-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, U8PXWa+5RgpC3t0wJTyFtIzBuXU6307f5Z+5i7V7mTppSIbx/559kwTq1NJwMi21 h9af2iSS6frSJj3L9PDMMA== 0000931731-98-000089.txt : 19980402 0000931731-98-000089.hdr.sgml : 19980402 ACCESSION NUMBER: 0000931731-98-000089 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980401 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PST VANS INC CENTRAL INDEX KEY: 0000933589 STANDARD INDUSTRIAL CLASSIFICATION: TRUCKING (NO LOCAL) [4213] IRS NUMBER: 870411704 STATE OF INCORPORATION: UT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-25506 FILM NUMBER: 98584620 BUSINESS ADDRESS: STREET 1: 1901 W 2100 SOUTH CITY: SALT LAKE CITY STATE: UT ZIP: 84119 BUSINESS PHONE: 8019752500 MAIL ADDRESS: STREET 1: 1901 W 2100 S CITY: SALT LAKE CITY STATE: UT ZIP: 84119 10-K 1 ANNUAL REPORT - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K |X| Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 1997 or | | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. PST VANS, INC. -------------- (Exact name of registrant as specified in its charter) Utah 0-25506 87-0411704 ---- ------- ---------- (State or other jurisdiction (Commission File No.) (IRS Employer of incorporation) Identification No.) 1901 West 2100 South Salt Lake City, Utah 84119 -------------------------- (Address of principal executive offices, including zip code) Registrant's telephone number, including area code: (801) 975-2500 Securities registered pursuant to Section 12(b) of the Act: None ---- Securities registered pursuant to Section 12(g) of the Act: Title of Class -------------- Common Stock, $.001 Par Value 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 the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. | | The aggregate market value of the Common Stock held by non-affiliates of the Registrant, based upon the closing sale price of the Common Stock on the NASDAQ National Market System on March 24, 1998, was approximately $12,000,000. Shares of Common Stock held by each officer and director and by each person who may be deemed to be an affiliate have been excluded. As of March 24, 1998, the Registrant had 4,253,527 shares of Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE The Registrant's definitive Proxy Statement relating to the Annual Meeting of Shareholders to be filed pursuant to Regulation 14A is incorporated by reference in Part III of this report. - --------------------------------------------------------------------------------
TABLE OF CONTENTS PART I .............................................................................................. 1 Item 1. Business...................................................................................... 1 -------- Item 2. Properties.................................................................................... 7 ---------- Item 3. Legal Proceedings............................................................................. 7 ----------------- Item 4. Submission of Matters to a Vote of Security Holders........................................... 7 --------------------------------------------------- PART II ............................................................................................... 9 Item 5. Market for Registrant's Common Stock and Related Shareholder Matters........................... 9 -------------------------------------------------------------------- Item 6. Selected Financial Data....................................................................... 10 ----------------------- Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations......... 12 ------------------------------------------------------------------------------------- Item 8. Financial Statements and Supplementary Data................................................... 17 ------------------------------------------- Item 9. Changes and Disagreements with Accountants on Accounting and Financial Disclosure............. 17 --------------------------------------------------------------------------------- PART III .............................................................................................. 18 Item 10, 11, 12 and 13................................................................................... 18 PART IV .............................................................................................. 19 Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............................... 19 --------------------------------------------------------------- FINANCIAL STATEMENTS..................................................................................... F-1
i Information contained in this Report contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, which can be identified by the use of forward- looking terminology such as "may", "will", "should", "expect", "anticipate", "estimate", or "continue" or the negative thereof, or other variations thereon or comparable terminology. These forward-looking statements are subject to risk and uncertainties that include, but are not limited to, those identified in this report, described from time to time in the Company's other Securities and Exchange Commission filings, or discussed in the Company's press releases. Actual results may vary materially from expectations. PART I Item 1. Business. General PST Vans, Inc. is a truckload carrier focused on serving three markets in the United States: transcontinental, intrawest and midwest-southeast. Management believes its three primary operating areas complement each other to create a network which enhances equipment utilization and marketing of PST's truckload carrier services. Approximately 63% of the Company's revenues during 1997 was from transcontinental traffic lanes with an average length of haul of approximately 1,600 miles. The balance of revenues was generated in the intrawest and midwest-southeast traffic lanes with an average length of haul of approximately 750 miles. The Company transports a wide variety of freight, much of which is time-sensitive, including paper products, retail products, non-perishable food products, tires and electronic equipment. The Company was incorporated in Utah in 1984 and its executive offices are located at 1901 West 2100 South, Salt Lake City, Utah 84119. The Company operates exclusively a fleet of standardized, modern tractors and 53-foot dry van trailers and to focuses its marketing efforts on serving as a core carrier for high volume, service-sensitive customers. Major shippers continue to reduce the number of authorized carriers they utilize and are deciding to establish service-based, long-term relationships with a small group of preferred partners or "core carriers" who can meet the service demands required by these shippers, including quick response times, meeting of just-in-time inventory scheduling needs, on-time pick up and delivery and real-time load monitoring. The Company attempts to meet these needs by providing a high level of service to its customers including on-time pick up and appointment deliveries, a modern fleet of equipment that enhances on-time deliveries, a fleet of 53-foot dry van trailers capable of handling high volumes and high weight shipments and advanced information capabilities that provide customers with access to information concerning the location and status of shipments. The Company maintained its fleet size during 1997 at an average of approximately 1,150 tractors (including independent contractors). In December 1997, the Company reduced its fleet size by approximately 6% to 1,077 tractors due to the maturity of operating leases on certain tractors. During January 1998, the Company further reduced its fleet size to approximately 977 tractors with the maturity of other operating leases. The Company has replaced the tractors that were under operating leases with independent contractors during February and March of 1998 and believes the fleet can be increased by approximately 10% during the remainder of 1998 with additional independent contractors, as market conditions support. Company management believes that utilizing independent contractors instead of Company-owned tractors allows the Company to expand without using Company capital resources. Using independent contractors also gives the Company greater flexibility to reduce fleet size should business demand decrease in the future. Operations General. The Company operates a standardized, modern fleet of tractors and 53-foot dry van trailers in its primary operating areas. The Company operates its fleet with driver managers, logistics managers, and customer service representatives who work from the Company's operations center in Salt Lake City, Utah. The Company consolidated its Atlanta operations center into its Salt Lake City facility in the fourth quarter of 1996 and the first quarter of 1997. 1 This was done in order to have more cohesive management of the Company's customer service and dispatch functions, and to reduce operating expenses. Customer service representatives are assigned to a particular geographic area and work closely with customers and marketing personnel. The Company's customer service representatives are responsible for soliciting and accepting shipments from customers in accordance with prioritized traffic lanes established by management. Logistics planners coordinate with the customer service representatives to match customer needs with Company capacity and location of revenue equipment. Once a load has been accepted by a customer service representative, the logistics planner for the geographic area where the load originates coordinates the assignment of the load to a truck with a driver manager who is responsible for its proper and timely delivery. The driver manager tracks the status and location of that load while in transit. In order to enhance productivity among its operations group, the Company has an incentive plan for its non-driver employees, under which a bonus is distributed monthly to those employees that meet established performance criteria. Technology. The Company's management information system provides real-time, on-line management information, such as daily operating reports and costing and location of loads, which assists management in tracking shipments and performing long-range planning and trend analysis. Information concerning the status and location of shipments in transit, together with information concerning unassigned loads, is constantly updated on the system. Computer-generated reports are used to meet delivery schedules, respond to customer inquiries concerning loads in transit and match available equipment with loads. The system has EDI capability to allow customers access to the Company's computer data from which transit and delivery information can be obtained. EDI also offers customers the ability to place orders for their transportation needs directly into the computer system and allows the Company to bill customers electronically. In February 1998, the Company entered into a five-year agreement with The Sabre Group to out-source the majority of its information technology functions, including computer and telephone systems. In connection with the agreement, the Company will be transitioning to new hardware and software for its financial, accounting, operations and other management information systems during the second quarter of 1998. The successful implementation of these new systems is crucial to the efficient operation of the Company's business. There can be no assurance that the Company will implement its new systems in an efficient and timely manner or that the new systems will be adequate to support the Company's operations. Problems with installation or initial operation of the new systems could cause substantial difficulties in operations planning, financial reporting and management and thus could have a material adverse effect on the Company's business, financial condition and results of operation. PST installed the QUALCOMM on-board communications system on all of its tractors during the fourth quarter of 1997. This system assists the Company in tracking loads, servicing customers, and communicating with drivers. QUALCOMM utilizes satellite technology service to link the Company's drivers to its operations center. The Company formerly used a cellular-based on-board communications system from June 1994 to June 1997. The Company also uses an optical disk imaging system that scans documents such as bills of lading, driver logs and fuel receipts on to optical disks. Management believes that this system substantially reduces clerical time required to enter and retrieve documents, while enhancing the utilization of data. Fuel. The Company has established a nationwide fuel purchase program which enables the Company's drivers to purchase fuel at specified fuel stops throughout the United States at volume discounts. In order to reduce PST's vulnerability to rapid price increases, the Company enters into purchase contracts with fuel suppliers from time to time for a portion of its estimated fuel requirements at a guaranteed price. As of December 31, 1997, the Company had entered into agreements with fuel suppliers under which the Company may purchase approximately 18% of its estimated fuel needs through December 31, 1998, at a guaranteed price. These agreements include an arrangement with a national truckstop operator to store and pump this fuel at truckstops located throughout the United States. The Company also has bulk fuel storage capacity at one of its terminals and its Salt Lake City operations center. The Company attempts to offset rapid increases in fuel prices with fuel surcharges to its customers which are standard in the industry. 2 Marketing The Company concentrates its marketing efforts on serving as a core carrier for high volume, service-sensitive customers with "driver friendly" freight for transportation in PST's targeted traffic lanes. The Company has targeted the service-sensitive segment of the truckload market rather than the segment which uses price as its primary consideration. The Company transports a wide variety of freight, much of which is time sensitive, including paper products, non-perishable food products, retail products, tires and electronic products. The Company's largest 20 customers accounted for approximately 49% of revenues in 1997, with the largest customer accounting for approximately 8% of revenues. The Company maintains marketing offices at its headquarters in Salt Lake City. Senior management is directly involved in marketing and maintaining relationships with customers. The Company fosters the concept of maintaining a "transportation partnership" with each customer to respond to individual customer requirements and become a core carrier for service-sensitive customers. Once a customer relationship is established, the Company's customer service representatives, working from the Company's operations center in Salt Lake City, regularly contact that customer to solicit additional business on a load-by-load basis, particularly when equipment will be available nearby following a completed haul. In addition, a customer representative meets at least annually with each customer at the customer's place of business. Each customer service representative is assigned a particular geographic area and works with a driver manager to monitor the overall transportation and service requirements of shippers in the assigned area as well as movements of the shippers' freight within that area. This personal and continuing customer contact is designed to ensure a high level of customer satisfaction and enhance utilization of the Company's equipment. Drivers The truckload segment of the industry continues to experience an acute shortage of employee drivers and independent contractors, particularly in the longer haul segments. As a result of the driver shortage, some truckload carriers, including the Company, have been forced to idle tractors from time to time. Management has designed a driver recruitment and retention program which features: (i) maintaining a close working relationship with various independent driver training schools, (ii) providing a positive training experience to all new drivers, and (iii) providing a competitive, incentive-based compensation package and other driver amenities. The Company believes that this program is effectively meeting its driver requirements. However, because of the acute shortage of drivers in the industry, the Company believes it is necessary to constantly evaluate its driver retention and recruitment program and to make changes as necessary in order to improve driver recruitment and retention, and it may be forced to idle tractors from time to time. Recruiting. PST employs full-time recruiters located throughout the United States who make recruiting presentations at truck stops, Company-sponsored job fairs and other locations frequented by drivers. The Company also advertises for drivers on television, radio and in print media. The Company carefully screens all new driver applicants on the basis of prior driving and safety records. The Company also works closely with independent driver training schools and community colleges to recruit and train prospective drivers. Two of the independent driver training schools are conducted in PST's facilities, one in Salt Lake City and the other in Atlanta. The Company provides the facilities and equipment while the schools provide the instructors. Training. All newly-hired drivers with limited over-the-road experience must complete the Company's training program. The Company's training program, which was recently modified, is intended to provide the trainee with a positive training experience, ease the driver's transition from driving school to full-time driving and improve safety. During the training, each new driver is teamed up with an experienced driver trainer to gain over-the-road experience. Upon meeting certain criteria, the driver may upgrade to a team or solo driver. For a period of time, the driver is monitored as a trainee by the safety department for service and safety performance. All newly-hired drivers, regardless of experience, are required to pass an examination and attend a two day orientation program which includes both classroom and over-the-road training, emphasizing safety and proper operation of Company tractors and trailers. The orientation program also trains drivers in all aspects of the Company's operations, particularly customer service requirements, fuel conservation and equipment maintenance. In addition, the Company utilizes a training program for all of its drivers dealing with, among other safety measures, maintaining a "space cushion" around their vehicle. 3 Compensation and Benefits. The Company compensates its drivers based on miles driven, including an incentive program based on monthly miles production, with base pay increasing with the driver's length of employment. Drivers also participate in PST's 401(k) program, in Company-sponsored health, life and dental plans and the employee stock purchase plan. Driver Retention. Management believes that its competitive compensation package, its policy to have each driver home at least once every 14 days or to accrue time off at the rate of one day for each week on the road and its focus on "driver friendly" freight have enhanced the Company's ability to retain drivers. The Company also provides drivers with various amenities, including modern, spacious conventional tractors that are designed for driver comfort and safety, the QUALCOMM communication system that allows drivers to communicate with their families and the Company's contract with truckstop operators that allow drivers to use those facilities. In addition, all drivers are assigned to a driver assistant who monitors up to 50 drivers from the Company's operations center and is responsible for assisting assigned drivers in resolving administrative or work-related problems. Management also believes that the Company's career advancement opportunities for drivers, such as becoming a driver trainer or an independent contractor, are important to driver retention. Independent Contractors During the last several years, the Company has utilized independent contractors who, through a contract with the Company, supply one or more tractors and drivers for Company use. Independent contractors are compensated on the basis of a fixed rate per mile and are responsible for all expenses of operating a tractor, including wages, benefits, fuel, maintenance, highway use taxes and debt service. The contract between the independent contractor and the Company generally is terminable by either party upon short notice. The Company's use of tractors supplied by independent contractors was approximately 21% at December 31, 1997 and approximately 36% at March 27, 1998. The Company expects the number of tractors provided by independent contractors to increase relative to the number of Company-operated tractors during 1998. Management believes that any company-owned tractors that are retired during 1998 may be replaced with independent-contractors as future market conditions dictate. The Company believes that carefully selected independent contractors allow the Company to expand its fleet while minimizing its capital investment and fixed costs, improving its return on invested capital and reducing the cost of financing revenue equipment. Utilizing independent contractors also allows the Company to size its fleet according to the demand for freight services. In addition, independent contractors generally have a lower turnover rate than company drivers for the industry as a whole because of their ownership of their equipment. The ratio of independent contractors to Company-operated equipment varies from time to time based on such factors as the demand for freight, the cost of obtaining and operating new revenue equipment, the availability of qualified independent contractors and the rates being charged by them. By using independent contractors, the Company seeks to improve its return on invested capital and reduce the financing costs associated with owning its own fleet. Revenue Equipment The Company's equipment strategy is to (i) purchase both tractors and trailers with uniform specifications to reduce parts and maintenance costs, (ii) keep equipment covered by manufacturers' warranties (to the extent offered by manufacturers), and (iii) operate a fleet of only modern, comfortable driver-preferred tractors and 53-foot dry van trailers. The average age of the Company's tractors was 2.7 years at December 31, 1997 compared to 1.8 years at December 31, 1996. The Company's current policy is to replace its tractors approximately every four years and its trailers approximately every seven years, and to maintain an approximate 2.2 to one trailer-to-tractor ratio. At December 31, 1997, the Company owned or held directly under lease 847 tractors and 2,369 trailers, all of which were 53-foot long x 102-inch wide dry vans, capable of handling high volume and high weight shipments. The Company's trailers are of sheet and post construction and can be used to haul full loads of heavy freight, such as carpet and tires. The following table shows the model years of the Company's tractors and trailers in service as of December 31, 1997. 4 Model Year Tractors Trailers ---------- -------- -------- 1998................................................ 76 0 1997................................................ 0 0 1996................................................ 290 500 1995 ............................................... 439 500 1994................................................ 39 100 1993 ............................................... 0 448 1992 ............................................... 0 149 1991 ............................................... 1 598 1990 and prior ..................................... 2 74 ---------- --------- Total Company-owned ................................ 847 2,369 Total independent contractor ....................... 230 -- ---------- --------- Total ........................................ 1,077 2,369 ========== ========= The Company fleet consists of 100% conventional tractors all equipped with Detroit Diesel electronic engines, which management believes provides increased fuel efficiency, performance improvements and reduced maintenance over conventional engines. All of the tractors are equipped with air-ride suspension and other modern features designed to enhance performance and driver comfort. The Company currently has no tractor and 450 trailer production slots reserved in 1998. The Company has a comprehensive preventative maintenance program for its Company-operated tractors and trailers to improve safety, minimize equipment downtime and enhance resale value. Inspections, repairs and maintenance are performed on a regular basis at Company facilities. Additional maintenance and repair can be performed at independent contract maintenance facilities in the Company's service territories when circumstances require. The Company also obtains manufacturer extended warranties, including full engine and power train coverage. Safety and Risk Management The Company is committed to the safe operation of its revenue equipment. The Company regularly evaluates its safety program and makes changes in order to improve the safe operation of its equipment. In order to help emphasize safe driving, the Company performs on-the-road observations of drivers and distributes safety recognition awards to drivers with exemplary driving and productivity records. Driver assistants and dispatchers regularly communicate with Company drivers to promote safety and safe work habits. In addition, the Company's 1998 tractors are equipped with optional safety features such as speed governors, daytime running lights, mirrors on each fender that provide improved views and turning horns that activate when the turn signal on a tractor is engaged. The Company is continuing the following safety programs implemented in 1996: 1) all drivers are required to take the Smith System Safety Cushion course; 2) pass/fail testing criteria for all newly-hired drivers; and 3) prompt accident counseling and training for all drivers involved in preventable accidents. The Company has implemented a new safety program in 1997 wherein approximately 10% of Company-owned tractors are equipped with fuel optimizer engines that govern speed between 57 and 64 miles per hour. All other Company-owned tractors are governed at 64 miles per hour. The Company has an accident review committee that meets on a regular basis to review accidents, examine trends and implement changes in procedures or communications to address safety issues. The committee also works closely with drivers who have been involved in accidents to improve their driving performance. The Company requires prospective drivers to meet higher qualifications than those required by the Department of Transportation (the "DOT"). The DOT requires the Company's drivers to obtain commercial drivers' licenses and also requires that the employer implement a drug testing program in accordance with the DOT regulations. The Company's program includes pre-employment, random, post-accident and post-injury drug testing. The primary insurance risks associated with the Company's business are bodily injury and property damage, workers' compensation claims and cargo loss 5 and damage. The Company maintains insurance against these risks and is subject to liability as a self insurer to the extent of its deductible. The Company currently maintains liability insurance coverage for bodily injury and property damage with a deductible of $2,500 per incident and carries cargo insurance coverage with a $25,000 deductible per incident. The Company also has a $100,000 deductible for workers' compensation claims in those states that allow a deductible. The Company currently maintains a $2,500 deductible per incident for physical damage to Company-owned tractors and is effectively self insured for physical damage to its trailers. Employees As of December 31, 1997, the Company employed 1,531 persons, 1,269 of whom were drivers, 37 were mechanics and maintenance personnel and 225 were support personnel, including management and administration. None of the Company's employees is represented by a collective bargaining unit, and the Company considers relations with its employees to be good. Competition The entire trucking industry is highly competitive and fragmented. PST competes primarily with other truckload carriers and shippers' private fleets, and, particularly in the longer haul segments with intermodal transportation, railroads and providers of second day air freight service. Intermodal transportation has increased in recent years as reductions in train crew sizes and the development of new rail technologies have reduced the cost and improved dependability of intermodal shipping. Competition for the type of freight transported by PST is based, in the long term, primarily on service and efficiency and, to a lesser degree, on freight rates. The Company believes that its principal competitive strength is its ability to consistently provide reliable service to its customers, including on-time pick ups and deliveries. Several truckload carriers that compete with PST have substantially greater financial resources, own more equipment and carry a larger volume of freight than PST. Regulation The Company is a motor common and contract carrier and was previously regulated by the Interstate Commerce Commission ("ICC") and various state agencies. Effective as of December 31, 1995, the ICC was closed and its remaining responsibilities were transferred to the DOT. The Company has not realized any adverse impact as a result of this action. The DOT and state agencies have broad powers, generally governing matters such as authority to engage in motor carrier operations, rates and charges, accounting systems, certain mergers, consolidations and acquisitions and periodic financial reporting. The Motor Carrier Act of 1980 substantially increased competition among motor carriers and reduced the level of regulation in the industry. Motor carrier operations are also subject to safety requirements governing interstate operations prescribed by the DOT. Such matters as weight and dimension of equipment are also subject to federal and state regulations. The failure of the Company to comply with the rules and regulations of the DOT or state agencies could result in substantial fines or revocation of the Company's operating licenses. The trucking industry is also subject to regulatory and legislative changes which can affect the economics of the industry by requiring changes in operating practices or influencing the demand for, and the cost of providing services to shippers. The Company currently has authority to carry freight on an intrastate basis in 48 states. The Federal Aviation Administration Authorization Act of 1994 (the FAAA Act) amended sections of the Interstate Commerce Act to prevent states from regulating rates, routes or service of motor carriers after January 1, 1995. The FAAA Act did not address state oversight of motor carrier safety and financial responsibility, or state taxation of transportation. The Company has underground storage tanks for diesel fuel at its facilities in Salt Lake City, Utah and Bowling Green, Kentucky. As a result, the Company is subject to regulations promulgated by the EPA in 1988 governing the design, construction and operation of underground fuel storage tanks from installation to closure. The Company believes all of its tanks are in substantial compliance with EPA regulations. The Company's truckload carrier operations are also subject to other environmental laws and regulations, including laws and regulations dealing with the transportation of hazardous materials. The Company believes that it is in compliance with all material 6 applicable environmental laws and regulations. In the event the Company should fail to comply with applicable environmental laws and regulations, the Company could be subject to substantial fines and/or penalties and to civil and criminal liability. Seasonality In the trucking industry, revenues generally show a seasonal pattern as customers reduce shipments during and after the winter holiday season and its attendant weather variations. Operating expenses also tend to be higher during the cold weather months, primarily due to poorer fuel economy and increased maintenance costs. Item 2. Properties. The Company's executive offices and operations center are located in Salt Lake City, Utah. PST owns this property, subject to the property being pledged to secure a payable in the amount of approximately $3,000,000 due to an equipment vendor as of December 31, 1997. This payable was paid and the property was released as security on March 16, 1998. The property has full maintenance and shop capabilities with four maintenance bays for tractors and four maintenance bays for trailers. The property also has approximately 15 acres for tractor and trailer parking and contains an office building of approximately 36,000 square feet for the Company's executive offices and operations center. Management believes that this facility is suitable for PST's present and future needs. The Company also operates terminals in Atlanta, Georgia; Bowling Green, Kentucky; Fontana, California; Mt. Vernon, Texas; Green Cove , Florida; Knoxville, Tennessee; and Valdosta, Georgia. The Atlanta terminal includes tractor and trailer maintenance facilities, office space and driver lounges. All of the terminals are used for driver recruiting. The Atlanta facility is located on approximately 17 acres. The Bowling Green terminal is located on approximately two acres. These properties are leased for terms ranging from month-to-month to five years, with renewal options. The Company bears the costs of insurance, maintenance and repairs, taxes, special assessments and utilities on most of its leased facilities. The Company does not anticipate any difficulties renewing or continuing these leases or obtaining leases on replacement or additional properties, if necessary. Management estimates that its Salt Lake facility and its other terminals are being utilized to approximately 60% to 75% of their capacity. Item 3. Legal Proceedings. The Company is a party to routine litigation incidental to its business, primarily involving claims for personal injury and property damage incurred in the transport of freight. Management does not believe that any pending litigation will have a materially adverse effect on the Company's financial condition or results of operations. Item 4. Submission of Matters to a Vote of Security Holders The following matters were submitted to a vote of security holders at an annual meeting of shareholders held on December 19, 1997, with the results of the vote as noted: (1) To elect one member of the Board of Directors. Votes for James E Otto - 3,019,893 In addition, the following directors continued to serve following the meeting: Kenneth R. Norton, Robert D. Hill, Charles Lynch and James Redfern (2) To ratify the appointment of Arthur Andersen LLP as independent public accountants for the year ending December 31, 1997. Votes for - 3,036,604 Votes against - 44,839 Abstentions - 9,000 7 A total of 3,090,443 shares were present at the meeting, either in person or by proxy. 8 PART II Item 5. Market for Registrant's Common Stock and Related Shareholder Matters. The Company's Common Stock is listed and traded on The NASDAQ Stock Market (National Market System) under the symbol "PSTV." The following table sets forth, for the periods indicated, the high and low sale prices for the Company's Common Stock, as reported on The NASDAQ Stock Market for the years ended December 31, 1997 and 1996. High Low ---- --- Year Ended December 31, 1997: First Quarter................................... $3.375 $2.438 Second Quarter.................................. 3.750 1.875 Third Quarter................................... 4.000 3.000 Fourth Quarter.................................. 4.938 3.000 High Low ---- --- Year Ended December 31, 1996: First Quarter................................... $4.625 $3.125 Second Quarter.................................. 4.625 3.750 Third Quarter................................... 4.250 2.875 Fourth Quarter.................................. 3.750 2.375 - -------------------------- The Company did not pay or declare dividends on its Common Stock during the years ended December 31, 1996 and 1997. The Company currently anticipates that it will retain all available funds to finance its operations. The Company does not presently intend to pay cash dividends in the foreseeable future. The Company's revolving loan agreements with The Bank of New York and Congress Financial Corporation (Northwest) prohibit the Company from paying dividends without the consent of The Bank of New York and Congress Financial Corporation (Northwest). As of March 24, 1998, the Company had 4,253,527 shares of its Common Stock outstanding, held by 20 shareholders of record, which does not include shareholders whose shares are held in securities position listings. 9 Item 6. Selected Financial Data and Operating Data. The following selected financial data of the Company for the five years ended December 31, 1997, has been derived from the Company's Financial Statements which have been audited by Arthur Andersen LLP, independent public accountants. This selected financial data should be read in conjunction with the Financial Statements and accompanying Notes included elsewhere in this report. Operating data has been derived from the Company's books and records. All amounts are expressed in thousands, except per share amounts and operating data.
