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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 2, 1999
[ ] 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 100
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. [X]
The aggregate market value of Common Stock, $.05 par value, held by
non-affiliates of the Registrant on March 5, 1999, based upon the last sale
price of such stock on that date was $134,746,128. At March 5, 1999, 8,963,270
shares of Common Stock, $.05 par value, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Documents Form 10-K Reference
- ------------------ -------------------
Notice of 1999 Annual Meeting of Part III, Items 10, 11, 12 and 13
Shareholders and Proxy Statement
to be filed within 120 days of
January 2, 1999, excluding
therefrom the sections titled
"Board Compensation Committee
Report on Executive Compensation"
and "Performance Graph"
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MARK VII, INC. AND SUBSIDIARIES
1998 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I
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Page
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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 7A. Quantitative and Qualitative Disclosures about Market Risk....... 10
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............... 11
Item 11. Executive Compensation........................................... 11
Item 12. Security Ownership of Certain Beneficial Owners and Management... 11
Item 13. Certain Relationships and Related Transactions................... 11
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K...................................................... 12
</TABLE>
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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 Transportation"), and Mark VII
Transportation's subsidiaries. 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 125 branch
sales offices in 33 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 contacts 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 contact 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 delivery of raw
materials as well as outbound finished product for a number of processing
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plants of a major potato chip manufacturer. 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.
Information/knowledge based services involve management and
consultation on any and all aspects of transportation for a client, including
equipment management and specialized systems applications. The Company utilizes
highly skilled personnel, leading edge systems and its sales network to design
transportation and distribution programs for customers with complex logistical
needs.
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 railroad,
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. The Company 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 125 branch offices, 23 are operated by the Company and
102 are operated under agency agreements. Contracts with agents generally 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 two to six 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.
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
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design and management of dedicated trucking operations and truck brokerage are
available to the logistics management services operations. The Company's
computer systems employ the latest in client/server technologies. Components of
the systems 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 greatly enhance the Company's efficiency in
processing thousands of shipments per day as well as expanding 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, third and fourth quarters than in the first
quarter.
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 shippers' in-house shipping
departments and 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.
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EMPLOYEES
The Company employed 354 individuals at March 5, 1999. 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 23 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 102 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 a defendant in an arbitration proceeding in Belgium with
an ocean carrier who alleges the Company failed to meet certain minimum volume
commitments under a transportation contract. Although management and its legal
counsel believe no contractual volume commitments existed and plan to continue
to vigorously defend the Company's position, in December 1998, the arbitration
panel found the Company to be liable. The Company is awaiting the panel's
determination regarding the amount of damages. Also, during the third quarter of
1998, the Company discovered improper activities conducted by personnel at one
of the Company's last remaining trucking locations. The Company has filed a
claim with its insurance carrier under an existing crime policy. Management
believes, after consultation with counsel, that prospects for recovery on the
crime policy are favorable. Thus, it is possible that all or a portion of the
charges recorded in the third quarter of 1998 relating to this matter could be
reversed in the future. During the third and fourth quarters of 1998, management
accrued a total amount of $1,700,000 for its estimate of probable losses in
connection with these two matters. The Company believes the ultimate resolution
of these two matters could range from a reversal of $1,500,000 previously
accrued to an additional charge of $1,750,000.
The Company is involved in various other legal proceedings and claims
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 such additional matters, 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
No matters were submitted to a vote of security holders of the Company
during the three months ended January 2, 1999.
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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:
<TABLE>
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High Low
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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................................ $ 19 $ 14 3/4
Second Quarter............................... 19 17
Third Quarter................................ 18 1/4 14 1/16
Fourth Quarter............................... 18 5/8 13 7/8
1999
First Quarter (through March 5, 1999)........ $ 18 7/8 $ 16 1/2
</TABLE>
On March 5, 1999, the last sale price per share of the common stock was
$16 1/2. At March 5, 1999, 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.
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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 2, 1999 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.
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FISCAL YEAR (1)
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1994 1995 1996 1997 1998
---- ---- ---- ---- ----
(in thousands, except per share data)
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STATEMENTS OF INCOME INFORMATION:
Operating revenues ........................ $428,772 $459,160 $563,913 $667,374 $724,948
Transportation costs ...................... 370,232 391,845 489,292 582,843 636,745
-------- --------- -------- -------- --------
Net revenues .............................. 58,540 67,315 74,621 84,531 88,203
Operating income .......................... 6,847 8,489 10,205 12,358 16,589
Income from continuing operations
before income taxes .................... 6,267 8,024 9,952 12,717 16,217
Income from continuing operations ......... $ 3,667 $ 4,734 $ 5,772 $ 7,376 $ 9,568
======== ======== ======== ======== ========
Income from continuing operations
per common share (2) .................... $ .38 $ .49 $ .63 $ .80 $ 1.07
======== ======== ======== ======== ========
Income from continuing operation
per common share, assuming dilution (2).. $ .37 $ .47 $ .60 $ .76 $ 1.01
======== ======== ======== ======== ========
Average common shares and equivalents
outstanding (2):
Basic .................................. 9,558 9,674 9,211 9,185 8,930
Diluted ................................ 9,802 9,990 9,616 9,699 9,449
BALANCE SHEET DATA:
Total assets .............................. $ 70,837 $ 76,152 $ 93,597 $108,010 $123,068
Total debt ................................ 10,787 1,588 747 580 468
Shareholders' investment .................. 23,473 25,888 30,038 32,122 41,243
</TABLE>
(1) The Company's fiscal year ends on the Saturday nearest December 31. Fiscal
years 1994, 1995, 1996 and 1998 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 all periods presented to conform to this 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 all periods presented have been restated to reflect the stock
split.
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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 1998 Compared to 1997 and 1997 Compared to 1996
Fiscal year 1997 included 53 weeks while fiscal years 1998 and 1996
included 52 weeks. The following table sets forth the percentage relationship of
the Company's revenue and expense items to operating revenues for the periods
indicated:
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FISCAL YEAR
--------------------------------
1998 1997 1996
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Operating revenues......................... 100.0% 100.0% 100.0%
Transportation costs....................... 87.8 87.3 86.8
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Net revenues............................... 12.2 12.7 13.2
Operating expenses:
Salaries and related costs........... 2.5 2.7 2.9
Selling, general and administrative.. 7.4 8.1 8.5
------ ------ ------
Total operating expenses......... 9.9 10.8 11.4
------ ------ ------
Operating income........................... 2.3 1.9 1.8
Other (income) expense, net................ .1 -- --
------ ------ ------
Income before income taxes................. 2.2% 1.9% 1.8%
====== ====== ======
</TABLE>
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.
Operating Revenues - The Company's total number of shipments were
715,000, 627,000, and 503,000 in 1998, 1997 and 1996, respectively. Increases in
shipments of 14% and 25% in 1998 and 1997, respectively, were the result of
expanded services to both new and existing customers. Operating revenues
increased 9% and 18% in 1998 and 1997, respectively. Increases in shipments and
operating revenues for 1998 are lower than the Company's historical growth rates
due to four primary factors. During the first quarter of 1998, the Company
ceased operations of a dedicated trucking fleet due to uncontrollable customer
conditions and discontinued certain logistics projects which no longer met its
profitability requirements on an ongoing basis. Secondly, several of the
Company's newer logistics management projects are performed on a management fee
basis, instead of the more traditional arrangement whereby the Company would
collect a management fee and transportation costs. Thirdly, expanding logistics
management business continues to shift the Company's modal mix toward more
trucking and less-than-truckload services. Since operating revenue per truck
shipment averages about 70% of
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operating revenue per rail shipment, the shipment count growth rate exceeded the
operating revenue growth rate for 1998 and 1997. Finally, fiscal year 1997
included 53 weeks of operation, while fiscal years 1998 and 1996 included 52
weeks.
