become due and payable, except to the extent the same are being contested in good faith by appropriate proceedings in a diligent manner, and except where failure to pay such taxes, assessments or other obligations would not have a Material Adverse Effect. G. MAINTENANCE. Maintain all of its tangible property in good condition and repair and make all necessary replacements thereof (except for such property as Borrower in good faith determines is not useful in the conduct of its business), and preserve and maintain all licenses, trademarks, privileges, permits, franchises, certificates and the like necessary for the operation of its business except where failure to so maintain, repair, replace or preserve would not have a Material Adverse Effect. H. ENVIRONMENTAL. Immediately advise Bank in writing of (i) any and all enforcement, cleanup, remedial, removal, or other governmental or regulatory actions instituted, completed or threatened pursuant to any applicable federal, state, or local laws, ordinances or regulations relating to any Hazardous Materials affecting Borrower's or any Subsidiary's business operations; and (ii) all claims made or threatened by any third party against Borrower or any Subsidiary relating to damages, contribution, cost recovery, compensation, loss or injury resulting from any Hazardous Materials. Borrower shall immediately notify Bank of any remedial action taken by Borrower with respect to Borrower's business operations. Borrower will not use or permit any other party to use any Hazardous Materials at any of Borrower's places of business or at any other property owned by Borrower except such materials as are incidental to Borrower's normal course of business, maintenance and repairs and which are handled in material compliance with all applicable environmental laws. 5. NEGATIVE COVENANTS. Until full payment and performance of all obligations of Borrower under the Loan Documents, Borrower will not, without the prior written consent of Bank (and without limiting any requirement of any other Loan Documents): A. CAPITAL EXPENDITURES. Make capital expenditures during any fiscal year (including capitalized leases) exceeding in the aggregate a number which is equal to twenty five percent (25%) of the previous year's annual depreciation plus Net Income. B. LEASE EXPENDITURES. Incur new obligations for the lease or hire of real or personal property other than capital leases requiring payments in any fiscal year in excess of an aggregate of Five Hundred Thousand and No/100 Dollars ($500,000.00). - 9 - 10 C. TRANSFER OF ASSETS OR CONTROL. Sell, lease, assign or otherwise dispose of or transfer any assets, except in the normal course of its business, or for those assets that Borrower in good faith determines are not useful in the conduct of its business (including, but not limited to, three (3) parcels of real property currently held for sale), or transfer control or ownership of any Subsidiary except for transfers to each other or to a Subsidiary. D. LIENS. Grant, suffer or permit any contractual or noncontractual lien on or security interest in its assets (including, without limitation, any of Borrower's intellectual property), except in favor of Bank and except for Permitted Liens, limited liens involving non-recourse lease related loans, and those liens disclosed to and approved by Bank prior to the date of this Agreement. E. EXTENSIONS OF CREDIT. Other than loans or capital contributions to each other or to any Subsidiaries, make or permit any Subsidiary to make, loans or advances in excess of Two Million and No/100 Dollars ($2,000,000.00) in the aggregate outstanding at any time, or make any capital contribution to, or participate as a partner or joint venturer with any Person, except for extensions of credit to customers and employees in the normal course of Borrower's business, and except for the purchase of direct obligations of the United States or any agency thereof with maturities of less than one year, or obligations of Bank or any subsidiary thereof. F. BORROWINGS. Create, incur, assume or become liable in any manner for any indebtedness (whether for borrowed money, deferred payment for the purchase of assets, lease payments [other than lease payments permitted by Sections 5.A or 5.B of this Agreement], as surety or guarantor for the debt for another, or otherwise) other than to Bank, except for normal trade debts incurred in the ordinary course of Borrower's business, and except for existing indebtedness disclosed to Bank in writing and acknowledged by Bank prior to the date of this Agreement. G. DIVIDENDS AND DISTRIBUTIONS. Make