Year Ended December 31, 1997 1996 1995(5) 1994(5) 1993(5) ---------- ---------- ---------- ---------- ----------- Statements of Operations Data: Revenues........................................$ 143,737 $ 147,419 $ 164,794 $ 136,541 $ 125,591 ---------- ---------- ---------- ---------- --------- Costs and expenses: Salaries, wages and benefits.................. 44,360 43,848 45,208 35,935 40,693 Purchased transportation...................... 25,578 32,393 41,281 33,842 20,273 Fuel and fuel taxes........................... 22,533 20,555 21,245 17,615 20,556 Revenue equipment lease expense............... 7,576 8,022 12,224 14,904 17,991 Maintenance................................... 8,663 7,491 8,822 8,584 7,078 Insurance and claims.......................... 11,384 11,942 9,315 6,854 6,662 General supplies and expenses................. 5,930 5,558 5,996 4,364 5,909 Taxes and licenses............................ 2,776 3,309 3,445 2,677 3,360 Communications and utilities.................. 2,802 3,430 3,562 1,870 2,021 Depreciation and amortization................. 11,911 13,175 8,804 2,078 1,772 (Gain) loss on sale of equipment.............. 13 (1,614) (151) 302 595 Amortization of goodwill...................... 272 272 272 272 272 ---------- ---------- ---------- ---------- ----------- Total costs and expenses.................. 143,798 148,381 160,023 129,297 127,182 ---------- ---------- ---------- ---------- ----------- Operating income (loss)......................... (61) (962) 4,771 7,244 (1,591) ---------- ---------- ---------- ---------- ----------- Other income (expense): Interest expense.............................. (4,360) (5,080) (4,283) (2,595) (2,069) Reorganization expense items.................. -- -- -- (338) (2,928) Other, net.................................... 105 182 147 119 116 ---------- ---------- ---------- ---------- ----------- Income (loss) before provision for income taxes and extraordinary gains................. (4,316) (5,860) 635 4,430 (6,472) Provision for income taxes...................... -- -- 251 120 36 ---------- ---------- ---------- ---------- ----------- Income (loss) before extraordinary gains........ (4,316) (5,860) 384 4,310 (6,508) Extraordinary gains from debt restructuring(1).............................. -- -- -- 6,206 -- ---------- ---------- ---------- ---------- ----------- Net income (loss)...............................$ (4,316) $ (5,860) $ 384 $ 10,516 $ (6,508) ========== ========= ========= ========== =========== Net income per common share: Income (loss) before extraordinary gain - basi and diluted...................................$ (1.02) $ (1.39) $ .10 $ 1.6(2) Extraordinary gain from debt restructuring - basic and diluted........... -- -- -- 2.38(2) ---------- --------- --------- ------------ Net income (loss) per common share - basic and diluted...................$ (1.02) $ (1.39) $ .10 $ 4.04(2) ========== ========= ========= ============ Weighted average shares outstanding - basic........................... 4.233 4,212 3,950 3,888(2) ========== ========= ========= ============ Weighted average shares outstanding - diluted......................... 4.233 4,212 3,950 3,950(2) ========== ========= ========= ============
10
Year Ended December 31, ----------------------------------------------------------------- 1997 1996 1995(5) 1994(5) 1993(5) ---------- ---------- ---------- ---------- ----------- Operating Data: Average revenue per tractor per week..................... $ 2,408 $ 2,297 $ 2,363 $ 2,465 $ 2,318 Average miles per trip .................................. 1,181 1,204 1,133 1,110 944 Average revenue per total mile........................... $ 1.065 $ 1.053 $ 1.062 $ 1.087 $ 1.046 Empty miles percentage .................................. 8.8% 9.2% 9.0% 7.8% 10.1% Average number of tractors during the year: Company-operated ...................................... 888 915 911 721 820 Independent contractor ................................ 257 322 430 341 218 --- --- --- --- --- Total tractors .................................... 1,145 1,237 1,341 1,062 1,038 Average number of trailers during the year .............. 2,501 2,931 2,713 2,204 2,412 Pre-tax margin (loss)(3) ................................ (3.0)% (4.0)% .4% 3.2% (5.2)% Balance Sheet Data: Working capital (deficit)................................ $(23,431) $ (9,157) $ 2,935 $ (8,377) $ (5,071) Total assets ............................................ 79,476 90,260 108,882 48,664 37,341 Long-term and capitalized lease obligations, net of current portion(4) ................ 14,739 34,894 55,687 17,124 4,181 Stockholders' equity (deficit) .......................... 17,511 21,772 27,605 5,473 (12,816) - ----------------------
(1) The Company recognized an extraordinary gain of $6.2 million in 1994 from reduction of indebtedness accomplished through the Company's Plan of Reorganization. (2) Pro forma per share amounts in 1994 reflect cancellation of all previously outstanding shares of Common Stock of PST and the issuance of shares to the current shareholders of the Company pursuant to the Plan of Reorganization as if these transactions had occurred on January 1, 1994. The per share amounts in 1997, 1996 and 1995 reflect the actual weighted average shares and earnings per share. (3) The Company finances the acquisition of some of its revenue equipment under operating leases rather than through debt financing or capitalized leases. As a result, the Company believes that its pre-tax margin (loss) (earnings (loss) before income taxes and extraordinary gains as a percentage of revenues) is a more appropriate measure of its operating efficiency than its operating ratio (operating costs and expenses as a percentage of revenues). (4) Long-term and capitalized lease obligations do not include $9.9 million of obligations under operating leases of revenue equipment at December 31, 1997. (5) From 1989 through 1993, the Company incurred substantial net losses (before extraordinary gains). In June 1993, after the Company was unsuccessful in voluntarily restructuring its existing indebtedness, the Company filed for protection under Chapter 11 of the United States Bankruptcy Code in order to improve its capital structure and reduce its debt service requirements and overall indebtedness. The Company's Plan of Reorganization was confirmed in February 1994 and significantly improved the Company's capital structure by reducing the Company's debt and lowering lease and interest payments. In March 1995, the Company paid the remaining balance owing to its unsecured creditors under the Plan of Reorganization with the exception of a few contested unsecured claims. The Company is still making payment on its priority tax claims in accordance with its Plan of Reorganization. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. 11 Overview The trucking industry experienced significant overcapacity in 1995 as a result of carriers expanding fleets based on very strong customer demand in 1994 coupled with an economic slowdown in the second half of 1995. This overcapacity resulted in significant downward pressure on pricing in the industry during 1995, 1996, and the first nine months of 1997, and adversely affected the Company's operations which resulted in a lower average rate per mile and lower equipment utilization in 1996, 1995 and 1997 compared to 1994, and an operating loss in 1996 and 1997. During the fourth quarter of 1997, the profitability of the Company improved significantly. While the Company traditionally experiences a stronger demand for freight services in the fourth quarter of each year, the increased demand in the fourth quarter of 1997 combined with better systems for managing revenue equipment produced an approximate 8% improvement in utilization of the Company's revenue equipment (as measured by miles per tractor per day) in the three months ended December 31, 1997 as compared to the nine months ended September 30, 1997. In addition, insurance and claims expense reduced from 8.5% of revenue for the nine month ended September 30, 1997 to 6.3% of revenue for the three months ended December 31, 1997. The fourth quarter net income of approximately $511,000 was the Company' first significantly profitable quarter in over 2 years. The Company finances the acquisition of some of its revenue equipment through operating leases. Under generally accepted accounting principles, the interest component of an operating lease is not treated as interest expense. Because of the Company's use of operating leases, the Company's operating ratio (operating costs and expenses as a percentage of revenues) is higher than it would be if it utilized only debt and/or capital leases. As a result, the Company believes that its pre-tax margin (earnings before income taxes and extraordinary gains as a percentage of revenues) is a more appropriate measure of its operating efficiency than its operating ratio. At December 31, 1997, the Company operated a revenue equipment fleet comprised of 1,077 tractors, including 230 operated by independent contractors, and 2,369 trailers. Because of the current increased demand for freight services, the Company intends to increase the number of independent contractors to approximately 350 and maintain the Company tractors at approximately 850 during 1998. In February 1998, the Company entered into a five-year agreement with The Sabre Group to out-source the majority of its information technology functions, including computer and telephone systems. In connection with the agreement, the Company will be transitioning to new hardware and software for its financial, accounting, operations and other management information systems during the second quarter of 1998. The successful implementation of these new systems is crucial to the efficient operation of the Company's business. There can be no assurance that the Company will implement its new systems in an efficient and timely manner or that the new systems will be adequate to support the Company's operations. Problems with installation or initial operation of the new systems could cause substantial difficulties in operations planning, financial reporting and management and thus could have a material adverse effect on the Company's business, financial condition and results of operation. The Company is in the process of identifying anticipated costs, problems and uncertainties associated with making the Company's software applications Year 2000 compliant. The Sabre Group has certified that the software they will be providing to the Company is Year 2000 ready. The Company expects to resolve Year 2000 issues with other internal-use software through planned replacement or upgrades. Although management does not anticipate Year 2000 issues to have a material affect on its business or future results of operations, there can be no assurance that there will not be interruptions of operations or other limitations of system functionality or that the Company will not incur significant costs to avoid such interruptions or limitations. 12 The following table sets forth the percentage relationship of expense items to revenues for the years indicated.
Percentage of Revenues --------------------------- Year Ended December 31, 1997 1996 1995 ------ ------- ------ Revenues: 100.0% 100.0% 100.0% Costs and expenses: Salaries, wages and benefits..................................... 30.9 29.7 27.4 Purchased transportation......................................... 17.8 22.0 25.0 Fuel and fuel taxes.............................................. 15.7 13.9 12.9 Revenue equipment lease expense.................................. 5.3 5.4 7.4 Maintenance...................................................... 6.0 5.1 5.4 Insurance and claims............................................. 7.9 8.1 5.7 General supplies and expenses.................................... 4.1 4.0 3.6 Taxes and licenses............................................... 1.9 2.2 2.1 Communications and utilities..................................... 1.9 2.3 2.2 (Gain) loss on sale of equipment................................. * (1.1) (0.1) Depreciation and amortization.................................... 8.3 8.9 5.3 Amortization of goodwill......................................... 0.2 0.2 0.2 Total operating costs and expenses....................... 100.0 100.7 97.1 Operating income (loss).......................................... 0.0 (0.7) 2.9 Other income (expense): Interest expense................................................. (3.0) (3.2) (2.6) Other, net....................................................... * (0.1) 0.1 Income (loss) before income taxes and extraordinary gain........... (3.0)% (4.0)% 0.4%
- ---------------------- * Less than 0.1%. Year Ended December 31, 1997 Compared to Year Ended December 31, 1996 Revenues decreased by 2.5% in 1997 to $143.7 million compared to $147.4 million in 1996. Revenues decreased primarily as a result of a 7.4% decrease in revenue equipment as the average number of tractors decreased to 1,145 compared to 1,237 in 1996. The decrease in revenue equipment was offset by a 3.7% increase in equipment utilization (as measured by average miles per tractor) and a 1.1% increase in average revenue per total mile. Management believes the increased utilization is a result of a greater demand for the freight services created by a decrease in equipment overcapacity in the transportation industry in 1997 and the Company's ability to better manage revenue equipment with new communication systems. Management expects the demand for freight services to increase modestly in 1998 and plans to increase fleet size by up to approximately 10% with additional independent contractors, depending on economic conditions and operating results, while continuing to emphasize increased productivity and utilization of equipment. Operating costs and expenses were 100.0% of revenues in 1997 compared to 100.7% in 1996. Operating costs and expenses, as a percent of revenue, were positively affected primarily by increased utilization, and a reduction in communication and utilities expense as a result of discontinued use of a cellular mobile communications system. Operating costs and expenses, as a percent of revenue were adversely affected primarily by increased fuel and fuel tax expenses, increased maintenance expenses related to an older fleet of equipment, and a reduction in gain realized from the sale of equipment, as further described later in this report. While a smaller percentage of revenues 13 in 1997 as compared to 1996, adverse developments in insurance claims continued to have a negative affect on operating costs and expenses in 1997. Salaries, wages and benefits increased to 30.9% of revenues in 1997 compared to 29.7% in 1996, and purchased transportation decreased to 17.8% of revenues in 1997 compared to 22.0% of revenues in 1996 primarily as a result of a 20% reduction in independent contractor tractors in 1997 and a pay increase given to Company drivers in August 1997. The Company also implemented a mileage incentive program for Company drivers in October 1997, the cost of which was more than offset by increased utilization of equipment realized as a result of this program. Independent contractors are under contract with the Company and are responsible for their own salaries, wages and benefits, fuel, maintenance and depreciation. Independent contractor costs are classified as purchased transportation expenses. Fuel and fuel taxes increased to 15.7% of revenues for the year ended December 31, 1997, compared to 13.9% of revenues for the year ended December 31, 1996, as a result of a higher percentage of miles driven with Company tractors, higher fuel prices, and the Company having no fuel secured under guaranteed price contracts during the last six months of 1997. In order to reduce the vulnerability of the Company to rapid increases in the price of fuel, the Company has historically entered into purchase contracts with fuel suppliers from time to time for a portion of its estimated fuel requirements at guaranteed prices. During 1996, future fuel prices were at levels too high to make guaranteed price contracts for 1997 fuel viable. As of December 31, 1997, the Company had entered into various agreements with fuel suppliers to purchase approximately 18% of its estimated fuel needs through December 31, 1998 at a guaranteed price. The Company has also implemented fuel surcharges to many of its customers. Although this arrangement helps reduce the Company's vulnerability to rapid increases in the price of fuel, the Company will not benefit from a decrease in the price of fuel to the extent of its commitment to purchase fuel under these contracts. Depreciation and amortization decreased to 8.3% of revenue in 1997 compared to 8.9% in 1996, revenue equipment lease expense decreased to 5.3% of revenues in 1997 compared to 5.4% in 1996, and interest expense decreased to 3.0% of revenue in 1997 compared to 3.2% in 1996 as a result of the Company refinancing tractors at the end of their initial lease term onto financing contracts that reduce the monthly financing cost of a tractor by approximately $600. In 1997, maintenance expense increased to 6.0% of revenues, compared to 5.1% of revenues in 1996 as a result of increased maintenance costs associated with an older fleet (tractor age 2.7 years at December 31, 1997 compared to 1.8 years at December 31, 1996) and the expiration of certain manufacturer's warrantees. Insurance and claims expense decreased to 7.9% of revenues in 1997 compared to 8.1% of revenues in 1996. Insurance and claims expense continues to be higher than industry standards due to adverse developments in 1997 in insurance claims incurred when the Company carried deductibles ranging from $300,000 to $500,000. A significant number of these older claims were settled in 1997. The Company implemented several changes to its insurance program in 1997 that management believes will reduce overall insurance costs. These changes include significantly lower deductibles on liability and workers' compensation coverage, and low deductible physical damage coverage on Company-owned tractors. While the premiums on these insurance policies are increased, based on recent claims experience, managements expects that the overall cost of insurance and claims should decrease. Communications and utilities decreased to 1.9% of revenues in 1997 compared to 2.3% of revenues in 1996 as a result of the Company discontinuing use of a cellular-based on-board communications system in June 1997. The Company installed the QUALCOMM on-board communications system on all of its tractors during the fourth quarter of 1997. This system assists the Company in tracking loads, servicing customers, and communicating with drivers. QUALCOMM utilizes satellite technology service to link the Company's drivers to its operations center. Management believes that the QUALCOMM system will not significantly increase expenses in 1998. (Gain) loss on sale of equipment decreased to 0.0% of revenue from (1.1)% as a result of the Company's decision to dispose of fewer of its older trailers in 1997 than in 1996. During 1997, the Company's effective tax rate was 0% because of its pre-tax losses that exceeded any available carrybacks and an increase in the valuation for the net operating loss generated in 1997. 14 As a consequence of the items discussed above, loss before extraordinary gain in 1997 was $4,316,000 compared to $5,860,000 in 1996. Year Ended December 31, 1996 Compared to Year Ended December 31, 1995 Revenues decreased by 11% in 1996 to $147.4 million compared to $164.8 million in 1995. This revenue reduction resulted primarily from a decrease in revenue equipment as the average number of tractors decreased to 1,237 in 1996 compared to 1,341 in 1995. Revenues in 1996 were also adversely affected by a 1% decrease in the average revenue per total mile. This decrease resulted from a combination of an increase in empty miles percentage and a decrease in revenue per loaded mile. In addition, equipment utilization (as measured by average miles per tractor) decreased 2% between the two periods. Management believes the decrease in average revenue per total mile and equipment utilization was a result of slower than anticipated economic conditions and overcapacity in the trucking industry in 1996. Operating costs and expenses were 100.7% of revenues in 1996 compared to 97.1% in 1995. Operating costs and expenses, as a percent of revenue, were adversely affected primarily by a 1% reduction in average revenue per total mile as well as a 2% decrease in utilization between the two periods, an acute shortage of drivers in the first half of 1996, and adverse developments in a number of insurance claims. Salaries, wages and benefits increased to 29.7% of revenues in 1996 compared to 27.4% in 1995. This increase resulted primarily from driver pay increases in October, 1995 and January 1996, and a decrease in independent contractor tractors in 1996. In addition, non-driver payroll increased .5% of revenue as a result of an increase in other support and marketing personnel, which was partially offset by a reduction in maintenance personnel. Purchased transportation decreased to 22.0% of revenue in 1996 compared to 25.0% in 1995. This decrease was a result of a reduction in the mileage incentive pay for independent contractors and a 25% reduction in independent contractor tractors in 1996 from 1995. Fuel and fuel taxes increased to 13.9% of revenue in 1996 compared to 12.9% in 1995. Diesel fuel prices at the pump increased by approximately 12.8% from December 31, 1995, to December 31, 1996 (according to the Department of Energy), while the Company's fuel expense increased by approximately 7.8%. This smaller increase was because of the Company's utilization of guaranteed price purchase contracts with fuel suppliers, in addition to surcharges to customers. Depreciation and amortization increased to 8.9% of revenue in 1996 compared to 5.3% in 1995, and revenue equipment lease expense decreased to 5.4% of revenues in 1996 compared to 7.4% in 1995, as a result of the Company's new revenue equipment being financed through capitalized leases versus operating leases. Also, interest expense increased to 3.2% of revenue in 1996 compared to 2.6% in 1995 as a result of the majority of the Company's new revenue equipment being financed through capitalized leases and notes payable. In 1996, maintenance expense decreased to 5.1% of revenues, compared to 5.4% of revenues in 1995 as a result of reduced maintenance costs associated with a newer fleet. Insurance and claims increased to 8.1% of revenues in 1996 compared to 5.7% in 1995 as a result of an increase in insurance claims and losses in 1996 mainly involving new, less experienced drivers and increases in insurance claims reserves of approximately $2.2 million following adverse developments in a number of claims. During 1996, the Company's effective tax rate was 0% because of its pre-tax losses that exceeded any available carrybacks and an increase in the valuation for the net operating loss generated in 1996. As a consequence of the items discussed above, income (loss) before extraordinary gain in 1996 was $(5,861,000) compared to $384,000 in 1995. Liquidity and Capital Resources 15 The Company's sources of liquidity have been funds provided by operations, leases on revenue equipment, a revolving line of credit and an accounts receivable financing facility. Net cash provided by operating activities totaled approximately $8.0 million for the twelve months ended December 31, 1997. Net cash used in investing activities (primarily acquisition of equipment) amounted to $2.2 million in 1997. The Company made cash payments on debt and capitalized lease obligations of $8.7 million in 1997. Working capital (deficit) increased from $(9,156,777) to $(23,431,608) primarily because of the maturity of several capitalized lease contracts in 1998, aggregating approximately $7 million at maturity, and the purchase of equipment out of working capital aggregating approximately $6 million. The capitalized lease contracts are secured by revenue equipment which the vendor has agreed to accept in full payment of the leases upon maturity. In February 1998, the Company secured long-term financing for $3 million of the equipment purchased out of working capital. As a result of the Company making contractual debt payments, capitalized lease and long-term obligations have decreased from $55.0 million at December 31, 1996, to $41.4 million at December 31, 1997. The Company has a $11.5 million working capital line of credit with Congress Financial Corporation (Northwest) which expires August 1999. The Company anticipates that use of the line will be primarily for insurance related letters of credit as well as providing any short term cash requirements. As of December 31, 1997 the Company has utilized $10.4 million of this line of credit, $5.6 million for insurance related letters of credit, and $4.8 million of short term cash borrowings. The Congress Agreement restricts the payment of dividends and is secured by accounts receivable. The Company also has a credit facility with the Bank of New York for issuance of letters of credit up to $4.8 million which