Net Revenues. The Company's net revenues as a percentage of operating
revenues were 12.2%, 12.7% and 13.2%, in 1998, 1997 and 1996, respectively. This
decline in net revenues as a percentage of operating revenues during 1998 and
1997 resulted from the closure of dedicated trucking operations and has been
offset by proportionate decreases in operating expenses as a percentage of
operating revenues.
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.
Selling, general and administrative expenses for the year ended January
2, 1999 included two non-recurring items. First, the Company recognized a gain
on the sale of its 50% interest in a business unit which provided warehouse and
delivery services to a major appliance manufacturer. Secondly, the Company is a
defendant in an arbitration proceeding in Belgium with an ocean carrier who
alleges the Company failed to meet certain minimum volume commitments under a
transportation contract. Although management and its legal counsel believe no
contractual volume commitments existed and plan to continue to vigorously defend
the Company's position, in December 1998, the arbitration panel found the
Company to be liable. The Company is awaiting the panel's determination
regarding the amount of damages. (See further discussion in Note 5 of the Notes
to Consolidated Financial Statements.) The net effect of these two items was to
decrease selling, general and administrative expenses by $462,000 for the fourth
quarter of 1998.
Other (Income) Expense, Net - Cash flow from operations has been
adequate to cover the Company's operating requirements in recent years,
resulting in decreased interest expense and increased interest income in 1998
and 1997. Included in the current year is a pre-tax charge of $700,000 to
provide for certain costs incurred as a result of improper actions of personnel
at one of the Company's last remaining trucking locations. (See further
discussion in Note 5 of the Notes to Consolidated Financial Statements.)
Provision for Income Taxes - The Company's effective tax rates were
41% in 1998 and 42% in 1997 and 1996. The differences between the Company's
effective tax rates and the federal statutory tax rates for the three most
recent fiscal years are primarily due to state income taxes.
LIQUIDITY AND CAPITAL RESOURCES
The Company has available a $25,000,000 unsecured revolving credit
facility (the "Facility"). In recent years, the Company's cash flows from
operations have exceeded its working capital needs and the Company has made no
borrowings under this Facility since its inception in July 1997. On January 2,
1999, letters of credit totaling $2,705,000 had been issued on the Company's
behalf to secure insurance deductibles and purchases of operating services,
resulting in unused borrowing capacity of $22,295,000. 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 2, 1999, the interest rate was 6.04% 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, interest, 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 2, 1999, the Company had a ratio of current assets to
current liabilities of approximately 1.31 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.
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YEAR 2000
In 1996, the Company conducted an extensive review of its financial
and administrative information system. The review evaluated the Company's
computer systems in terms of Year 2000 compliance, capacity, general efficiency,
compatibility and competitive advantage. As a result of the review, the Company
has designed and implemented a new financial and administrative system which is
Year 2000 compliant to replace the previous system, which was over ten years
old. Since October 1996, the Company has spent approximately $2,500,000 on the
design and implementation of this system. Additionally, during this same period,
the Company performed extensive reviews of all other peripheral systems not
included in the above system. The Company has spent approximately $100,000 in
order to ensure that its peripheral systems are Year 2000 compliant. The Company
expects to spend no more than an additional $100,000 on its Year 2000 compliance
efforts. All funds for Year 2000 projects have been derived from operating cash
flows. The Company has sent a survey to its significant third party suppliers
and customers inquiring into their Year 2000 compliance status and gathering
information to assess the effect of any noncompliance on the Company's
operations. The Company has had no indication that these third parties will not
be Year 2000 compliant. Although no one can accurately predict how many Year
2000 related failures will occur or the severity, duration or financial
consequences of such failures, the Company believes its most reasonably likely
worst case scenario is that it could sustain what are expected to be nonmaterial
operational inconveniences and inefficiencies and be involved in nonmaterial
business disputes related to the Company or one of its vendor's or customer's
inability to carry out certain contractual obligations. Therefore, the Company
has determined that the need for a major contingency plan is not appropriate at
this time.
OTHER INFORMATION
As the Company continues its expansion into more comprehensive
logistics management programs, the credit risk exposure on a limited number of
major customers increases. While the Company takes measures to continually
evaluate, monitor and, if necessary, reserve for these and other credit risks,
it is possible, although unlikely, that circumstances could develop on a
particular major customer which could have a material effect on the Company's
short-term results.
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, third and fourth quarters than in the first
quarter.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has no exposure to market risk associated with
activities in derivative financial instruments, other financial instruments, or
derivative commodity instruments.
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.
<TABLE>
<CAPTION>
Index to Consolidated Financial Statements
Page
----
<S> <C>
Consolidated Balance Sheets...................................... 16
Consolidated Statements of Income................................ 17
Consolidated Statements of Shareholders' Investment.............. 18
Consolidated Statements of Cash Flows............................ 19
Notes to Consolidated Financial Statements....................... 20
Report of Independent Public Accountants......................... 27
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
10
<PAGE> 12
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 1999 Annual Meeting of
Shareholders and Proxy Statement which will be filed within 120 days of January
2, 1999 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 1999 Annual Meeting of Shareholders
and Proxy Statement which will be filed within 120 days of January 2, 1999.
ITEMS 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 1999 Annual Meeting of Shareholders and Proxy
Statement which will be filed within 120 days of January 2, 1999.
11
<PAGE> 13
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
<TABLE>
<CAPTION>
Schedule
Number Description Page of 1998 10-K
------ ----------- -----------------
<S> <C> <C>
II Valuation and Qualifying Accounts 28
</TABLE>
The report of the Registrant's independent public accountants with
respect to the above-listed financial statements and financial statement
schedule appears on page 27 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
<TABLE>
<CAPTION>
Exhibit Page Number or Incorporation
Number Description by Reference to
- ------ ----------- ------------------------------
<S> <C> <C>
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. 3 to Employment and Noncompete Exhibit 10.6 to 1997 Annual Report
Agreement between R.C. Matney and the Registrant on Form 10-K
dated as of October 1, 1997
</TABLE>
12
<PAGE> 14
<TABLE>
<CAPTION>
Exhibit Page Number or Incorporation
Number Description by Reference to
- ------ ----------- -----------------------------
<S> <C> <C>
10.7 * Addendum No. 4 to Employment and Noncompete Filed herewith
Agreement between R.C. Matney and the Registrant
Dated as of February 1, 1999
10.8 * Employment and Noncompete Agreement between Filed herewith
Mark A. Skoda and the Registrant dated as of
December 15, 1998
10.9 * Employment and Noncompete Agreement between Exhibit 10.8 to 1997 Annual Report
David H. Wedaman and the Registrant dated on Form 10-K
as of January 1, 1997. Addendum to Employment
and Noncompete Agreement dated as of May 15, 1997
10.10 * Addendum No. 2 to Employment and Noncompete Filed herewith
Agreement between David H. Wedaman and the
Registrant dated as of January 1, 1999
10.11 * Employment and Noncompete Agreement between Exhibit 6 to Exhibit 6 to Current Report on
Current Report on Form Robert E. Liss and Jupiter Form 8-K dated May 9, 1995
Transportation, Inc., 8-K dated May 9, 1995 an indirect
wholly owned subsidiary of the Registrant, dated as
of July 1, 1994
10.12 * Addendum to Employment and Noncompete Agreement Filed herewith
between Robert E. Liss and Taurus Trucking, Inc.
dated as of December 23, 1998
10.13 * Employment and Noncompete Agreement between Exhibit 10.10 to 1995 Annual
Michael J. Musacchio and Mark VII Logistics, a Report 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
10.14 * Employment and Noncompete Agreement between Exhibit 7 to Current Report on
James T. Graves and the Registrant dated as of Form 8-K dated May 9, 1995
August 1, 1992
10.15 * Employment and Noncompete Agreement between Exhibit 10.7 to 1997 Annual
Philip L. Dunavant and the Registrant dated as of Report on Form 10-K
May 16, 1997
10.16 * Addendum No. 1 to Employment and Noncompete Filed herewith
Agreement between Philip L. Dunavant and the Registrant
dated as of January 1, 1999. Addendum No. 2 to
Employment and Noncompete Agreement dated as of
February 2, 1999
10.17 * 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
Incorporated 1992 Non-Qualified Stock Option Plan) File No. 33-86174)
dated September 22, 1994
</TABLE>
13
<PAGE> 15
<TABLE>
<CAPTION>
Exhibit Page Number or Incorporation
Number Description by Reference to
------ ----------- --------------------------------
<S> <C> <C>
10.18 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.