any distribution (other than dividends payable in capital stock of Borrower, or dividends payable between persons composing Borrower or any Subsidiaries) on any shares of any class of its capital stock or apply any of its property or assets to the purchase, redemption or other retirement of any shares of any class of capital stock of Borrower in any fiscal year exceeding in the aggregate a sum which is equal to fifty percent (50%) of Net Income for the prior fiscal year (exclusive of any redemptions of capital stock made by Borrower prior to the date hereof), or in any way amend its capital structure. H. CHARACTER OF BUSINESS. Change the general character of business as conducted at the date hereof, or engage in any type of business not reasonably related to its business as presently conducted. I. MANAGEMENT CHANGE. Make any substantial change in its present executive or management personnel. - 10 - 11 J. NEGATIVE PLEDGE LIMITATION. Enter into any agreement with any person other than Bank pursuant hereto which prohibits or limits the ability of Borrower or any Subsidiary to create, incur, assume or suffer to exist any lien upon any of the assets, rights, revenues or property, whether real, personal or mixed, whether tangible or intangible, and whether now owned or hereafter acquired. K. ACQUISITIONS OR MERGERS. Acquire or enter into any merger or consolidation, or purchase or otherwise acquire, or permit any Subsidiary to purchase or acquire, any capital stock, assets (other than in the ordinary course of business), obligations, or other securities of or otherwise invest in or acquire any interest in any entity, unless: i. The entity to be acquired had positive EBITDA during its most recent two (2) fiscal years; ii. The total consideration to be paid in such acquisition (as specified in the relevant agreement) is less than ten percent (10%) of the total assets of Borrower prior to such acquisition (provided, however, that this 10% limitation shall not apply if the consideration for the acquisition is comprised solely of shares of Borrower's capital stock and the price/earnings multiple for the most recent four fiscal quarters of the entity to be acquired is less than fifty percent (50%) of the pricing/earnings multiple (for the same period) at which Borrower's stock is trading on a recognized exchange); and iii. The total consideration to be paid for such acquisition (as specified in the relevant agreement) is less than six (6) times the EBITDA of the entity to be acquired for the most recent four fiscal quarters (provided, however, that this six (6) times EBITDA limitation shall not apply if the consideration for such acquisition is comprised of at least seventy-five percent (75%) of shares of Borrower's capital stock as specified in the relevant agreement and the price/earnings multiple for the most recent four fiscal quarters of the entity to be acquired is less than fifty percent (50%) of the price/earnings multiple for the same period at which Borrower's stock is trading on a recognized exchange); provided further, however, that in no event may Borrower enter into any acquisition if the results of such acquisition on a pro forma basis would cause a default hereunder. 6. DEFAULT. Borrower shall be in default under this Agreement and under each of the other Loan Documents if it shall default in the payment of any amounts due and owing under the Loan within five (5) days of the due date thereof, or should it fail to timely and properly observe, keep or perform any term, covenant, agreement or condition in any Loan Document or in any other loan agreement, promissory note, security agreement, deed of trust, deed to secure debt, mortgage, assignment or other contract securing or evidencing payment of any indebtedness of Borrower to Bank or any affiliate or subsidiary of NationsBank Corporation, and, except for the filing of any bankruptcy petition, or the making of any assignment for the benefit of creditors (which is not dismissed within the time permitted by the Loan Documents), and the violation of any representations and warranties, for which no cure is possible, and any other default hereunder which is not capable of cure, such failure shall continue unremedied for more than thirty (30) days after such failure should occur. - 11 - 12 7. REMEDIES UPON DEFAULT. If any of the foregoing defaults shall occur and continue unremedied beyond the cure period, if any, specified for such default, Bank shall have all rights, powers and remedies available under each of the Loan Documents as well as all rights and remedies available at law or in equity. 