expires May 15, 1998. As of December 31, 1997, the Company had used $4.8 million of this facility for letters of credit in favor of the Company's insurance carrier. As outstanding letters of credit issued under this credit facility are not renewed, the maximum commitment available under this credit facility will be reduced by the amount of the expiring letters of credit. This credit facility had loan covenants which obligated the Company to maintain a required level of profitability and cash flow. On March 21, 1997, the Company and The Bank of New York entered into an amendment to this credit facility to delete certain financial covenants, add covenants requiring certain levels of tangible net worth for periods through and including December 31, 1997, and shorten the expiration date of the credit facility from December 31, 1998 to December 31, 1997. On March 31, 1998, the Agreement was extended effective December 31, 1997, to May 15, 1998. The Company may be required to seek additional amendments of the revolving credit facility with The Bank of New York in the future based on actual operating results. Management believes that following the expiration of the credit facility with The Bank of New York, the Company will be able to satisfy its anticipated insurance related letter of credit requirements under its working capital line of credit with Congress Financial Corporation (Northwest) or new credit facilities. There can be no assurance, however, that the Congress Financial Corporation (Northwest) credit facility will be sufficient to satisfy the Company's insurance related letter of credit requirements or that the Company will be able to obtain additional or new credit facilities on terms favorable to the Company, if at all. The Company's net accounts receivable balance increased by approximately $2.5 million between December 31, 1996 and 1997, as a result of increased business levels in the fourth quarter of 1997. The Company expects capital expenditures to be approximately $2 million in 1998 primarily for additions to the Company's communications system. In 1997, the Company acquired 76 new tractors and no new trailers. The Company purchased approximately $7.5 million of formerly leased revenue equipment during 1997. Management anticipates that future expansion of the fleet or the replacement of retired company-owned tractors will be accomplished with additional independent contractors as future economic conditions dictate. Management believes that commitments available under the Company's lines of credit will be sufficient to meet the Company's capital requirements through 1998 However , the Company's business is capital intensive and will require the Company to seek additional debt and possibly equity capital to enable the Company to maintain a modern fleet. The Company's ability to obtain such financing could be affected by its operating results to the extent the Company continues to operate at a loss. In addition, the Company's need for additional equity or debt financing to meet its operational needs will be accelerated if the Company continues to operate at a loss. Whether such capital will be available on favorable terms, or at all, will depend on the Company's 16 future operating results, prevailing economic and industry conditions and other factors over which the Company has little or no control. Fuel is one of the Company's most substantial operating expenses. In order to reduce the Company's vulnerability to rapid increases in the price of fuel, the Company enters into purchase contracts with fuel suppliers from time to time for a portion of its estimated fuel requirements at guaranteed prices. As of December 31, 1997, the Company had entered into various agreements with fuel suppliers to purchase approximately 18% of its estimated fuel needs through December 31, 1998 at a guaranteed price. Although this arrangement helps reduce the Company's vulnerability to rapid increases in the price of fuel, the Company will not benefit from a decrease in the price of fuel to the extent of its commitment to purchase fuel under these contracts. Seasonality In the trucking industry, revenues generally show a seasonal pattern as customers reduce shipments during and after the winter holiday season and its attendant weather variations. Operating expenses also tend to be higher during the cold weather months, primarily due to poorer fuel economy and increased maintenance costs. Inflation Inflation can be expected to have an impact on the Company's operations. The effect of inflation has been minimal over the past three years. Factors Affecting Future Results These statements are subject to known and unknown risks and uncertainties, including decreased demand for freight, slower than anticipated economic conditions, shortages of drivers and such other risks as are identified and discussed herein and in the Company's filings with the Securities and Exchange Commission. These known and unknown risks and uncertainties could cause the Company's actual results in future periods to be materially different from any future performance suggested herein. Item 8. Financial Statements and Supplementary Data. The Company's financial statements and notes are included herewith beginning on page F-1. The supplementary data is included herein immediately following the signature page of this report on Form 10-K. Item 9. Changes and Disagreements with Accountants on Accounting and Financial Disclosure. There has been no Form 8-K filed reporting a change of accountants or reporting disagreements on any matter of accounting principle, practice, financial statement disclosure or auditing scope or procedure. 17 PART III Item 10, 11, 12 and 13. These items are incorporated by reference to the Company's definitive Proxy Statement in the future. 18 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. (a) Documents Filed as Part of this Report: (1) Financial Statements. The following financial statements are filed hereunder as provided in Item 8 of this report: -- Report of Independent Public Accountants -- Balance Sheets as of December 31, 1997 and 1996 -- Statements of Operations for the Years Ended December 31, 1997, 1996 and 1995 -- Statements of Stockholders' Equity (Deficit) for the Years Ended December 31, 1997, 1996 and 1995 -- Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995 -- Notes to Financial Statements (2) Financial Statement Schedule. The following financial statement schedule for the years ended December 31, 1997, 1996 and 1995 is included herein immediately following the signature page to this report: -- Schedule II -- Valuation and Qualifying Accounts All other schedules have been omitted because the information required therein is not present in amounts sufficient to require submission of the schedule or because the information required is included in the financial statements or notes thereto. (b) Reports on Form 8-K: None. (c) Exhibits: The following exhibits required by Item 601 of Regulation S-K are filed herewith or have been filed previously with the Commission as indicated below:
Regulation S-K Sequential Exhibit No. Description Page No. - -------------------------------------------------------------------------------------------------------------- 2.1 First Amended Plan of Reorganization of the Company as confirmed [Exhibit 2.1] by the Bankruptcy Court on February 22, 1994.* 2.2 Agreement and Plan of Reorganization of Norton Enterprises, Inc., a Delaware corporation, Great Western Leasing, Inc., a Utah corporation, and the Company dated March 7, 1994.* [Exhibit 2.2] 3.1 Revised Articles of Incorporation of the Company.* [Exhibit 3.1] 3.2 Amended and Restated Bylaws of the Company.* [Exhibit 3.2] 4.1 Revised Articles of Incorporation of the Company.* [Exhibit 3.1] 4.2 Amended and Restated Bylaws of the Company.* [Exhibit 3.2] 4.3 Specimen Certificate.* [Exhibit 4.3]
19
Regulation S-K Sequential Exhibit No. Description Page No. - -------------------------------------------------------------------------------------------------------------- 10.1 $9,500,000 Revolving Loan Agreement with Letter of Credit Facility [Exhibit 10.1] between The Bank of New York and the Company dated March 7, 1994, as amended.* 10.2 Fifth Amendment to $9,500,000 Revolving Loan Agreement with Letter of [Exhibit 10.1] Credit Facility.*** 10.3 Sixth through Ninth Amendments to $9,500,000 Revolving Loan Agreement. [Exhibit 10.1] 10.4 Employment Term Sheet -- Robert Hill.** [Exhibit 10.3] 10.5 PST Vans, Inc. Stock Incentive Plan dated December 6, 1994.* [Exhibit 10.2] 10.6 Amendments No. 1 and No. 2 to PST Vans, Inc. Stock Incentive Plan.** [Exhibit 10.2] 10.7 Executive Incentive Program for Kenneth R. Norton and Robert D. Hill.* [Exhibit 10.3] 10.8 Registration Rights Agreement dated as of March 7, 1994 between the [Exhibit 10.5] Company, The Bank of New York and Kenneth R. Norton.* 10.9 Loan and Security Agreement with Congress Financial Corporation [Exhibit 10.1] (Northwest).**** 10.10First Amendment to Congress Financial Corp. (Northwest) Credit [Exhibit 10.1] Facility.***** 10.11Amendment No.3 to PST Vans, Inc. Stock Incentive Plan.*** [Exhibit 10.2] 10.12Tenth Amendment to $9,500,000 Revolving Loan Agreement. Filed herewith 10.13Agreement for Outsourcing Services between The Sabre Group and the Filed herewith Company 23.1 Consent of Arthur Andersen LLP, independent public accountants. Filed herewith
- ---------------------- * Incorporated by reference to the indicated exhibits in the Company Registration Statement on Form S-1 (File No. 33-87212) ** Incorporated by reference to the indicated exhibits in the Company's Annual Report on Form 10-K for the year ended December 31, 1995. *** Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1996. **** Incorporated by reference to the indicated exhibits in the Company's quarterly report on Form 10-Q for the quarterly period ended September 30, 1996. ***** Incorporated by reference to the indicated exhibits in the Company's quarterly report on Form 10-Q for the quarterly period ended March 31, 1997. (d) Financial Statement Schedules: See Item 14(a)(2) of this report. 20 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, on March 28, 1996. PST VANS, INC. By: Kenneth R. Norton Chairman of the Board and Chief Executive Officer 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 indicated on March 28, 1996. Signature Capacity in Which Signed - ------------------------ Chairman of the Board and Chief Executive Officer Kenneth R. Norton (principal executive officer) - ------------------------ President, Chief Operating Officer and Director Robert D. Hill - ------------------------ Chief Financial Officer and Secretary/Treasurer Neil R. Vos (principal financial and accounting officer) - ------------------------ Director James F. Redfern - ------------------------ Director Charles A. Lynch - ------------------------ Director James E. Otto 21 EXHIBIT INDEX
Regulation S-K Sequential Exhibit No. Description Page No. ----------- ----------- -------- 2.1 First Amended Plan of Reorganization of the Company as confirmed [Exhibit 2.1] by the Bankruptcy Court on February 22, 1994.* 2.2 Agreement and Plan of Reorganization of Norton Enterprises, Inc., a [Exhibit 2.2] Delaware corporation, Great Western Leasing, Inc., a Utah corporation, and the Company dated March 7, 1994.* 3.1 Revised Articles of Incorporation of the Company.* [Exhibit 3.1] 3.2 Amended and Restated Bylaws of the Company.* [Exhibit 3.2] 4.1 Revised Articles of Incorporation of the Company.* [Exhibit 3.1] 4.2 Amended and Restated Bylaws of the Company.* [Exhibit 3.2] 4.3 Specimen Certificate.* [Exhibit 4.3] 10.1 $9,500,000 Revolving Loan Agreement with Letter of Credit Facility [Exhibit 10.1] between The Bank of New York and the Company dated March 7, 1994, as amended.* 10.2 Fifth Amendment to $9,500,000 Revolving Loan Agreement with Letter of [Exhibit 10.1] Credit Facility.*** 10.3 Sixth through Ninth Amendments to $9,500,000 Revolving Loan Agreement. [Exhibit 10.1] 10.4 Employment Term Sheet -- Robert Hill.** [Exhibit 10.3] 10.5 PST Vans, Inc. Stock Incentive Plan dated December 6, 1994.* [Exhibit 10.2] 10.6 Amendments No. 1 and No. 2 to PST Vans, Inc. Stock Incentive Plan.** [Exhibit 10.2] 10.7 Executive Incentive Program for Kenneth R. Norton and Robert D. Hill.* [Exhibit 10.3] 10.8 Registration Rights Agreement dated as of March 7, 1994 between the [Exhibit 10.5] Company, The Bank of New York and Kenneth R. Norton.* 10.9 Loan and Security Agreement with Congress Financial Corporation [Exhibit 10.1] (Northwest).**** 10.10First Amendment to Congress Financial Corp. (Northwest) Credit [Exhibit 10.1] Facility.***** 10.11Amendment No.3 to PST Vans, Inc. Stock Incentive Plan.*** [Exhibit 10.2] 10.12Agreement for Outsourcing Services between The Sabre Group and the Filed herewith Company 10.13Tenth Amendment to $9,500,000 Revolving Loan Agreement. Filed herewith 23.1 Consent of Arthur Andersen LLP, independent public accountants. Filed herewith
- ---------------------- * Incorporated by reference to the indicated exhibits in the Company Registration Statement on Form S-1 (File No. 33-87212) ** Incorporated by reference to the indicated exhibits in the Company's Annual Report on Form 10-K for the year ended December 31, 1995. *** Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1996. **** Incorporated by reference to the indicated exhibits in the Company's quarterly report on Form 10-Q for the quarterly period ended September 30, 1996. ***** Incorporated by reference to the indicated exhibits in the Company's quarterly report on Form 10-Q for the quarterly period ended March 31, 1997. 22 INDEX TO FINANCIAL STATEMENTS
Page ---- Report of Independent Public Accountants.......................................................................F-2 Balance Sheets at December 31, 1997 and 1996...................................................................F-3 Statements of Operations for the Years Ended December 31, 1997, 1996 and 1995..................................F-4 Statements of Stockholders' Equity (Deficit) for the Years Ended December 31, 1997, 1996 and 1995..............F-5 Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995..................................F-6 Notes to Financial Statements..................................................................................F-7
F-1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To PST Vans, Inc.: We have audited the accompanying balance sheets of PST Vans, Inc., (a Utah corporation) as of December 31, 1997 and 1996, and the related statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements 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 PST Vans, Inc. as of December 31, 1997 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1997 in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Salt Lake City, Utah February 11, 1998 (except with respect to matters discussed in the first paragraph of Note 4 as to which the date is March 31, 1998.) F-2
PST VANS, INC. BALANCE SHEETS ASSETS December 31, ------------------------------------ 1997 1996 -------------- -------------- CURRENT ASSETS: Cash.............................................................$ 1,282,255 $ 4,098,361 Receivables, net of allowance for doubtful accounts of $908,000 and $806,000, respectively............... 17,087,038 14,607,292 Deposits.......................................................... 343,867 353,437 Prepaid expenses and other........................................ 3,097,538 3,258,669 Inventories and operating supplies............................... 726,853 689,875 Total current assets......................................... 22,537,551 23,007,634 --------------- -------------- PROPERTY AND EQUIPMENT, at cost, net of accumulated depreciation and amortization of $26,399,259 and $23,282,064, respectively........................ 48,265,324 58,116,763 --------------- -------------- GOODWILL, net of accumulated amortization of $3,568,297 and $3,296,334, respectively....................... 8,340,187 8,612,150 --------------- --------------- OTHER ASSETS, net.................................................... 332,632 523,539 ............................................................ $ 79,475,694 $ 90,260,086 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES:................................................... Revolving Line of Credit ......................................$ 4,762,493 $ --- Current portion of long-term obligations ....................... 3,037,018 1,388,581 Current portion of capitalized lease obligations.................. 23,599,973 18,708,614 Accounts payable.................................................. 7,306,459 4,140,985 Current portion of accrued claims payable......................... 3,990,958 5,456,316 Accrued liabilities.............................................. 3,271,718 2,469,915 Total current liabilities..................................... 45,968,619 32,164,411 -------------- ------------- LONG-TERM ACCRUED CLAIMS PAYABLE, net of current portion.......................................... 1,257,429 1,429,227 ---------------- -------------- LONG-TERM OBLIGATIONS, net of current portion........................ 3,985,909 1,986,214 ---------------- -------------- CAPITALIZED LEASE OBLIGATIONS, net of current portion.................................................. 10,752,721 32,907,995 --------------- -------------- COMMITMENTS AND CONTINGENCIES (Notes 1 and 7) STOCKHOLDERS' EQUITY: Preferred stock, no par value, 5,000,000 shares authorized, none issued..................................... --- --- Common stock, $.001 par value, 20,000,000 shares authorized, 4,239,945 and 4,217,157 shares issued, respectively................................................ 4,240 4,217 Additional paid-in capital...........................................49,812,539 49,759,238 Accumulated deficit............................................... (32,305,763) (27,991,216) Total stockholders' equity................................... 17,511,016 21,772,239 ...............................................................$ 79,475,694 $ 90,260,086
The accompanying notes are an integral part of these balance sheets. F-3 PST VANS, INC. STATEMENTS OF OPERATIONS
For the Years Ended December 31, ------------------------------------------------- 1997 1996 1995 ------------ ------------ ------------ REVENUES.........................................................$143,737,430 $147,418,904 $164,794,366 ------------ ------------ ------------ COSTS AND EXPENSES: Salaries, wages and benefits..................................44,360,224 43,847,942 45,208,090 Purchased transportation......................................25,578,176 32,393,331 41,280,895 Fuel and fuel taxes...........................................22,532,582 20,555,431 21,245,011 Revenue equipment lease expense................................7,576,456 8,021,676 12,224,340 Maintenance....................................................8,662,947 7,491,155 8,822,454 Insurance and claims..........................................11,384,315 11,942,008 9,315,173 General supplies and expenses..................................5,930,058 5,558,052 5,995,821 Taxes and licenses.............................................2,775,614 3,309,478 3,445,040 Communications and utilities...................................2,801,757 3,429,699 3,561,698 Depreciation and amortization.................................11,910,563 13,174,606 8,803,585 (Gain) loss on sale of equipment..................................12,875 (1,613,842) (150,940) Amortization of goodwill.................................. 271,963 271,963 271,963 .........................................................143,797,530 148,381,499 160,023,130 OPERATING INCOME (LOSS)......................................... ( 60,100) (962,595) 4,771,236 OTHER INCOME (EXPENSE): Interest expense..............................................(4,359,888) (5,080,202) (4,283,463) Other, net................................................ 105,441 182,032 147,408 ........................................................ (4,254,447) (4,898,170) (4,136,055) ------------- -------------- -------------- Income (loss) before provision for income taxes..............................................(4,314,547) (5,860,765) 635,181 PROVISION FOR INCOME TAXES................................ --- --- 251,532 NET INCOME (LOSS)...............................................$ (4,314,547) $ (5,860,765) $ 383,649 ============== ============== =============== NET INCOME (LOSS) PER COMMON SHARE - BASIC AND DILUTED.........................$ (1.02) $ (1.39) $ 0.10 ================== =============== =============== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING-BASIC........................................... 4,233,467 4,212,211 3,887,528 =============== ============== ============== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING-DILUTED....................................... 4,233,467 4,212,211 3,949,526 ============== ============== ==============
The accompanying notes are an integral part of these financial statements. F-4 PST VANS, INC. STATEMENTS OF STOCKHOLDERS' EQUITY
Additional Total Common Paid-In Accumulated Stockholders' Stock Capital Deficit Equity ----- ------- ------- ------ BALANCE, December 31, 1994 $ 2,600 $ 27,984,629 $(22,514,100) $ 5,473,129 Sale of 1,600,000 shares of common stock in connection with initial public offering, net 1,600 21,633,753 -- 21,635,353 Issuance of 9,409 shares of common stock as satis- faction of $112,903 general unsecured claims 9 112,894 -- 112,903 Net income -- -- 383,649 383,649 ------------ ------------ ------------ ------------ BALANCE, December 31, 1995 4,209 49,731,276 (22,130,451) 27,605,034 Sale of 7,748 shares of common stock to employees 8 27,962 -- 27,970 Net loss -- -- (5,860,765) (5,860,765) ------------ ------------ ------------ ------------ BALANCE, December 31, 1996 4,217 49,759,238 (27,991,216) 21,772,239 Sale of common stock to employees 23 53,301 -- 53,324 Net loss -- -- (4,314,547) (4,314,547) ------------ ------------ ------------ ------------ BALANCE, December 31, 1997 $ 4,240 $ 49,812,539 $(32,305,763) $ 17,511,016 ============ ============ ============ ============
The accompanying notes are an integral part of these financial statements. F-5
PST VANS, INC. STATEMENTS OF CASH FLOWS For the Years Ended December 31, 1997 1996 1995 CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) income $ (4,314,547) $ (5,860,765) $ 383,649 -------------- -------------- ------------ Adjustments to reconcile net (loss) income to net cash provided by operating activities - Depreciation and amortization 11,910,563 13,174,605 8,803,585 Provision for losses on accounts receivable 936,697 1,280,634 1,097,890 Amortization of goodwill 271,963 271,963 271,963 (Gain) loss on sale of equipment 12,875 (1,613,842) (150,940) (Increase) decrease in receivables (3,416,443) 347,648 (1,722,103) Decrease in deposits 9,570 632,515 2,876,942 (Increase) decrease in prepaid expenses and other 161,132 830,326 (1,361,156) Increase in inventories and operating supplies (36,978) (47,145) (77,773) Decrease in other assets, net 190,907 17,823 2,265,931 Increase (decrease) in accounts payable 3,165,474 ( 368,849) (285,119) Increase (decrease) in accrued claims payable (1,637,156) 1,148,468 717,283 Increase (decrease) in accrued liabilities 801,808 (786,981) (1,525,566) Total adjustments 12,370,412 14,887,165 10,910,937 ------------- ------------- ------------- Net cash flows provided by operating activities 8,055,865 9,026,400 11,294,586 ------------- ------------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of equipment 3,194,556 4,323,495 1,163,436 Acquisition of property and equipment (5,349,216) (988,590) (9,480,079) ------------- ------------- ------------- Net cash flows provided by (used in) investing activities (2,154,660) 3,334,905 (8,316,643) ------------- ------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from revolving line of credit, net 4,762,493 --- --- Principal payments on capitalized lease obligations (11,568,432) (10,774,663) (6,478,232) Principal payments on long-term obligations (2,039,296) (1,766,232) (2,234,107) Proceeds from sale of common stock to employees 53,324 27,970 --- Proceeds from sale of common stock, net --- --- 21,635,353 Purchase of accounts receivable from factor --- --- (9,063,711) Decrease in advances from factor --- --- (5,336,289) Proceeds from long-term obligations 74,600 --- 1,983,824 ------------- ------------- ------------- Net cash flows (used in) provided by financing activities (8,717,311) (12,512,925) 506,838 ------------- ------------- ------------- NET INCREASE (DECREASE) IN CASH (2,816,106) (151,620) 3,484,781 CASH AT BEGINNING OF YEAR 4,098,361 4,249,981 765,200 ------------- ------------- ------------- CASH AT END OF YEAR $1,282,255 $ 4,098,361 $ 4,249,981 ============= ============== ============ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for - Interest $4,438,378 $5,115,442 $4,106,793 Income taxes 31,040 90,659 1,691,615 SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: Equipment acquired through capitalized lease obligations --- --- 51,475,706