10.19 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.
10.20 Mark VII, Inc. 1995 Omnibus Stock Incentive Appendix A to Proxy Statement for
Plan 1995 Annual Meeting of Shareholders
10.21 Amendment No. 1 to the Mark VII, Inc. 1995 Annex E to Proxy Statement for 1995
Omnibus Stock Incentive Plan Annual Meeting of Shareholders
10.22 Revolving Loan and Promissory Note dated Exhibit 10.17 to 1997 Annual Report
July 29, 1997 by and among NationsBank of on Form 10-K
Tennessee, N.A., Mark VII, Inc. and Mark VII
Transportation Co., Inc.
10.23 Loan Agreement dated as of July 29, 1997 by and Exhibit 10.18 to 1997 Annual Report
among NationsBank of Tennessee, N.A., Mark VII, on Form 10-K
Inc. and Mark VII Transportation Co., Inc.
10.24 First Modification of Loan Agreement dated as of Exhibit 10.19 to 1997 Annual Report
October 20, 1997 by and among NationsBank of on Form 10-K
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 Filed herewith
</TABLE>
------------
* Management contracts or compensatory plans
(b) Reports on Form 8-K
None
14
<PAGE> 16
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
and Chief Executive Officer
Date: March 29, 1999
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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ R.C. Matney Chairman of the Board, Chief March 29, 1999
- ------------------------------- Executive Officer and Director
R. C. Matney
/s/ Mark A. Skoda President March 29, 1999
- -------------------------------
Mark A. Skoda
/s/ Philip L. Dunavant Executive Vice President, Chief March 29, 1999
- ------------------------------- Financial Officer (Principal
Philip L. Dunavant Financial and Accounting
Officer)
/s/ James T. Graves Vice Chairman, Secretary, March 29, 1999
- ------------------------------- General Counsel
James T. Graves and Director
/s/ David H. Wedaman Executive Vice President, March 29, 1999
- ------------------------------- Chief Operating
David H. Wedaman Officer and Director
/s/ Douglass Wm. List Director March 29, 1999
- -------------------------------
Douglass Wm. List
/s/ William E. Greenwood Director March 29, 1999
- -------------------------------
William E. Greenwood
/s/ Jay U. Sterling Director March 29, 1999
- -------------------------------
Dr. Jay U. Sterling
/s/ Thomas J. Fitzgerald Director March 29, 1999
- -------------------------------
Thomas J. Fitzgerald
</TABLE>
15
<PAGE> 17
MARK VII, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share amounts)
<TABLE>
<CAPTION>
JANUARY 2, JANUARY 3,
1999 1998
---- ----
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ........................................ $ 3,758 $ 3,732
Accounts receivable, less allowances of $4,289 and
$2,641 in 1998 and 1997, respectively .......................... 97,879 82,917
Notes and other receivables, less allowances of $301
and $537 in 1998 and 1997, respectively ........................ 4,406 4,399
Other current assets ............................................. 451 1,755
--------- ---------
Total current assets ........................................... 106,494 92,803
--------- ---------
Deferred Income Taxes ............................................... 519 1,262
--------- ---------
Property and Equipment, at cost:
Transportation equipment ......................................... 6,034 4,394
Computer equipment, furniture and other .......................... 9,414 7,026
--------- ---------
15,448 11,420
Less: Accumulated depreciation ................................... 6,175 4,829
--------- ---------
Net property and equipment ..................................... 9,273 6,591
--------- ---------
Intangible and Other Assets ......................................... 6,782 7,354
--------- ---------
$ 123,068 $ 108,010
========= =========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities:
Accrued transportation charges .................................. $ 70,340 $ 63,094
Deferred income taxes ............................................ 4,166 5,591
Other current and accrued liabilities ............................ 6,607 6,258
--------- ---------
Total current liabilities ...................................... 81,113 74,943
--------- ---------
Long-Term Obligations ............................................... 712 945
--------- ---------
Contingencies and Commitments (Note 5)
Shareholders' Investment:
Common stock, $.05 par value, authorized 20,000,000 shares; issued
10,035,020 shares in 1998 and 10,009,822 shares in 1997 ........ 502 501
Paid-in capital .................................................. 29,938 29,623
Retained earnings ................................................ 23,676 14,108
--------- ---------
54,116 44,232
Less: Treasury stock, at cost, 1,115,850 shares in 1998 and
1,071,250 shares in 1997 ............................... (12,873) (12,110)
--------- ---------
Total shareholders' investment ................................. 41,243 32,122
--------- ---------
$ 123,068 $ 108,010
========= =========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
16
<PAGE> 18
MARK VII, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
-----------------------------------------
JANUARY 2, JANUARY 3, DECEMBER 28,
1999 1998 1996
----------- ----------- -----------
<S> <C> <C> <C>
Operating Revenues ............................... $ 724,948 $ 667,374 $ 563,913
Transportation Costs ............................. 636,745 582,843 489,292
--------- --------- ---------
Net Revenues ..................................... 88,203 84,531 74,621
Operating Expenses:
Salaries and related costs .................... 18,118 17,894 16,501
Selling, general and administrative ........... 53,496 54,279 47,915
--------- --------- ---------
Total operating expenses .................... 71,614 72,173 64,416
--------- --------- ---------
Operating Income ................................. 16,589 12,358 10,205
Other (Income) Expense:
Interest expense .............................. 38 171 266
Interest income ............................... (624) (711) (177)
Other ......................................... 958 181 164
--------- --------- ---------
Total other (income) expense, net ........... 372 (359) 253
--------- --------- ---------
Income Before Provision for Income Taxes ......... 16,217 12,717 9,952
Provision for Income Taxes ....................... 6,649 5,341 4,180
--------- --------- ---------
Net Income ....................................... $ 9,568 $ 7,376 $ 5,772
========= ========= =========
Net Income Per Common Share ...................... $ 1.07 $ .80 $ .63
========= ========= =========
Net Income Per Common Share, Assuming Dilution ... $ 1.01 $ .76 $ .60
========= ========= =========
Average Common Shares and Equivalents Outstanding:
Basic ....................................... 8,930 9,185 9,211
Diluted ..................................... 9,449 9,699 9,616
</TABLE>
The accompanying notes are an integral part of these statements.
