10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the Fiscal Year Ended December 31, 2004
or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the Transition Period From           to

Commission File Number 1-5046

CNF INC.

Incorporated in the State of Delaware

I.R.S. Employer Identification No. 94-1444798

3240 Hillview Avenue, Palo Alto, California 94304

Telephone Number (650) 494-2900

www.cnf.com

Securities Registered Pursuant to Section 12(b) of the Act:

Common Stock ($.625 par value) (Title of Each Class)	New York Stock Exchange Pacific Exchange
	(Name of Each Exchange on Which Registered)

Securities Registered Pursuant to Section 12(g) of the Act:

8⁷/8% Notes Due 2010

7.35% Notes Due 2005

6.70% Senior Debentures due 2034

      Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 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 þ          No o

      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.     o

      Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).      Yes þ          No o

      State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter.

      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 Composite Tape on June 30, 2004: $1,384,517,912

Number of shares of Common Stock outstanding as of January 31, 2005: 52,737,867

DOCUMENTS INCORPORATED BY REFERENCE

Part III

      Proxy Statement for CNF’s Annual Meeting of Shareholders to be held on April  19, 2005 (only those portions referenced specifically herein are incorporated in this Form 10-K).

CNF INC.

FORM 10-K

Year Ended December 31, 2004

INDEX

Item			Page
PART I
	1.	Business		3
	2.	Properties		8
	3.	Legal Proceedings		9
	4.	Submission of Matters to a Vote of Stockholders		10
PART II
	5.	Market for Registrant’s Common Equity and Related Stockholder Matters		10
	6.	Selected Financial Data		11
	7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		13
	7A.	Quantitative and Qualitative Disclosures About Market Risk		29
	8.	Financial Statements and Supplementary Data		30
	9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		65
	9A.	Controls and Procedures		65
	9B.	Other Information		68
PART III
	10.	Directors and Executive Officers of the Registrant		68
	11.	Executive Compensation		70
	12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		70
	13.	Certain Relationships and Related Transactions		70
	14.	Principal Accounting Fees and Services		70
PART IV
	15.	Exhibits and Financial Statement Schedules		71
EXHIBIT 4.9
EXHIBIT 4.10
EXHIBIT 10.74
EXHIBIT 10.75
EXHIBIT 10.76
EXHIBIT 10.7
EXHIBIT 12
EXHIBIT 21
EXHIBIT 23
EXHIBIT 31
EXHIBIT 32

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CNF INC.

Form 10-K

Year Ended December 31, 2004

PART I

ITEM 1. BUSINESS

Legal Organization

      CNF Inc. was incorporated in Delaware in 1958, and in 2001, changed its name from CNF Transportation Inc. to CNF Inc. CNF Inc. and its subsidiaries (“CNF”) provide transportation and supply chain management services for a wide range of manufacturing, industrial, and retail customers.

      At December 31, 2004, CNF owned 100% of the capital stock of Con-Way Transportation Services, Inc., Con-Way NOW, Inc., Con-Way Logistics, Inc., Con-Way Air Express, Inc., Menlo Worldwide, LLC, Emery Worldwide Airlines, Inc., and other less significant wholly owned subsidiaries. In December 2002, CNF transferred 100% of the capital stock of Menlo Worldwide Forwarding, Inc., Menlo Worldwide Expedite!, Inc. and Menlo Logistics, Inc. (also known as Menlo Worldwide Logistics or “MWL”) to Menlo Worldwide, LLC. In August 2003, CNF also transferred its majority ownership interest in the Vector SCM joint venture with General Motors to Menlo Worldwide, LLC (“MW”). In December 2004, CNF completed the sale of Menlo Worldwide Forwarding, Inc. and its subsidiaries and Menlo Worldwide Expedite!, Inc. (hereinafter collectively referred to as “MWF”) to United Parcel Service, Inc. (“UPS”), as more fully discussed in Note 2, “Discontinued Operations,” of Item 8, “Financial Statements and Supplementary Data.”

Reporting Segments

      Information on reporting segments is presented in the manner in which components are organized for making operating decisions, assessing performance and allocating resources, which may be different than the manner in which components are organized for legal purposes, as described above. Accordingly, for financial reporting purposes, CNF is divided into four segments. Menlo Worldwide, LLC (“MW”), which was formed effective in 2002, represents the collective operating results of the separate Menlo Worldwide Logistics and Menlo Worldwide Other reporting segments.

      Con-Way Transportation Services reporting segment (“Con-Way”). Includes the combined operating results of Con-Way Transportation Services, Inc. and its subsidiaries and affiliated companies. Con-Way provides regional next-day, second-day and transcontinental freight trucking throughout the U.S., Canada, Puerto Rico, and Mexico, as well as expedited transportation, freight forwarding, contract logistics and warehousing, and truckload brokerage services.

      Menlo Worldwide Logistics reporting segment (“Logistics”). Includes the operating results of Menlo Worldwide Logistics and its subsidiaries. Logistics develops integrated contract logistics solutions, including the management of complex distribution networks and supply chain engineering and consulting.

      Menlo Worldwide Other reporting segment. Includes the operating results of Vector SCM (“Vector”), a company jointly owned by MW and General Motors (“GM”). It serves as the lead logistics manager for GM.

      CNF Other reporting segment. Includes the operating results of Road Systems, Inc., a trailer manufacturer, and certain corporate activities.

      For financial information concerning CNF’s geographic and reporting segment operating results, refer to Item 8, “Financial Statements and Supplementary Data,” under Note 12, “Segment Reporting.”

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Information Available on Website

      CNF makes available, free of charge, on its website at “www.cnf.com,” under the headings “Investor Relations/ Annual Report, Proxy and Other SEC Filings,” copies of its annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, and any amendments to those reports, in each case as soon as reasonably practicable after such reports are electronically filed with or furnished to the Securities and Exchange Commission.

      In addition, CNF makes available, free of charge, on its website at “www.cnf.com,” under the headings “Investor Relations/ Corporate Governance,” current copies of the following documents: (i) the charters of the Audit, Compensation, and Director Affairs Committees of its Board of Directors; (ii) its Corporate Governance Guidelines; (iii) its Code of Ethics for Chief Executive and Senior Financial Officers; (iv) its Code of Business Conduct and Ethics for Directors; and (v) its Code of Ethics for employees. Copies of these documents are also available in print to shareholders upon request, addressed to the Corporate Secretary at 3240 Hillview Avenue, Palo Alto, California 94304.

      None of the information on CNF’s website shall be deemed to be a part of this report.

Con-Way Transportation Services

Con-Way Regional Carriers

      Con-Way’s primary business units are regional less-than-truckload (“LTL”) motor carriers that operate a combined network of freight service centers that provide complete market coverage in North America. The regional carriers provide industry-leading day-definite delivery service to manufacturing, industrial, and retail customers, and consist of Con-Way Western Express (“CWX”), which serves 13 Western states, including Hawaii and Alaska, with service into Mexico; Con-Way Central Express (“CCX”), which serves 25 central and eastern states; Con-Way Southern Express (“CSE”), which serves 12 southeastern states, the District of Columbia and Puerto Rico; and Con-Way Canada Express, which serves 11 Canadian provinces. In 2004, the regional carriers accounted for 92.6% of Con-Way’s revenue.

      Typically, LTL carriers transport shipments weighing between 100 and 15,000 pounds from multiple shippers utilizing a network of freight service centers combined with a fleet of line-haul and pickup-and-delivery tractors and trailers. Freight is picked up from customers and consolidated for shipment at the originating service center. The freight is then loaded into trailers and transferred to the destination service center providing service to the delivery area. At the destination service center, the freight is delivered to the customer.

Con-Way NOW, Con-Way Logistics, Con-Way Air Express and Con-Way Truckload

      In addition to the regional LTL carriers, Con-Way operates a group of businesses, including Con-Way NOW, Con-Way Logistics, and Con-Way Air Express. In June 2004, Con-Way announced the formation of a new operating company, Con-Way Truckload (“CTL”), which began operations in January 2005.

      Con-Way NOW specializes in time-definite shipments, such as replacement parts, medical equipment and other urgent shipments, where expedited delivery is critical. Con-Way NOW has delivery service in 48 states and parts of Canada. Con-Way Air Express (“CAX”) is a freight forwarder that arranges freight shipments using transportation provided by other operators, including commercial airlines, dedicated air operators, for-hire truckload and LTL operators, and cartage companies. Through an agency network and connections with other Con-Way components, CAX provides full-service coverage in the United States, Canada, and Puerto Rico. Con-Way Logistics offers integrated supply chain services for shippers, using its own warehouses, transportation provided by other ground and air carriers as well as Con-Way’s regional carriers and alliances with leading supply chain software firms. As more fully discussed below under “Menlo Worldwide — Logistics,” the Con-Way Logistics business will be integrated with Menlo Worldwide Logistics effective in 2005.

      CTL will serve Con-Way’s three regional LTL carriers by providing linehaul service on full loads of LTL shipments moving in transcontinental lanes and eventually offer the services to other customers. The formation of CTL is expected to reduce future linehaul expense and protect service with inter-company operations that operate

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in tandem with current truckload vendors. CTL will utilize Con-Way’s existing infrastructure and administrative support services to minimize the required investment. Con-Way’s management expects the new company will allow Con-Way to build a potential truckload revenue base by providing truckload services to its customers.

Competition

      The trucking, logistics and freight forwarding industries are intensely competitive. Principal competitors of Con-Way include regional and national LTL companies. Competition in the trucking industry is based on freight rates, service, reliability, transit times and scope of operations.

Menlo Worldwide

      Effective January 1, 2002, CNF combined its Logistics and Vector SCM units to form MW, which was intended to address a trend among businesses to outsource the management of increasingly complex supply chain and logistics services to lower costs, reduce inventories and increase speed, flexibility and efficiency. The MW companies were aligned to meet this demand by combining extensive proprietary information systems and value-added supply chain management services including transportation, warehouse and inventory management on a global scale.

Menlo Worldwide — Logistics

      Logistics specializes in developing and managing complex national and global supply and distribution networks, including transportation management, dedicated contract warehousing, dedicated contract carriage, and supply chain consulting services. Logistics also provides scaleable supply chain and logistics services to a growing number of middle-market customers. Transportation management refers to the management of third-party transportation providers for customers’ inbound/outbound supply chain needs through the use of state-of-the-art logistics management systems to consolidate, book and track shipments. Contract warehousing refers to the optimization of warehouse operations for customers using technology and warehouse management systems to reduce inventory carrying costs and supply chain cycle times. For several customers, contract-warehousing operations include light assembly or kitting operations, where manuals and cords are packed with the finished goods prior to distribution. Logistics’ ability to link these systems with its customers’ internal enterprise resource planning systems is intended to provide customers with improved visibility to their supply chains.

      Since the formation of Logistics in 1990, the third-party logistics industry has grown significantly as the outsourcing of distribution and other non-core functions has become more commonplace and businesses increasingly evaluate overall logistics costs. The ability to access information through computer networks also increases the value of capturing real-time logistics information to track inventories, shipments and deliveries. These industry trends, combined with Logistics’ ability to provide solutions for complex supply chain issues, have helped it to secure new contracts and expand contracts with existing customers, which are primarily large companies.

      At December 31, 2004, Logistics’ client base included approximately 100 companies, many of which are Fortune 200 businesses. Four customers, each with a Standard & Poor’s investment-grade credit rating, collectively accounted for 53.5% of the revenue reported for the Logistics reporting segment in 2004. In 2004, Logistics’ largest customer accounted for 5.0% of the consolidated revenue of CNF. The loss of significant revenue from any of Logistics’ major customers by termination of the customer relationship for any reason, including the business failure of the customer, could have an adverse effect on Logistics’ results of operations. Logistics generally seeks to mitigate risks related to the termination of a customer relationship, for reasons other than the business failure of a customer, by requiring that any facility or major equipment lease that it enters into on behalf of a customer must be assumed by the customer upon termination of the arrangement. Compensation from Logistics’ customers takes different forms, including cost-plus, gain-sharing, transaction, fixed-dollar and consulting fees.

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Con-Way Logistics Integration

      During 2005, Logistics will integrate the Con-Way Logistics business into its operations. The integration of the two businesses is intended to provide an enterprise solution offering for Logistics’ customers that want to use Con-Way as a primary transportation provider. The integration is also expected to expand Con-Way Logistics’ multi-client warehousing service to Logistics’ larger warehouse network.

      Beginning in 2005, Logistics will segment its business based on customer vertical alignment, rather than service offerings. The new industry-focused groups will leverage the capabilities of personnel, systems and solutions throughout the MW organization to give customers a resource to meet the challenges in their specific automotive, consumer products and other industries. As part of this realignment, MW has combined resources and personnel of Logistics’ automotive projects and Vector SCM to form a new division called Menlo Automotive Group (“MAG”). MAG will focus on the special supply chain and logistics needs of the global automotive industry.

Competition

      The third-party logistics industry is intensely competitive. Competition for larger projects is generally based on the ability to rapidly implement technology-based transportation and logistics solutions. Competitors in the logistics industry are numerous and include domestic and foreign logistics companies, the logistics arms of integrated transportation companies and contract manufacturers; however, Logistics primarily competes against a limited number of major competitors that have resources sufficient to provide services under large logistics contracts.

Menlo Worldwide Other

      In December 2000, CNF and GM formed the Vector SCM (supply chain management) joint venture for the purpose of providing logistics management services on a global basis for GM, and ultimately for customers in addition to GM. Although MW owns a majority interest in Vector, MW’s portion of Vector’s operating results are reported in the Menlo Worldwide Other reporting segment as an equity-method investment based on GM’s ability to control certain operating decisions. Vector was established to reduce GM’s supply chain costs and improve GM’s supply chain management by bringing increased speed, flexibility and reliability to GM’s global supply chain, including shipment of parts to manufacturing plants and vehicles to dealers.

      Prior to the amendments described below, agreements pertaining to Vector (collectively, “Vector Agreements”) provided that Vector would be compensated by sharing in efficiency gains and cost savings achieved through the implementation of Approved Business Cases (“ABCs”) and other special projects in GM’s North America region and three international regions. An ABC is a project, developed with and approved by GM, aimed at reducing costs, assuming operational responsibilities, and/or achievement of operational changes.

      In August 2003, the Vector Agreements were amended, primarily to expedite the transition of logistics services in the North America region from GM to Vector. The amendments changed the compensation principles for GM’s North American logistics operations, revised the allocation of Vector’s profit between GM and MW, and modified the formula for the valuation of Vector in the event that MW exercises its Put Right. In January 2005, all of the ABC’s for GM’s European region were amended to compensate Vector with cost reimbursement and a management fee based on vehicle production volumes, rather than through its sharing in efficiency gains and cost savings under the individual ABC’s. Refer to Item 7, “Management’s Discussion and Analysis,” under “Results of Operations – Menlo Worldwide — Menlo Worldwide Other.” Also refer to Note 3, “Investment in Unconsolidated Joint Venture,” in Item 8, “Financial Statements and Supplementary Data.”

CNF Other

      The CNF Other reporting segment included the operating results of Road Systems, Inc. and certain corporate activities. A majority of the revenue from Road Systems is from sales to other CNF subsidiaries.

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Discontinued Operations

Menlo Worldwide Forwarding

      On December 19, 2004, CNF completed the sale of MWF to UPS, as more fully discussed in Note 2, “Discontinued Operations,” of Item 8, “Financial Statements and Supplementary Data.”

Priority Mail Contract

      On November 3, 2000, EWA and the U.S. Postal Service (“USPS”) announced an agreement to terminate their contract for the transportation and sortation of Priority Mail (the “Priority Mail contract”). As described in Note 2, “Discontinued Operations,” of Item 8, “Financial Statements and Supplementary Data,” claims relating to amounts owed to EWA under the Priority Mail contract were settled in connection with payments from the USPS to EWA in 2002 and 2001.

Spin-Off of CFC

      On December 2, 1996, CNF completed the spin-off of Consolidated Freightways Corporation (“CFC”) to CNF’s shareholders. Refer to Note 2, “Discontinued Operations,” and Note 11, “Commitments and Contingencies,” in Item 8, “Financial Statements and Supplementary Data,” for a discussion of matters related to CFC’s filing for bankruptcy in September 2002.

General

Employees

      At December 31, 2004, CNF’s continuing operations had approximately 20,100 regular full-time employees. The approximate number of regular full-time employees by segment was as follows: Con-Way, 17,100; Logistics, 2,000; Menlo Worldwide Other, 200; CNF Other, 800. The 800 employees included in the CNF Other segment consist primarily of executive, administrative and technology positions that support CNF’s operating subsidiaries.

Cyclicality and Seasonality

      CNF’s businesses operate in industries that are affected by general economic conditions and seasonal fluctuations, both of which affect demand for transportation services. In the trucking industry for a typical year, the months of September and October usually have the highest business levels while the months of December, January and February usually have the lowest business levels.

Regulation

Ground Transportation

      The motor carrier industry is subject to federal regulation by the Federal Motor Carrier Safety Administration (“FMCSA”) and the Surface Transportation Board (“STB”), both of which are units of the U.S. Department of Transportation (“DOT”). The FMCSA enforces comprehensive trucking safety regulations and performs certain functions relating to such matters as motor carrier registration, cargo and liability insurance, extension of credit to motor carrier customers, and leasing of equipment by motor carriers from owner-operators. The STB has authority to resolve certain types of pricing disputes and authorize certain types of intercarrier agreements.

      At the state level, federal preemption 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.

      In April of 2003, the FMCSA issued a final rule to change the regulations governing hours of service (“HOS”) for commercial truck drivers. The new rules increase the total consecutive off-duty hours a driver must

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take prior to driving in interstate commerce and reduce the total daily consecutive driving and on-duty hours allowed. In July of 2004, the United States Court of Appeals for the District of Columbia legally voided the HOS rules that were issued by the FMCSA. However, The United States Congress extended the current HOS rules until September 2005. The presidential administration has since asked Congress to permanently codify the current HOS regulations and the FMCSA has issued a Notice of Proposed Rulemaking (“NPRM”) indicating their intent to reissue the existing HOS rules. Given the uncertainty in the status of the HOS rules, CNF cannot predict whether the rules as finally adopted will materially affect its operations.

Environmental

      CNF is subject to laws and regulations that (i) govern activities or operations that may have adverse environmental effects such as discharges to air and water, as well as handling and disposal practices for solid and hazardous waste, and (ii) impose liability for the costs of cleaning up, and certain damages resulting from sites of past spills, disposals or other releases of hazardous materials. Environmental liabilities relating to CNF’s properties may be imposed regardless of whether CNF leases or owns the properties in question and regardless of whether such environmental conditions were created by CNF or by a prior owner or tenant, and also may be imposed with respect to properties that CNF may have owned or leased in the past. CNF has provided for its estimate of remediation costs at these sites.

      CNF’s operations involve the storage, handling and use of diesel fuel and other hazardous substances. In particular, CNF is subject to environmental laws and regulations dealing with underground fuel storage tanks and the transportation of hazardous materials laws.

      CNF has been designated a Potentially Responsible Party (“PRP”) by the EPA with respect to the disposal of hazardous substances at various sites. CNF expects that its share of the clean-up costs will not have a material adverse effect on CNF’s financial condition, cash flows, or results of operations.

Homeland Security

      CNF is subject to compliance with cargo security and transportation regulations issued by the Transportation Security Administration and by the Department of Homeland Security, including regulation by the new Bureau of Customs and Border Protection (“CBP”). CNF believes that it will be able to comply with pending CBP rules, which will require pre-notification of cross-border shipments, with no material effect on its operations.

      Con-Way’s regional carriers, as well as certain other subsidiaries, are approved by the CBP to participate in the voluntary Customs-Trade Partnership Against Terrorism program (“C-TPAT”). The C-TPAT was designed in 2002 to provide a process to facilitate the efficient release of goods and provide resolution of any outstanding issues affecting CBP processing of cross-border shipments. As participants of C-TPAT, these subsidiaries have developed security measures that have been reviewed and certified by the CBP.

ITEM 2. PROPERTIES

      CNF believes that its facilities are suitable and adequate, that they are being appropriately utilized, and that they have sufficient capacity to meet operational needs in the foreseeable future. Management continuously reviews anticipated requirements for facilities and may acquire additional facilities and/or dispose of existing facilities as appropriate.

Con-Way Transportation Services

      As of December 31, 2004, Con-Way’s regional carriers operated 337 freight service centers, of which 144 were owned and 193 were leased. The service centers, which are strategically located to cover the geographic areas served by Con-Way, represent physical buildings and real property with dock, office and/or shop space. These facilities do not include meet-and-turn points, which generally represent small owned or leased real property with no physical structures. The total number of trucks, tractors and trailers utilized by the Con-Way regional carriers at December 31, 2004 was approximately 30,200.

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      At December 31, 2004, Con-Way Logistics leased 6 warehouses in the U.S. and Con-Way Air Express operated 13 leased warehouse and service center facilities.

Menlo Worldwide Logistics

      As of December 31, 2004, Logistics operated 56 warehouses in North America, of which 36 were leased by Logistics and 20 were leased or owned by clients of Logistics. Internationally, Logistics operated an additional 23 warehouses, of which 15 were leased by Logistics and 8 were leased or owned by clients.

      At December 31, 2004, Logistics operated approximately 70 trucks, tractors, and trailers.

CNF Other

      Principal properties of the CNF Other segment included CNF’s leased executive offices in Palo Alto, California, and its owned Administrative and Technology Center in Portland, Oregon.

ITEM 3. LEGAL PROCEEDINGS

      Certain legal proceedings of CNF are also discussed in Item 1, “Business,” under “Regulation — Environmental,” and in Note 2, “Discontinued Operations,” and Note 11, “Commitments and Contingencies,” of Item 8, “Financial Statements and Supplementary Data.”