8. NOTICES. All notices, requests or demands which any party is required or may desire to give to any other party under any provision of this Agreement must be in writing delivered to the other party at the following address: Borrower: Mark VII, Inc. Mark VII Transportation Company, Inc. 965 Ridge Lake Boulevard Memphis, Tennessee 38120 Attn: Phil Dunavant Fax. No. 901/680-9675 Bank: NationsBank of Tennessee, N.A. 6363 Poplar Avenue, Suite 230 Memphis, Tennessee 38119 Attention: Michael R. Frick Fax No. 901/820-8062 or to such other address as any party may designate by written notice to the other party. Each such notice, request and demand shall be deemed given or made as follows: A. If sent by mail, upon the earlier of the date of receipt or five (5) days after deposit in the U.S. Mail, first class postage prepaid; B. If sent by any other means , upon delivery. 9. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall pay to Bank immediately upon demand the full amount of all costs and expenses, including reasonable attorneys' fees incurred by Bank in connection with (a) negotiation and preparation of this Agreement and each of the Loan Documents, and (b) all other costs and attorneys' fees incurred by Bank for which Borrower is obligated to reimburse Bank in accordance with the terms of the Loan Documents. - 12 - 13 10. MISCELLANEOUS. Borrower and Bank further covenant and agree as follows, without limiting any requirement of any other Loan Document: A. CUMULATIVE RIGHTS AND NO WAIVER. Each and every right granted to Bank under any Loan Document, or allowed it by law or equity shall be cumulative of each other and may be exercised in addition to any and all other rights of Bank, and no delay in exercising any right shall operate as a waiver thereof, nor shall any single or partial exercise by Bank of any right preclude any other or future exercise thereof or the exercise of any other right. Borrower expressly waives any presentment, demand, protest or other notice of any kind, including but not limited to notice of intent to accelerate and notice of acceleration. No notice to or demand on Borrower in any case shall, of itself, entitle Borrower to any other or future notice or demand in similar or other circumstances. B. APPLICABLE LAW. This Loan Agreement and the rights and obligations of the parties hereunder shall be governed by and interpreted in accordance with the laws of the state of Tennessee and applicable United States federal law. C. AMENDMENT. No modification, consent, amendment or waiver of any provision of this Loan Agreement, nor consent to any departure by Borrower therefrom, shall be effective unless the same shall be in writing and signed by an officer of Bank, and then shall be effective only in the specified instance and for the purpose for which given. This Loan Agreement is binding upon Borrower, its successors and assigns, and inures to the benefit of Bank, its successors and assigns; however, no assignment or other transfer of Borrower's rights or obligations hereunder shall be made or be effective without Bank's prior written consent, nor shall it relieve Borrower of any obligations hereunder. There is no third party beneficiary of this Loan Agreement. D. DOCUMENTS. All documents, certificates and other items required under this Loan Agreement to be executed and/or delivered to Bank shall be in form and content reasonably satisfactory to Bank and its counsel. E. PARTIAL INVALIDITY. The unenforceability or invalidity of any provision of this Loan Agreement shall not affect the enforceability or validity of any other provision herein and the invalidity or unenforceability of any provision of any Loan Document to any person or circumstance shall not affect the enforceability or validity of such provision as it may apply to other persons or circumstances. F. INDEMNIFICATION. Notwithstanding anything to the contrary contained in Section 10(G), Borrower shall indemnify, defend and hold Bank and its successors and assigns harmless from and against any and all claims, demands, suits, losses, damages, assessments, fines, penalties, costs or other expenses (including reasonable attorneys' fees and court costs) arising from or in any way related to any of the transactions contemplated hereby (except to the extent the same results from the gross negligence - 13 - 14 or willful misconduct of Bank or its successors and assigns, as applicable), including but not limited to actual or threatened damage to the environment, agency costs of investigation, personal injury or death, or property damage, due to a release or alleged release of