The accompanying notes are an integral part of these financial statements. F-7 PST VANS, INC. NOTES TO FINANCIAL STATEMENTS (1) Nature of Business PST Vans, Inc. ("PST") is a nationwide common motor carrier with 48-state general commodity and contract operating authorities. PST provides dry van truckload services focused on serving three markets in the United States; transcontinental, intrawest and midwest-southeast. PST transports a wide variety of freight, much of which is time sensitive, including paper products, retail products, non-perishable food products, tires and electronic equipment. Reorganization Under Chapter 11 On June 2, 1993, PST filed a voluntary petition in the United States Bankruptcy Court for the District of Utah to reorganize under Chapter 11 of the United States Bankruptcy Code. During the period from June 2, 1993 to March 7, 1994, the Company operated as a debtor-in-possession under the supervision of the Bankruptcy Court. As of December 31, 1997 and 1996, approximately $ 198,000 and $ 334,000, respectively, of the estimated liabilities subject to compromise remain outstanding and are included in long-term obligations. All other amounts subject to compromise have been converted to equity, paid or forgiven. The Plan of Reorganization (the" Plan") required the Company to pay any remaining portion of general unsecured claims in the event of an initial public offering (IPO) within the five year period subsequent to January 1, 1994. The Plan allowed for each unsecured creditor to elect to: 1) receive cash equal to the amount of the unpaid balance of its unsecured claim from the proceeds of the IPO, or 2) use the unpaid balance of its unsecured claim to subscribe to stock to be issued pursuant to the IPO, which stock was to be issued at a 20 percent discount from the initial offering price. In connection with the IPO, the Company paid approximately $1,150,000 to general unsecured creditors and issued 9,409 shares of common stock to its Chief Executive Officer and significant stockholder. (2) Summary of Significant Accounting Policies Revenue Recognition Revenue is recognized as services are performed. The Company allocates revenue between reporting periods based on relative transit time in each reporting period and recognizes direct expenses as incurred. Receivables and Advances from Factor Prior to the IPO of the Company's common stock in March 1995, PST sold and factored a significant portion of its trade accounts receivable with a finance company. The terms of the factoring agreement allowed for the sale of accounts both with and without recourse depending upon the customer. Until March 31, 1995, substantially all of the Company's receivables were sold to the finance company. The finance company also provided advances to the Company against freight bills for which documentation was incomplete. As the Company supplied all required documentation to the finance company, the completed freight bills were sold. F-8 Deposits and Other Assets, net PST is required to keep certain amounts on deposit with various companies related to insurance, fuel purchases and certain leasing agreements. The Company had approximately $344,000 and $303,000 in deposits with insurance carriers at December 31, 1997 and 1996, respectively and $50,000 with lessors and fuel vendors at December 31, 1996. Inventories and Operating Supplies Inventories consist primarily of tires, fuel and maintenance parts for revenue equipment. Inventories are stated at the lower of first-in, first-out (FIFO) cost or market value. Property and Equipment Property and equipment are recorded at cost and depreciated or amortized based on the straight-line method over their estimated useful economic lives, taking into consideration salvage values for purchased property and residual values for equipment held under capital leases. Leasehold improvements are amortized over the terms of the respective leases or the estimated economic useful lives of the assets, whichever is shorter. Expenditures for routine maintenance and repairs are charged to operating expense as incurred. Major overhauls and betterments are capitalized and depreciated over their estimated economic useful lives. Tires purchased as part of revenue equipment are capitalized as a cost of equipment. Replacement tires are expensed when placed in service. Upon the disposal of property and equipment, the cost and accumulated depreciation are removed from the accounts and any gain or loss is included in the determination of income or loss. Property and equipment consists of the following:
Est. Useful Lives (Years) 1997 1996 ------------- ---- ---- Land $ 1,182,421 $ 1,182,421 Revenue equipment 2-10 66,443,716 73,453,974 Buildings and improvements 5-30 3,546,529 3,477,645 Furniture and fixtures 5-10 2,160,823 1,953,389 Other equipment 3-5 1,331,094 1,331,398 74,664,583 81,398,827 ---------- ---------- Less Accumulated depreciation and amortization (26,399,259) (23,282,064) ----------- ----------- $48,265,324 $58,116,763 ============ ===========
Goodwill Goodwill is being amortized on a straight line basis over forty years. The Company continually evaluates whether events and circumstances have occurred that indicate the remaining balance may not be recoverable. When factors indicate goodwill should be evaluated for possible impairment, the Company uses an estimate of the discounted future cash flows over the life of the goodwill and comparable market information in measuring whether the amount is recoverable. Income Taxes The Company recognizes a liability or asset for the deferred tax consequences of all temporary differences between the tax bases of assets or liabilities and their reported amounts in the financial statements. These temporary differences will result in taxable or deductible amounts in future years when the reported amounts of the assets or liabilities are recovered or settled. The deferred tax assets are reviewed for recoverability and valuation allowances are provided as necessary. F-9 Insurance Coverage and Accrued Claims Payable The Company maintains insurance for losses related to public liability, property damage, cargo and worker's compensation claims in amounts it considers sufficient. Nevertheless, the Company could be adversely affected if it incurred a liability as a result of claims in excess of its policy limits or a significant volume of claims below its deductible limits. The Company maintains loss prevention programs in an effort to minimize this risk. The Company estimates and accrues a liability for its share of ultimate settlements using all available information including the services of a third party insurance risk claims administrator to assist in establishing reserve levels for each occurrence based on the facts and circumstances of the occurrence coupled with the Company's past history of such claims. The Company accrues for worker's compensation and automobile liabilities when reported, typically the same day as the occurrence. Additionally, the Company accrues an estimated liability for incurred but not reported claims. Expense depends upon actual loss experience and changes in estimates of settlement amounts for open claims which have not been fully resolved. The Company provides for adverse loss developments in the period when new information so dictates. The amounts the Company will ultimately pay on its claims outstanding as of December 31, 1997 could differ materially in the near term from amounts accrued in the accompanying December 31, 1997 balance sheet. Based upon historical and projected trends in claims payments, the Company has classified the claims payable in current and long term components in the accompanying balance sheet. Net Income (Loss) Per Common Share Basic net income (loss) per common share ("Basic EPS") excludes dilution and is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the year. Diluted net income (loss) per common share ("Diluted EPS") reflects the potential dilution that could occur if stock options or other common stock equivalent were exercised or converted into common stock. The computation of Diluted EPS does not assume exercise or conversion of securities that would have an anti-dilutive effect on net income (loss) per common share. In periods where losses are recorded, common stock equivalents would decrease the net loss per common share and are therefore not considered in the calculation of weighted average common shares outstanding for Diluted EPS. Net income (loss) per common share amounts and share data have been restated for all years presented in the accompanying financial statements to reflect Basic and Diluted EPS. The following is a reconciliation of the numerator and denominator of Basic EPS to the numerator and denominator of Diluted EPS for all years presented in the accompanying financial statements
Net Income (Loss) Shares Per Share (Numerator) (Denominator) Amount ----------- ------------- ------ Year Ended December 31, 1997 Basic EPS $ (4,314,547) 4,233,467 $ (1.02) Effect of Stock Options -- -- -- ----------- ------------- ------ Diluted EPS $ (4,314,547) 4,233,467 $ (1.02) ============= ============== ================ Year Ended December 31, 1996 Basic EPS $ (5,860,765 4,212,211 $ (1.39) Effect of Stock Options -- -- -- ----------- ------------- ------ Diluted EPS $ (5,860,765) 4,212,211 $ (1.39) ============= ============== ================ Year Ended December 31, 1995 Balance EPS $ 383,649 3,887,528 $ .10 Effect of Stock Options -- 61,998 -- ----------- ------------ ------ Diluted EPS $ 383,649 3,949,526 $ .10 ============= ============= ===============
F-10 As of December 31, 1997, 1996, and 1995, there were outstanding options to purchase 340,000, 111,000, and 99,002 shares of common stock, respectively, that were not included in the computation of Diluted EPS because the options' exercise prices were greater than the average market price of the common shares or because their inclusion would have been anti-dilutive. Pervasiveness 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. Recent Accounting Pronouncement In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131, "Disclosures About Segments for an Enterprise and Related Information". This statement establishes new standards for public companies to report information about operating segments, products and services, geographic areas and major customers. This statement is effective for periods beginning after December 15, 1997. (4) Revolving Loan Agreements The Bank of New York On March 7, 1994, the Company signed a $9,500,000 Revolving Loan Agreement (the "Agreement") with The Bank of New York. The Agreement contains a letter of credit facility. The maximum principal amount of outstanding advances under the Agreement cannot exceed the lesser of (1) $9,500,000 less the aggregate amount outstanding with respect to letters of credit (whether drawn or undrawn), or (2) $1,000,000. On March 21, 1997, the Agreement was amended such that certain financial covenants were deleted. Additionally, the amendment changed the expiration date to December 31, 1997, and required that all remaining letters of credit be terminated according to a stipulated schedule, but no later than the expiration of the Agreement. On March 31, 1998, the agreement was extended effective December 31, 1997, to May 15, 1998. As of December 31, 1997, letters of credit totaling $4,830,000 were outstanding under the Agreement. As outstanding letters of credit issued under this credit facility expire, the maximum commitment available under this credit facility will be reduced by the amount of the expiring letters of credit. The amended Agreement requires the Company to maintain specified levels of tangible net worth through the expiration of the Agreement. Congress Financial Corporation (Northwest) The Company has an $11,500,000 Loan and Security Agreement (the "Congress Agreement") with Congress Financial Corporation (Northwest). The Congress Agreement contains a letter of credit facility supporting letters of credit up to $7,000,000 and a revolving loan facility that is secured by eligible accounts receivable. The letter of credit facility requires the Company to maintain a pledged certificate of deposit of $1,000,000 for letters of credit outstanding up to $3,500,000, unless the Company allows its cash receipts to flow through a bank account designated by the Congress Agreement. The Congress Agreement expires August 6, 1999. As of December 31, 1997, the balance under the line of credit was $ 4,762,493 and letters of credit totaling $5,616,000 were outstanding, leaving a balance available to the Company of $ 1,121,507 under the Congress Agreement. Additionally, the Congress Agreement restricts the payment of dividends. F-11 (5) Long-Term Obligations Long-term obligations consisted of the following:
December 31, ----------------------- 1997 1996 --------- ----------- Notes payable to finance companies, interest at the "1- month" commercial paper rate plus 3.8 percent (9.29 percent at December 31, 1997), payable in monthly installments of $134,220 through November 1999, secured by revenue equipment $ --- $ 2,899,950 Notes payable to a finance company, interest at 9.5 percent payable in monthly installments of $249,849 through January 2000, secured by revenue equipment 2,250,781 --- Notes payable to finance companies, interest rates ranging from 8 to 8.05 percent, payable in monthly installments ranging fro $10,285 to $51,218 through December 2003, secured by revenue equipment 1,357,767 1,844,230 Payables to tax creditors, interest at applicable statutory rates, due in monthly principle installments of $11,576 through 2000 197,916 258,910 Notes payable to a bank, interest at 9 percent, payable in monthly installments of $3,473 through March 2000, secured by revenue equipment 42,296 --- Mortgage payable to a bank, paid in full in January 1997 829,073 --- Other 274,217 442,582 ------- ------- 7,022,927 3,374,795 --------- --------- Less Current portion (3,037,018) (1,388,581) $ 3,985,909 $ 1,986,214 =========== ===========
As of December 31, 1997, maturities of long-term obligations are as follows: Year Ending December 31: - ------------------------ 1998 3,037,018 1999 2,793,133 2000 217,594 2001 202,303 2002 219,204 Thereafter 553,675 ------- $7,022,927 ========== F-12 (6) Income Taxes The components of deferred taxes are as follows:
December 31, -------------------------------- 1997 1996 -------------- -------------- Deferred tax assets: Allowance for doubtful accounts $ 412,279 $ 319,359 Accrued claims payable 1,828,806 1,889,956 General business credit carry forward 574,147 574,147 Workers compensation accrual 290,153 204,359 Alternative minimum tax credit carry forward 456,984 456,984 Depreciation and leases --- 422,001 Net operating loss carry forward 3,385,750 654,967 Other 256,999 291,808 ------- ------- Total deferred tax assets 7,205,118 4,813,581 Valuation allowance (6,218,822) (4,689,624) ---------- ---------- Deferred assets, net of Valuation allowance 986,296 123,957 Deferred taxability: Depreciation and leases (862,339) --- ---------------- --------------- Net deferred tax assets $ 123,957 $ 123,957 ================= ===============
Management believes that, based upon the lack of cumulative profits in the previous three years, sufficient uncertainty exists regarding the realizability of the deferred tax asset such that a valuation allowance has been recorded. Accordingly, the deferred tax assets have been reduced by an approximately $6,219,000 valuation allowance at December 31, 1997. Realization of the net deferred tax asset is dependent on generating sufficient taxable income in future years to support the ability to use these deductions. Although the realization of the net deferred tax assets are not assured, management believes that it is more likely than not that all of the net deferred tax assets will be realized. The amount of the net deferred tax assets considered realizable, however, could be reduced in the near term based upon changing conditions. The provision (benefit) for income taxes for the years ended December 31, 1997, 1996, and 1995 consisted of the following:
1997 1996 1995 ------------ -------------- ------------ Current: Federal --- $ (590,588) $ 379,203 State (16,021) (86,582) 110,182 ------------ -------------- ------------ (16,021) (677,170) 489,385 ------------ ------------- ----------- Deferred: Federal (1,319,704) (1,292,515) (43,609) State (193,473) (189,487) (12,671) Change in valuation allowance 1,529,198 2,159,172 (181,573) --------- --------- -------- $ 16,021 $ 677,170 $ (237,853) ------------ ----------- ---------- $ --- $ --- $ 251,532 ============ =========== ==========
The Company's effective income tax rate for the years ended December 31, 1997, 1996, and 1995 was different from the statutory federal income tax rate for the following reasons:
1997 1996 1995 ---- ---- ---- Statutory federal income tax rate (35.0) % (35.0)% 35.0% State income taxes, net of federal benefit (4.6) (4.6) 4.6 Nondeductible items: Amortization of goodwill 2.5 1.8 17.0 Other 1.7 0.9 11.6 Change in valuation allowance 35.4 36.8 (28.6) -------- ------- ------- Effective income tax rate --- % ---- % 39.6% ======== ---==== ---====
F-13 The Company has general business credit and alternative minimum tax credit carry forwards at December 31, 1997, of $574,147 and $456,984, respectively. For income tax purposes, the Company had approximately $3,385,750 of net operating loss carry forward at December 31, 1997. The net operating loss carry forward expires in 2012. (7) Commitments and Contingencies Capitalized Lease Obligation Certain revenue equipment is leased under capital lease agreements. The following is a summary of assets held under capital lease agreements:
December 31, --------------------------- 1997 1996 --------------------------- Revenue equipment.........................................$ 53,015,303 $ 67,438,725 Other ................................................ 1,325,504 1,325,504 --------- --------- ...................................................54,340,807 68,764,229 Less Accumulated amortization............................ (21,486,148) (18,910,825) ----------- ----------- .................................................$ 32,854,659 $ 49,853,404 ============ ============
The following is a schedule by year of future minimum lease payments under the capital leases together with the value of the net minimum lease payments at December 31, 1997: Year Ending December 31: - ------------------------ 1998 .................................................$ 25,488,538 1999 ....................................................2,823,867 2000 ....................................................2,638,099 2001 ....................................................2,638,099 2002 ............................................. 4,827,606 - ---- --------- Total net minimum lease payments............................38,416,209 Less Amount representing interest......................... (4,063,515) ---------- Present value of net premium lease payments.................34,352,694 Less Current portion..................................... (23,599,973) ----------- .................................................$ 10,752,721 ============ Operating Leases The Company is committed under noncancellable operating leases involving revenue equipment and facilities. Rent expense for all operating leases was approximately $7,548,000, $ 8,022,000 and $12,224,000 for the years ended December 31, 1997, 1996, and 1995, respectively. The following is a schedule of future lease commitments under noncancellable operating leases at December 31, 1997: Year Ending December 31: - ------------------------ 1998 ..................................................$ 4,208,548 1999 ....................................................2,883,724 2000 ....................................................1,779,521 2001 .............................................. 992,944 ------------ ..................................................$ 9,864,737 =========== The Company's operating lease payments are made in arrears. At December 31, 1997 and 1996, the Company classified approximately $436,000 and $461,000 of accrued operating lease payments in "Accrued Liabilities" in the accompanying balance sheets. Letters of Credit F-14 The Company had outstanding letters of credit related to insurance coverage and certain lease agreements totaling approximately $10,446,000 at December 31, 1997. These letters of credit mature at various times through June 30, 1998. F-15 Fuel Purchase Commitments As of December 31, 1997, the Company had entered into various fuel purchase contracts totaling approximately $3,600,000. These contracts expire at various times through December 31, 1998. This arrangement is intended to reduce the Company's vulnerability to rapid increases in the price of fuel. In the event fuel prices decline, the Company will not benefit from such reduced pricing to the extent of its commitment to purchase fuel under these contracts. If fuel prices decline materially below contracted prices, the Company records the loss in the period of decline. As of December 31, 1997, contracted fuel prices were lower than market fuel prices. Registration Rights Pursuant to a Registration Rights Agreement, the Company's two largest stockholders each have the right, subject to certain terms and conditions, to require the Company to register their shares under the Securities Act of 1933 for offer to sell to the public (including by way of an underwritten offering). These stockholders each also have the right to join in any registration of securities of the Company (subject to certain exceptions). The Company is obligated to pay all expenses (except the stockholders legal counsel, underwriting discounts, commissions, and transfer taxes, if any) related to successful offerings requested by a stockholder under this agreement. Other The Company is the subject of various legal actions which it considers routine to its transportation business activities. Management believes, after discussion with legal counsel, that the ultimate liability of the Company under these actions will not materially affect the accompanying financial statements. The Company is subject to various restrictive covenants related to certain outstanding debt and lease agreements. Certain lenders have reserved the right to demand payment if, for any reason, they deem themselves insecure. Management does not believe that these obligations will be called in advance of their scheduled maturities. If they were to be called, management believes that these amounts could be refinanced with other commercial lenders without adversely impacting the Company's results of operations or liquidity. (8) Stockholders' Equity Initial Public Offering of Common Stock In connection with its initial public offering, the Company sold 1,600,000 shares of common stock. The proceeds received from the offering, net of underwriting commissions and offering costs, totaled approximately $21,635,000. Employee Stock Purchase Plan During December 1995, the Company implemented an Employee Stock Purchase Plan ("ESPP") entitling eligible employees of the Company to purchase 80,000 shares of the Company's common stock through payroll deductions in an amount not to exceed 15 percent of an employee's base pay. The purchase price of the common stock is the lesser of 85 percent of the market value of the common stock at the beginning or end of each of the one year offering periods. Employees can terminate their participation in an offering under the ESPP at any time prior to the end of the offering period. The ESPP allows for up to 26,666 shares of common stock (plus unissued shares from prior years) to be offered in each of the years ending December 31, 1996, 1997 and 1998. During the year ended December 31, 1997 and December 31, 1996, employees purchased 22,788 and 7,748 shares, respectively, of common stock under the ESPP. F-16 Stock Incentive Plan During December 1994, the Company adopted the PST Vans, Inc., Stock Incentive Plan ("SIP") with 170,000 shares of common stock reserved for issuance thereunder. The number of shares reserved under the plan was subsequently revised to 370,000 during 1996. The Compensation Committee of the Board of Directors administers the SIP and has the discretion to determine the employees and officers who receive awards (incentive stock options, non-qualified stock options, stock appreciation rights or phantom stock awards) to be granted and the term, vesting and exercise prices. The Company accounts for this plan under APB Opinion No. 25, under which no compensation cost has been recognized. Had compensation cost for the SIP been determined consistent with FASB Statement No. 123, however, the Company's net income and earnings per share would have been reduced to the following pro forma amounts:
1997 1996 1995 ---- ---- ---- Net Income As reported $ (4,314,547) $(5,860,765) $ 383,649 Pro forma (4,519,433) (6,009,888) (286,372) Basic EPS As reported $ (1.02) $ (1.39) $ 0.10 Pro forma (1.07) (1.43) (0.07) Diluted EPS As reported $ (1.02) $ (1.39) $ 0.10 Pro forma (1.07) (1.43) (0.07)
A summary of the Company's SIP at December 31, 1997, 1996 and 1995 and changes during the years then ended is presented in the table and narrative below.