17
<PAGE> 19
MARK VII, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
(In thousands)
<TABLE>
<CAPTION>
COMMON STOCK
----------------- PAID-IN RETAINED TREASURY
SHARES AMOUNT CAPITAL EARNINGS STOCK TOTAL
------ ------ ------- -------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
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
Net income .............................. -- -- -- 9,568 -- 9,568
Issuance of common stock under
stock-based compensation plans ....... 25 1 315 -- -- 316
Purchase of treasury stock (45 shares) .. -- -- -- -- (763) (763)
-------- -------- -------- -------- -------- --------
Balance, January 2, 1999 .................. 10,035 $ 502 $ 29,938 $ 23,676 $(12,873) $ 41,243
======== ======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
18
<PAGE> 20
MARK VII, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
---------------------------------------
JANUARY 2, JANUARY 3, DECEMBER 28,
1999 1998 1996
---------- ----------- --------
<S> <C> <C> <C>
Operating Activities:
Net income ............................................... $ 9,568 $ 7,376 $ 5,772
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation ......................................... 1,857 1,054 1,130
Amortization ......................................... 410 250 254
Provision for doubtful accounts and notes receivable.. 3,167 2,672 2,014
Provision for deferred income taxes .................. 542 1,737 1,803
Changes in assets and liabilities:
Accounts receivable ................................ (17,655) (11,205) (19,009)
Accrued transportation charges ..................... 7,246 10,360 9,488
Other .............................................. (1,268) (536) 3,249
-------- -------- --------
Net cash provided by operating activities ................ 3,867 11,708 4,701
-------- -------- --------
Investing Activities:
Additions to property and equipment ...................... (5,189) (3,600) (1,821)
Retirements of property and equipment .................... 650 473 572
Proceeds from sale of business unit ...................... 1,462 -- --
-------- -------- --------
Net cash used for investing activities ................... (3,077) (3,127) (1,249)
-------- -------- --------
Financing Activities:
Exercise of stock options ................................ 233 615 494
Repayments of debt and capital lease obligations ......... (234) (167) (841)
Purchase of treasury stock ............................... (763) (6,256) (2,418)
-------- -------- --------
Net cash used for financing activities ................... (764) (5,808) (2,765)
-------- -------- --------
Net increase in cash and cash equivalents ................... 26 2,773 687
Cash and cash equivalents:
Beginning of year ........................................ 3,732 959 272
-------- -------- --------
End of year .............................................. $ 3,758 $ 3,732 $ 959
======== ======== ========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for:
Interest ............................................... $ 37 $ 150 $ 196
Income taxes, net of refunds received .................. 4,627 2,930 2,731
</TABLE>
The accompanying notes are an integral part of these statements.
19
<PAGE> 21
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 Transportation").
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
$1,857,000, $1,054,000 and $1,130,000 in 1998, 1997 and 1996, 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, at times, cash
overdrafts exist in the book balances of its primary disbursing accounts. These
overdrafts represent the uncleared checks in the disbursing accounts. At January
3, 1998, an overdraft of $2,851,000 was reclassified to accrued transportation
charges. No overdraft existed in the Company's book balances at January 2, 1999.
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:
<TABLE>
<CAPTION>
1998 1997
---- ----
(in thousands)
<S> <C> <C>
Goodwill and other intangible assets.............. $ 5,121 $ 5,121
Less accumulated amortization..................... 2,083 1,674
-------- --------
$ 3,038 $ 3,447
======== ========
</TABLE>
FISCAL YEAR
The Company's fiscal year ends on the Saturday nearest December 31. Fiscal years
1996 and 1998 included 52 weeks and fiscal year 1997 included 53 weeks.
20
<PAGE> 22
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 all periods presented to conform to this 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:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- ------
(in thousands, except per share amounts)
<S> <C> <C> <C>
Net income...................................................... $9,568 $7,376 $5,772
====== ====== ======
Average common shares and equivalents outstanding:
Basic ......................................................... 8,930 9,185 9,211
Effect of dilutive options .................................... 519 514 405
------ ------ ------
Diluted ....................................................... 9,449 9,699 9,616
====== ====== ======
Per share amounts:
Net income per common share ................................... $ 1.07 $ .80 $ .63
====== ====== ======
Net income per common share, assuming dilution ................ $ 1.01 $ .76 $ .60
====== ====== ======
</TABLE>
RECLASSIFICATIONS
Certain reclassifications have been made to the 1997 and 1996 financial
statements to conform to the 1998 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 $25,000,000 unsecured revolving credit facility (the
"Facility"). In recent years, the Company's cash flows from operations have
exceeded its working capital needs and the Company has made no borrowings under
this Facility since its inception in July 1997. On January 2, 1999, letters of
credit totaling $2,705,000 had been issued on the Company's behalf to secure
insurance deductibles and purchases of operating services, resulting in unused
borrowing capacity of $22,295,000. 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 2, 1999, the interest rate was 6.04% 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.
21
<PAGE> 23
(3) INCOME TAXES
Components of the provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
1998 1997 1996
------- -------- ------
(in thousands)
<S> <C> <C> <C>
Federal -
Currently payable ............................... $ 4,975 $ 2,856 $ 1,833
Deferred......................................... 492 1,562 1,610
-------- -------- --------
Total federal................................. 5,467 4,418 3,443
-------- -------- --------
State -
Currently payable................................ 1,132 748 544
Deferred......................................... 50 175 193
-------- -------- --------
Total state................................... 1,182 923 737
-------- -------- --------
$ 6,649 $ 5,341 $ 4,180
======== ======== ========
</TABLE>
A reconciliation between the provision for income taxes and the expected taxes
using the federal statutory income tax rate follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- ------
(in thousands)
<S> <C> <C> <C>
Federal statutory rate................................. 34.4% 34.2% 34.0%
Tax at statutory rate.................................. $ 5,579 $ 4,349 $ 3,384
Increase from -
State income taxes, net............................. 781 609 486
Other............................................... 289 383 310
------- -------- --------
$ 6,649 $ 5,341 $ 4,180
======= ======== ========
</TABLE>
Deferred tax assets (liabilities) are comprised of the following:
<TABLE>
<CAPTION>
1998 1997
------- -------
(in thousands)
<S> <C> <C>
Deferred Tax Assets:
Claims and other reserves....................................... $ 2,901 $ 2,140
Basis difference on property and equipment...................... 300 778
Other........................................................... 219 503
-------- --------
Total deferred tax assets...................................... 3,420 3,421
-------- --------
Deferred Tax Liabilities:
Prepaid expenses................................................ (136) (35)
Deferred revenue................................................ (5,755) (4,910)
Other........................................................... (1,176) (2,805)
-------- --------
Total deferred tax liabilities................................. (7,067) (7,750)
-------- --------
Net deferred tax liabilities................................... $ (3,647) $ (4,329)
======== ========
</TABLE>
22
<PAGE> 24
(4) LONG-TERM DEBT AND OPERATING LEASES
Long-term debt included the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
(in thousands)
<S> <C> <C>
Capital lease obligations for transportation
equipment, 9.1%, payable through 2002............... $ 468 $ 580
Less - Current maturities............................. 115 116
------- ------
$ 353 $ 464
======= =======
</TABLE>
Property and equipment included the following amounts related to capital lease
obligations:
<TABLE>
<CAPTION>
1998 1997
---- ----
(in thousands)
<S> <C> <C>
Transportation equipment............................... $ 915 $ 915
Less - Accumulated depreciation........................ 476 371
------- -------
$ 439 $ 544
======= =======
</TABLE>
Scheduled annual payments on the Company's long-term obligations are as follows:
<TABLE>
<CAPTION>
Capital Leases
---------------------------------
Future Interest Principal
Payments Portion Portion
-------- -------- ---------
(in thousands)
<S> <C> <C> <C>
1999....................................... $ 151 $ 36 $ 115
2000....................................... 161 25 136
2001....................................... 162 13 149
2002....................................... 69 1 68
------- ------ ------
$ 543 $ 75 $ 468
======= ====== ======
</TABLE>
The Company has scheduled rentals on trailers and containers with lease terms of
one to five years which have annual cancellation provisions. If these leases are
not canceled, the future lease payments would be approximately $1,988,000,
$1,939,000, $1,272,000, $176,000 and $5,000 in 1999, 2000, 2001, 2002 and 2003,
respectively. The accompanying financial statements include rent expense of
$3,967,000, $5,025,000 and $5,737,000 in 1998, 1997 and 1996, respectively.