Hazardous Materials, arising from Borrower's business operations, any other property owned by Borrower or in the surface or ground water arising from Borrower's business operations, or gaseous emissions arising from Borrower's business operations or any other condition existing or arising from Borrower's business operations resulting from the use or existence of Hazardous Materials, whether such claim proves to be true or false. Borrower further agrees that its indemnity obligations shall include, but are not limited to, liability for damages resulting from the personal injury or death of an employee of the Borrower, regardless of whether the Borrower has paid the employee under the workmen' s compensation laws of any state or other similar federal or state legislation for the protection of employees. The term "property damage" as used in this paragraph includes, but is not limited to, damage to any real or personal property of the Borrower, the Bank, and of any third parties. The Borrower's obligations under this paragraph shall survive the repayment of the Loan and any deed in lieu of foreclosure or foreclosure of any Deed to Secure Debt, Deed of Trust, Security Agreement or Mortgage securing the Loan. G. SURVIVABILITY. All covenants, agreements, representations and warranties made herein or in the other Loan Documents shall survive the making of the Loan and shall continue in full force and effect so long as the Loan is outstanding or the obligation of the Bank to make any advances under the Loan shall not have expired. 11. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT OR ANY RELATED INSTRUMENTS, AGREEMENTS OR DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE LAW), THE RULES OF PRACTICE AND PROCEDURE FOR THE ARBITRATION OF COMMERCIAL DISPUTES OF J.A.M.S./ENDISPUTE OR ANY SUCCESSOR THEREOF ("J.A.M.S."), AND THE "SPECIAL RULES" SET FORTH BELOW. IN THE EVENT OF ANY INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY TO THIS AGREEMENT MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS AGREEMENT APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH ACTION. A. SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE CITY OF THE BORROWER'S DOMICILE AT TIME OF THE EXECUTION OF THIS INSTRUMENT, AGREEMENT OR DOCUMENT AND ADMINISTERED BY J.A.M.S. WHO WILL APPOINT AN ARBITRATOR; IF J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM ADMINISTERING - 14 - 15 THE ARBITRATION, THEN THE AMERICAN ARBITRATION ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90 DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL 60 DAYS. B. RESERVATION OF RIGHTS. NOTHING IN THIS ARBITRATION PROVISION SHALL BE DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS ARBITRATION PROVISION; OR (II) BE A WAIVER BY THE BANK OF THE PROTECTION AFFORDED TO IT BY 12 U.S.C. SEC. 91 OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE RIGHT OF THE BANK HERETO (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED TO) SETOFF, OR (B) TO FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY COLLATERAL, OR (C) TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT OF A RECEIVER. THE BANK MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE UPON SUCH PROPERTY, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT. NEITHER THIS EXERCISE OF SELF HELP REMEDIES NOR THE INSTITUTION OR MAINTENANCE OF AN ACTION FOR FORECLOSURE OR PROVISIONAL OR ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN ANY SUCH ACTION, TO ARBITRATE THE MERITS OF THE CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH REMEDIES. 12. NO ORAL AGREEMENT. THIS WRITTEN LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. - 15 - 16 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed under seal by their duly authorized representatives as of the date first above written. BORROWER: BANK: MARK VII, INC. NATIONSBANK OF TENNESSEE, N.A. By: /s/ Philip L. Dunavant By: /s/ Michael R. Frick --------------------------- ----------------------------- Name: Philip L. Dunavant Name: Michael R. Frick Title: Executive Vice President; Chief Title: Vice President Financial Officer Attest: /s/ Carol L. Clement ----------------------- Name: Carol L. Clement Title: Assistant Vice President MARK VII TRANSPORTATION COMPANY, INC. By: /s/ Philip L. Dunavant --------------------------- Name: Philip L. Dunavant Title: Executive Vice President - Finance Attest: /s/ Carol L. Clement ------------------------ Name: Carol L. Clement Title: Assistant Vice President - 16 - 17 EXHIBIT "A" SUBSIDIARIES