      On February 16, 2000, a DC-8 cargo aircraft operated by EWA personnel crashed shortly after take-off from Mather Field, near Sacramento, California. The crew of three was killed. Menlo Worldwide Forwarding, Inc. (“MWF, Inc.”), EWA and CNF Inc. were named as defendants in wrongful death lawsuits brought by the families of the three deceased crew members, seeking compensatory and punitive damages. The lawsuits brought by two of the three families have now been settled, with each settlement fully covered by insurance. The parties to the lawsuit filed by the family of the third deceased crew member have concluded settlement negotiations on all material terms of settlement, but the final documents have not yet been signed. The settlement of that lawsuit also will be fully covered by insurance.

      EWA, MWF, Inc., MW and CNF Inc. are named as defendants in a lawsuit filed in state court in California by approximately 140 former EWA pilots and crew members. The lawsuit alleges wrongful termination in connection with the termination of EWA’s air carrier operations, and seeks $500 million and certain other unspecified damages. CNF believes that the lawsuit’s claims are without merit, and is vigorously defending the lawsuit.

      In 2003, CNF became aware of information that Emery Transnational, a Philippines-based joint venture in which MWF, Inc. may be deemed to be a controlling partner, may have made certain payments in violation of the Foreign Corrupt Practices Act. CNF promptly notified the Department of Justice and the Securities and Exchange Commission of this matter, and MWF, Inc. instituted policies and procedures in the Philippines designed to prevent such payments from being made in the future. CNF was subsequently advised by the Department of Justice that it is not pursuing an investigation of this matter. CNF has conducted an internal investigation of approximately 40 other MWF, Inc. international locations and has shared the results of the internal investigation with the SEC. The internal investigation revealed that Menlo Worldwide Forwarding (Thailand) Limited, a Thailand-based joint venture, also may have made certain payments in violation of the Foreign Corrupt Practices Act. MWF, Inc. made certain personnel changes and instituted policies and procedures in Thailand designed to prevent such payments from being made in the future. In December 2004, CNF completed the sale of its air freight forwarding business (including the stock of MWF, Inc., Emery Transnational and Menlo Worldwide Forwarding (Thailand) Limited) to an affiliate of UPS. In connection with that sale, CNF agreed to indemnify UPS for certain losses resulting from violations of the Foreign Corrupt Practices Act. CNF is currently unable to predict whether it will be required to make payments under the indemnity.

      Certain current and former officers of CNF, EWA and MWF, Inc. and certain current and former directors of CNF were named as defendants in a purported shareholder derivative suit filed in September 2003 in California Superior Court for the County of San Mateo. The complaint alleged breach of fiduciary duty, gross mismanagement, waste and abuse of control relating to the management, control and operation of EWA and MWF, Inc. CNF

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was named only as a nominal defendant and no relief was sought against it. CNF maintains insurance for the benefit of its officers and directors, and the applicable insurance carriers were notified of the claims asserted in the lawsuit. On November 5, 2004, the Court granted preliminary approval to a settlement negotiated by the parties, and on February 4, 2005, the Court gave final approval of the settlement. Under terms of the non-monetary settlement, the individually named defendants expressly denied any wrongdoing or liability. The Court’s final judgment of dismissal with prejudice is subject to a 60-day appeals period.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS

      CNF did not submit any matter to a vote of security holders during the fourth quarter of the fiscal year covered by this Annual Report.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

      CNF’s common stock is listed for trading on the New York Stock Exchange (“NYSE”) and the Pacific Exchange under the symbol “CNF.”

      See Item 8, “Financial Statements and Supplementary Data” under Note 13, “Quarterly Financial Data,” for the range of common stock prices as reported on the NYSE and common stock dividends paid for each of the quarters in 2004 and 2003. At January 31, 2005, CNF had 7,413 common shareholders of record.

      In January 2005, the Board of Directors authorized the repurchase of up to $300 million in CNF’s common stock from time to time within the next two years in open market purchases and privately negotiated transactions.

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ITEM 6. SELECTED FINANCIAL DATA

CNF Inc.

Five-Year Financial Summary

			2004			2003			2002			2001			2000
			(Dollars in thousands except per share data)
SUMMARY OF OPERATIONS
	Revenues
		Con-Way Transportation Services	$	2,604,004		$	2,212,692		$	2,011,577		$	1,912,578		$	2,045,249
		Menlo Worldwide Logistics		1,103,028			1,013,987			978,929			927,503			926,880
		CNF Other		5,347			287			2,841			7,442			28,539
	Total Revenues		$	3,712,379		$	3,226,966		$	2,993,347		$	2,847,523		$	3,000,668
Operating Income (Loss)[a]
		Con-Way Transportation Services	$	245,488		$	183,095		$	135,001	[b]	$	144,800		$	211,040
		Menlo Worldwide Logistics		24,399			23,492			30,523			(18,751	)		23,398
		Menlo Worldwide Other		18,253			20,718			18,188			(9,415	)		(560	)
				42,652			44,210			48,711			(28,166	)		22,838
		CNF Other		(3,973	)		(2,357	)		(3,369	)		(2,540	)		1,546
	Total Operating Income		$	284,167		$	224,948		$	180,343		$	114,094		$	235,424
Depreciation and Amortization, net of Accretion			$	115,096		$	113,417		$	117,084		$	123,743		$	110,448
Interest Expense				39,695			29,597			22,825			27,009			29,967
Income from Continuing Operations Before Taxes				246,823			197,517			152,328			85,007			212,054
		Income Tax Provision		96,378			77,032			38,234	[c]		32,124			89,550
Net Income from Continuing Operations				142,206			112,246			105,844			44,600			114,243
Gain (Loss) from Disposal, net of tax				(278,749	)		—			(12,398	)		38,975			(13,508	)
Income (Loss) from Discontinued Operations, net of tax[a]				12,415			(28,461	)		115			(486,449	)		28,812
Cumulative Effect of Accounting Change, net of tax				—			—			—			—			(2,744	)
Net Income (Loss) Applicable to Common Shareholders			$	(124,128	)	$	83,785		$	93,561		$	(402,874	)	$	126,803

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		2004			2003			2002			2001			2000
		(Dollars in thousands except per share data)
EARNINGS (LOSS) PER COMMON SHARE
Basic
	Net Income from Continuing Operations	$	2.82		$	2.27		$	2.15		$	0.91		$	2.36
	Gain (Loss) from Disposal, net of tax		(5.53	)		—			(0.25	)		0.80			(0.28	)
	Income (Loss) from Discontinued Operations, net of tax		0.25			(0.58	)		—			(9.97	)		0.59
	Cumulative Effect of Accounting Change, net of tax		—			—			—			—			(0.06	)
	Net Income (Loss) Applicable to Common Shareholders	$	(2.46	)	$	1.69		$	1.90		$	(8.26	)	$	2.61
Diluted
	Net Income from Continuing Operations	$	2.57		$	2.07		$	1.96		$	0.91		$	2.14
	Gain (Loss) from Disposal, net of tax		(4.94	)		—			(0.22	)		0.80			(0.24	)
	Income (Loss) from Discontinued Operations, net of tax		0.22			(0.50	)		—			(9.97	)		0.51
	Cumulative Effect of Accounting Change, net of tax		—			—			—			—			(0.05	)
	Net Income (Loss) Applicable to Common Shareholders	$	(2.15	)	$	1.57		$	1.74		$	(8.26	)	$	2.36
Common dividends per share		$	0.40		$	0.40		$	0.40		$	0.40		$	0.40
Common shareholders’ equity per share		$	13.68		$	15.21		$	13.43		$	12.04		$	20.90
STATISTICS
Total assets		$	2,496,401		$	2,773,640		$	2,786,874		$	2,953,622		$	3,352,097
Long-term obligations			601,344			554,981			571,299			560,121			548,182
Capital expenditures			151,460			127,763			75,831			168,279			167,828
Effective tax provision rate			39.05	%		39.00	%		25.10	%		37.79	%		42.23	%
Basic average shares			50,455,006			49,537,945			49,139,134			48,752,480			48,490,662
Market price range		$	30.50-$50.96		$	24.44-$35.77		$	27.36-$38.28		$	21.05-$39.88		$	20.25-$34.75
Number of shareholders at December 31			7,435			8,006			8,131			8,561			8,802
Approximate number of regular full-time employees			20,100			19,500			19,200			18,400			18,500

      CNF’s results from continuing operations included various income or loss items that affected the year-to-year comparisons of the reported operating income (loss) of its reporting segments. Other materially significant items affecting the year-to-year comparisons of net income from continuing operations in the years reported above are described in the notes below and in Item 7, “Management’s Discussion and Analysis.”

[a]  As more fully discussed in Note 2, “Discontinued Operations,” in Item 8, “Financial Statements and Supplementary Data,” continuing operations has been allocated general corporate overhead charges that were previously allocated to the discontinued Forwarding segment. These corporate overhead charges were

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allocated from discontinued operations to the Con-Way and Logistics reporting segments based on segment revenue and capital employed.

[b]  Includes an $8.7 million first-quarter net gain, $5.3 million after tax, ($0.09 per diluted share) from the sale of a property.

[c]  Includes a $14.0 million third-quarter ($0.25 per diluted share) reversal of accrued taxes related to the settlement with the IRS of aircraft maintenance issues.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Introduction

      Management’s Discussion and Analysis of Financial Condition and Results of Operations (referred to as “Management’s Discussion and Analysis”) is intended to assist in a historical and prospective understanding of CNF’s results of operations, financial condition and cash flows, including a discussion and analysis of the following:

•  Overview of Business

•  Results of Operations and Related Information

•  Liquidity and Capital Resources

•  Estimates and Critical Accounting Policies

•  Other Matters

Overview of Business

      CNF provides transportation and supply chain management services for a wide range of manufacturing, industrial, and retail customers. CNF’s principal businesses consist of Con-Way and MW. However, for financial reporting purposes, CNF is divided into four reporting segments. The operating results of Con-Way, primarily a provider of regional LTL freight services, are reported as one reporting segment while MW is divided into two reporting segments: Logistics, a provider of integrated contract logistics solutions; and Menlo Worldwide Other, which consists of Vector, a joint venture with GM that serves as the lead logistics manager for GM. Also, certain corporate activities and the results of Road Systems, a trailer manufacturer, are reported in the separate CNF Other reporting segment.

      CNF’s operating results are generally expected to depend on the number and weight of shipments transported, the prices received on those shipments, and the mix of services provided to customers, as well as the fixed and variable costs incurred by CNF in providing the services and the ability to manage those costs under changing shipment levels. Con-Way primarily transports shipments through a freight service center network while Logistics and Vector manage the logistics functions of their customers and primarily utilize third-party transportation providers for the movement of customer shipments.

      As more fully discussed under “Results of Operations — Discontinued Operations,” CNF in 2004 sold MWF to UPS for $150 million and the assumption of $110 million of debt. Accordingly, the results of operations, net assets, and cash flows of the Menlo Worldwide Forwarding (“Forwarding”) segment have been segregated and reported as discontinued operations.

Results of Operations

      CNF’s net income from continuing operations (after preferred stock dividends and income taxes) in 2004 rose 26.7% to $142.2 million ($2.57 per diluted share), due primarily to significantly higher operating income from Con-Way. Net income from continuing operations was offset by a $266.3 million net loss ($4.72 per diluted share) from discontinued operations, which primarily reflects a loss from the disposition of MWF. The resulting net loss applicable to common shareholders in 2004 was $124.1 million ($2.15 per diluted share).

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      In 2003, net income from continuing operations improved 6.0% to $112.2 million ($2.07 per diluted share), due largely to increased operating income from Con-Way. Net income from continuing operations in 2003 was partially offset by a $28.5 million net loss ($.50 per diluted share) from the operations of the discontinued Forwarding segment. Net income applicable to common shareholders in 2003 of $83.8 million ($1.57 per diluted share) fell 10.4% from 2002, as the improved results from continuing operations was more than offset by a higher loss from discontinued operations.

      The following table summarizes CNF’s consolidated operating results:

		2004			2003			2002
		(Dollars in thousands, except per share
		amounts)
Revenues		$	3,712,379		$	3,226,966		$	2,993,347
Operating Income			284,167			224,948			180,343
Net Income (Loss)
	Continuing Operations1, 2	$	142,206		$	112,246		$	105,844
	Discontinued Operations2		(266,334	)		(28,461	)		(12,283	)
	Applicable to Common Shareholders	$	(124,128	)	$	83,785		$	93,561
Diluted Earnings (Loss) per Share
	Continuing Operations1	$	2.57		$	2.07		$	1.96
	Discontinued Operations		(4.72	)		(0.50	)		(0.22	)
	Applicable to Common Shareholders	$	(2.15	)	$	1.57		$	1.74

1

After income taxes and preferred stock dividends

2

As required by EITF 87-24, “Allocation of Interest to Discontinued Operations,” continuing operations has been allocated general corporate overhead charges that were previously allocated to the discontinued Forwarding segment. These corporate overhead charges of $16.9 million in 2004, and $14.0 million in 2003 and 2002 were allocated from discontinued operations to the Con-Way and Logistics reporting segments based on segment revenue and capital employed.

Continuing Operations

Overview — 2004 Compared to 2003

      In 2004, CNF’s revenue increased 15.0% to $3.71 billion, due to higher revenue at all reporting segments, which benefited from improved economic conditions. Consolidated operating income in 2004 rose 26.3%, as significantly higher operating income from Con-Way was partially offset by lower operating income from MW. The increase in Con-Way’s operating income was due principally to the effect of operating leverage on revenue growth, as Con-Way’s operating income in 2004 increased 34.1% on revenue growth of 17.7%. The MW companies reported lower operating income in 2004 due primarily to a decline in operating income from Vector, partially offset by improvement from Logistics. Vector’s operating income in 2004 fell $2.5 million to $18.3 million while Logistics reported a 3.9% increase in operating income on an 8.8% growth in revenue. Operating income from Con-Way and Logistics, as presented in the accompanying financial statements, includes CNF corporate expenses previously allocated to the discontinued Forwarding segment, as more fully discussed below under “Discontinued Operations.”

      Other net expense in 2004 increased $9.9 million to $37.3 million, due primarily to increases in interest expense and other net non-operating expenses, partially offset by higher interest income on marketable securities. Interest expense in 2004 rose $10.1 million, due largely to the net effect of financing transactions, including the issuance in April 2004 of 6.7% Senior Debentures and the redemption in June 2004 of 5% Convertible Debentures, as more fully discussed, in Note 5, “Debt and Other Financing Arrangements” of Item 8, “Financial Statements and Supplementary Data.” Other net miscellaneous non-operating expenses in 2004 reflects a $4.3 million decline in the income from corporate-owned life insurance (“COLI”) policies that were terminated

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in the third quarter of 2004, $2.7 million of costs associated with the redemption of the Convertible Debentures, and a $1.3 million decline in foreign exchange gain, partially offset by prior-year equity venture losses of $3.7 million.

      In 2004, the increase in net income from continuing operations (after income taxes and preferred stock dividends) reflects improved operating income on higher revenue, partially offset by the increase in other net non-operating expense. The effective tax rate in 2004 and 2003 was 39.0%.

Overview — 2003 Compared to 2002

      CNF’s revenue in 2003 grew 7.8% to $3.23 billion, as both Con-Way and the Logistics businesses achieved revenue growth amid comparatively better economic conditions. Consolidated operating income rose 24.7% to $224.9 million on significantly higher operating income from Con-Way. In 2003, Con-Way’s operating income grew 35.6% to $183.1 million, due principally to the effect of operating leverage on a 10.0% increase in revenue. Operating income from the MW companies fell in 2003, as lower operating income from Logistics was partially offset by higher operating income from Vector. Logistics’ operating income in 2003 fell 23.0% to $23.5 million as a higher percentage of lower-margin services contributed to lower operating income despite a 3.6% increase in revenue. Vector’s operating income, which rose 13.9% to $20.7 million, reflects compensation earned under amended agreements with GM, its joint venture partner and customer.

      In 2003, other net expense fell 2.1% as a $6.8 million increase in interest expense and a $3.0 million decline in investment income was largely offset by an $8.1 million increase in the cash-surrender value of COLI policies. Higher interest expense in 2003 was primarily due to the settlement of interest rate swaps in December 2002, which effectively converted long-term debt from fixed-rate to floating-rate prior to their termination. CNF recognized equity venture losses of $3.7 million in 2003 and $4.6 million in 2002.

      CNF’s net income from continuing operations in 2003 reflects an increase in the effective tax rate to 39.0% in 2003 from 25.1% in 2002, which benefited from a $14.0 million reversal of accrued taxes from the settlement of tax matters in 2002.

Con-Way Transportation Services

      The following table compares operating results (dollars in thousands), operating margins, and the percentage increase in selected operating statistics of the Con-Way reporting segment for the years ended December 31:

		2004			2003			2002
Summary of Operating Results
	Revenues	$	2,604,004		$	2,212,692		$	2,011,577
	Operating Income		245,488			183,095			135,001
	Operating Margin		9.4	%		8.3	%		6.7	%

			2004 vs. 2003			2003 vs. 2002
Selected Regional-Carrier Operating Statistics
	Revenue per day			+16.0	%		+8.8	%
	Yield			+3.1			+5.7
	Weight per day:
		Less-than-truckload		+10.5			+2.5
		Total		+12.5			+3.0

      In 2004, Con-Way’s revenue rose 17.7% due to a 16.1% increase in revenue from Con-Way’s regional carriers and revenue growth of 60.0% from Con-Way’s other businesses, which include Con-Way NOW, Con-Way Logistics, and Con-Way Air Express. Revenue per day from the regional carriers rose 16.0% from 2003 on a 12.5% increase in weight per day (“weight”) and a 3.1% increase in revenue per hundredweight (“yield”). In 2004, weight improvement was due primarily to comparatively better economic conditions in the U.S., and to a lesser extent, a change in the composition of freight. A higher proportion of the freight in 2004 was composed of

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shipments in excess of 10,000 pounds, resulting from a newly initiated spot-quote program and concerns from shippers regarding hours-of-service regulations affecting the service provided by truckload carriers. Yield increases primarily reflect an increase in fuel surcharges. Excluding fuel surcharges, yield in 2004 increased 0.3% from 2003. Yields in 2004 also benefited from continued growth in higher-rated interregional joint services and general rate increases, but were adversely affected by a 4.3% increase in weight per shipment. Rates typically decline when weight per shipment increases, as freight with a higher weight per shipment typically has a lower transportation cost per unit of weight.

      Con-Way’s operating income in 2004 increased 34.1%, due largely to higher revenue and improved margins from the regional carriers as well as revenue growth from Con-Way’s other businesses, which reduced their collective net operating loss in 2004 by $9.8 million from 2003. The improvement in Con-Way’s operating margin in 2004 also reflects operating leverage, as Con-Way’s regional-carrier service center network accommodated additional shipments with proportionally smaller cost increases. Operating income in 2004 was affected by employee costs, which rose 14.8%, due primarily to increases in employee payroll and benefits. Employee payroll grew 16.4% due largely to increases in variable compensation and employee headcount. Employee benefits expense rose 11.1%, as workers’ compensation costs increased due in part to a higher unit cost and volume of claims and to a third-quarter entry to correct the cumulative under-recognition of expense on certain prior-period claims, which had a $3.9 million adverse effect, net of incentive compensation. Employee benefits expense in 2004 also reflects an increase in payroll taxes and other employee benefits. Certain corporate expenses previously allocated to the discontinued Forwarding segment are reported in continuing operations, as more fully discussed in Note 2 “Discontinued Operations,” of Item 8, “Financial Statements and Supplementary Data.” The additional corporate overhead charge allocated to the Con-Way reporting segment was $14.8 million in 2004 and $12.2 million in 2003 and 2002.

      In June 2004, Con-Way announced the formation of CTL, which began operations in January 2005. As more fully discussed in Item 1, “Business”, the new company will initially serve Con-Way’s three regional LTL carriers by providing linehaul service on full loads of LTL shipments moving in transcontinental lanes and eventually offer the services to other customers. CTL is expected to allow Con-Way to reduce future linehaul expense, but did not have a material effect on CNF’s financial condition, results of operations, or cash flows as of and for the year ended December 31, 2004.

      In 2003, Con-Way’s revenue rose 10.0% due to higher revenue from Con-Way’s regional carriers and continued growth from Con-Way’s other businesses. Revenue per day from the regional carriers rose 8.8% from 2002 on increases in yield and weight. In 2003, growth in weight transported was due in part to comparatively better economic conditions. Yield improvement in 2003 was achieved through general rate increases, continued growth in interregional joint services and higher fuel surcharges. Excluding fuel surcharges, yield in 2003 rose 3.6%. Con-Way’s operating income in 2003 increased 35.6% and reflects operating leverage on higher revenue from the regional carriers as well as revenue growth from Con-Way’s other businesses, which reduced their collective net operating loss in 2003 by $4.1 million. Operating income in 2003 benefited from a 45.2% decline in variable employee compensation, which was partially offset by a 6.6% increase in pension expense. Operating income in 2002 included an $8.7 million net gain from the sale of a property.

Menlo Worldwide

      For financial reporting purposes, the MW group is divided into two reporting segments: Logistics and Menlo Worldwide Other. Vector SCM, a joint venture with GM, is reported in the Menlo Worldwide Other segment as an equity-method investment.

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Logistics

      The following table compares operating results (dollars in thousands) and operating margins of the Logistics reporting segment for the years ended December 31:

		2004			2003			2002
Summary of Operating Results
	Revenues	$	1,103,028		$	1,013,987		$	978,929
	Operating Income		24,399			23,492			30,523
	Operating Margin		2.2	%		2.3	%		3.1	%

      Logistics’ revenue in 2004 increased 8.8% over 2003, due principally to increases in carrier-management and warehouse-management services. In 2004, Logistics’ operating income increased 3.9% due primarily to revenue growth, partially offset by the effect of lower operating margins. Lower operating margins in 2004 were attributable in part to the competitive transportation pricing environment, the renegotiation of certain contracts with existing customers, a decrease in margins during the start-up phase of new contracts and to employee costs, which rose 7.9%, due largely to higher employee benefits and variable compensation. Operating income in 2003 was adversely affected by $3.1 million of contract termination costs. These costs, of which $1.9 million was incurred in the fourth quarter of 2003, were related to contracts that were terminated due to customer failure, scheduled expiration, or termination of the outsourcing arrangement. Certain corporate expenses previously allocated to the discontinued Forwarding segment are reported in continuing operations, as more fully discussed in Note 2, “Discontinued Operations,” of Item 8, “Financial Statements and Supplementary Data.” The additional corporate overhead charge allocated to the Logistics reporting segment was $2.1 million in 2004 and $1.8 million in 2003 and 2002.