(5) CONTINGENCIES AND COMMITMENTS
The Company is a defendant in an arbitration proceeding in Belgium with an ocean
carrier who alleges the Company failed to meet certain minimum volume
commitments under a transportation contract. Although management and its legal
counsel believe no contractual volume commitments existed and plan to continue
to vigorously defend the Company's position, in December 1998, the arbitration
panel found the Company to be liable. The Company is awaiting the panel's
determination regarding the amount of damages. Also, during the third quarter of
1998, the Company discovered improper activities conducted by personnel at one
of the Company's last remaining trucking locations. The Company has filed a
claim with its insurance carrier under an existing crime policy. Management
believes, after consultation with counsel, that prospects for recovery on the
crime policy are favorable. Thus, it is possible that all or a portion of the
charges recorded in the third quarter of 1998 relating to this matter could be
reversed in the future. During the third and fourth quarters of 1998, management
accrued a total amount of $1,700,000 for its estimate of probable losses in
connection with these two matters. The Company believes the ultimate resolution
of these two matters could range from a reversal of $1,500,000 previously
accrued to an additional charge of $1,750,000.
The Company is involved in various other legal proceedings and claims 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
such additional
23
<PAGE> 25
matters, 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 2, 1999, 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):
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- -------
<S> <C> <C> <C> <C>
Net Income: As reported $9,568 $7,376 $5,772
Pro forma $9,064 $7,053 $5,617
Net Income Per Common Share: As reported $ 1.07 $ .80 $ .63
Pro forma $ 1.01 $ .77 $ .61
Net Income Per Common Share,
Assuming Dilution: As reported $ 1.01 $ .76 $ .60
Pro forma $ .97 $ .73 $ .58
</TABLE>
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 2, 1999, 2,097,550 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:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- --------
<S> <C> <C> <C>
Dividend yield none none none
Expected volatility 42.4% 43.0% 41.0%
Risk-free interest rate 5.7% 6.5% 6.8%
Expected lives 7.2 years 7.5 years 6.5 years
</TABLE>
24
<PAGE> 26
A summary of the status of stock options granted under the Company's stock
option plans as of January 2, 1999, January 3, 1998 and December 28, 1996 and
changes during the years ended on those dates is presented below:
<TABLE>
<CAPTION>
1998 1997 1996
--------------------------- --------------------- -----------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Stock Options Shares Price Shares Price Shares Price
- ------------- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 1,273,198 $ 7.27 1,217,976 $ 6.11 1,244,698 $ 5.54
Granted 101,000 17.88 160,000 14.60 93,000 11.11
Exercised (18,798) 6.43 (100,778) 4.94 (119,722) 4.11
Canceled (40,000) 12.00 (4,000) 5.63 -- --
----------- ---------- ----------
Outstanding at end of year 1,315,400 $ 7.95 1,273,198 $ 7.27 1,217,976 $ 6.11
=========== ========== ==========
Options exercisable at year-end 806,532 674,031 612,176
=========== ========== ==========
Options available for future grant 782,150 849,550 1,017,550
=========== ========== ==========
Weighted average fair value of
options granted during the year $ 9.68 $ 8.37 $ 5.35
=========== ========== ==========
</TABLE>
The following table summarizes information about stock options outstanding at
January 2, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------- -------------------------
Wgtd. Avg.
Range of Number Remaining Wgtd. Avg. Number Wgtd. Avg
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices at 1/2/99 Life Price at 1/2/99 Price
------ --------- ---- ----- --------- -----
<S> <C> <C> <C> <C> <C>
$ 2.13 to $ 5.63 425,400 3.4 years $ 3.91 408,400 $ 3.84
$ 7.00 to $10.63 629,000 5.4 years 7.41 334,666 7.53
$14.50 to $18.00 261,000 8.2 years 15.87 63,466 15.24
--------- --------- ------- -------- -------
$ 2.13 to $18.00 1,315,400 5.3 years $ 7.95 806,532 $ 6.27
========= ========= ======= ======= =======
</TABLE>
Stock appreciation rights for 26,000 shares were outstanding at January 2, 1999.
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, 1998, 1997 and 1996 were $18.50, $15.25 and
$8.63 per share, respectively. Compensation of $84,000, $128,000 and $203,000
was expensed under this plan in 1998, 1997 and 1996, respectively. The 1998
compensation has been accrued based on the closing market price of $18.63 per
share on January 2, 1999.
(7) UNUSUAL ITEM
The Company recognized a gain of $1,462,000 during the fourth quarter of 1998
resulting from the sale of its 50% interest in ERX Logistics, L.L.C., a company
which provided warehouse and delivery services to a major appliance
manufacturer.
25
<PAGE> 27
QUARTERLY FINANCIAL DATA (Unaudited):
The results of operations for each of the four quarters of 1998 and 1997 are
summarized below. 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).
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
1998
Operating revenues...................................... $ 171,800 $ 181,158 $ 184,571 $ 187,419
Operating income ....................................... 2,750 4,301 5,046 4,492
Income before income taxes.............................. 2,805 4,389 4,442 4,581
Net income.............................................. 1,627 2,617 2,621 2,703
Net income per common share............................. $ .18 $ .29 $ .29 $ .30
Net income per common share, assuming dilution.......... $ .17 $ .28 $ .28 $ .29
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
</TABLE>
26
<PAGE> 28
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 2, 1999, and
January 3, 1998, and the related consolidated statements of income,
shareholders' investment and cash flows for each of the three years in the
period ended January 2, 1999. 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 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 2, 1999, and January 3, 1998, and the results of
their operations and their cash flows for each of the three years in the period
ended January 2, 1999 in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
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 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 financial statements taken as a whole.
/s/ Arthur Andersen LLP
Memphis, Tennessee,
February 9, 1999
27
<PAGE> 29
SCHEDULE II
MARK VII, INC. AND SUBSIDIARIES
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS
BEGINNING CHARGED TO BALANCE AT
OF YEAR EXPENSE DEDUCTIONS OTHER END OF YEAR
------- ------- ---------- ----- -----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts
(deducted from accounts receivable):
1996 ...................................... $ 1,336 $ 1,472 $ 1,115 $ - $ 1,693
1997 ...................................... 1,693 1,603 655 - 2,641
1998 ...................................... 2,641 2,693 1,045 - 4,289
Allowance for uncollectible notes
(deducted from notes and other receivables):
1996 ...................................... $ 2,038 $ 542 $ 969 $ - $ 1,611
1997 ...................................... 1,611 1,069 2,143 - 537
1998 ...................................... 537 474 710 - 301
</TABLE>
28
<PAGE> 30
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------ ----------------------------------------------------------
<S> <C>
10.7 Addendum No. 4 to Employment and Noncompete Agreement
between R.C. Matney and the Registrant Dated as of February
1, 1999
10.8 Employment and Noncompete Agreement between Mark A. Skoda
and the Registrant dated as of December 15, 1998
10.10 Addendum No. 2 to Employment and Noncompete Agreement
between David H. Wedaman and the Registrant dated as of
January 1, 1999
10.12 Addendum to Employment and Noncompete Agreement between
Robert E. Liss and Taurus Trucking, Inc. dated as of
December 23, 1998
10.16 Addendum No. 1 to Employment and Noncompete Agreement
between Philip L. Dunavant and the Registrant dated as of
January 1, 1999. Addendum No. 2 to Employment and Noncompete
Agreement dated as of February 2, 1999
21 Subsidiaries of Registrant
23 Consent of Independent Public Accountants
27 Financial Data Schedule (SEC Use Only)
</TABLE>
29
<PAGE> 1
EXHIBIT 10.7
ADDENDUM TO EMPLOYMENT AND NONCOMPETE AGREEMENT
R. C. MATNEY
This Agreement, dated this 1st day of February, 1999 is made by and between
R. C. Matney, a resident of the State of Indiana ("Executive"), and Mark VII,
Inc., a Delaware corporation ("Employer").