1997 1996 1995 ---------------------- ---------------------- ---------------------- Wtd.Avg Wtd.Avg. Wtd.Avg. Exercise Exercise Exercise Shares Price Shares Price Shares Price -------- --------- --------- --------- -------- --------- Outstanding at beginning of year 111,000 $5.89 161,000 $6.19 --- $ --- Granted 233,000 3.50 14,000 3.63 161,000 6.19 Forfeited (4,000) 6.19 (64,000) 6.16 --- --- ------- ------- ------- Outstanding at end of year 340,000 4.25 111,000 5.89 161,000 6.19 ======= ======= ======= Exercisable at end of year 40,000 6.03 33,950 6.06 21,783 6.08 ======= ======= ======= Weighted average fair value of options granted $2.59 $4.43 $4.69
The 340,000 outstanding shares at the end of 1997 have exercise prices ranging between $3.38 and $7.38 per share, with a weighted average exercise price of $4.25. The grants have a prorata vesting period of five years from the grant date and an expiration date of ten years from grant date. At December 31, 1997, 40,000 options are exercisable at a weighted average exercise price of $6.03. The fair value of each option granted is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for grants in 1997, 1996 and 1995 respectively: risk-free interest rates of 6.18%, 6.82% and 6.53%; 0% expected dividend yields; expected lives of 8.5 years for1997, 1996 and 1995; expected volatility of 65.00%, 56.02% and 55.70%. F-17 (9) Related Party Transactions In March 1995, the Company issued 8,473 shares of common stock in satisfaction of outstanding indebtedness in the amount of $101,680 to its Chief Executive Officer and significant stockholder. This individual was an unsecured creditor under the Plan and elected to take shares of common stock as payment of such indebtedness as provided for under the Plan. (10) Profit Sharing Plan The Company adopted a Profit Sharing Plan (the "PSP") for the benefit of their employees. Under the PSP, all employees who have reached the age 20 1/2 and who have completed at least six months of service with the Company are eligible to participate. The PSP allows participants to make contributions to the PSP from their compensation. The Company, at its option, may make additional contributions to the PSP on behalf of the participants. Under the PSP, participants are fully vested in their own contributions. Participants become 100 percent vested in any contributions made by the Company after seven years of service or upon reaching age 65. The Company did not make or accrue any contributions to the PSP during 1997, 1996, and 1995. F-18 Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this amendment to be signed on its behalf by the undersigned thereto duly authorized. PST Vans, Inc. Date: March __, 1998 By: /s/ Kenneth R. Norton ----------------------------- Kenneth R. Norton Chief Executive Officer Date: March __, 1998 By: /s/ Neil R. Vos ----------------------------- Neil R. Vos Chief Financial Officer REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To PST Vans, Inc.: We have audited in accordance with generally accepted auditing standards, the financial statements for each of the three years in the period ended December 31, 1997 of PST Vans, Inc. (a Utah corporation) included in this Annual Report on Form 10-K, and have issued our report thereon dated February 11, 1998 (except with respect to matters discussed in the first paragraph of Note 4 as to which the date is March 31, 1998). Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. Schedule II is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Salt Lake City, Utah February 11, 1998 S-1 PST VANS, INC. SCHEDULE II- VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (in thousands)
Additions ----------------------------- Balance at Charged to Charged Balance Beginning Costs and to other At End Description of Period Expenses Accounts(1) Deductions(2) Of Period ----------- --------- -------- ----------- ------------- --------- For the year ended December 31, 1997: Allowance for doubtful accounts $ 806 $ 937 $ --- $ ( 835) $ 908 =============== ============= ========== ============ =========== For the year ended December 31, 1996: Allowance for doubtful accounts $ 784 $ 1,427 $ --- $ (1,405) $ 806 =============== ============= ========== ============ =========== For the year ended December 31, 1995: Allowance for doubtful accounts $ 1,579 $ 1,098 $ --- $ (1,893) $ 784 =============== ============= ========== ============ ===========
(1) Recoveries on accounts written off. (2) Accounts written off. S-2 EX-10.12 2 MATERIAL CONTRACTS TENTH AMENDMENT TO REVOLVING LOAN AGREEMENT This Tenth Amendment to Revolving Loan Agreement (the "Amendment") is entered into as of the 31st day of December, 1997, between PST Vans, Inc., a Utah corporation (the "Borrower") and The Bank of New York (the "Bank"). RECITALS: A. Borrower and Bank entered into a Revolving Loan Agreement with Letter of Credit Facility (the "Loan Agreement") dated March 7, 1994 (as amended). In connection with the Loan Agreement, Borrower made, executed and delivered to Bank a Revolving Promissory Note, dated March 7, 1994, in the principal amount of $9,500,000 (the "Note"). Also in connection with the Loan Agreement, and as security for payment of Borrower's obligations under the Note and Loan Agreement, Borrower executed a Security Agreement (the "Security Agreement") dated March 7, 1994, wherein Borrower granted to Bank a security interest in the Collateral, as defined in the Security Agreement. The Note, Loan Agreement, Security Agreement and all other documents executed by Borrower and Bank in connection with the Loan Agreement, including the prior nine amendments to the Loan Agreement, are hereafter sometimes referred to collectively as the "Loan Documents". B. Borrower has requested that Bank modify the terms of the Loan Agreement, as modified, including the Ninth Amendment To Revolving Loan Agreement, with respect to the Termination Date under the Loan Agreement. C. Since March 1, 1998, Bank has incurred and is incurring legal expenses and costs in the amount of $900.00 in connection with the Loan Documents and negotiating and documenting this Tenth Amendment. D. Bank is willing to modify the terms of the Loan Documents on the terms and conditions stated herein. NOW THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Borrower and Bank agree as follows: 1. Termination Date. The Termination Date under the Loan Agreement shall be May 15, 1998 (unless termination occurs under Section 8.2 of the Agreement), and all remaining letters of credit must be terminated no later than that date. If on the Termination Date, there are undrawn letters of credit that remain outstanding, Borrower must (i) deposit in an account with the Bank (with Borrower having no right to withdraw the funds), an amount at least equal to one hundred and five percent (105%) of the amount of all such outstanding letters of credit, which account shall be held exclusively as security for the reimbursement obligations associated with those letters of credit, or (ii) deliver an unconditional letter or letters of credit, each in a form acceptable to the Bank and each issued by an institution acceptable to the Bank that total one hundred and five percent (105%) of the amount of all the outstanding letters of credit issued by the Bank for the account of Borrower, which shall serve to ensure payment of the reimbursement obligations of Borrower to the Bank. An undrawn letter of credit shall be deemed to remain outstanding if the letter of credit has not expired and has not been returned by the beneficiary accompanied by a letter from the beneficiary stating that Bank is released and has no further obligations under the letter of credit. 2. Extension Fees. In addition to other charges, fees and payments payable under the Loan Agreement, Borrower shall pay to the Bank on or before April 3, 1998 an extension fee of $25,000.00, and if the letter of credit remains outstanding as of the following dates shall pay additional extension fees of $15,000.00 each on April 17, 1998, May 1, 1998 and May 15, 1998, respectively. 3. Payment of Attorneys' Fees and Costs. Contemporaneously with the delivery of this Tenth Amendment, Borrower shall deliver to Ray, Quinney & Nebeker a payment in the form of a check or draft made payable to Ray, Quinney & Nebeker in the amount of $900.00. 4. No Obligation to Enter into Additional Amendments. Borrower agrees and acknowledges that this Tenth Amendment, together with all prior Amendments entered into between Borrower and Bank, shall create no further obligations on Bank to enter into any additional amendments in the future. 5. Affirmation of Security Interest. Borrower reaffirms and acknowledges the security interests heretofore granted to Bank in the Security Agreement and any prior Amendments to the Revolving Loan Agreement. 6. Incorporation by Reference. The entire Loan Agreement and any prior written amendments (the "Prior Amendments") are hereby incorporated by this reference into this Amendment as if those agreements were fully set out in the text of this Amendment, subject however, to the modifications and amendments which are herein set forth. Accordingly, all defined terms found in the Loan Agreement and the Prior Amendments shall have the same meaning herein (including in the recitals above), except to the extent that amendments to such definitions are made in this Amendment. 7. Borrower Acknowledgments and Waivers. Borrower hereby represents, warrants, acknowledges and agrees that, as of the date hereof: (a) Borrower has no offsets, counterclaims or other claims of damage or liability against Bank or defenses to payments due under the Obligations, and Borrower, in all events, hereby knowingly and intentionally waives, relinquishes and releases the right to assert or claim any of the foregoing; (b) Bank is not nor has it been in breach or default of any of the duties or obligations of Bank under any of the Loan Documents, and Borrower fully and knowingly hereby waives, releases and relinquishes the right to make any claim for the same; (c) the execution and performance of this Amendment have been duly authorized pursuant to all necessary corporate authority; and (d) the recitals set forth above in this Amendment are true. Borrower further reaffirms its obligations hereunder and all of the Obligations, as modified hereby. Except as specifically and expressly provided in writing signed by the Bank, neither this Amendment nor any action taken in accordance herewith shall constitute a release or waiver of any obligation or liability of Borrower under the Loan Documents, including the Loan Agreement or the Note. 8. Integration. The incorporation herein of the Loan Agreement and the Prior Amendments accomplishes a full integration of the agreements of the Borrower and Bank and the Loan Agreement shall now be the integrated and coordinated compilation of the original Loan Agreement, the Prior Amendments and this Amendment and is the final and definitive written expression and agreement of the parties with respect to the subject matter thereof. All prior writings and notes are superseded by this integrated agreement, provided that nothing herein is meant to abrogate, except to the extent specifically modified or amended hereby, the Note, the Loan Agreement, or any of the other Loan Documents. No prior oral understanding or agreement contradictory to the terms of this Amendment and the integrated Loan Agreement survives the execution hereof. 9. Further Assurances. Borrower agrees to take or cause to be taken all such other actions as shall be reasonably required by Bank in connection with and in perfection or continuation of the rights of the Bank with respect to the Obligations. Borrower shall also execute or cause to be executed such other documents, papers, instruments and agreements which are deemed, in the reasonable judgment of the Bank, to be necessary to complete, perfect or otherwise finalize the agreements and arrangements contemplated by this Amendment. 10. Counterparts. This Tenth Amendment to Revolving Loan Agreement may be signed in any number of counterparts, each of which shall be deemed an original, and such counterparts together shall constitute one and the same agreement. IN WITNESS WHEREOF the parties hereto have caused this Tenth Amendment to be executed as of the date first written above. BORROWER: THE BANK: PST VANS, INC. THE BANK OF NEW YORK By: By: ---------------------------- ------------------------------- Its: Its: ---------------------------- ------------------------------- EX-10.13 3 MATERIAL CONTRACTS AGREEMENT FOR OUTSOURCING SERVICES THIS AGREEMENT FOR OUTSOURCING SERVICES (the "Agreement") is between PST Vans, Inc., a Utah corporation, with a principal business address of 1901 West 2100 South, Salt Lake City, Utah 84119 ("Customer"), and THE SABRE GROUP, INC., a Delaware corporation, with a principal business address of 4255 Amon Carter Blvd., Fort Worth, Texas 76155 ("TSG"). WHEREAS, TSG is engaged in the business of providing certain data processing outsourcing, facilities management and information processing services; and WHEREAS, Customer and TSG wish to enter into a services agreement pursuant to which TSG shall provide to Customer the outsourcing and information processing services described in this Agreement, and upon the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the above premises, the Parties hereby agree as follows: ARTICLE 1 DEFINITIONS AND INTERPRETATION 1.1 Definitions. All terms beginning with a capital letter in this Agreement are defined in Schedule 1.1. Schedule 1.1 also sets forth various interpretive matters for this Agreement. 1.2 Exhibits and Schedules. When this Agreement refers to an Exhibit or Schedule, such Exhibit or Schedule is deemed incorporated herein by reference for all purposes. All Exhibits and Schedules as agreed to after the Effective Date shall be deemed incorporated herein upon the Parties Consent. ARTICLE 2 TERM 2.1 Term of Agreement. Unless earlier terminated as provided herein, the term of this Agreement (the "Term") shall commence on the Effective Date and shall end on the fifth anniversary of the Effective Date (the "Expiration Date"), or such anniversary thereof to which the Term is extended pursuant to Section 2.2 hereof. 2.2 Extensions of the Term. The Term shall be automatically extended for successive one (1) year periods after the Expiration Date, unless either Party gives written notice of its intent not to renew the Agreement at least six (6) months prior to the date on which the then-current Term expires. In the event that either of the Parties wish to modify the terms of this Agreement for a renewal period, the Parties shall mutually agree in writing to such modifications prior to the commencement of the relevant renewal period in accordance with the Change Order Process set forth in Section 3.5 below. ARTICLE 3 SERVICES AND EXCLUSIVITY 3.1 Services in General. TSG shall perform the Services described in Schedule 3.1 for Customer. The Parties may make revisions to the nature and scope of the TSG Services from time to time during the Term to reflect changes and improvements to such TSG Services upon mutual written agreement as provided in Section 3.5 below. In the event Customer contemplates the acquisition of another truck carrier, TSG further agrees it will provide Customer with a cost estimate for the integration of such truck carrier under the terms and conditions of this Agreement. 3.2 New or Additional Service. Prior to engaging a third party to provide a New or Additional Service, Customer shall first exclusively negotiate with TSG for TSG to provide Customer such New or Additional Service. If, within fifteen (15) days, or such longer period of time as the parties may mutually agree, after the date the Parties have commenced bona fide negotiations regarding such New or Additional Service, the Parties have not reached an agreement for TSG to provide such New or Additional Service to Customer, Customer shall be free to solicit proposals from third party vendors. Prior to accepting any bona fide proposal from a third party vendor to supply Customer any New or Additional Service, Customer shall provide TSG with a full and complete copy of such third party proposal and TSG shall thereafter have a period of thirty (30) days to elect to provide Customer with such New or Additional Service on the same terms and conditions are contained in the third party proposal. Further, Customer shall have an obligation to consult with TSG in any selection process for New or Additional Services, in order to ensure consistency and compatibility with the existing information technology infrastructure and protection of TSG intellectual property rights. 3.3 TSG Rights to Manage TSG Resources. Subject to the other provisions of this Agreement, TSG shall have the right to manage all resources used in providing the TSG Services as TSG deems appropriate. Nothing in this Agreement shall prevent TSG from changing, consolidating, eliminating or adding, after the Effective Date, locations at which it provides the TSG Services; provided, however, the SLAs shall continue to apply to the TSG Services provided hereunder. 3.4 Exclusive Services. During the Term, TSG shall be the sole and exclusive provider to Customer of the TSG Services covered by this Agreement. Customer shall not use any other providers to render such services to Customer, nor may Customer perform any of such services on its own behalf. 3.5 Change Order Process. All proposed changes by Customer (including Customer's proposed changes to meet or take advantage of changing technology requirements and opportunities) to the Services, which would affect the delivery of the Services or the satisfactions of any SLAs (collectively, "Changes") shall be subject to using a formal change control process. Under the process, Customer will notify TSG of a proposed Change via a Change Request Form which will include a technical and risk impact, priority, and specification of desired implementation date. TSG will assess the impact of the changes and communicate to Customer in writing the impact assessment including a proposed implementation plan and additional costs to Customer within thirty (30) days of receiving from Customer all final requirements necessary for preparing the impact assessment. The Customer will provide TSG with written approval of the authorization to proceed and agreement to pay, within thirty (30) calendar days after receiving TSG's impact assessment. TSG and Customer will execute a written supplement to this Agreement setting forth any special terms and conditions applicable to the Change. No Changes will be implemented without first satisfying the process set forth in the Section 3.5, and execution of a written supplement to this Agreement setting forth applicable specifications, schedules, resources to be utilized, responsibilities of the Parties, definition of successful completion, any changes in SLAs and any additional charges resulting from the Change. The process set forth in this Section shall also apply to any capitol expenditures contemplated by TSG in connection with the performance of the Services which affects the charges for the Services. 3.6 Keep Technology Current. TSG agrees to use reasonable efforts, without an increase in charges to the Customer or costs the Customer would have to bear, to keep the technology used in providing the Services current, and at a level at least as high as the level generally utilized in the trucking transportation industry. In the event that technology improvements would cause TSG to incur costs in addition to the costs TSG would otherwise have incurred in providing the Services or would cause the Customer to incur costs it would not otherwise incur, Customer and TSG shall meet to discuss whether to implement such improvements. At Customer's sole option, TSG will (i) implement such improvements and charge the Customer for TSG's increased costs, or (ii) not implement such improvements and continue to use TSG's then-existing technology. ARTICLE 4 Other TSG Obligations 4.1 Transitioned Employees. 4.1.1 Immediately following Customer's acceptance of the Trucomm Software, TSG will extend offers of regular full-time employment to the employees of Customer identified on Schedule 4.1.1 (the "Employees") in accordance with TSG's normal employment policies. The Employees who (a) accept employment with TSG pursuant to this offer, (b) if requested, sign the corresponding labor agreement with TSG within three (3) days after presentation of an employment offer, and (c) begin employment with TSG, shall be referred to herein as the "Transitioned Employees." 4.1.2 TSG agrees to offer each of the Transitioned Employees employment with at least the same salary currently earned at Customer at the time such offers are made, as listed on Schedule 4.1.1. TSG shall provide the benefits to the Transitioned Employees in accordance with TSG's standard policies. Any severance, pension, or other benefits or rights to which the Transitioned Employees are entitled by virtue of the termination of their employment with Customer shall be the responsibility of Customer. 4.2 TSG Account Manager. During the Term, TSG will provide an account manager (the "TSG Account Manager") who shall consult with Customer and consider Customer's needs. The TSG Account Manager will (a) have overall responsibility for managing and coordinating the delivery of the TSG Services, (b) serve as the primary point of contact for Customer in addressing issues concerning each party's obligations or requests for modifications under this Agreement, (c) provide periodic status reports to Customer, and (d) coordinate and consult with Customer management. 4.3 Retention and Safeguarding of Customer Data. TSG will store and safeguard magnetic tapes and other magnetic or optical storage media containing Customer Data in the possession or custody of TSG for the retention periods mutually agreed upon by the Parties in writing. Prior to and during Migration, TSG will maintain the same safeguards which were in use by Customer at the Customer's Data Center to protect against the accidental or unauthorized deletion, destruction or alteration of the Customer Data in TSG's possession. Following the Migration, TSG will maintain the same safeguards it uses, but not less than reasonable means, to protect similar clients against the accidental or unauthorized deletion, destruction or alteration of Customer Data in the possession of TSG at the TSG Data Center. If Customer reasonably requests additional safeguards, TSG will provide such additional safeguards at rates and upon terms and conditions to be mutually agreed to in writing by the parties. If any applicable regulatory authority requires a longer retention schedule than that agreed to by the Parties for such tapes or the data contained thereon, TSG will comply with such requirements and Customer will pay TSG at TSG's then current commercial rates (as published from time to time by TSG) for such compliance. 4.4 Migration. As soon as practicable following the Effective Date, TSG shall consult with Customer regarding, and develop, a written migration plan (the "Migration Plan") which will describe the tasks to be performed by TSG and Customer in connection with the migration of the TSG Services to the TSG Data Center. During the Transition Period, the TSG Services will continue to be performed from Customer's Data Center. Pursuant to the Migration Plan, TSG will configure systems at the TSG Data Center, establish the test environment for data processing operations to be performed at the TSG Data Center, install equipment and Software at the TSG Data Center, and provide network consultation. Prior to completion of the Migration Plan, Customer shall obtain, on a timely basis, any Required Consents necessary to permit TSG to perform the TSG Services, including those services provided pursuant to the Migration Plan. ARTICLE 5 CUSTOMER RESPONSIBILITIES AND DUTIES 5.1 Customer Employees. 5.1.1 Customer will cooperate with TSG in offering employment to the Employees. Customer has not made and will not make any representation or promise, whether written or oral, to the Employees regarding employment with TSG, or the employment benefits, plans or practices of TSG, without obtaining the Consent of TSG. 5.1.2 Without TSG's Consent, Customer shall not, for a period of eighteen (18) months from and after the Effective Date, solicit for employment, employ or otherwise utilize (directly or indirectly) the services of any Employee who rejects an employment offer from TSG made pursuant to Section 4.1 above. 5.1.3 All accrued severance, pension and other obligations, if any, with respect to the Transitioned Employees shall remain the responsibility of Customer. 5.1.4 On the Effective Date, Customer shall pay to each of the Transitioned Employees an amount equal to the accrued sick time and vacation time held by such Transitioned Employees as of the Effective Date. 5.2 Customer Facilities and Related Services. Commencing on the Effective Date, Customer will provide to TSG, at Customer's expense, such space, parking, office furnishings, janitorial service, telephone and facsimile services (excluding such charges as may be incurred by TSG and which are unrelated to the business of Customer), utilities, office-related equipment, supplies, duplicating services, and security services at the Customer Data Center and at such other Customer facilities as TSG may require in performing the TSG Services. Customer will also provide, at Customer's expense, all required internal building piping, cabling, electrical installations for TSG at the Customer Data Center and any other Customer facility in which the TSG Services will be performed. Customer will provide TSG with legal and physical access to Customer's facilities 24 hours a day, seven (7) days a week, for purposes of performing the TSG Services. Customer represents to TSG that all facilities provided by Customer under this Agreement are and shall remain free of health and safety hazards, and that Customer shall comply with and remain in compliance with all applicable laws and operational, environmental and safety requirements for the proper operation of the TSG Services. 5.3 Customer Owned Equipment. 5.3.1 Commencing on the Effective Date, Customer will provide to TSG, at Customer's expense, legal and physical access to and the use of the "Customer-Owned Equipment" consisting of (a) all equipment owned by Customer and used by Customer's information technology staff immediately prior to the Effective Date and necessary for performance of the services and functions to be performed by TSG pursuant to this Agreement, (b) any additions to or replacements for such Customer-Owned Equipment that may be reasonably requested by TSG in order to perform the TSG Services, and (c) any other equipment that Customer may acquire from time to time for use by TSG in providing the TSG Services. The Customer-Owned Equipment will remain the property of Customer and that TSG may from time to time relocate the Customer-Owned Equipment to another TSG facility for the sole purpose of performing the TSG Services. The Customer-Owned Equipment initially shall be provided in good working order and condition, and shall be accompanied by all manuals, instructions, written warranties and other materials, in Customer's possession, which may be relevant to TSG's operation of the Customer-Owned Equipment. 