      In 2003, Logistics’ revenue rose 3.6% over 2002, due principally to an increase in carrier-management and warehouse-management services, partially offset by lower revenue from consulting services. Operating income in 2003 declined 23% to $23.5 million, due primarily to the effects of contract terminations and a lower operating margin on revenue. Contract terminations in 2003 accounted for additional costs of $3.1 million, as described above, while the termination of a customer contract in 2002 resulted in a net gain of $1.9 million. The lower operating margin in 2003 was due principally to an increase in lower-margin carrier-management services and a decline in higher-margin consulting fee revenue.

      Logistics’ carrier-management revenue is attributable to contracts for which Logistics manages the transportation of freight but subcontracts the actual transportation and delivery of products to third parties, which Logistics refers to as purchased transportation. Logistics’ net revenue (revenue less purchased transportation) was $316.8 million in 2004, an increase from $304.7 million in 2003 and $302.2 million in 2002.

Menlo Worldwide Other

Operating Results

      The Menlo Worldwide Other reporting segment consists of the results of Vector, a joint venture formed with GM in December 2000 for the purpose of providing logistics management services on a global basis for GM, and ultimately for customers in addition to GM. Operating income reported by the Menlo Worldwide Other segment declined to $18.3 million in 2004 from $20.7 million in 2003. Consistent with the amended Vector agreements described below, MW’s operating income in 2004 included $9.2 million related to performance-based compensation and ABCs earned by Vector and $9.1 million from Vector’s volume-based compensation. In 2003, all of Vector’s compensation was volume-based. MW’s operating income from Vector of $20.7 million in 2003 increased $2.5 million from $18.2 million in 2002. Vector’s operating income in 2002 was determined under the compensation principles of the original Vector agreements.

Vector Agreements

      Prior to the amendments described below, agreements pertaining to Vector provided that Vector would be compensated by sharing in efficiency gains and cost savings achieved through the implementation of Approved

17

Business Cases (“ABCs”) and other special projects in GM’s North America region and GM’s three international regions. An ABC is a project, developed with and approved by GM, aimed at reducing costs, assuming operational responsibilities, and/or achieving operational changes.

      Under the Vector Agreements, GM has the right to purchase MW’s membership interest in Vector (“Call Right”) and MW has the right to require GM to purchase MW’s membership interest in Vector (“Put Right”). The Call Right and Put Right are exercisable at the sole discretion of GM and MW, respectively. Prior to amendment of the Vector Agreements, exercise of the Call Right or Put Right required GM to pay MW for the fair value of MW’s membership interest in Vector, as determined by approved appraisers using a predetermined valuation formula. Under the amended Vector Agreements, the amount payable by GM to MW under the Put Right is based on a mutually agreed-upon estimated value for MW’s membership interest as of the contract amendment date and will decline on a straight-line basis over an 8-year period beginning January 1, 2004. Exercise of MW’s Put Right or GM’s Call Right would result in MW retaining commercialization contracts involving customers other than GM.

2003 Amendments to Vector Agreements

      In August 2003, the Vector Agreements were amended, primarily to expedite the transition of logistics services in the North America region from GM to Vector. The amendments changed the compensation principles for GM’s North American logistics operations, revised the allocation of Vector’s profit between GM and MW, and modified the formula for the valuation of Vector in the event that MW exercises its Put Right, as described above.

      The amendments to the Vector Agreements provide for Vector to be compensated for its management of logistics for all of GM’s North America operations rather than through its sharing in efficiency gains and cost savings under individual and separately approved ABCs in North America. In each year of a five-year period retroactive to January 1, 2003, Vector will be compensated with a management fee based on shipment volumes and, beginning in 2004, can earn additional compensation if certain performance criteria are achieved. In accordance with GAAP, compensation under the volume-based management fee is recognized as vehicles are shipped while performance-based compensation is recognized on the achievement of specified levels of cost savings, which will generally not be determinable until the fourth quarter of each contract year. Vector will also be compensated by GM for its direct and administrative costs in North America, subject to certain limitations. In each successive year covered by the amended Vector agreements, management anticipates that performance-based compensation will represent a growing percentage of compensation earned in GM’s North America region.

      The amended Vector Agreements also increase Vector’s allocation of profit and loss from 80% to 85%. Although MW owns a majority equity interest, the operating results of Vector are reported as an equity-method investment based on GM’s ability to control certain operating decisions.

2005 Regional ABC Amendments

      In January 2005, all of the ABC’s for GM’s European region were amended to compensate Vector with cost reimbursement and a management fee based on vehicle production volumes, rather than through its sharing in efficiency gains and cost savings under the individual ABC’s. After 2005, Vector’s compensation for GM’s European regions will again be based on the separately approved ABC’s, unless further amendments are negotiated. The compensation principles for GM’s other international regions are unaffected by the 2005 amendments in the European region.

CNF Other

      The CNF Other segment consists of the results of Road Systems and certain corporate activities. A majority of the revenue from Road Systems was from sales to Con-Way. The CNF Other operating losses of $4.0 million in 2004 and $2.4 million in 2003 primarily reflect the net loss from the sale of corporate properties, while the operating loss in 2002 was primarily the net result of a $3.6 million loss from uncollectible non-trade receivables following the business failure of CFC and a $2.4 million net gain from the sale of a corporate property.

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Discontinued Operations

      Discontinued operations in the periods presented relate to the sale of MWF, the spin-off of CFC, and to EWA and its terminated Priority Mail Contract with the USPS. For all periods presented, the results of operations, net assets, and cash flows of discontinued operations have been segregated from continuing operations, except where otherwise noted. The operating results and net assets of discontinued operations are summarized in Note 2, “Discontinued Operations,” of Item 8, “Financial Statements and Supplementary Data.”

Menlo Worldwide Forwarding

      On October 5, 2004, CNF and MW entered into a stock purchase agreement with UPS and United Parcel Service of America, Inc. to sell all of the issued and outstanding capital stock of MWF. CNF completed the sale on December 19, 2004. The agreement excludes certain assets and liabilities of MWF and includes certain assets and liabilities of CNF or its subsidiaries related to the business conducted by MWF. Among the assets and liabilities so excluded are those related to EWA, and the obligation related to MWF employees covered under CNF’s domestic pension, postretirement medical and long-term disability plans. Under the agreement, CNF will be reimbursed for the actuarially determined estimate of its obligation related to MWF employees covered under CNF’s long-term disability and postretirement medical plans. Upon completion of the sale of MWF, MW received cash consideration of $150 million, which is subject to certain adjustments, including adjustments for cash held by MWF at closing and MWF’s net working capital as of closing. In addition, UPS assumed indebtedness associated with the MWF business, including approximately $110 million of debt owed by MWF in connection with the City of Dayton, Ohio, Special Facilities Revenue Refunding Bonds, certain capital leases and other debt, other letters of credit, and overdraft facilities. Under the stock purchase agreement, CNF has agreed to a three-year non-compete covenant that, subject to certain exceptions, will limit CNF’s annual air freight and ocean forwarding and/or customs brokerage revenues to $175 million. CNF has also agreed to indemnify UPS against certain losses that UPS may incur after the closing of the sale with certain limitations. Any losses related to these indemnification obligations or any other costs, including any future cash expenditures, related to the sale that have not been estimated and recognized at this time will be recognized in future periods as an additional loss from disposal when and if incurred. For additional details, refer to the stock purchase agreement filed as an exhibit to CNF’s Form 8-K dated October 5, 2004 and the amendment to the stock purchase agreement filed as an exhibit to CNF’s Form 8-K dated December 21, 2004.

      Although the stock purchase agreement described above was entered into on October 5, 2004, decisions by CNF’s management and its Board of Directors and the third-quarter sale negotiations with UPS established CNF’s commitment to sell MWF as of September 30, 2004. In the process of evaluating several strategic alternatives for MW’s Forwarding segment, CNF was approached by UPS in the third quarter of 2004 with interest in acquiring MWF. Accordingly, in the third quarter of 2004, CNF classified MWF as held for sale and recognized a $260.5 million impairment charge to write down the recorded book value of MWF to its anticipated selling price, less costs to sell, as required by SFAS 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” The impairment charge was based on the agreement to sell MWF, as described above and primarily represents the estimated write-down to the carrying value of MWF’s goodwill and long-lived assets, including MWF’s accumulated foreign currency translation adjustment, as well as estimated selling costs. CNF agreed to accept less than the recorded book value of MWF due primarily to management’s assessment of the risk and resource requirements associated with other strategic alternatives related to MWF’s operations. On completion of the sale, CNF recognized a fourth-quarter loss from disposal of $15.8 million (net of a $3.6 million tax benefit), as the adjusted carrying value of MWF exceeded the cash consideration. CNF’s third-quarter and fourth-quarter losses from the disposal of MWF are treated as capital losses for tax purposes. Under current tax law, capital losses can only be used to offset capital gains. Since CNF does not currently forecast any significant taxable capital gains in the tax carry-forward period, tax benefits from the disposal were only recognized to the extent of capital gains in 2004. Accordingly, the $41.0 million tax benefit recognized on the disposition of MWF was fully offset by an equal valuation allowance.

      As described above, the stock purchase agreement excludes the obligation related to MWF employees covered under certain CNF-sponsored employee benefit plans, including pension, postretirement and long-term disability plans that cover the noncontractual employees and former employees of both continuing and

19

discontinued operations. These plans also include certain pension plans that cover only the current and former employees of the discontinued Forwarding segment (the “Forwarding Plans”). For financial reporting purposes, the prepaid benefit cost of the Forwarding Plans is reported in Assets of Discontinued Operations while the accrued benefit cost related to MWF employees covered under the other legally separate CNF-sponsored plans are reported in Employee Benefits of continuing operations. At December 31, 2004, CNF had not been reimbursed for its obligation related to MWF employees covered under CNF’s long-term disability and postretirement medical plans, pending conclusion of actuarially determined estimates. Accordingly, at December 31, 2004, Other Accounts Receivable of continuing operations included a $94.1 million receivable for CNF’s estimate of these employee benefit obligations as well as its estimate of the reimbursable MWF cash balance. Settlement of the cash balance is subject to an in-process evaluation and any difference between the estimated and actual cash position at December 31, 2004 would be recognized in future periods as a gain or loss from disposal when and if incurred.

      As described above, the stock purchase agreement excludes the assets and liabilities of EWA, including restructuring reserves related to its 2001 restructuring plan. EWA’s restructuring reserves decreased to $33.8 million at December 31, 2004 from $34.8 million at December 31, 2003, primarily due to payments of restructuring-related obligations, partially offset by proceeds from sales of aircraft equipment. Restructuring reserves at December 31, 2004, which are primarily classified above as Accrued Liabilities of discontinued operations, consisted primarily of CNF’s estimated exposure related to the labor matters described below, as well as other estimated remaining restructuring-related obligations.

      In connection with the cessation of its air carrier operations in 2001, EWA terminated the employment of all of its pilots and crew members. Those pilots and crew members are represented by the Air Line Pilots Association (“ALPA”) union under a collective bargaining agreement. Subsequently, ALPA filed a grievance on behalf of the pilots and crew members protesting the cessation of EWA’s air carrier operations and MWF’s use of other air carriers. The ALPA matters are the subject of litigation in U.S. District Court and, depending on the outcome of that litigation, may be subject to binding arbitration. Based on CNF’s current evaluation, management believes that it has provided for its estimated exposure related to the ALPA matters. However, there can be no assurance in this regard as CNF cannot predict with certainty the ultimate outcome of these matters.

Spin-Off of CFC

      On December 2, 1996, CNF completed the spin-off of CFC to CNF’s shareholders. In connection with the spin-off of CFC, CNF agreed to indemnify certain states, insurance companies and sureties against the failure of CFC to pay certain workers’ compensation, tax and public liability claims that were pending as of September 30, 1996. In some cases, these indemnities are supported by letters of credit and surety bonds under which CNF is liable to the issuing bank or the surety company.

      In September 2002, CFC filed for bankruptcy and ceased most U.S. operations. Following the commencement of its bankruptcy proceeding, CFC ceased making payments with respect to these workers’ compensation and public liability claims. CNF was required to take over payment of some of these claims and expects that demands for payment will likely be made against it with respect to the remaining claims. CNF estimated the aggregate amount of all of these claims, plus other costs, to be $25.0 million. As a result, CNF accrued additional reserves, primarily in Self-Insurance Accruals in the Consolidated Balance Sheets, and in 2002 recognized a loss from disposal of $15.3 million (net of $9.7 million of income taxes). Based on actual payment experience for these claims through December 31, 2004, CNF accrued additional reserves and recognized a loss from disposal of $2.4 million (net of $1.6 million of income taxes) in the fourth quarter of 2004. CNF is seeking reimbursement from CFC in its bankruptcy proceeding of amounts that CNF pays in respect of all of these claims, although there can be no assurance that CNF will be successful in recovering all or any portion of such payments.

Priority Mail Contract

      On November 3, 2000, EWA and the USPS announced an agreement (the “Termination Agreement”) to terminate their contract for the transportation and sortation of Priority Mail (the “Priority Mail contract”). Under the terms of the Termination Agreement, the USPS agreed to reimburse EWA for Priority Mail contract termination costs. On January 7, 2001, the USPS paid EWA $60.0 million toward the termination costs and on July 3, 2002, the USPS

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paid EWA $6.0 million to fully settle EWA’s Priority Mail contract termination costs, which resulted in a 2002 third-quarter gain from discontinuance of $2.9 million, net of $1.8 million of income taxes.

Liquidity and Capital Resources

      Cash and cash equivalents rose to $386.9 million at December 31, 2004 from $38.2 million at December 31, 2003, as $379.6 million of cash provided by operating activities and $175.5 million provided by financing activities exceeded $184.3 million used in investing activities. Cash provided by financing activities primarily reflects net proceeds of $292.6 million received from the issuance of $300 million of Senior Debentures in April 2004, partially offset by the redemption in June 2004 of $128.9 million of Convertible Debentures. Cash used in investing activities primarily reflects capital expenditures of $151.5 million, and a $185.9 million increase in short-term marketable securities, partially offset by cash proceeds of $150.0 million from the sale of MWF, as more fully discussed in “Results of Operations — Discontinued Operations.”

      CNF’s cash flows are summarized in the table below.

			2004			2003			2002
			(Dollars in thousands)
Operating Activities
	Net income (loss)		$	(115,889	)	$	92,024		$	101,811
	Discontinued operations			266,334			28,461			12,283
	Non-cash adjustments(1)			138,106			140,439			123,461
				288,551			260,924			237,555
	Changes in assets and liabilities
		Receivables		(34,870	)		(13,073	)		(8,967	)
		Accounts payable and accrued liabilities, excluding accrued incentive compensation		43,289			(10,609	)		22,898
		Accrued incentive compensation		29,367			(27,876	)		42,282
		Income taxes		22,009			28,267			(77,970	)
		Employee benefits		(24,658	)		(4,178	)		(18,624	)
		Deferred charges and credits		67,081			17,415			30,002
		Other		(11,144	)		(24,693	)		6,805
				91,074			(34,747	)		(3,574	)
Net Cash Provided by Operating Activities				379,625			226,177			233,981
Net Cash Provided by (Used in) Investing Activities				(184,273	)		(303,436	)		20,161
Net Cash Provided by (Used in) Financing Activities				175,479			(33,639	)		(31,899	)
Net Cash Provided by Continuing Operations				370,831			(110,898	)		222,243
Net Cash Provided by (Used in) Discontinued Operations				(22,117	)		7,268			(247,747	)
Increase (Decrease) in Cash and Cash Equivalents			$	348,714		$	(103,630	)	$	(25,504	)

(1)  “Non-cash adjustments” refer to depreciation, amortization, deferred income taxes, provision for uncollectible accounts, equity in earnings of joint venture, and other non-cash gains and losses.

Continuing Operations

Operating Activities

      Cash flow from continuing operations in 2004 increased $153.4 million to $379.6 million. Higher operating cash flow in 2004 was primarily due to an increase in net income before non-cash items, which in 2004 included a $276.3 million non-cash net loss from the disposal of MWF, and to asset and liability changes related to the

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liquidation of corporate-owned life insurance (“COLI”) policies, pension funding payments, and incentive compensation. Based on the volatility and insufficiency of returns on its COLI investments, CNF in 2004 fully liquidated its corporate-owned policies, which were reported in Deferred Charges and Other Assets in the Consolidated Balance Sheets. Changes in employee benefits in the years presented reflect the net effect of defined benefit pension plan funding contributions of $90.8 million in 2004, $75.0 million in 2003, and $76.2 million in 2002, as described below under “— Defined Benefit Pension Plans,” partially offset by expense accruals for CNF’s pension obligation. Accrued incentive compensation increased by $29.4 million in 2004, while 2003 reflects a $27.9 million reduction. For all periods presented, changes in accrued incentive compensation reflect CNF’s payment schedule for its employee incentive plans, under which total incentive compensation earned in an award year is paid to employees with a partial payment in December of the award year and a final payment in February of the next award year. In 2004, incentive compensation expense accruals exceeded payments, while in 2003, payments for incentive compensation exceeded expense accruals.

      Operating cash flow in 2003 declined from 2002 by $7.8 million to $226.2 million, as an increase in net income before non-cash items was more than offset by changes in assets and liabilities, which related primarily to income taxes, accrued incentive compensation and the termination of interest rate swaps in 2002. Accrued income taxes increased in 2003 based on taxable income, but declined in 2002 based on taxable losses. Accrued incentive compensation declined in 2003 but increased in 2002 based on the timing of expense accruals and payments, as described above. Operating cash flows in 2002 benefited from $31.0 million received as partial payment in connection with the termination of interest rate swaps, as more fully discussed in Note 5, “Debt and Other Financing Arrangements,” in Item 8, Financial Statements and Supplementary Data.”

Investing Activities

      Investing activities in 2004 used $184.3 million compared to $303.4 million used in 2003. In all periods presented, investing activities consisted primarily of capital expenditures and the investment of cash into short-term marketable securities. In 2004, investing activities also included the sale of MWF, for which CNF received $150.0 million in December 2004. Capital expenditures in 2004 increased $23.7 million from 2003 due substantially to increased expenditures at Con-Way, which increased its tractor and trailer acquisitions to $144.5 million in 2004 from $118.2 million in 2003. Capital expenditures in 2003 increased $51.9 million from 2002, due principally to a $53.0 million increase at Con-Way. Investments in marketable securities, which fluctuate depending on investable cash balances, increased in 2004 and 2003 by $185.9 million and $169.4 million, respectively, and fell by $96.0 million in 2002.

Financing Activities

      Financing activities provided cash of $175.5 million in 2004 and used cash of $33.6 million in 2003. In April 2004, CNF issued $300 million of 6.70% Senior Debentures due 2034 in a private placement with exchange rights for net proceeds of $292.6 million. CNF used a portion of the proceeds to redeem $128.9 million of CNF’s Convertible Debentures on June 1, 2004, as more fully discussed in Note 5, “Debt and Other Financing Arrangements,” of Item 8, “Financial Statements and Supplementary Data.” CNF intends to use the remaining proceeds to repurchase from time to time or pay at maturity, $100 million of 7.35% Notes due in June 2005, and for working capital and general corporate purposes. Financing activities in all years presented also reflect dividend payments and scheduled principal payments for the Thrift and Stock Plan notes guaranteed by CNF.

      In January 2005, the Board of Directors authorized the repurchase of up to $300 million in CNF’s common stock from time to time within the next two years in open market purchases and privately negotiated transactions. CNF currently estimates it will repurchase approximately $150 million of CNF’s common stock annually in 2005 and 2006.

      CNF has a $385 million revolving credit facility that matures on July 3, 2006. The revolving credit facility is available for cash borrowings and for the issuance of letters of credit up to $385 million. At December 31, 2004 and 2003, no borrowings were outstanding under the facility and, at December 31, 2004, $229.7 million of letters of credit were outstanding, leaving $155.3 million of available capacity for additional letters of credit or cash borrowings, subject to compliance with financial covenants and other customary conditions to borrowing. CNF

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had other uncommitted unsecured credit facilities totaling $120.0 million at December 31, 2004, which are available to support letters of credit, bank guarantees, and overdraft facilities; at that date, a total of $39.1 million was outstanding under these facilities. Of the total letters of credit outstanding at December 31, 2004, $259.3 million provided collateral for CNF workers’ compensation and vehicular self-insurance programs. In March 2005, CNF entered into a new five-year $400 million unsecured revolving credit facility that replaced the existing $385 million facility. See “Other Matters — Forward-Looking Statements” below, and Note 5, “Debt and Other Financing Arrangements,” in Item 8, “Financial Statements and Supplementary Data,” for additional information concerning CNF’s $385 million credit facility, its new facility entered into in March 2005, and some of its other debt instruments.

      As more fully discussed above under “Results of Operations — Discontinued Operations,” CNF recognized a $276.3 million non-cash net loss from the disposal of MWF in 2004. To remain in compliance with certain financial covenants, CNF obtained an amendment to the credit agreement for CNF’s $385 million revolving credit facility. Additionally, the credit agreement contains restrictions on the sale of subsidiary guarantors and a threshold for the sale of assets. CNF has obtained the necessary creditors’ consent for the sale of MWF. See “Other Matters — Forward-Looking Statements” below, and Note 5, “Debt and Other Financing Arrangements,” in Item 8, “Financial Statements and Supplementary Data.”