RECITALS
Executive and Employer previously entered into "Employment and Noncompete
Agreement" as of April 1, 1992 and subsequent addenda dated July 1, 1994,
October 1, 1996 and October 1, 1997. The parties undertake and agree to modify
said Agreement and Addenda to the extent expressly stated herein. In all other
respects, the said Agreement and Addenda shall remain as originally stated.
AGREEMENT
In consideration of the mutual promises, covenants and agreements contained
herein and in the underlying Agreement and Addenda, the parties do hereby
further agree as follows:
I. BASE SALARY.
Commencing January 1, 1999, the base salary of Executive shall be $330,000 a
year.
II. MONTHLY SHAREHOLDER VALUE BONUS.
Commencing January 1, 1999, 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 800.
III. DISCONTINUATION OF BONUS BASED ON STOCK PRICE PERFORMANCE.
Subparagraph B of Paragraph III of the Addendum dated October 1, 1997 is
discontinued as of December 31, 1998. However, any bonus earned for the interval
of July 1, 1998 through December 31, 1998 shall be paid as originally agreed.
IV. STOCK OPTIONS.
<PAGE> 2
By separate document, Employer shall provide Executive with an option to
purchase 40,000 shares of Employer's common stock exercisable at a price equal
to the market closing price on January 6, 1999 which shall vest in 5 equal
annual installments commencing January 1, 2000 exercisable one year after
vesting. The options shall lapse December 31, 2009.
IN WITNESS WHEREOF, the parties hereto have executed this Addendum on the day
and year first above written.
"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
<PAGE> 1
EXHIBIT 10.8
EMPLOYMENT AND NONCOMPETE AGREEMENT
THIS AGREEMENT, entered into on this 15th day of December, 1998, is
made by and between MARK A. SKODA, a resident of the State of Pennsylvania
("Executive"); MARK VII, INC., a Delaware corporation ("MARK VII").
RECITALS
A. 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 include MARK
VII and also its subsidiary corporations.
B. Executive desires to be employed by Mark VII as its President and
Mark VII 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 Mark VII, the parties agree as follows:
1. Employment and Term of Employment.
Mark VII hereby employs Executive and Executive hereby accepts
employment which Mark VII for the term commencing on the date hereof and
continuing for a period of two (2) years subsequent to January 15, 1999, 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 Mark VII's Board of Directors shall, from time to time,
assign to Executive. Executive's principal duties during the term of this
Agreement shall be and are those typically performed by the President of a
company.
(b) Upon receipt of a satisfactory performance review by the
Chairman of Mark VII, in December of 1999, effective January 1, 2000 the Board
shall elect and designate Executive as President and Chief Executive Officer of
Mark VII. It is further understood and agreed that subsequent to designation of
the Executive as Chief Executive Officer, he shall be nominated by the Board to
be elected by shareholders as a member of its Board of Directors at the next
Annual Meeting of Mark VII.
(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 Mark VII.
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 Mark VII and its
<PAGE> 2
subsidiaries 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 Mark VII without the
advance written authorization of Mark VII'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 Mark VII's Board of Directors shall reassign the duties of
Executive as President or Chief Executive Officer to other persons, the
Executive shall thereafter continue to serve Mark VII engaged in the
consultation, performance and management of those specific projects or duties to
which he is assigned by Mark VII and which are consistent with his experience
and competence.
3. Compensation.
During the term of this Agreement, Mark VII shall pay to Executive the
following compensation:
3.01 Base Salary. Executive shall be paid an initial base
salary of Three Hundred Thousand Dollars and No/100 Dollars ($300,000) per year
("Base Salary") payable in equal weekly installments. The Compensation Committee
of Mark VII'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, 1999), Mark VII will
provide a bonus to Executive payable within 90 days following the close of the
Mark VII'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 Mark VII as follows:
Base Year 1999 - Pre-Tax Goal of $19,000,000.00
Year 1999
Less than base of $19,000,000 bonus earned equals 0% of base salary
More than $19,000,000 - bonus earned equals 50% of base salary
More than $19,500,000 - bonus earned equals 75% of base salary
More than $20,000,000 - bonus earned equals 100% of base salary
Year 2000
Less than 112% of 1999 actual pre-tax profit - bonus earned equals 0%
of base salary
112% or more than actual 1999 pre-tax profit - bonus earned equals 50%
of base salary
115% or more of actual 1999 pre-tax profit - bonus earned equals 75%
of base salary
120% or more of actual 1999 pre-tax profit - bonus earned equals 100%
of base salary
<PAGE> 3
In each plan year pre-tax profit shall be adjusted by the amount of the
following items:
(a) Any gain on the sale, casualty or other disposition of any capital
asset of Mark VII shall be deducted;
(b) Any other income which was not the result of ordinary operations of
Mark VII shall be excluded;
"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. Mark VII shall reimburse Executive for
ordinary, necessary and reasonable business expenses incurred to conduct or
promote Mark VII's business, including travel and entertainment, provided
Executive submits an itemization of such expenses and supporting documentation
thereof, all according to Mark VII's general policy statement.
3.06 Stock Options and Stock Appreciation Rights. By separate
agreement, Mark VII shall provide Executive with a non-qualified option to
purchase 200,000 shares of the common stock of Mark VII, Inc. exercisable at a
per share price equal to the closing NASDAQ quote on the date of grant. The
option shall vest in five equal annual installments of 40,000 shares each
commencing on December 26, 1999. Each portion of the option shall be exercisable
one year subsequent to vesting and the entire option shall lapse ten years
subsequent to the effective date of the initial 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 Mark VII, he will acquire knowledge and information used by Mark
VII in its business and which is not generally available to the public or to
persons in the transportation industry, including, without limitation, its
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 Mark VII ("Confidential Information"). As a material inducement to
Mark VII 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 Mark VII to
<PAGE> 4
receive Confidential Information and then only if use by such person is for Mark
VII'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 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 or indirectly competitive with any aspect of
the business Mark VII now conducts or which Mark VII is conducting or is in the
process of developing at the time of any competitive actions by Executive
("Prohibited Activity"). 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 Mark VII, any person who was an employee of Mark VII 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 Mark VII are unique and that his failure to
perform his obligations under this Section 4 would cause Mark VII 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 Mark VII agree that Mark VII's remedies may include preliminary
injunction, temporary restraining order or other injunctive relief against any
threatened or continuing breach of this Section 4 by Executive. Nothing
contained in this Section 4.05 shall prohibit Mark VII 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 two (2) years subsequent to February 1, 1999;
b) On the date of Executive's death;
<PAGE> 5
c) At Mark VII's option, upon Executive's disability as defined in
section 5.02 (a) below, effective on the day Executive receives notice from Mark
VII that it is exercising its option granted by this Section to terminate this
Agreement;
(d) On the day Executive receives written notice from Mark VII that
Executive's employment is being terminated for cause, as defined in section 5.02
(b) below;
(e) Fifteen (15) days after receipt by Executive of notice from Mark
VII specifying any act of insubordination or failure to comply with any
instructions of the Chairman of Mark VII or any act or omission that the
Chairman believes, in good faith, does, or may, adversely affect Mark VII'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 Mark VII'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 Mark VII commits any act that is
a material breach of this Agreement.