5.3.2 Customer will pay all on-going costs and expenses relating to the Customer-Owned Equipment, including, without limitation, the insurance, maintenance and taxes. If Customer is requested by TSG to purchase additional or replacement Customer-Owned Equipment, and Customer determines that additions to or replacements of the Customer-Owned Equipment are not needed or declines to participate in the acquisition thereof to a degree acceptable to TSG, TSG shall thereafter be relieved of any obligations under this Agreement (including but not limited to the SLAs), to the extent the failure to acquire such additions or replacements adversely affects TSG's ability to properly perform those obligations. 5.4 Customer Leased Equipment. 5.4.1 Schedule 5.4 contains a listing of equipment leased by Customer and used by Customer's information technology staff immediately prior to the Effective Date for purposes of performing the services and functions to be performed by TSG pursuant to this Agreement (the "Customer-Leased Equipment"). 5.4.2 As of the Effective Date, Customer will provide to TSG, at Customer's expense, legal and physical access to and the use of the Customer Leased Equipment, as well as any renewals of, additions to or replacements for such leased equipment that may be reasonably requested by TSG in order to perform the TSG Services. The Customer-Leased Equipment will remain the leased equipment of Customer, and that Customer shall procure for TSG the right to relocate the Customer-Leased Equipment to the TSG Data Center from time to time for the sole purpose of performing the TSG Services. Customer will pay all costs and expenses relating to the Customer-Leased Equipment, including without limitation, lease payments, insurance, maintenance fees and taxes. During the Term, TSG will manage the Customer-Leased Equipment and Customer hereby appoints TSG as its sole agent for matters pertaining to such Customer-Leased Equipment. Customer shall promptly notify all appropriate third parties of such appointment. 5.4.3 TSG will not be responsible for any default by vendors or other third parties with respect to the operation or maintenance of any Customer-Leased Equipment. If TSG requests that Customer obtain any additional or replacements of any Customer- Lease Equipment and Customer determines that renewals of, additions to or replacements of any Customer-Leased Equipment are not needed or declines to participate in the acquisition thereof to a degree acceptable to TSG, TSG shall thereafter be relieved of any obligations under this Agreement (including but not limited to the SLAs), to the extent the failure to acquire such additions or replacements adversely affects TSG's ability to properly perform those obligations. 5.5 Third Party Services. 5.5.1 Commencing on the Effective Date, Customer will make available to TSG, at Customer's expense, (i) all services provided by third parties and used by Customer's information technology staff immediately prior to the Effective Date for purposes of performing the services and functions to be performed by TSG pursuant to this Agreement, including the third party services described in Schedule 5.5.1 (the "Third Party Services"); and (ii) any renewals of, additions to or replacements for the Third Party Services that may be reasonably requested by TSG in order to perform the TSG Services. TSG will manage all Third Party Services on behalf of Customer during the Term in accordance with the terms and conditions of the applicable third party service agreements. Included within the Third Party Services shall be all telecommunications and data lines and circuit provider agreements, with Customer acknowledging that TSG is not a licensed provider of communications circuits and therefore shall only be responsible for monitoring such providers' performance of its obligations to provide and maintain the communications circuit, work with such provider and Customer to resolve problems with the communications circuit, and take all reasonable actions (including contract enforcement) to cause such provider to perform such obligations. 5.5.2 Customer will pay all costs and expenses associated with the Third Party Services agreements. Customer's exclusive remedies for any service problems relating to any Third Party Services will be the remedies set forth in the applicable third party service agreement. Customer hereby appoints TSG as its sole agent for all matters pertaining to the Third Party Services, and Customer shall promptly notify all appropriate third parties of such appointment. If Customer determines that renewals, additions to or replacements of any Third Party Service is not needed or declines to participate in the acquisition thereof to a degree acceptable to TSG, TSG shall thereafter be relieved of any obligations under this Agreement (including but not limited to the SLAs), to the extent the failure to acquire such renewals, additions or replacements adversely affects TSG's ability to properly perform those obligations. 5.6 Customer Contract Manager. During the Term, Neil Vos, or his designee or any successor identified to TSG by Customer in writing, will be the designated contract manager (the "Customer Contract Manager") who will be authorized to act as the primary point of contact for Customer in addressing issues concerning each party's obligations or requests for modifications under this Agreement, and shall have authority to execute modifications or additions to this Agreement on behalf of Customer. 5.7 Assistance. Customer will provide TSG with all necessary and reasonable resources, information and other assistance, as may be agreed by the parties from time to time, in connection with the activities contemplated by this Agreement and shall punctually perform its obligations under this Agreement. TSG shall be relieved of any obligations under this Agreement to the extent caused in whole or in part by Customer's failure to comply with this Section 5.7. 5.8 Use of TSG Services. Except with the written consent of TSG or as otherwise set forth in this Agreement, Customer may not (i) use the TSG Services for any purposes other than for Customer's internal trucking operations, or (ii) transfer any material or information related to the TSG Services, in any form whatsoever, to any third party or allow any third party to access or use any such material or information. 5.9 Customer Licensed Software. As of the Effective Date, Customer will obtain any licenses, consents, approvals or authorizations from third parties necessary for TSG to legally and physically access and use the Customer Licensed Software required for TSG to perform the Services, as described on Schedule 5.9, and will provide written evidence of such consents to TSG upon TSG's request. Customer will pay all costs and expenses associated with the Customer Licensed Software, including all required license, access fees, installation, maintenance and upgrade fees, and any fees or charges which may be necessary to bring Customer into compliance with its existing software licenses. The Customer Licensed Software will be made available to TSG in a form and on media compatible with the equipment TSG is then operating on Customer's behalf, together with appropriate documentation and other materials. Customer shall comply with the applicable license agreements for all Customer Licensed Software. Customer represents and warrants that all Customer Licensed Software required for TSG to perform the Service is listed on Schedule 5.9. 5.10 Customer Owned Software. Customer will provide TSG with object code and source code for the Customer Owned Software, as described on Schedule 5.10, together with any consents, approvals or authorizations from third parties necessary for TSG to legally and physically access and use the Customer Owned Software, in both object code and source code form, for purposes of providing the TSG Services, and will provide written evidence of such consents to TSG upon TSG's request. The Customer Owned Software will be made available to TSG in a form and on media compatible with the equipment TSG is then operating on Customer's behalf, together with appropriate documentation and other materials. The Customer represents and warrants that all Customer Owned Software necessary for TSG to perform the Services is listed on Schedule 5.10. 5.11 Failure to Obtain Required Consents. In the event that any Required Consent is not obtained with respect to any of the Customer Leased Equipment, Third Party Services, Customer Licensed Software, or Customer Owned Software, then, unless and until such Required Consent is obtained, the Parties shall cooperate in achieving a reasonable alternative arrangement. If Customer fails to provide to TSG any Required Consent required to be provided under this Agreement, then (i) TSG shall be excused from performing the TSG Services (or New or Additional Services, if applicable) if and to the extent such nonperformance results from such failure, and TSG's nonperformance will not be deemed to be a breach of this Agreement or grounds for termination of this Agreement by Customer, and (ii) if the Required Consent relates to a TSG Service covered under the Monthly Base Charge, until such time as such Required Consent has been obtain, TSG will adjust the Monthly Base Charge in an amount as its deems reasonable and appropriate. 5.12 Training of Customer Personnel. Customer will train Customer's personnel to properly prepare input for, and appropriately use, output from the TSG Software. Customer will provide appropriate training for all new Customer's employees on Software then in use by or on behalf of Customer. 5.13 Provision of Source Data. Customer will promptly supply to TSG for processing all required source data and machine readable data with applicable control totals (i) in the form presently used in Customer's information technology operations, or (ii) in such form and on such time schedule as set forth in the documentation provided to TSG by Customer, and as may be reasonably requested by TSG with respect to the performance of the TSG Services. Customer will be responsible for the quality, accuracy and legibility of the data provided to TSG. TSG will not be liable for any default in its performance of the TSG Services which is due to any insufficiency of the source data provided by Customer to TSG. 5.14 Inspection. Customer will timely inspect and review all reports and output provided by TSG. Customer will notify TSG of any incorrect (i) daily or weekly reports within one (1) business day after receipt of such reports, and (ii) monthly or other reports within three (3) business days after receipt of such reports. 5.15 Supplies. 5.15.1 Customer will provide, at Customer's expense, any preprinted, customized forms and supplies specifically and uniquely designed for Customer's business operations ("Special Forms"), as reasonably requested by TSG for use in performing the TSG Services. TSG will be responsible for providing appropriate inventory controls for standard data processing forms and supplies. TSG will also maintain inventory controls for Customer's Special Forms unless such forms require more than standard security. 5.15.2 From time to time during the Term, TSG will inform Customer that it needs to purchase certain preprinted, customized forms and supplies specifically and uniquely designed for Customer's business operations. TSG will provide Customer with its specifications (quantity and quality) for such supplies for purposes of performing the TSG Services. Customer will (i) contract with the third party vendor of its choice for such forms and supplies, (ii) order and arrange for the delivery of the requested forms and supplies to TSG, and (iii) pay all costs and expenses associated with such forms and supplies. TSG will manage such third party vendor on behalf of Customer during the Term in a manner consistent with the terms and conditions of the applicable third party agreement. TSG will not be responsible if the third party vendor fails to deliver the forms and supplies on a timely basis, and Customer's remedies for any service problems will be the remedies set forth in the applicable third party agreement. Customer hereby appoints TSG as its primary contact to manage all matters pertaining to such services and shall promptly notify all appropriate third parties of such appointment. 5.16 Governmental Approvals. Customer shall, at its expense, cooperate and provide reasonable assistance to TSG in obtaining all required governmental approvals which are a prerequisite to this Agreement becoming effective or as may be necessary for TSG to perform the TSG Services. ARTICLE 6 SERVICE LEVELS 6.1 Establishment of SLA's. During the six (6) month period commencing as of the Effective Date, TSG's Account Manager and Customer's Contract Manager shall establish appropriate SLA's for the performance of the TSG Services. Upon the Parties' Consent, any SLA established hereunder shall be set forth in a written amendment or supplement to this Agreement. The metrics which TSG will measure during the six (6) month period for purposes of establishing the SLA's are set forth in Schedule 6.1. 6.2 SLA Standard. Each SLA shall specify the SLA Standard for the services subject to such SLA. 6.3 Monitoring. TSG shall capture and retain information and monitor its performance of the TSG Services in accordance with the SLAs. TSG's adherence to the SLA Standards shall be evaluated and reported to Customer on or before the tenth (10th) day of every month. 6.4 Costs of Implementing Monitoring. Customer shall pay to TSG the incremental costs incurred by TSG in obtaining or developing the monitoring systems. 6.5 Correction of Deficiencies. TSG is obligated to cure or correct its errors, mistakes, and deficiencies in service under the SLAs, at no additional cost to Customer. TSG will use its commercially reasonable efforts to cure or correct any such errors, mistake or deficiencies within thirty (30) days from Notice from Customer identifying the error, mistake or deficiency. ARTICLE 7 FEES AND CHARGES 7.1 Fees and Charges. 7.1.1 In consideration of the performance of the TSG Services, for each month during the Term, Customer shall pay TSG a monthly base charge, according to the rates for the TSG Services set forth on Schedule 7.1 (the "Monthly Base Charge"), subject to adjustment as provided in Section 7.2 below. The Monthly Base Charge shall be prorated on a per diem basis for any partial month. In addition, Customer shall pay all other sums due and payable in accordance with Schedule 7.1. 7.1.2 For any New or Additional Services provided to Customer by TSG, Customer will pay TSG (a) for New or Additional Services charged on a time and material basis, the hourly rate of $100, for the initial 12-month period, which may be increased by TSG after the initial 12-month period but not to exceed $135.00 during the initial Term of this Agreement, plus mutually agreed upon material prices, (b) for New or Additional Services charged other than on a time and material basis, the amounts mutually agreed upon by Customer and TSG for such New or Additional Services and (c) any reasonable out-of-pocket expenses of TSG as provided in Section 7.4. 7.1.3 In the event TSG pays for any Third Party Services directly to the provider thereof, the invoices for such Third Party Services will be passed through directly to Customer with no mark-up by TSG. TSG will endeavor to obtain from the Third Party Service providers more favorable rates under such Third Party Services agreements than paid by Customer upon the execution of this Agreement. 7.2 Adjustment to Charges. During each calendar year, TSG may adjust the fees and charges for the TSG Charges and any New of Additional Services by an amount not to exceed the annual percentage increase in the Consumer Price Index for All Urban Consumers (CPI-U) over the prior calendar year. If the CPI-U is modified or discontinued, the parties shall substitute another comparable index which measures the relative change in consumer prices. Further, Customer is currently the only trucking carrier on the IBM AS400 Computer that TSG has dedicated for use in performance of the TSG Services hereunder. In the event TSG actually utilizes such IBM AS400 for another trucking carrier, it will promptly notify Customer and advise if there have been created any economies of scale resulting from the dual use thereof, and will reduce the Monthly Base Charge to Customer accordingly. 7.3 Termination Assistance. Customer shall pay TSG for the resources used by TSG in performing the Termination Assistance Services during the Term of and after the expiration or termination of this Agreement. For Termination Assistance Services which are provided by TSG prior to the effective date of such termination, Customer shall pay for such Termination Assistance Services at the then current published labor rates. Any Termination Assistance Services which are provided by TSG to Customer after the effective date of termination shall be paid at TSG's then current commercial rates for such services. 7.4 Out of Pocket Expenses and Third Party Charges. For any TSG Services which are provided at a site other than at TSG's offices, Customer will pay TSG a Per Diem charge. The Per Diem charge shall be the rates published by the U.S. government for federal employees traveling on government business in the city where the TSG Services are being performed ("CONUS/OCONUS"). Customer will also pay, or reimburse TSG for, the actual cost of all local and air travel and travel-related expenses incurred by TSG in connection with the performance of the TSG Services hereunder. ARTICLE 8 INVOICES AND PAYMENT 8.1 Monthly Base Charge. Unless TSG fails to commence performance of the TSG Services on or before April 6, 1998 for reasons within TSG's sole control, Customer shall pay to TSG the Monthly Base Charge, in advance, on or before the first day of each calendar month commencing April 1, 1998. If for some reason within TSG's sole control, TSG is unable to commence performance of the TSG Services on or before April 6, 1998, the Parties will negotiate in good faith a new date the payment of Monthly Base Charge shall begin hereunder. 8.2 Other Charges. TSG shall invoice Customer for all other fees and charges due under this Agreement on a monthly basis. Invoices shall be sent to Customer at 1901 West 2100 South, Salt Lake City, Utah 84119, Attn.: Accounts Payable. 8.3 Payment. Other than the Monthly Base Charge, any sums due TSG under this Agreement will be due and payable within thirty (30) days after receipt by Customer of an invoice from TSG. 8.4 Interest on Overdue Amounts. Any sums due TSG under this Agreement that is not paid when due shall thereafter bear interest from the date due until paid at a rate equal to the lesser of (a) two percent per annum more than the prime rate established from time to time by Citibank, New York N.A., or (b) the maximum rate of interest allowed by applicable law. 8.5 No Deductions/Set-Off. All payments by Customer hereunder for the Monthly Base Charge and reimbursement for Third Party Services shall be made free and clear of and without deduction for any present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, without set-off or reduction for any amounts owed, or claimed, from TSG by Customer and Customer hereby waives and disclaims any rights of offset or set-off. ARTICLE 9 Taxes 9.1 Shipping, Taxes and Import Duties. Customer shall pay, or reimburse TSG for, (i) all taxes, including but not limited to, Value Added Taxes, municipal taxes, personal property taxes, franchise taxes, net worth taxes, sales and use taxes, registration fees, excise taxes, stamp taxes and importation and custom duty taxes (collectively, the "Taxes") imposed on TSG arising from this Agreement, excluding Taxes based on TSG's net income; and (ii) any additional Taxes, income taxes, imposed on TSG as a result of any reimbursements under clause (i) or (ii) of this Section 9.1. Customer shall indemnify and hold TSG harmless for any and all tax payments made. Each of the Parties shall be responsible for the reporting and payment of any ad valorem taxes due on property owned by it or leased by it from a third party. If Customer is required by law to make any deduction or to withhold from any sum payable to TSG by Customer hereunder, (a) Customer shall effect such deduction or withholding, remit such amounts to the appropriate taxing authorities and promptly furnish TSG with tax receipts evidencing the payments of such amounts, and (b) the sum payable by Customer upon which the deduction or withholding is based shall be increased to the extent necessary to ensure that after such deduction or withholding, TSG receives and retains, free from liability for such deduction or withholding, a net amount equal to the amount TSG would have received and retained in the absence of such required deduction or withholding. ARTICLE 10 PROPRIETARY RIGHTS 10.1 TSG Proprietary Information. TSG retains all right, title and interest in and to any and all TSG Software and related Documentation (including but not limited to any modifications, customizations or enhancements to, or derivative works of, any TSG Software), software development tools, know-how, methodologies, processes, technologies or algorithms used in providing the TSG Services that are trade secrets or proprietary information of TSG or its Affiliates or otherwise owned or licensed by TSG or its Affiliates. Unless the Parties separately agree on a case-by-case basis, TSG shall own any software TSG develops on Customer's behalf under this Agreement, subject to the license provisions set forth below. 10.2 Customer Data. Information relating to Customer contained in Customer's data files ("Customer Data") is the exclusive property of Customer. TSG is authorized to have legal and physical access to and make use of Customer Data for the sole purpose of performing the TSG Services. Upon expiration or termination of this Agreement, the Customer Data shall be either erased from the data files maintained by TSG or, at Customer's written request and expense, returned to Customer in TSG's then existing machine-readable format and media. 10.3 License. Subject to obtaining any necessary third-party consents regarding the sublicensing of Third Party Software, TSG grants to Customer, during the Term, a limited, non-exclusive and non-transferable right and license to use, in object code form only, the TSG Software and the Documentation, strictly in accordance with the terms of this Agreement. If Customer pays for the complete development costs and expenses incurred by TSG for any New TSG Software provided pursuant to this Agreement, Customer will receive a perpetual, non-exclusive and non-transferable right and license to use, in object code form only, to such TSG Software. The rights hereby granted are limited to Customer's use of the TSG Software and Documentation in connection with Customer's internal operations and for no other use. Customer's use of any Third Party Software shall be subject to all of the terms and conditions of the applicable license agreement between TSG and the licensor of such Third Party Software. Customer shall make no modifications, alterations, developments or Derivative Works of the TSG Software or related Documentation. Customer shall further not reverse engineer, disassemble, compile, reverse compile or decompile the TSG Software. Customer shall not transfer or sublicense TSG Software or any component thereof, to any person or entity, whether by operation of law or otherwise, without the Consent of TSG. In no event will TSG have any liability hereunder for the failure of Third Party Software, including but not limited to its failure to operate in accordance with its technical documentation or description except arising from causes within TSG's full control. 10.4 Protection of Software Rights Against Third Parties. If Customer becomes aware of any infringement or misappropriation by any third party of the TSG Software, it shall promptly notify TSG of such infringement or misappropriation in writing. TSG may, at is own expense, institute suit against such third party, and Customer shall fully cooperate with TSG, at TSG's expense, to enjoin such infringement or misappropriation and shall, if requested by TSG, join with TSG as a party to any action brought by TSG for such purpose. ARTICLE 11 CONFIDENTIAL INFORMATION 11.1 Confidential Information. As of the Effective Date of this Agreement, and except as otherwise provided in this Agreement, TSG and Customer each agree that all information communicated to it by the other, including, without limitation, the terms of this Agreement, which is (i) written information marked or identified as confidential, and (ii) oral or visual information identified as confidential at the time of disclosure, which is accurately summarized in writing and provided to the other Party in such written form promptly after such oral or visual disclosure ("Confidential Information") will be received in strict confidence, will be used only for purposes of this Agreement, and will not be disclosed by the recipient Party, its agents, subcontractors or employees without the prior written consent of the other Party. TSG and Customer each agree to use the same means it uses to protect its own confidential information, but in any event not less than reasonable means, to prevent the disclosure of the Confidential Information to outside parties. However, neither TSG nor Customer shall be prevented from disclosing information which belongs to such party or is (a) already known by the recipient party without an obligation of confidentiality; (b) publicly known or becomes publicly known through no unauthorized act of the recipient Party; (c) rightfully received from a third party without an obligation of confidentiality; (d) independently developed without use of the other Party's confidential information; (e) disclosed without similar restrictions to a third party by the Party owning the confidential information; (f) approved by the other Party for disclosure; or (g) required to be disclosed pursuant to a requirement of a governmental agency or law, if the disclosing Party provides the other Party with notice of this requirement prior to disclosure. 