Defined Benefit Pension Plans

      CNF periodically reviews the funding status of its defined benefit pension plans for non-contractual employees, and makes contributions from time to time as necessary in order to comply with the funding requirements of the Employee Retirement Income Security Act (“ERISA”). Funding of CNF’s defined benefit pensions is based on ERISA-defined measurements rather than the recognition and measurement criteria prescribed by accounting principles generally accepted in the United States (“GAAP”).

      CNF contributed $90.8 million to its defined benefit pension plans in 2004 and currently estimates it will contribute $75 million in 2005. CNF also made defined benefit pension plan contributions of $75.0 million in 2003, and $76.2 million in 2002, and $13.1 million in 2001 but made no contributions from 1996 through 2000, due in part to the high rate of return realized on plan assets and for the lack of tax deductibility of funding during that period.

Contractual Cash Obligations

      The table below summarizes contractual cash obligations for CNF as of December 31, 2004. Some of the amounts in the table are based on management’s estimates and assumptions about these obligations, including their duration, the possibility of renewal, and other factors. Because of these estimates and assumptions, the actual future payments may vary from those reflected in the table. These contractual cash obligations are reflected in the Consolidated Balance Sheets, except for operating leases, which are disclosed as future obligations under GAAP.

			Payments Due by Period
									2010 &
	Total		2005		2006-2007		2008-2009		Thereafter
	(Dollars in thousands)
Long-Term Debt and Guarantees	$	691,799	$	112,727	$	33,668	$	45,404	$	500,000
Operating Leases		146,997		60,751		58,273		18,861		9,112
Total	$	838,796	$	173,478	$	91,941	$	64,265	$	509,112

      As presented above, contractual obligations on long-term debt and guarantees represent principal payments while contractual obligations for operating leases represent the payments under the lease arrangements. Certain liabilities, including those related to pension and postretirement benefit plans and self-insurance accruals, are reported in CNF’s consolidated balance sheets but not reflected in the table above due to the absence of stated maturities. As described above, CNF currently estimates that it will contribute $75 million to its defined benefit pension plan in 2005.

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      As described above under “— Continuing Operations,” letters of credit of $259.3 million were outstanding at December 31, 2004 to provide collateral for CNF’s workers’ compensation and vehicular self-insurance programs. These letters of credit are generally required under self-insurance programs and do not represent additional liabilities as the underlying self-insurance accruals are already reflected on CNF’s consolidated balance sheets.

      In accordance with GAAP, CNF’s operating leases are not included in CNF’s consolidated balance sheets. CNF’s operating leases were determined to provide economic benefits preferable to ownership based primarily on after-tax cash flows, financial and operating flexibility, and the effect on CNF’s capitalization. Under certain operating leases, Con-Way guarantees the residual value of tractors and trailers at the end of the lease term. At December 31, 2004, the residual value guaranteed under these lease agreements was $18.5 million. CNF recognizes a liability for any shortfall between the residual value guarantee and the equipment’s estimated fair value, which fluctuates depending on market conditions.

      In 2005, CNF anticipates capital expenditures of approximately $250 million, primarily for the acquisition of additional tractor and trailer equipment, including $20 million of capital expenditures planned for 2004 that was not invested in 2004 as the result of equipment production delays. CNF’s capital expenditure requirements may increase or decrease depending on business levels and other factors.

      For further discussion, see Note 5, “Debt and Other Financing Arrangements,” and Note 6, “Leases,” included in Item 8, “Financial Statements and Supplementary Data.”

Other

      CNF’s ratio of total debt to capital increased to 47.9% at December 31, 2004 from 41.0% at December 31, 2003 due primarily to the net effect of the second-quarter financing transactions in 2004, as described above, and to the decline in retained earnings resulting from the loss from disposal of MWF in 2004, as discussed under “Results of Operations — Discontinued Operations.”

Discontinued Operations

Sale Agreement with UPS

      On December 19, 2004, CNF completed the sale of MWF to UPS for $150 million in cash, which amount is subject to adjustment for cash held by MWF at closing and the net capital of MWF as of closing. As more fully discussed under “Results of Operations — Discontinued Operations,” as of December 31, 2004, CNF had not been reimbursed for its obligation related to MWF employees covered under CNF’s long-term disability and postretirement medical plans, pending conclusion of actuarially determined estimates. Accordingly, at December 31, 2004, Other Accounts Receivable included a $94.1 million receivable for CNF’s estimate of these employee benefit obligations as well as its estimate of the reimbursable MWF cash balance. Settlement of the cash balance is subject to an in-process evaluation and any difference between the estimated and actual cash position at December 31, 2004 would be recognized in future periods as a gain or loss from disposal when and if incurred.

Spin-Off of CFC

      On December 2, 1996, CNF completed the spin-off of CFC to CNF’s shareholders. CFC withdrew in 2002 from certain multiemployer pension funds, thereby incurring withdrawal liabilities to such funds. Prior to enactment in April 2004 of the Pension Funding Equity Act of 2004, if the multiemployer funds had asserted claims against CNF for such liabilities, CNF would have had a statutory obligation to make cash payments to the funds prior to any arbitral or judicial decisions on the funds’ determinations. Under the facts relating to the CFC withdrawals and the law in effect after enactment of the Pension Funding Equity Act of 2004, CNF would no longer be required to make such payments to the multiemployer funds unless and until final decisions in arbitration proceedings, or in court, upheld the funds’ determination. Refer to Note 11, “Commitments and Contingencies,” of Item 8, “Financial Statements and Supplementary Data.”

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Estimates and Critical Accounting Policies

      The preparation of financial statements in accordance with accounting principles generally accepted in the U.S. requires management to adopt accounting policies and make significant judgments and estimates. In many cases, there are alternative policies or estimation techniques that could be used. CNF maintains a process to evaluate the appropriateness of its accounting policies and estimation techniques, including discussion with and review by the Audit Committee of its Board of Directors and its independent auditors. Accounting policies and estimates may require adjustment based on changing facts and circumstances and actual results could differ from estimates. The policies and estimates discussed below include those that are most critical to the financial statements.

Self-Insurance Accruals

      CNF uses a combination of insurance and self-insurance programs to provide for the costs of medical, casualty, liability, vehicular, cargo and workers’ compensation claims. In the measurement of these costs, CNF considers historical claims experience, medical costs, demographic and severity factors and other assumptions. Self-insurance accruals are developed based on the estimated, undiscounted cost of claims, including those claims incurred but not reported as of the balance sheet date. The long-term portion of self-insurance accruals relates primarily to workers’ compensation and vehicular claims that are payable over several years. The actual costs may vary from estimates.

Income Taxes

      In establishing its deferred income tax assets and liabilities, CNF makes judgments and interpretations based on the enacted tax laws and published tax guidance that are applicable to its operations. CNF records deferred tax assets and liabilities and periodically evaluates the need for a valuation allowance to reduce deferred tax assets to realizable amounts. The likelihood of a material change in CNF’s expected realization of these assets is dependent on future taxable income, future capital gains, its ability to use foreign tax credit carry forwards and carry backs, final U.S. and foreign tax settlements, and the effectiveness of its tax planning strategies in the various relevant jurisdictions. CNF is also subject to examination of its income tax returns for multiple years by the IRS and other tax authorities. CNF periodically assesses the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of its provision and related accruals for income taxes.

Disposition and Restructuring Estimates

      As more fully discussed under “Results of Operations — Discontinued Operations,” CNF’s management made significant estimates and assumptions in connection with the restructuring of EWA in 2001 and the disposition of MWF in 2004. Actual results could differ from estimates, which could affect related amounts reported in the financial statements.

Uncollectible Accounts Receivable

      CNF and its subsidiaries report accounts receivable at net realizable value and provide an allowance for uncollectible accounts when collection is considered doubtful. Con-Way provides for uncollectible accounts based on various judgments and assumptions, including revenue levels, historical loss experience, and composition of outstanding accounts receivable. Logistics, based on the size and nature of its client base, performs a frequent and periodic evaluation of its customers’ creditworthiness and accounts receivable portfolio and recognizes expense from uncollectible accounts when losses are both probable and estimable.

Defined Benefit Pension Plans

      CNF has defined benefit pension plans that cover non-contractual employees in the United States. The amount recognized as pension expense and the accrued pension liability depend upon a number of assumptions and factors, the most significant being the discount rate used to measure the present value of pension obligations, the assumed rate of return on plan assets, which are both affected by economic conditions and market fluctuations, and the rate of compensation increase.

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      CNF assumed a discount rate of 6.25% and 6.75% for purposes of calculating its pension expense in 2004 and 2003, respectively, and assumed a discount rate of 6.25% in calculating its year-end liability for both 2004 and 2003. The decline in the assumed discount rate for pension expense was due primarily to declines in high-quality corporate bond yields in 2004. CNF adjusts its discount rate periodically by taking into account changes in high-quality corporate bond yields and the guidance of its outside actuaries. In determining the appropriate discount rate, CNF in 2004 began utilizing a bond model that incorporates expected cash flows of plan obligations. The bond model uses a selected portfolio of Moody’s Aa-or-better rated bonds with cash flows and maturities that match the projected benefit payments of CNF’s pension plans. CNF’s discount rate is equal to the yield on the portfolio of bonds, which will typically exceed the Moody’s Aa corporate bond index due to the long duration of expected benefit payments from CNF’s plan. If all other factors were held constant, a 0.25% decline in the discount rate would result in an estimated $6 million increase in 2005 annual pension expense.

      CNF adjusts its assumed rate of return on plan assets based on historic returns of the plan assets and current market expectations. The rate of return is based on a mean-expected 20-year return on the current asset allocation and the effect of actively managing the plan, net of fees and expenses. For purposes of calculating its pension expense, CNF assumed a rate of return on plan assets of 9.0% in both 2004 and 2003 and expects to use a rate of 8.5% for 2005. Using year-end plan asset values, a 0.5% decline in the assumed rate of return on plan assets would result in an estimated $4 million increase in 2005 annual pension expense.

      The determination of CNF’s accrued pension benefit cost includes an unrecognized actuarial loss that results from the cumulative difference between estimated and actual values for the year-end projected pension benefit obligation and the fair value of plan assets. Under GAAP, any portion of the unrecognized actuarial loss or gain that exceeds ten percent of the greater of the projected benefit obligation or fair value of plan assets must be amortized as an expense over the average service period for employees, approximately thirteen years for CNF. Lower amortization of the unrecognized actuarial loss reduces the annual pension expense in 2005 by approximately $6 million from the annual pension expense in 2004.

Goodwill and Long-Lived Assets

      CNF performs an impairment analysis of long-lived assets whenever circumstances indicate that the carrying amount may not be recoverable. For assets that are to be held and used, an impairment charge is recognized when the estimated undiscounted cash flows associated with the asset or group of assets is less than carrying value. If impairment exists, a charge is recognized for the difference between the carrying value and the fair value. Fair values are determined using quoted market values, discounted cash flows, or external appraisals, as applicable. Assets held for disposal are carried at the lower of carrying value or estimated net realizable value.

      CNF tests the recoverability of goodwill on an annual basis in the fourth quarter and between annual tests in certain circumstances. A fair-value approach is used to test goodwill for impairment. An impairment charge is recognized if the carrying amount of goodwill exceeds its fair value. CNF utilized a third-party independent valuation consultant to perform the impairment test of goodwill associated with the Forwarding reporting segment as of December 31, 2003. Based on the annual impairment test in the fourth quarter of 2003, which assumed improving cash flows, CNF was not required to record a charge for goodwill impairment.

      As more fully discussed in “Results of Operations — Discontinued Operations,” CNF committed to sell MWF in the third quarter of 2004 and recognized a $260.5 million impairment charge to write down the recorded book value of MWF to its anticipated selling price, less costs to sell. The impairment charge was based on an agreement to sell MWF and represented the estimated write-down to the carrying value of MWF’s goodwill and long-lived assets, including MWF’s accumulated foreign currency translation adjustment, as well as estimated selling costs. CNF agreed to accept less than the recorded book value of MWF due primarily to management’s assessment of the risk and resource requirements associated with other strategic alternatives related to MWF’s operations.

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Other Matters

Cyclicality and Seasonality

      CNF’s businesses operate in industries that are affected directly by general economic conditions and seasonal fluctuations, which affect demand for transportation services. In the trucking and air freight industries, for a typical year, the months of September and October usually have the highest business levels while the months of December, January and February usually have the lowest business levels.

Business Interruption

      CNF and its subsidiaries rely on CNF Service Company for the performance of shared administrative and technology services in the conduct of their businesses. CNF’s centralized computer facilities and its administrative and technology employees are located at the Administrative and Technology (“AdTech”) Center in Portland, Oregon. Although CNF maintains backup systems and has disaster recovery processes and procedures in place, a sustained interruption in the operation of these facilities, whether due to terrorist activities, earthquakes, floods or otherwise, could have a material adverse effect on CNF’s financial condition, cash flows, and results of operations.

Homeland Security

      CNF is subject to compliance with cargo security and transportation regulations issued by the Transportation Security Administration and by the Department of Homeland Security. CNF is not able to accurately predict how new governmental regulation will affect the transportation industry. However, CNF believes that any additional security measures that may be required by future regulations could result in additional costs and could have an adverse effect on its ability to serve customers and on its financial condition, results of operations, and cash flows.

Employees

      The workforce of CNF and its subsidiaries is not affiliated with labor unions. Consequently, CNF believes that the operations of its subsidiaries have significant advantages over comparable unionized competitors (particularly in the trucking industry) in providing reliable and cost-competitive customer services, including greater efficiency and flexibility. There can be no assurance that CNF’s subsidiaries will be able to maintain their current advantages over certain of their competitors.

New Accounting Standards

Variable Interest Entities

      In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities: an Interpretation of ARB No. 51” (“FIN 46”). FIN 46 requires that all special-purpose entities be designated as either a voting-interest entity or a variable-interest entity (“VIE”). A VIE is an entity for which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the VIE to finance its activities without additional subordinated financial support from other parties. A VIE is required to be consolidated by its primary beneficiary if it does not effectively disperse risks among parties involved. The primary beneficiary of a VIE is the party that absorbs a majority of the VIE’s expected losses or receives a majority of its expected residual returns.

      The implementation of FIN 46 was required for periods beginning after June 15, 2003. However, in October 2003, the FASB deferred the effective date for applying FIN 46 to VIE’s created before February 1, 2003 until the end of the first interim period ending after December 15, 2003. In December 2003, the FASB revised FIN 46 (“FIN 46R”) to incorporate certain revisions, including the requirement to disregard certain rights in determining whether an entity is the primary beneficiary in a VIE. Under FIN 46R, CNF was not the primary beneficiary of CNF Trust 1 (the “Trust”), a wholly owned subsidiary, and CNF was therefore required to deconsolidate the Trust effective in the quarter ended March 31, 2004. Accordingly, CNF’s 5% Convertible Debentures held by the Trust, which were redeemed by CNF on June 1, 2004, were included in long-term debt at March 31, 2004, and

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prior periods were restated to reflect adoption of FIN 46R, as more fully discussed in Note 5, “Debt and Other Financing Arrangements” of Item 8, “Financial Statements and Supplementary Data.”

Share-Based Payment

      In December 2004, the FASB issued SFAS No. 123R, “Share-Based Payment” (“SFAS 123R”), a revision of SFAS 123 that supersedes APB 25 and its related implementation guidance. SFAS 123R eliminates the alternative to use APB 25’s intrinsic-value method of accounting that was provided in SFAS 123 as originally issued, and requires companies to recognize the cost of employee services received in exchange for awards of equity instruments based on the grant-date fair value of those awards (with limited exceptions) over the period during which an employee is required to provide service in exchange for the award.

      SFAS 123R also amends FASB Statement No. 95, “Statement of Cash Flows,” to require that the benefits associated with the tax deductions in excess of recognized compensation cost be reported as financing cash flows, rather than as a reduction of taxes paid. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after the effective date. These future amounts cannot be estimated because they depend on factors that cannot be predicted, including when employees exercise stock options.

      The effective date of SFAS 123R is as of the beginning of the first reporting period that begins after June 15, 2005, which for CNF is the third quarter of 2005. CNF is currently assessing the impact that SFAS 123R will have on its financial statements.

Forward-Looking Statements

      Certain statements included herein constitute “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to a number of risks and uncertainties, and should not be relied upon as predictions of future events. All statements other than statements of historical fact are forward-looking statements, including any projections of earnings, revenues, weight, yield, volumes, income or other financial or operating items, any statements of the plans, strategies, expectations or objectives of CNF or its management for future operations or other future items, any statements concerning proposed new products or services, any statements regarding CNF’s estimated future contributions to pension plans, any statements as to the adequacy of reserves, any statements regarding the outcome of any claims that may be brought against CNF by CFC’s multi-employer pension plans or any statements regarding future economic conditions or performance, any statements regarding the outcome of legal and other claims and proceedings against CNF; any statements of estimates or belief and any statements or assumptions underlying the foregoing.

      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,” “estimates” or “anticipates” or the negative of those terms or other variations of those terms or comparable terminology or by discussions of strategy, plans or intentions. Such forward-looking statements are necessarily dependent on assumptions, data and methods that may be incorrect or imprecise and there can be no assurance that they will be realized. In that regard, the following factors, among others and in addition to the matters discussed elsewhere in this document and other reports and documents filed by CNF with the Securities and Exchange Commission, could cause actual results and other matters to differ materially from those discussed in such forward-looking statements:

•  changes in general business and economic conditions, including the global economy;

•  the creditworthiness of CNF’s customers and their ability to pay for services rendered;

•  increasing competition and pricing pressure;

•  changes in fuel prices;

•  the effects of the cessation of EWA’s air carrier operations;

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•  the possibility that CNF may, from time to time, be required to record impairment charges for long-lived assets;

•  the possibility of defaults under CNF’s $400 million credit agreement and other debt instruments, including defaults resulting from additional unusual charges or from any costs or expenses that CNF may incur, and the possibility that CNF may be required to repay certain indebtedness in the event that the ratings assigned to its long-term senior debt by credit rating agencies are reduced;

•  labor matters, including the grievance by furloughed pilots and crew members, labor organizing activities, work stoppages or strikes; enforcement of and changes in governmental regulations, including the effects of new regulations issued by the Department of Homeland Security;

•  environmental and tax matters;

•  matters relating to CNF’s 1996 spin-off of CFC, including the possibility that CFC’s multi-employer pension plans may assert claims against CNF, that CNF may not prevail in those proceedings and may not have the financial resources necessary to satisfy amounts payable to those plans, and matters relating to CNF’s defined benefit pension plans;

•  matters relating to the sale of MWF, including CNF’s obligation to indemnify UPS for certain losses in connection with the sale;

      As a result of the foregoing, no assurance can be given as to future financial condition, results of operations, and cash flows. See Note 11, “Commitments and Contingencies” in Item 8, “Financial Statements and Supplementary Data.”

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      CNF is exposed to a variety of market risks, including the effects of interest rates, fuel prices, and foreign currency exchange rates. CNF enters into derivative financial instruments only in circumstances that warrant the hedge of an underlying asset, liability or future cash flow against exposure to some form of interest rate, commodity or currency-related risk. Additionally, the designated hedges should have high correlation to the underlying exposure such that fluctuations in the value of the derivatives offset reciprocal changes in the underlying exposure.

      CNF is subject to the effect of interest rate fluctuations on the fair value of its long-term debt. Based on the fixed interest rates and maturities of its long-term debt, fluctuations in market interest rates would not significantly affect operating results or cash flows, but may have a material effect on the fair value of long-term debt. Based on current interest rates offered for debt with similar terms and maturities, the estimated fair value of CNF’s long-term debt was approximately $760 million as of December 31, 2004. Given a hypothetical 10% change in interest rates, the change in fair value of long-term debt would be approximately $30 million. As more fully discussed in Note 5, “Debt and Other Financing Arrangements,” in Item 8, “Financial Statements and Supplementary Data,” CNF in December 2002 terminated four interest rate swap derivatives designated as fair value hedges of fixed-rate long-term debt. Except for the effect of these terminated interest rate swaps, derivative financial instruments did not have a material effect on CNF’s financial condition, results of operations, or cash flows.

      CNF has market risk for changes in the price of diesel fuel. However, the risk associated with increases in fuel prices is mitigated by revenue from fuel surcharges. Therefore, a hypothetical 10% increase in the price of fuel would not be expected to have a material adverse effect on results of operations.

      The assets and liabilities of CNF’s foreign subsidiaries are denominated in foreign currencies, which creates exposure to changes in foreign currency exchange rates. However, the market risk related to foreign currency exchange rates is not material to CNF’s financial condition, results of operations, or cash flows.

29

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CNF Inc.

Consolidated Balance Sheets

				December 31,
				2004			2003
				(Dollars in thousands)
ASSETS
Current Assets
	Cash and cash equivalents (Note 1)			$	386,897		$	38,183
	Marketable securities (Note 1)				446,300			260,440
	Trade accounts receivable, net (Note 1)				425,783			380,898
	Other accounts receivable (Notes 1 and 2)				134,577			66,112
	Operating supplies, at lower of average cost or market				16,665			9,468
	Prepaid expenses				48,092			45,114
	Deferred income taxes (Note 7)				51,453			53,141
	Assets of discontinued operations (Note 2)				5,128			475,878
		Total Current Assets			1,514,895			1,329,234
Property, Plant, and Equipment, at cost
	Land				142,857			147,713
	Buildings and leasehold improvements				618,698			591,797
	Revenue equipment				677,499			593,830
	Other equipment				210,102			210,374
					1,649,156			1,543,714
	Accumulated depreciation and amortization				(789,835	)		(725,763	)
		Net Property and Equipment			859,321			817,951
Other Assets
	Deferred charges and other assets (Note 3)				56,618			122,208
	Capitalized software, net				50,347			54,646
	Assets of discontinued operations (Note 2)				15,220			449,601
					122,185			626,455
			Total Assets	$	2,496,401		$	2,773,640

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

30

CNF Inc.