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 ninety (90) substantially consecutive days,
as professionally determined by two medical doctors licensed to practice
medicine, one of which is selected by Mark VII 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 injurious to Mark VII,
(iii) Executive's commitment of any act of dishonesty toward Mark VII, theft of
corporate property or unethical business conduct or (iv) Executive's conviction
of any crime involving dishonest, or immoral conduct.
6. Payments Upon Termination.
6.01 Payments Upon Executive's Death or Disability. Upon the
termination of this Agreement pursuant to Section 5.01 (b) (death), Section 5.01
(c) (disability), Mark VII 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.
<PAGE> 6
c) plus in the event of death or disability, bonus pursuant to Section
3.02 pro-rated to the date of termination.
Mark VII 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), Mark VII 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.
Mark VII shall not be obligated to make any other payments to Executive.
6.03 Payments Upon Expiration of Term or Termination for Breach by Mark
VII. Upon termination of this Agreement pursuant to Section 5.01 (g) (Mark VII's
breach), Mark VII shall pay to Executive the Base Salary set forth in Section
3.01, through January 31, 2000 plus bonus pursuant to Section 3.02. All
compensation paid by Mark VII 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, Mark VII 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), Mark VII 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 Mark VII continues to provide all compensation set
forth in Section 3 (excluding bonus), 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.
<PAGE> 7
d) Upon termination of this Agreement pursuant to Section 5.01 (g)
(Mark VII's 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 Mark VII
without the express written consent of Mark VII'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.
Mark VII 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 Mark VII.
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 Mark VII 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 Mark VII'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:
<PAGE> 8
Mark VII: 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: Mark A. Skoda
1300 Eaves Spring Road
Malvern, Pennsylvania 19355
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 Mark VII, or which relates to any aspect of Mark VII's business,
is and shall be the sole and exclusive property of Mark VII. Executive shall,
immediately upon Mark VII's request or upon termination of this Agreement for
any reason, deliver to Mark VII 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 Mark VII 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 15th
day of January, 1999 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.
<PAGE> 9
MARK VII, INC.
By: /s/ R.C. Matney
--------------------------------------
R. C. Matney, Chairman
"EXECUTIVE"
By: /s/ Mark A. Skoda
--------------------------------------
Mark A. Skoda
<PAGE> 1
EXHIBIT 10.10
SECOND ADDENDUM TO EMPLOYMENT AND NONCOMPETE AGREEMENT
DAVID H. WEDAMAN
THIS AGREEMENT, dated this 1st day of January, 1999 is entered into between
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")
which was subsequently amended by an Addendum dated May 15, 1997 to assign
management of an additional operating division, Mark VII Consumer Delivery
Network ("CDN") to the management of Executive.
B. Changes expressed in this Second Addendum are to enhance the compensation
package of Executive for calendar year 1999. The parties hereby undertake and
agree to modify the April 10, 1997 agreement and the May 15, 1997 Addendum to
the extent expressly stated herein. In all other respects, said Agreement and
Addendum shall remain as originally drafted and executed.
AGREEMENT
In consideration of the mutual promises, covenants and agreements herein
contained and in the underlying Agreement and Addendum, the parties do hereby
further agree as follows:
I. Base Salary. Effective January 4, 1999 the base salary of the Executive shall
increase from $240,000 to $260,000.
II. Stock Options. Stock options and stock appreciation rights related to the
common stock of Mark VII previously granted to the Executive shall continue in
full force and effect in accordance with their respective terms and conditions.
By separate Agreement, Employer shall provided Executive with an additional
non-qualified option to purchase 20,000 shares of the common stock of Mark VII,
Inc. exercisable at the closing market price on January 6, 1999. The option
shall vest in 5 equal annual installments of 4,000 shares each commencing
December 29, 1999. Each installment of the option shall be exercisable one year
subsequent to vesting and the entire option shall lapse on January 6, 2009, 10
years subsequent to the effective date of grant.
<PAGE> 2
III. Bonus Program For 1999. It is agreed that the 1998 base pre-tax profit is
$16,146,209.
110% of Base or $17,760,829 - Bonus earned is equal to 50% of base salary.
115% of Base or $18,568,140 - Bonus earned is equal to 75% of base salary.
100% of Plan for 1999 or $19,000,000 - Bonus earned is equal to 100% of
base salary.
IN WITNESS WHEREOF, the parties hereto have executed this Second Addendum on the
date and year first above written.
MARK VII, INC.
By:/s/ R. C. Matney
----------------------------------------
R. C. Matney
MARK VII TRANSPORTATION CO., INC.
By: /s/ R. C. Matney
-----------------------------------------
R. C. Matney
EXECUTIVE
By: /s/ David H. Wedaman
-----------------------------------------
David H. Wedaman, in his individual
capacity
<PAGE> 1
EXHIBIT 10.12
ADDENDUM TO EMPLOYMENT AND NONCOMPETE AGREEMENT
ROBERT E. LISS
THIS AGREEMENT, dated December 23, 1998 is made by and between Robert
E. Liss, a resident of the State of Arizona ("Executive"), and Taurus Trucking,
Inc., a Kansas corporation ("Employer"), a wholly owned subsidiary of Mark VII
Transportation Company, Inc., a Delaware corporation ("Mark VII").
RECITALS
A. Executive entered into an Employment and Noncompete Agreement as of
July 1, 1994 with another subsidiary of Mark VII, Jupiter Transportation, Inc.,
also a Kansas corporation which has recently terminated its business and is
being dissolved.
B. Business unit/profit centers assigned to the management of Executive
have sustained pre-tax operating losses in 1998.
C. To the extent expressly provided for set forth herein, Executive,
Employer and Mark VII desire to transfer Executive's employment from Jupiter
Transportation, Inc. to Taurus Trucking, Inc. and to provide for terms and
conditions under which Executive will reimburse his Employer and Mark VII for
the 1998 losses over the next 4 years, 1999 through 2002.
D. Unless expressly so stated herein, all other terms and provisions of
the "Employment and Noncompete Agreement of July 1, 1994 shall continue as
originally provided without any modification except as expressly stated herein.
AGREEMENT
In consideration of the mutual promises, covenants and agreements
contained herein and in the underlying agreement and this addendum, the parties
do hereby agree as follows:
I. ASSIGNMENT AND TRANSFER OF JULY 1, 1994 "EMPLOYMENT AND NONCOMPETE
AGREEMENT" FROM JUPITER TO TAURUS.
Mark VII Transportation Company, Inc. and its wholly owned subsidiary,
Jupiter Transportation, Inc. do hereby transfer and assign all of their right,
title and interest in and to the July 1, 1994 "Employment and Noncompete
Agreement entered into with Executive unto Taurus Trucking, Inc., a Kansas
corporation. Executive does hereby agree and consent to said assignment.
<PAGE> 2
II. REPAYMENT OF 1998 PRE-TAX OPERATING LOSSES.
Executive, Employer and Mark VII currently anticipate that the business
unit/profit centers assigned to the management responsibility of the Executive
pursuant to the provisions of the July 1, 1994 "Employment and Noncompete
Agreement" will incur substantial pre-tax operating losses in 1998. With respect
thereto, Executive does hereby undertake and agree to reimburse Employer and
Mark VII for an amount equal to said 1998 pre-tax operating losses in not more
than four years 1999 through 2002 out of future pre-tax profits otherwise earned
by business units/profit centers assigned to the management of the Executive, in
addition to the bonuses provided below.
In each such year, 75% of the $250,000 bonus on the first $1 million of pre-tax
profits earned by business units/profit centers assigned to the management of
the Executive shall be distributable to the Executive and his management staff,
and the remaining 25% applied to the 1998 operating deficit. As to all such
pre-tax profit earned each year in excess of $1 million, 10% of the $250,000
(25%) bonus shall be distributable to Executive and his management staff and
remainder, 90%, applied to reimbursement of the 1998 operating pre-tax profit
deficit. Executive shall not be charged any interest on the outstanding balance
of the 1998 deficit during the years 1999 through 2002.
