-----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, OmaukCSIReh3G3uGG5d8ctKumd9RQJ34HB+IssU8eo5XHSXYfaauMdo8IuY/0kVs rpk8WUdKOtekQDNGobGz6w== 0001022581-02-000004.txt : 20020416 0001022581-02-000004.hdr.sgml : 20020416 ACCESSION NUMBER: 0001022581-02-000004 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020415 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CONSOLIDATED FREIGHTWAYS CORP CENTRAL INDEX KEY: 0001022581 STANDARD INDUSTRIAL CLASSIFICATION: TRUCKING (NO LOCAL) [4213] IRS NUMBER: 770425334 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-12149 FILM NUMBER: 02610520 BUSINESS ADDRESS: STREET 1: 16400 SE CF WAY CITY: VANCOUVER STATE: WA ZIP: 98683 BUSINESS PHONE: 360-448-4000 MAIL ADDRESS: STREET 1: 16400 SE CF WAY CITY: VANCOUVER STATE: WA ZIP: 98683 10-K 1 form10k2001.txt FORM 10K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 2001 Commission File Number 1-12149 CONSOLIDATED FREIGHTWAYS CORPORATION Incorporated in the State of Delaware I.R.S. Employer Identification No. 77-0425334 16400 S.E. CF Way, Vancouver, WA 98683 Telephone Number (360) 448-4000 Securities Registered Pursuant to Section 12(b) of the Act: Name of Each Exchange on Title of Each Class Which Registered Common Stock ($.01 par value) NASDAQ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes___X___ No_______ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ___X____ Aggregate market value of voting stock held by persons other than Directors, Officers and those shareholders holding more than 5% of the outstanding voting stock, based upon the closing price per share on the National Automated System of the National Association of Securities Dealers Inc. Automated Quotation System on March 31, 2002: $68,037,580. Number of shares of Common Stock outstanding as of March 31, 2002: 22,318,790 DOCUMENTS INCORPORATED BY REFERENCE Parts I, II and IV Parts I, II and IV are incorporated by reference from Consolidated Freightways Corporation's 2001 Annual Report to Shareholders. (Only those portions referenced herein are incorporated in this Form 10-K.) Part III Part III is incorporated by reference from the proxy statement to be filed in connection with the Company's 2002 Annual Meeting of Shareholders. (Only those portions referenced herein are incorporated in this Form 10-K.) Page 1 CONSOLIDATED FREIGHTWAYS CORPORATION FORM 10-K Year Ended December 31, 2001 _______________________________________________________________________ INDEX Item Page PART I 1. Business 3 2. Properties 8 3. Legal Proceedings 8 4. Submission of Matters to a Vote of Security Holders 9 PART II 5. Market for the Registrant's Common Stock and Related Stockholder Matters 9 6. Selected Financial Data 9 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 7A. Quantitative and Qualitative Disclosures About Market Risk 10 8. Financial Statements and Supplementary Data 10 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 10 PART III 10. Directors and Executive Officers of the Registrant 11 11. Executive Compensation 11 12. Security Ownership of Certain Beneficial Owners and Management 12 13. Certain Relationships and Related Transactions 12 PART IV 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 12 Signatures 13 Index to Information Incorporated by Reference 14 Index to Financial Information 15 Page 2 CONSOLIDATED FREIGHTWAYS CORPORATION FORM 10-K Year Ended December 31, 2001 _______________________________________________________________________ PART I ITEM 1. BUSINESS (a) General Development of Business Consolidated Freightways Corporation is a holding company that was incorporated in Delaware in 1996. It is herein referred to as the "Registrant" or "Company". The Company was formerly a subsidiary of CNF Inc. (the former parent) through December 1, 1996. The Company consists of Consolidated Freightways Corporation of Delaware (CFCD), a long-haul freight transportation company, incorporated in 1958 as successor to the original trucking company organized in 1929, and its Canadian operations, including Canadian Freightways Ltd., Epic Express, Milne & Craighead, Interport Sufferance Warehouses, Blackfoot Logistics, and other related businesses; CF AirFreight Corporation, a non-asset based provider of domestic and international air freight forwarding and full and less-than-container load ocean freight transportation; Redwood Systems, Inc., a non-asset based supply chain management services provider; CF Risk Management, a captive insurance company; and CF Funding LLC, a wholly owned, consolidated special purpose company. The Company primarily provides less-than-truckload transportation, air freight forwarding and supply chain management services throughout the United States and Canada, as well as in Mexico through a joint venture, and international freight services between the United States and more than 80 countries. (b) Financial Information About Industry Segments The Company does not present segment disclosures because the air freight forwarding, supply chain management and international freight service offerings do not meet the quantitative thresholds of Statement of Financial Accounting Standards No. 131 "Disclosures about Segments of an Enterprise and Related Information." (c) Narrative Description of Business The Company, headquartered in Vancouver, Washington, is the holding company of CFCD, a long-haul freight transportation company providing less-than-truckload freight services throughout the United States and Canada, as well as in Mexico through a joint venture, and international freight services between the United States and more than 80 countries through operating agreements with ocean carriers and a network of international partners. Operations consist of an extensive transportation network that typically moves shipments of manufactured or non-perishable processed products having relatively high value and requiring consistent, expedited service, compared to the bulk raw materials characteristically transported by railroads, pipelines and water carriers. Less-than-truckload (LTL) is an industry designation for shipments weighing less than 10,000 pounds. CFCD is one of the nation's largest LTL motor carriers in terms of 2001 revenues. CFCD's primary competitors in the national LTL market are Yellow Freight System, Inc., Roadway Express, Inc. and Arkansas Best Corporation. CFCD also competes for LTL freight with regional LTL motor carriers, small package carriers, private carriage and freight forwarders. Competition for freight is based primarily upon price, service consistency and transit time. Page 3 As of December 31, 2001, CFCD operated 37,000 vehicle units including inter-city tractors and trailers and pick-up and delivery units. It had a network of 295 freight terminals, metro centers and regional consolidation centers. There is a broad diversity in the customers served, size of shipments, commodities transported and length-of-haul. No single commodity accounted for more than a small fraction of total revenues. In 2001, CFCD operated in excess of 572 million linehaul miles. Road equipment consists of one tractor pulling two 28-foot trailers or, to a limited extent, one semi-trailer or three 28-foot trailers. CFCD operates daily schedules utilizing relay drivers who drive approximately eight to ten hours each day and sleeper teams, which in 2001, approximated 20% of all linehaul miles. Rail miles as a percentage of total linehaul miles approximated 27%. CFCD and several Canadian subsidiaries serve Canada through terminals and warehouses in the provinces of Alberta, British Columbia, Manitoba, New Brunswick, Nova Scotia, Ontario, Quebec, Saskatchewan and in the Yukon Territory. The Canadian subsidiaries utilize 54 terminals and warehouses and a fleet of over 1,555 trucks, tractors and trailers. CFCD serves Mexico through participation in a joint venture, which was formed in 1998. In 2002, the Company entered into an agreement to acquire 100% ownership of the businesses operated by the joint venture. Please refer to Note 3 of the 2001 Annual Report to Shareholders, incorporated herein by reference, for a complete discussion of acquisition. CF AirFreight (CFAF) was incorporated in 2000 to acquire substantially all of the assets and liabilities of privately held FirstAir, Inc., a non-asset based provider of domestic and international air freight forwarding and full and less-than-container load ocean freight transportation. CFAF utilizes 12 terminals in the United States and 2 in Europe. Redwood Systems, Inc. (Redwood), incorporated in 1997, is a third party, non-asset based logistics company providing complete supply chain management services including dedicated contract warehousing and carriage, just-in-time delivery and specialized time-definite distribution, information-based logistics services and worldwide multi- modal logistics. Redwood operates 4 warehouses in the United States and 3 in Mexico. CF Risk Management (CFRM) is a captive insurance company that was incorporated in 1999. Through CFRM, the Company participates in a reinsurance pool to reinsure the majority of its workers' compensation liability. Please refer to Note 2 of the 2001 Annual Report to Shareholders, incorporated herein by reference, for a complete discussion of CFRM. CF Funding LLC (CFFC) is a wholly owned, consolidated special purpose company that was formed in 2001. Through CFFC, the Company participates in an accounts receivable securitization agreement to provide for working capital and letter of credit needs of the Company. Please refer to Note 5 of the 2001 Annual Report to Shareholders, incorporated by reference herein, for a complete discussion of CFFC. Cyclicality and Seasonality Cyclicality and Seasonality: The months of September, October and November of each year usually have the highest business levels while January, February and December have the lowest. The LTL industry is affected by seasonal fluctuations, which affect the amount of freight to be transported. Freight shipments and operating results are also adversely affected by inclement weather conditions. Page 4 Employees As of December 31, 2001, 81% of the Company's domestic employees were represented by various labor unions, primarily the International Brotherhood of Teamsters (IBT). The Company and the IBT are parties to the National Master Freight Agreement, which expires on March 31, 2003. Although the Company believes it will be able to successfully negotiate a new contract with the IBT, there can be no assurance that it will be able to do so, or that work stoppages will not occur, or that the terms of any such contract will not be substantially less favorable than those of the existing contract, any of which could have a material adverse effect on the Company's financial position and results of operations. Labor costs, including fringe benefits, averaged approximately 66% of the Company's 2001 revenues. The Company had approximately 18,100, 21,100 and 22,100 employees as of December 31, 2001, 2000 and 1999, respectively. The decrease in number of employees in 2001 reflects headcount reductions made by the Company to adjust to lower business levels due to the economic slowdown. Fuel The average fuel cost per gallon, excluding taxes, was $0.866, $0.947 and $0.578 for the years ended December 31, 2001, 2000 and 1999, respectively. The Company's rules tariff allows for a fuel surcharge when the average cost per gallon of on-highway diesel fuel exceeds $1.10, including tax, as determined from the Energy Information Administration of the Department of Energy's publication of weekly retail on-highway diesel prices. This provision of the rules tariff became effective in July 1999 and remains in effect. However, there can be no assurance that the Company will be able to maintain this surcharge or successfully implement such surcharges in response to increased fuel costs in the future. Federal and State Regulation Regulation of motor carriers has changed substantially in the last 22 years. The process started with the Motor Carrier Act of 1980, which allowed easier access to the industry by new trucking companies, removed many restrictions on expansion of services by existing carriers, and increased price competition by narrowing the antitrust immunities available to the industry's collective ratemaking organizations. This deregulatory trend was continued by subsequent legislation in 1982, 1986, 1993 and 1994. The process culminated with federal pre-emption of most economic regulation of intrastate trucking services by state agencies effective January 1, 1995, and with legislation that terminated the Interstate Commerce Commission (ICC) effective January 1, 1996. Currently, the motor carrier industry is subject to specialized federal regulation by a variety of agencies, including several which are units of the United States Department of Transportation (DOT). Within the DOT, the Federal Motor Carrier Safety Administration (FMCSA) has inherited certain areas of jurisdiction from the ICC. These areas relate chiefly to motor carrier registration, cargo and liability insurance documentation, rules for extension of credit to motor carrier customers, and rules for leasing of equipment by motor carriers from owner-operators. The majority of FMCSA's resources, however, are devoted to enforcement of comprehensive trucking safety regulations relating to driver qualifications, drivers' hours of service, safety- related equipment requirements, vehicle inspection and maintenance, analysis of and record-keeping for accidents, and highway transportation of hazardous materials. As the Company expands into modes of transportation other than trucking, it faces regulation by additional units of DOT. For example, CFCD must comply with regulations of the Federal Railroad Administration and the Coast Guard, respectively, to the extent that it arranges to move shipments of hazardous materials in rail "piggyback" (trailer-on-flatcar) service or in oceangoing cargo containers. Compliance with hazardous-materials and cargo-security regulations of the DOT's Federal Aviation Administration is required when CF AirFreight tenders shipments to air carriers. Page 5 The Company also faces specialized regulation by federal agencies outside the DOT, especially as its international operations expand. CFCD's ocean freight consolidation services are subject to regulation by the Federal Maritime Commission, and its use of foreign-based truck equipment and drivers for operations on U.S. territory is restricted by regulations of the Customs Service and the Immigration and Naturalization Service, respectively. The Company also is subject to federal regulations of general applicability in such areas as labor relations, employee benefits, occupational safety and environmental matters. At the state level, federal pre-emption of economic regulation does not prevent the states from regulating motor vehicle safety on their highways. In addition, federal law allows all states to impose insurance requirements on motor carriers conducting business within their borders, and empowers most states to require motor carriers conducting interstate operations through their territory to make annual filings verifying that they hold appropriate registrations from FMCSA. Motor carriers also must pay state fuel taxes and vehicle registration fees, which normally are apportioned on the basis of mileage operated in each state. Canadian Regulation Although the provinces in Canada have regulatory authority over intra- provincial operations of motor carriers, they have elected to substantially eliminate intra-provincial economic regulation of the general freight trucking industry. Nonetheless, the Canadian provinces have implemented increasingly rigorous safety regulations of trucking services. These regulations are applicable to both extra-provincial and intra-provincial operations of motor carriers. Mexican Regulation and Market Access Mexico has a centralized system for registration and safety regulation of motor carriers through its federal Secretariat of Commerce and Transportation (SCT). The Company's participation in transportation services between the United States and Mexico has been accomplished through a joint venture with Mexican investors. However, as discussed above, the Company is acquiring 100% ownership of the businesses operated by the joint venture. Page 6 General The research and development activities of the Company are not significant. During 2001, 2000 and 1999 there was no single customer of the Company that accounted for 10% or more of consolidated revenues. The Company is subject to Federal, state and local environmental laws and regulations relating to, among other things, contingency planning for spills of petroleum products, and its disposal of waste oil. Additionally, the Company is subject to significant regulations dealing with underground fuel storage tanks. The Company stores some of its fuel for its trucks and tractors in 228 underground tanks located in 36 states. The Company believes that it is in substantial compliance with all such environmental laws and regulations and is not aware of any leaks from such tanks that could reasonably be expected to have a material adverse effect on the Company's business, financial position or results of operations. However, there can be no assurances that environmental matters existing with respect to the Company, or compliance by the Company with laws relating to environmental matters, will not have a material adverse effect on the Company's business, financial position or results of operations. The Company has in place policies and methods designed to conform with these regulations. The Company estimates that capital expenditures for upgrading underground tank systems and costs associated with cleaning activities for 2002 will not be material. The Company has received notices from the Environmental Protection Agency (EPA) and others that it has been identified as a potentially responsible party (PRP) under the Comprehensive Environmental Response Compensation and Liability Act (CERCLA) or other Federal and state environmental statutes at various Superfund sites. Under CERCLA, PRP's are jointly and severally liable for all site remediation and expenses. Based upon the advice of local environmental attorneys and cost studies performed by environmental engineers hired by the EPA (or other Federal or State agencies), the Company believes its obligations with respect to such sites would not have a material adverse effect on its financial position or results of operations. (d) Financial Information About Foreign and Domestic Operations and Export Sales Geographic information is summarized in Note 11 on page 23 of the 2001 Annual Report to Shareholders and is incorporated herein by reference. Page 7 ITEM 2. PROPERTIES The following summarizes the terminals, freight service centers and warehouses operated by the Company or its subsidiaries as of December 31, 2001. These major facilities generally consist of a large dock with loading doors, a small office and a large yard for the movement of tractors and trailers in the normal business operations. As the Company continues to invest in its infrastructure to become more competitive and efficient, some terminals will be consolidated and others expanded. Owned Leased Total 217 153 370 The following table sets forth the location and square footage of the principal facilities operated by the Company or its subsidiaries: Location Square Footage (c) Rancho Cucamonga, CA 419,064 (c) Guadalajara, Mexico 369,750 Mira Loma, CA 280,672 Chicago, IL 231,159 Carlisle, PA 151,100 Kansas City, MO 131,916 (d) Edmonton, Alberta, Canada 121,415 Memphis, TN 118,745 (e) Nashville, TN 118,622 (a) Indianapolis, IN 109,460 (e) Orlando, FL 101,557 South Chicago, IL 98,738 (c) St. Petersburg, FL 95,812 (d) Vancouver, British Columbia, Canada 95,725 (a)(e) Minneapolis, MN 94,890 Charlotte, NC 89,204 St. Louis, MO 88,640 (e) Laredo, TX 87,136 Akron, OH 82,494 Sacramento, CA 81,286 Atlanta, GA 77,920 Houston, TX 77,346 Dallas, TX 75,358 Buffalo, NY 73,380 Brooklyn, NY 70,695 (e) Milwaukee, WI 70,661 Philadelphia, PA 70,620 (e) Salt Lake City, UT 68,480 Seattle, WA 59,720 (e) Phoenix, AZ 58,200 (d) Toronto, Ontario, Canada 53,431 (b) Springfield, MA 51,760 (a) Facility partially or wholly financed through the issuance of industrial revenue bonds. (b) Property is leased from a subsidiary of CNF Inc. through December 1, 2005. (c) Dedicated contract warehouse and distribution facility operated by Redwood. (d) Property is owned by one of the Company's Canadian subsidiaries. (e) Property serves as collateral under one of the Company's financing agreements. ITEM 3. LEGAL PROCEEDINGS The legal proceedings of the Company are summarized in Item 8. Discussions of certain environmental matters are presented in Items 1 and 7. Page 8 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The Company's Common Stock is listed for trading on the NASDAQ Stock Market's National Market. The Company's Common Stock began trading on December 3, 1996. The quarterly ranges of the market price of the Company's Common Stock during the period January 1, 2000 to December 31, 2001 are presented in the "Quarterly Financial Data" on page 26 of the 2001 Annual Report to Shareholders and are incorporated herein by reference. Currently there are no cash dividends paid on the Company's Common Stock. The Company is prohibited from paying dividends under certain of its current financing agreements. The Company's future dividend policy will be dependent on the circumstances then in existence. There can be no assurance, however, that the Company will pay any cash dividends on its Common Stock in the future. Under the current stock repurchase plan authorized by the Board of Directors, the Company is authorized to repurchase $19.5 million of stock. However, the Company is prohibited from repurchasing its stock by certain of its current financing agreements. As of December 31, 2001, there were 32,000 holders of record of the common stock ($.01 par value) of the Company. ITEM 6. SELECTED FINANCIAL DATA The Selected Financial Data is presented in the "Five Year Financial Summary" on page 27 of the 2001 Annual Report to Shareholders and is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's Discussion and Analysis of Financial Condition and Results of Operations is presented on pages 9 through 12 of the 2001 Annual Report to Shareholders and is incorporated herein by reference. Certain statements included or incorporated by reference herein constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to a number of risks and uncertainties. Any such forward-looking statements included or incorporated by reference herein should not be relied upon as predictions of future events. Certain such forward-looking statements can be identified by the use of forward-looking terminology such as "believes," "expects," "may," "will," "should," "seeks," "approximately," "intends," "plans," "pro forma," "estimates," or "anticipates" or the negative thereof or other variations thereof or comparable terminology, or by discussions of strategy, plans or intentions. Such forward-looking statements are necessarily dependent on assumptions, data or methods that may be incorrect or imprecise and they may be incapable of being realized. In that regard, the following factors, among others, and in addition to matters discussed elsewhere herein and in documents incorporated by reference herein, could cause actual results and other matters to differ materially from those in such forward-looking statements: general economic conditions; general business conditions of customers served and other shifts in market demand; increases in domestic and international competition; pricing pressures, rate levels and capacity in the motor-freight industry; future operating costs such as employee wages and benefits, fuel prices and workers compensation and self-insurance claims; weather; environmental and tax matters; changes in governmental regulation; technology costs; legal claims; timing and amount of capital expenditures; and failure to execute operating plans, freight mix adjustment plans, yield improvements efforts, process and operations improvements, cost reduction efforts, customer service initiatives; pension funding requirements; and financing needs and availability. As a result of the foregoing, no assurance can be given as to future results of operations or financial condition. Page 9 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Quantitative and qualitative disclosures about market risk are presented on page 10 of the 2001 Annual Report to Shareholders and are incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Consolidated Financial Statements and Auditors' Report are presented on pages 13 through 27 of the 2001 Annual Report to Shareholders and are incorporated herein by reference. The unaudited quarterly financial data is included on page 26 of the 2001 Annual Report to Shareholders and is incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. Page 10 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The identification of the Company's Directors is presented on pages 2 through 4 of the Company's 2002 Proxy Statement and those pages are incorporated herein by reference. The Executive Officers of the Company, their ages at December 31, 2001 and their applicable business experience are as follows: Patrick H. Blake, 52, President and Chief Executive Officer of the Company and Chairman and Chief Executive Officer of CFCD since May 2000. Mr. Blake previously served as Executive Vice President - Operations and Chief Operating Officer of the Company and President and Chief Operating Officer of CFCD since May 1999. From December 1996 through May 1999, Mr. Blake served as Executive Vice President - Operations of the Company and as Executive Vice President - Operations of CFCD since July 1994. He was Vice President - Eastern Region of CFCD from 1992-1994 and a Division Manager from 1985-1992. Wayne M. Bolio, 45, Vice President - Human Resources of the Company since March 2000. From April 1997 through February 2000, Mr. Bolio served as Assistant General Counsel for the Company and was responsible for its labor and employment legal matters. Prior to joining the Company in April 1997, he was an attorney for Southern Pacific Transportation Company from 1991, most recently as Assistant General Counsel from 1993. Martin W. Larson, 44, Senior Vice President - Sales and Marketing since September 2001. Mr. Larson previously served as Chief Information Officer since June 2001 and Vice President of eCommerce since September 2000. Prior to that, Mr. Larson served as Director of eCommerce and Marketing Technology since June 1999 and Marketing Manager since 1995. Stephen D. Richards, 58, Senior Vice President and General Counsel of the Company since December 1996. Mr. Richards served as Vice President and General Counsel of CFCD since September 1995. He was Deputy General Counsel of the former parent for the preceding four years. Thomas A. Paulsen, 58, Executive Vice President and Chief Operating Officer of the Company and President and Chief Operating Officer of CFCD since May 2000. Mr. Paulsen previously served as Senior Vice President - Operations of CFCD from August 1998 through May 2000. Mr. Paulsen was a Vice President of CFCD from March 1985 to July 1998. Robert E. Wrightson, 62, Executive Vice President and Chief Financial Officer of the Company since July 2000. Mr. Wrightson previously served as Senior Vice President and Controller of the Company since December 1996 and as Senior Vice President and Controller of CFCD since July 1994. Prior to joining CFCD, he was Vice President and Controller of the former parent, assuming that position in 1989. Page 11 ITEM 11. EXECUTIVE COMPENSATION The required information for Item 11 is presented on pages 13 through 19 of the Company's 2002 Proxy Statement, and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The required information for Item 12 is included on pages 9 through 11 of the Company's 2002 Proxy Statement and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Not applicable. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) Financial Statements and Exhibits Filed 1. Financial Statements See Index to Financial Information. 2. Financial Statement Schedules See Index to Financial Information. 3. Exhibits See Index to Exhibits. (b) Reports on Form 8-K A Form 8-K was filed on October 25, 2001 disclosing a $50 million revolving credit facility secured by the Company. Please refer to Note 5 of the 2001 Annual Report to Shareholders, incorporated herein by reference, for a complete discussion of this agreement. Page 12 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Form 10-K Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized. April 11, 2002 CONSOLIDATED FREIGHTWAYS CORPORATION (Registrant) By:/s/Robert E. Wrightson Robert E. Wrightson Executive Vice President and Chief Financial 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 and on the dates indicated. April 11, 2002 /s/Patrick H. Blake Patrick H. Blake President, Chief Executive Officer and Director April 11, 2002 /s/Robert E. Wrightson Robert E. Wrightson Executive Vice President and Chief Financial Officer April 11, 2002 /s/James R. Tener James R. Tener Vice President and Controller April 11, 2002 /s/William D. Walsh William D. Walsh, Chairman of the Board April 11, 2002 /s/G. Robert Evans G. Robert Evans, Director April 11, 2002 /s/Paul B. Guenther Paul B. Guenther, Director April 11, 2002 /s/Henry C. Montgomery Henry C. Montgomery, Director Page 13 CONSOLIDATED FREIGHTWAYS CORPORATION FORM 10-K Year Ended December 31, 2001 _______________________________________________________________________ INDEX TO INFORMATION INCORPORATED BY REFERENCE Consolidated Freightways Corporation and Subsidiaries The following items are incorporated herein by reference from the Company's 2001 Annual Report to Shareholders. The page references refer to the Annual Report to Shareholders. Item Page Item 1(c). Narrative Description of Business 17, 19 Item 1(d). Financial Information About Foreign and Domestic Operations and Export Sales 23 Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters 26 Item 6. Selected Financial Data 27 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 9-12 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 10 Item 8. Financial Statements and Supplementary Data 13-27 The following items are incorporated herein by reference from the Company's 2002 Proxy Statement. The page references refer to the Proxy Statement. Item Page Item 10. Directors and Executive Officers of the Registrant 2-4 Item 11. Executive Compensation 13-19 Item 12. Security Ownership of Certain Beneficial Owners and Management 9-11 Page 14 CONSOLIDATED FREIGHTWAYS CORPORATION FORM 10-K Year Ended December 31, 2001 _______________________________________________________________________ INDEX TO FINANCIAL INFORMATION Consolidated Freightways Corporation and Subsidiaries The following Consolidated Financial Statements of Consolidated Freightways Corporation and Subsidiaries appearing on pages 13 through 27 of the Company's 2001 Annual Report to Shareholders are incorporated herein by reference: Consolidated Balance Sheets - December 31, 2001 and 2000 Statements of Consolidated Operations - Years Ended December 31, 2001, 2000 and 1999 Statements of Consolidated Cash Flows - Years Ended December 31, 2001, 2000 and 1999 Statements of Consolidated Shareholders' Equity - Years Ended December 31, 2001, 2000 and 1999 Notes to Consolidated Financial Statements Report of Independent Public Accountants In addition to the above, the following consolidated financial information is filed as part of this Form 10-K: Page Consent of Independent Public Accountants 16 Report of Independent Public Accountants 16 Schedule II - Valuation and Qualifying Accounts 17 The other schedules have been omitted because either (1) they are neither required nor applicable or (2) the required information has been included in the consolidated financial statements or notes thereto. Page 15 SIGNATURE CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports included and incorporated by reference in this Form 10-K, into Consolidated Freightways Corporation's previously filed Registration Statement File Nos. 333-16851, 333-16835, 333-25167, 333-95859, 333-85775, 333-95861 and 333-42456. /s/Arthur Andersen LLP ARTHUR ANDERSEN LLP Portland, Oregon, April 12, 2002 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders and Board of Directors of Consolidated Freightways Corporation: We have audited in accordance with auditing standards generally accepted in the United States, the consolidated financial statements included in Consolidated Freightways Corporation's 2001 Annual Report to Shareholders incorporated by reference in this Form 10-K, and have issued our report thereon dated April 12, 2002. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The Schedule on page 17 is the responsibility of the Company's management and is presented for the purpose 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. /s/Arthur Andersen LLP ARTHUR ANDERSEN LLP Portland, Oregon, April 12, 2002 Page 16 SCHEDULE II CONSOLIDATED FREIGHTWAYS CORPORATION VALUATION AND QUALIFYING ACCOUNTS THREE YEARS ENDED DECEMBER 31, 2001 (In thousands) DESCRIPTION ALLOWANCE FOR DOUBTFUL ACCOUNTS BALANCE AT CHARGED TO CHARGED TO BALANCE AT BEGINNING COSTS AND OTHER END OF OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD 2001 $12,887 $24,044 $ -- $(25,304)(a) $11,627 2000 $13,340 $18,468 $ -- $(18,921)(a) $12,887 1999 $11,413 $18,166 $ -- $(16,239)(a) $13,340 (a) Accounts written off net of recoveries. DEFERRED TAX VALUATION BALANCE AT CHARGED TO CHARGED TO BALANCE AT BEGINNING COSTS AND OTHER END OF OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD 2001 $ -- $39,620 $ -- $ -- $39,620 2000 $ -- $ -- $ -- $ -- $ -- 1999 $ -- $ -- $ -- $ -- $ -- Page 17 INDEX TO EXHIBITS ITEM 14(a)(3) Exhibit No. (2) Plan of acquisition, reorganization, arrangement, liquidation or succession: 2.1 Distribution Agreement between Consolidated Freightways Corporation and Consolidated Freightways, Inc., dated November 25, 1996. (Exhibit 2.1 to the Company's Form 8-K dated March 12, 1997.) (*) (3) Articles of incorporation and bylaws: 3.1 Amended and Restated Certificate of Incorporation of Consolidated Freightways Corporation. (Exhibit 3.1 to the Company's Form 10 filed October 2, 1996.) (*) 3.2 Amended and Restated Bylaws of Consolidated Freightways Corporation. (Exhibit 3.2 to the Company's Form 10-K for the year ended December 31, 1998.) (*) (10) Material Contracts: 10.1 Alternative Dispute Resolution Agreement Between Consolidated Freightways Corporation and Consolidated Freightways, Inc., dated as of December 2, 1996. (Exhibit 10.2 to the Company's Form 8-K dated March 12, 1997.) (*) 10.2 Employee Benefit Matters Agreement between Consolidated Freightways Corporation and Consolidated Freightways, Inc., dated as of December 2, 1996. (Exhibit 10.3 to the Company's Form 8-K dated March 12, 1997.) (*) 10.3 Tax Sharing Agreement between Consolidated Freightways Corporation and Consolidated Freightways, Inc., dated as of December 2, 1996. (Exhibit 10.4 to the Company's Form 8-K dated March 12, 1997.) (*) 10.4 Reimbursement and Indemnification Agreement between ConsolidatedFreightways Corporation of Delaware and Consolidated Freightways,Inc., dated as of October 1, 1996. (Exhibit 10.5 to the Company's Form 8-Kdated March 12, 1997.) (*) 10.5 Consolidated Freightways Corporation 1996 Stock Option and Incentive Plan. (Exhibit 10.6 to the Company's Form 10 filed October 2, 1996)(*)(#) 10.6 Consolidated Freightways Corporation 1996 Restricted Stock Award Agreements. (Exhibit 10.8 to the Company's Form 10-K for the year ended December 31, 1996.) (*)(#) 10.7 Consolidated Freightways Corporation Supplemental Executive Retirement Plan. (Exhibit 10.11 to the Company's Form 10-K for the year ended December 31, 1996.) (*)(#) 10.8 Reimbursement and Security Agreement dated July 3, 1997 between Consolidated Freightways Corporation and CNF Transportation Inc. (Exhibit 10.1 to the Company's Form 10-Q for the quarter ended June 30, 1997.)