Consolidated Balance Sheets

				December 31,
				2004			2003
				(Dollars in thousands except
				per share data)
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
	Accounts payable			$	252,867		$	215,203
	Accrued liabilities (Note 4)				226,437			196,153
	Self-insurance accruals (Note 1)				86,095			94,291
	Current maturities of long-term debt (Note 5)				112,727			14,055
	Liabilities of discontinued operations (Note 2)				34,705			302,448
		Total current liabilities			712,831			822,150
Long-Term Liabilities
	Long-term debt and guarantees (Note 5)				601,344			554,981
	Self-insurance accruals (Note 1)				102,512			113,785
	Employee benefits (Note 9)				245,989			276,685
	Other liabilities and deferred credits				20,296			24,828
	Deferred income taxes (Note 7)				29,200			11,153
	Liabilities of discontinued operations (Note 2)				6,862			151,250
		Total Liabilities			1,719,034			1,954,832
Commitments and Contingencies (Notes 2, 5, 6 and 11)
Shareholders’ Equity (Note 8)
	Preferred stock, no par value; authorized 5,000,000 shares:
		Series B, 8.5% cumulative, convertible, $.01 stated value; designated 1,100,000 shares; issued 742,995 and 763,674 shares, respectively			7			8
	Additional paid-in capital, preferred stock				113,002			116,147
	Deferred compensation, Thrift and Stock Plan (Note 9)				(49,117	)		(57,687	)
		Total Preferred Shareholders’ Equity			63,892			58,468
	Common stock, $.625 par value; authorized 100,000,000 shares; issued 58,544,254 and 56,436,981 shares, respectively				36,590			35,273
	Additional paid-in capital, common stock				429,134			356,700
	Retained earnings				426,300			570,751
	Deferred compensation, restricted stock (Note 10)				(5,744	)		(6,188	)
	Cost of repurchased common stock (6,364,868 and 6,459,732 shares, respectively)				(157,069	)		(159,273	)
					729,211			797,263
	Accumulated Other Comprehensive Loss (Note 8)				(15,736	)		(36,923	)
		Total Common Shareholders’ Equity			713,475			760,340
		Total Shareholders’ Equity			777,367			818,808
			Total Liabilities and Shareholders’ Equity	$	2,496,401		$	2,773,640

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

31

CNF Inc.

Statements of Consolidated Operations

			Years Ended December 31,
			2004			2003			2002
			(Dollars in thousands except per share data)
Revenues			$	3,712,379		$	3,226,966		$	2,993,347
Costs and Expenses
	Operating expenses (Note 3)			2,953,665			2,549,467			2,438,622
	Selling, general and administrative expenses			372,122			351,507			271,398
	Depreciation			102,425			101,044			102,984
				3,428,212			3,002,018			2,813,004
Operating Income				284,167			224,948			180,343
Other Income (Expense)
	Investment income			7,485			2,527			5,557
	Interest expense			(39,695	)		(29,597	)		(22,825	)
	Miscellaneous, net (Note 1)			(5,134	)		(361	)		(10,747	)
				(37,344	)		(27,431	)		(28,015	)
Income from Continuing Operations Before Income Tax Provision				246,823			197,517			152,328
	Income Tax Provision (Note 7)			96,378			77,032			38,234
Income from Continuing Operations				150,445			120,485			114,094
Discontinued Operations, net of tax (Note 2)
	Loss from Disposal			(278,749	)		—			(12,398	)
	Income (Loss) from Discontinued Operations			12,415			(28,461	)		115
				(266,334	)		(28,461	)		(12,283	)
Net Income (Loss)				(115,889	)		92,024			101,811
	Preferred Stock Dividends			8,239			8,239			8,250
Net Income (Loss) Applicable to Common Shareholders			$	(124,128	)	$	83,785		$	93,561
Weighted-Average Common Shares Outstanding (Note 1)
	Basic			50,455,006			49,537,945			49,139,134
	Diluted			56,452,629			56,725,667			56,655,570
Earnings (Loss) Per Common Share (Note 1)
	Basic
		Net Income from Continuing Operations	$	2.82		$	2.27		$	2.15
		Loss from Disposal, net of tax		(5.53	)		—			(0.25	)
		Income (Loss) from Discontinued Operations, net of tax		0.25			(0.58	)		—
		Net Income (Loss) Applicable to Common Shareholders	$	(2.46	)	$	1.69		$	1.90
	Diluted
		Net Income from Continuing Operations	$	2.57		$	2.07		$	1.96
		Loss from Disposal, net of tax		(4.94	)		—			(0.22	)
		Income (Loss) from Discontinued Operations, net of tax		0.22			(0.50	)		—
		Net Income (Loss) Applicable to Common Shareholders	$	(2.15	)	$	1.57		$	1.74

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

32

CNF Inc.

Statements of Consolidated Cash Flows

					Years Ended December 31,
					2004			2003			2002
					(Dollars in thousands)
Cash and Cash Equivalents, Beginning of Year					$	38,183		$	141,813		$	167,317
Operating Activities
	Net income (loss)					(115,889	)		92,024			101,811
	Adjustments to reconcile net income (loss) to net cash provided by operating activities:
			Discontinued operations, net of tax			266,334			28,461			12,283
			Depreciation and amortization, net of accretion			115,096			113,417			117,084
			Increase in deferred income taxes			22,528			27,052			13,289
			Amortization of deferred compensation			13,244			9,376			8,607
			Provision for uncollectible accounts			5,103			5,425			10,058
			Equity in earnings of joint venture			(18,253	)		(20,718	)		(18,188	)
			Loss (Gain) on sales of property and equipment, net			88			2,182			(11,974	)
			Loss from equity ventures			300			3,705			4,585
			Changes in assets and liabilities:
				Receivables		(34,870	)		(13,073	)		(8,967	)
				Prepaid expenses		(2,978	)		(10,472	)		(1,345	)
				Accounts payable		42,372			(18,112	)		7,761
				Accrued incentive compensation		29,367			(27,876	)		42,282
				Accrued liabilities, excluding accrued incentive compensation		917			7,503			15,137
				Self-insurance accruals		(2,956	)		(25,654	)		(1,643	)
				Income taxes		22,009			28,267			(77,970	)
				Employee benefits		(24,658	)		(4,178	)		(18,624	)
				Deferred charges and credits		67,081			17,415			30,002
				Other		(5,210	)		11,433			9,793
	Net Cash Provided by Operating Activities					379,625			226,177			233,981
Investing Activities
		Capital expenditures				(151,460	)		(127,763	)		(75,831	)
		Software expenditures				(10,960	)		(12,442	)		(13,496	)
		Proceeds from sales of property and equipment, net				14,007			6,209			13,488
		Proceeds from sale of discontinued operations				150,000			—			—
		Net decrease (increase) in marketable securities				(185,860	)		(169,440	)		96,000
	Net Cash Provided by (Used in) Investing Activities					(184,273	)		(303,436	)		20,161
Financing Activities
		Net proceeds from issuance of long-term debt				292,587			2,156			—
		Repayment of long-term debt and guarantees				(142,925	)		(12,142	)		(8,700	)
		Proceeds from exercise of stock options				56,081			6,389			6,948
		Payments of common dividends				(20,323	)		(19,850	)		(19,663	)
		Payments of preferred dividends				(9,941	)		(10,192	)		(10,484	)
	Net Cash Provided by (Used in) Financing Activities					175,479			(33,639	)		(31,899	)
	Net Cash Provided by Continuing Operations					370,831			(110,898	)		222,243
	Net Cash Provided by (Used in) Discontinued Operations					(22,117	)		7,268			(247,747	)
	Increase (Decrease) in Cash and Cash Equivalents					348,714			(103,630	)		(25,504	)
Cash and Cash Equivalents, End of Year					$	386,897		$	38,183		$	141,813
Supplemental Disclosure
	Cash Paid (Refunded) for income taxes, net				$	59,797		$	(14,548	)	$	(3,779	)
	Cash Paid for interest of continuing operations, net of amounts capitalized				$	37,267		$	29,210		$	23,698

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

33

CNF INC.

STATEMENTS OF CONSOLIDATED SHAREHOLDERS’ EQUITY

			Preferred Stock
			Series B						Common Stock																Accumulated
													Additional									Repurchased			Other
			Number of						Number of				Paid-in			Deferred			Retained			Common			Comprehensive			Comprehensive
			Shares			Amount			Shares		Amount		Capital			Compensation			Earnings			Stock			Income (Loss)			Income (Loss)
			(Dollars in thousands except per share data)
Balance, December 31, 2001				805,895		$	8			55,559,909	$	34,725	$	454,634		$	(74,333	)	$	432,918		$	(164,441	)	$	(45,424	)
Net income				—			—			—		—		—			—			101,811			—			—		$	101,811
Other comprehensive income (loss):
	Foreign currency translation adjustment (Note 1)									—		—		—			—			—			—			6,934			6,934
	Change in fair value of cash flow hedges, net of deferred tax of $736			—			—			—		—		—			—			—			—			1,149			1,149
	Minimum pension liability adjustment, net of deferred tax of $19,586			—			—			—		—		—			—			—			—			(19,533	)		(19,533	)
		Comprehensive income																										$	90,361
Exercise of stock options, including tax benefits of $1,884				—			—			377,789		237		8,595			—			—			—			—
Stock-based compensation				—			—			109,092		67		3,647			(2,697	)		—			17			—
TASP deferred compensation				—			—			—		—		—			7,597			—			—			—
Repurchased common stock issued for conversion of preferred stock				(21,888	)		—			—		—		(2,583	)		—			—			2,583			—
Common dividends declared ($.40 per share)				—			—			—		—		—			—			(19,663	)		—			—
Series B, Preferred dividends ($12.93 per share), net of tax benefits of $2,081				—			—			—		—		—			—			(8,250	)		—			—
Balance, December 31, 2002				784,007			8			56,046,790		35,029		464,293			(69,433	)		506,816			(161,841	)		(56,874	)
Net income				—			—			—		—		—			—			92,024			—			—		$	92,024
Other comprehensive income (loss):
	Unrealized gain on marketable securities, net of deferred tax of $1,307			—			—			—		—		—			—			—			—			2,044			2,044
	Foreign currency translation adjustment (Note 1)			—			—			—		—		—			—			—			—			6,509			6,509
	Change in fair value of cash flow hedges, net of deferred tax of $252			—			—			—		—		—			—			—			—			394			394
	Minimum pension liability adjustment, net of deferred tax of $7,036			—			—			—		—		—			—			—			—			11,004			11,004
		Comprehensive income																										$	111,975
Exercise of stock options, including tax benefits of $1,120				—			—			276,206		172		7,336			—			—			—			—
Stock-based compensation				—			—			113,985		72		3,752			(2,478	)		—			34			—
TASP deferred compensation				—			—			—		—		—			8,036			—			—			—
Repurchased common stock issued for conversion of preferred stock				(20,333	)		—			—		—		(2,534	)		—			—			2,534			—
Common dividends declared ($.40 per share)				—			—			—		—		—			—			(19,850	)		—			—
Series B, Preferred dividends ($12.93 per share), net of tax benefits of $1,833				—			—			—		—		—			—			(8,239	)		—			—
Balance, December 31, 2003				763,674			8			56,436,981		35,273		472,847			(63,875	)		570,751			(159,273	)		(36,923	)
Net loss				—			—			—		—		—			—			(115,889	)		—			—		$	(115,889	)
Other comprehensive income (loss):
	Unrealized gain on marketable securities, net of deferred tax of $1,307			—			—			—		—		—			—			—			—			(2,044	)		(2,044	)
	Foreign currency translation adjustment (Note 1)			—			—			—		—		—			—			—			—			18,283			18,283
	Minimum pension liability adjustment, net of deferred tax of $3,163			—			—			—		—		—			—			—			—			4,948			4,948
		Comprehensive loss																										$	(94,702	)
Exercise of stock options, including tax benefits of $12,647				—			—			2,080,380		1,300		67,429			—			—			—			—
Stock-based compensation				—			—			26,893		17		4,262			444			—			(198	)		—
TASP deferred compensation				—			—			—		—		—			8,570			—			—			—
Repurchased common stock issued for conversion of preferred stock				(20,679	)		(1	)		—		—		(2,402	)		—			—			2,402			—
Common dividends declared ($.40 per share)				—			—			—		—		—			—			(20,323	)		—			—
Series B, Preferred dividends ($12.93 per share), net of tax benefits of $1,558				—			—			—		—		—			—			(8,239	)		—			—
Balance, December 31, 2004				742,995			7			58,544,254		36,590		542,136			(54,861	)		426,300			(157,069	)		(15,736	)

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

34

CNF Inc.

Notes to Consolidated Financial Statements

1.     Principal Accounting Policies

      Organization: CNF Inc. and its subsidiaries provide transportation and supply chain management services for a wide range of manufacturing, industrial, and retail customers. CNF’s principal businesses consist of Con-Way and MW. However, for financial reporting purposes, CNF is divided into four reporting segments. The operating results of Con-Way are reported as one reporting segment while MW is divided into two reporting segments: Logistics and Menlo Worldwide Other, which consists of Vector, a joint venture with GM. Also, certain corporate activities and the results of Road Systems, a trailer manufacturer, are reported in the separate CNF Other reporting segment.

      Con-Way provides regional next-day, second-day and transcontinental freight trucking throughout the U.S., Canada, Puerto Rico and Mexico, as well as expedited transportation, freight forwarding, contract logistics and warehousing, and truckload brokerage services.

      MW includes the combined operating results of the Logistics and Menlo Worldwide Other reporting segments. Logistics develops integrated contract logistics solutions, including the management of complex distribution networks and supply chain engineering and consulting. The Menlo Worldwide Other reporting segment includes the operating results of Vector, which serves as the lead logistics manager for GM.

      In December 2004, CNF completed the sale of MWF. As a result, for all periods presented, the results of operations, net assets, and cash flows of the Forwarding segment have been segregated and reported as discontinued operations, as more fully discussed in Note 2, “Discontinued Operations.”

      The CNF Other reporting segment includes the operating results of Road Systems, a trailer manufacturer, and certain corporate activities.

      Principles of Consolidation: The consolidated financial statements include the accounts of CNF Inc. and its subsidiaries (“CNF”). All significant intercompany accounts and transactions have been eliminated. Certain amounts in prior-period financial statements have been reclassified to conform to the current-year presentation, including the classification of auction rate securities that are reported as available-for-sale marketable securities rather than cash equivalents, as more fully discussed below.

      Recognition of Revenues: Freight transportation revenue is recognized upon delivery of a shipment. Delivery costs are accrued as incurred. For shipments in transit, revenue and related delivery costs are recognized based on the estimated percentage of service completed at the balance sheet date. Estimates for future billing adjustments to revenue are recognized at the time of shipment for certain discounts and billing corrections.

      Revenue from logistics contracts is recognized in accordance with contractual terms as services are provided. Logistics’ carrier-management revenue is attributable to contracts for which Logistics manages the transportation of freight but subcontracts the actual transportation and delivery of products to third parties, which Logistics refers to as purchased transportation. Carrier-management revenue is reported based on the gross amount billed to the customer and includes the purchased transportation charges.

      Cash Equivalents and Marketable Securities: Cash and cash equivalents consist of short-term interest-bearing instruments with maturities of three months or less at the date of purchase, including primarily investments in commercial paper and certificates of deposit of $281,695,000 at December 31, 2004. The carrying amount of these cash-equivalent securities approximates fair value.

      Marketable securities consist of short-term available-for-sale auction-rate securities, except for an investment in equity securities that was sold in 2004, as described below. Auction-rate securities have contractual maturities of greater than one year; however, the securities have interest or dividend rates that reset every 28 days and are generally expected to be sold within one year. Realized and unrealized gains and losses on auction-rate securities were not material for the periods presented, and there were no material differences between the estimated fair values and the carrying values of the securities as of the dates presented.

35

CNF Inc.

Notes to Consolidated Financial Statements — (Continued)

      In 2004, CNF recognized a $2,867,000 gain from the sale of marketable equity securities. At December 31, 2003, the estimated fair value and unrealized gain on these equity securities was $3,351,000 million and $2,044,000, respectively. In CNF’s financial statements, the realized gain and estimated fair value of these securities are reported in Income (Loss) from Discontinued Operations and Assets of Discontinued Operations, respectively.

      Trade Accounts Receivable, Net: CNF and its subsidiaries report accounts receivable at net realizable value and provide an allowance for uncollectible accounts when collection is considered doubtful. Con-Way provides for uncollectible accounts based on various judgments and assumptions, including revenue levels, historical loss experience, and composition of outstanding accounts receivable. Logistics, based on the size and nature of its client base, performs a frequent and periodic evaluation of its customers’ creditworthiness and accounts receivable portfolio and recognizes expense from uncollectible accounts when losses are both probable and estimable. Trade accounts receivable are net of allowances of $6,616,000 and $10,958,000 at December 31, 2004 and 2003, respectively.

      Property, Plant and Equipment: Property, plant and equipment are depreciated primarily on a straight-line basis over their estimated useful lives, which are generally 25 years for buildings and improvements, 5 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 (losses) on sales of equipment and property are recorded in operating expenses.

      Capitalized Software: Capitalized software, net, consists of certain direct internal and external costs associated with the development of internal-use software. Amortization of capitalized software is computed on an item-by-item basis over a period of 3 to 10 years, depending on the estimated useful life of the software. Amortization expense related to capitalized software was $15,259,000 in 2004, $15,666,000 in 2003, and $13,081,000 in 2002. Accumulated amortization at December 31, 2004 and 2003 was $71,503,000 and $62,836,000, respectively.

      Goodwill and Long-Lived Assets: CNF performs an impairment analysis of long-lived assets whenever circumstances indicate that the carrying amount may not be recoverable. For assets that are to be held and used, an impairment charge is recognized when the estimated undiscounted cash flows associated with the asset or group of assets is less than carrying value. If impairment exists, a charge is recognized for the difference between the carrying value and the fair value. Fair values are determined using quoted market values, discounted cash flows, or external appraisals, as applicable. Assets held for disposal are carried at the lower of carrying value or estimated net realizable value.

      CNF tests the recoverability of goodwill on an annual basis in the fourth quarter and between annual tests in certain circumstances. A fair-value approach is used to test goodwill for impairment. An impairment charge is recognized if the carrying amount of goodwill exceeds its fair value. CNF utilized a third-party independent valuation consultant to perform the impairment test of goodwill associated with the Forwarding reporting segment as of December 31, 2003. Based on the annual impairment test in the fourth quarter of 2003, which assumed improving cash flows, CNF was not required to record a charge for goodwill impairment.

      As more fully discussed in Note 2, “Discontinued Operations,” CNF committed to sell MWF in the third quarter of 2004 and recognized a $260.5 million impairment charge to write down the recorded book value of MWF to its anticipated selling price, less costs to sell. The impairment charge was based on an agreement to sell MWF and represented the estimated write-down to the carrying value of MWF’s goodwill and long-lived assets, including MWF’s accumulated foreign currency translation adjustment, as well as estimated selling costs. CNF agreed to accept less than the recorded book value of MWF due primarily to management’s assessment of the risk and resource requirements associated with other strategic alternatives related to MWF’s operations.

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CNF Inc.

Notes to Consolidated Financial Statements — (Continued)

      Income Taxes: Deferred income taxes are provided for the tax effect of temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements. CNF uses the liability method to account for income taxes, which requires deferred taxes to be recorded at the statutory rate to be in effect when the taxes are paid. At December 31, 2004 and 2003, income tax receivables of $26.6 million and $36.0 million, respectively, were included in Other Accounts Receivable in CNF’s Consolidated Balance Sheets.

      Self-Insurance Accruals: CNF uses a combination of insurance and self-insurance programs to provide for the costs of medical, casualty, liability, vehicular, cargo and workers’ compensation claims. In the measurement of these costs, CNF considers historical claims experience, medical costs, demographic and severity factors and other assumptions. Self-insurance accruals are developed based on the estimated, undiscounted cost of claims, including those claims incurred but not reported as of the balance sheet date. The long-term portion of self-insurance accruals relates primarily to workers’ compensation and vehicular claims that are payable over several years. The actual costs may vary from estimates.

      CNF participates in a reinsurance pool to reinsure mostly workers’ compensation and vehicular liabilities. Each participant in the pool cedes claims to the pool and assumes an equivalent amount of claims. Reinsurance does not relieve CNF of its liabilities under the original policy. However, in the opinion of management, potential exposure to CNF for non-payment is minimal. CNF’s liability related to assumed claims was $24,111,000 and $34,002,000 at December 31, 2004 and 2003, respectively.

      Foreign Currency Translation: Adjustments resulting from translating foreign functional currency financial statements into U.S. dollars are included in the Foreign Currency Translation Adjustment in the Statements of Consolidated Shareholders’ Equity. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the local currency are included in results of operations.

      Based on expectations in certain tax jurisdictions, CNF re-evaluated its assumptions regarding the repatriation of foreign earnings related to the Forwarding segment. Effective in the first quarter of 2004, CNF concluded that it would no longer assume indefinite reinvestment of past and future earnings of MWF’s foreign subsidiaries. Accordingly, CNF in the first quarter of 2004 recorded a deferred tax asset of $9.4 million to recognize the associated tax effect of MWF’s accumulated foreign currency translation adjustment. The deferred tax asset was recorded in Assets of Discontinued Operations in the Consolidated Balance Sheets, as it relates to the discontinued Forwarding segment. In the third quarter of 2004, the accumulated foreign currency translation adjustment associated with the Forwarding segment was included in CNF’s third-quarter impairment charge, as more fully discussed in Note 2, “Discontinued Operations.” CNF did not change its assumptions regarding the repatriation of the foreign earnings of its other subsidiaries.

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CNF Inc.