IN WITNESS WHEREOF, the parties have executed this addendum on the day and year
first above written.
"EMPLOYER"
TAURUS TRUCKING, INC.
By: /s/ R. C. Matney
---------------------------------
R. C. Matney, Chairman
"EXECUTIVE"
By: /s/ Robert E. Liss
--------------------------------
Robert E. Liss
<PAGE> 1
EXHIBIT 10.16
ADDENDUM TO EMPLOYMENT AND NONCOMPETE AGREEMENT
PHILIP L. DUNAVANT
THIS AGREEMENT, dated this 1st day of January, 1999 is made by and between
Philip L. Dunavant a resident of Tennessee ("Executive") and Mark VII
Transportation Company, Inc., a Delaware corporation ("Employer"), a wholly
owned subsidiary of Mark VII, Inc., a Delaware corporation ("Mark VII").
RECITALS
Executive and Employer previously entered into "Employment and Noncompete
Agreement" dated May 16, 1997, of which a true and correct copy is attached
("Agreement"). The parties hereto undertake and agree to modify said agreement
to the extent expressly stated herein. In all other respects, said agreement
shall remain as originally stated.
AGREEMENT
In consideration of the mutual promises, covenants and agreements contained
herein and in the underlying agreement, the party to hereby further agrees as
follows:
1. BASE SALARY. Commencing January 1, 1999 the base salary of Executive shall be
$175,000 per year.
IN WITNESS WHEREOF, the parties hereto have executed this addendum on the year
and day above indicated.
"EXECUTIVE"
/s/ Philip L. Dunavant
--------------------------------------
Philip L. Dunavant
"EMPLOYER"
MARK VII TRANSPORTATION CO., INC.
By: /s/ R.C. Matney
----------------------------------
R. C. Matney, Chairman
<PAGE> 2
SECOND ADDENDUM TO
EMPLOYMENT AND NONCOMPETE AGREEMENT
PHILIP L. DUNAVANT
THIS AGREEMENT, dated this 2nd day of February, 1999 is made by and between
Philip L. Dunavant, a resident of Tennessee ("EXECUTIVE") and Mark VII
Transportation Co., Inc., a Delaware corporation ("EMPLOYER"), a wholly owned
subsidiary of Mark VII, Inc., a Delaware corporation ("MARK VII").
RECITALS
Executive and Employer previously entered into "Employment and Noncompete
Agreement" dated May 16, 1997 which was thereafter amended by an Addendum dated
January 1, 1999 of which copies are attached (Agreement and Addendum). The
parties hereby undertake to modify said Agreement and Addendum to the extent
expressly stated herein. In all other respects, they shall remain as originally
stated.
AGREEMENT
In consideration of the mutual promises, covenants and agreements contained
herein and in the underlying Agreement and Addendum, parties hereto further
agree as follows:
1. SHORTENED TERM OF EMPLOYMENT. It is agreed between Executive and Employer
that the term of employment of the Executive will lapse May 28, 1999.
2. ONE YEAR OF BASE SALARY AND FRINGE BENEFITS SUBSEQUENT TO MAY 28, 1999. As
severance pay, Executive will receive one year of $175,000 base salary
subsequent to May 28, 1999 through regular payroll processing plus all existing
fringe benefits including car allowance, and life, health, dental and AD&D
insurance coverage for that year only.
3. 1999 PERFORMANCE BONUS. Executive shall not be eligible for any bonus in 1999
or thereafter. In lieu thereof, he will receive an additional lump sum severance
benefit in the amount of $35,000 cash on or before June 18, 1999 provided R. C.
Matney, Chairman and CEO, has determined, in his sole discretion, that Executive
<PAGE> 3
has performed his employment duties in a diligent, faithful and satisfactory
manner through May 28, 1999.
4. NO SETOFF FOR PERSONAL SERVICE INCOME FROM OTHER SOURCES. The provisions of
Paragraph 6.04 of the May 16, 1997 Employment Agreement are waived and released
by Employer with respect to the one-year severance pay subsequent to termination
of employment of Executive and the lump-sum severance benefit of $35,000 for
which Executive may be eligible on June 18, 1999.
5. AVAILABILITY TO PROVIDE CONSULTATION SERVICES. Subsequent to May 28, 1999, in
the event the Employer or Mark VII has need of assistance or services of
Executive, he will make every reasonable effort to be available to provide
assistance and consultation with respect to subjects, projects or topics with
which he has become familiar as a result of his employment with Employer and
Mark VII. It is agreed and understood that for any such service the Executive
will be compensated at a consultant fee of $150 an hour.
6. MODIFICATION OF THE THIRD YEAR OF THE NONCOMPETE AGREEMENT. All provisions of
Paragraph 4 of the employment contract of May 16, 1997 shall continue in effect
except that during the third year subsequent to termination of employment with
Employer, Executive shall be at liberty to compete with Mark VII and its
subsidiaries by engaging in the transportation business free of the constraints
stated under paragraph 4.02 provided that during such year Executive shall
refrain from consulting, employing or being employed by, or otherwise
affiliated, directly or indirectly, with any present or future agent, employee
or officer of Mark VII, Inc. or any of its subsidiaries.
IN WITNESS WHEREOF, the parties hereto have executed this Addendum on the year
and day above indicated.
"EXECUTIVE"
/s/ Philip L. Dunavant
----------------------------------
Philip L. Dunavant
"EMPLOYER"
/s/ R. C. Matney
---------------------------------
R. C. Matney, Chairman
"MARK VII, INC."
/s/ R. C. Matney
----------------------------------
<PAGE> 1
Exhibit 21
SUBSIDIARIES OF REGISTRANT
<TABLE>
<CAPTION>
Jurisdiction of
Name Incorporation
---------------------------------- -------------
<S> <C>
Mark VII Transportation Company, Inc. Delaware
Subsidiaries of Mark VII Transportation Company, Inc.:
Mark VII Trucking, Inc. Delaware
Taurus Trucking, Inc. Kansas
Orion Express, Inc. Kansas
Subsidiary of Orion Express, Inc.:
Mark VII Canada, ULC Nova Scotia, Canada
Mark VII Worldwide Logistics, Inc. Kansas
Mark VII Logistics, S.A. de C.V. Mexico
MNX Carriers, Inc. Delaware .
</TABLE>
<PAGE> 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 26, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MARK
VII, INC. CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED JANUARY 2, 1999
AND CONSOLIDATED BALANCE SHEET AS OF JANUARY 2, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-START> JAN-04-1998
<PERIOD-END> JAN-02-1999
<CASH> 3,758
<SECURITIES> 0
<RECEIVABLES> 102,168
<ALLOWANCES> 4,289
<INVENTORY> 0
<CURRENT-ASSETS> 106,494
<PP&E> 15,448
<DEPRECIATION> 6,175
<TOTAL-ASSETS> 123,068
<CURRENT-LIABILITIES> 81,113
<BONDS> 712
0
0
<COMMON> 502
<OTHER-SE> 40,741
<TOTAL-LIABILITY-AND-EQUITY> 123,068
<SALES> 0
<TOTAL-REVENUES> 724,948
<CGS> 0
<TOTAL-COSTS> 636,745
<OTHER-EXPENSES> 71,948
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 38
<INCOME-PRETAX> 16,217
<INCOME-TAX> 6,649
<INCOME-CONTINUING> 9,568
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,568
<EPS-PRIMARY> 1.07
<EPS-DILUTED> 1.01
</TABLE>