(*) 10.9 Consolidated Freightways Corporation 1999 Equity Incentive Plan and Forms of Stock Options Agreements. (Exhibit 10.3 to the Company's Form 10-Q for the quarter ended June 30, 1999.) (*)(#) 10.10 Form of Restricted Stock Award and Deferral Agreement under the 1999 Equity Incentive Plan. (Exhibit 4.5 to the Company's Registration Statement on Form S-8 dated August 23, 1999, File No 333-85775.) (*)(#) 10.11 Consolidated Freightways Corporation Non-Employee Directors' Equity Plan and Form of Stock Option Agreement. (Exhibit 10.4 to the Company's Form 10-Q for the quarter ended June 30, 1999.) (*)(#) (*) Previously filed with the Securities and Exchange Commission and incorporated by reference. (#) Designates a contract or compensation plan for Management or Directors. Page 18 INDEX TO EXHIBITS ITEM 14(a)(3) Exhibit No. 10.12 Employment Agreements with Senior Management. (Exhibits 10.21 to the Company's Form 10-K for the year ended December 31, 1998 and 10.1 to the Company Form 10-Q for the quarter ended June 30, 1999.) (*)(#) 10.13 Consolidated Freightways Corporation Management Change-of-Control Plan. (Exhibit 10.22 to the Company's Form 10-K for the year ended December 31, 1998.) (*)(#) 10.14 Settlement Agreement and Mutual Release of Claims between Consolidated Freightways Corporation and W. Roger Curry dated April 14, 2000. (Exhibit 10.1 to the Company's Form 10-Q for the quarter ended March 31, 2000)(*)(#) 10.15 Agreement Resolving Certain Maters under the Tax Sharing Agreement between CNF Transportation Inc. and Consolidated Freightways. (Filed as Exhibit 10.1 to the Company's Form 10-Q for the quarter ended June 30, 2000)(*) 10.16 CF AirFreight Savings Plan (Exhibit 4.3 to the Company's Registration Statement on Form S-8 dated July 28, 2000, File No 333-42456.) (*)(#) 10.17 Employment Agreements with Senior Management. (Exhibit 10.24 to the Company's Form 10-K for the year ended December 31, 2000)(*)(#) 10.18 Consolidated Freightways Corporation Deferred Compensation Plan for Executives. (Exhibit 10.26 to the Company's Form 10-K for the year ended December 31, 2000) (*)(#) 10.19 Receivables Sale and Contribution Agreement dated April 27, 2001 between Consolidated Freightways Corporation of Delaware, as Originator, and CF Funding LLC, as Buyer. (Exhibit 10.1 to the Company's Form 10-Q for the quarter ended June 30, 2001.)(*) 10.20 Receivables Funding Agreement dated April 27, 2001 between CF Funding LLC, as Borrower, Redwood Receivables Corporation, as Conduit Lender, and General Electric Capital Corporation, as Committed Lender and Administrative Agent. (Exhibit 10.1 to the Company's Form 10-Q for the quarter ended June 30, 2001.)(*) 10.21 Servicing Agreement dated April 27, 2001 between CF Funding LLC,as Borrower, Consolidated Freightways Corporation of Delaware, as Servicer, Redwood Receivables Corporation, as Conduit Lender, and General Electric Capital Corporation, as Committed Lender and Administrative Agent. (Exhibit 10.1 to the Company's Form 10-Q for the quarter ended June 30, 2001.)(*) 10.22 Letter of Credit Agreement dated April 27, 2001 between Consolidated Freightways Corporation, as Debtor, and General Electric Capital Corporation, as Creditor. (Exhibit 10.1 to the Company's Form 10-Q for the quarter ended June 30, 2001.)(*) 10.23 First Amendment, dated May 2001, to the Letter of Credit Agreement between Consolidated Freightways Corporation and General Electric Capital Corporation dated April 27, 2001. (Exhibit 10.1 to the Company's Form 10-Q for the quarter ended June 30, 2001.)(*) 10.24 First Amendment, dated May 2001, to the Securitization Agreement between Consolidated Freightways Corporation and General Electric Capital Corporation dated April 27, 2001. (Exhibit 10.1 to the Company's Form 10-Q for the quarter ended June 30, 2001.)(*) (*) Previously filed with the Securities and Exchange Commission and incorporated by reference. (#) Designates a contract or compensation plan for Management or Directors. Page 19 INDEX TO EXHIBITS ITEM 14(a)(3) Exhibit No. 10.25 Second Amendment, dated July 19, 2001, to the Letter of Credit Agreement between Consolidated Freightways Corporation and General Electric Capital Corporation dated April 27, 2001. (Exhibit 10.1 to the Company's Form 10-Q for the quarter ended June 30, 2001.)(*) 10.26 Second Amendment, dated July 19, 2001, to the Securitization Agreement between Consolidated Freightways Corporation and General Electric Capital Corporation dated April 27, 2001. (Exhibit 10.1 to the Company's Form 10-Q for the quarter ended June 30, 2001.)(*) 10.27 Third Amendment, dated August 13, 2001, to the Letter of Credit Agreement between Consolidated Freightways Corporation and General Electric Capital Corporation dated April 27, 2001. (Exhibit 10.1 to the Company's Form 10-Q for the quarter ended June 30, 2001.)(*) 10.28 Third Amendment, dated August 13, 2001, to the Securitization Agreement between Consolidated Freightways Corporation and General Electric Capital Corporation dated April 27, 2001. (Exhibit 10.1 to the Company's Form 10-Q for the quarter ended June 30, 2001.)(*) 10.29 Fourth Amendment, dated October 18, 2001, to the Letter of Credit Agreement between Consolidated Freightways Corporation and General Electric Capital Corporation dated April 27, 2001. (Exhibit 10.1 to the Company's Form 10-Q for the quarter ended September 30, 2001.)(*) 10.30 Fourth Amendment, dated October 18, 2001, to the Securitization Agreement between Consolidated Freightways Corporation and General Electric Capital Corporation dated April 27, 2001. (Exhibit 10.2 to the Company's Form 10-Q for the quarter ended September 30, 2001.)(*) 10.31 Fifth Amendment, dated October 24, 2001, to the Letter of Credit Agreement between Consolidated Freightways Corporation and General Electric Capital Corporation dated April 27, 2001. (Exhibit 10.3 to the Company's Form 10-Q for the quarter ended September 30, 2001.)(*) 10.32 Fifth Amendment, dated October 24, 2001, to the Securitization Agreement between Consolidated Freightways Corporation and General Electric Capital Corporation dated April 27, 2001. (Exhibit 10.4 to the Company's Form 10-Q for the quarter ended September 30, 2001.)(*) 10.33 Credit Agreement dated October 24, 2001 among Consolidated Freightways Corporation, as Borrower and General Electric Capital Corporation, as Lender. (Exhibit 99.1 to the Company's 8-K dated as October 25, 2001.)(*) 10.34 First Amendment, dated November 2, 2001, to the Credit Agreement among Consolidated Freightways Corporation, as Borrower and General Electric Capital, as Lender, dated October 24, 2001. 10.35 Second Amendment, dated November 9, 2001, to the Credit Agreement among Consolidated Freightways Corporation, as Borrower and General Electric Capital, as Lender, dated October 24, 2001. 10.36 Third Amendment, dated November 20, 2001, to the Credit Agreement among Consolidated Freightways Corporation, as Borrower and General Electric Capital, as Lender, dated October 24, 2001. 10.37 Fourth Amendment, dated December 17, 2001, to the Credit Agreement among Consolidated Freightways Corporation, as Borrower and General Electric Capital, as Lender, dated October 24, 2001. 10.38 Sixth Amendment, dated December 21, 2001, to the Letter of Credit Agreement between Consolidated Freightways Corporation and General Electric Capital Corporation dated April 27, 2001. (*) Previously filed with the Securities and Exchange Commission and incorporated by reference. (#) Designates a contract or compensation plan for Management or Directors. Page 20 INDEX TO EXHIBITS ITEM 14(a)(3) Exhibit No. 10.39 Sixth Amendment, dated December 17, 2001, to the Securitization Agreement between Consolidated Freightways Corporation and General Electric Capital Corporation dated April 27, 2001. 10.40 Employment Agreements with Senior Management. (#) (13) Annual Report to Security Holders: Consolidated Freightways Corporation 2001 Annual Report to Shareholders. (Only those portions referenced herein are incorporated in this Form 10-K. Other portions such as the "Letter to Shareholders" are not required and therefore not "filed" as part of this Form 10-K.) (21) Subsidiaries of the Company (23) Consents of Experts and Counsel (23.1) Consent of Arthur Andersen LLP, independent public accountants (included on page 16 with the auditor's report in this Annual Report on Form 10-K) (99) Additional Documents (99.1) Confirmation of representations received from Arthur Andersen LLP (*) Previously filed with the Securities and Exchange Commission and incorporated by reference. (#) Designates a contract or compensation plan for Management or Directors. EX-10 3 ex1034.txt EXHIBIT 10.34 Exhibit 10.34 FIRST AMENDMENT TO CREDIT AGREEMENT THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), is made and entered into as of November 2, 2001 (the "Effective Date"), by and between CONSOLIDATED FREIGHTWAYS CORPORATION, a Delaware corporation ("Borrower"), the other Credit Parties signatory to the Credit Agreement described below (collectively, together with the Borrower, the "Credit Parties") and GENERAL ELECTRIC CAPITAL CORPORATION, a Delaware corporation ("Lender"). W I T N E SS E T H: WHEREAS, Borrower, the other Credit Parties and Lender are parties to that certain Credit Agreement, dated as of October 24, 2001 (as amended to the date hereof, the "Credit Agreement"; capitalized terms used herein and not otherwise defined herein shall have the meanings given such terms in the Credit Agreement), pursuant to which Lender has committed to make certain loans to Borrower upon the terms and conditions set forth therein; and WHEREAS, Borrower, the other Credit Parties and Lender desire to modify the Credit Agreement in certain respects in accordance with and subject to the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the premises, the covenants and agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Borrower, the other Credit Parties and Lender do hereby agree that all capitalized terms used herein shall have the meanings ascribed thereto in the Credit Agreement (except as otherwise expressly defined or limited herein) and do hereby further agree as follows: 1. Amendments to the Credit Agreement. Subject to the terms and conditions of this Amendment, including without limitation the fulfillment of the conditions precedent specified in Section 6 below, the Credit Agreement is hereby amended as follows: (A) Section 5.11(a) of the Credit Agreement is hereby amended by deleting the date "November 2, 2001" appearing in the first line and in clauses (iv) and (v) of said Section 5.11(a) and substituting in lieu thereof the date "November 9, 2001". (B) Section 5.11(b) of the Credit Agreement is hereby amended by deleting the date "November 9, 2001" appearing in the first line and in clauses (iii) and (iv) of said Section 5.11(b) and substituting in lieu thereof the date "November 16, 2001". (C) Section 5.11(c) of the Credit Agreement is hereby amended by deleting the date "November 9, 2001" appearing in the first line of said Section 5.11(c) and substituting in lieu thereof the date "November 16, 2001". (D) Section 5.11(d) of the Credit Agreement is hereby amended by deleting the date "November 23, 2001" appearing in the first line of said Section 5.11(d) and substituting in lieu thereof the date "December 7, 2001". (E) Annex A to the Credit Agreement is hereby amended by deleting therefrom the definition of "Borrowing Base" in its entirety and by substituting the following amended definition of such term in lieu thereof: "Borrowing Base" shall mean, as of any date of determination by Lender, from time to time, an amount equal to the sum of (a) twenty-five percent (25%) of the Appraised Value of Eligible Mortgaged Property less (b) any and all Reserves established by Lender at such time including, without limitation, Reserves for environmental remediation costs, accrued but unpaid taxes, insurance and other Charges and expenses pertaining to such Mortgaged Property. Notwithstanding the foregoing: (x) for purposes of calculating the Borrowing Base, the advance rate in clause (a) above of this definition shall be deemed to be (i) fifty percent (50%) of the Appraised Value solely in respect of the Mortgaged Property located at 175 Linfield Drive, Menlo Park, California for the period commencing on the Closing Date and ending on November 9, 2001, and at all times after November 9, 2001 shall be deemed to be equal to twenty-five percent (25%) of the Appraised Value in respect of such Mortgaged Property located at 175 Linfield Drive, Menlo Park, California, and (ii) thirty and one-tenth of one percent (30.1%) of the Appraised Value solely in respect of each of the Mortgaged Properties located at (A) 12805 Old Hickory Blvd., Nashville, Tennessee, (B) 2885 Alum Creek Drive, Columbus, Ohio, (C) 4301 W. Mojave Street, Phoenix, Arizona, (D) 1319 Moffett Park Drive, Sunnyvale, California and (E) 13145 Unitec Drive, Laredo, Texas, for the period commencing on the Closing Date and ending on November 9, 2001 and at all times after November 9, 2001 shall be deemed to be equal to twenty-five percent (25%) of the Appraised Value in respect of each of such Mortgaged Properties described in the immediately preceding clauses (A) through (E), inclusive, of this definition; (y) the Borrowing Base shall not at any time exceed $15,000,000 if any of the conditions set forth in Section 2.2 have not been satisfied in full or waived in writing by Lender; and (z) the Borrowing Base shall not at any time exceed $25,000,000 until all of the conditions set forth in Section 2.3 have been satisfied in full or waived in writing by Lender. 2. No Other Amendments. Except for the amendments expressly set forth and referred to in Section 1 above, the Credit Agreement shall remain unchanged and in full force and effect. 3. Representations and Warranties. To induce Lender to enter into this Amendment, Borrower and each of the other Credit Parties hereby warrant, represent and covenant to Lender that: (a) this Amendment has been duly authorized, executed and delivered by Borrower and each other Credit Party signatory thereto, (b) after giving effect to this Amendment, no Default or Event of Default has occurred and is continuing as of this date, and (c) after giving effect to this Amendment, all of the representations and warranties made by Borrower and each other Credit Party in the Credit Agreement are true and correct in all material respects on and as of the date of this Amendment (except to the extent that any such representations or warranties expressly referred to a specific prior date). Any breach in any material respect by Borrower or any other Credit Party of any of its representations and warranties contained in this Section 3 shall be an Event of Default under the Credit Agreement. 4. Ratification and Acknowledgment. Borrower and each of the other Credit Parties hereby ratify and reaffirm each and every term, covenant and condition set forth in the Credit Agreement and all other documents delivered by such company in connection therewith (including without limitation the other Loan Documents to which Borrower or any other Credit Party is a party), effective as of the date hereof. 5. Estoppel. To induce Lender to enter into this Amendment, Borrower and each of the other Credit Parties hereby acknowledge and agree that, as of the date hereof, there exists no right of offset, defense or counterclaim in favor of Borrower or any Credit Party as against Lender with respect to the obligations of Borrower or any Credit Party to Lender under the Credit Agreement or the other Loan Documents, either with or without giving effect to this Amendment. 6. Conditions to Effectiveness. This Amendment shall become effective, as of the Effective Date, subject to the prior or subsequent receipt by the Lender of this Amendment, duly executed, completed and delivered by Borrower and each other Credit Party. Upon the effective date of this Amendment, all of the amendments set forth in Section 1 of this Amendment shall become effective as of the effective date of this Amendment. 7. Reimbursement of Expenses. Borrower and each of the other Credit Parties hereby agree that Borrower and each of the other Credit Parties shall reimburse Lender on demand for all costs and expenses (including without limitation reasonable attorney's fees) incurred by Lender in connection with the negotiation, documentation and consummation of this Amendment and the other documents executed in connection herewith and therewith and the transactions contemplated hereby and thereby. 8. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK FOR CONTRACTS TO BE PERFORMED ENTIRELY WITHIN SAID STATE. 9. Severability of Provisions. Any provision of this Amendment which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction. To the extent permitted by applicable law, Borrower and each of the other Credit Parties hereby waive any provision of law that renders any provision hereof prohibited or unenforceable in any respect. 10. Counterparts. This Amendment may be executed in any number of several counterparts, all of which shall be deemed to constitute but one original and shall be binding upon all parties, their successors and permitted assigns. 11. Entire Agreement. The Credit Agreement as amended by this Amendment embodies the entire agreement between the parties hereto relating to the subject matter hereof and supersedes all prior agreements, representations and understandings, if any, relating to the subject matter hereof. IN WITNESS WHEREOF, the parties have caused this First Amendment to Credit Agreement to be duly executed by their respective officers thereunto duly authorized, as of the date first above written. BORROWER: CONSOLIDATED FREIGHTWAYS CORPORATION By/s/Robert E. Wrightson Name:Robert E. Wrightson Title:Executive Vice President and Chief Financial Officer LENDER: GENERAL ELECTRIC CAPITAL CORPORATION By/s/Craig Winslow Name:Craig Winslow Title: Duly Authorized Signatory CREDIT PARTIES: CONSOLIDATED FREIGHTWAYS CORPORATION OF DELAWARE By/s/Robert E. Wrightson Name:Robert E. Wrightson Title:Executive Vice President and Chief Financial Officer CF AIRFREIGHT CORPORATION By/s/Robert E. Wrightson Name:Robert E. Wrightson Title:Executive Vice President and Chief Financial Officer REDWOOD SYSTEMS, INC. By/s/Robert E. Wrightson Name:Robert E. Wrightson Title:Executive Vice President and Chief Financial Officer LELAND JAMES SERVICE CORPORATION By/s/Robert E. Wrightson Name:Robert E. Wrightson Title:Executive Vice President and Chief Financial Officer EX-10 4 ex1035.txt EXHIBIT 10.35 Exhibit 10.35 SECOND AMENDMENT TO CREDIT AGREEMENT THIS SECOND AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), is made and entered into as of November 9, 2001 (the "Effective Date"), by and between CONSOLIDATED FREIGHTWAYS CORPORATION, a Delaware corporation ("Borrower"), the other Credit Parties signatory to the Credit Agreement described below (collectively, together with the Borrower, the "Credit Parties") and GENERAL ELECTRIC CAPITAL CORPORATION, a Delaware corporation ("Lender"). W I T N E SS E T H: WHEREAS, Borrower, the other Credit Parties and Lender are parties to that certain Credit Agreement, dated as of October 24, 2001 (as amended to the date hereof, the "Credit Agreement"; capitalized terms used herein and not otherwise defined herein shall have the meanings given such terms in the Credit Agreement), pursuant to which Lender has committed to make certain loans to Borrower upon the terms and conditions set forth therein; and WHEREAS, Borrower, the other Credit Parties and Lender desire to modify the Credit Agreement in certain respects in accordance with and subject to the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the premises, the covenants and agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Borrower, the other Credit Parties and Lender do hereby agree that all capitalized terms used herein shall have the meanings ascribed thereto in the Credit Agreement (except as otherwise expressly defined or limited herein) and do hereby further agree as follows: 1. Amendments to the Credit Agreement. Subject to the terms and conditions of this Amendment, including without limitation the fulfillment of the conditions precedent specified in Section 6 below, the Credit Agreement is hereby amended as follows: (A) Section 5.11(a) of the Credit Agreement is hereby amended by deleting the date "November 9, 2001" appearing in the first line and in clauses (iv) and (v) of said Section 5.11(a) and substituting in lieu thereof the date "November 20, 2001". (B) Section 5.11(b) of the Credit Agreement is hereby amended by deleting the date "November 16, 2001" appearing in the first line and in clauses (iii) and (iv) of said Section 5.11(b) and substituting in lieu thereof the date "December 17, 2001". (C) Section 5.11(c) of the Credit Agreement is hereby amended by deleting the date "November 16, 2001" appearing in the first line of said Section 5.11(c) and substituting in lieu thereof the date "December 17, 2001". (D) Section 5.11(d) of the Credit Agreement is hereby amended by deleting the date "December 7, 2001" appearing in the first line of said Section 5.11(d) and substituting in lieu thereof the date "December 17, 2001". (E) Annex A to the Credit Agreement is hereby amended by deleting therefrom the definition of "Borrowing Base" in its entirety and by substituting the following amended definition of such term in lieu thereof: "Borrowing Base" shall mean, as of any date of determination by Lender, from time to time, an amount equal to the sum of (a) twenty-five percent (25%) of the Appraised Value of Eligible Mortgaged Property less (b) any and all Reserves established by Lender at such time including, without limitation, Reserves for environmental remediation costs, accrued but unpaid taxes, insurance and other Charges and expenses pertaining to such Mortgaged Property. Notwithstanding the foregoing: (x) for purposes of calculating the Borrowing Base, the advance rate in clause (a) above of this definition shall be deemed to be (i) fifty percent (50%) of the Appraised Value solely in respect of the Mortgaged Property located at 175 Linfield Drive, Menlo Park, California for the period commencing on the Closing Date and ending on November 20, 2001, and at all times after November 20, 2001 shall be deemed to be equal to twenty-five percent (25%) of the Appraised Value in respect of such Mortgaged Property located at 175 Linfield Drive, Menlo Park, California, and (ii) thirty and one-tenth of one percent (30.1%) of the Appraised Value solely in respect of each of the Mortgaged Properties located at (A) 12805 Old Hickory Blvd., Nashville, Tennessee, (B) 2885 Alum Creek Drive, Columbus, Ohio, (C) 4301 W. Mojave Street, Phoenix, Arizona, (D) 1319 Moffett Park Drive, Sunnyvale, California and (E) 13145 Unitec Drive, Laredo, Texas, for the period commencing on the Closing Date and ending on November 20, 2001 and at all times after November 20, 2001 shall be deemed to be equal to twenty-five percent (25%) of the Appraised Value in respect of each of such Mortgaged Properties described in the immediately preceding clauses (A) through (E), inclusive, of this definition; (y) the Borrowing Base shall not at any time exceed $15,000,000 if any of the conditions set forth in Section 2.2 have not been satisfied in full or waived in writing by Lender; and (z) the Borrowing Base shall not at any time exceed $25,000,000 until all of the conditions set forth in Section 2.3 have been satisfied in full or waived in writing by Lender. 2. No Other Amendments. Except for the amendments expressly set forth and referred to in Section 1 above, the Credit Agreement shall remain unchanged and in full force and effect. 3. Representations and Warranties. To induce Lender to enter into this Amendment, Borrower and each of the other Credit Parties hereby warrant, represent and covenant to Lender that: (a) this Amendment has been duly authorized, executed and delivered by Borrower and each other Credit Party signatory thereto, (b) after giving effect to this Amendment, no Default or Event of Default has occurred and is continuing as of this date, and (c) after giving effect to this Amendment, all of the representations and warranties made by Borrower and each other Credit Party in the Credit Agreement are true and correct in all material respects on and as of the date of this Amendment (except to the extent that any such representations or warranties expressly referred to a specific prior date). Any breach in any material respect by Borrower or any other Credit Party of any of its representations and warranties contained in this Section 3 shall be an Event of Default under the Credit Agreement. 4. Ratification and Acknowledgment. Borrower and each of the other Credit Parties hereby ratify and reaffirm each and every term, covenant and condition set forth in the Credit Agreement and all other documents delivered by such company in connection therewith (including without limitation the other Loan Documents to which Borrower or any other Credit Party is a party), effective as of the date hereof. 5. Estoppel. To induce Lender to enter into this Amendment, Borrower and each of the other Credit Parties hereby acknowledge and agree that, as of the date hereof, there exists no right of offset, defense or counterclaim in favor of Borrower or any Credit Party as against Lender with respect to the obligations of Borrower or any Credit Party to Lender under the Credit Agreement or the other Loan Documents, either with or without giving effect to this Amendment. 6. Conditions to Effectiveness. This Amendment shall become effective, as of the Effective Date, subject to the prior or subsequent receipt by the Lender of this Amendment, duly executed, completed and delivered by Borrower and each other Credit Party. Upon the effective date of this Amendment, all of the amendments set forth in Section 1 of this Amendment shall become effective as of the effective date of this Amendment. 7. Reimbursement of Expenses. Borrower and each of the other Credit Parties hereby agree that Borrower and each of the other Credit Parties shall reimburse Lender on demand for all costs and expenses (including without limitation reasonable attorney's fees) incurred by Lender in connection with the negotiation, documentation and consummation of this Amendment and the other documents executed in connection herewith and therewith and the transactions contemplated hereby and thereby. 8. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK FOR CONTRACTS TO BE PERFORMED ENTIRELY WITHIN SAID STATE. 9. Severability of Provisions. Any provision of this Amendment which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction. To the extent permitted by applicable law, Borrower and each of the other Credit Parties hereby waive any provision of law that renders any provision hereof prohibited or unenforceable in any respect. 10. Counterparts. This Amendment may be executed in any number of several counterparts, all of which shall be deemed to constitute but one original and shall be binding upon all parties, their successors and permitted assigns. 11. Entire Agreement. The Credit Agreement as amended by this Amendment embodies the entire agreement between the parties hereto relating to the subject matter hereof and supersedes all prior agreements, representations and understandings, if any, relating to the subject matter hereof. IN WITNESS WHEREOF, the parties have caused this Second Amendment to Credit Agreement to be duly executed by their respective officers thereunto duly authorized, as of the date first above written. BORROWER: CONSOLIDATED FREIGHTWAYS CORPORATION By/s/Patrick H. Blake Name:Patrick H. Blake Title:President and Chief Executive Officer LENDER: GENERAL ELECTRIC CAPITAL CORPORATION By/s/Craig Winslow Name:Craig Winslow Title: Duly Authorized Signatory CREDIT PARTIES: CONSOLIDATED FREIGHTWAYS CORPORATION OF DELAWARE By:/s/Patrick H. Blake Name:Patrick H. Blake Title:Chief Executive Officer CF AIRFREIGHT CORPORATION By:/s/Kerry K. Morgan Name:Kerry K. Morgan Title:Vice President and Treasurer REDWOOD SYSTEMS, INC. By:/s/Kerry K. Morgan Name:Kerry K. Morgan Title:Vice President and Treasurer LELAND JAMES SERVICE CORPORATION By:/s/Kerry K. Morgan Name:Kerry K. Morgan Title:Vice President and Treasurer EX-10 5 ex1036.txt EXHIBIT 10.36 Exhibit 10.36 THIRD AMENDMENT TO CREDIT AGREEMENT THIS THIRD AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), is made and entered into as of November 20, 2001 (the "Effective Date"), by and between CONSOLIDATED FREIGHTWAYS CORPORATION, a Delaware corporation ("Borrower"), the other Credit Parties signatory to the Credit Agreement described below (collectively, together with the Borrower, the "Credit Parties") and GENERAL ELECTRIC CAPITAL CORPORATION, a Delaware corporation ("Lender"). W I T N E S S E T H: WHEREAS, Borrower, the other Credit Parties and Lender are parties to that certain Credit Agreement, dated as of October 24, 2001 (as amended to the date hereof, the "Credit Agreement"; capitalized terms used herein and not otherwise defined herein shall have the meanings given such terms in the Credit Agreement), pursuant to which Lender has committed to make certain loans to Borrower upon the terms and conditions set forth therein; and WHEREAS, Borrower, the other Credit Parties and Lender desire to modify the Credit Agreement in certain respects in accordance with and subject to the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the premises, the covenants and agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Borrower, the other Credit Parties and Lender do hereby agree that all capitalized terms used herein shall have the meanings ascribed thereto in the Credit Agreement (except as otherwise expressly defined or limited herein) and do hereby further agree as follows: 1. Amendments to the Credit Agreement. Subject to the terms and conditions of this Amendment, including without limitation the fulfillment of the conditions precedent specified in Section 6 below, the Credit Agreement is hereby amended as follows: (A) Section 5.11 of the Credit Agreement is hereby amended by deleting such section in its entirety and replacing it with a new Section 5.11 in the form attached hereto as Exhibit A. (B) Annex A to the Credit Agreement is hereby amended by deleting therefrom the definition of "Borrowing Base" in its entirety and by substituting the following amended definition of such term in lieu thereof: "Borrowing Base" shall mean, as of any date of determination by Lender, from time to time, an amount equal to the sum of (a) twenty-five percent (25%) of the Appraised Value of Eligible Mortgaged Property less (b) any and all Reserves established by Lender at such time including, without limitation, Reserves for environmental remediation costs, accrued but unpaid taxes, insurance and other Charges and expenses pertaining to such Mortgaged Property. Notwithstanding the foregoing: (x) for purposes of calculating the Borrowing Base, the advance rate in clause (a) above of this definition shall be deemed to be forty-one percent (41%) of the Appraised Value solely in respect of the Mortgaged Property located at 175 Linfield Drive, Menlo Park, California for the period commencing on the Closing Date and ending on December 7, 2001, and at all times after December 7, 2001 shall be deemed to be equal to twenty-five percent (25%) of the Appraised Value in respect of such Mortgaged Property located at 175 Linfield Drive, Menlo Park, California; (y) the Borrowing Base shall not at any time exceed $15,000,000 if any of the conditions set forth in Section 2.2 have not been satisfied in full or waived in writing by Lender; and (z) the Borrowing Base shall not at any time exceed $25,000,000 until all of the conditions set forth in Section 2.3 have been satisfied in full or waived in writing by Lender. (C) Annex F to the Credit Agreement is hereby amended by deleting the form currently attached to the Credit Agreement and replacing it in its entirety with the new form of Annex F attached to this Amendment. 2. No Other Amendments. Except for the amendments expressly set forth and referred to in Section 1 above, the Credit Agreement shall remain unchanged and in full force and effect. 3. `Representations and Warranties. To induce Lender to enter into this Amendment, Borrower and each of the other Credit Parties hereby warrant, represent and covenant to Lender that: (a) this Amendment has been duly authorized, executed and delivered by Borrower and each other Credit Party signatory thereto, (b) after giving effect to this Amendment, no Default or Event of Default has occurred and is continuing as of this date, and (c) after giving effect to this Amendment, all of the representations and warranties made by Borrower and each other Credit Party in the Credit Agreement are true and correct in all material respects on and as of the date of this Amendment (except to the extent that any such representations or warranties expressly referred to a specific prior date). Any breach in any material respect by Borrower or any other Credit Party of any of its representations and warranties contained in this Section 3 shall be an Event of Default under the Credit Agreement. 4. Ratification and Acknowledgment. Borrower and each of the other Credit Parties hereby ratify and reaffirm each and every term, covenant and condition set forth in the Credit Agreement and all other documents delivered by such company in connection therewith (including without limitation the other Loan Documents to which Borrower or any other Credit Party is a party), effective as of the date hereof. 5. Estoppel. To induce Lender to enter into this Amendment, Borrower and each of the other Credit Parties hereby acknowledge and agree that, as of the date hereof, there exists no right of offset, defense or counterclaim in favor of Borrower or any Credit Party as against Lender with respect to the obligations of Borrower or any Credit Party to Lender under the Credit Agreement or the other Loan Documents, either with or without giving effect to this Amendment. 6. Conditions to Effectiveness. This Amendment shall become effective, as of the Effective Date, subject to the prior or subsequent receipt by the Lender of this Amendment, duly executed, completed and delivered by Borrower and each other Credit Party. Upon the effective date of this Amendment, all of the amendments set forth in Section 1 of this Amendment shall become effective as of the effective date of this Amendment. 7. Reimbursement of Expenses. Borrower and each of the other Credit Parties hereby agree that Borrower and each of the other Credit Parties shall reimburse Lender on demand for all costs and expenses (including without limitation reasonable attorney's fees) incurred by Lender in connection with the negotiation, documentation and consummation of this Amendment and the other documents executed in connection herewith and therewith and the transactions contemplated hereby and thereby. 8. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK FOR CONTRACTS TO BE PERFORMED ENTIRELY WITHIN SAID STATE. 9. Severability of Provisions. Any provision of this Amendment which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction. To the extent permitted by applicable law, Borrower and each of the other Credit Parties hereby waive any provision of law that renders any provision hereof prohibited or unenforceable in any respect. 10. Counterparts. This Amendment may be executed in any number of several counterparts, all of which shall be deemed to constitute but one original and shall be binding upon all parties, their successors and permitted assigns. 11. Entire Agreement. The Credit Agreement as amended by this Amendment embodies the entire agreement between the parties hereto relating to the subject matter hereof and supersedes all prior agreements, representations and understandings, if any, relating to the subject matter hereof. IN WITNESS WHEREOF, the parties have caused this Second Amendment to Credit Agreement to be duly executed by their respective officers thereunto duly authorized, as of the date first above written. BORROWER: CONSOLIDATED FREIGHTWAYS CORPORATION By/s/Robert E. Wrightson Name:Robert E. Wrightson Title:Executive Vice President and Chief Financial Officer LENDER: GENERAL ELECTRIC CAPITAL CORPORATION By/s/Craig Winslow Name:Craig Winslow Title: Duly Authorized Signatory CREDIT PARTIES: CONSOLIDATED FREIGHTWAYS CORPORATION OF DELAWARE By/s/Robert E. Wrightson Name:Robert E. Wrightson Title:Executive Vice President and Chief Financial Officer: CF AIRFREIGHT CORPORATION By/s/Kerry K. Morgan Name:Kerry K. Morgan Title:Vice President and Treasurer REDWOOD SYSTEMS, INC. By/s/Kerry K. Morgan Name:Kerry K. Morgan Title:Vice President and Treasurer LELAND JAMES SERVICE CORPORATION By/s/Kerry K. Morgan Name:Kerry K. Morgan Title:Vice President and Treasurer EXHIBIT A Replacement Section 5.11 to the Credit Agreement 5.11 Certain Covenants Relating to the Collateral. The Credit Parties shall cause the following requirements to be fulfilled with respect to each of the Mortgaged Properties to the extent such requirements have not been fulfilled pursuant to Annex B or Section 2.3. (a) By no later than December 7, 2001, each Credit Party shall have (i) executed and delivered to Lender a Mortgage covering all of the Second Group of Mortgaged Properties, in proper form for recordation recorded in all places to the extent necessary to create a valid and enforceable first priority lien (subject to Permitted Encumbrances) on such Second Group of Mortgaged Property in favor of Lender (or in favor of such other trustee as may be required or desired under local law) and otherwise in form and substance satisfactory to Lender, (ii) delivered to Lender evidence that counterparts of all of the Mortgages referred to in clause (i) above of this Section 5.11(a) have been recorded in all places to the extent necessary to create a valid and enforceable first priority lien (subject to Permitted Encumbrances) on all of the Second Group of Mortgaged Property owned by such Credit Party in favor of Lender (or in favor of such other trustee as may be required or desired under local law), (iii) delivered to Lender an opinion of counsel in each state in which any of the Second Group of Mortgaged Property is located regarding the Mortgages on such properties in form and substance and from counsel satisfactory to Lender, (iv) fully cooperated with Lender by providing Lender and/or its consultants and agents with access to, and information concerning, all of the Second Group of Mortgaged Properties as may be requested by Lender (or such consultant or agent of Lender) and as may be necessary to ensure completion by December 7, 2001 of Phase I Environmental Site Assessment Reports, consistent with American Society for Testing and Materials (ASTM) Standard E 1527-94 and applicable state requirements, on all of the Second Group of Mortgaged Properties, dated no more than 6 months prior to the Closing Date, prepared by environmental engineers satisfactory to Lender, all in form and substance satisfactory to Lender, in its sole discretion; and (v) fully cooperated with Lender by providing Lender and/or its consultants and agents with access to, and information concerning, all of the Second Group of Mortgaged Properties as may be requested by Lender (or such consultant or agent of Lender) and as may be necessary to ensure delivery to Lender by no later than December 7, 2001 of letters executed by the environmental firms preparing the environmental reports referred to in clause (iv) of this Section 5.11(a), in form and substance satisfactory to Lender, authorizing Lender to rely on such reports. Notwithstanding the foregoing provisions of this Section 5.11(a), it is the intention of the parties that, unless the Borrower requests a Subject Revolving Credit Advance, the Lender shall only receive Mortgages on Real Estate with fair market values (as determined by Lender in its sole discretion) aggregating $100,000,000. In the event that Mortgages are granted to the Lender as part of the First Group of Mortgaged Properties and the Second Group of Mortgaged Properties, with the fair market values of such Mortgaged Properties exceeding $100,000,000 in the aggregate, the Lender agrees to release by December 31, 2001, one or more Mortgages (on Mortgaged Properties selected by Lender, in its sole discretion) sufficient to reduce the aggregate fair market value of the remaining Mortgaged Properties to $100,000,000 (or such greater amount as is reasonably required to ensure that the Lender holds Mortgages on Mortgaged Properties with an aggregate fair market value of at least $100,000,000). (b) By no later than two Business Days prior to the initial Post-Closing Borrowing Date, each Credit Party shall have: (i) executed and delivered to Lender a Mortgage covering all of the Third Group of Mortgaged Properties, in proper form for recordation in all places to the extent necessary to create a valid and enforceable first priority lien (subject to Permitted Encumbrances) on such Third Group of Mortgaged Property in favor of Lender (or in favor of such other trustee as may be required or desired under local law) and otherwise in form and substance satisfactory to Lender; (ii) delivered to Lender an opinion of counsel in each state in which any of the Third Group of Mortgaged Property is located in form and substance and from counsel satisfactory to Lender; (iii) fully cooperated with Lender by providing Lender and/or its consultants and agents with access to, and information concerning, all of the Third Group of Mortgaged Properties as may be requested by Lender (or such consultant or agent of Lender) and as may be necessary to ensure completion and delivery to Lender of Phase I Environmental Site Assessment Reports, consistent with American Society for Testing and Materials (ASTM) Standard E 1527-94 and applicable state requirements, on all of the Third Group of Mortgaged Properties, dated no more than 6 months prior to the initial Post-Closing Borrowing Date, prepared by environmental engineers satisfactory to Lender, all in form and substance satisfactory to Lender, in its sole discretion; and (iv) fully cooperated with Lender by providing Lender and/or its consultants and agents with access to, and information concerning, all of the Third Group of Mortgaged Properties as may be requested by Lender (or such consultant or agent of Lender) and as may be necessary to ensure delivery to Lender of letters executed by the environmental firms preparing the environmental reports referred to in clause (iii) of this Section 5.11(b), in form and substance satisfactory to Lender, authorizing Lender to rely on such reports. Notwithstanding anything to the contrary in this Section 5.11(b), the Mortgages with respect to the Third Group of Mortgaged Properties shall not be recorded by Lender until such time as (x) Borrower has made a request for a Revolving Credit Advance which if made would result in the aggregate outstanding principal balance of all Revolving Credit Advances exceeding $25,000,000 and (y) all of the conditions set forth in Section 2.3 (other than the condition requiring recordation of said Mortgage) have been satisfied in full or waived by the Lender in writing. (c) By no later than December 17, 2001, each Credit Party shall have delivered to Lender commitments for title insurance coverage, and shall have purchased such coverage and delivered evidence thereof to Lender, all in form and scope satisfactory to Lender, in a total amount of not less than $50,000,000 covering all of the First Group of Mortgaged Properties and the Second Group of Mortgaged Properties (with an allocation on a per property basis, and subject to such tie-in endorsements, as approved by Lender, in its sole discretion); provided, however, that no later than two Business Days prior to the initial Post-Closing Borrowing Date, the amount of title insurance shall be increased to $100,000,000 and modified to cover the First Group of Mortgaged Properties, the Second Group of Mortgaged Properties and the Third Group of Mortgaged Properties (with an allocation on a per property basis, and subject to such tie-in endorsements, as approved by Lender, in its sole discretion). (d) By no later than December 17, 2001, with respect to all of the First Group of Mortgaged Properties and the Second Group of Mortgaged Properties, the Borrower shall have (i) delivered to Lender current as-built surveys, zoning letters (or zoning title endorsements) and certificates of occupancy, in each case satisfactory in form and substance to Lender, in its sole discretion, and (ii) delivered to Lender updated fair market value appraisals, each of which shall be in form and substance satisfactory to Lender. Prior to the initial Post-Closing Borrowing Date, with respect to all of the Third Group of Mortgaged Properties, the Borrower shall have (i) delivered to Lender current as-built surveys, zoning letters (or zoning title endorsements) and certificates of occupancy, in each case satisfactory in form and substance to Lender, in its sole discretion, and (ii) delivered to Lender updated fair market value appraisals, each of which shall be in form and substance satisfactory to Lender. (e) Each Credit Party agrees that at any time on and after the Closing Date Lender shall be entitled to obtain, at such Credit Party's sole cost and expense, (i) one or more updated written fair market value appraisal reports and current as-built surveys in respect of any of the Mortgaged Properties prepared by an independent real estate appraiser and surveyor, as the case may be, satisfactory to Lender, and (ii) such environmental review and audit reports, including Phase II reports, with respect to any of the Mortgaged Properties as Lender shall request, in each case, in form and substance satisfactory to Lender; provided that Lender shall not be entitled to obtain or request any of the items described in clauses (i) or (ii) above unless Lender believes in its reasonable credit judgment that either (x) a Default or Event of Default has occurred and is continuing, or (y) any of the information pertaining to the Mortgaged Properties contained in any prior appraisal or environmental report may be inaccurate or outdated in any material respect. Each Credit Party shall cooperate with Lender in obtaining all such environmental review and audits, updated appraisal reports and surveys, including, without limitation, granting access to the Mortgaged Properties to Lender and its agents, consultants and representatives, and causing to be done such further acts as may be necessary or proper in the reasonable opinion of Lender to carry out more effectively the provisions and purposes of this Section 5.11(d). (f) Notwithstanding anything in Section 5.11 to the contrary, should the Credit Parties be unable, despite good faith efforts, to satisfy the environmental, title or opinion criteria set forth in this Section 5.11 regarding any Mortgaged Property intended to be included in the Second Group of the Mortgaged Properties or the Third Group of Mortgaged Properties, the Credit Parties shall be obligated to provide other Mortgaged Properties for inclusion in such groups, which properties shall be subject to Lender's approval, in its sole discretion (including, without limitation, as to value and environmental matters); provided, however, that the obligation to replace such properties shall not apply to the Third Group of Mortgaged Properties unless and until the Borrower shall have requested a Subject Revolving Credit Advance. ANNEX F to CREDIT AGREEMENT LIST OF MORTGAGED PROPERTIES First Group of Mortgaged Properties: 1 MPK MENLO PARK CA 175 LINFIELD DRIVE 2 NAS NASHVILLE TN 12805 OLD HICKORY BLVD. Second Group of Mortgaged Properties: 1 COL COLUMBUS OH 2885 ALUM CREEK DRIVE 2 PHX PHOENIX AZ 4301 W MOJAVE STREET 3 SNC SUNNYVALE CA 1319 MOFFETT PARK DRIVE 4 LAT LAREDO TX 13145 UNITEC DRIVE 5 PTM PORTLAND OR 2010 N. E. RIVERSIDE WAY 6 JAF JACKSONVILLE FL 2120 NORTH LANE AVENUE 7 WVW WOODINVILLE WA 18707 139TH AVENUE N.E. 8 TAC TACOMA WA 4920 E 20TH STREET 9 HAC HAYWARD CA 2256 CLAREMONT COURT 10 NWK NEWARK NJ 300 PORT STREET 11 MPL MINNEAPOLIS MN 3701 85TH AVENUE, N.E. 12 DPI DES PLAINES IL 2300 S MOUNT PROSPECT 13 OHN OMAHA NE 10611 GERTRUDE STREET 14 NCG NORCROSS GA 6431 CORLEY ROAD 15 FLF FT LAUDERDALE FL 1901 BLOUNT ROAD 16 SIM SIMI VALLEY CA 91 WEST EASY STREET 17 LTC LITTLETON CO 1501 WEST WESLEY AVENUE 18 SANTA FE SPRINGS CA 12903 LAKELAND ROAD 19 FONTANA CA 14371 SANTA ANNA AVENUE 20 SRS SAN MARCOS CA 444 BARHAM DRIVE Third Group of Mortgaged Properties: To be proposed by Borrower, subject to approval by Lender, in its sole discretion, but the aggregate appraised values of such properties must, when added to the appraised values of the First Group of Mortgaged Properties and the Second Group of Mortgaged Properties (but only if actually mortgaged to Lender), equal or exceed $200,000,000. EX-10 6 ex1037.txt EXHIBIT 10.37 Exhibit 10.37 FOURTH AMENDMENT TO CREDIT AGREEMENT THIS FOURTH AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), is made and entered into as of December 17, 2001 (the "Effective Date"), by and between CONSOLIDATED FREIGHTWAYS CORPORATION, a Delaware corporation ("Borrower"), the other Credit Parties signatory to the Credit Agreement described below (collectively, together with the Borrower, the "Credit Parties") and GENERAL ELECTRIC CAPITAL CORPORATION, a Delaware corporation ("Lender"). W I T N E SS E T H: WHEREAS, Borrower, the other Credit Parties and Lender are parties to that certain Credit Agreement, dated as of October 24, 2001 (as amended to the date hereof, the "Credit Agreement"; capitalized terms used herein and not otherwise defined herein shall have the meanings given such terms in the Credit Agreement), pursuant to which Lender has committed to make certain loans to Borrower upon the terms and conditions set forth therein; and WHEREAS, Borrower, the other Credit Parties and Lender desire to modify the Credit Agreement in certain respects in accordance with and subject to the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the premises, the covenants and agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Borrower, the other Credit Parties and Lender do hereby agree that all capitalized terms used herein shall have the meanings ascribed thereto in the Credit Agreement (except as otherwise expressly defined or limited herein) and do hereby further agree as follows: 1. Amendments to the Credit Agreement. Subject to the terms and conditions of this Amendment, including without limitation the fulfillment of the conditions precedent specified in Section 6 below, the Credit Agreement is hereby amended as follows: (A) Section 5.11(a) of the Credit Agreement is hereby amended by deleting the last sentence in said Section 5.11(a) and substituting in lieu thereof the following new sentence to read in its entirety as follows: In the event that (i) Mortgages are granted to the Lender as part of the First Group of Mortgaged Properties, the Second Group of Mortgaged Properties and the Additional Mortgaged Properties, with the fair market values of such Mortgaged Properties exceeding $100,000,000 in the aggregate and (ii) the Commitment has been reduced to $25,000,000, then the Lender agrees to release one or more Mortgages (on Mortgaged Properties selected by Lender, in its sole discretion) sufficient to reduce the aggregate fair market value of the remaining Mortgaged Properties to $100,000,000 (or such greater amount as is reasonably required to ensure that the Lender holds Mortgages on Mortgaged Properties with an aggregate fair market value of at least $100,000,000). (B) Section 5.11(d) of the Credit Agreement is hereby amended by deleting the date "December 17, 2001" appearing in the first line of said Section 5.11(d) and substituting in lieu thereof the date "December 21, 2001". (C) Section 5 of the Credit Agreement is hereby amended by adding a new Section 5.12 thereto to read in its entirety as follows: 5.12 Certain Post-Closing Covenants. (a) On or prior to December 17, 2001, the Borrower shall cause the following requirements to be fulfilled with respect to each of the Additional Mortgaged Properties: each Credit Party owner of the Additional Mortgaged Properties shall have (i) executed and delivered to Lender a Mortgage covering all of the Additional Mortgaged Properties, in proper form for recordation in all places to the extent necessary to create a valid and enforceable first priority lien (subject to Permitted Encumbrances) on such Additional Mortgaged Properties in favor of Lender (or in favor of such other trustee as may be required or desired under local law) and otherwise in form and substance satisfactory to Lender, (ii) delivered to Lender an opinion of counsel in each state in which any of the Additional Mortgaged Properties are located regarding the Mortgages on such properties in form and substance and from counsel satisfactory to Lender, (iii) delivered to Lender commitments for title insurance coverage, and shall have purchased such coverage and delivered evidence thereof to Lender, all in form and scope satisfactory to Lender, covering all of the Additional Mortgaged Properties and (v) delivered to Lender written fair market value appraisals, in each case satisfactory in form and substance to Lender, in its sole discretion. By no later than December 21, 2001, Borrower shall have delivered to Lender evidence that counterparts of all of the Mortgages referred to in clause (i) above of this Section 5.12(a) have been recorded in all places to the extent necessary to create a valid and enforceable first priority lien (subject to Permitted Encumbrances) on all of the Additional Mortgaged Properties owned by such Credit Party in favor of Lender (or in favor of such other trustee as may be required or desired under local law). (b) On or prior to December 21, 2001, the Borrower shall cause to be delivered to Lender in respect of such Additional Mortgaged Properties current as-built surveys, zoning letters (or zoning title endorsements) and certificates of occupancy. (D) Annex A to the Credit Agreement is hereby amended by adding the following new definition to read in its entirety as follows: "Additional Mortgaged Properties" shall mean the real property owned by one or more of the Credit Parties and located at 918 Del Paso Road, Sacramento, California and 6767 West 75th Street, Chicago, Illinois. (E) Annex A to the Credit Agreement is hereby amended by deleting therefrom definitions of "Borrowing Base" and "Mortgaged Properties" in their entirety and substituting the following amended definitions of such terms in lieu thereof: "Borrowing Base" shall mean, as of any date of determination by Lender, from time to time, an amount equal to the sum of (a) thirty-five percent (35%) of the Appraised Value of Eligible Mortgaged Property less (b) any and all Reserves established by Lender at such time including, without limitation, Reserves for environmental remediation costs, accrued but unpaid taxes, insurance and other Charges and expenses pertaining to such Mortgaged Property. Notwithstanding the foregoing, the Borrowing Base shall not at any time exceed $35,000,000 irrespective of whether any of the conditions in Section 2 have been satisfied. "Mortgaged Properties" means (i) the Real Property identified on Annex F, (ii) the Additional Mortgaged Properties, and (iii) any other Real Property of the Credit Parties located in the United States of America that Borrower from time to time requests be included as a Mortgaged Property to the extent and only to the extent that the Lender in its sole discretion consents in writing to the inclusion of such Real Property as a Mortgaged Property. (F) Annex A to the Credit Agreement is hereby amended by deleting the last sentence in the definition of "Eligible Mortgaged Property" and substituting in lieu thereof a new sentence to read in its entirety as follows: Notwithstanding the foregoing (a) if the fair market value or the environmental status of any Mortgaged Property, or the priority of the Lien of the Mortgages on any Mortgaged Property, adversely changes at any time on or after the Closing Date, then Lender, in addition to any other rights it may have hereunder or under the Loan Documents, shall be entitled to deem such Mortgaged Property to be ineligible and/or establish such Reserves as it may deem appropriate in its sole discretion and (b) none of the Additional Mortgaged Properties shall at any time constitute an Eligible Mortgaged Property. (G) The Credit Agreement is hereby amended to extend the deadline under Section 5.11 for delivery of Mortgages, local counsel opinions and title insurance commitments with respect to certain of the properties included in the Second Group of Mortgaged Properties to the dates set forth below: Property Location Revised Deadline Norcross, Georgia property December 18, 2001 Minneapolis, Minesota December 21, 2001 property 2. No Other Amendments. Except for the amendments expressly set forth and referred to in Section 1 above, the Credit Agreement shall remain unchanged and in full force and effect. 3. Representations and Warranties. To induce Lender to enter into this Amendment, Borrower and each of the other Credit Parties hereby warrant, represent and covenant to Lender that: (a) this Amendment has been duly authorized, executed and delivered by Borrower and each other Credit Party signatory thereto, (b) after giving effect to this Amendment, no Default or Event of Default has occurred and is continuing as of this date, and (c) after giving effect to this Amendment, all of the representations and warranties made by Borrower and each other Credit Party in the Credit Agreement are true and correct in all material respects on and as of the date of this Amendment (except to the extent that any such representations or warranties expressly referred to a specific prior date). Any breach in any material respect by Borrower or any other Credit Party of any of its representations and warranties contained in this Section 3 shall be an Event of Default under the Credit Agreement. 4. Ratification and Acknowledgment. Borrower and each of the other Credit Parties hereby ratify and reaffirm each and every term, covenant and condition set forth in the Credit Agreement and all other documents delivered by such company in connection therewith (including without limitation the other Loan Documents to which Borrower or any other Credit Party is a party), effective as of the date hereof. 5. Estoppel. To induce Lender to enter into this Amendment, Borrower and each of the other Credit Parties hereby acknowledge and agree that, as of the date hereof, there exists no right of offset, defense or counterclaim in favor of Borrower or any Credit Party as against Lender with respect to the obligations of Borrower or any Credit Party to Lender under the Credit Agreement or the other Loan Documents, either with or without giving effect to this Amendment. 6. Conditions to Effectiveness. This Amendment shall become effective, as of the Effective Date, subject to the prior or subsequent receipt by the Lender of this Amendment, duly executed, completed and delivered by Borrower and each other Credit Party. Upon the effective date of this Amendment, all of the amendments set forth in Section 1 of this Amendment shall become effective as of the effective date of this Amendment. 7. Reimbursement of Expenses. Borrower and each of the other Credit Parties hereby agree that Borrower and each of the other Credit Parties shall reimburse Lender on demand for all costs and expenses (including without limitation reasonable attorney's fees) incurred by Lender in connection with the negotiation, documentation and consummation of this Amendment and the other documents executed in connection herewith and therewith and the transactions contemplated hereby and thereby. 8. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK FOR CONTRACTS TO BE PERFORMED ENTIRELY WITHIN SAID STATE. 9. Severability of Provisions. Any provision of this Amendment which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction. To the extent permitted by applicable law, Borrower and each of the other Credit Parties hereby waive any provision of law that renders any provision hereof prohibited or unenforceable in any respect. 10. Counterparts. This Amendment may be executed in any number of several counterparts, all of which shall be deemed to constitute but one original and shall be binding upon all parties, their successors and permitted assigns. 11. Entire Agreement. The Credit Agreement as amended by this Amendment embodies the entire agreement between the parties hereto relating to the subject matter hereof and supersedes all prior agreements, representations and understandings, if any, relating to the subject matter hereof. [Remainder of page intentionally blank; next page is signature page] IN WITNESS WHEREOF, the parties have caused this Fourth Amendment to Credit Agreement to be duly executed by their respective officers thereunto duly authorized, as of the date first above written. BORROWER: CONSOLIDATED FREIGHTWAYS CORPORATION By/s/Robert E. Wrightson Name:Robert E. Wrightson Title:Executive Vice President and Chief Financial Officer LENDER: GENERAL ELECTRIC CAPITAL CORPORATION By/s/Craig Winslow Name:Craig Winslow Title: Duly Authorized Signatory CREDIT PARTIES: CONSOLIDATED FREIGHTWAYS CORPORATION OF DELAWARE By/s/Robert E. Wrightson Name:Robert E. Wrightson Title:Executive Vice President and Chief Financial Officer CF AIRFREIGHT CORPORATION By/s/Robert E. Wrightson Name:Robert E. Wrightson Title:Executive Vice President and Chief Financial Officer REDWOOD SYSTEMS, INC. By:/s/Kerry K. Morgan Name:Kerry K. Morgan Title:Vice President and Treasurer LELAND JAMES SERVICE CORPORATION By:/s/Kerry K. Morgan Name:Kerry K. Morgan Title:Vice President and Treasurer EX-10 7 ex1038.txt EXHIBIT 10.38 Exhibit 10.38 SIXTH AMENDMENT TO LETTER OF CREDIT AGREEMENTS THIS SIXTH AMENDMENT TO LETTER OF CREDIT AGREEMENTS (this "Amendment"), is made and entered into as of December 21, 2001 (the "Effective Date"), by and between CONSOLIDATED FREIGHTWAYS CORPORATION, a Delaware corporation ("Debtor"), the other Credit Parties signatory to the Letter of Credit Agreements described below (collectively, together with the Debtor, the "Credit Parties") and GENERAL ELECTRIC CAPITAL CORPORATION, a Delaware corporation ("GE Capital"). W I T N E SS E T H: WHEREAS, Debtor and GE Capital are parties to that certain Letter of Credit Agreement, dated as of April 27, 2001 (as amended to the date hereof, the "Letter of Credit Agreement"; capitalized terms used herein and not otherwise defined herein shall have the meanings given such terms in the Letter of Credit Agreement), pursuant to which GE Capital has committed to make certain letters of credit available to Debtor; and WHEREAS, Debtor, the other Credit Parties and GE Capital desire to modify the Letter of Credit Agreement in certain respects, all in accordance with and subject to the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the premises, the covenants and agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Debtor, the other Credit Parties and GE Capital do hereby agree that all capitalized terms used herein shall have the meanings ascribed thereto in the Letter of Credit Agreement (except as otherwise expressly defined or limited herein) and do hereby further agree as follows: 1. Amendment of the Letter of Credit Agreement. Subject to the terms and conditions of this Amendment, including without limitation the fulfillment of the conditions precedent specified in Section 6 below, Annex A to the Letter of Credit Agreement is hereby amended by deleting therefrom the definition of "Applicable L/C Margin" in its entirety and substituting the following amended definition of such term in lieu thereof: "Applicable L/C Margin" shall mean a per annum rate equal to 1.95%. 2. No Other Amendments. Except for the amendments expressly set forth and referred to in Section 1, each of the Letter of Credit Agreements shall remain unchanged and in full force and effect. Nothing in this Amendment is intended or shall be construed to be a novation of any of the Letter of Credit Agreements or to affect, modify or impair the continuity or perfection of the Creditor's Liens under the Collateral Documents. 3. Representations and Warranties. To induce GE Capital to enter into this Amendment, Debtor and each of the other Credit Parties hereby warrant, represent and covenant to GE Capital that: (a) this Amendment has been duly authorized, executed and delivered by Debtor and each Credit Party signatory thereto, (b) after giving effect to this Amendment, no Termination Event or Event of Default has occurred and is continuing as of this date, and (c) after giving effect to this Amendment, all of the representations and warranties made by Debtor and each Credit Party in the Letter of Credit Agreement are true and correct in all material respects on and as of the date of this Amendment (except to the extent that any such representations or warranties expressly referred to a specific prior date). Any breach in any material respect by Debtor or any Credit Party of any of its representations and warranties contained in this Section 3 shall be an Event of Default under the Letter of Credit Agreement. 4. Ratification and Acknowledgment. Debtor and each of the other Credit Parties hereby ratify and reaffirm each and every term, covenant and condition set forth in the Letter of Credit Agreement and all other documents delivered by such company in connection therewith (including without limitation the other Letter of Credit Documents to which Debtor or any Credit Party is a party), effective as of the date hereof. 5. Estoppel. To induce GE Capital to enter into this Amendment, Debtor and each of the other Credit Parties hereby acknowledge and agree that, as of the date hereof, there exists no right of offset, defense or counterclaim in favor of Debtor or any Credit Party as against GE Capital with respect to the obligations of Debtor or any Credit Party to GE Capital under the Letter of Credit Agreement or the other Letter of Credit Agreement Documents, either with or without giving effect to this Amendment. 6. Conditions to Effectiveness. This Amendment shall become effective, as of the Effective Date, subject to the prior or subsequent receipt by the GE Capital of this Amendment, duly executed, completed and delivered by Debtor and each Credit Party. Upon the effective date of this Amendment, the amendment set forth in Section 1 of this Amendment shall become effective as of the effective date of this Amendment. 7. Reimbursement of Expenses. Debtor and each of the other Credit Parties hereby agree that Debtor and each of the other Credit Parties shall reimburse GE Capital on demand for all costs and expenses (including without limitation reasonable attorney's fees) incurred by GE Capital in connection with the negotiation, documentation and consummation of this Amendment and the other documents executed in connection herewith and therewith and the transactions contemplated hereby and thereby. 8. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK FOR CONTRACTS TO BE PERFORMED ENTIRELY WITHIN SAID STATE. 9. Severability of Provisions. Any provision of this Amendment which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction. To the extent permitted by applicable law, Debtor and each of the other Credit Parties hereby waive any provision of law that renders any provision hereof prohibited or unenforceable in any respect. 10. Counterparts. This Amendment may be executed in any number of several counterparts, all of which shall be deemed to constitute but one original and shall be binding upon all parties, their successors and permitted assigns. 11. Entire Agreement. The Letter of Credit Agreement as amended by this Amendment embodies the entire agreement between the parties hereto relating to the subject matter hereof and supersedes all prior agreements, representations and understandings, if any, relating to the subject matter hereof. [Remainder of page intentionally blank; next page is signature page] IN WITNESS WHEREOF, the parties have caused this Sixth Amendment to Letter of Credit Agreements to be duly executed by their respective officers thereunto duly authorized, as of the date first above written. DEBTOR: CONSOLIDATED FREIGHTWAYS CORPORATION By/s/Patrick H. Blake Name:Partick H. Blake Title:President and Chief Executive Officer CREDITOR: GENERAL ELECTRIC CAPITAL CORPORATION By/s/Craig Winslow Name:Craig Winslow Its Duly Authorized Signatory SUBSIDIARY GUARANTORS: CONSOLIDATED FREIGHTWAYS CORPORATION OF DELAWARE By/s/Patrick H. Blake Name:Partick H. Blake Title:Chief Executive Officer CF AIRFREIGHT CORPORATION By:/s/Kerry K. Morgan Name:Kerry K. Morgan Title:Vice President and Treasurer REDWOOD SYSTEMS, INC. By:/s/Kerry K. Morgan Name:Kerry K. Morgan Title:Vice President and Treasurer LELAND JAMES SERVICE CORPORATION By:/s/Kerry K. Morgan Name:Kerry K. Morgan Title:Vice President and Treasurer EX-10 8 ex1039.txt EXHIBIT 10.39 Exhibit 10.39 SIXTH AMENDMENT TO SECURITIZATION AGREEMENTS THIS SIXTH AMENDMENT TO SECURITIZATION AGREEMENTS (this "Amendment"), is made and entered into as of December 17, 2001 (the "Effective Date"), by and between CONSOLIDATED FREIGHTWAYS FUNDING LLC, a Delaware limited liability company (the "Borrower"), CONSOLIDATED FREIGHTWAYS CORPORATION OF DELAWARE, a Delaware corporation ("CFCD"; the Borrower and CFCD are referred to herein individually as a "Company" and collectively as the "Companies"), and GENERAL ELECTRIC CAPITAL CORPORATION, a Delaware corporation ("GE Capital"), in its capacities (i) as Conduit Lender (in such capacity, the "Conduit Lender"), (ii) as Committed Lender (in such capacity, the "Committed Lender"; in its dual capacities as Conduit Lender and Committed Lender, GE Capital is herein referred to as "Lender"), and (iii) as Administrative Agent for the Lender (in such capacity, the "Administrative Agent"). W I T N E S E T H: WHEREAS, CFCD and the Borrower are parties to a certain Receivables Sale and Contribution Agreement, dated as of April 27, 2001 (as amended to the date hereof, the "Sale Agreement"; capitalized terms used herein and not otherwise defined herein shall have the meanings given such terms in Annex X to the Sale Agreement as amended by this Amendment), whereby CFCD has agreed to sell, contribute or otherwise transfer to the Borrower, and the Borrower has agreed to purchase or otherwise acquire from CFCD, all of the right, title and interest of CFCD in the Receivables; and WHEREAS, CFCD, the Borrower, the Lender and the Administrative Agent, are parties to a certain Servicing Agreement, dated as of April 27, 2001 (as amended to the date hereof, the "Servicing Agreement"), whereby the Borrower has appointed CFCD to service, administer and collect the Transferred Receivables pursuant to the Funding Agreement (defined below) on the terms and conditions set forth therein; and WHEREAS, the Borrower, the Lender and the Administrative Agent are parties to a certain Receivables Funding Agreement, dated as of April 27, 2001 (as amended to the date hereof, the "Funding Agreement") (the Sale Agreement, the Servicing Agreement and the Funding Agreement, together with all exhibits and annexes thereto, are referred to herein collectively as the "Securitization Agreements"), pursuant to which, among other things, the Lender has agreed, subject to certain terms and conditions, to make Advances to the Borrower to fund its purchases of the Receivables; and WHEREAS, the Companies have requested that the Securitization Agreements be amended in certain respects, and GE Capital (in its various capacities) is willing to agree to such amendments subject to the terms and conditions of this Amendment. NOW THEREFORE, in consideration of the premises and mutual covenants contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Amendments of Securitization Agreements. Subject to the terms and conditions of this Amendment, including without limitation the fulfillment of the conditions to effectiveness specified in Section 6 below, the parties signatory to each of the Funding Agreement, the Sale Agreement and the Servicing Agreement hereby agree to amend the Securitization Agreements as follows: (A) Amendments to Annex X. The parties signatory to each of the Funding Agreement, the Sale Agreement, and the Servicing Agreement hereby agree to amend Annex X to the Funding Agreement, the Sale Agreement and the Servicing Agreement as follows: 1.1 The definition of the term "Defaulted Receivable" set forth in Annex X is amended by adding the following new sentence to the end of the definition thereof to read in its entirety as follows: Notwithstanding the foregoing, Defaulted Receivable shall not include any Transferred Receivable with respect to which GE Capital or any affiliate thereof is the Obligor. 