Notes to Consolidated Financial Statements — (Continued)

      Earnings (Loss) Per Share (EPS): Basic EPS for continuing operations is computed by dividing reported net income (loss) from continuing operations (after preferred stock dividends) by the weighted-average common shares outstanding. Diluted EPS is calculated as follows:

			Years Ended December 31,
			2004			2003			2002
			(Dollars in thousands except per share data)
Numerator:
	Continuing operations (after preferred stock dividends), as reported		$	142,206		$	112,246		$	105,844
	Add-backs:
		Dividends on Series B preferred stock, net of replacement funding		1,337			1,379			1,334
		Interest expense on convertible subordinated debentures, net of trust dividend income (Note 5)		1,590			3,816			3,816
	Continuing operations			145,133			117,441			110,994
	Discontinued operations			(266,334	)		(28,461	)		(12,283	)
	Applicable to common shareholders		$	(121,201	)	$	88,980		$	98,711
Denominator:
	Weighted-average common shares outstanding			50,455,006			49,537,945			49,139,134
	Stock options and restricted stock			1,197,519			467,340			700,331
	Series B preferred stock			3,498,021			3,595,382			3,691,105
	Convertible subordinated debentures (Note 5)			1,302,083			3,125,000			3,125,000
				56,452,629			56,725,667			56,655,570
Earnings (Loss) per Diluted Share:
	Continuing operations		$	2.57		$	2.07		$	1.96
	Discontinued operations			(4.72	)		(0.50	)		(0.22	)
	Applicable to common shareholders		$	(2.15	)	$	1.57		$	1.74

      In 2004, diluted shares reflect the effect of CNF’s redemption in June 2004 of its convertible subordinated debentures, as more fully discussed in Note 5, “Debt and Other Financing Arrangements.”

      Stock-Based Compensation: As described in Note 10, “Stock-Based Compensation,” officers and non-employee directors have been granted options under CNF’s stock option plans to purchase common stock of CNF at prices equal to the market value of the stock on the date of grant. CNF accounts for stock-based compensation utilizing the intrinsic value method in accordance with the provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”). Accordingly, no compensation expense is recognized for fixed-option plans because the exercise prices of employee stock options equal or exceed the market prices of the underlying stock on the dates of grant.

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CNF Inc.

Notes to Consolidated Financial Statements — (Continued)

      The table below presents the effect on net income (loss) and earnings (loss) per share if CNF had applied the fair-value based method and recognition provisions of SFAS 123, “Accounting for Stock-Based Compensation.”

			Years Ended December 31,
			2004			2003			2002
			(Dollars in thousands,
			except per share data)
Net income (loss) applicable to common shareholders, as reported			$	(124,128	)	$	83,785		$	93,561
Stock-based compensation cost included in reported income, net of related tax effects				2,852			817			616
Additional compensation cost, net of tax, that would have been included in net income (loss) if the fair-value method had been applied				(11,683	)		(9,631	)		(8,776	)
Adjusted net income (loss) as if the fair-value method had been applied			$	(132,959	)	$	74,971		$	85,401
Earnings (loss) per share
	Basic:
		As reported	$	(2.46	)	$	1.69		$	1.90
		Adjusted	$	(2.64	)	$	1.51		$	1.74
	Diluted:
		As reported	$	(2.15	)	$	1.57		$	1.74
		Adjusted	$	(2.30	)	$	1.41		$	1.60

      The effect of applying SFAS 123 may not be indicative of the future effect.

      Derivative Instruments and Hedging Activities: CNF is exposed to a variety of market risks, including the effects of interest rates, commodity prices, foreign currency exchange rates and credit risk. CNF enters into derivative financial instruments only in circumstances that warrant the hedge of an underlying asset, liability or future cash flow against exposure to the related risk. Additionally, the designated hedges should have high correlation to the underlying exposure such that fluctuations in the value of the derivatives offset reciprocal changes in the underlying exposure. As more fully discussed in Note 5, “Debt and Other Financing Arrangements,” CNF in December 2002 terminated four interest rate swap derivatives designated as fair value hedges of fixed-rate long-term debt. Except for the effect of these terminated interest rate swaps, derivative financial instruments did not have a material effect on CNF’s financial condition, results of operations, or cash flows.

      Equity-Method Investments: As more fully discussed in Note 3, “Investment in Unconsolidated Joint Venture,” Menlo Worldwide, LLC owns a majority equity interest in Vector, a joint venture with GM that is accounted for as an equity-method investment. In addition, CNF provided venture capital funding, primarily in 2001 and 2000, to various companies focused on developing technology-based solutions in the transportation industry. CNF’s investment in these companies, which are accounted for as cost and equity-method investments, were written down in 2004, 2003 and 2002 and reported as non-operating losses in Miscellaneous, Net in the Consolidated Statements of Operations. At December 31, 2004, CNF’s remaining net investment in these ventures was $1.4 million.

      New Accounting Standards: In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities: an Interpretation of ARB No. 51” (“FIN 46”). FIN 46 requires that all special-purpose entities be designated as either a voting-interest entity or a variable-interest entity (“VIE”). A VIE is an entity for

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CNF Inc.

Notes to Consolidated Financial Statements — (Continued)

which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the VIE to finance its activities without additional subordinated financial support from other parties. A VIE is required to be consolidated by its primary beneficiary if it does not effectively disperse risks among parties involved. The primary beneficiary of a VIE is the party that absorbs a majority of the VIE’s expected losses or receives a majority of its expected residual returns.

      The implementation of FIN 46 was required for periods beginning after June 15, 2003. However, in October 2003, the FASB deferred the effective date for applying FIN 46 to VIE’s created before February 1, 2003 until the end of the first interim period ending after December 15, 2003. In December 2003, the FASB revised FIN 46 (“FIN 46R”) to incorporate certain revisions, including the requirement to disregard certain rights in determining whether an entity is the primary beneficiary in a VIE. Under FIN 46R, CNF was not the primary beneficiary of CNF Trust 1 (the “Trust”), a wholly owned subsidiary, and CNF was therefore required to deconsolidate the Trust effective in the quarter ended March 31, 2004. Accordingly, CNF’s 5% Convertible Debentures held by the Trust, which were redeemed by CNF on June 1, 2004, were included in long-term debt at March 31, 2004, and prior periods were restated to reflect adoption of FIN 46R, as more fully discussed in Note 5, “Debt and Other Financing Arrangements” of Item 8, “Financial Statements.”

      In December 2004, the FASB issued SFAS No. 123R, “Share-Based Payment” (“SFAS 123R”), a revision of SFAS 123 that supersedes APB 25 and its related implementation guidance. SFAS 123R eliminates the alternative to use APB 25’s intrinsic value method of accounting that was provided in SFAS 123 as originally issued, and requires companies to recognize the cost of employee services received in exchange for awards of equity instruments based on the grant-date fair value of those awards (with limited exceptions) over the period during which an employee is required to provide service in exchange for the award.

      SFAS 123R also amends FASB Statement No. 95, “Statement of Cash Flows,” to require that the benefits associated with the tax deductions in excess of recognized compensation cost be reported as financing cash flows, rather than as a reduction of taxes paid. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after the effective date. These future amounts cannot be estimated because they depend on factors that cannot be predicted, including when employees exercise stock options.

      The effective date of SFAS 123R is as of the beginning of the first reporting period that begins after June 15, 2005, which for CNF is the third quarter of 2005. CNF is currently assessing the impact that SFAS 123R will have on its financial statements.

      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. Changes in estimates are recognized in accordance with the accounting rules for the estimate, which is typically in the period when new information becomes available. It is reasonably possible that actual results could materially differ from estimates, including those related to accounts receivable allowances, impairment of goodwill and long-lived assets, income tax liabilities, self-insurance accruals, pension plan obligations, contingencies, and assets and liabilities recognized in connection with restructurings and dispositions.

2.     Discontinued Operations

      Discontinued operations in the periods presented relate to the sale of MWF, the spin-off of CFC, and to EWA and its terminated Priority Mail Contract with the USPS. For all periods presented, the results of operations, net assets, and cash flows of discontinued operations have been segregated from continuing operations, except where otherwise noted.

      As required by EITF 87-24, “Allocation of Interest to Discontinued Operations,” continuing operations has been allocated general corporate overhead charges that were previously allocated to the discontinued Forwarding segment. These corporate overhead charges of $16.9 million in 2004, and $14.0 million in 2003 and 2002 were

40

CNF Inc.

Notes to Consolidated Financial Statements — (Continued)

allocated from discontinued operations to the Con-Way and Logistics reporting segments based on segment revenue and capital employed.

      Results of discontinued operations are summarized below:

			Years Ended December 31 ,
			2004			2003			2002
			(Dollars in thousands)
Menlo Worldwide Forwarding
	Revenues		$	2,189,791		$	1,886,048		$	1,775,971
	Income (Loss) from Discontinued Operations
		Income (loss) before income taxes		1,501			(41,501	)		(6,084	)
		Income tax benefit		10,914			13,040			6,199
			$	12,415		$	(28,461	)	$	115
Income (Loss) from Disposal, net of tax
	Menlo Worldwide Forwarding		$	(276,309	)	$	—		$	—
	CFC			(2,440	)		—			(15,259	)
	Priority Mail Contract			—			—			2,861
			$	(278,749	)	$	—		$	(12,398	)

      The assets and liabilities of discontinued operations, which are presented in the Consolidated Balance Sheets under the captions “Assets (or Liabilities) of Discontinued Operations,” consisted of the following:

				December 31,
				2004			2003
				(Dollars in thousands)
ASSETS
	Cash			$	—		$	22,837
	Trade and other receivables				—			388,809
	Other				5,128			64,232
		Current Assets			5,128			475,878
		Deferred taxes, goodwill, and long-lived assets			15,220			449,601
			Total Assets		20,348			925,479
LIABILITIES
	Accounts payable and accrued liabilities				33,243			274,907
	Other				1,462			27,541
		Current Liabilities			34,705			302,448
	Long-term debt and capital leases				—			110,199
	Employee benefits and other				6,862			41,051
			Total Liabilities		41,567			453,698
	Net Assets (Liabilities)			$	(21,219	)	$	471,781

      Menlo Worldwide Forwarding: On October 5, 2004, CNF and MW entered into a stock purchase agreement with UPS and United Parcel Service of America, Inc. to sell all of the issued and outstanding capital

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CNF Inc.

Notes to Consolidated Financial Statements — (Continued)

stock of MWF. CNF completed the sale on December 19, 2004. The agreement excludes certain assets and liabilities of MWF and includes certain assets and liabilities of CNF or its subsidiaries related to the business conducted by MWF. Among the assets and liabilities so excluded are those related to EWA, and the obligation related to MWF employees covered under CNF’s domestic pension, postretirement medical and long-term disability plans. Under the agreement, CNF will be reimbursed for the actuarially determined estimate of its obligation related to MWF employees covered under CNF’s long-term disability and postretirement medical plans. Upon completion of the sale of MWF, MW received cash consideration of $150 million, which is subject to certain adjustments, including adjustments for cash held by MWF at closing and MWF’s net working capital as of closing. In addition, UPS assumed indebtedness associated with the MWF business, including approximately $110 million of debt owed by MWF in connection with the City of Dayton, Ohio, Special Facilities Revenue Refunding Bonds, certain capital leases and other debt, other letters of credit, and overdraft facilities. Under the stock purchase agreement, CNF has agreed to a three-year non-compete covenant that, subject to certain exceptions, will limit CNF’s annual air freight and ocean forwarding and/or customs brokerage revenues to $175 million. CNF has also agreed to indemnify UPS against certain losses that UPS may incur after the closing of the sale with certain limitations. Any losses related to these indemnification obligations or any other costs, including any future cash expenditures, related to the sale that have not been estimated and recognized at this time will be recognized in future periods as an additional loss from disposal when and if incurred.

      Although the stock purchase agreement described above was entered into on October 5, 2004, decisions by CNF’s management and its Board of Directors and the third-quarter sale negotiations with UPS established CNF’s commitment to sell MWF as of September 30, 2004. In the process of evaluating several strategic alternatives for MW’s Forwarding segment, CNF was approached by UPS in the third quarter of 2004 with interest in acquiring MWF. Accordingly, in the third quarter of 2004, CNF classified MWF as held for sale and recognized a $260.5 million impairment charge to write down the recorded book value of MWF to its anticipated selling price, less costs to sell, as required by SFAS 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” The impairment charge was based on the agreement to sell MWF, as described above and primarily represents the estimated write-down to the carrying value of MWF’s goodwill and long-lived assets, including MWF’s accumulated foreign currency translation adjustment, as well as estimated selling costs. CNF agreed to accept less than the recorded book value of MWF due primarily to management’s assessment of the risk and resource requirements associated with other strategic alternatives related to MWF’s operations. On completion of the sale, CNF recognized a fourth-quarter loss from disposal of $15.8 million (net of a $3.6 million tax benefit), as the adjusted carrying value of MWF exceeded the total cash consideration, including amounts received at closing and expected to be received in the future, as described below. CNF’s third-quarter and fourth-quarter losses from the disposal of MWF are treated as capital losses for tax purposes. Under current tax law, capital losses can only be used to offset capital gains. Since CNF does not currently forecast any significant taxable capital gains in the tax carry-forward period, tax benefits from the disposal were only recognized to the extent of capital gains in 2004. Accordingly, the $41.0 million tax benefit recognized on the disposition of MWF was fully offset by an equal valuation allowance.

      As described above, the stock purchase agreement excludes the obligation related to MWF employees covered under certain CNF-sponsored employee benefit plans, including pension, postretirement and long-term disability plans that cover the noncontractual employees and former employees of both continuing and discontinued operations. These plans also include certain pension plans that cover only the current and former employees of the discontinued Forwarding segment (the “Forwarding Plans”). For financial reporting purposes, the prepaid benefit cost of the Forwarding Plans is reported in Assets of Discontinued Operations while the accrued benefit cost related to MWF employees covered under the other legally separate CNF-sponsored plans are reported in Employee Benefits of continuing operations. At December 31, 2004, CNF had not been reimbursed for its obligation related to MWF employees covered under CNF’s long-term disability and postretirement medical plans, pending conclusion of actuarially determined estimates. Accordingly, at December 31, 2004, Other Accounts Receivable of continuing operations included a $94.1 million receivable for CNF’s

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CNF Inc.

Notes to Consolidated Financial Statements — (Continued)

estimate of these employee benefit obligations as well as its estimate of the reimbursable MWF cash balance. Settlement of the cash balance is subject to an in-process evaluation and any difference between the estimated and actual cash position at December 31, 2004 would be recognized in future periods as a gain or loss from disposal when and if incurred.

      As described above, the stock purchase agreement excludes the assets and liabilities of EWA, including restructuring reserves related to its 2001 restructuring plan. EWA’s restructuring reserves decreased to $33.8 million at December 31, 2004 from $34.8 million at December 31, 2003, primarily due to payments of restructuring-related obligations, partially offset by proceeds from sales of aircraft equipment. Restructuring reserves at December 31, 2004, which are primarily classified above as Accrued Liabilities of discontinued operations, consisted primarily of CNF’s estimated exposure related to the labor matters described below, as well as other estimated remaining restructuring-related obligations.

      In connection with the cessation of its air carrier operations in 2001, EWA terminated the employment of all of its pilots and crew members. Those pilots and crew members are represented by the ALPA union under a collective bargaining agreement. Subsequently, ALPA filed a grievance on behalf of the pilots and crew members protesting the cessation of EWA’s air carrier operations and MWF’s use of other air carriers. The ALPA matters are the subject of litigation in U.S. District Court and, depending on the outcome of that litigation, may be subject to binding arbitration. Based on CNF’s current evaluation, management believes that it has provided for its estimated exposure related to the ALPA matters. However, there can be no assurance in this regard as CNF cannot predict with certainty the ultimate outcome of these matters.

      Spin-Off of CFC: On December 2, 1996, CNF completed the spin-off of CFC to CNF’s shareholders. In connection with the spin-off of CFC, CNF agreed to indemnify certain states, insurance companies and sureties against the failure of CFC to pay certain workers’ compensation, tax and public liability claims that were pending as of September 30, 1996. In some cases, these indemnities are supported by letters of credit and surety bonds under which CNF is liable to the issuing bank or the surety company.

      In September 2002, CFC filed for bankruptcy and ceased most U.S. operations. Following the commencement of its bankruptcy proceeding, CFC ceased making payments with respect to these workers’ compensation and public liability claims. CNF was required to take over payment of some of these claims and expects that demands for payment will likely be made against it with respect to the remaining claims. CNF estimated the aggregate amount of all of these claims, plus other costs, to be $25.0 million. As a result, CNF accrued additional reserves, primarily in Self-Insurance Accruals in the Consolidated Balance Sheets, and in 2002 recognized a loss from disposal of $15.3 million (net of $9.7 million of income taxes). Based on actual payment experience for these claims through December 31, 2004, CNF accrued additional reserves and recognized a loss from disposal of $2.4 million (net of $1.6 million of income taxes) in the fourth quarter of 2004. CNF is seeking reimbursement from CFC in its bankruptcy proceeding of amounts that CNF pays in respect of all of these claims, although there can be no assurance that CNF will be successful in recovering all or any portion of such payments.

      Priority Mail Contract: On November 3, 2000, EWA and the USPS announced an agreement (the “Termination Agreement”) to terminate their contract for the transportation and sortation of Priority Mail (the “Priority Mail contract”). Under the terms of the Termination Agreement, the USPS agreed to reimburse EWA for Priority Mail contract termination costs. On January 7, 2001, the USPS paid EWA $60.0 million toward the termination costs and on July 3, 2002, the USPS paid EWA $6.0 million to fully settle EWA’s Priority Mail contract termination costs, which resulted in a 2002 third-quarter gain from discontinuance of $2.9 million, net of $1.8 million of income taxes.

3.     Investment in Unconsolidated Joint Venture

      Vector is a joint venture formed with GM in December 2000 for the purpose of providing logistics management services on a global basis for GM, and ultimately for customers in addition to GM. Although MW

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CNF Inc.

Notes to Consolidated Financial Statements — (Continued)

owns a majority interest in Vector, MW’s portion of Vector’s operating results are reported in the Menlo Worldwide Other reporting segment as an equity-method investment based on GM’s ability to control certain operating decisions. Vector is organized as a limited liability company that has elected to be taxed as a partnership. Therefore, the joint venture partners are responsible for income taxes applicable to their share of Vector’s taxable income. MW’s portion of Vector’s net income, which is reported as a reduction of operating expenses in the accompanying Statements of Consolidated Operations, does not include any provision for income taxes that will be incurred by CNF. MW’s undistributed earnings from Vector at December 31, 2004 and December 31, 2003, before provision for CNF’s related parent income taxes, was $27.2 million and $22.6 million, respectively.

      Vector participates in CNF’s centralized cash management system, and, consequently, Vector’s domestic trade accounts payable are paid by CNF and settled through Vector’s affiliate accounts with CNF. In addition, excess cash balances in Vector’s bank accounts, if any, are invested by CNF and settled through affiliate accounts, which earn interest income based on a rate earned by CNF’s cash-equivalent investments. As a result of Vector’s excess cash invested by CNF, Vector’s affiliate receivable from CNF as of December 31, 2004 and December 31, 2003 was $15.5 million and $16.0 million, respectively.

      As required by the Vector Agreements, CNF provides Vector with a $20 million line of credit for Vector’s working capital and capital expenditure requirements. Under the credit facility, which matures on December 13, 2005, Vector may obtain loans with an annual interest rate based on the rate CNF pays under its $385 million revolving credit facility. At December 31, 2004, CNF provided a portion of its $20 million credit commitment to Vector through CNF’s guarantee of $7.5 million of uncommitted local currency overdraft facilities available to Vector by international banks. Effective January 19, 2005, this amount was reduced to $2.5 million. At December 31, 2004, there was no balance outstanding under Vector’s uncommitted local currency overdraft facilities and no borrowings were directly payable to CNF. At December 31, 2003, Vector owed $5.8 million under the uncommitted local currency overdraft facilities and no borrowings were directly payable to CNF.

      In 2004 and 2003, Vector approved cash distributions to GM and MW. Vector’s affiliate receivable from CNF and MW’s undistributed earnings from Vector at December 31, 2004 and 2003 were reduced by MW’s share of these distributions ($13.7 million in 2004 and $6.3 million in 2003). CNF’s capital transactions with Vector, including cash advances to and from Vector under CNF’s centralized cash management system and credit facility described above, are reported as adjustments to MW’s investment in Vector in Deferred Charges and Other Assets in CNF’s Consolidated Balance Sheets.

4.     Accrued Liabilities

      Accrued liabilities consisted of the following:

		December 31,
		2004		2003
		(Dollars in thousands)
Holiday and vacation pay		$	55,739	$	49,455
Incentive compensation			53,800		24,433
Wages and salaries			24,719		31,910
Employee benefits			24,491		19,345
Taxes other than income taxes			20,102		17,670
Estimated revenue adjustments			8,753		8,956
Accrued interest			6,865		4,263
Other accrued liabilities			31,968		40,121
	Total accrued liabilities	$	226,437	$	196,153

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CNF Inc.

Notes to Consolidated Financial Statements — (Continued)

5.     Debt and Other Financing Arrangements

      Long-term debt and guarantees consisted of the following:

		December 31,
		2004			2003
		(Dollars in thousands)
Mortgage note payable, 3.50%, due 2004 (interest payable annually)		$	—		$	2,034
7.35% Notes due 2005 (interest payable semi-annually)			100,000			100,000
Mortgage note payable, 7.63%, due 2008 (interest payable monthly)			2,102			2,147
TASP Notes guaranteed, 6.00% to 8.54%, due through 2009 (interest payable semi-annually)			89,700			101,700
87/8% Notes due 2010 (interest payable semi-annually), net of discount and including fair market value adjustment			229,632			234,289
5.0% Convertible Subordinated Debentures due 2012 (interest payable quarterly)			—			128,866
6.70% Senior Debentures due 2034 (interest payable semi-annually), net of discount			292,637			—
			714,071			569,036
Less current maturities			(112,727	)		(14,055	)
	Total long-term debt and guarantees	$	601,344		$	554,981

      Revolving Credit Facility: CNF has a $385 million revolving credit facility that matures on July 3, 2006. The revolving credit facility is available for cash borrowings and for the issuance of letters of credit up to $385 million. At December 31, 2004 and 2003, no borrowings were outstanding under the facility and, at December 31, 2004, $229.7 million of letters of credit were outstanding, leaving $155.3 million of available capacity for additional letters of credit or cash borrowings, subject to compliance with financial covenants and other customary conditions to borrowing. Of the total letters of credit outstanding at December 31, 2004, including other uncommitted credit facilities described below, $259.3 million provided collateral for CNF workers’ compensation and vehicular self-insurance programs. Borrowings under the agreement bear interest at a rate based upon specified indices plus a margin dependent on CNF’s credit rating. The credit facility fee ranges from 0.125% to 0.375% applied to the total facility of $385 million based on CNF’s current credit ratings.