Name Jurisdiction of Incorporation - ---- ----------------------------- 1. Mark VII Transportation Company, Inc. Delaware Subsidiaries of Mark VII Transportation Company, Inc. a. Mark VII Trucking, Inc. Delaware b. Apollo Express, Inc. Kansas c. Neptune Trucking, Inc. Kansas d. Jupiter Transportation, Inc. Kansas e. Taurus Trucking, Inc. Kansas f. Orion Express, Inc. Kansas g. Capricorn Transportation, Inc. Kansas 2. Mark VII Risk Management, Inc. Delaware 3. Mark VII Transportation Solutions, Inc. Missouri 4. Mark VII Logistics, S.A. de C.V. Mexico 5. MNX Carriers, Inc.: Delaware Subsidiaries of MNX Carriers, Inc. - MNX Transport, Inc. Missouri Subsidiary of MNX Transport, Inc.- MNX Trucking, Inc. Missouri
- 17 - EX-10.19 7 1ST MODIFICATION OF LOAN AGREEMENT 1 Exhibit 10.19 FIRST MODIFICATION OF LOAN AGREEMENT THIS FIRST MODIFICATION OF LOAN AGREEMENT ("First Modification") made and entered into as of the 20th day of October, 1997, by and among NATIONSBANK OF TENNESSEE, N.A., a national banking association ("Bank"), and MARK VII, INC., a Delaware corporation, and MARK VII TRANSPORTATION COMPANY, INC., a Delaware corporation (collectively "Borrower"). RECITALS: A. Borrower has previously obtained from Bank a revolving line of credit facility (the "Loan") in the maximum principal amount of $25,000,000. B. The terms and conditions of the Loan are set forth in that certain Loan Agreement dated July 29, 1997 (the "Agreement") C. Borrower has asked Bank, and Bank has agreed, to make certain modifications to the Agreement as hereinafter set forth. NOW, THEREFORE, in consideration of the Loan from Bank to Borrower and the mutual covenants and agreements contained herein, and intending to be legally bound hereby, Bank and Borrower agree as follows: 1. The definition of Accounts Receivable in Section 1.B. is hereby modified and amended by deleting subsection (iv) thereof and substituting in place thereof the following: (iv) which, in the aggregate, exclude the amount of allowances, as set forth in the consolidated balance sheets of Borrower, for those Accounts Receivables that are considered uncollectible or not qualified, and which allowances are acceptable to Bank in its reasonable discretion. 2. The definition of Current Liabilities in Section 1.E. of the Agreement is hereby deleted in its entirety and substituted in place thereof shall be the following: E. CURRENT LIABILITIES: Current Liabilities means the aggregate amount of all current liabilities of Borrower as determined in accordance with GAAP, consisting primarily of accrued transportation charges and deferred income taxes, as shown on Borrower's financial statements provided to Bank, but excluding specifically other current and accrued liabilities as shown on said financial 2 statements consisting primarily of accrued wages and bonuses, accrued agency fees, sales commissions, non-operating corporate expenses, self-insurance claims and other non-operational type accruals. 3. Section 5.G. of the Agreement is hereby deleted in its entirety and substituted in place thereof shall be the following: G. DIVIDENDS AND DISTRIBUTIONS: Make any distribution (other than dividends payable in capital stock of Borrower, or dividends payable between persons composing Borrower or any Subsidiaries) on any shares of any class of its capital stock or apply any of its property or assets to the purchase, redemption or other retirement of any shares of any class of capital stock of Borrower in any fiscal year exceeding in the aggregate for the fiscal year 1997 of Eight Million and No/100 Dollars ($8,000,000.00), and thereafter a sum which is equal to one hundred percent (100%) of Net Income for the prior fiscal year (exclusive of any redemptions of capital stock made by Borrower prior to July 29, 1997), or in any way amend its Structure. 4. All other terms, conditions and provisions of the Agreement not expressly modified hereby shall remain in full force and effect and Borrower does hereby ratify and affirm all terms and conditions thereof, as well as all other documents evidencing, securing or relating to the Loan. IN WITNESS WHEREOF, the parties have executed this First Modification as of the date first above written. BANK: NATIONSBANK OF TENNESSEE, N.A. By: /s/ Michael R. Frick -------------------------------- Name: Michael R. Frick Title: Vice President 3 BORROWER: MARK VII, INC. By: /s/ Philip L. Dunavant ----------------------------------------------- Name: Philip L. Dunavant Title: Exec. Vice President/Chief Financial Officer Attest: /s/ Carol L. Clement ------------------------------------------- Name: Carol L. Clement Title: Assistant Vice President MARK VII TRANSPORTATION COMPANY, INC. By: /s/ Philip L. Dunavant ----------------------------------------------- Name: Philip L. Dunavant Title: Exec. Vice President Attest: /s/ Carol L. Clement ------------------------------------------- Name: Carol L. Clement Title: Assistant Vice President EX-21 8 SUBSIDIARIES OF REGISTRANT 1 Exhibit 21 SUBSIDIARIES OF REGISTRANT