1.2 The definition of the term "In Transit Reserve" set forth in Annex X is hereby deleted in its entirety and the following amended definition of such term is substituted in lieu thereof: "In Transit Reserve" shall mean, as at any date of determination thereof, the aggregate Outstanding Balance as of such date of all Eligible Receivables with respect to which (i) any services remain to be performed by or on behalf of the Originator as a condition to the payment thereof, or (ii) acceptance by or any other act of the Obligor thereunder remains to be performed as a condition to the payment thereof, provided that the In Transit Reserve shall not include the Outstanding Balance of any Eligible Receivable to the extent that such Eligible Receivable arises out of the transportation of goods or merchandise by the Originator to or for the benefit of an Obligor and (i) such goods or merchandise have been delivered to such Obligor or to a destination specified by such Obligor or (ii) such goods or merchandise have been delivered to Originator's final destination terminal but have not yet been delivered to or received by the Obligor because the Obligor has requested that the delivery date for such goods or merchandise be delayed to a future date. 2. No Other Amendments. Except for the amendments expressly set forth and referred to in Section 1 above, the Securitization Agreements shall remain unchanged and in full force and effect. 3. Representations and Warranties. Each Company hereby represents and warrants to the Lender and the Administrative Agent that (a) this Amendment has been duly authorized, executed and delivered by such Company, (b) after giving effect to this Amendment, no Termination Event, Incipient Termination Event, Event of Servicer Termination or Incipient Servicer Termination Event in respect of such Company has occurred and is continuing as of this date, and (c) after giving effect to this Amendment, all of the representations and warranties made by such Company in the Securitization Agreements are true and correct in all material respects on and as of the date of this Amendment (except to the extent that any such representations or warranties expressly referred to a specific prior date). Any breach in any material respect by any Company of any of its representations and warranties contained in this Section 3 shall be a Termination Event and an Event of Servicer Termination for all purposes of the Securitization Agreements. Any Advances made on the Effective Date shall be deemed to have been requested and funded after giving effect to this Amendment. 4. Ratification. Each Company hereby ratifies and reaffirms each and every term, covenant and condition set forth in the Securitization Agreements and all other documents delivered by such Company in connection therewith (including without limitation the other Related Documents to which each Company is a party), effective as of the date hereof. 5. Estoppel. To induce GE Capital (in its various capacities) to enter into this Amendment, each Company hereby acknowledges and agrees that, as of the date hereof, there exists no right of offset, defense or counterclaim in favor of any Company as against GE Capital (in its various capacities) with respect to the obligations of any Company to GE Capital (in its various capacities) under the Securitization Agreements or the other Related Documents, either with or without giving effect to this Amendment. 6. Conditions to Effectiveness. This Amendment shall become effective, as of the Effective Date, upon receipt by the Administrative Agent of (i) this Amendment, duly executed, completed and delivered by each of the Companies and by GE Capital in its various capacities and (ii) the Fee Letter dated of even date herewith between the Administrative Agent and Borrower, duly executed by Borrower. 7. Reimbursement of Expenses. Each Company hereby agrees that it shall reimburse the Administrative Agent on demand for all costs and expenses (including without limitation reasonable attorney's fees) incurred by the Administrative Agent in connection with the negotiation, documentation and consummation of this Amendment and the other documents executed in connection herewith and therewith and the transactions contemplated hereby and thereby. 8. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK FOR CONTRACTS TO BE PERFORMED ENTIRELY WITHIN SAID STATE. 9. Severability of Provisions. Any provision of this Amendment which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction. To the extent permitted by Applicable Law, each Company hereby waives any provision of law that renders any provision hereof prohibited or unenforceable in any respect. 10. Counterparts. This Amendment may be executed in any number of several counterparts, all of which shall be deemed to constitute but one original and shall be binding upon all parties, their successors and permitted assigns. 11. Entire Agreement. The Securitization Agreements as amended by this Amendment embody the entire agreement between the parties hereto relating to the subject matter hereof and supersedes all prior agreements, representations and understandings, if any, relating to the subject matter hereof. 12. Originators' and GE Capital's Capacities. CFCD is executing and delivering this Amendment both in its capacity as an Originator under the Sale Agreement and as a Servicer under the Servicing Agreement, and all references herein to "CFCD" shall be deemed to include CFCD in both such capacities unless otherwise expressly indicated. GE Capital is executing and delivering this Amendment in its various capacities as Lender and the Administrative Agent, and all references herein to "GE Capital" shall be deemed to include it in all such capacities unless otherwise expressly indicated. IN WITNESS WHEREOF, the parties have caused this Sixth Amendment to Securitization Agreements be duly executed by their respective officers thereunto duly authorized, as of the date first above written. CONSOLIDATED FREIGHTWAYS FUNDING LLC, as Borrower By/s/Robert E. Wrightson Name:Robert E. Wrightson Title:Executive Vice President and Chief Financial Officer CONSOLIDATED FREIGHTWAYS CORPORATION OF DELAWARE, as Originator and Servicer By/s/Robert E. Wrightson Name:Robert E. Wrightson Title:Executive Vice President and Chief Financial Officer GENERAL ELECTRIC CAPITAL CORPORATION, as Conduit Lender, Committed Lender and Administrative Agent By/s/Craig Winslow Name:Craig Winslow Title: Duly Authorized Signatory EX-10 9 ex1040.txt EXHIBIT 10.40 Exhibit 10.40 EMPLOYMENT AGREEMENT This Agreement, dated as of August 14, 2001, is made by and between Consolidated Freightways Corporation, and Consolidated Freightways Corporation of Delaware, Delaware corporations (hereinafter, together with any successor Corporation(s), the "Company"), and Martin W. Larson (hereinafter "Executive"). Recitals Whereas, Executive is currently employed by the Company as its Senior Vice President, Sales & Marketing; Whereas, the Company and Executive wish to set forth in this Agreement the terms and conditions under which Executive is to be continued to be employed by the Company on and after the date hereof; and Whereas, the Company wishes to be assured that Executive will be available to the Company through December 31, 2002. Now, Therefore, the Company and Executive, in consideration of the mutual promises set forth herein, agree as follows: Article 1. Term of Agreement 1.1 Commencement Date. Executive's employment with the Company under this Agreement shall commence as of the date of this Agreement ("Commencement Date") and shall expire on December 31, 2002, unless further extended pursuant to Section 1.2 or terminated earlier pursuant to Article 6. Notwithstanding the foregoing, this Agreement shall automatically terminate upon Executive's attainment of age sixty-five (65). 1.2 Renewal. The term of this Agreement shall be automatically renewed as of each January 1, beginning with January 1, 2002, for one (1) additional year unless either party delivers written notice to the other at least thirty (30) days prior to such December 31 of an intention to terminate this Agreement upon the then current termination date. In the event of a Change-in-Control, the term of this Agreement shall automatically be extended for one additional year. Article 2. Employment Duties 2.1 Title/Responsibilities. Executive hereby accepts employment with the Company pursuant to the terms and conditions hereof. Executive agrees to serve the Company in his current position at the corporate headquarters. Executive shall report to the Chief Executive Officer of the Company, or the senior sales and marketing executive of any company, or parent thereof, that may acquire the Company. Executive shall have the powers and duties commensurate with such position, including but not limited to, hiring personnel necessary to carry out the responsibilities for such position as set forth in the annual business plan approved by the Board of Directors of the Company. 2.2 Full Time Attention. Executive shall devote his best efforts and his full business time and attention to the performance of the services customarily incident to such office and to such other services as the Board, the Chief Executive Officer of the company or an acquiring company or senior sales and marketing executive of an acquiring company may reasonably request, provided that Executive may also serve on the Boards of Directors of one or more other companies with the prior consent of the Board and may serve on the governing bodies of such charitable organizations as Executive determines. 2.3 Other Activities. Except upon the prior written consent of the Board of Directors or the senior sales and marketing executive of an acquiring parent company, Executive shall not during the period of employment engage, directly or indirectly, in any other business activity (whether or not pursued for pecuniary advantage) that is or may be competitive with, or that might place him in a competing position to that of the Company or any other corporation or entity that directly or indirectly controls, is controlled by, or is under common control with the Company (an "Affiliate"), provided that Executive may own less than two percent (2%) of the outstanding securities of any such publicly traded competing corporation. Article 3. Salary And Bonus 3.1 Base Salary. Executive shall receive a base salary at an annual rate of not less than his current salary payable weekly in equal installments in accordance with the Company's normal payroll practices ("Base Salary"). The Company's Board of Directors shall provide Executive with annual performance reviews, and, thereafter, Executive shall be entitled to such increase in Base Salary as the Board of Directors or a duly authorized Committee thereof may from time to time establish in its sole discretion, which, subject to performance, shall be commensurate with the increases for the other senior executives of the Company and its Affiliates. Any increase in salary shall automatically increase the Base Salary payable by the Company. 3.2 Incentive Bonus. The Company shall provide Executive an annual bonus plan targeting cash payment of 50% of Base Salary annually with an opportunity to earn double that amount based upon achievement by the Company against performance objectives approved by the Board of Directors or Committee thereof annually ("Target Bonus"). The Board of Directors or Committee thereof shall, in its sole discretion, determine the extent to which such performance objectives have been obtained. Objectives under which a Target Bonus will be earned shall be achievable in a manner substantially consistent with the senior executive officers of the Company and its Affiliates and substantially consistent with past practice. 3.3 Withholdings. All compensation and benefits payable to Executive hereunder shall be subject to all federal, state, local and other withholdings and similar taxes and payments required by applicable law. Article 4. Benefits and Other Compensation 4.1 Vacation. Executive shall be entitled to the greater of four (4) weeks of annual paid vacation or the amount of annual paid vacation which Executive is entitled as of the date hereof or may become entitled under the terms of the current vacation policy for employees of the Company and its Affiliates, whichever is greater. 4.2 Benefits. During the term of this Agreement, the Company shall also provide Executive with the usual health insurance benefits it generally provides to its other senior officers of the Company and its Affiliates. The Company shall provide Executive with the right to participate in and to receive benefits from life, accident, disability, medical, retirement medical, pension, supplemental retirement, 401(k), car allowance, bonus, long-term incentive, stock awards, profit-sharing and savings plans, and similar benefits made available either generally to employees of the Company or specifically to other senior executive officers of the Company and its Affiliates as such plans and benefits may be adopted by the Company. The amount of such benefits shall be substantially consistent with benefits provided to other senior executive officers of the Company and its Affiliates and past practices (excluding the extraordinary restricted stock grant). Target long-term incentives shall be at least as much as those provided in 2001, with any increase establishing a new minimum target. Any objectives under such target long-term incentives shall be achievable in a manner substantially consistent with the senior executive officers of the Company and its Affiliates. 4.3 Business Expense Reimbursement. During the term of this Agreement, Executive shall be entitled to receive reimbursement for all reasonable out-of-pocket expenses incurred by him (in accordance with the policies and procedures established by the Company for its senior executive officers) in performing services hereunder. Executive agrees to furnish to the Company adequate records and other documentary evidence of such expenses for which Executive seeks reimbursement. Such expenses shall be reimbursed and accounted for under the policies and procedures established by the Company and the Audit Committee of the Board of Directors. Article 5. Additional Obligations 5.1 Non-Disclosure of Proprietary Information - Non Competition. Executive shall execute upon request the Company's standard Non-Disclosure Agreement for officers of the Company and its Affiliates in a form acceptable to the Company's counsel. In any event, Executive shall maintain the confidentiality and not use confidential information of the Company during his term of employment and for two years following termination of his employment. While employed hereunder, Executive shall not engage, directly or indirectly, in any other business activity that is competitive with, or that places him in a competing position to that of the Company or any Affiliates (provided that Executive may own less than two percent (2%) of the outstanding securities of any publicly traded corporation). 5.2 No Solicitation of Employees. As a condition of receiving benefits under this Agreement, Executive may not directly solicit employees or full-time consultants of the Company to leave during his employment with the Company or for a period of two years from the termination of employment. 5.3 Waiver of Claims. Executive shall also waive any known or unknown claim against the Company and its Affiliates, including, if applicable, any acquiring corporation, other than those arising under the Agreement. Executive shall sign an appropriate release if so requested upon termination of employment. 5.4 Return of Property. All documents, records, apparatus, equipment and other physical property which if furnished to or obtained by Executive in the course of his employment with the Company shall be and remain the sole property of the Company. Executive agrees that, upon the termination of his employment, he shall return all such property (whether or not it pertains to the Company's proprietary information), and agrees not to make or retain copies, reproductions or summaries of any such property. Article 6. Termination 6.1 By Death. The period of employment shall terminate automatically upon the death of Executive. In such event, the Company shall pay to Executive's beneficiaries or his estate, as the case may be, any accrued Base Salary, pro-rata Target Bonus based upon performance to date of death relative to target performance, any vested deferred compensation (other than pension plan, supplemental retirement, 401(k), or profit-sharing plan benefits which will be paid in accordance with the terms of the applicable plan), any benefits under any plans of the Company in which Executive is a participant to the full extent of Executive's rights under such plans, any accrued vacation pay and any appropriate business expenses incurred by Executive in connection with his duties hereunder, all to the date of termination (collectively "Accrued Compensation"), and six (6) months' additional Base Salary, Target Bonus, health benefits and age and service credit under the Company's defined benefit pension plan and supplemental pension plan (as if the Executive had continued to perform services for such period with the same amount of Base Salary and Target Bonus). Thereafter, the Company's obligations hereunder shall terminate. 6.2 By Disability. If Executive is prevented from properly performing his duties hereunder by reason of any physical or mental incapacity for a period of more than 60 days in the aggregate in any 365-day period, or if a determination is made by a qualified physician selected by the Company and acceptable to Executive or Executive's representative that continued employment with the Company by Executive would jeopardize Executive's physical or mental health, then, to the extent permitted by law, the Company may terminate the employment on the 60th day of such incapacity or following such a determination by a qualified physician. In such event, the Company shall pay to Executive all Accrued Compensation, and shall pay to Executive in a lump sum a total of six (6) months' additional Base Salary, Target Bonus, health benefits and age and service credit under the Company's defined benefit pension plan and supplemental pension plan (as if the Executive had continued to perform services for such period with the same amount of Base Salary and Target Bonus). Thereafter the Company's obligations hereunder shall terminate. Nothing in this Agreement shall affect Executive's rights under any disability plan in which he is an eligible participant. 6.3 By Company for Cause. The Company may terminate Executive's employment for Cause (as defined below) without liability at any time with or without advance notice to Executive. The Company shall pay Executive all Accrued Compensation, but no other compensation or reimbursement of any kind, including without limitation, severance compensation, and thereafter the Company's obligations hereunder shall terminate. Termination shall be for "Cause" in the event of the occurrence of any of the following: (a) any intentional action or intentional failure to act by Executive which was performed in bad faith and to the material detriment of the Company; (b) intentional refusal or intentional failure to act in accordance with any lawful and proper direction or order of the Board or the Chief Executive Officer of the Company; (c) willful and habitual neglect of his duties of employment; or (d) conviction of a felony crime involving fraud or an act of dishonesty against the Company, provided that in the event that any of the foregoing events is capable of being cured, the Company shall provide written notice to Executive describing the nature of such event and Executive shall thereafter have ten (10) business days to cure such event. 6.4 At Will. At any time, the Company may terminate Executive's employment without liability other than as set forth below, for any reason not specified in Section 6.3 above, by giving thirty (30) days advance written notice to Executive. If the Company elects to terminate Executive pursuant to this Section 6.4, the Company shall pay to Executive all Accrued Compensation and shall pay to Executive as provided herein Executive's Base Salary, Target Bonus and continue to pay the benefits described in Section 4.2 (except as otherwise explicitly provided in this Section 6.4 and excluding any stock awards or other compensation and benefits that are awarded to senior executives after termination of employment) over the period equal to the remaining term of this Agreement, and thereafter all obligations of the Company shall terminate. Notwithstanding the preceding sentence, Executive shall receive (i) his incentive bonus as described in Section 3.2 only for the proportion of the Company's fiscal year in which termination occurs based upon the Company's year-to-date of termination against selected objectives, (ii) his long-term incentive compensation, if any, only for the proportion of the applicable period based on the Company's performance to date of termination against selected objectives, (iii) additional age and service credits under the Company's defined benefit pension plan and supplemental retirement plan for the remainder of the then current term of this Agreement as if Executive had continued to perform services for such period, and (iv) acceleration of vesting in full for all stock awards, whether stock options, restricted stock, or otherwise, then held by Executive, subject to payment of the exercise price, attainment during the term of all other requirements not related to continued employment, and satisfaction any other requirements, related to exercise or termination of stock awards following termination, as applicable. All such severance compensation amounts shall be earned and become payable in full immediately upon termination of employment. If the Company terminates this Agreement or the employment of Executive with the Company other than pursuant to Section 6.1, 6.2 or 6.3, then this Section 6.4 shall apply. If such termination under this Section 6.4 shall occur within twenty four (24) months following the occurrence of a Change-in- Control, Executive shall be paid upon termination in a lump sum Base Salary, Target Bonus and automobile allowance for the remainder of the term of this Agreement, plus three years of pension service and age credit. Executive's benefits under the Company's defined benefit pension plan and supplemental retirement plan shall be determined as if Executive had remained employed with the Company for an additional three years, had continued to receive the same amount of Base Salary for that period, and continued to receive Target Bonus. In addition, Executive shall be entitled to continued coverage without premiums under the Company's health, dental and drug plan (substantially consistent with the terms thereof in effect on the date hereof) for himself and a spouse or minor dependent under the same terms as executive officers of the Company and its Affiliates until such Executive and spouse are eligible for Medicare or ten years, whichever is shorter. If Executive or his spouse is or becomes covered under the health plan of another employer, and the Company's plan shall be secondary for as long as that coverage continues. Payment under this provision for Change-in-Control shall release the Company from payment of any other benefits specified above other than Accrued Compensation, acceleration of vesting of stock-based benefits, and any other vested rights at time of termination. 6.5 Constructive Termination. In the event that the Company changes the terms and conditions of Executive's employment with the Company such that a "Constructive Termination" has occurred, and Executive ceases performance of services for the Company thereafter, such action shall be deemed to be a termination of employment of Executive without cause pursuant to Section 6.4. For purposes of this Agreement, "Constructive Termination" shall mean (i) reduction of Executive's Base Salary and/or Target Bonus, (ii) failure to provide a package of welfare benefit plans, pension benefit plans, and fringe benefits for Executive made available generally to employees of the Company and its Affiliates and to other senior executives of the Company and its Affiliates which, taken as a whole, provide substantially similar benefits to those in which the Executive is entitled to participate immediately prior to the Commencement Date of this Agreement or in effect prior to the occurrence of a Change-in-Control, whichever is greater, or any action by the Company which would adversely affect Executive's participation, (iii) material reduction of Executive's benefits under any of such plans, (iv) change in Executive's responsibilities, authority, title, office, or reporting relationship resulting in diminution of position, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith which is remedied by the Company promptly after notice thereof is given by Executive, and excluding the reporting to the senior sales and marketing executive of an acquiring company, (v) in the case of a Change-in- Control only, a request that Executive relocate to a worksite that is more than 15 miles from his prior worksite, unless Executive accepts such relocation opportunity, (vi) material reduction in Executives duties, (vii) failure or refusal of a successor to the Company and any parent company to assume the Company's obligations under this Agreement, as provided in Section 7.2.2, or (viii) material breach by the Company or any successor to the Company or any parent company of any of the material provisions of this Agreement. 6.6 Change-in-Control. For purposes of this Agreement, a "Change-in-Control" shall have occurred if at any time during the term of Executive's employment hereunder, any of the following events shall occur: (a) The Company is merged, or consolidated, or reorganized into or with another corporation or other legal person, and as a result of such merger, consolidation or reorganization less than 50% of the combined voting power of the then-outstanding securities of such corporation or person immediately after such transaction are held in the aggregate by the holders of voting securities of the Company immediately prior to such transaction; (b) The Company sells at least fifty percent (50%) of its assets in a twelve (12) month period to any other corporation or other legal person and thereafter, less than 50% of the combined voting power of the then-outstanding voting securities of the acquiring or consolidated entity are held in the aggregate by the holders of voting securities of the Company immediately prior to such sale; (c) There is a report filed after the date of this Agreement on Schedule 13D or Schedule 14 D-1 (or any successor schedule, form or report), each as promulgated pursuant to the Securities Exchange Act of 1934 (the "Exchange Act") disclosing that any person (as the term "person" is used in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) has become the beneficial owner (as the term "beneficial owner" is defined under Rule 13d-3 or any successor rule or regulation promulgated under the Exchange Act) representing 25% or more of the combined voting power of the then-outstanding voting securities of the Company; (d) The Company shall file a report or proxy statement with the Securities and Exchange Commission pursuant to the Exchange Act disclosing in response to item 1 of Form 8-X thereunder or Item 5(f) of Schedule 14A thereunder (or any successor schedule, form or report or item therein) that the change in control of the Company has or may have occurred or will or may occur in the future pursuant to any then-existing contract or transaction; (e) During any period of two consecutive years, individuals who at the beginning of any such period constitute the directors of the Company cease for any reason to constitute at least a majority thereof unless the election of the nomination for election by the Company's shareholders of each director of the Company first elected during such period was approved by a vote of at least two-thirds of the directors of the Company then still in office who were directors of the Company at the beginning of such period (an "Incumbent Director"), and any director so approved shall be treated as an Incumbent Director in the future; or (f) The liquidation or dissolution of the Company. 6.7 Excise Tax Gross-Up. In the event it shall be determined that any payment by the Company and/or its Affiliates to or for the benefit of Executive, whether paid or payable under this Agreement or otherwise, but determined without regard to any additional payments required under this Section 6.7 (a "Payment"), would be subject to the excise tax imposed by Section 4999 of the Code, or any comparable federal, state, or local excise tax (such excise tax, together with any interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in such an amount that after the payment of all taxes (including without limitation, any interest and penalties on such taxes and the excise tax) on the Payment and on the Gross-Up Payment, Executive shall retain an amount equal to the Payment minus all applicable income and employment taxes on the Payment. The intent of the parties is that the Company shall be solely responsible for, and shall pay, any Excise Tax on the Payment and Gross-Up Payment and any income, employment and other taxes (including, without limitation, penalties and interest) imposed on any Gross-Up Payment, as well as any loss of tax deduction caused by the Gross- Up Payment or applicable provisions of the Code. All determinations required to be made under this Section 6.7, including without limitation, whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determinations, shall be made by a nationally recognized accounting firm that is the Company's outside auditor at the time of such determinations, which firm must be reasonably acceptable to Executive. All fees and expenses of such accounting firm shall be borne solely by the Company. 6.8 Termination by Executive. At any time, whether or not as a result of Executive's retirement, Executive may terminate his employment by giving thirty (30) days advance written notice to the Company. The Company shall pay Executive all Accrued Compensation, but no other compensation or reimbursement of any kind, including without limitation, severance compensation, and thereafter the Company's obligations hereunder shall terminate. In the event that Executive voluntarily terminates his employment with the Company during the thirteenth calendar month beginning after the occurrence of a Change-in-Control, Executive shall also receive a total of twelve (12) months' Base Salary, Target Bonus, service and pension credits and health, dental and drug benefits as if Executive's employment had been involuntarily terminated by the Company pursuant to Section 6.4 above, except that Executive shall not be entitled to any tax "gross-up" benefits described in Section 6.7. Executive benefits under the Company's defined benefit pension plan and supplemental retirement plan shall be determined as if Executive had remained employed with the Company for that period. Article 7. General Provisions 7.1 Governing Law. The validity, interpretation, construction and performance of this Agreement and the rights of the parties thereunder shall be interpreted and executed under Delaware law without reference to principles of conflicts of laws. 7.2 Assignment; Successors; Binding Agreement. 7.2.1 Executive may not assign, pledge or encumber his interest in this Agreement or any part thereof. 7.2.2 The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by operation of law or by agreement in form and substance reasonably satisfactory to Executive, to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. 7.2.3 This Agreement shall incur to the benefit of and be enforceable by Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Executive should die while any amount is at such time payable to him hereunder, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to Executive's devisee, legates or other designee or, if there be no such designee, to his estate. 7.3 Attorney Fees. The Company will reimburse Executive or Executive's successor-in-interest for all reasonable attorney fees and costs associated with bringing any action under this Agreement to enforce their rights hereunder, regardless of the outcome of such proceeding, provided the court does not find the claim was brought in bad faith. 7.4 Non-Publication. The parties mutually agree not to disclose publicly the terms of this Agreement except to the extent that disclosure is mandated by applicable law. 7.5 No Waiver of Breach. The waiver by any party of the breach of any provision of this Agreement shall not be deemed to be a waiver of any subsequent breach. No delay in exercising any right hereunder shall be deemed to be a waiver of the party's rights hereunder. 