      The credit agreement is guaranteed by Con-Way, MWL, MW and certain other less significant CNF subsidiaries and contains various restrictive covenants, including a limitation on the incurrence of additional indebtedness and the requirement for specified levels of consolidated net worth and fixed-charge coverage. In August 2003, the revolving credit facility was amended to exclude the effect of certain items from the calculation of financial covenants. Under the amendment, the requirements for specified levels of consolidated net worth, fixed-charge coverage and the ratio of consolidated debt to net worth were amended to exclude any effect of goodwill impairment charges and minimum pension liability adjustments. In January 2004, the credit agreement was further amended, primarily to remove a provision that would require CNF to pledge assets as collateral to secure borrowings and other amounts due under the revolving credit facility in the event that CNF’s senior unsecured long-term debt securities are rated at less than investment grade by Standard & Poor’s and Moody’s. In October 2004, the credit agreement was amended to exclude the effects of the Forwarding disposal on the consolidated net worth and fixed-charge coverage calculations.

      In March 2005, CNF entered into a new five-year $400 million unsecured revolving credit facility that replaced the existing five-year facility. The new revolving facility is guaranteed by certain of CNF’s material

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CNF Inc.

Notes to Consolidated Financial Statements — (Continued)

domestic subsidiaries and is available for cash borrowings and issuance of letters of credit. Borrowings under the agreement, which terminates on March 11, 2010, bear interest at a rate based upon the lead bank’s base rate or eurodollar rate plus a margin dependent on either CNF’s senior debt credit ratings or a ratio of “net debt” (i.e., indebtedness net of cash, cash equivalents and certain marketable securities) to earnings before interest, taxes and depreciation/amortization. The agreement contains two financial covenants: (i) a “net debt” ratio and (ii) a fixed-charge coverage ratio. There are also various restrictive covenants, including limitations on (i) the incurrence of liens, (ii) consolidations, mergers and asset sales, and (iii) the incurrence of additional subsidiary indebtedness.

      Other Uncommitted Credit Facilities: CNF had other uncommitted unsecured credit facilities totaling $120 million at December 31, 2004, which are available to support letters of credit, bank guarantees, and overdraft facilities; at that date, a total of $39.1 million of letters of credit was outstanding under these facilities.

      Convertible Subordinated Debentures: On June 1, 2004, CNF redeemed $128.9 million aggregate principal amount of its 5% Convertible Subordinated Debentures due 2012 (the “Convertible Debentures”). The Convertible Debentures were redeemable for cash on or after June 1, 2000 at a price equal to 103.125% of the principal amount, declining annually to par if redeemed on or after June  1, 2005. CNF Trust 1 (the “Trust”), a trust wholly owned by CNF, applied the proceeds from the redemption of the Convertible Debentures to redeem CNF’s $3.9 million interest in the common stock of the Trust and $125 million of Term Convertible Securities, Series A (“TECONS”), which the Trust issued to the public in June 1997. In connection with the redemption of the Convertible Debentures, CNF recognized $2.7 million of expenses in the second quarter of 2004 for an early redemption call premium and for the write-off of the unamortized cost of issuing the Convertible Debentures.

      Prior to their redemption in June 2004, the Convertible Debentures were reported in long-term debt as the result of CNF’s adoption in the first quarter of 2004 of the revised FASB Interpretation No. 46 “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51” (“FIN 46R”). Under FIN 46R, CNF was not deemed to be the primary beneficiary of the Trust and CNF was therefore required to deconsolidate the Trust effective in the quarter ended March 31, 2004. Prior to adoption of FIN 46R, CNF reported the TECONS as a mezzanine security with cash distributions reported as a non-operating expense. Under FIN 46R, CNF’s consolidated financial statements, for all periods presented, reflect the deconsolidation of the Trust. Accordingly, long-term debt and interest expense reflect the obligation and interest cost, respectively, of the Convertible Debentures prior to their redemption. Also, prior to redemption of the Convertible Debentures, CNF’s $3.9 million interest in the common securities of the Trust is reported as an investment in Deferred Charges and Other Assets while dividend income on the common securities are reported by CNF as non-operating income.

      Senior Debentures due 2034: On April 27, 2004, CNF issued $300 million of 6.70% Senior Debentures due 2034 in a private placement with exchange rights for proceeds of $292.6 million, net of a $7.4 million discount. In connection with the issuance of the Senior Debentures, CNF capitalized $2.9 million of underwriting fees and related debt costs, which will be amortized until maturity in 2034. CNF used a portion of the proceeds to redeem $128.9 million of CNF’s Convertible Debentures on June 1, 2004, as discussed above. CNF intends to use the remaining proceeds to repurchase from time to time or pay at maturity, $100 million of 7.35% Notes due in June 2005, and for working capital and general corporate purposes.

      On July 27, 2004, CNF completed the exchange of registered senior debentures (the “Senior Debentures”) for the debentures issued in the private placement. The Senior Debentures bear interest at the rate of 6.70% per year, payable semi-annually on May 1 and November 1 of each year, beginning on November 1, 2004. CNF may redeem the Senior Debentures, in whole or in part, on not less than 30 nor more than 60 days’ notice, at a redemption price equal to the greater of (1) the principal amount being redeemed, or (2) the sum of the present values of the remaining scheduled payments of principal and interest on the Senior Debentures being redeemed, discounted at the redemption date on a semiannual basis at the Treasury rate payable on an equivalent debenture plus 35 basis points. The Senior Debentures were issued under an indenture that restricts CNF’s ability, with certain exceptions, to incur debt secured by liens. Including amortization of a discount recognized upon issuance,

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CNF Inc.

Notes to Consolidated Financial Statements — (Continued)

interest expense on the 6.70% Senior Debentures Due 2034 will be recognized at an annual effective interest rate of 6.90%.

      Thrift and Stock Plan Notes: CNF guarantees the notes issued by CNF’s Thrift and Stock Plan (“TASP”). As of December 31, 2004, there was $27.7 million aggregate principal amount of Series A TASP notes outstanding, bearing interest at an annual rate of 6.00% and maturing on January 1, 2006, and $62.0 million aggregate principal amount of Series B TASP notes outstanding, bearing interest at an annual rate of 8.54% and maturing on January 1, 2009.

      The Series A notes contain financial covenants that require CNF to maintain minimum amounts of net worth and fixed-charge coverage. In August 2003, the Series A notes were amended to exclude any effect of goodwill impairment charges and minimum pension liability adjustments on the requirement for specified levels of consolidated net worth and fixed-charge coverage. The Note and Guarantee Agreement with the holders of the Series A TASP 6.00% notes contains a financial covenant restricting the sale or merger of any significant subsidiary to a third party. CNF obtained a waiver from the required holders of the 6.00% notes for the sale of MWF to remain in compliance with certain financial covenants in that agreement.

      Holders of the Series B notes issued by CNF’s TASP have the right to require CNF to repurchase those notes if, among other things, both Moody’s and Standard & Poor’s have publicly rated CNF’s long-term senior debt at less than investment grade unless, within 45 days, CNF shall have obtained, through a guarantee, letter of credit or other permitted credit enhancement or otherwise, a credit rating for such notes of at least “A” from Moody’s or Standard & Poor’s (or another nationally recognized rating agency selected by the holders of such notes) and shall maintain a rating on such notes of “A” or better thereafter. At December 31, 2004, CNF’s senior unsecured debt was rated as investment grade by both Moody’s (Baa3) and Standard and Poor’s (BBB-).

      8⁷/8% Notes Due 2010: The $200 million aggregate principal amount of 8⁷/8% Notes contain certain covenants limiting the incurrence of additional liens. Prior to their termination in December 2002, CNF had designated four interest rate swap derivatives as fair value hedges to mitigate the effects of interest rate volatility on the fair value of CNF’s 8⁷/8% Notes. Accordingly, until December 2002, changes in the value of these interest rate swap derivatives were recognized in earnings and offset by changes in the fair value of the hedged fixed-rate debt. At the termination date, the $39.8 million estimated fair value of these fair value hedges was offset by an equal increase to the carrying amount of the hedged fixed-rate long-term debt. Consistent with SFAS 133, the $39.8 million cumulative adjustment of the carrying amount of the 8 7/8% Notes will be accreted to future earnings at the effective interest rate until the debt is extinguished, at which time any unamortized fair-value adjustment would be fully recognized in earnings. Absent the terminated fair value hedges, the 8⁷/8% Notes will cease to be adjusted for fluctuations in fair value attributable to changes in interest rate risk. Including accretion of the fair-value adjustment and amortization of a discount recognized upon issuance, interest expense on the 8⁷/8% Notes Due 2010 will be recognized at an annual effective interest rate of 5.6%.

      7.35% Notes: The 7.35% Notes due in 2005 contain certain covenants limiting the incurrence of additional liens.

      Mortgage Notes Payable: Con-Way acquired real property in 2003 and 2002 in part by assuming a note payable due in 2008 and a note payable due in 2004, respectively. The remaining note, due in 2008, is secured by real property.

      CNF’s consolidated interest expense as presented on the Statements of Consolidated Operations is net of capitalized interest of $173,000 in 2004, $241,000 in 2003, and $455,000 in 2002. The aggregate annual maturities and sinking fund requirements of Long-Term Debt and Guarantees for the next five years ending December 31 are $112,727,000 in 2005, $15,033,000 in 2006, $18,635,000 in 2007, $22,704,000 in 2008 and $22,700,000 in 2009.

47

CNF Inc.

Notes to Consolidated Financial Statements — (Continued)

      As of December 31, 2004 and 2003, the estimated fair value of long-term debt was $760 million and $580 million, respectively. Fair values were estimated based on current rates offered for debt with similar terms and maturities.

6.     Leases

      CNF and its subsidiaries are obligated under non-cancelable operating leases for certain facilities, equipment and vehicles. Future minimum lease payments with initial or remaining non-cancelable lease terms in excess of one year, at December 31, 2004, were as follows:

		Operating Leases
		(Dollars in
		thousands)
Year ending December 31:
	2005	$	60,751
	2006		36,648
	2007		21,625
	2008		11,517
	2009		7,344
	Thereafter (through 2013)		9,112
Total minimum lease payments		$	146,997

      Certain leases contain restrictive covenants, including a limitation on the incurrence of additional indebtedness and the requirement for specified levels of consolidated net worth. Certain leases also contain provisions that allow CNF to extend the leases for various renewal periods.

      Under certain operating leases, Con-Way guarantees the residual value of tractors and trailers at the end of the lease term. At December 31, 2004, the residual value guaranteed under these lease agreements was $18.5 million. CNF recognizes a liability for any shortfall between the residual value guarantee and the equipment’s fair value, which fluctuates depending on market conditions.

      Rental expense for operating leases comprised the following:

	Years Ended December 31,
	2004			2003			2002
	(Dollars in thousands)
Minimum rentals	$	89,696		$	90,966		$	88,611
Sublease rentals		(3,899	)		(4,680	)		(3,015	)
	$	85,797		$	86,286		$	85,596

48

CNF Inc.

Notes to Consolidated Financial Statements — (Continued)

7.     Income Taxes

      The components of the provision (benefit) for income taxes were as follows:

		Years Ended December 31,
		2004			2003			2002
		(Dollars in thousands)
Current provision (benefit)
	Federal	$	57,129		$	37,474		$	18,821
	State and local		13,574			10,255			(1,172	)
	Foreign		1,957			1,634			1,855
			72,660			49,363			19,504
Deferred provision (benefit)
	Federal		24,392			25,821			20,675
	State and local		335			2,475			(1,646	)
	Foreign		(1,009	)		(627	)		(299	)
			23,718			27,669			18,730
		$	96,378		$	77,032		$	38,234

      Income taxes have been provided for foreign operations based upon the various tax laws and rates of the countries in which operations are conducted.

      Income tax provision varied from the amounts calculated by applying the U.S. statutory income tax rate to the pretax income as set forth in the following reconciliation:

	Years Ended
	December 31,
	2004			2003			2002
Federal statutory tax provision rate		35.0	%		35.0	%		35.0	%
State income tax provision (benefit), net of federal income tax benefit		4.1			4.0			(1.4	)
Foreign taxes in excess of U.S. statutory rate		0.1			0.1			0.5
Non-deductible operating expenses		0.9			(0.3	)		1.9
Foreign tax credits, net		(0.2	)		—			(0.7	)
IRS Settlement		—			—			(9.2	)
Other, net		(0.9	)		0.2			(1.0	)
Effective income tax provision rate		39.0	%		39.0	%		25.1	%

      In August 2002, CNF entered into settlement agreements with the IRS, pursuant to which the parties settled issues related to the IRS examinations for the years 1987 through 1996. CNF reversed through tax provision the related tax liabilities previously recognized for this issue, resulting in a $14.0 million tax benefit in the third quarter of 2002. As a result of the settlement agreements, CNF was not required to make any additional payments to the IRS over and above a $93.4 million payment made in respect to these issues in 2000. Certain issues remain open for the years 1997 through 2001, but management does not believe that the resolution of those issues is likely to have a material adverse effect on CNF’s financial condition, cash flows, or results of operations.

49

CNF Inc.

Notes to Consolidated Financial Statements — (Continued)

      The components of deferred tax assets and liabilities related to the following:

		December 31,
		2004		2003
		(Dollars in thousands)
Deferred tax assets
	Employee benefits	$	105,213	$	123,823
	Self-insurance accruals		62,983		48,775
	Other		7,682		16,413
			175,878		189,011
Deferred tax liabilities
	Property, plant and equipment		137,548		130,334
	Revenue		6,070		4,702
	Other		10,007		11,987
			153,625		147,023
	Net deferred tax asset	$	22,253	$	41,988

      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. Although realization is not assured, management believes it more likely than not that all deferred tax assets will be realized.

      The cumulative undistributed earnings of CNF’s foreign subsidiaries (approximately $16.8 million at December 31, 2004), which if remitted are subject to withholding tax, have been indefinitely reinvested in the respective foreign subsidiaries’ operations unless it becomes advantageous for tax or foreign exchange reasons to remit these earnings. Therefore, no withholding or U.S. taxes have been provided on this amount. The amount of withholding tax that would be payable on remittance of the undistributed earnings would approximate $0.8 million.

8.     Shareholders’ Equity

      Series B Preferred Stock: In 1989, the Board of Directors designated a series of 1,100,000 preferred shares as Series B Cumulative Convertible Preferred Stock, $.01 stated value, which is held by the CNF Thrift and Stock Plan (“TASP”). The Series B preferred stock is convertible into common stock, as described in Note 9, “Benefit Plans,” at the rate of 4.71 shares for each share of preferred stock subject to antidilution adjustments in certain circumstances and ranks senior to the Company’s common stock. Holders of the Series B preferred stock are entitled to vote with the common stock and are entitled to a number of votes in such circumstances equal to the product of (a) 1.3 multiplied by (b) the number of shares of common stock into which the Series B preferred stock is convertible on the record date of such vote. Holders of the Series B preferred stock are also entitled to vote separately as a class on certain other matters. The TASP trustee is required to vote the allocated shares based upon instructions from the participants; unallocated shares are voted in proportion to the voting instructions received from the participants with allocated shares.

      Accumulated Other Comprehensive Income (Loss): CNF reports all changes in equity except those resulting from investment by owners and distribution to owners as Comprehensive Income (Loss) in the

50

CNF Inc.

Notes to Consolidated Financial Statements — (Continued)

Statements of Consolidated Shareholders’ Equity. The following is a summary of the components of Accumulated Other Comprehensive Loss:

		December 31,
		2004			2003
		(Dollars in thousands)
Unrealized gain on marketable securities, net of deferred taxes of $1,307 at December 31, 2003		$	—		$	2,044
	Accumulated foreign currency translation adjustments (Note 1)		(1,056	)		(19,339	)
Minimum pension liability adjustment, net of deferred tax benefit of $9,386 and $12,549 at December 31, 2004 and 2003 respectively			(14,680	)		(19,628	)
	Accumulated other comprehensive loss	$	(15,736	)	$	(36,923	)

9.     Benefit Plans

      Employees of CNF and its subsidiaries in the U.S. are covered under the CNF Postretirement Medical Plan (the “Postretirement Plan”) and several defined benefit pension plans (the “Pension Plans”). The Pension Plans consist of a plan that covers the non-contractual employees and former employees of CNF’s continuing and discontinued operations (the “CNF Retirement Plan”), as well as certain pension plans that cover only the current and former employees of the discontinued Forwarding segment (the “Forwarding Plans”). As more fully discussed in Note 2, “Discontinued Operations,” CNF completed the sale of MWF in December 2004. Accordingly, amounts related to the legally separate Forwarding Plans are not included in the employee benefit disclosures below and the related benefit expense and accrued benefit cost are reported as discontinued operations. As a result, the employee benefit plan disclosures presented below are provided only for the CNF Retirement Plan and the Postretirement Plan (collectively “the CNF Benefit Plans”). Although total amounts relating to the CNF Benefit Plans are included in the disclosures below, the estimated portion of benefit expense that relates to employees of MWF and EWA is included in the financial statements as Income (Loss) from Discontinued Operations. Based on CNF’s intention to retain the CNF Benefit Plans following the sale of MWF, the obligation related to employees of MWF and EWA covered by these plans is included in Employee Benefits of continuing operations in CNF’s Consolidated Balance Sheets at December 31, 2004 and 2003.

      Pension Plans: Benefits under the Pension Plans are generally based on an employee’s five highest consecutive amounts of annual compensation earned during the ten years immediately prior to retirement. CNF’s annual pension expense and contributions are based on independent actuarial computations. CNF’s funding policy is to evaluate its tax and cash position and the Pension Plans’ funded status to maximize the tax deductibility of its contributions for the year. CNF expects to contribute $75 million to the Pension Plans in 2005.

      Assets of the Pension Plans are managed to long-term strategic allocation targets. Those targets are developed by analyzing a variety of diversified asset class combinations in conjunction with the projected liability, costs and liability duration of the Pension Plans. Asset allocation studies are generally conducted every 3 to 5 years and the targets are reviewed to determine if adjustments are required. Once allocation percentages are established, the portfolio is periodically rebalanced to those targets. The Pension Plans seek to mitigate investment risk by investing across and within asset classes. The Pension Plans do not use market timing strategies nor do they currently use financial derivative instruments to manage risk.

      Generally, the Pension Plans’ investment managers are prohibited from short selling, trading on margin, trading warrants or other options, except when acquired as a result of the purchase of another security, or in the case of options, when sold as part of a covered position. They are further prohibited from trading commodities but may trade financial futures and options when specifically approved by CNF’s Benefits Administrative Committee, or its designated representative.

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CNF Inc.

Notes to Consolidated Financial Statements — (Continued)

      The Pension Plan’s 8.5% overall expected long-term rate of return assumption for 2005 was developed using return, risk (defined as standard deviation) and correlation expectations. The return expectations are created using long-term historical returns and current market expectations for forecasts of inflation, interest rates and economic growth.

      The weighted-average asset allocations of the Pension Plans were as follows:

		December 31,
		2004			2003			Target Allocation
Asset Category:
	Domestic Equity		62	%		63	%		60	%
	International Equity		17	%		17	%		15	%
	Fixed Income		18	%		15	%		18	%
	Real Estate		2	%		3	%		7	%
	Other		1	%		2	%		—
	Total		100	%		100	%		100	%

      In 2003, CNF accelerated the date for actuarial measurement of CNF’s obligation for the Pension Plans from December 31 to November 30. CNF believes the one-month acceleration of the measurement date is a preferred change as it allows time for CNF management to evaluate and report the actuarial measurements as well as evaluate those results in funding decisions. The effect of the change on the obligation and assets of the Pension Plans did not have a material cumulative effect on benefit expense or accrued benefit cost. Accordingly, all amounts reported in the tables below for the years ended December 31, 2004 and 2003 are based on measurement dates of November 30, 2004 and 2003, respectively.

52

CNF Inc.

Notes to Consolidated Financial Statements — (Continued)

      The following sets forth the changes in the projected benefit obligation and the determination of the accrued benefit cost for the CNF Retirement Plan at December 31:

			2004			2003
			(Dollars in thousands)
Accumulated benefit obligation			$	755,908		$	673,879
Change in benefit obligation:
	Projected benefit obligation at beginning of year		$	797,992		$	651,160
		Service cost — benefits earned during the year		56,198			43,602
		Interest cost on projected benefit obligation		49,817			47,054
		Curtailment — sale of MWF		(46,900	)		—
		Actuarial loss		25,235			70,080
		Benefits paid		(19,231	)		(13,904	)
	Projected benefit obligation at end of year		$	863,111		$	797,992
Change in plan assets:
	Fair value of plan assets at beginning of year		$	548,426		$	388,892
		Actual return on plan assets		65,626			98,438
		CNF contributions		90,000			75,000
		Benefits paid		(19,231	)		(13,904	)
	Fair value of plan assets at end of year		$	684,821		$	548,426
Funded status of the plans			$	(178,290	)	$	(249,567	)
Unrecognized actuarial loss				102,473			142,933
Unrecognized prior service costs				2,961			5,146
	Accrued benefit cost		$	(72,856	)	$	(101,488	)
Weighted-average assumptions as of December 31:
	Discount rate			6.25	%		6.25	%
	Expected long-term rate of return on plan assets			8.50	%		9.00	%
	Rate of compensation increase			4.00	%		4.00	%

      Net periodic pension expense for the years ended December 31 includes the following:

		2004			2003			2002
		(Dollars in thousands)
Service cost — benefits earned during the year		$	56,198		$	43,602		$	38,643
Interest cost on benefit obligation			49,817			47,054			42,066
Expected return on plan assets			(52,701	)		(37,642	)		(36,483	)
Net amortization and deferral			7,414			7,343			463
	Net pension expense	$	60,728		$	60,357		$	44,689
Weighted-average assumptions:
	Discount rate		6.25	%		6.75	%		7.25	%
	Expected long-term rate of return on plan assets		9.00	%		9.00	%		9.50	%
	Rate of compensation increase		4.00	%		4.00	%		4.50	%

53

CNF Inc.