Jurisdiction of Name Incorporation ---- --------------- Mark VII Transportation Company, Inc. Delaware Subsidiaries of Mark VII Transportation Company, Inc.: Mark VII Trucking, Inc. Delaware Apollo Express, Inc. Kansas Neptune Trucking, Inc. Kansas Jupiter Transportation, Inc. Kansas Taurus Trucking, Inc. Kansas Orion Express, Inc. Kansas Subsidiary of Orion Express, Inc.: Mark VII Canada, ULC Nova Scotia, Canada Union Team Leasing, Inc. Kansas Mark VII Risk Management, Inc. Delaware Mark VII Transportation Solutions, Inc. Missouri Mark VII Logistics, S.A. de C.V. Mexico MNX Carriers, Inc.: Delaware . Subsidiary of MNX Carriers, Inc.: MNX Transport, Inc. Missouri Subsidiary of MNX Transport, Inc. MNX Trucking, Inc. Missouri
EX-23 9 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS 1 Exhibit 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report included in this Form 10-K into the Company's previously filed Registration Statements File Nos. 33-47188, 33-55618, 33-86174 and 33-60595. /s/ Arthur Andersen LLP Memphis, Tennessee March 23, 1998 EX-27.1 10 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MARK VII, INC. CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED JANUARY 3, 1998 AND CONSOLIDATED BALANCE SHEET AS OF JANUARY 3, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR JAN-03-1998 DEC-29-1996 JAN-03-1998 3,732 0 85,558 2,641 0 92,803 11,420 4,829 108,010 74,943 945 0 0 501 31,621 108,010 0 667,374 0 582,843 71,643 0 171 12,717 5,341 7,376 0 0 0 7,376 .80 .76
EX-27.2 11 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS JAN-03-1998 DEC-28-1996 SEP-27-1997 8,718 0 74,837 2,113 0 88,852 9,935 4,591 100,925 66,103 0 0 0 500 33,332 100,925 0 478,802 0 418,426 51,349 0 134 9,305 3,908 5,397 0 0 0 5,397 .58 .56
EX-27.3 12 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF MARK VII, INC. FOR THE SIX MONTHS ENDED JANUARY 3, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS JAN-03-1998 DEC-28-1996 JUN-28-1997 10,491 0 66,434 1,996 0 82,808 9,048 4,368 93,744 59,740 0 0 0 497 32,454 93,744 0 310,791 0 271,314 33,902 0 94 5,690 2,390 3,300 0 0 0 3,300 .35 .34
EX-27.4 13 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF MARK VII, INC. FOR THE THREE MONTHS ENDED MARCH 29, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS JAN-03-1998 DEC-28-1996 MAR-29-1997 7,680 0 64,243 1,736 0 75,771 8,514 4,119 86,265 54,275 0 0 0 497 85,768 86,265 0 145,914 0 127,379 16,408 0 43 2,127 893 1,234 0 0 0 1,234 .13 .13
EX-27.5 14 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MARK VII, INC. CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 28, 1996 AND CONSOLIDATED BALANCE SHEET AS OF DECEMBER 28, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-28-1996 DEC-31-1995 DEC-28-1996 959 0 75,008 1,693 0 82,988 8,732 4,214 93,597 62,958 601 0 0 495 29,543 93,597 0 563,913 0 489,292 64,403 0 266 9,952 4,180 5,772 0 0 0 5,772 .63 .60
EX-27.6 15 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF MARK VII, INC. FOR THE NINE MONTHS ENDED SEPTEMBER 28, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-29-1996 DEC-31-1995 SEP-28-1996 414 0 65,135 1,693 0 70,697 8,963 4,665 81,602 53,153 0 0 0 490 27,334 81,602 408,486 408,486 0 400,887 0 682 215 7,383 3,101 4,282 0 0 0 4,282 .47 .45
EX-27.7 16 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF MARK VII, INC. FOR THE SIX MONTHS ENDED JUNE 29, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-29-1996 DEC-31-1995 JUN-29-1996 409 0 63,881 1,607 0 69,152 8,573 4,436 79,988 52,822 0 0 0 489 26,025 79,988 264,785 264,785 0 260,176 173 384 73 4,436 1,863 2,573 0 0 0 2,573 .28 .27
EX-27.8 17 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-29-1996 DEC-31-1995 MAR-30-1996 411 0 52,077 1,446 0 60,468 8,359 4,196 70,586 44,824 0 0 0 489 24,602 70,586 122,030 122,030 0 105,725 14,566 101 69 1,646 691 955 0 0 0 955 .10 .10
EX-27.9 18 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MARK VII, INC. CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 30, 1995 AND CONSOLIDATED BALANCE SHEET AS OF DECEMBER 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-30-1995 JAN-01-1995 DEC-30-1995 272 0 57,114 1,336 0 64,254 8,392 3,993 76,152 49,552 712 0 0 489 25,399 76,152 0 459,160 0 391,845 58,797 0 494 8,024 3,290 4,734 0 0 0 4,734 .49 .47
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