7.6 Notice. For the purposes of this Agreement, notices and all other communications provided for in this agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by certified or registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth below or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. To the Company: Consolidated Freightways Corporation 16400 SE CF Way Vancouver, WA 98683 Attn: Chairman of Compensation Committee To Executive: Martin W. Larson 7.7 Modification; Waiver; Entire Agreement. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by Executive and such officer as may be specifically designated by the Board of Directors of the Company. No waiver by either party hereto at any time of any breach by the other party of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. This Agreement supercedes any prior agreement, promises or understanding concerning the subject matter hereof. 7.8 Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 7.9 Executive Acknowledgement. Executive acknowledges (a) that he has consulted with or had had the opportunity to consult with independent counsel of his own choice concerning this Agreement, and has been advised to do so by the Company, and (b) that he has read and understands the Agreement, is fully aware of its legal effect, and has entered into it freely based on his own judgment. 7.10 Injunctive Relief. The parties agrees that the services to be rendered by Executive hereunder are of a unique nature and that in the event of any breach or threatened breach of any of the covenants contained herein, the damage or imminent damage to the value and the goodwill of the Company's business will be irreparable and extremely difficult to estimate, making any remedy at law or in damages inadequate. Accordingly, the parties agree that the Company shall be entitled to injunctive relief against Executive in the event of any breach or threatened breach of any such provisions by Executive, in addition to any other relief (including damages) available to the Company under this Agreement or under law. Both parties agree that the remedy specified in this section is not exclusive of any other remedy for the breach by Executive of the terms hereof. 7.11 Counterparts. This Agreement may be executed in one or more counterparts, all of which taken together shall constitute one and the same Agreement. 7.12 No Mitigation. The Executive shall not be required to mitigate the amount of payments hereunder by seeking other employment or otherwise, and any amount earned by Executive as a result of employment by other employer after the date of termination shall not reduce the payments hereunder. 7.13 Indemnity. The Company and its Affiliates shall indemnify and hold Executive harmless against any loss, cost or expense arising out of or relating to the performance of his duties to the Company and its Affiliates, and shall maintain adequate liability insurance covering such Executive's acts and omissions occurring during the term of this agreement and for a period of six years thereafter. 7.14 Arbitration. The Executive and the Company agree that should any dispute arise under this Agreement and before any legal action is initiated, the parties shall within 45 days enter into non-binding arbitration to be conducted in accordance with the rules of the American Arbitration Association. The arbitrator(s) shall render a non-binding decision. The Company shall pay all costs of the arbitration, excluding Executive's attorney's fees (which shall only be payable under Section 7.3 if the dispute cannot be settled by the parties, an action is brought by Executive and the court does not find the claim was brought in bad faith). If any legal action is brought, both parties expressly waive the right to a jury. Executed by the parties as of the date and year first above written. Consolidated Freightways Corporation /s/Stephen D. Richards Stephen D. Richards Senior Vice President & General Counsel Consolidated Freightways Corporation Executive: /s/Martin W. Larson Martin W. Larson Senior Vice President, Sales & Marketing Consolidated Freightways Corporation EMPLOYMENT AGREEMENT This Agreement, dated as of August 14, 2001, is made by and between Consolidated Freightways Corporation, and Consolidated Freightways Corporation of Delaware, Delaware corporations (hereinafter, together with any successor Corporation(s), the "Company"), and Wayne M. Bolio (hereinafter "Executive"). Recitals Whereas, Executive is currently employed by the Company as its Vice President, Human Resources; Whereas, the Company and Executive wish to set forth in this Agreement the terms and conditions under which Executive is to be continued to be employed by the Company on and after the date hereof; and Whereas, the Company wishes to be assured that Executive will be available to the Company through December 31, 2002. Now, Therefore, the Company and Executive, in consideration of the mutual promises set forth herein, agree as follows: Article 1. Term of Agreement 1.1 Commencement Date. Executive's employment with the Company under this Agreement shall commence as of the date of this Agreement ("Commencement Date") and shall expire on December 31, 2002, unless further extended pursuant to Section 1.2 or terminated earlier pursuant to Article 6. Notwithstanding the foregoing, this Agreement shall automatically terminate upon Executive's attainment of age sixty-five (65). 1.2 Renewal. The term of this Agreement shall be automatically renewed as of each January 1, beginning with January 1, 2002, for one (1) additional year unless either party delivers written notice to the other at least thirty (30) days prior to such December 31 of an intention to terminate this Agreement upon the then current termination date. In the event of a Change-in-Control, the term of this Agreement shall automatically be extended for one additional year. Article 2. Employment Duties 2.1 Title/Responsibilities. Executive hereby accepts employment with the Company pursuant to the terms and conditions hereof. Executive agrees to serve the Company in his current position at the corporate headquarters. Executive shall report to the Chief Executive Officer of the Company, or the senior human resources executive of any company, or parent thereof, that may acquire the Company. Executive shall have the powers and duties commensurate with such position, including but not limited to, hiring personnel necessary to carry out the responsibilities for such position as set forth in the annual business plan approved by the Board of Directors of the Company. 2.2 Full Time Attention. Executive shall devote his best efforts and his full business time and attention to the performance of the services customarily incident to such office and to such other services as the Board, the Chief Executive Officer of the company or an acquiring company or senior sales and marketing executive of an acquiring company may reasonably request, provided that Executive may also serve on the Boards of Directors of one or more other companies with the prior consent of the Board and may serve on the governing bodies of such charitable organizations as Executive determines. 2.3 Other Activities. Except upon the prior written consent of the Board of Directors or the senior human resources executive of an acquiring parent company, Executive shall not during the period of employment engage, directly or indirectly, in any other business activity (whether or not pursued for pecuniary advantage) that is or may be competitive with, or that might place him in a competing position to that of the Company or any other corporation or entity that directly or indirectly controls, is controlled by, or is under common control with the Company (an "Affiliate"), provided that Executive may own less than two percent (2%) of the outstanding securities of any such publicly traded competing corporation. Article 3. Salary And Bonus 3.1 Base Salary. Executive shall receive a base salary at an annual rate of not less than his current salary payable weekly in equal installments in accordance with the Company's normal payroll practices ("Base Salary"). The Company's Board of Directors shall provide Executive with annual performance reviews, and, thereafter, Executive shall be entitled to such increase in Base Salary as the Board of Directors or a duly authorized Committee thereof may from time to time establish in its sole discretion, which, subject to performance, shall be commensurate with the increases for the other senior executives of the Company and its Affiliates. Any increase in salary shall automatically increase the Base Salary payable by the Company. 3.2 Incentive Bonus. The Company shall provide Executive an annual bonus plan targeting cash payment of 50% of Base Salary annually with an opportunity to earn double that amount based upon achievement by the Company against performance objectives approved by the Board of Directors or Committee thereof annually ("Target Bonus"). The Board of Directors or Committee thereof shall, in its sole discretion, determine the extent to which such performance objectives have been obtained. Objectives under which a Target Bonus will be earned shall be achievable in a manner substantially consistent with the senior executive officers of the Company and its Affiliates and substantially consistent with past practice. 3.3 Withholdings. All compensation and benefits payable to Executive hereunder shall be subject to all federal, state, local and other withholdings and similar taxes and payments required by applicable law. Article 4. Benefits and Other Compensation 4.1 Vacation. Executive shall be entitled to the greater of four (4) weeks of annual paid vacation or the amount of annual paid vacation which Executive is entitled as of the date hereof or may become entitled under the terms of the current vacation policy for employees of the Company and its Affiliates, whichever is greater. 4.2 Benefits. During the term of this Agreement, the Company shall also provide Executive with the usual health insurance benefits it generally provides to its other senior officers of the Company and its Affiliates. The Company shall provide Executive with the right to participate in and to receive benefits from life, accident, disability, medical, retirement medical, pension, supplemental retirement, 401(k), car allowance, bonus, long-term incentive, stock awards, profit-sharing and savings plans, and similar benefits made available either generally to employees of the Company or specifically to other senior executive officers of the Company and its Affiliates as such plans and benefits may be adopted by the Company. The amount of such benefits shall be substantially consistent with benefits provided to other senior executive officers of the Company and its Affiliates and past practices (excluding the extraordinary restricted stock grant). Target long-term incentives shall be at least as much as those provided in 2001, with any increase establishing a new minimum target. Any objectives under such target long-term incentives shall be achievable in a manner substantially consistent with the senior executive officers of the Company and its Affiliates. 4.3 Business Expense Reimbursement. During the term of this Agreement, Executive shall be entitled to receive reimbursement for all reasonable out-of-pocket expenses incurred by him (in accordance with the policies and procedures established by the Company for its senior executive officers) in performing services hereunder. Executive agrees to furnish to the Company adequate records and other documentary evidence of such expenses for which Executive seeks reimbursement. Such expenses shall be reimbursed and accounted for under the policies and procedures established by the Company and the Audit Committee of the Board of Directors. Article 5. Additional Obligations 5.1 Non-Disclosure of Proprietary Information - Non Competition. Executive shall execute upon request the Company's standard Non-Disclosure Agreement for officers of the Company and its Affiliates in a form acceptable to the Company's counsel. In any event, Executive shall maintain the confidentiality and not use confidential information of the Company during his term of employment and for two years following termination of his employment. While employed hereunder, Executive shall not engage, directly or indirectly, in any other business activity that is competitive with, or that places him in a competing position to that of the Company or any Affiliates (provided that Executive may own less than two percent (2%) of the outstanding securities of any publicly traded corporation). 5.2 No Solicitation of Employees. As a condition of receiving benefits under this Agreement, Executive may not directly solicit employees or full-time consultants of the Company to leave during his employment with the Company or for a period of two years from the termination of employment. 5.3 Waiver of Claims. Executive shall also waive any known or unknown claim against the Company and its Affiliates, including, if applicable, any acquiring corporation, other than those arising under the Agreement. Executive shall sign an appropriate release if so requested upon termination of employment. 5.4 Return of Property. All documents, records, apparatus, equipment and other physical property which if furnished to or obtained by Executive in the course of his employment with the Company shall be and remain the sole property of the Company. Executive agrees that, upon the termination of his employment, he shall return all such property (whether or not it pertains to the Company's proprietary information), and agrees not to make or retain copies, reproductions or summaries of any such property. Article 6. Termination 6.1 By Death. The period of employment shall terminate automatically upon the death of Executive. In such event, the Company shall pay to Executive's beneficiaries or his estate, as the case may be, any accrued Base Salary, pro-rata Target Bonus based upon performance to date of death relative to target performance, any vested deferred compensation (other than pension plan, supplemental retirement, 401(k), or profit-sharing plan benefits which will be paid in accordance with the terms of the applicable plan), any benefits under any plans of the Company in which Executive is a participant to the full extent of Executive's rights under such plans, any accrued vacation pay and any appropriate business expenses incurred by Executive in connection with his duties hereunder, all to the date of termination (collectively "Accrued Compensation"), and six (6) months' additional Base Salary, Target Bonus, health benefits and age and service credit under the Company's defined benefit pension plan and supplemental pension plan (as if the Executive had continued to perform services for such period with the same amount of Base Salary and Target Bonus). Thereafter, the Company's obligations hereunder shall terminate. 6.2 By Disability. If Executive is prevented from properly performing his duties hereunder by reason of any physical or mental incapacity for a period of more than 60 days in the aggregate in any 365-day period, or if a determination is made by a qualified physician selected by the Company and acceptable to Executive or Executive's representative that continued employment with the Company by Executive would jeopardize Executive's physical or mental health, then, to the extent permitted by law, the Company may terminate the employment on the 60th day of such incapacity or following such a determination by a qualified physician. In such event, the Company shall pay to Executive all Accrued Compensation, and shall pay to Executive in a lump sum a total of six (6) months' additional Base Salary, Target Bonus, health benefits and age and service credit under the Company's defined benefit pension plan and supplemental pension plan (as if the Executive had continued to perform services for such period with the same amount of Base Salary and Target Bonus). Thereafter the Company's obligations hereunder shall terminate. Nothing in this Agreement shall affect Executive's rights under any disability plan in which he is an eligible participant. 6.3 By Company for Cause. The Company may terminate Executive's employment for Cause (as defined below) without liability at any time with or without advance notice to Executive. The Company shall pay Executive all Accrued Compensation, but no other compensation or reimbursement of any kind, including without limitation, severance compensation, and thereafter the Company's obligations hereunder shall terminate. Termination shall be for "Cause" in the event of the occurrence of any of the following: (a) any intentional action or intentional failure to act by Executive which was performed in bad faith and to the material detriment of the Company; (b) intentional refusal or intentional failure to act in accordance with any lawful and proper direction or order of the Board or the Chief Executive Officer of the Company; (c) willful and habitual neglect of his duties of employment; or (d) conviction of a felony crime involving fraud or an act of dishonesty against the Company, provided that in the event that any of the foregoing events is capable of being cured, the Company shall provide written notice to Executive describing the nature of such event and Executive shall thereafter have ten (10) business days to cure such event. 6.4 At Will. At any time, the Company may terminate Executive's employment without liability other than as set forth below, for any reason not specified in Section 6.3 above, by giving thirty (30) days advance written notice to Executive. If the Company elects to terminate Executive pursuant to this Section 6.4, the Company shall pay to Executive all Accrued Compensation and shall pay to Executive as provided herein Executive's Base Salary, Target Bonus and continue to pay the benefits described in Section 4.2 (except as otherwise explicitly provided in this Section 6.4 and excluding any stock awards or other compensation and benefits that are awarded to senior executives after termination of employment) over the period equal to the remaining term of this Agreement, and thereafter all obligations of the Company shall terminate. Notwithstanding the preceding sentence, Executive shall receive (i) his incentive bonus as described in Section 3.2 only for the proportion of the Company's fiscal year in which termination occurs based upon the Company's year-to-date of termination against selected objectives, (ii) his long-term incentive compensation, if any, only for the proportion of the applicable period based on the Company's performance to date of termination against selected objectives, (iii) additional age and service credits under the Company's defined benefit pension plan and supplemental retirement plan for the remainder of the then current term of this Agreement as if Executive had continued to perform services for such period, and (iv) acceleration of vesting in full for all stock awards, whether stock options, restricted stock, or otherwise, then held by Executive, subject to payment of the exercise price, attainment during the term of all other requirements not related to continued employment, and satisfaction any other requirements, related to exercise or termination of stock awards following termination, as applicable. All such severance compensation amounts shall be earned and become payable in full immediately upon termination of employment. If the Company terminates this Agreement or the employment of Executive with the Company other than pursuant to Section 6.1, 6.2 or 6.3, then this Section 6.4 shall apply. If such termination under this Section 6.4 shall occur within twenty four (24) months following the occurrence of a Change-in- Control, Executive shall be paid upon termination in a lump sum Base Salary, Target Bonus and automobile allowance for the remainder of the term of this Agreement, plus three years of pension service and age credit. Executive's benefits under the Company's defined benefit pension plan and supplemental retirement plan shall be determined as if Executive had remained employed with the Company for an additional three years, had continued to receive the same amount of Base Salary for that period, and continued to receive Target Bonus. In addition, Executive shall be entitled to continued coverage without premiums under the Company's health, dental and drug plan (substantially consistent with the terms thereof in effect on the date hereof) for himself and a spouse or minor dependent under the same terms as executive officers of the Company and its Affiliates until such Executive and spouse are eligible for Medicare or ten years, whichever is shorter. If Executive or his spouse is or becomes covered under the health plan of another employer, and the Company's plan shall be secondary for as long as that coverage continues. Payment under this provision for Change-in-Control shall release the Company from payment of any other benefits specified above other than Accrued Compensation, acceleration of vesting of stock-based benefits, and any other vested rights at time of termination. 6.5 Constructive Termination. In the event that the Company changes the terms and conditions of Executive's employment with the Company such that a "Constructive Termination" has occurred, and Executive ceases performance of services for the Company thereafter, such action shall be deemed to be a termination of employment of Executive without cause pursuant to Section 6.4. For purposes of this Agreement, "Constructive Termination" shall mean (i) reduction of Executive's Base Salary and/or Target Bonus, (ii) failure to provide a package of welfare benefit plans, pension benefit plans, and fringe benefits for Executive made available generally to employees of the Company and its Affiliates and to other senior executives of the Company and its Affiliates which, taken as a whole, provide substantially similar benefits to those in which the Executive is entitled to participate immediately prior to the Commencement Date of this Agreement or in effect prior to the occurrence of a Change-in-Control, whichever is greater, or any action by the Company which would adversely affect Executive's participation, (iii) material reduction of Executive's benefits under any of such plans, (iv) change in Executive's responsibilities, authority, title, office, or reporting relationship resulting in diminution of position, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith which is remedied by the Company promptly after notice thereof is given by Executive, and excluding the reporting to the senior human resources executive of an acquiring company, (v) in the case of a Change-in- Control only, a request that Executive relocate to a worksite that is more than 15 miles from his prior worksite, unless Executive accepts such relocation opportunity, (vi) material reduction in Executives duties, (vii) failure or refusal of a successor to the Company and any parent company to assume the Company's obligations under this Agreement, as provided in Section 7.2.2, or (viii) material breach by the Company or any successor to the Company or any parent company of any of the material provisions of this Agreement. 6.6 Change-in-Control. For purposes of this Agreement, a "Change-in-Control" shall have occurred if at any time during the term of Executive's employment hereunder, any of the following events shall occur: (a) The Company is merged, or consolidated, or reorganized into or with another corporation or other legal person, and as a result of such merger, consolidation or reorganization less than 50% of the combined voting power of the then-outstanding securities of such corporation or person immediately after such transaction are held in the aggregate by the holders of voting securities of the Company immediately prior to such transaction; (b) The Company sells at least fifty percent (50%) of its assets in a twelve (12) month period to any other corporation or other legal person and thereafter, less than 50% of the combined voting power of the then-outstanding voting securities of the acquiring or consolidated entity are held in the aggregate by the holders of voting securities of the Company immediately prior to such sale; (c) There is a report filed after the date of this Agreement on Schedule 13D or Schedule 14 D-1 (or any successor schedule, form or report), each as promulgated pursuant to the Securities Exchange Act of 1934 (the "Exchange Act") disclosing that any person (as the term "person" is used in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) has become the beneficial owner (as the term "beneficial owner" is defined under Rule 13d-3 or any successor rule or regulation promulgated under the Exchange Act) representing 25% or more of the combined voting power of the then-outstanding voting securities of the Company; (d) The Company shall file a report or proxy statement with the Securities and Exchange Commission pursuant to the Exchange Act disclosing in response to item 1 of Form 8-X thereunder or Item 5(f) of Schedule 14A thereunder (or any successor schedule, form or report or item therein) that the change in control of the Company has or may have occurred or will or may occur in the future pursuant to any then-existing contract or transaction; (e) During any period of two consecutive years, individuals who at the beginning of any such period constitute the directors of the Company cease for any reason to constitute at least a majority thereof unless the election of the nomination for election by the Company's shareholders of each director of the Company first elected during such period was approved by a vote of at least two-thirds of the directors of the Company then still in office who were directors of the Company at the beginning of such period (an "Incumbent Director"), and any director so approved shall be treated as an Incumbent Director in the future; or (f) The liquidation or dissolution of the Company. 6.7 Excise Tax Gross-Up. In the event it shall be determined that any payment by the Company and/or its Affiliates to or for the benefit of Executive, whether paid or payable under this Agreement or otherwise, but determined without regard to any additional payments required under this Section 6.7 (a "Payment"), would be subject to the excise tax imposed by Section 4999 of the Code, or any comparable federal, state, or local excise tax (such excise tax, together with any interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in such an amount that after the payment of all taxes (including without limitation, any interest and penalties on such taxes and the excise tax) on the Payment and on the Gross-Up Payment, Executive shall retain an amount equal to the Payment minus all applicable income and employment taxes on the Payment. The intent of the parties is that the Company shall be solely responsible for, and shall pay, any Excise Tax on the Payment and Gross-Up Payment and any income, employment and other taxes (including, without limitation, penalties and interest) imposed on any Gross-Up Payment, as well as any loss of tax deduction caused by the Gross- Up Payment or applicable provisions of the Code. All determinations required to be made under this Section 6.7, including without limitation, whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determinations, shall be made by a nationally recognized accounting firm that is the Company's outside auditor at the time of such determinations, which firm must be reasonably acceptable to Executive. All fees and expenses of such accounting firm shall be borne solely by the Company. 6.8 Termination by Executive. At any time, whether or not as a result of Executive's retirement, Executive may terminate his employment by giving thirty (30) days advance written notice to the Company. The Company shall pay Executive all Accrued Compensation, but no other compensation or reimbursement of any kind, including without limitation, severance compensation, and thereafter the Company's obligations hereunder shall terminate. In the event that Executive voluntarily terminates his employment with the Company during the thirteenth calendar month beginning after the occurrence of a Change-in-Control, Executive shall also receive a total of twelve (12) months' Base Salary, Target Bonus, service and pension credits and health, dental and drug benefits as if Executive's employment had been involuntarily terminated by the Company pursuant to Section 6.4 above, except that Executive shall not be entitled to any tax "gross-up" benefits described in Section 6.7. Executive benefits under the Company's defined benefit pension plan and supplemental retirement plan shall be determined as if Executive had remained employed with the Company for that period. Article 7. General Provisions 7.1 Governing Law. The validity, interpretation, construction and performance of this Agreement and the rights of the parties thereunder shall be interpreted and executed under Delaware law without reference to principles of conflicts of laws. 7.2 Assignment; Successors; Binding Agreement. 7.2.1 Executive may not assign, pledge or encumber his interest in this Agreement or any part thereof. 7.2.2 The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by operation of law or by agreement in form and substance reasonably satisfactory to Executive, to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. 7.2.3 This Agreement shall incur to the benefit of and be enforceable by Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Executive should die while any amount is at such time payable to him hereunder, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to Executive's devisee, legates or other designee or, if there be no such designee, to his estate. 7.3 Attorney Fees. The Company will reimburse Executive or Executive's successor-in-interest for all reasonable attorney fees and costs associated with bringing any action under this Agreement to enforce their rights hereunder, regardless of the outcome of such proceeding, provided the court does not find the claim was brought in bad faith. 7.4 Non-Publication. The parties mutually agree not to disclose publicly the terms of this Agreement except to the extent that disclosure is mandated by applicable law. 7.5 No Waiver of Breach. The waiver by any party of the breach of any provision of this Agreement shall not be deemed to be a waiver of any subsequent breach. No delay in exercising any right hereunder shall be deemed to be a waiver of the party's rights hereunder. 7.6 Notice. For the purposes of this Agreement, notices and all other communications provided for in this agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by certified or registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth below or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. To the Company: Consolidated Freightways Corporation 16400 SE CF Way Vancouver, WA 98683 Attn: Chairman of Compensation Committee To Executive: Wayne M. Bolio 7.7 Modification; Waiver; Entire Agreement. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by Executive and such officer as may be specifically designated by the Board of Directors of the Company. No waiver by either party hereto at any time of any breach by the other party of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. This Agreement supercedes any prior agreement, promises or understanding concerning the subject matter hereof. 7.8 Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 7.9 Executive Acknowledgement. Executive acknowledges (a) that he has consulted with or had had the opportunity to consult with independent counsel of his own choice concerning this Agreement, and has been advised to do so by the Company, and (b) that he has read and understands the Agreement, is fully aware of its legal effect, and has entered into it freely based on his own judgment. 7.10 Injunctive Relief. The parties agrees that the services to be rendered by Executive hereunder are of a unique nature and that in the event of any breach or threatened breach of any of the covenants contained herein, the damage or imminent damage to the value and the goodwill of the Company's business will be irreparable and extremely difficult to estimate, making any remedy at law or in damages inadequate. Accordingly, the parties agree that the Company shall be entitled to injunctive relief against Executive in the event of any breach or threatened breach of any such provisions by Executive, in addition to any other relief (including damages) available to the Company under this Agreement or under law. Both parties agree that the remedy specified in this section is not exclusive of any other remedy for the breach by Executive of the terms hereof. 7.11 Counterparts. This Agreement may be executed in one or more counterparts, all of which taken together shall constitute one and the same Agreement. 7.12 No Mitigation. The Executive shall not be required to mitigate the amount of payments hereunder by seeking other employment or otherwise, and any amount earned by Executive as a result of employment by other employer after the date of termination shall not reduce the payments hereunder. 7.13 Indemnity. The Company and its Affiliates shall indemnify and hold Executive harmless against any loss, cost or expense arising out of or relating to the performance of his duties to the Company and its Affiliates, and shall maintain adequate liability insurance covering such Executive's acts and omissions occurring during the term of this agreement and for a period of six years thereafter. 7.14 Arbitration. The Executive and the Company agree that should any dispute arise under this Agreement and before any legal action is initiated, the parties shall within 45 days enter into non-binding arbitration to be conducted in accordance with the rules of the American Arbitration Association. The arbitrator(s) shall render a non-binding decision. The Company shall pay all costs of the arbitration, excluding Executive's attorney's fees (which shall only be payable under Section 7.3 if the dispute cannot be settled by the parties, an action is brought by Executive and the court does not find the claim was brought in bad faith). If any legal action is brought, both parties expressly waive the right to a jury. Executed by the parties as of the date and year first above written. Consolidated Freightways Corporation /s/Stephen D. Richards Stephen D. Richards Senior Vice President & General Counsel Consolidated Freightways Corporation Executive: /s/Wayne M. Bolio Wayne M. Bolio Vice President, Human Resources Consolidated Freightways Corporation EX-13 10 ex132001.txt EXHIBIT 13 Exhibit 13 Consolidated Freightways Corporation and Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations Comparison of 2001 and 2000 Revenues for the year ended December 31, 2001 decreased 4.9% on a tonnage decrease of 3.6%, compared with 2000. The tonnage decrease primarily reflects the impact of the events of September 11th, the continued economic slowdown that began in the fourth quarter of 2000, a higher proportion of lighter weight freight in the system and increased competition. Shipments decreased 2.2% and the average weight per shipment decreased 1.4% to 989 lbs. Revenue per hundredweight decreased 1.9% to $17.33, despite the benefits of an August rate increase, due to unfavorable changes in the freight mix, including a decrease in higher-rated expedited freight. Revenue per hundredweight was also impacted by a decrease in the fuel surcharge as fuel prices moderated during the year. Excluding the fuel surcharge, revenue per hundredweight decreased 1.5%. 