11.2 Residual Knowledge. TSG shall be free to use the ideas, concepts or know-how developed by TSG during the performance of the TSG Services that are in nontangible form and may be retained by TSG's employees. TSG may acquire, license, market, distribute, develop for itself or others, or have others develop for it, similar technology performing the same or similar functions as the technology contemplated by this Agreement. Customer shall also be free to use the ideas, concept or know-how developed by Customer during the term of this Agreement that are in nontangible form and may be retained by Customer's employees. ARTICLE 12 WARRANTIES 12.1 Mutual Warranties. Each Party represents and warrants to the other that: (i) it is a corporation duly organized and validly existing and in good standing under the laws of its jurisdiction of formation and/or place of principal business; (ii) the performance of its obligations hereunder has been duly authorized by all necessary corporate action; (iii) this Agreement is a legal, valid and binding obligation enforceable against it in accordance with its terms subject, as to enforcement, to bankruptcy, insolvency, reorganization, liquidation and other laws and equitable principles relating to or affecting the enforcement of creditors' rights generally as they may be applied in the event of the bankruptcy, insolvency, moratorium, reorganization or liquidation of, or the appointment of a receiver with respect to the property of, or a similar event applicable to, such Party; (iv) neither the execution and delivery of this Agreement nor the performance of any of its obligations hereunder, nor the consummation of any of the transactions contemplated hereby, will violate any agreement to which it is a party or any provision of its Certificate of Incorporation, Articles of Incorporation, By-Laws or other document of corporate governance, nor any applicable law, regulation, rule, judgment, order or decree; and (v) it has duly obtained or made all consents, approvals or authorizations of, or registrations, declarations or filings with, any governmental authority which are required as a condition to the valid execution, delivery and performance of this Agreement on its part. 12.2 No Other Representations or Warranties. THE WARRANTIES SPECIFIED HEREIN ARE THE ONLY WARRANTIES MADE BY TSG, THE APPLICABLE MANUFACTURERS AND SUPPLIERS WITH RESPECT TO THE TSG SERVICES. EXCEPT AS OTHERWISE SPECIFIED HEREIN, THE TSG SERVICES ARE PROVIDED "AS IS" AND "WITH ALL FAULTS." THERE ARE NO OTHER WARRANTIES, EXPRESS OR IMPLIED, BY OPERATION OF LAW OR OTHERWISE, INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTIES OF MERCHANTABILITY, NON-INFRINGEMENT OR FITNESS FOR INTENDED USE OR ANY IMPLIED WARRANTIES ARISING OUT OF COURSE OF PERFORMANCE, COURSE OF DEALING, OR USAGE OF TRADE. NO REPRESENTATION OR OTHER AFFIRMATION OF FACT WHICH IS NOT CONTAINED IN THIS AGREEMENT, INCLUDING WITHOUT LIMITATION STATEMENTS REGARDING CAPACITY, SUITABILITY FOR USE, OR PERFORMANCE OF THE HARDWARE COMPONENTS, SOFTWARE OR DATA, OR RELATING TO THE TSG SERVICES, WHETHER MADE BY TSG OR OTHERWISE, SHALL BE DEEMED TO BE A WARRANTY FOR ANY PURPOSE OR GIVE RISE TO ANY LIABILITY OF TSG OR ANY MANUFACTURER OR SUPPLIER. ARTICLE 13 LIMITATIONS OF LIABILITY 13.1 Intended Allocation of Risks. The allocation of risks between the Parties, and the limitations on the Parties' liabilities and remedies, set forth in this Article 13 and elsewhere in this Agreement are specifically intended by the Parties, as part of their bargain (i.e., part of the consideration for their other respective benefits and obligations) in this Agreement. The Parties acknowledge that they have negotiated, with the advice of legal counsel, such allocation and limitations. 13.2 Gross Negligence or Willful Misconduct. EXCEPT FOR CUSTOMER'S OBLIGATION TO MAKE PAYMENTS AS SET FORTH HEREIN, IN NO EVENT WILL EITHER PARTY BE LIABLE TO THE OTHER PARTY OR ANY OTHER PERSON, FOR ANY LOSS, LIABILITY, DAMAGE OR EXPENSE ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR THE PERFORMANCE OR NON-PERFORMANCE OF THEIR RESPECTIVE OBLIGATIONS HEREUNDER, UNLESS SUCH LOSS, LIABILITY, DAMAGE OR EXPENSE SHALL BE DUE TO THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH PARTY, OR ITS OFFICERS, DIRECTORS, AGENTS OR EMPLOYEES. 13.3 Limitation on Damages. IN NO EVENT WILL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR INCIDENTAL, INDIRECT, SPECIAL, EXEMPLARY OR CONSEQUENTIAL DAMAGES, INCLUDING DAMAGES RESULTING FROM LOSS OF USE, LOSS OF DATA, LOSS OF PROFITS, OR LOSS OF BUSINESS ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT, EVEN IF SUCH PARTY HAD BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. 13.4 Limitation on Amount of General Damages. TSG shall have no liability under or relating in any manner to this Agreement for any General Damages in excess of (i) with respect to any claim or series of related claims, an amount equal to the Monthly Base Charge for the calendar month period ending immediately prior to the date that the claim, giving rise to such General Damages or liability arose, and (ii) in the aggregate, one million Dollars (US$1,000,000) during the Term. 13.5 Tort Damages and Indemnifiable Losses. For the avoidance of doubt, the limits on liability set forth in this Article 13 shall apply to the liability of a Party to indemnify the other Party's Indemnitees against Tort Damages or Indemnifiable Losses under Article 14. 13.6 Time for Claims. A Party may assert or make a claim against the other Party for any breach of this Agreement, or for that other Party's liability under this Agreement (including an Indemnification Claim), only within two years after the breach or other event constituting the basis for that claim occurred, even if not discovered until after that two-year period. Nevertheless, the two-year limit on the time for asserting or making any claim shall not apply to a claim (including an Indemnification Claim) based on a Third-Party Claim. 13.7 Warranties. Each Party's warranties in this Agreement are made solely to and for the benefit of the other Party. No Person other than a Party may assert or make a claim based on the other Party's warranties under this Agreement. 13.8 Equitable Relief. To the extent that any monetary relief available under this Agreement is not an adequate remedy for any breach of this Agreement, or upon any breach or impending breach of Section 11.1, the non-breaching Party shall be entitled to injunctive relief as a remedy for that breach or impending breach by the other Party, in addition to any other remedies granted to the non-breaching Party in this Agreement. That injunctive relief must be sought through arbitration in accordance with the Dispute Resolution Procedure. 13.9 Exclusive Remedies. The remedies described in this Agreement are the exclusive rights and remedies of a Party regarding any breach of this Agreement or any matter that may be the subject of a claim for liability under or relating to this Agreement. 13.10 Noncumulative Remedies. If a particular remedy for a breach of, or the occurrence of any other event described in, this Agreement is specified in this Agreement, that remedy shall be the exclusive remedy upon such a breach or event. Nevertheless, if more than one remedy for such a breach or event is specified in this Agreement, the Party entitled to a remedy must elect or choose between the available remedies, and may not cumulate or exercise multiple remedies, upon such a breach or event. 13.11 Waiver of Remedies. No forbearance, delay, or indulgence by a Party in enforcing this Agreement, within the applicable time limits stated in this Agreement, shall prejudice the rights or remedies of that Party. No waiver of a Party's rights or remedies regarding a particular breach of, or occurrence of any other event described in, this Agreement constitutes a waiver of those rights or remedies, or any other rights or remedies, regarding any other or any subsequent breach of, or occurrence of any other event described in, this Agreement. ARTICLE 14 INDEMNIFICATION 14.1 Representations and Warranties 14.1.1 Customer shall indemnify, defend and hold harmless the TSG Indemnitees from and against all losses, claims, obligations, demands, assessments, fines and penalties, liabilities, expenses and costs (including reasonable fees and disbursements of legal counsel and accountants), bodily and other personal injuries, damage to tangible property and other damages, of any kind or nature, actually suffered or incurred by a TSG Indemnitee resulting from, arising out of, or relating to, any breach of any representation or warranty of Customer set forth in Sections 5.9, 5.10 and 12.1 of this Agreement. 14.1.2 TSG shall indemnify, defend and hold harmless the Customer Indemnitees from and against all losses, claims, obligations, demands, assessments, fines and penalties, liabilities, expenses and costs (including reasonable fees and disbursements of legal counsel and accountants), bodily and other personal injuries, damage to tangible property and other damages, of any kind or nature, actually suffered or incurred by a Customer Indemnitee resulting from, arising out of, or relating to, any breach of any representation or warranty of TSG set forth in Section 12.1 of this Agreement. 14.2 End Users. Customer shall indemnify, defend and hold harmless TSG, its directors, officers, employees and agents from and against all losses, claims, obligations, demands, assessments, fines and penalties (whether civil or criminal), liabilities, expenses and costs (including reasonable fees and disbursements of legal counsel and accountants), bodily and other personal injuries, damage to tangible property and other damages, of any kind or nature, actually suffered or incurred by a person, and resulting from, arising out of, or relating to, any claim by any End User of Customer. 14.3 Employment Related Matters. 14.3.1 From and after the Effective Date, Customer will indemnify, defend and hold both TSG's officers, agents and employees harmless from and against any loss, cost, expense, damage, liability, claim or suit (including, without limitation, reasonable attorneys' fees and expenses) caused by or arising out of (i) any hiring, termination or other personnel action taken by Customer with respect to any Transitioned Employee, to the extent such actions occurred or claims arose prior to the Effective Date; (ii) any hiring, termination or other personnel action taken by Customer with respect to any other current or former employee of Customer; and (iii) the transition of all Transitioned Employee to employment with TSG pursuant to Section 4.1 of this Agreement. 14.3.2 From and after the Effective Date, TSG will indemnify, defend and hold Customer harmless from and against any loss, cost, expense, damage, liability, claim or suit (including, without limitation, reasonable attorneys' fees and expenses) caused by or arising out of any hiring, termination or other personnel action taken by TSG with respect to any Transitioned Employee, to the extent such actions occurred and claims arose after the Effective Date and do not result from or relate to a default by Customer of the terms of this Agreement. 14.4 Infringement. 14.4.1 TSG will defend, at its expense, any action brought against Customer, to the extent that such action is based on a claim that any element of the TSG Services constitutes a direct infringement of any duly issued United States patent, or infringement of any copyright established in the United States ("Infringement"). TSG shall pay all damages and costs finally awarded against Customer which are attributable to such Infringement, provided that (i) TSG is promptly informed by Customer in writing upon Customer's becoming aware of such claim, (ii) is furnished a copy of each communication, notice or other action relating to the alleged Infringement received by Customer, and (iii) is given authority, information and assistance from Customer reasonably necessary to defend or settle such claim. 14.4.2 Should any element of the TSG Services become, or in TSG's opinion be likely to become the subject of a claim of Infringement, then TSG may, at its option and expense; (i) procure for Customer the right to use such infringing element of the TSG Services free of any liability for Infringement; (ii) replace or modify the infringing element of the TSG Services with a non-Infringing substitute otherwise complying with all the functionality for the replaced services, or (iii) terminate the provision of such infringing element of the TSG Services and thereby be released from all liabilities with respect thereto. TSG shall not be obligated to defend, or be liable for costs and damages, if the Infringement arises out of (y) the Customer facilities or services, the Customer Owned Equipment, the equipment covered under the Assigned Leases, the Customer Leased Equipment, the Third Party Services, the Customer Licensed Software or the Customer Owned Software; or (z) a breach of this Agreement by Customer. 14.4.3 Customer shall defend, at its expense, any action brought against TSG, to the extent that such action is based on a claim that any Customer Licensed Software or Customer Owned Software infringes on any duly issued United States patent, or infringement of any copyright established in the United States. Customer shall pay all damages and costs finally awarded against TSG which are attributable to a claim covered under this Section 14.4.3, provided that (i) Customer is promptly informed by TSG in writing upon TSG's becoming aware of such alleged claim, (ii) is furnished a copy of each communication, notice or other action relating to the alleged claim received by TSG, and (iii) is given authority, information and assistance from TSG reasonably necessary to defend or settle such claim 14.4.4 The foregoing sets forth TSG's sole and exclusive liability, and Customer's sole and exclusive remedies, with respect to any claims for Infringement. 14.5 Indemnification Procedures. 14.5.1 The indemnification obligations set forth in this Article shall not apply unless the Party claiming indemnification: (i) notifies the other promptly of any matters in respect of which the indemnity may apply and of which the notifying Party has knowledge, in order to allow the indemnitor the opportunity to investigate and defend the matter, provided, however, that the failure to so notify shall only relieve the indemnitor of its obligations under this Article 14 if and to the extent that the indemnitor is prejudiced thereby; and (ii) gives the other Party full opportunity to control the response thereto and the defense thereof, provided, however, that the Indemnitee will have the right to participate in any legal proceeding and to be represented by legal counsel of its choosing, all at the Indemnitee's cost and expense. 14.5.2 The indemnitor shall not be obligated for any settlement or compromise made without its consent. The Indemnitee agrees to cooperate in good faith with the indemnitor at the request and expense of the indemnitor. ARTICLE 15 FORCE MAJEURE AND DISASTER RECOVERY 15.1 Force Majeure. Except for the obligations to make payments hereunder, each Party shall be relieved of the obligations hereunder to the extent that performance is delayed or prevented by any cause beyond its reasonable control, including, without limitation, acts of God, public enemies, war, civil disorder, communications failures, fire, flood, explosion, labor disputes or strikes or any acts or orders of any governmental authority, failures or fluctuations in electrical power, heat, light, air conditioning or telecommunications equipment. 15.2 Disaster Recovery. If requested by Customer, TSG will assist Customer with developing a disaster recovery plan designed to minimize disruption to Customer's data processing operations caused by natural or man-made disasters. Customer will pay TSG additional fees for such plan and for disaster recovery services, if any, provided by TSG at rates and upon terms and conditions to be mutually agreed to in writing by the Parties. ARTICLE 16 DISPUTE RESOLUTION 16.1 Performance Review. The TSG Account Manager and the Customer Contract Manager will meet as often as shall reasonably be requested by either Party to review the performance of either Party's obligations under this Agreement. Each Party will appoint a representative with appropriate authority whose task it will be to meet for the purpose of resolving any dispute, controversy or claim. Such representatives will discuss the dispute, controversy or claim and negotiate a resolution in good faith, without the necessity of any formal proceeding relating thereto. 16.2 Dispute Resolution. All disputes between the Parties not resolved by the means described above shall be resolved by arbitration pursuant to the terms below. 16.2.1 If no further agreement has been reached after such good faith discussions, then either Party, upon thirty (30) days notice to the other Party identifying with particularity those areas in dispute, may submit such dispute to arbitration. Any such arbitration shall be held at Denver, Colorado under the Arbitration Rules of the Endispute/JAMS ("JAMS"). The arbitration panel shall consist of three arbitrators. The Parties shall each nominate an arbitrator within thirty (30) days of the notice submitting the dispute to arbitration and the nominated arbitrators shall agree on the third arbitrator within thirty (30) days after the both of them have been nominated. 16.2.2 The Parties agree that the award of the arbitration shall be the sole and exclusive remedy between the Parties regarding any claims, counterclaims, issues or accounting presented to the arbitrators; that the award must be consistent with terms and conditions of this Agreement; that it shall be made and shall be payable in accordance with the award in U.S. Dollars free of any tax, deduction or offset; and that any costs, fees or taxes incident to enforcing the award shall, to the maximum extent permitted by law, be charged against the Party resisting such enforcement. 16.3 Continued Performance. Unless (a) an action under this Article involves a claim by TSG for nonpayment by Customer, or (b) this Agreement has been terminated in accordance with other provisions of this Agreement, TSG shall continue to perform its obligations under this Agreement during the arbitration proceedings and Customer shall continue to make payments to TSG in accordance with this Agreement. ARTICLE 17 TERMINATION 17.1 Termination for Breach. In the event of certain breaches of this Agreement, TSG or Customer may terminate this Agreement in accordance with this Section 17.1. 17.1.1 Upon TSG's Egregious Breach of this Agreement, Customer may terminate this Agreement, provided that Customer gives TSG thirty (30) days' written notice of its intent to terminate and TSG fails to cure the breach within such thirty (30) days; and provided, further, that such cure period will be extended an additional sixty (60) days if TSG delivers to Customer a written plan to cure the breach. In both instances, unless TSG cures the material breach, the termination shall be effective as of the first day following the end of the cure period or extended cure period as the case may be. 17.1.2 Upon Customer's material breach of its obligation to pay TSG in accordance with this Agreement, TSG may terminate this Agreement on ten (10) days prior written notice to Customer of its intent to terminate and Customer fails to cure the breach within such ten (10) days. 17.1.3 If either Party (i) is adjudicated bankrupt or insolvent by a court of competent jurisdiction, (ii) substantially ceases to do business as currently conducted, (iii) fails to pay its debts generally as they become due, or (iv) takes steps to declare bankruptcy, wind up, dissolve or liquidate (in each case, other than for the purposes of an amalgamation, restructuring, or reconstruction pursuant to which the surviving entity becomes bound by or assumes the obligations under this Agreement), or a receiver, trustee or similar officer is appointed over (or a lien holder takes possession of) all or a substantial part of such Party's property or assets, or anything similar to any of the foregoing occurs in relation to such Party under the laws of any jurisdiction, the non-defaulting Party may terminate this Agreement on Notice to the defaulting Party. 17.2 Other Termination Events. 17.2.1 At any time during the Term and upon 180 days prior written notice, Customer may terminate this Agreement if (a) Customer's gross revenues for the immediately preceding calendar quarter decreases by more than one-third (1/3) from the previous calendar quarter twelve (12) months prior to the quarterly period being measured (e.g., first quarter of 1998 compared with first quarter of 1997), or (b) PST is merged with or acquired by another trucking carrier and TSG is unable to provide IT services to both PST and the other trucking carrier for less than they collectively paid for substantially similar IT services at the time of the acquisition or merger. Further, at any time following the 30th month anniversary of the Effective Date of this Agreement, Customer may terminate this Agreement for its convenience upon providing Notice to TSG at least 180 days prior to the end of the calendar year immediately prior to the calendar year in which Customer desires to terminate. Upon any termination as permitted under this Section 17.2, Customer will pay TSG for all costs and expenses incurred by TSG in connection with the termination of this Agreement, including (i) all unamortized capital costs carried by TSG in connection with this Agreement, (amortization not to exceed five (5) years), (ii) all unamortized start up costs and expenses incurred by TSG in the performance of this Agreement (startup cap set at $300,000, amortization not to exceed five (5) years), (iii) committed fees and expenses in support of this Agreement that TSG cannot avoid, and (iv) any additional costs and expenses incurred by TSG in termination of the services such as employee transition or termination expenses. 17.2.2 If due to new technology that becomes generally available on the commercial market, Customer is able to obtain from a third party service provider any service substantially similar to a TSG Service provided hereunder, at terms and conditions that, when taken as a whole, is more favorable than the terms and conditions provided under this Agreement, then Customer shall provide Notice (together with substantiation of the better terms, conditions and new technology) thereof to TSG. TSG shall have thirty (30) days following the Notice in which to send Customer a written proposal to modify the terms and conditions of this Agreement to the extent required so that, if such modification were accepted by Customer, the terms and conditions applicable to such TSG Service be as favorable as that provided in the Notice. Customer shall have thirty (30) days to accept TSG's proposal or present a counter-offer of its own. If Customer presents a counter-offer, the Parties shall negotiate to modify this Agreement to the minimum extent required so that, if such modification were implemented, the terms and conditions of this Agreement, when taken as a whole, would be as favorable as the terms and conditions offered by the third party. A failure of the Parties to reach a mutually acceptable modification within thirty (30) days from the commencement of their negotiations shall constitute a Dispute. ARTICLE 18 TERMINATION ASSISTANCE SERVICES; SURVIVAL 18.1 Termination Assistance Services. Upon expiration or termination of this Agreement, TSG will provide to Customer such termination assistance as may be reasonably requested by Customer and agreed to in writing by TSG, including pricing and terms of assistance. Such termination assistance (collectively, the "Termination Assistance Services") may include, without limitation, the following: 18.1.1 Developing a plan for the orderly transition of Customer data processing and telecommunication operations from TSG to Customer. 18.1.2 Providing reasonable training, to Customer's personnel in the performance of the TSG Services then being performed by TSG. 18.1.3 Except if this Agreement is terminated for nonpayment by Customer, granting Customer a nontransferable, nonexclusive license or right to use certain technology (proprietary to TSG) then being used by TSG in rendering services to Customer to process the Customer Data only, subject to Customer and TSG entering into an agreement, in form and substance mutually acceptable to TSG and Customer, containing such terms and conditions as may be appropriate, including, without limitation, applicable TSG charges for such license or right to use and terms and conditions to protect the confidentiality of the TSG materials used in performing the TSG Services. 18.1.4 Using commercially reasonable efforts to assist Customer, at Customer's cost and expense, in acquiring any necessary rights to legally and physically access and use any Third Party Software and documentation then being used by TSG in connection with the processing of the Customer Data pursuant to this Agreement. 18.1.5 Using commercially reasonable efforts to make available to Customer, pursuant to mutually agreeable terms and conditions, any Third Party Services then being used by TSG in connection with the TSG Services. 18.1.6 Furnishing Customer with duplicates of magnetic tapes or print-outs of Customer's data base or providing Customer with the Customer Data in a form deemed appropriate by TSG. 18.2 Termination Assistance Period. TSG shall not be required to perform the Termination Assistance Services for a period in excess of ninety (90) days from and after the expiration date or the effective date of termination. ARTICLE 19 MISCELLANEOUS 19.1 Compliance with Applicable Law. Each party will comply with all applicable laws, rules, regulations and ordinances governing its business, facilities and assets. On the Effective Date, each Party, at its own expense, will have obtained all necessary approvals from governmental, regulatory or other authorities with jurisdiction over its business, facilities and assets to enter into and perform its obligations under this Agreement. 19.2 Import, Export, Exchange Controls. 19.2.1 Customer will be responsible for obtaining any necessary government approvals, consents, licenses and/or permits to enable Customer to (a) export any products or technical data required for TSG's performance under this Agreement from the United States or any other country of origin, (b) import such products and technical data into any other country, and (c) pay TSG all amounts in U.S. Dollars as required by this Agreement. Upon request, TSG will promptly provide Customer with any end-user certificates, affidavits regarding re-export or other certificates and documents as are reasonably available to TSG and required from TSG to obtain any such approvals, consents, licenses and/or permits. The obligations of TSG under this Agreement shall be conditioned on Customer's obtaining such approvals, consents, licenses and/or permits. Each Party shall bear all costs, fees and expenses associated with obtaining such approvals, consents, certificates, affidavits and other items for which it is responsible under this Agreement, and upon request will provide to the other evidence that any such items have been obtained and all fees have been paid. 19.2.2 Notwithstanding anything in this Agreement to the contrary, Customer shall not directly or indirectly export (or re-export) any hardware, products, Software, technical data or products thereof covered under this Agreement or permit transshipment of same (a) to any country or destination for which the United States Government or a United States Government agency requires an export license or other approval for export without first having obtained such license or other approval, or (b) if otherwise contrary to United States law. The term "technical data" shall include the TSG Services and any technical assistance provided by TSG. This obligation shall survive the expiration or termination of this Agreement. 