2001 revenues also reflect a full year of air freight forwarding operations, acquired in June 2000, and the shutdown of a brokerage subsidiary in July 2001. Salaries, wages and benefits decreased 0.9% in 2001 due primarily to lower tonnage levels. A 3.4% contractual wage and benefit increase effective April 1st, operational and sales force incentive bonuses and a full year of air freight forwarding operations negatively impacted the year. These increased costs were partially offset by improved cross-dock and pick-up and delivery efficiencies as a result of process improvement programs and increased use of rail services. Beginning in the third quarter, management made headcount reductions to adjust to continued lower business levels. Total headcount was reduced approximately 14% in 2001. 2000 included $4.3 million of severance pay due to an administrative reorganization. Operating expenses decreased 1.2% in 2001. Excluding gains on sales of operating properties of $26.1 million in 2001 and $17.7 million in 2000, operating expenses increased marginally, despite lower tonnage and an 8.6% decrease in the average fuel cost per gallon. The Company was impacted by an unfavorable change in the freight mix, an increase in the average length of haul and lower fuel efficiency during 2001. Additionally, increased facility rental expense related to expansion of the air freight forwarding operations and the Company's new administrative facility and increased software amortization impacted the year. Increases in operating expenses were partially offset by increased use of rail services. Purchased transportation increased 4.4% due primarily to increased use of lower cost rail services in strategic lanes. Rail miles as a percentage of inter-city miles increased to 26.8% from 24.4% in 2000. Increased costs associated with the air freight forwarding operations were offset by the shutdown of a brokerage subsidiary. Operating taxes and licenses decreased 8.5% due to lower tonnage levels and a reduction in the fleet. Claims and insurance decreased 15.7% due to lower tonnage and improved vehicular claims experience. Depreciation increased 5.1% due to increased capital expenditures in 2001. Capital expenditures were $74.1 million, compared with $42.3 million in 2000, and include the additions of terminal properties in Brooklyn, NY, Laredo, TX, and Phoenix, AZ, and revenue equipment, including equipment previously under lease. The operating loss was $91.1 million compared with an operating loss of $1.9 million in 2000. The operating ratio deteriorated to 104.1% from 100.1%. The Canadian operations contributed $13.1 million of operating income compared with $12.7 million in 2000. Excluding gains on sales of operating properties, the operating loss was $117.2 million compared with a $19.6 million operating loss in 2000. Other expense, net, increased marginally in 2001. 2001 included increased interest expense on higher average short-term borrowings and decreased investment income on lower average short-term investments. 2000 included a $4.0 million charge for settlement of a tax sharing liability with the former parent. The Company's 2001 effective tax rate differed from the statutory federal rate due to foreign taxes and the recording of deferred tax valuation allowances. As a result of domestic losses during 2001, the Company recorded income tax benefits of $41.8 million and related deferred tax assets of $16.8 million. However, due to domestic cumulative losses over the past three years, current accounting standards require the Company to assess the realizability of its domestic net deferred tax asset ($102.6 million as of December 31, 2001). Through the use of tax planning strategies, involving the sale of appreciated assets, the Company has determined that it is more likely than not that $62.6 million of its domestic net deferred tax asset as of December 31, 2001 will be realized. A valuation allowance of $40 million has been recorded as of December 31, 2001 for the remaining portion of its domestic net deferred tax asset. Until the recent cumulative loss is eliminated, the Company will continue to record additional valuation allowance against any tax benefit arising from future domestic operating losses. The Company will assess the realizability of its deferred tax assets on an ongoing basis and adjust the valuation allowance as appropriate. Comparison of 2000 and 1999 Revenues for the year ended December 31, 2000 decreased 1.1% compared to 1999 due to an 8.1% decrease in tonnage levels. Continued refinement of the Company's freight profile, a higher proportion of lighter weight freight in the system as well as a slow down in the economy in the fourth quarter accounted for the decrease in tonnage. Shipments decreased 4.8% and the average weight per shipment decreased 3.5% to 1,003 lbs. The tonnage decrease was offset by a 7.5% increase in revenue per hundredweight to $17.67 due to rate increases, a fuel surcharge and a change in freight profile. Excluding the fuel surcharge, revenue per hundredweight increased 4.8%. Revenues were also impacted by the shutdown of the Company's owner-operator truckload subsidiary in the first quarter. Salaries, wages and benefits decreased 1.3% in 2000 due primarily to lower tonnage levels. However, a 3.4% April contractual wage and benefit increase, lower use of rail services and $4.3 million of severance pay due to an administrative reorganization impacted the year. Additionally, the lower freight levels had an adverse impact on pick-up and delivery and dock efficiencies. Operating expenses increased 6.2% in 2000. Excluding gains on sales of operating properties of $17.7 million in 2000 and $3.4 million in 1999, operating expenses increased 9.5%, despite lower tonnage. The Company was impacted by a 63.8% increase in the average fuel cost per gallon and a change in freight mix. As noted above, the Company had a revenue fuel surcharge in place that helped to mitigate the impact of increased fuel costs. Continued higher information systems costs, revenue equipment lease expense and software amortization, as well as lower use of rail services, also impacted the year. Purchased transportation decreased 13.0% in 2000 due to lower use of rail. Rail miles as a percentage of inter-city miles decreased to 24.4% from 27.4% in 1999 due to lower tonnage. The decrease also reflects lower use of owner-operators due to the shutdown of the Company's owner-operator subsidiary in the first quarter. Operating taxes and licenses increased marginally in 2000 as the impact of lower tonnage was offset by higher licensing costs due to changes in the fleet. Claims and insurance expense increased 12.5% in 2000, despite lower tonnage, due to higher cost vehicular accidents and increased cargo claims. Depreciation decreased 1.1% as a higher proportion of the fleet became fully depreciated. Operating income decreased $9.8 million in 2000 to a loss of $1.9 million. The operating ratio deteriorated to 100.1% from 99.7%. The Company's Canadian operations contributed $12.7 million of operating income in 2000 compared to $11.3 million in 1999. Excluding gains on sales of operating properties, the operating loss was $19.6 million compared with $4.5 million of operating income in 1999. Other expense, net increased $6.5 million in 2000 primarily due to a $4.0 million charge for settlement of a tax liability with the former parent, interest expense on tax obligations payable to the former parent and lower investment income on the Company's short- term investments. The Company earned lower investment income in 2000 as short-term investments were used for working capital needs, capital expenditures and share repurchases. The Company's effective income tax rates differed from the statutory federal rate due primarily to foreign and state taxes and non-deductible items. Risk Factors Adequate Liquidity: The Company incurred a net loss of $104.3 million for the year ended December 31, 2001 and expects to incur further operating losses in 2002 due to the continued economic slowdown. Cash used by operating activities was $41.1 million in 2001. The Company's financing requirements to fund operations and capital expenditures and to support letters of credit in 2002 are expected to be approximately $45 to $55 million. Subsequent to December 31, 2001, the Company secured financing sufficient to meet these requirements. The Company has secured a $45 million financing agreement secured by real property. In addition, the Company completed a $4.1 million financing agreement secured by revenue equipment of a Canadian subsidiary and is currently negotiating additional financing agreements for approximately $25 million, secured by assets of the Canadian subsidiaries. Of this amount, the Company has lender credit committee approval and is in the documentation stages for approximately $13 million and expects to receive funding during the second quarter of 2002. The Company has significant additional unleveraged assets and is considering other asset- backed borrowings and the sale of surplus real properties. However, there can be no assurance that the Company will be able to complete these transactions or that they will be on reasonable terms. The Company has an existing accounts receivable securitization agreement and an existing real estate backed credit facility to provide for working capital and letter of credit needs. The combined availability of funds under these financing agreements was $2.6 million as of December 31, 2001 and $6.5 million as of March 31, 2002. Consistent with these types of agreements, the availability ranged from $0 to $15 million during the quarter ended March 31, 2002. The continued availability of funds under these agreements requires that the Company comply with certain financial convenants, the most restrictive of which are to maintain a minimum EBITDAL (earnings before interest, taxes, depreciation, amortization and lease expense) and fixed charge coverage ratio. On April 8, 2002, to cure violations of these covenants as of March 31, 2002, the covenants were amended for 2002. The amended covenants require the Company to achieve significant improvements in EBITDAL for the remainder of 2002. (See "Liquidity and Capital Resources" below). To achieve these improvements, the Company and the Board of Directors have developed plans that include an immediate and continuing reduction of workforce in line with lower business levels and expansion of programs aimed at increasing pick-up and delivery and dock efficiencies, increasing load factor and reducing claims expense that have proved successful at selected terminals during 2001. Additionally, starting in the fourth quarter of 2001, the Company began carefully reviewing its business activities with its customers in an effort to secure additional business and to ensure that it is fairly compensated for the services provided. As part of this plan, the Company began reviewing contract accounts as they came up for renewal during the fourth quarter of 2001 and is continuing this review in 2002. The Company and the Board of Directors believe that the above actions will be sufficient to allow the Company to meet the amended covenant requirements for the balance of 2002. If the Company does not achieve the operating improvements, it may violate the amended covenants in 2002. Although the Company has previously received amendments to the covenants, there can be no assurance that the lender will grant waivers or additional amendments if required. The inability of the Company to meet its covenants or obtain waivers or additional amendments, if required, would require the Company to secure additional financing to fund operating activities and provide letters of credit necessary to support its self-insurance program in 2002. Failure to secure letters of credit to support the self-insurance program would require the Company to fund state insurance programs which would have a material adverse effect on the Company's financial position. Economic Growth: The less-than-truckload industry (LTL) is affected by the state of the overall economy, which affects the amount of freight to be transported. Further deterioration in the economic environment or failure of the Company to improve operating performance and achieve a cost structure in line with lower business levels would have a material adverse effect on the Company's financial position and results of operations. Declining Market Share: The Company is faced with a decline of the "greater than 1,500 miles" length-of-haul market due to market trends such as the "regionalization" of freight due to just-in- time inventory practices, distributed warehousing and other changes in business processes. Also contributing to this decline are longer length-of-haul service offerings by regional and parcel carriers. To grow, the Company must continue to invest in its infrastructure to become more competitive and efficient in shorter length-of-haul lanes, improve efficiencies in its core longer length-of-haul lanes and develop services tailored to customer needs. Additionally, continued substantial operating losses may result in loss of customers due to lack of confidence. Price Stability: Continuing pricing discipline amongst competitors and reduced industry capacity has contributed to relative price stability over the last several years. Competitive action through price discounting may significantly impact the Company's performance through a reduction in revenue without a corresponding reduction in cost. Cyclicality and Seasonality: The months of September, October and November of each year usually have the highest business levels while January, February and December have the lowest. The LTL industry is affected by seasonal fluctuations, which affect the amount of freight to be transported. Freight shipments and operating results are also adversely affected by inclement weather conditions. Market Risk: The Company is subject to market risks related to changes in interest rates and foreign currency exchange rates, primarily the Canadian dollar and Mexican peso. Management believes that the impact on the Company's financial position, results of operations and cash flows from fluctuations in interest rates and foreign currency exchange rates would not be material. Consequently, management does not currently use derivative instruments to manage these risks; however, it may do so in the future. Inflation: As discussed above, the Company experienced lower average fuel costs per gallon in 2001 than 2000. However, the cost per gallon still exceeded historical norms. The Company's rules tariff implements a fuel surcharge when the average cost per gallon of on-highway diesel fuel exceeds $1.10, as determined from the Energy Information Administration of the Department of Energy's publication of weekly retail on-highway diesel prices. This provision of the rules tariff became effective in July 1999 and remains in effect. However, there can be no assurance that the Company will be able to maintain this surcharge or successfully implement such surcharges in response to increased fuel costs in the future. Critical Accounting Policies Management considers as its most critical accounting policies those that require the use of estimates and assumptions, specifically, self-insurance reserves, deferred tax valuations and pension and post-retirement benefit liabilities. In developing these estimates and assumptions, the Company takes into consideration historical experience, current and expected economic conditions and, in certain cases, actuarial analysis. The Company continually reviews these factors and makes adjustments as needed. Actual results could differ from these estimates and could have a material adverse effect on the Company's financial position and results of operations. Please refer to the Notes to the Consolidated Financial Statements for a full discussion of these accounting policies. 2002 Outlook The economic slowdown has continued to adversely impact tonnage levels during the first quarter of 2002. The Company expects that tonnage levels in the first quarter will decrease approximately 8% from the fourth quarter of 2001. Return to profitability by the latter portion of 2002 will be dependent on an improvement in the economic environment, improved operating performance and alignment of costs with lower business levels. In the interim, management will continue with aggressive cost control plans to align operating costs with lower business levels. These plans include an immediate and continuing reduction of workforce and expansion of programs aimed at increasing pick-up and delivery and dock efficiencies, increasing load factor and reducing claims expense that have proved successful at selected terminals during 2001. Starting in the fourth quarter of 2001, the Company began carefully reviewing its business activities with its customers in an effort to secure additional business and to ensure that it is fairly compensated for the services provided. As part of this plan, the Company began reviewing contract accounts as they came up for renewal during the fourth quarter of 2001 and is continuing this review in 2002. Further deterioration in the economic environment or failure of the Company to achieve a cost structure in line with lower business levels would have a material adverse effect on the Company's financial position and results of operations. On April 1, 2002, a 2.0% wage and benefit increase will go into effect for employees covered by the National Master Freight Agreement. The increase is expected to add approximately $13.5 million of expense in 2002. Please refer to "Other" below for a discussion of the National Master Freight Agreement. As discussed in Note 9 "Stock Compensation Plans" in the Consolidated Financial Statements, the Company has various stock incentive plans under which restricted stock has been granted. There were 82,750 restricted shares that had not achieved the pre- determined stock price required for vesting as of December 31, 2001. The pre-determined stock prices range between $10.03 and $20.00. Compensation expense will be recognized for those shares if the stock price meets the required levels by May 12, 2002; otherwise, the shares will be forfeited. Recent Accounting Pronouncements In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 142 "Goodwill and Other Intangibles" (SFAS 142) and SFAS No. 143 "Accounting for Asset Retirement Obligations" (SFAS 143). SFAS 142 requires that goodwill and other intangible assets that have indefinite lives no longer be amortized, but will be subject to impairment review annually. Intangible assets with estimated finite useful lives will continue to be amortized. The Company will adopt SFAS 142 effective January 1, 2002. The Company is currently evaluating approximately $2.1 million of goodwill for impairment under SFAS 142. SFAS 143 will require that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of the fair value can be made. The associated asset retirement costs will be capitalized as part of the carrying amount of the asset. This statement is effective for fiscal years beginning after June 15, 2002. The Company expects that adoption of this statement will not have a material effect on the Company's financial position or results of operations. In August 2001, the FASB issued SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets." This statement supercedes current accounting guidance relating to the impairment of long-lived assets and provides a single accounting methodology to be applied to all long-lived assets to be disposed of, including discontinued operations. This statement is effective for fiscal years beginning after December 15, 2001. The Company expects that adoption of this statement will not have a material effect on the Company's financial position or results of operations. LIQUIDITY AND CAPITAL RESOURCES Current Requirements The Company's financing requirements to fund operations and capital expenditures and to support letters of credit in 2002 are expected to be approximately $45 to $55 million. The Company anticipates funding these requirements using the availability under its existing credit facilities and the proceeds from real estate and other asset-backed financings, each of which is discussed below. In February 2002, the Company secured a $45 million financing agreement secured by real property, of which $20 million was funded in February. Under the agreement, the Company contributed real property with a net book value of approximately $21 million to CFCD 2002 LLC, a wholly owned, consolidated special purpose company. CFCD 2002 LLC used the properties as collateral for the borrowings. Borrowings bear interest at LIBOR plus 375 basis points. Principal and interest payments are due monthly over a 15- year period. The $20 million of proceeds was used to pay down short-term borrowings under the Company's $200 million credit facility discussed below. Subsequent to the paydown, the Company issued a $20 million letter of credit under the $200 million credit facility to support its self-insurance program. The remaining $25 million commitment is expected to be fully funded in April 2002. Also in February 2002, the Company completed a three-year, $4.1 million financing agreement secured by revenue equipment of a Canadian subsidiary. The borrowings bear interest at 7.2%. Principal and interest are payable monthly. The Company is currently negotiating additional financing agreements for approximately $25 million, secured by assets of the Canadian subsidiaries. Of this amount, the Company has credit committee approval and is in the documentation stages for approximately $13 million and expects to receive funding during the second quarter of 2002. However, there can be no assurance that the Company will be able to complete these transactions or that the final terms will be reasonable. The Company is focused on improving both short and long-term liquidity. The Company has significant additional unleveraged assets and is considering other asset-backed borrowings and the sale of surplus real properties. However, there can be no assurance that the Company will be able to complete these transactions or that they will be on reasonable terms. If business conditions and the Company's performance do not improve and the Company is unable to align its cost structure with lower business levels, cash requirements to fund operations could be significantly higher than anticipated and would have a material adverse effect on the Company's financial position and would require additional financing. The ability of the Company to continue to fund operations and meet its obligations as they come due will be dependent on reducing operating losses and completing the financing agreements discussed above. As discussed in Note 2 "Summary of Significant Accounting Policies" in the Consolidated Financial Statements, the Company is required to post letters of credit to support its self-insurance program. Letters of credit outstanding to support the program were $90 million as of December 31, 2001, and were issued under the Company's $200 million credit facility, discussed below. Subsequent to December 31, 2001, the Company issued an additional $27 million of letters of credit to support this program. Adverse economic conditions in the insurance market or failure of the Company to improve operating performance could result in the Company being required to post additional letters of credit in the fourth quarter of 2002 in excess of regular increases. Inability of the Company to continue to issue letters of credit under its $200 million credit facility to support its self insurance program would require the Company to secure alternative financing arrangements. Failure to secure these alternative financing arrangements would require the Company to fund state insurance programs which would have a material adverse effect on the Company's financial position. Existing Financing Agreements In April 2001, the Company entered into a $200 million accounts receivable securitization agreement to provide for working capital and letter of credit needs. Under the agreement, the Company sells or contributes, on a continuous basis, trade receivables to CF Funding LLC (Funding), a wholly owned, consolidated special purpose company. Funding uses the receivables as collateral for borrowings and letters of credit. Letters of credit are limited to $150 million and borrowings are limited to an agreed upon availability calculation of eligible accounts receivable. Borrowings bear interest at LIBOR, plus a margin (250 basis points at December 31, 2001). The agreement expires in April 2006. As of December 31, 2001, there were $49.9 million of short-term borrowings and $98.4 million of letters of credit outstanding. As of March 31, 2002, there were $3.7 million of short-term borrowings and $128.8 million of letters of credit outstanding. Availability of the remaining borrowing capacity is dependent on the calculation of eligible accounts receivable which is subject to business level fluctuations which may further limit availability. In October 2001, the Company entered into a six-month, $50 million revolving credit agreement with the same lender, secured by real property with a net book value of approximately $53 million, to provide for short-term working capital needs and other general corporate purposes. As of December 31, 2001, the Company had $34 million of short-term borrowings outstanding, bearing interest at LIBOR plus 350 basis points. In February 2002, the term of the facility was extended until February 2004 with borrowings limited to a maximum of $42 million. Borrowings bear interest at Prime plus 500 basis points, with a minimum rate of 10%. The agreement contains mandatory paydown provisions using a portion of the proceeds of future debt offerings and asset sales, which will limit future availability. As of March 31, 2002, outstanding borrowings were $34.7 million. The combined availability of funds under the above financing agreements was $2.6 million as of December 31, 2001 and $6.5 million as of March 31, 2002. Consistent with these types of agreements, the availability ranged from $0 to $15 million during the quarter ended March 31, 2002. The continued availability of funds under the above agreements requires that the Company comply with certain financial convenants, the most restrictive of which are to maintain a minimum EBITDAL (earnings before interest, taxes, depreciation, amortization and lease expense) and fixed charge coverage ratio. To cure violations of these covenants as of March 31, 2002, the covenants were amended on April 8, 2002. The following are the minimum EBITDAL and fixed charge coverage ratio covenant requirements for 2002. The Company's actual EBITDAL and fixed charge coverage ratio were $(10,723,000) and (1.17) to 1, respectively, for the quarter ended March 31, 2002. Minimum Required Covenant Levels (Dollars in thousands) Fixed Charge Quarter Ended EBITDAL Coverage Ratio March 31, 2002 $(13,300) (1.80) June 30, 2002 (16,400) (1.20) September 30, 2002 1,400 (0.30) December 31, 2002 20,500 0.20 If the Company does not improve operating performance through improved business levels and additional cost reduction efforts, it may violate the amended covenants in 2002. There can be no assurance that the lender will grant waivers or additional amendments if required. Failure to obtain waivers or additional amendments, if required, would have a material adverse effect on the Company's financial position. Cash Flows for the Year Ended December 31, 2001 and 2000 Cash and cash equivalents were $28.1 million as of December 31, 2001. Net cash used by operating activities of $41.1 million in 2001 compares with $21.1 million provided by operating activities for 2000. The decrease was due primarily to increased operating losses, adjusted for non-cash items. Net cash used by investing activities of $61.6 million compares with $22.7 million in 2000. The increase primarily reflects the additions of terminal properties in Brooklyn, NY, Laredo, TX, and Phoenix, AZ, and revenue equipment, including equipment previously under lease. The Company expects capital expenditures to be approximately $7 million for 2002, primarily for the purchase of revenue and miscellaneous equipment, but has the ability to defer these expenditures into future years. Net cash provided by financing activities of $84.2 million in 2001 primarily reflects net short-term borrowings under the Company's credit facilities. Net borrowings of $83.9 million compares with net repayments of $0.7 million in 2000. The increased borrowings were used to fund the operating activities and capital expenditures discussed above. As of December 31, 2001, the Company's ratio of long-term debt to total capital was 9.2% compared with 5.6% as of December 31, 2000. The current ratio was 1.0 to 1 and 1.3 to 1 as of December 31, 2001 and 2000, respectively. The following table presents the Company's cash obligations under operating lease and long-term debt agreements, including agreements entered into subsequent to December 31, 2001, as discussed above. Please refer to Note 5 "Debt" and Note 6 "Leases" in the Company's Consolidated Financial Statements. Contractual Cash Obligations (Dollars in thousands) Agreements Entered Into Subsequent to Agreements as of December 31, Interest December 31, 2001 2001 on Payable Operating Long-Term Long-Term Long-Term In Leases Debt Debt (a) Debt (b) Total 2002 $ 26,429 $ -- $ 1,664 $ 1,942 $ 30,035 2003 24,397 1,000 2,351 2,191 29,939 2004 22,677 14,100 2,510 1,408 40,695 2005 14,177 -- 1,510 1,106 16,793 2006 5,161 -- 1,201 1,034 7,396 Thereafter 15,781 -- 17,264 5,646 38,691 $108,622 $ 15,100 $ 26,500 $ 13,327 $163,549 (a) Reflects agreements funded as of April 12, 2002. (b) Assumes no change in LIBOR rate. Other As of December 31, 2001, 81% of the Company's domestic employees were represented by various labor unions, primarily the International Brotherhood of Teamsters (IBT). The Company and the IBT are parties to the National Master Freight Agreement, which expires on March 31, 2003. Although the Company believes it will be able to successfully negotiate a new contract with the IBT, there can be no assurance that it will be able to do so, or that work stoppages will not occur, or that the terms of any such contract will not be substantially less favorable than those of the existing contract, any of which could have a material adverse effect on the Company's financial position and results of operations. The Company has received notices from the Environmental Protection Agency (EPA) and others that it has been identified as a potentially responsible party (PRP) under the Comprehensive Environmental Response Compensation and Liability Act (CERCLA) or other Federal and state environmental statutes at various Superfund sites. Under CERCLA, PRP's are jointly and severally liable for all site remediation and expenses. Based upon the advice of local environmental attorneys and cost studies performed by environmental engineers hired by the EPA (or other Federal or state agencies), the Company believes its obligations with respect to such sites would not have a material adverse effect on its financial position or results of operations. On February 9, 2001, Henry C. Montgomery was elected to the Board of Directors for a one-year term, replacing John M. Lillie. Raymond F. O'Brien resigned from the Board of Directors on May 24, 2001. On August 2, 2001, Patrick J. Brady resigned as Senior Vice President-Sales and Marketing. He was succeeded by Martin W. Larson, who previously served as Chief Information Officer and Vice President of eCommerce. Certain statements included or incorporated by reference herein constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to a number of risks and uncertainties. Any such forward- looking statements included or incorporated by reference herein should not be relied upon as predictions of future events. Certain such forward-looking statements can be identified by the use of forward-looking terminology such as "believes," "expects," "may," "will," "should," "seeks," "approximately," "intends," "plans," "pro forma," "estimates," or "anticipates" or the negative thereof or other variations thereof or comparable terminology, or by discussions of strategy, plans or intentions. Such forward-looking statements are necessarily dependent on assumptions, data or methods that may be incorrect or imprecise and they may be incapable of being realized. In that regard, the following factors, among others, and in addition to matters discussed elsewhere herein and in documents incorporated by reference herein, could cause actual results and other matters to differ materially from those in such forward-looking statements: general economic conditions; general business conditions of customers served and other shifts in market demand; increases in domestic and international competition; pricing pressures, rate levels and capacity in the motor-freight industry; future operating costs such as employee wages and benefits, fuel prices and workers compensation and self-insurance claims; weather; environmental and tax matters; changes in governmental regulation; technology costs; legal claims; timing and amount of capital expenditures; and failure to execute operating plans, freight mix adjustment plans, yield improvements efforts, process and operations improvements, cost reduction efforts, customer service initiatives; pension funding requirements; and financing needs and availability. As a result of the foregoing, no assurance can be given as to future results of operations or financial condition. CONSOLIDATED FREIGHTWAYS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, (Dollars in thousands) 2001 2000 ASSETS Current Assets Cash and cash equivalents (Note 2) $ 28,067 $ 46,523 Trade accounts receivable, net (Note 2) 292,851 334,155 Other accounts receivable 6,045 8,742 Operating supplies, at lower of average cost or market 6,670 8,419 Prepaid expenses 35,772 41,286 Deferred income taxes (Note 7) 59,897 70,610 Total Current Assets 429,302 509,735 Property, Plant and Equipment, at cost (Notes 2 and 5) Land 87,024 81,697 Buildings and improvements 353,102 350,137 Revenue equipment 519,546 518,086 Other equipment and leasehold improvements 158,963 149,123 1,118,635 1,099,043 Accumulated depreciation and amortization (761,044) (750,249) 357,591 348,794 Other Assets Deposits and other assets (Note 2) 93,687 68,153 93,687 68,153 Total Assets $ 880,580 $ 926,682 The accompanying notes are an integral part of these statements. CONSOLIDATED FREIGHTWAYS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, (Dollars in thousands) 2001 2000 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Accounts payable $ 85,043 $ 97,741 Accrued liabilities (Note 4) 189,361 211,043 Accrued claims costs (Note 2) 85,593 86,674 Federal and other income taxes (Note 7) 2,264 - Short-term borrowings (Note 5) 83,900 - Total Current Liabilities 446,161 395,458 Long-Term Liabilities Long-term debt (Note 5) 15,100 15,100 Accrued claims costs (Note 2) 94,187 99,074 Employee benefits (Note 8) 124,284 120,317 Deferred income taxes (Note 7) 1,978 6,282 Other liabilities (Note 2) 50,631 38,267 Total Liabilities 732,341 674,498 Shareholders' Equity Preferred stock, $.01 par value; authorized 5,000,000 shares; issued none - - Common stock, $.01 par value; authorized 50,000,000 shares; issued 23,133,848 shares 231 231 Additional paid-in capital 74,020 75,767 Accumulated other comprehensive loss (13,712) (11,293) Retained earnings 95,814 200,067 Treasury stock, at cost (926,102 and 1,436,712 shares, respectively) (8,114) (12,588) Total Shareholders' Equity 148,239 252,184 Total Liabilities and Shareholders' Equity $880,580 $926,682 The accompanying notes are an integral part of these statements.
CONSOLIDATED FREIGHTWAYS CORPORATION AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED OPERATIONS Years Ended December 31, (Dollars in thousands except per share data) 2001 2000 1999 REVENUES $ 2,237,703 $ 2,352,368 $ 2,379,000 COSTS AND EXPENSES Salaries, wages and benefits 1,482,922 1,496,663 1,516,978 Operating expenses (Note 2) 446,248 451,882 425,580 Purchased transportation 216,906 207,788 238,944 Operating taxes and licenses 63,913 69,825 69,382 Claims and insurance 64,182 76,176 67,685 Depreciation 54,619 51,961 52,556 2,328,790 2,354,295 2,371,125 OPERATING INCOME (LOSS) (91,087) (1,927) 7,875 OTHER INCOME (EXPENSE) Investment income 670 1,490 2,688 Interest expense (Note 2) (8,361) (4,883) (4,160) Miscellaneous, net (818) (4,904) (375) (8,509) (8,297) (1,847) Income (loss) before income taxes (benefits) (99,596) (10,224) 6,028 Income taxes (benefits) (Note 7) 4,657 (2,659) 3,315 NET INCOME (LOSS) $ (104,253) $ (7,565) $ 2,713 Basic average shares outstanding (Note 2) 21,995,874 21,492,130 22,349,997 Diluted average shares outstanding (Note 2) 21,995,874 21,492,130 22,556,275 Basic Earnings (Loss) per Share (Note 2) $ (4.74) $ (0.35) $ 0.12 Diluted Earnings (Loss) per Share (Note 2) $ (4.74) $ (0.35) $ 0.12 The accompanying notes are an integral part of these statements.
CONSOLIDATED FREIGHTWAYS CORPORATION AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED CASH FLOWS Years Ended December 31, (Dollars in thousands) 2001 2000 1999 Cash and Cash Equivalents, Beginning of Year $ 46,523 $ 49,050 $ 123,081 Cash Flows from Operating Activities Net income (loss) (104,253) (7,565) 2,713 Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: Depreciation and amortization 65,952 59,152 58,363 Increase (decrease) in deferred income taxes (Note 7) 6,409 (21,690) (15,379) Gains from property disposals, net (Notes 2 and 7) (25,922) (17,514) (4,286) Issuance of common stock under stock and benefit plans (Notes 8 and 9) 2,420 2,660 289 Changes in assets and liabilities: Receivables 44,001 8,478 (48,064) Accounts payable (12,698) (3,733) 13,840 Accrued liabilities (20,682) 8,156 14,759 Accrued claims costs (5,968) 9,294 (93) Income taxes 2,264 (16,883) 2,710 Employee benefits 3,967 (1,466) 4,547 Other 3,457 2,244 (7,886) Net Cash Provided (Used) by Operating Activities (41,053) 21,133 21,513 Cash Flows from Investing Activities Capital expenditures (74,068) (42,348) (67,273) Software expenditures (2,803) (5,963) (27,938) Proceeds from sales of property 15,261 26,785 12,308 Acquisition of FirstAir Inc., net of cash acquired (Note 3) - (1,176) - Net Cash Used by Investing Activities (61,610) (22,702) (82,903) Cash Flows from Financing Activities Net proceeds from (repayments of) short-term borrowings 83,900 (691) - Proceeds from exercise of stock options 307 - - Purchase of treasury stock - (267) (12,641) Net Cash Provided (Used) by Financing Activities 84,207 (958) (12,641) Decrease in Cash and Cash Equivalents (18,456) (2,527) (74,031) Cash and Cash Equivalents, End of Year $ 28,067 $ 46,523 $ 49,050 Supplemental Disclosure Cash paid (received) for income taxes $ (7,573) $ 19,731 $ 14,469 Cash paid for interest $ 6,868 $ 1,606 $ 2,349 The accompanying notes are an integral part of these statements.
CONSOLIDATED FREIGHTWAYS CORPORATION AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY (Dollars in thousands) Common Stock Additional Number of Paid-in Shares Amount Capital Balance, December 31, 1998 23,066,905 $ 231 $ 77,303 Comprehensive income (Note 2) Net income - - - Foreign currency translation adjustment - - - Total comprehensive income Purchase of 1,407,725 treasury shares - - - Issuance of 21,720 treasury shares under employee stock plans - - 98 Issuance of common stock under employee stock plans 66,943 - 5 Balance, December 31, 1999 23,133,848 231 77,406 Comprehensive loss (Note 2) Net loss - - - Foreign currency translation adjustment - - - Total comprehensive loss Purchase of 60,000 treasury shares - - - Issuance of 69,045 treasury shares under employee stock plans (Note 9) - - (359) Issuance of 390,707 treasury shares under employee benefit plan (Note 8) - - (1,185) Issuance of 27,227 treasury shares for payment of non-employee director fees - - (95) Balance, December 31, 2000 23,133,848 231 75,767 Comprehensive loss (Note 2) Net loss - - - Foreign currency translation adjustment - - - Total comprehensive loss Issuance of 46,438 treasury shares under employee stock plans (Note 9) - - (128) Issuance of 57,000 treasury shares under employee stock option plan (Note 9) - - (230) Issuance of 407,173 treasury shares under employee benefit plan (Note 8) - - (1,389) Balance, December 31, 2001 23,133,848 $ 231 $ 74,020 The accompanying notes are an integral part of these statements.
CONSOLIDATED FREIGHTWAYS CORPORATION AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY (Dollars in thousands) Accumulated Other Comprehensive Retained Treasury Income (Loss) Earnings Stock, at cost Total Balance, December 31, 1998 $ (11,565) $ 204,919 $ (4,170) $ 266,718 Comprehensive income (Note 2) Net income - 2,713 - 2,713 Foreign currency translation adjustment 1,478 - - 1,478 Total comprehensive income 4,191 Purchase of 1,407,725 treasury shares - - (12,641) (12,641) Issuance of 21,720 treasury shares under employee stock plans - - 191 289 Issuance of common stock under employee stock plans - - - 5 Balance, December 31, 1999 (10,087) 207,632 (16,620) 258,562 Comprehensive loss (Note 2) Net loss - (7,565) - (7,565) Foreign currency translation adjustment (1,206) - - (1,206) Total comprehensive loss (8,771) Purchase of 60,000 treasury shares - - (267) (267) Issuance of 69,045 treasury shares under employee stock plans (Note 9) - - 609 250 Issuance of 390,707 treasury shares under employee benefit plan (Note 8) - - 3,450 2,265 Issuance of 27,227 treasury shares for payment of non-employee director fees - - 240 145 Balance, December 31, 2000 (11,293) 200,067 (12,588) 252,184 Comprehensive loss (Note 2) Net loss - (104,253) - (104,253) Foreign currency translation adjustment (2,419) - - (2,419) Total comprehensive loss (106,672) Issuance of 46,438 treasury shares under employee stock plans (Note 9) - - 407 279 Issuance of 57,000 treasury shares under employee stock option plan (Note 9) - - 537 307 Issuance of 407,173 treasury shares under employee benefit plan (Note 8) - - 3,530 2,141 Balance, December 31, 2001 $ (13,712) $ 95,814 $ (8,114) $ 148,239 The accompanying notes are an integral part of these statements.
CONSOLIDATED FREIGHTWAYS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Description of Business Description of Business: Consolidated Freightways Corporation (the Company) primarily provides less-than-truckload transportation, air freight forwarding and supply chain management services throughout the United States and Canada, as well as in Mexico through a joint venture, and international freight services between the United States and more than 80 countries. The Company, incorporated in the state of Delaware, consists of Consolidated Freightways Corporation of Delaware, a nationwide motor carrier, and its Canadian operations, including Canadian Freightways Ltd., Epic Express, Milne & Craighead, Interport Sufferance Warehouses, Blackfoot Logistics, and other related businesses; CF AirFreight Corporation, a non-asset based provider of domestic and international air freight forwarding and full and less-than-container load ocean freight transportation; Redwood Systems, Inc., a non-asset based supply chain management services provider; CF Risk Management, a captive insurance company; and CF Funding LLC, a wholly owned, consolidated special purpose company. Liquidity, Management's Plan and Subsequent Events: The Company incurred a net loss of $104.3 million for the year ended December 31, 2001 and expects to incur further operating losses in 2002 due to the continued economic slowdown. Cash used by operating activities was $41.1 million in 2001. The Company's financing requirements to fund operations and capital expenditures and to support letters of credit in 2002 are expected to be approximately $45 to $55 million. Subsequent to December 31, 2001, the Company secured financing sufficient to meet these requirements. The Company has secured a $45 million financing agreement secured by real property. In addition, the Company completed a $4.1 million financing agreement secured by revenue equipment of a Canadian subsidiary and is currently negotiating additional financing agreements for approximately $25 million, secured by assets of the Canadian subsidiaries. Of this amount, the Company has lender credit committee approval and is in the documentation stages for approximately $13 million and expects to receive funding during the second quarter of 2002. The Company has significant additional unleveraged assets and is considering other asset-backed borrowings and the sale of surplus real properties. However, there can be no assurance that the Company will be able to complete these transactions or that they will be on reasonable terms. The Company has an existing accounts receivable securitization agreement and an existing real estate backed credit facility to provide for working capital and letter of credit needs. The combined availability of funds under the accounts receivable securitization agreement and real estate backed credit facility was $2.6 million as of December 31, 2001. The continued availability of funds under these agreements requires that the Company comply with certain financial convenants, the most restrictive of which are to maintain a minimum EBITDAL (earnings before interest, taxes, depreciation, amortization and lease expense) and fixed charge coverage ratio. On April 8, 2002, to cure violations of these covenants as of March 31, 2002, the covenants were amended for 2002. The amended covenants require the Company to achieve significant improvements in EBITDAL for the remainder of 2002. (See Note 5 "Debt"). To achieve these improvements, the Company and the Board of Directors have developed plans that include an immediate and continuing reduction of workforce in line with lower business levels and expansion of programs aimed at increasing pick-up and delivery and dock efficiencies, increasing load factor and reducing claims expense that have proved successful at selected terminals during 2001. Additionally, starting in the fourth quarter of 2001, the Company began carefully reviewing its business activities with its customers in an effort to secure additional business and to ensure that it is fairly compensated for the services provided. As part of this plan, the Company began reviewing contract accounts as they came up for renewal during the fourth quarter of 2001 and is continuing this review in 2002. The Company and the Board of Directors believe that the above actions will be sufficient to allow the Company to meet the amended covenant requirements for the balance of 2002. If the Company does not achieve the operating improvements, it may violate the amended covenants in 2002. Although the Company has previously received amendments to the covenants, there can be no assurance that the lender will grant waivers or additional amendments if required. The inability of the Company to meet its covenants or obtain waivers or additional amendments, if required, would require the Company to secure additional financing to fund operating activities and provide letters of credit necessary to support its self-insurance program in 2002. Failure to secure letters of credit to support the self-insurance program would require the Company to fund state insurance programs which would have a material adverse effect on the Company's financial position. 2. Summary of Significant Accounting Policies Principles of Consolidation: The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. Cash and Cash Equivalents: The Company considers highly liquid investments with a maturity at acquisition of three months or less to be cash equivalents. As of December 31, 2001 and 2000, $22,838,000 and $32,263,000, respectively, of drafts outstanding were included in Accounts Payable in the Consolidated Balance Sheets. Trade Accounts Receivable, Net: Trade accounts receivable are net of allowances of $11,627,000 and $12,887,000 as of December 31, 2001 and 2000, respectively. Property, Plant and Equipment, at cost: Property, plant and equipment are depreciated on a straight-line basis over their estimated useful lives, which are generally 25 years for buildings and improvements, 6 to 10 years for tractor and trailer equipment and 3 to 10 years for most other equipment. Leasehold improvements are amortized over the shorter of the terms of the respective leases or the useful lives of the assets. Expenditures for equipment maintenance and repairs are charged to operating expenses as incurred; betterments are capitalized. Gains or losses on sales of equipment and operating properties are recorded in Operating Expenses in the Statements of Consolidated Operations. Gains on sales of operating properties of $26,052,000, $17,742,000 and $3,420,000 were included in Operating Expenses for the years ended December 31, 2001, 2000 and 1999, respectively. The Company had 21 surplus properties for sale as of December 31, 2001. The book value of those properties was $5,300,000 and is included in Land and Buildings on the Consolidated Balance Sheet. As of December 31, 2001, the fair values of properties held for sale exceeded the carrying value of each of the properties. Software Costs: The Company capitalizes the costs of purchased and internally developed software. Deposits and Other Assets in the Consolidated Balance Sheets included $32,429,000 and $39,284,000 of purchased and internally developed software costs as of December 31, 2001 and 2000, respectively. These costs are being amortized over the lesser of 60 months or the useful lives of the software. Goodwill: Goodwill, which represents the costs in excess of net assets of businesses acquired, is capitalized and amortized on a straight-line basis over 20 to 40 years. Goodwill, net of accumulated amortization, was $3,529,000 and $3,893,000 as of December 31, 2001 and 2000, respectively, and was included in Deposits and Other Assets in the Consolidated Balance Sheets. Effective January 1, 2002, the Company will adopt the provisions of Statement of Financial Accounting Standards (SFAS) No. 142 "Goodwill and Other Intangibles" (SFAS 142), as discussed in "Recent Accounting Pronouncements" below. Impairment of Long-Lived Assets: The Company reviews its long- lived assets, including identifiable intangibles, for impairment when events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. The Company compares the carrying value of the asset with the asset's expected future undiscounted cash flows. If the carrying value of the asset exceeds the expected future undiscounted cash flows, an impairment exists which is measured by the excess of the carrying value over the fair value of the asset. No impairment losses were recognized in 2001, 2000 or 1999. Effective January 1, 2002, the Company will adopt the provisions of SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS 144), as discussed in "Recent Accounting Pronouncements" below. Income Taxes: The Company follows the liability method of accounting for income taxes. Accrued Claims Costs: The Company self insures for the costs of medical, casualty, liability, vehicular, cargo and workers' compensation claims, up to retention limits that range between $1,000,000 to $5,000,000. Such costs are estimated each year based on historical claims and unfiled claims relating to operations conducted through December 31. The actual costs may vary from estimates based upon trends of losses for filed claims and claims estimated to be incurred. The long-term portion of accrued claims costs relates primarily to vehicular and workers' compensation claims which are payable over several years. The Company is required to post letters of credit to ensure payment under its self-insurance program. Outstanding letters of credit related to this program as of December 31, 2001 were $90 million and were issued under the Company's $200 million credit facility, as discussed in Note 5 "Debt." Subsequent to December 31, 2001, the Company issued an additional $27 million of letters of credit to support this program. The Company, through its captive insurance subsidiary, participates in a reinsurance pool to reinsure the majority of its workers' compensation liability. As a participant, the Company transfers its liability into the pool and reinsures an equivalent amount of risk from the pool. Under the provisions of SFAS No. 113, "Accounting and Reporting for Reinsurance of Short- Duration and Long-Duration Contracts," the Company records a reinsurance receivable associated with liabilities transferred into the pool and a corresponding liability for the reinsured risk. As of December 31, 2001, the reinsurance receivable associated with liabilities transferred into the pool was $43,591,000 and was included in Deposits and Other Assets in the Consolidated Balance Sheet. The corresponding reinsured risk of $43,591,000 was included in Other Liabilities in the Consolidated Balance Sheet. The reinsurance receivable and corresponding reinsured risk was $10,141,000 as of December 31, 2000. Reinsurance does not relieve the Company of ultimate responsibility for its own transferred liabilities. Failure of the reinsurers to honor their obligations could result in losses to the Company. However, it is the opinion of the Company that the reinsurers in the pool are financially sound and that any risk for non-payment is minimal. Therefore, no allowance for uncollectible amounts has been established nor does the Company hold collateral to ensure payment. Translation of Foreign Currency: Local currencies are generally considered to be the functional currencies outside the United States. The Company translates the assets and liabilities of its foreign operations at the exchange rate in effect at the balance sheet date. Income and expenses are translated using the average exchange rate for the period. The resulting translation adjustments are reflected in the Statements of Consolidated Shareholders' Equity. Transactional gains and losses are included in results of operations. Recognition of Revenues: Transportation freight charges are recognized as revenue when freight is received for shipment. The estimated costs of performing the total transportation services are then accrued. This revenue recognition method does not result in a material difference from the in-transit or completed service methods of recognition. Interest Expense: The interest expense presented in the Statements of Consolidated Operations is related to short-term borrowings and industrial revenue bonds, as discussed in Note 5, "Debt," and long-term tax liabilities, as discussed in Note 7, "Income Taxes." Earnings (Loss) per Share: Basic earnings (loss) per share are calculated using only the weighted average shares outstanding for the period. Diluted earnings (loss) per share includes the dilutive effect of restricted stock and stock options. See Note 9, "Stock Compensation Plans." For all years presented, net income (loss) used in the calculation of basic and diluted earnings (loss) per share was the same. The years ended December 31, 2001 and 2000 did not include 210,663 and 6,165 potentially dilutive securities, respectively, in the computation of the diluted loss per share because to do so would have been antidilutive. The computation of diluted earnings per share for the year ended December 31, 1999 included 206,278 dilutive stock options and restricted shares. Comprehensive Income: Comprehensive income (loss) includes all changes in equity during a period except those resulting from investments by and distributions to shareholders. Comprehensive income (loss) for the years ended December 31, 2001, 2000 and 1999 is presented in the Statements of Consolidated Shareholders' Equity. Estimates: Management makes estimates and assumptions when preparing the financial statements in conformity with accounting principles generally accepted in the United States. These estimates and assumptions affect the amounts reported in the accompanying financial statements and notes thereto. Actual results could differ from these estimates. Recent Accounting Pronouncements: The Company adopted the provisions of SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133) effective January 1, 2001. SFAS 133 requires that an organization recognize all derivatives as either assets or liabilities on the balance sheet at fair value and establishes the timing of recognition of the gain/loss based upon the derivative's intended use. Adoption of this standard did not have an impact on the Company's financial position or results of operations. In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 142 "Goodwill and Other Intangibles" and SFAS No. 143 "Accounting for Asset Retirement Obligations." SFAS 142 requires that goodwill and other intangible assets that have indefinite lives no longer be amortized, but will be subject to impairment review annually. Intangible assets with estimated finite useful lives will continue to be amortized. The Company will adopt SFAS 142 effective January 1, 2002. The Company is currently evaluating approximately $2.1 million of goodwill for impairment under SFAS 142. SFAS 143 will require that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of the fair value can be made. The associated asset retirement costs will be capitalized as part of the carrying amount of the asset. This statement is effective for fiscal years beginning after June 15, 2002. The Company expects that adoption of this statement will not have a material effect on the Company's financial position or results of operations. In August 2001, the FASB issued SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets." This statement supercedes current accounting guidance relating to the impairment of long-lived assets and provides a single accounting methodology to be applied to all long-lived assets to be disposed of, including discontinued operations. This statement is effective for fiscal years beginning after December 15, 2001. The Company expects that adoption of this statement will not have a material effect on the Company's financial position or results of operations. Reclassification: Certain amounts in prior years' financial statements have been reclassified to conform to the current year presentation. 3. Acquisition In February 2002, the Company entered into an agreement to acquire 100% ownership of the business operations of its joint venture in Mexico. The purchase price is approximately $2.1 million and is payable in installments through April 2003. Interest on unpaid installments is 7.5% annually. The Company previously accounted for the joint venture using the equity method and will fully consolidate the operations going forward. Total sales and assets of the Mexico operations were not material. In June 2000, CF AirFreight Corporation, a wholly owned subsidiary of the Company, acquired substantially all of the assets and liabilities of privately held FirstAir, Inc., a non- asset based provider of domestic and international air freight forwarding and full and less-than-container load ocean freight transportation. The purchase price was $1.2 million in cash and assumption of certain liabilities. The acquisition was accounted for under the purchase method of accounting, and accordingly, the purchase price was allocated to assets purchased and liabilities assumed based upon the fair values at the date of acquisition. The excess of the purchase price over the fair values of the assets acquired was approximately $2.3 million. The purchase agreement provides for a contingent payment to the former owner if revenues exceed certain targeted levels before May 31, 2003. The contingent payment shall not exceed $2.5 million. A payment, if required, will be recorded as additional purchase price. The operating results of FirstAir, Inc. have been included in the Company's consolidated financial statements since the date of acquisition. Operating results prior to acquisition would have had an immaterial effect on the Company's results of operations. 4. Accrued Liabilities Accrued liabilities consisted of the following as of December 31: (Dollars in thousands) 2001 2000 Accrued payroll and benefits $ 83,406 $ 90,459 Other accrued liabilities 58,411 68,194 Accrued union health and welfare 18,046 23,845 Accrued taxes other than income taxes 18,468 18,991 Accrued interest 11,030 9,554 Total accrued liabilities $ 189,361 $ 211,043 5. Debt In April 2001, the Company entered into a $200 million accounts receivable securitization agreement to provide for working capital and letter of credit needs. Under the agreement, the Company sells or contributes, on a continuous basis, trade receivables to CF Funding LLC (Funding), a wholly owned, consolidated special purpose company. Funding uses the receivables as collateral for borrowings and letters of credit. Letters of credit are limited to $150 million and borrowings are limited to an agreed upon availability calculation of eligible accounts receivable. Borrowings bear interest at LIBOR, plus a margin (250 basis points at December 31, 2001). The agreement expires in April 2006. As of December 31, 2001, there were $49.9 million of short-term borrowings and $98.4 million of letters of credit outstanding. Availability of the remaining borrowing capacity is dependent on the calculation of eligible accounts receivable which is subject to business level fluctuations which may further limit availability. In October 2001, the Company entered into a six-month, $50 million revolving credit agreement with the same lender, secured by real property with a net book value of approximately $53 million, to provide for short-term working capital needs and other general corporate purposes. As of December 31, 2001, the Company had $34 million of short-term borrowings outstanding, bearing interest at LIBOR plus 350 basis points. In February 2002, the term of the facility was extended until February 2004 with borrowings limited to a maximum of $42 million. Borrowings bear interest at Prime plus 500 basis points, with a minimum rate of 10%. The agreement contains mandatory paydown provisions using a portion of the proceeds of future debt offerings and asset sales, which will limit future availability. The combined availability of funds under the above financing agreements was $2.6 million as of December 31, 2001. The continued availability of funds under the above agreements requires that the Company comply with certain financial convenants, the most restrictive of which are to maintain a minimum EBITDAL (earnings before interest, taxes, depreciation, amortization and lease expense) and fixed charge coverage ratio. To avoid violations of these covenants as of March 31, 2002, the covenants were amended April 8, 2002. The following are the minimum EBITDAL and fixed charge coverage ratio covenant requirements for 2002. Minimum Required Covenant Levels (Dollars in thousands) Fixed Charge Coverage Quarter Ended EBITDAL Ratio March 31, 2002 $(13,300) (1.80) June 30, 2002 (16,400) (1.20) September 30, 2002 1,400 (0.30) December 31, 2002 20,500 0.20 In February 2002, the Company secured a $45 million financing agreement secured by real property, of which $20 million was funded in February. Under the agreement, the Company contributed real property with a net book value of approximately $21 million to CFCD 2002 LLC, a wholly owned, consolidated special purpose company. CFCD 2002 LLC used the properties as collateral for the borrowings. Borrowings bear interest at LIBOR plus 375 basis points. Principal and interest payments are due monthly over a 15-year period. The $20 million of proceeds was used to pay down short-term borrowings under the Company's $200 million credit facility discussed above. Subsequent to the paydown, the Company issued a $20 million letter of credit under the $200 million credit facility to support its self-insurance program, as discussed in Note 2 "Summary of Significant Accounting Policies." The remaining $25 million commitment is expected to be fully funded in April 2002. Also in February 2002, the Company completed a three-year, $4.1 million financing agreement secured by revenue equipment of a Canadian subsidiary. The borrowings bear interest at 7.2%. Principal and interest are payable monthly. Long-term debt was $15,100,000 of industrial revenue bonds with rates between 5.15% and 5.25% as of December 31, 2001. Annual maturities and sinking fund requirements of this debt as of December 31, 2001 are as follows: $1,000,000 in 2003 and $14,100,000 in 2004. Based on interest rates currently available to the Company for debt with similar terms and maturities, the fair value of long- term debt approximated the carrying value as of December 31, 2001 and 2000. The Company capitalizes the costs incurred in entering into financing agreements and amortizes them over the lives of the agreements. Unamortized debt costs were $4,582,000 and $862,000 as of December 31, 2001 and 2000, respectively, and were included in Other Assets in the Consolidated Balance Sheets. Amortization of debt costs recognized in the years ended December 31, 2001, 2000 and 1999 was $1,532,000, $462,000 and $1,589,000, respectively, and was included in Miscellaneous, net in the Statements of Consolidated Operations. 