19.3 Binding Nature and Assignment. This Agreement shall be binding on Customer and TSG and their respective successors and assigns. Either Party shall have the right to assign this Agreement to an Affiliate so long as the contracting Party hereto remains primarily liable for the continued performance of the terms and conditions of this Agreement. Otherwise, this Agreement may not be assigned by Customer, without the prior written consent of TSG, which consent shall not be unreasonably withheld. TSG shall have the right to subcontract any of its obligations under this Agreement to a third party without any consent of Customer being required. 19.4 Notices. Wherever under this Agreement one party is required or permitted to give written notice to the other, such notice shall be deemed given the third day after its mailing by one party, postage prepaid, to the other party addressed as follows: In the case of TSG: President The SABRE Group, Inc. MD 4319 4255 Amon Carter Blvd. Fort Worth, TX 76115 Fax: (817) 967-4044 With a copy to: General Counsel The SABRE Group, Inc. MD 4204 4255 Amon Carter Blvd., Fort Worth, TX 76155 Fax: (817) 931-7502 In case of Customer: Chief Financial Officer PST Vans, Inc. 1901 West 2100 South Salt Lake City, Utah 84119 Fax: (801) 975-2402 With a copy to: Chief Executive Officer PST Vans, Inc. 1901 West 2100 South Salt Lake City, Utah 84119 Fax: (801) 975-2515 And another copy to: John B. Anderson 623 E. 100 S. Salt Lake City, Utah 84119 Fax: (801) 531-6340 Any notice that shall be mailed pursuant to the foregoing shall also be delivered by hand or transmitted by fax and shall be effective when received by the addressee. Either Party may from time to time specify as its address or fax number for purposes of this Agreement any other address or fax number upon giving ten (10) days prior written notice thereof to the other Party. 19.5 Counterparts. This Agreement may be executed in several counterparts, all of which taken together shall constitute one single agreement between the Parties. 19.6 Headings. This Agreement may be executed in several counterparts, all of which taken together shall constitute one single agreement between the Parties. 19.7 Relationship of Parties. TSG shall be and act as an independent contractor hereunder and no employee of either Party shall be deemed to be an employee of the other for any purpose whatsoever. Each Party shall comply, at its own expense, with the provisions of all applicable state and municipal requirements and with all state and federal laws applicable to it as an employer and otherwise. 19.8 No Solicitation. During the Term and for a period of two (2) years thereafter, neither Party shall without the prior written consent of the other Party, solicit for employment or otherwise retain the services of any current or former employees of the other Party. Notwithstanding the above, if TSG terminates the employment of a Transitioned Employee for any reason (other than the Transitioned Employees voluntary resignation) during the period referenced above, Customer may solicit or otherwise retain the services of such Transitioned Employee. 19.9 Savings Clause. In the event any provision of this Agreement is held to be invalid or unenforceable, such provision shall be deemed modified to the extent necessary to become valid and enforceable. 19.10 Approvals. Where agreement, approval, acceptance, consent or similar action by either Party is required by any provision of this Agreement, such action shall not be unreasonably delayed or withheld. 19.11 Waiver. No delay or omission by either party hereto to exercise any right or power hereunder shall impair such right or power or be construed to be a waiver thereof. A waiver by either Party of any of the covenants to be performed by the other or any breach of a covenant shall not be construed to be a waiver of any succeeding breach or of any other covenant contained in this Agreement. 19.12 Attorneys' Fees. If any legal action or other proceeding is brought for the enforcement of an award under Section 16.2, the prevailing Party shall be entitled to recover reasonable attorneys' fees and expenses and other costs incurred in that action or proceeding, in addition to any other relief to which it may be entitled. 19.13 Media Releases. All media releases, public announcements and public disclosures by either Party relating to this Agreement or its subject matter, including, without limitation, promotional or marketing material (but not including any announcement intended solely for internal distribution by the disclosing Party or any disclosure required by legal, accounting or regulatory requirements beyond the reasonable control of the disclosing Party) shall be coordinated with and approved by the other party prior to the release thereof. Notwithstanding the above, TSG may list Customer's name as a customer of TSG in marketing and promotional material without having to first obtain Customer's prior written approval. 19.14 No Third Party Beneficiary. Except as otherwise provided herein, nothing in this Agreement may be relied upon or shall benefit any party other than Customer or TSG. Without limiting the foregoing, nothing in this Agreement, either expressed or implied, will confer upon any employee of Customer or TSG any right or remedy, including, without limitation, any right to employment or continued employment for any specified period of time. 19.15 Entire Agreement. This Agreement, including any Schedules, referred to herein and attached hereto, each of which is incorporated in this Agreement for all purposes, constitutes the entire agreement between the parties with respect to the subject matter of this Agreement and there are no representations, understandings or agreements relating to this Agreement that are not fully expressed herein. No amendment, modification, waiver or discharge of this Agreement shall be valid unless in writing and signed by an authorized representative of the party against which such amendment, modification, waiver or discharge is sought to be enforced. 19.16 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Texas, regardless of conflict of laws rules. 19.17 Year 2000. TSG will use its commercially reasonable efforts to ensure that the TSG Software licensed hereunder by Customer, when used in accordance with its associated Documentation, will be Year 2000 Compliant. TSG will also endeavor to ensure that Third Party Software utilized in performing the TSG Services is Year 2000 Compliant; provided however, TSG shall have no liability, and expressly disclaims any warranties or conditions, in connection with any Third Party Software, and the operation of any TSG Software with any Third Party Software or equipment not supplied by TSG. In the event any of the TSG Software is not Year 2000 Compliant on or before June 30, 1999, TSG shall use commercially reasonable efforts to bring such non-conforming TSG Software into Year 2000 Compliance at no additional cost to Customer as soon as reasonably practicable. In the event TSG is unable to do so, TSG shall refund to Customer all labor charges paid to TSG in connection with such TSG Software, including any implementation or customization fees. The remedies provided in this Section 19.17 shall be the sole and exclusive remedies available to Customer, and the sole and exclusive obligation of TSG, for TSG's failure to comply with this Section 19.17. IN WITNESS WHEREOF, TSG and Customer have each caused this Agreement to be signed and delivered by its duly authorized officer, all as of the Effective Date. THE SABRE GROUP, INC. PST VANS, INC. By: By: ------------------------------ ------------------------------ Name: Name: Kenneth R. Norton ------------------------------ ------------------------------ Date: Date: ------------------------------ ------------------------------ AGREEMENT FOR OUTSOURCING SERVICES BETWEEN PST VANS, INC. AND THE SABRE GROUP, INC. ___________, 1998 TABLE OF CONTENTS PAGE ARTICLE 1. DEFINITIONS AND INTERPRETATION.........................1 1.1 Definitions................................................1 1.2 Exhibits and Schedules.....................................1 ARTICLE 2. TERM...................................................1 2.1 Term of Agreement..........................................1 2.2 Extensions of the Term.....................................1 ARTICLE 3 SERVICES AND EXCLUSIVITY 3.1 Services in General........................................2 3.2 New or Additional Service..................................2 3.3 TSG Rights to Manage TSG Resources.........................2 3.4 Exclusive Services.........................................3 3.5 Change Order Process.......................................3 3.6 Keep Technology Current....................................3 ARTICLE 4. OTHER TSG OBLIGATIONS..................................3 4.1 Transitioned Employees.....................................4 4.2 TSG Account Manager........................................4 4.3 Retention and Safeguarding of Customer Data................4 4.4 Migration..................................................5 ARTICLE 5. CUSTOMER RESPONSIBILITIES AND DUTIES...................5 5.1 Customer Employees.........................................5 5.2 Customer Facilities and Related Services...................5 5.3 Customer Owned Equipment...................................6 5.4 Customer Leased Equipment..................................7 5.5 Third Party Services.......................................7 5.6 Customer Contract Manager..................................8 5.7 Assistance.................................................8 5.8 Use of TSG Services........................................8 TABLE OF CONTENTS (CONTINUED) PAGE 5.9 Customer Licensed Software.................................9 5.10 Customer Owned Software....................................9 5.11 Failure to Obtain Required Consents........................9 5.12 Training of Customer Personnel............................10 5.13 Provision of Source Data..................................10 5.14 Inspection................................................10 5.15 Supplies..................................................10 5.16 Governmental Approvals....................................11 ARTICLE 6. SERVICE LEVELS........................................11 6.1 Establishment of SLA's....................................11 6.2 SLA Standard..............................................11 6.3 Monitoring................................................11 6.4 Costs of Implementing Monitoring..........................11 6.5 Correction of Deficiencies................................11 ARTICLE 7. FEES AND CHARGES......................................12 7.1 Fees and Charges..........................................12 7.2 Adjustment to Charges.....................................12 7.3 Termination Assistance....................................12 7.4 Out of Pocket Expenses and Third Party Charges............13 ARTICLE 8. INVOICES AND PAYMENT..................................13 8.1 Monthly Base Charge.......................................13 8.2 Other Charges.............................................13 8.3 Payment...................................................13 8.4 Interest on Overdue Amounts...............................13 8.5 No Deductions/Set-Off.....................................13 ARTICLE 9. TAXES.................................................14 9.1 Shipping, Taxes and Import Duties.........................14 ARTICLE 10. PROPRIETARY RIGHTS....................................14 TABLE OF CONTENTS (CONTINUED) PAGE 10.1 TSG Proprietary Information...............................14 10.2 Customer Data.............................................14 10.3 License...................................................15 10.4 Protection of Software Rights Against Third Parties.......15 ARTICLE 11. CONFIDENTIAL INFORMATION..............................15 11.1 Confidential Information..................................15 11.2 Residual Knowledge........................................16 ARTICLE 12. WARRANTIES............................................16 12.1 Mutual Warranties.........................................16 12.2 No Other Representations or Warranties....................17 ARTICLE 13. LIMITATIONS OF LIABILITY..............................17 13.1 Intended Allocation of Risks..............................17 13.2 Gross Negligence or Willful Misconduct....................17 13.3 Limitation on Damages.....................................18 13.4 Limitation on Amount of General Damages...................18 13.5 Tort Damages and Indemnifiable Losses.....................18 13.6 Time for Claims...........................................18 13.7 Warranties................................................18 13.8 Equitable Relief..........................................18 13.9 Exclusive Remedies........................................19 13.10 Noncumulative Remedies....................................19 13.11 Waiver of Remedies........................................19 ARTICLE 14. INDEMNIFICATION.......................................19 14.1 Representations and Warranties............................19 14.2 End Users.................................................20 14.3 Employment Related Matters................................20 14.4 Infringement..............................................20 14.5 Indemnification Procedures................................22 TABLE OF CONTENTS (CONTINUED) PAGE ARTICLE 15. FORCE MAJEURE AND DISASTER RECOVERY...................22 15.1 Force Majeure.............................................22 15.2 Disaster Recovery.........................................22 ARTICLE 16. DISPUTE RESOLUTION....................................22 16.1 Performance Review........................................22 16.2 Dispute Resolution........................................23 16.3 Continued Performance.....................................23 ARTICLE 17. TERMINATION...........................................23 17.1 Termination for Breach....................................23 17.2 Other Termination Events..................................24 ARTICLE 18. TERMINATION ASSISTANCE SERVICES; SURVIVAL.............25 18.1 Termination Assistance Services...........................25 18.2 Termination Assistance Period.............................26 ARTICLE 19. MISCELLANEOUS.........................................26 19.1 Compliance with Applicable Law............................26 19.2 Import, Export, Exchange Controls.........................26 19.3 Binding Nature and Assignment.............................27 19.4 Notices...................................................27 19.5 Counterparts..............................................29 19.6 Headings..................................................29 19.7 Relationship of Parties...................................29 19.8 No Solicitation...........................................29 19.9 Savings Clause............................................29 19.10 Approvals.................................................29 19.11 Waiver....................................................29 19.12 Attorneys' Fees...........................................29 19.13 Media Releases............................................29 19.14 No Third Party Beneficiary................................30 TABLE OF CONTENTS (CONTINUED) PAGE 19.15 Entire Agreement..........................................30 19.16 Governing Law.............................................30 19.17 Year 2000.................................................30 SCHEDULE 1.1 DEFINITIONS AND INTERPRETATION I. DEFINITIONS In the Agreement, the following terms have the corresponding meanings: "Affiliate:" A Person that directly or indirectly through one or more intermediaries Controls, is Controlled by, or is under common Control with another Person. "Agreement:" The Agreement for Outsourcing Services entered into by the Parties. "Arbitration Rules:" The rules for international commercial arbitration of JAMS, as amended or supplemented from time to time. "Assigned Leases:" The leases for equipment identified on Schedule 5.4 identified as assigned to TSG. "Changes:" As defined in Section 3.5 of the Agreement. "Confidential Information:" The information described in Section 11.1. "Consent:" Prior, express, and written consent (which may not be unreasonably withheld, conditioned or delayed unless stated to be at a Party's sole discretion). "Consequential Damages:" Damages consisting of lost profits, lost income, or lost savings or consequential, indirect, special, or incidental damages (however described). "Consequential Damages" does not include any punitive or exemplary damages. "Control:" The ownership or effective voting control of fifty percent (50%) or more of the outstanding equity interests of another Person. "Customer's Contract Manager:" Neil Vos, and any successor individual so designated in writing by Customer from time to time. "Customer Data:" The following data, whether provided or produced before, on, or after the Effective Date: (1) All data that is provided by or on behalf of Customer to TSG in order for TSG to provide the TSG Services, including keyed input and electronic capture of information by the TSG Services; (2) All data that is provided by or on behalf of TSG to Customer by means of the TSG Services, including reports and all other output of the TSG Software; and (3) All data that is produced by means of TSG Services as an intermediate step in using or producing any of the Customer Data, including databases and files containing Customer Data. "Customer Data Center:" Customer's data processing center located at 1901 W. 2100 South, Salt Lake City, Utah 84119. "Customer Indemnitees:" Customer and its directors, officers, employees, and agents and the heirs, executors, successors, and permitted assigns of any of those Persons. "Customer Leased Equipment:" The equipment identified on Schedule 5.4. "Customer Licensed Software:" The Third Party Software and related documentation identified on Schedule 5.9. "Customer Owned Equipment:" The Equipment identified on Schedule 5.3.2 "Customer Owned Software:" The software and related documentation identified on Schedule 5.10. "Derivative Work:" A "derivative work" is based on one or more preexisting works, such as a translation, , abridgment, condensation, or any other form in which a work may be recast, transformed or adapted. A work consisting of editorial revisions, annotations, elaboration, or other modifications, which, as a whole, represent an original work of authorship, is a derivative work. "Dispute Resolution Process:" The process to be followed for the resolution of disputes as set forth in Article 16. "Documentation:" Instructions and related information for the use by end users of TSG Software including users manuals, and instructions and related information for the operation of software including run instructions, job control instructions, balancing procedures, and input dependencies. "Effective Date:" March 1, 1998. "Egregious Breach:" A material breach of contract that constitutes an intentional, unequivocal refusal to perform a material obligation of this Agreement that frustrates one or more bases of the bargain between the Parties 2 to the extent that a (non-breaching) reasonable business person would not have entered into the Agreement or would not continue performing under the Agreement. "Employees:" The employees of Customer identified on Schedule 4.1.1. "End User:" The end users of Customer, including but not limited to, truck owners/operators. "Expiration Date:" January 31, 2008. "General Damages:" Actual, out of pocket damages, losses, claims, obligations, demands, assessments, fines and penalties (whether civil or criminal), liabilities, expenses and costs (including reasonable fees and disbursements of legal counsel and accountants), and other direct damages suffered or incurred by a Person. For the avoidance of doubt, "General Damages" excludes punitive damages, exemplary damages and Consequential Damages of such Person. "Infringement:" See Section 14.4.1 of the Agreement. "Indemnification Claim:" A claim or demand by a Party, on its behalf or on behalf of one or more of its other Indemnitees, based on a Third Party Claim, for indemnification under Article 14. "Indemnifiable Losses:" Losses, claims, obligations, demands assessments, fines and penalties (whether civil or criminal), liabilities, expenses and costs (including reasonable fees and disbursements of legal counsel and accountants), bodily and other personal injuries, damage to tangible property, and other damages, of any kind or nature, actually suffered or incurred by a Person. "Indemnifiable Losses" consists only of the actual damages of a Person, and excludes any Consequential Damages and any punitive or exemplary damages (however described) awarded against such Indemnitee in favor of a Person making a Third-Party Claim against such Indemnitee. "Indemnitees:" The Customer Indemnitees or the TSG Indemnitees, or both. "JAMS:" The Endispute/JAMS arbitration service. "Migration:" The transfer of performance of certain of the TSG Services from the Customer Data Center to the TSG Data Center under the Migration Plan. "Migration Plan:" See Section 4.4 of the Agreement. "Monthly Base Charge:" The fees and charges set forth in Schedule 7.1 for performance of the TSG Services. 3 "New or Additional Service:" One or more services that are not described in Schedule 3.1, as such Schedule may be amended from time to time, which relate to Customer's internal information technology process. "New TSG Software:" Software developed by TSG at the written direction and request of Customer, for which Customer pays to TSG all development costs and expenses incurred by TSG in the development of such software and all associated Documentation. "Notice:" Prior, written notice or other communication complying with Section 19.4 of this Agreement. Whenever a period of time is stated for Notice, such period of time is the minimum period and nothing in this Agreement shall be construed as prohibiting a greater period of time. ("Notify" has the correlative meaning). "Party:" Each of the signatories to the Agreement, and their successors and assigns as permitted by the Agreement. ("Parties" has the correlative meaning). "Per Diem:" Daily charges to be paid by Customer to TSG for performance of certain of the TSG Services. "Person:" An individual, a corporation, partnership, trust, association, or entity of any kind or nature; or a governmental authority. "Required Consent:" An enforceable consent and authorization provided by a third-party licensor, lessor, or party to a Third Party Service contract, consenting to and authorizing TSG's use of the either the Customer Lease Equipment, Customer Licensed Software, Customer Owned Software or Third Party Service, as applicable. "SLA:" Each of the written statements of performance levels mutually agreed upon by the Parties for certain TSG Services. "SLA Standard:" For a specific service, the acceptable level of performance for such service specified in the applicable SLA. "Special Forms:" The forms described in Section 5.15 of the Agreement. "Term:" See Section 2.1 of the Agreement. "Termination Assistance Services:" The services provided by TSG to Customer, in addition to the TSG Services and in accordance with Article 18, to enable Customer to obtain services to replace the TSG Services. "Termination Liquidated Damages:" See Section 16.2 of the Agreement. 4 "Third-Party Claim:" A claim of liability asserted against a Party by a Person other than the other Party or either Party's Affiliates. "Third Party Services:" The third party service agreements specified on Schedule 5.5.1 hereof. "Third Party Software:" Any software and related documentation which may be procured by TSG from time to time from third party vendors and used in performing the TSG Services. "Tort Damages:" Bodily or personal injury or death or damage to real or tangible personal property. "Transitioned Employees:" See Section 4.1.1 of the Agreement. "Trucomm Software:" The enterprise operations/financial TSG Software to be implemented by TSG in accordance with Schedule 3.1. "TSG's Account Manager:" The individual so designated in writing by TSG from time to time, who shall have the responsibilities set forth in Section 4.2. "TSG Charges:" The fees and charges set forth in Schedule 7.1 to the Agreement . "TSG Data Center:" means the existing data center operated by TSG in Dallas, Texas or such other location as TSG may establish a data center. "TSG Indemnitees:" TSG and its directors, officers, employees, and agents and the heirs, executors, successors, and permitted assigns of any of those Persons. "TSG Services:" Services described in Schedule 3.1 of the Agreement, as such Schedule may be revised from time to time by mutual written agreement of the Parties. "TSG Software:" The software that is developed and licensed to Customer under the terms of this Agreement and that (i) is identified by TSG internally as being owned solely or jointly by TSG or licensed by TSG, (ii) is used or useful in the trucking carrier business, and (iii) can be freely licensed by TSG to third parties for use in the trucking carrier business without payment of a royalty or other fee to a third party. "Year 2000 Compliant:" Year 2000 Compliant means computer hardware, software and microcode that has user interfaces, date data fields, processing logic, and outputs that correctly recognize, process and otherwise support date data with respect to dates occurring after January 1, 2000, as determined by TSG's certification process. II. INTERPRETIVE MATTERS 5 The Agreement is the result of the Parties' negotiations, and no provision of this Agreement shall be construed for or against either Party because of the authorship of that provision. In the interpretation of the Agreement, except where the context otherwise requires: 1. "including" or "include" does not denote or apply any limitation; 2. "or" has the inclusive meaning "and/or;" 3. "and/or" means "or" and is used for emphasis only; 4. "$" refers to United States dollars; 5. the singular includes the plural, and vice versa, and each gender includes each of the others; 6. captions or headings are only for reference and are not to be considered in interpreting the Agreement; 7. "Article," "Section," and "Subsection" refer to an Article, Section and Subsection, respectively, of the Agreement, unless otherwise stated in the Agreement; 8. if an ambiguity arises in a Subsection's Section's, or Article's cross-reference to another Section or Article, the cross-referenced heading controls over the cross-referenced Section or Article number. 6 SCHEDULE 3.1 TSG SERVICES SCHEDULE 4.1.1 EMPLOYEES [TO BE DETERMINED] SCHEDULE 5.4 CUSTOMER LEASED EQUIPMENT SCHEDULE 5.5.1 THIRD PARTY SERVICES SCHEDULE 5.9 CUSTOMER LICENSED SOFTWARE SCHEDULE 5.10 CUSTOMER OWNED SOFTWARE SCHEDULE 6.1 SERVICE LEVEL AGREEMENT SCHEDULE 7.1 FEES AND CHARGES EX-23. 4 CONSENTS OF EXPERTS AND COUNSEL 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 on Form S-8, File Nos. 33-98960 and 333-12489. ARTHUR ANDERSEN LLP Salt Lake City, Utah March 27, 1998 EX-27 5 FDS --
5 12-MOS DEC-31-1997 DEC-31-1997 1282255 0 17087038 0 726853 22537551 48265324 26399259 79475694 45968619 0 0 0 4240 17506776 79475694 143737430 143737430 143797530 143797530 (105441) 0 4359888 (4314547) 0 (4314547) 0 0 0 (4314547) (1.02) (1.02)
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