6. Leases The Company is obligated under various non-cancelable leases for real estate and revenue equipment that expire at various dates through 2013. Future minimum lease payments under all leases with initial or remaining non-cancelable lease terms in excess of one year as of December 31, 2001 are $26,429,000 in 2002; $24,397,000 in 2003; $22,677,000 in 2004; $14,177,000 in 2005; $5,161,000 in 2006 and $15,781,000 thereafter. Operating leases that cover approximately 2,025 trucks, tractors and trailers with a total cost of $81.9 million provide for residual value guarantees by the Company at the end of the lease terms. The Company has the right to exercise fair market value purchase options or the equipment can be sold to third parties. The Company is obligated to pay the difference between the residual value guarantees and the fair market value of the equipment at termination of the leases. The Company expects the fair market value of the leased equipment, which is subject to purchase option or sale to third parties, to substantially reduce or eliminate the Company's payments under the residual value guarantees. As of December 31, 2001, the amount of the residual value guarantees relative to the assets under lease was approximately $13.8 million, which is excluded from the future minimum lease payments above. Rental expense for operating leases is comprised of the following: (Dollars in thousands) 2001 2000 1999 Minimum rentals $53,026 $50,950 $48,065 Less sublease rentals (2,512) (2,209) (2,707) Net rental expense $50,514 $48,741 $45,358 7. Income Taxes The components of pretax income (loss) and income taxes (benefits) are as follows: (Dollars in thousands) 2001 2000 1999 Pretax income (loss) U.S. corporations $(111,104) $(22,926) $ (7,201) Foreign corporations 11,508 12,702 13,229 Total pretax income (loss) $ (99,596) $(10,224) $ 6,028 Income taxes (benefits) Current U.S. Federal $ (6,551) $(18,615) $ 7,297 State and local (1,185) (1,530) 6,024 Foreign 5,984 5,494 5,373 (1,752) (14,651) 18,694 Deferred U.S. Federal 5,150 10,229 (10,705) State and local 796 1,181 (5,478) Foreign 463 582 804 6,409 11,992 (15,379) Total income taxes (benefits) $ 4,657 $ (2,659) $ 3,315 Deferred tax assets and liabilities in the Consolidated Balance Sheets are classified based on the related asset or liability creating the deferred tax. Deferred taxes not related to a specific asset or liability are classified based on the estimated period of reversal. As a result of domestic losses during 2001, the Company recorded income tax benefits of $41.8 million and related deferred tax assets of $16.8 million. However, due to domestic cumulative losses of $141 million over the past three years, current accounting standards require the Company to assess the realizability of its domestic net deferred tax asset ($102.6 million as of December 31, 2001). Through the use of tax planning strategies, involving the sale of appreciated assets, the Company has determined that it is more likely than not that $62.6 million of its domestic net deferred tax asset as of December 31, 2001 will be realized. A valuation allowance of $40 million has been recorded as of December 31, 2001 for the remaining portion of its domestic net deferred tax asset. Until the recent cumulative loss is eliminated, the Company will continue to record additional valuation allowance against any tax benefit arising from future domestic operating losses. The Company will assess the realizability of its deferred tax assets on an ongoing basis and adjust the valuation allowance as appropriate. The components of deferred tax assets and liabilities in the Consolidated Balance Sheets as of December 31 relate to the following: (Dollars in thousands) 2001 2000 Deferred Taxes - Current Assets Reserves for accrued claims costs $ 41,247 $ 32,904 Employee benefits 18,257 23,261 Other reserves not currently deductible 28,534 29,209 Valuation allowance - current (18,888) -- Liabilities Unearned revenue, net (9,253) (10,550) Employee benefits -- (4,214) Total deferred taxes- current $ 59,897 $ 70,610 Deferred Taxes - Non Current Assets Reserves for accrued claims costs $ 11,229 $ 15,531 Employee benefits 29,062 28,233 Retiree health benefits 25,834 25,646 Benefit of net operating loss 19,809 -- Liabilities Depreciation (50,797) (58,443) Tax benefits from leasing transactions (9,079) (10,520) Valuation allowance - non current (21,122) -- Other (6,914) (6,729) Total deferred taxes - non current (1,978) (6,282) Net deferred taxes $ 57,919 $ 64,328 Income taxes (benefits) varied from the amounts calculated by applying the U.S. statutory income tax rate to the pretax income (loss) as set forth in the following reconciliation: 2001 2000 1999 U.S. statutory tax rate (35.0)% (35.0)% 35.0% State income taxes (benefits), net of federal income tax (benefit) (4.0) (7.6) 4.0 Foreign taxes in excess of U.S. statutory rate 2.0 15.5 16.8 Non-deductible operating expenses 4.6 31.6 91.8 Fuel tax credits (0.2) (2.1) (4.2) Foreign tax credits (2.9) (21.5) (83.7) Valuation allowance 40.2 -- -- Other, net -- (6.9) (4.7) Effective income tax (benefit) rate 4.7% (26.0)% 55.0% As of December 31, 2001, the Company had net operating loss carryforwards for U.S. Federal income tax purposes of $58 million which are available to offset future Federal taxable income, if any, through 2021. As of December 31, 2001, the Company had cumulative undistributed earnings from foreign subsidiaries totaling $70 million. Because these earnings have been reinvested indefinitely in the respective foreign subsidiaries, no provision has been made for any U.S. tax applicable to foreign subsidiaries' undistributed earnings. If distributed, however, the earnings would be subject to withholding tax. The amount of withholding tax that would be payable on remittance of the undistributed earnings would approximate $3.5 million. The Company's former parent, CNF Inc. (CNF), continues to dispute certain tax issues with the Internal Revenue Service relating to taxable years prior to the spin-off of the Company. The controversies are lodged at various stages of administrative appeals and litigation in the U.S. Tax Court and Federal District Court. The issues arise from tax positions first taken by CNF prior to the spin-off. Under the tax sharing agreement entered into between CNF and the Company at the time of the spin-off, the Company is obligated to reimburse CNF for its share of any additional taxes and interest that relate to the Company's business prior to the spin-off. Although the majority of the tax sharing liability has been settled, certain enumerated tax items still remain open that are anticipated to be resolved within the next 12 to 18 months. As of December 31, 2001, the Company believes that accrued tax reserves adequately provide for its entire tax sharing liability to CNF under the tax sharing agreement. To the extent that contingent tax liabilities exist outside the scope of the tax sharing agreement with CNF, the Company continues to accrue interest on the potential tax deficiency until such issues are resolved. During 2001, the Company sold its former administrative facility to CNF. Consideration received was in the form of a $21 million note receivable. Subsequently, the Company exchanged the note and related interest receivable for a $20 million tax obligation payable to CNF, including interest. The Company recognized a $19.0 million gain on the transaction which was included in Operating Expenses in the Statement of Consolidated Operations. 8. Employee Benefit Plans The Company maintains a non-contributory defined benefit pension plan (the Pension Plan) covering the Company's employees in the United States who are not covered by collective bargaining agreements. The Company's annual pension provision and contributions are based on an independent actuarial computation. The Company's funding policy is to contribute the minimum required tax-deductible contribution for the year. However, it may increase its contribution above the minimum if appropriate to its tax and cash position and the Pension Plan's funded status. Benefits under the Pension Plan are based on a career average final five-year pay formula. Approximately 97% of the Pension Plan assets are invested in publicly traded stocks and bonds. The remainder is invested in temporary cash investments and real estate funds. The following information sets forth the Company's pension liabilities included in Employee Benefits in the Consolidated Balance Sheets as of December 31: (Dollars in thousands) 2001 2000 Change in Benefit Obligation Benefit obligation at beginning of year $306,557 $271,074 Service cost 7,798 7,856 Interest cost 24,062 22,880 Benefit payments (14,643) (13,499) Actuarial loss 13,427 18,246 Plan amendments 448 -- Benefit obligation at end of year $337,649 $306,557 Change in Fair Value of Plan Assets Fair value of plan assets at beginning of year $293,755 $308,081 Actual loss on plan assets (12,327) (827) Benefit payments (14,643) (13,499) Fair value of plan assets at end of year $266,785 $293,755 Funded Status of the Plan Fund status at end of year $ (70,864) $ (12,802) Unrecognized net actuarial (gain) loss 14,030 (39,228) Unrecognized prior service cost 4,276 4,885 Unrecognized net transition asset (2,207) (3,311) Accrued Pension Plan Liability $ (54,765) $ (50,456) Weighted-average assumptions as of December 31: 2001 2000 Discount rate 7.50% 7.75% Expected return on plan assets 9.50% 9.50% Rate of compensation increase 3.40% 5.00% Net pension cost (benefit) included the following: 2001 2000 1999 Components of net pension cost (benefit) Service cost $ 7,798 $ 7,856 $ 8,418 Interest cost 24,062 22,880 20,291 Expected return on plan assets (27,155) (28,700) (24,963) Amortization of: Transition asset (1,104) (1,104) (1,104) Prior service cost 1,057 1,057 1,057 Actuarial gain (349) (3,921) (253) Total net pension cost (benefit) $ 4,309 $ (1,932) $ 3,446 The Company's Pension Plan includes a supplemental executive retirement plan to provide additional benefits for compensation excluded from the basic Pension Plan. The annual provision for this plan is based upon independent actuarial computations using assumptions consistent with the Pension Plan. As of December 31, 2001 and 2000, the liability was $3,427,000 and $3,024,000, respectively. The pension cost was $609,000, $1,319,000 and $421,000 for the years ended December 31, 2001, 2000 and 1999, respectively. Approximately 81% of the Company's domestic employees are covered by union-sponsored, collectively bargained, multi-employer health, welfare and pension plans. The Company contributed and charged to expense the following for these plans: (Dollars in thousands) 2001 2000 1999 Pension Plans $140,330 $137,087 $131,470 Health and Welfare Plans 135,662 133,092 127,990 Total $275,992 $270,179 $259,460 These contributions were made in accordance with negotiated labor contracts and generally were based on time worked. Under existing legislation regarding multi-employer pension plans, a total or partial withdrawal from an under-funded plan would result in the Company having to fund a proportionate share of the unfunded vested liability. The Company has no plans for taking any action that would subject it to any material obligation under this legislation. The Company maintains a retiree health plan that provides benefits to non-contractual employees at least 55 years of age with ten years or more of service. The retiree health plan limits benefits for participants who were not eligible to retire before January 1, 1993, to a defined dollar amount based on age and years of service and does not provide employer-subsidized retiree health care benefits for employees hired on or after January 1, 1993. During 2001, the Company amended the plan to increase co- payments, deductibles and co-insurance premiums to be paid by retirees, resulting in a $6.4 million decrease in the benefit obligation as of December 31, 2001. The following information sets forth the Company's total postretirement benefit liabilities included in Employee Benefits in the Consolidated Balance Sheets as of December 31: (Dollars in thousands) 2001 2000 Change in Benefit Obligation Benefit obligation at beginning of year $55,975 $57,526 Service cost 496 471 Interest cost 4,363 4,214 Benefit payments (4,935) (4,145) Actuarial (gain) loss 6,983 (2,091) Plan amendments (6,397) -- Benefit obligation at end of year $56,485 $55,975 Change in Fair Value of Plan Assets Fair value of plan assets at beginning of year $ -- $ -- Company contributions 4,935 4,145 Benefit payments (4,935) (4,145) Fair value of plan assets at end of year $ -- $ -- Funded Status of the Plan Fund status at end of year $(56,485) $(55,975) Unrecognized net actuarial gain (3,225) (10,429) Unrecognized prior service credit (6,574) (221) Accrued Postretirement Benefit Liability $(66,284) $(66,625) Weighted-average assumptions as of December 31: 2001 2000 Discount rate 7.50% 7.75% For measurement purposes, a 9.0% annual increase in the per capita cost of covered health care benefits was assumed for 2002, decreasing by 0.5% per year to the ultimate rate of 5.5% in 2010 and after. Net post retirement cost included the following: (Dollars in thousands) 2001 2000 1999 Components of net benefit cost Service cost $ 496 $ 471 $ 548 Interest cost 4,363 4,214 4,221 Amortization of: Prior service credit (44) (44) (44) Actuarial gain (222) (524) - Total net benefit cost $4,593 $4,117 $4,725 Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plan. A one-percentage point change in the assumed health care cost trend rates would have the following effects: (Dollars in thousands) 1% 1% Increase Decrease Effect on total of service and interest cost components $ 160 $ (183) Effect on the postretirement benefit obligation $ 2,062 $ (2,346) The Company's non-contractual employees in the United States are eligible to participate in the Company's Stock and Savings Plan. This is a 401(k) plan that allows employees to make contributions that the Company matches with common stock up to 50% of the first three percent of a participant's basic compensation. The Company's contribution, which is charged as an expense, totaled $2,141,000 in 2001, $2,265,000 in 2000, and $2,460,000 in 1999. The Company's match was made with 407,173 and 390,707 treasury shares in 2001 and 2000, respectively. The Company has adopted various plans relating to the achievement of specific goals to provide incentive bonuses for designated employees. Total incentive bonuses earned by the participants were $7,128,000, $1,548,000 and $2,282,000 for the years ended December 31, 2001, 2000 and 1999, respectively. 9. Stock Compensation Plans The Company has various stock incentive plans (the Plans) under which shares of restricted stock and stock options have been awarded to regular, full-time employees and non-employee directors. Stock options are granted with an exercise price equal to market price on the date of grant, have a term of seven years or less and vest within four years of the date of grant. The following is a summary of stock option data: Number of Weighted Options Average Exercise Price Outstanding as of December 31, 1998 -- $ -- Granted 916,400 13.83 Exercised -- -- Forfeited -- -- Outstanding as of December 31, 1999 916,400 $ 13.83 Granted 1,328,600 4.81 Exercised -- -- Forfeited (198,872) 12.83 Outstanding as of December 31, 2000 2,046,128 $ 8.07 Granted 396,949 6.09 Exercised (57,000) 4.72 Forfeited (191,031) 7.90 Outstanding as of December 31, 2001 2,195,046 $ 7.81 The following is a summary of stock options outstanding and exercisable as of December 31, 2001: Outstanding Options Range of Exercise Number of Weighted Weighted Prices Options Average Average Remaining Exercise Life Price (Years) $4.72-$5.95 1,388,340 5.2 $ 4.99 $6.44-$7.17 131,021 4.5 $ 6.79 $13.00-$14.06 675,685 2.4 $ 13.80 2,195,046 Exercisable Options Range of Exercise Number of Weighted Prices Options Average Exercise Price $4.72-$5.95 583,276 $ 4.82 $6.44-$7.17 91,354 $ 6.81 $13.00-$14.06 400,960 $ 13.82 1,075,590 The Company granted 15,000 shares of restricted stock at $7.0625 per share in 2000 and 141,000 shares at $14.0625 per share in 1999. No shares were granted in 2001. The restricted stock awards vest over time and are contingent on the Company's average stock price achieving pre-determined increases over the grant price for 10 consecutive trading days. All restricted stock awards entitle the participant credit for any dividends. Compensation expense is recognized based upon the stock price when the minimum required stock price is achieved. There were 82,750 restricted shares that had not achieved the pre-determined stock price required for vesting as of December 31, 2001. The pre- determined stock prices range between $10.03 and $20.00. Compensation expense will be recognized for those shares if the stock price meets the required levels by May 12, 2002; otherwise, the shares will be forfeited. As of December 31, 2001 there were 128,271 shares available for granting of restricted stock and stock options under the Plans. The Company also has a Safety Award Plan under which it awards shares of common stock to designated employees who achieve certain operational safety goals. During the years ended December 31, 2001, 2000 and 1999, the Company issued 46,438, 69,045 and 8,120 treasury shares, respectively. As of December 31, 2001 there were 26,397 shares available for granting of awards under this plan. For the years ended December 31, 2001, 2000 and 1999, the Company recognized non-cash charges of $279,000, $250,000 and $289,000, respectively, under its stock compensation plans. The Company accounts for stock compensation under Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees." Had the Company applied SFAS No. 123, "Accounting for Stock-Based Compensation," pro forma net income (loss) for the years ended December 31, 2001, 2000 and 1999 would have been as follows: (Dollars in thousands except per share data) 2001 2000 1999 Pro forma net income (loss) $(106,081) $(10,127) $ 683 Pro forma net income (loss) per basic share $(4.82) $(0.47) $0.03 Pro forma net income (loss) per diluted share $(4.82) $(0.47) $0.03 The weighted average grant date fair value of the options granted in 2001, 2000 and 1999 using the Black-Scholes option pricing model was $3.48, $2.71 and $7.84 per share, respectively. The following assumptions were used to calculate the values: Weighted Average 2001 2000 1999 Assumptions Risk-free interest rate 4.8% 6.3% 5.5% Expected volatility 62.7% 60.0% 60.0% Dividend yield 0.0% 0.0% 0.0% Expected life (in years) 5 5 5 10. Contingencies Reliance Insurance Company, one of the Company's excess insurers of record from October 1, 1996 to October 1, 2000, has been placed in liquidation and may be unable to pay $5 million the insurance carrier committed to plaintiffs in the purported settlement of a casualty case. The Company maintains that (1) plaintiffs accepted the risk of payment from the insurance carrier when they purportedly settled the case; (2) Reliance is obligated to transfer payments from a re-insurer to settle the case; (3) the insurance carrier with the next layer of insurance is required to make the payment if the liquidating carrier cannot; and (4) otherwise there has been no settlement. The Company is unable to determine whether it will be liable for any portion of the excess policy not paid, and if so, how much. If the Company is ultimately found liable for all or any portion of such $5 million, the Company is unable to determine how much it might recover from Reliance in liquidation, and if so, when. The Company has successfully extended a stay of proceedings until further order of the court. The Company is in the process of filing a motion to cut through to a Reliance re-insurer to obtain payment. In October 1997, lawsuits were filed against the Company and its principal operating subsidiary in Riverside County Superior Court of California, claiming invasion of privacy and related tort claims for intentional and negligent infliction of emotional distress and seeking the recovery of punitive, statutory and emotional distress damages in unspecified amounts. Those lawsuits arose out of the use of hidden cameras at a California terminal facility, including restrooms, in order to combat a problem with theft and drugs. There are more than 500 plaintiffs, mostly unionized employees. The lawsuits were subsequently transferred to Federal Court and recently returned to state court in January 2002 after a final determination of jurisdiction. The Company believes it has good defenses to the claim and intends to aggressively pursue these defenses. It is the opinion of management that the ultimate outcome of the claims will not have a material adverse effect on the Company's financial position or results of operations. The Company and its subsidiaries are involved in various other lawsuits incidental to their businesses. It is the opinion of management that the ultimate outcome of these actions will not have a material adverse effect on the Company's financial position or results of operations. The Company has received notices from the Environmental Protection Agency (EPA) and others that it has been identified as a potentially responsible party (PRP) under the Comprehensive Environmental Response Compensation and Liability Act (CERCLA) or other Federal and state environmental statutes at various Superfund sites. Under CERCLA, PRP's are jointly and severally liable for all site remediation and expenses. Based upon the advice of local environmental attorneys and cost studies performed by environmental engineers hired by the EPA (or other Federal and state agencies), the Company believes its obligations with respect to such sites would not have a material adverse effect on its financial position or results of operations. 11. Segment and Geographic Information The Company primarily provides less-than-truckload transportation, air freight forwarding and supply chain management services throughout the United States and Canada, as well as in Mexico through a joint venture, and international freight services between the United States and more than 80 countries. The Company does not present segment disclosures because the air freight forwarding, supply chain management and international freight service offerings do not meet the quantitative thresholds of SFAS No. 131 "Disclosures about Segments of an Enterprise and Related Information." The following information sets forth revenues and property, plant and equipment by geographic location. Revenues are attributed to geographic location based upon the location of the customer. No one customer provides 10% or more of total revenues. Geographic Information (Dollars in thousands) 2001 2000 1999 Revenues United States $2,090,793 $2,206,468 $2,248,773 Canada and other 146,910 145,900 130,227 Total $2,237,703 $2,352,368 $2,379,000 Property, Plant and Equipment United States $323,311 $312,349 $332,999 Canada and other 34,280 36,445 35,953 Total $357,591 $348,794 $368,952 Management Report on Responsibility for Financial Reporting The management of Consolidated Freightways Corporation has prepared the accompanying financial statements and is responsible for their integrity. The statements were prepared in accordance with accounting principles generally accepted in the United States, after giving consideration to materiality, and are based on management's best estimates and judgements. The other financial information in the annual report is consistent with the financial statements. Management has established and maintains a system of internal control. Limitations exist in any control structure based on the recognition that the cost of such system should not exceed the benefits derived. Management believes its control system provides reasonable assurance as to the integrity and reliability of the financial statements, the protection of assets from unauthorized use or disposition, and the prevention and detection of fraudulent financial reporting. The system of internal control is documented by written policies and procedures that are communicated to employees. The Company's independent public accountants test the adequacy and effectiveness of the internal controls. The Board of Directors, through its audit committee consisting of three independent directors, is responsible for engaging the independent accountants and assuring that management fulfills its responsibilities in the preparation of the financial statements. The Company's financial statements have been audited by Arthur Andersen LLP, independent public accountants. Arthur Andersen LLP has access to the audit committee without the presence of management to discuss internal accounting controls, auditing and financial reporting matters. /s/Patrick H. Blake Patrick H. Blake President and Chief Executive Officer /s/Robert E. Wrightson Robert E. Wrightson Executive Vice President and Chief Financial Officer /s/James R. Tener James R. Tener Vice President and Controller Report of Independent Public Accountants To the Shareholders and Board of Directors of Consolidated Freightways Corporation: We have audited the accompanying consolidated balance sheets of Consolidated Freightways Corporation (a Delaware corporation) and subsidiaries as of December 31, 2001 and 2000, and the related statements of consolidated operations, cash flows and shareholders' equity for each of the three years in the period ended December 31, 2001. 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 auditing standards generally accepted in the United States. 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 Consolidated Freightways Corporation and subsidiaries as of December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States. /s/Arthur Andersen LLP Portland, Oregon April 12, 2002
CONSOLIDATED FREIGHTWAYS CORPORATION AND SUBSIDIARIES Quarterly Financial Data (Unaudited) (Dollars in thousands except per share data) March 31 June 30 September 30 December 31 2001 - Quarter Ended Revenues $574,578 $590,415 $571,947 $500,763 Operating income (loss) (a) 230 (31,722) (26,071) (33,524) Loss before income taxes (benefits) (2,051) (33,257) (28,002) (36,286) Income taxes (benefits) (224) 1,792 1,923 1,166 Net loss (1,827) (35,049) (29,925) (37,452) Basic loss per share (0.08) (1.60) (1.36) (1.69) Diluted loss per share (0.08) (1.60) (1.36) (1.69) Market price range $3.81-$7.88 $5.74-$9.10 $2.60-$8.00 $3.00-$5.30 March 31 June 30 September 30 December 31 2000 - Quarter Ended Revenues $593,629 $586,101 $592,902 $579,736 Operating income (loss) (b) (1,239)(c) 2,129 5,594 (8,411) Income (loss) before income taxes (benefits) (6,079) 1,322(d) 4,565 (10,032) Income taxes (benefits) (3,100) 1,215 3,244 (4,018) Net income (loss) (2,979) 107 1,321 (6,014) Basic earnings (loss) per share (0.14) -- 0.06 (0.28) Diluted earnings (loss) per share (0.14) -- 0.06 (0.28) Market price range $5.31-$8.25 $4.00-$7.00 $4.19-$5.31 $3.25-$5.13 (a) Includes gains on sales of operating properties of $19.6 million in the quarter ended March 31, 2001; $0.4 million in the quarter ended June 30, 2001; $4.8 million in the quarter ended September 30, 2001; and $1.3 million in the quarter ended December 31, 2001. (b) Includes gains on sales of operating properties of $3.2 million in the quarter ended June 30, 2000; $8.8 million in the quarter ended September 30, 2000; and $5.7 million in the quarter ended December 31, 2000. (c) Includes a $4.3 million charge for severance due to an administrative reorganization. (d) Includes a $4.0 million charge for settlement of a tax sharing liability with the former parent.
Five Year Financial Summary Consolidated Freightways Corporation And Subsidiaries Years Ended December 31 (Dollars in thousands except per share data) (Unaudited) 2001 2000 1999 1998 1997 SUMMARY OF OPERATIONS Revenues $ 2,237,703 $ 2,352,368 $ 2,379,000 $ 2,238,423 $ 2,299,075 Operating income (loss) (91,087)(a) (1,927)(b) 7,875(d) 52,064(e) 45,259(f) Depreciation and amortization 65,952 59,152 58,363 50,918 54,679 Investment income 670 1,490 2,688 4,957 1,894 Interest expense 8,361 4,883 4,160 4,012 3,213 Income (loss) before income taxes (benefits) (99,596) (10,224)(c) 6,028 51,817 41,982 Income taxes (benefits) 4,657 (2,659) 3,315 25,471 21,623 Net income (loss) (104,253) (7,565) 2,713 26,346 20,359 Net cash provided (used) by operating activities (41,053) 21,133 21,513 73,842 77,370 PER SHARE Basic earnings (loss) (4.74) (0.35) 0.12 1.16 0.92 Diluted earnings (loss) (4.74) (0.35) 0.12 1.12 0.89 Shareholders' equity 6.68 11.62 12.16 11.81 10.58 FINANCIAL POSITION Cash and cash equivalents 28,067 46,523 49,050 123,081 107,721 Property, plant and equipment, net 357,591 348,794 368,952 360,772 382,987 Total assets 880,580 926,682 916,272 890,390 897,796 Capital expenditures 74,068 42,348 67,273 31,271 22,674 Short-term borrowings 83,900 - - - - Long-term debt 15,100 15,100 15,100 15,100 15,100 Shareholders' equity 148,239 252,184 258,562 266,718 243,447 RATIOS AND STATISTICS Current ratio 1.0 to 1 1.3 to 1 1.2 to 1 1.3 to 1 1.3 to 1 Net income (loss) as % of revenues (4.7)% (0.3)% 0.1% 1.2% 0.9% Effective income tax (benefit) rate 4.7% (26.0)% 55.0% 49.2% 51.5% Long-term debt as % of total capitalization 9.2% 5.6% 5.5% 5.4% 5.8% Return on average invested capital (38.5)% (1.9)% 3.6% 26.2% 24.9% Return on average shareholders' equity (49.7)% (3.0)% 1.1% 13.9% 12.9% Average shares outstanding 21,995,874 21,492,130 22,349,997 22,634,362 22,066,212 Market price range $2.60-$9.10 $3.25-$8.25 $6.75-$18.44 $7.50-$19.75 $7.00-$18.50 Number of shareholders 32,000 32,500 31,800 34,350 31,650 Number of employees 18,100 21,100 22,100 21,000 21,600 (a) Includes $26.1 million of gains on sales of operating properties. (b) Includes $17.7 million of gains on sales of operating properties and a $4.3 million charge for severance due to an administrative reorganization. (c) Includes a $4.0 million charge for settlement of a tax sharing liability with the former parent. (d) Includes $3.4 million of gains on sales of operating properties. (e) Includes a $14.4 million non-cash charge for the issuance of common stock under the Company's restricted stock plan. (f) Includes a $14.3 million non-cash charge for the issuance of common stock under the Company's restricted stock plan.
EX-21 11 ex21.txt EXHIBIT 21 1 EXHIBIT 21 CONSOLIDATED FREIGHTWAYS CORPORATION SUBSIDIARIES OF THE COMPANY December 31, 2001 The subsidiaries of the Company were: State or Percent of Province or Stock Owned Country of Subsidiaries by Company Incorporation Consolidated Freightways Corporation of Delaware 100 Delaware Canadian Freightways, Limited 100 Alberta, Canada Milne & Craighead, Inc. 100 Alberta, Canada Canadian Freightways Eastern Limited 100 Ontario, Canada United Terminals Ltd. 100 B.C., Canada Blackfoot Logistics Ltd. 100 B.C., Canada Transport CFQI, Inc., d.b.a. Epic Express and Universal Contract Logistics 100 Quebec, Canada Click Express Inc. 100 Alberta, Canada Interport Sufferance Warehouses 100 Ontario, Canada Panorama Mainland Ltd. 100 Alberta, Canada 724567 Alberta Ltd. 100 Alberta, Canada 724569 Alberta Ltd. d.b.a. Evergreen Logistics 100 Alberta, Canada CF Funding LLC 100 Delaware Consolidadora De Fletes Mexico S.A. de C.V. 99 Mexico, D.F. Transportes CF Dominican Republic 34 Dominican Republic Transportes CF Guatemala S.A. 99.9 Guatemala Transportes CF Costa Rica S.A. 100 Costa Rica Leland James Service Corporation 100 Delaware Redwood Systems, Inc. 100 Delaware Redwood Systems Logistics de Mexico 100 Mexico - Jalisco Redwood Systems Services de Mexico 100 Mexico - Jalisco CF AirFreight Corporation 100 Delaware CF Risk Management 100 Bermuda Grupo Consolidated Freightways S.A. de C.V. 100 Mexico, D.F. CF Alfri-Loder, S. de R.L. de C.V. 50 Mexico - Nuevo Leon Transportes CF Alfri-Loder de R.L. De C.V. 49 Mexico - Nuevo Leon CF MovesU.com Incorporated 100 Delaware EX-99 12 ex99.txt EXHIBIT 99 April 12, 2002 Securities and Exchange Commission 450 Fifth Street, N.W. Washington D.C. 20549 Re: Confirmation of Representations Made by Arthur Andersen LLP This letter confirms that Consolidated Freightways Corporation has received the following representations from Arthur Andersen LLP, independent public accountants, engaged to audit the financial statements included in the Company's Form 10-K: the audit was subject to Arthur Andersen's quality control system for the U.S. accounting and auditing practice to provide reasonable assurance that the engagement was conducted in compliance with professional standards; and there was appropriate continuity of Arthur Andersen personnel working on the audit, availability of national office consultation and availability of foreign affiliates of Arthur Andersen to conduct relevant portions of the audit. /s/Robert E. Wrightson Robert E. Wrightson Executive Vice President and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----