Notes to Consolidated Financial Statements — (Continued)

      In the presentation above, benefit expense of $10,662,000, $11,213,000 and $9,930,000 in 2004, 2003 and 2002, respectively, relates to discontinued operations. As described above, these amounts have been segregated as discontinued operations in the financial statements. In connection with the sale of MWF, benefits were curtailed for certain former employees, and accordingly, the projected benefit obligation of the CNF Retirement Plan was reduced by $46.9 million. Under pension accounting rules, the reduction in the projected benefit obligation was offset by a substantially equal reduction in the plan’s unrecognized actuarial loss. As a result, the effect of the curtailment on the benefit expense of the CNF Retirement Plan in 2004 was immaterial.

      Benefit payments, which reflect expected future service, as appropriate, are expected to be paid as follows:

		Pension Benefits
		(Dollars in thousands)
Year ending December 31:
	2005	$	22,046
	2006		23,810
	2007		26,059
	2008		28,842
	2009		32,316
	2010-2014		235,125

      These estimates are based on assumptions about future events. Actual benefit payments may vary from these estimates.

      Supplemental Pension Plan: CNF also has a supplemental retirement program (the “Supplemental Pension Plan”) that provides additional benefits for compensation excluded from the basic Pension Plans. The annual benefit expense for these programs is based on independent actuarial computations using assumptions consistent with the Pension Plans.

      Like the CNF Retirement Plan and the Postretirement Plan, the Supplemental Pension Plan covers employees and former employees of CNF’s continuing and discontinued operations. The estimated accrued benefit cost of $32,704,000 and $28,856,000 at December 31, 2004 and 2003, respectively, is included in Employee Benefits in the Consolidated Balance Sheets. The benefit expense of the Supplemental Pension Plan that relates to employees of continuing operations was $5,736,000 in 2004, $4,701,000 in 2003, and $4,024,000 in 2002. Benefit expense of $928,000, $766,000 and $692,000 million, in 2004, 2003 and 2002, respectively, relates to employees of discontinued operations. As described above, these amounts for benefit expense have been segregated as discontinued operations in the financial statements.

      Minimum Pension Liability Adjustment: For the Supplemental Pension Plan and certain of the Pension Plans, the accumulated benefit obligation exceeded the fair value of related plan assets as of the actuarial measurement dates in 2004 and 2003. Accordingly, CNF recorded minimum pension liability adjustments to recognize the shortfall between the fair value of the assets and the accumulated benefit obligation of these plans at December 31, 2004 and 2003. Due principally to improved equity markets and the actual rate of return on plan assets in 2004, the accumulated minimum pension liability adjustments were reduced in 2004, resulting in a

54

CNF Inc.

Notes to Consolidated Financial Statements — (Continued)

$4.9 million decline in the net-of-tax accumulated other comprehensive loss in shareholders’ equity. CNF’s Consolidated Balance Sheets included the following accumulated minimum pension liability adjustments:

	December 31,
	2004		2003
	(Dollars in thousands)
Intangible asset reported in Other Assets	$	2,270	$	5,146
Pension liability adjustment reported in Employee Benefits		26,336		37,323
Accumulated other comprehensive loss reported in Shareholders’ Equity, net of tax		14,680		19,628

      Postretirement Medical Plan: CNF’s Postretirement Plan provides benefits to certain non-contractual employees at least 55 years of age with 10 years or more of service. The Postretirement 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 medical benefits for employees hired on or after January 1, 1993. In 2005, CNF and its actuaries estimate that CNF will pay $7 million for benefit payments to participants of the Postretirement Plan.

      The following sets forth the changes in the projected benefit obligation and the determination of the accrued benefit cost for the Postretirement Plan at December 31:

			2004			2003
			(Dollars in thousands)
Change in benefit obligation:
	Projected and accumulated benefit obligation at beginning of year		$	76,690		$	90,319
		Service cost — benefits earned during the year		1,308			1,826
		Interest cost on projected benefit obligation		5,231			5,536
		Actuarial loss (gain)		35,891			(15,767	)
		Benefits paid		(5,251	)		(5,224	)
	Projected and accumulated benefit obligation at end of year		$	113,869		$	76,690
Funded Status of the Plan			$	(113,869	)	$	(76,690	)
Unrecognized actuarial loss				37,160			1,506
Unrecognized prior service costs				758			806
	Accrued benefit cost		$	(75,951	)	$	(74,378	)
	Discount rate assumption as of December 31			6.00	%		6.25	%

      Net periodic benefit expense for the years ended December 31 includes the following:

		2004			2003			2002
		(Dollars in thousands)
Service cost — benefits earned during the year		$	1,308		$	1,826		$	1,671
Interest cost on benefit obligation			5,231			5,536			5,418
Net amortization and deferral			285			262			(150	)
	Net benefit expense	$	6,824		$	7,624		$	6,939
	Discount rate assumption at December 31:		6.25	%		6.75	%		7.25	%

      In the presentation above, benefit expense of $3,602,000, $3,804,000 and $3,632,000 in 2004, 2003 and 2002, respectively, relates to discontinued operations. As described above, these amounts have been segregated as discontinued operations in the financial statements.

55

CNF Inc.

Notes to Consolidated Financial Statements — (Continued)

      Benefit payments, which reflect expected future service, as appropriate, are expected to be paid as follows:

		Pension Benefits
		(Dollars in thousands)
Year ending December 31:
	2005	$	6,603
	2006		6,987
	2007		7,405
	2008		7,898
	2009		8,394
	2010-2014		48,764

      These estimates are based on assumptions about future events. Actual benefit payments may vary from these estimates.

      The assumed health care cost trend rates used to determine the projected benefit obligation of the Postretirement Plan are as follows:

		2004			2003
Change in benefit obligation:
	Health care cost trend rate assumed for next year		11.50	%		10.25	%
	Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)		5.50	%		5.50	%
	Year that the rate reaches the ultimate trend rate		2013			2011

      Assumed health care cost trends have a significant effect on the amounts reported for CNF’s postretirement benefits. A one-percentage-point change in assumed health care cost trend rates would change the aggregate service and interest cost by approximately $200,000 and the accumulated and projected benefit obligation by $6,000,000.

      In December 2003, the Medicare Prescription Drug Improvement and Modernization Act of 2003 (the “Act”) was enacted in the U.S. The Act introduced a prescription drug benefit under Medicare, as well as a federal subsidy to sponsors of retiree health benefit plans that provide a prescription drug benefit that is at least actuarially equivalent to Medicare’s prescription drug benefit. In January and May 2004, the FASB issued FASB Staff Position No. 106-1 and 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003” (“FSP 106-1” and “FSP 106-2”).

      Under FSP 106-2, CNF concluded that its post-retirement medical plan provided an actuarially equivalent benefit and recognized the Act’s effect retrospectively to the date of enactment. CNF’s adoption of FSP 106-2 resulted in a $4.9 million reduction to its projected postretirement benefit obligation, which will be recognized as a reduction to its net periodic postretirement benefit expense in future periods when costs are subsidized under the Act. The effect of adoption of FSP 106-2 on CNF’s financial condition, results of operations and cash flows for the year ended December 31, 2004 was not significant.

      Thrift and Stock Plan: CNF sponsors the CNF Thrift and Stock Plan (“TASP”), a voluntary defined contribution plan with a leveraged ESOP feature, for non-contractual U.S. employees. In 1989, the TASP borrowed $150,000,000 to purchase 986,259 shares of CNF’s Series B Cumulative Convertible Preferred Stock, which is only issuable to the TASP trustee. CNF contributes common and preferred stock to the TASP equal to 50% of participant contributions, up to 1.5% of a TASP participant’s base compensation. CNF recognized expense of $12,576,000 in 2004, $11,277,000 in 2003, and $10,448,000 in 2002 for its matching contributions.

      The Series B Preferred Stock earns a dividend of $12.93 per share and is used to repay the TASP debt. Any shortfall is paid in cash by CNF. Dividends on these preferred shares are deductible for income tax purposes and,

56

CNF Inc.

Notes to Consolidated Financial Statements — (Continued)

accordingly, are reflected net of their tax benefits in the Statements of Consolidated Operations. Allocation of preferred stock to participants’ accounts is based upon the ratio of the current year’s principal and interest payments to the total TASP debt. Since CNF guarantees the debt, it is reflected in Long-term Debt and Guarantees in the Consolidated Balance Sheets. The TASP guarantees are reduced as principal is paid.

      Each share of preferred stock is convertible into common stock, upon an employee ceasing participation in the plan, at a rate generally equal to that number of shares of common stock that could be purchased for $152.10, but not less than the minimum conversion rate of 4.71 shares of common stock for each share of Series B preferred stock.

      Deferred compensation expense is recognized as the preferred shares are allocated to participants and is equivalent to the cost of the preferred shares allocated. Deferred compensation expense of $8,570,000, $8,036,000, and $7,597,000 was recognized in 2004, 2003, and 2002, respectively.

      At December 31, 2004, the TASP owned 742,995 shares of Series B preferred stock, of which 423,586 shares have been allocated to employees. At December 31, 2004, the estimated fair value of the 319,409 unallocated shares was $81,449,000. At December 31, 2004, CNF has reserved, authorized and unissued common stock adequate to satisfy the conversion feature of the Series B preferred stock.

      Other Compensation Plans: CNF and each of its subsidiaries have adopted various plans relating to the achievement of specific goals to provide incentive compensation for designated employees. Total compensation earned by salaried participants of those plans was $58,811,000 in 2004, $23,445,000 in 2003, and $59,758,000 in 2002, and by hourly participants was $46,477,000 in 2004, $21,847,000 in 2003, and $37,350,000 in 2002.

10.     Stock-Based Compensation

      Stock Options: Officers and non-employee directors have been granted options under CNF’s stock option plans to purchase common stock of CNF at prices equal to the market value of the stock on the date of grant. Stock option grants generally vest ratably over one to four years from the grant date and generally expire 10 years from the dates of grant.

      CNF accounts for stock-based compensation utilizing the intrinsic-value method in accordance with the provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.” For pro forma information regarding net income (loss) and earnings (loss) per share had CNF applied the fair-value method and recognition provisions of SFAS 123, “Accounting for Stock-Based Compensation,” refer to Note 1, “Principal Accounting Policies — Stock-Based Compensation.”

      In December 2004, the FASB issued SFAS No. 123R, “Share-Based Payment” (“SFAS 123R”), a revision of SFAS 123 that supersedes APB 25 and its related implementation guidance. SFAS 123R eliminates the alternative to use APB 25’s intrinsic-value method of accounting that was provided in SFAS 123 as originally issued, and requires companies to recognize the cost of employee services received in exchange for awards of equity instruments based on the grant-date fair value of those awards (with limited exceptions) over the period during which an employee is required to provide service in exchange for the award. The effective date of SFAS 123R is as of the beginning of the first reporting period that begins after June 15, 2005, which is the third quarter of 2005 for CNF.

57

CNF Inc.

Notes to Consolidated Financial Statements — (Continued)

      The weighted-average grant-date fair value of options, which were estimated using the Black-Scholes option pricing model, are summarized below with the related valuation assumptions:

	2004		2003		2002
Estimated fair value		$16.07		$14.65		$13.91
Risk-free interest rate		3.1%-3.8%		2.9%-3.6%		3.1%-5.3%
Expected life (years)		5.8		5.9		5.9
Expected volatility		45%		48%		47%
Expected dividend yield		1.2%		1.2%		1.2%

      The following is a summary of stock option data:

		Number of			Wtd. Avg.
		Options			Exercise Price
Outstanding at December 31, 2001			5,723,774		$	26.69
	Granted		866,748			31.53
	Exercised		(377,789	)		18.39
	Expired or canceled		(90,942	)		30.12
Outstanding at December 31, 2002			6,121,791		$	27.84
	Granted		455,876			32.90
	Exercised		(276,206	)		23.13
	Expired or canceled		(177,032	)		30.17
Outstanding at December 31, 2003			6,124,429		$	28.34
	Granted		116,800			38.43
	Exercised		(2,080,380	)		26.96
	Expired or canceled		(37,472	)		29.87
Outstanding at December 31, 2004			4,123,377		$	29.30
Options exercisable as of December 31:
	2004		2,711,199		$	29.23
	2003		3,055,314		$	28.58
	2002		2,630,626		$	28.05

      The following is a summary of the stock options outstanding and exercisable at December 31, 2004:

	Outstanding Options						Exercisable Options
			Average		Wtd. Avg.				Wtd. Avg.
	Number of		Remaining		Exercise		Number of		Exercise
Range of Exercise Prices	Options		Life in Years		Price		Options		Price
$18.05 - $27.06		2,096,325		5.8	$	25.32		1,411,249	$	25.24
$28.30 - $35.03		1,610,252		6.9		31.92		923,150		31.78
$35.50 - $49.11		416,800		4.2		39.18		376,800		37.91

      Restricted Stock: Under terms of CNF’s stock-based compensation plans, shares of CNF’s common stock are awarded to selected executive officers and are awarded annually to directors. Restrictions on the shares generally vest ratably over one to four years from the grant date. Shares are valued at the market price of CNF’s common stock at the date of award.

58

CNF Inc.

Notes to Consolidated Financial Statements — (Continued)

      The table below summarizes information about restricted stock awards for the years ended December 31:

	2004				2003				2002
			Wtd. Avg.				Wtd. Avg.				Wtd. Avg.
	Shares		Fair Value		Shares		Fair Value		Shares		Fair Value
Awarded		94,727	$	44.13		129,321	$	32.82		109,092	$	31.46
Forfeited		67,834		35.33		15,336		27.80		—		—

      In 2004, compensation expense recognized for restricted stock was $4,675,000, which included $1,431,000 for shares that vested upon the achievement of certain performance criteria. Compensation expense recognized for restricted stock was $1,340,000 in 2003 and $1,010,000 in 2002. At December 31, 2004, all restricted stock awards outstanding vest upon completion of the service period with no performance criteria and are therefore accounted for under grant-date fixed-price accounting.

      At December 31, 2004, CNF had 3,885,622 common shares available for the grant of stock options, restricted stock, or other stock-based compensation.

11.     Commitments and Contingencies

Spin-Off of CFC

      On December 2, 1996, CNF completed the spin-off of Consolidated Freightways Corporation (“CFC”) to CNF’s shareholders. CFC was, at the time of the spin-off, and remains a party to certain multiemployer pension plans covering some of its current and former employees. The cessation of its U.S. operations in 2002 will result in CFC’s “complete withdrawal” (within the meaning of applicable federal law) from these multiemployer plans, at which point it will become obligated, under federal law, to pay its share of any unfunded vested benefits under those plans.

      It is possible that the trustees of CFC’s multiemployer pension plans may assert claims that CNF is liable for amounts owing to the plans as a result of CFC’s withdrawal from those plans and, if so, there can be no assurance that those claims would not be material. None of those pension plans has asserted or threatened to assert claims against CNF. However, CNF has received requests for information regarding the spin-off of CFC from representatives from some of the pension funds, and, in accordance with federal law, CNF has responded to those requests.

      Based on advice of legal counsel and its knowledge of the facts, CNF believes that it would ultimately prevail if any such claims were made, although there can be no assurance in this regard. CNF believes that the amount of those claims, if asserted, could be material, and a judgment against CNF for all or a significant part of these claims could have a material adverse effect on CNF’s financial condition, results of operations, and cash flows.

      Prior to the enactment in April 2004 of the Pension Funding Equity Act of 2004, if the multiemployer funds had asserted such claims against CNF, CNF would have had a statutory obligation to make cash payments to the funds prior to any arbitral or judicial decisions on the funds’ determinations. Under the facts related to the CFC withdrawals and the law in effect after enactment of the Pension Funding Equity Act of 2004, CNF would no longer be required to make such payments to the multiemployer funds unless and until final decisions in arbitration proceedings, or in court, upheld the funds’ determinations.

      As a result of the matters discussed above, CNF can provide no assurance that matters relating to the spin-off of CFC and CFC’s bankruptcy will not have a material adverse effect on CNF’s financial condition, cash flows or results of operations.

59

CNF Inc.

Notes to Consolidated Financial Statements — (Continued)

Other

      In February 2002, a lawsuit was filed against EWA in the District Court for the Southern District of Ohio, alleging violations of the Worker Adjustment and Retraining Notification Act (the “WARN Act”) in connection with employee layoffs and ultimate terminations due to the August 2001 grounding of EWA’s airline operations and the shutdown of the airline operations in December 2001. The court subsequently certified the lawsuit as a class action on behalf of affected employees laid off between August 11 and August 15, 2001. The WARN Act generally requires employers to give 60-days notice, or 60-days pay and benefits in lieu of notice, of any shutdown of operations or mass layoff at a site of employment. The estimated range for potential loss on this matter is zero to approximately $8 million. CNF intends to continue to vigorously defend the lawsuit.

      In September 2003, CNF received notice from the United States Attorney’s Office for the District of Columbia that EWA is being considered for possible civil action under the False Claims Act for allegedly submitting false invoices to the USPS for payment under the Priority Mail contract. EWA subsequently entered into a tolling agreement with the government in order to give the parties more time to investigate the allegations. In November 2004, CNF representatives met with the government to discuss the government’s allegations, and at that time received certain information relating to the government’s investigation. EWA is continuing with its own investigation of the allegations, and as a result, is currently unable to predict the outcome of this matter. Under the False Claims Act, the government would be entitled to recover treble damages, plus penalties, if a court was to ultimately conclude that EWA knowingly submitted false invoices to the USPS.

      CNF is a defendant in various other lawsuits incidental to its businesses. It is the opinion of management that the ultimate outcome of these actions will not have a material impact on CNF’s financial condition, cash flows, or results of operations.

12.     Segment Reporting

      CNF discloses segment information in the manner in which the components are organized for making operating decisions, assessing performance and allocating resources. Refer to Note 1, “Principal Accounting Policies — Organization,” for a description of CNF’s reportable segments.

      In December 2004, CNF sold MWF. As a result, for all periods presented, the results of operations, net assets, and cash flows of MWF have been segregated as discontinued operations and excluded from the reporting segment financial data summarized below. Prior to the reclassification, the combined operating results of MWF and a portion of the operations of EWA were reported in continuing operations as the Forwarding segment. As required by accounting rules, continuing operations has been allocated certain corporate overhead charges that were previously allocated to the discontinued Forwarding segment, as more fully discussed in Note 2, “Discontinued Operations.” Accordingly, reporting segment financial information presented below reflects those reclassifications for all periods presented.

Financial Data

      Management evaluates segment performance primarily based on revenue and operating income (loss); therefore, other non-operating items, consisting primarily of interest income or expense, are not reported in segment results. Corporate expenses are generally allocated based on measurable services provided to each segment or, for general corporate expenses, based on segment revenue or capital employed. Identifiable corporate assets consist primarily of cash and cash equivalents, deferred charges and other assets, property and equipment and deferred taxes. Certain corporate assets that are used to provide shared data processing and other administrative services are not allocated to individual segments.

      Inter-segment revenue and related operating income have been eliminated to reconcile to consolidated revenue and operating income. Transactions within and between segments are generally made at cost, with the

60

CNF Inc.

Notes to Consolidated Financial Statements — (Continued)

exception of the inter-segment revenue of CNF Other, which is intended to reflect the fair value of the trailers manufactured by Road Systems and sold to Con-Way.

			Years Ended December 31,
			2004			2003			2002
			(Dollars in thousands)
Revenues
	Con-Way Transportation Services		$	2,604,004		$	2,212,692		$	2,011,577
	Menlo Worldwide Logistics			1,103,028			1,013,987			978,929
	CNF Other			5,347			287			2,841
			$	3,712,379		$	3,226,966		$	2,993,347
Inter-segment Revenue Eliminations
	Con-Way Transportation Services		$	5,461		$	2,549		$	334
	Menlo Worldwide Logistics			—			2,975			6,804
	CNF Other			29,450			21,724			10,428
			$	34,911		$	27,248		$	17,566
Revenues before Inter-segment Eliminations
	Con-Way Transportation Services		$	2,609,465		$	2,215,241		$	2,011,911
	Menlo Worldwide Logistics			1,103,028			1,016,962			985,733
	CNF Other			34,797			22,011			13,269
	Inter-segment Revenue Eliminations			(34,911	)		(27,248	)		(17,566	)
			$	3,712,379		$	3,226,966		$	2,993,347
Operating Income (Loss)
	Con-Way Transportation Services		$	245,488		$	183,095		$	135,001
	Menlo Worldwide
		Logistics		24,399			23,492			30,523
		Other		18,253			20,718			18,188
				42,652			44,210			48,711
	CNF Other			(3,973	)		(2,357	)		(3,369	)
			$	284,167		$	224,948		$	180,343
Depreciation and Amortization, net of Accretion
	Con-Way Transportation Services		$	97,523		$	94,179		$	95,484
	Menlo Worldwide
		Logistics		7,005			7,402			10,344
		Other		4,117			5,367			—
				11,122			12,769			10,344
	CNF Other			6,451			6,469			11,256
			$	115,096		$	113,417		$	117,084
Capital Expenditures
	Con-Way Transportation Services		$	144,479		$	118,150		$	65,122
	Menlo Worldwide
		Logistics		4,687			6,054			8,991
		Other		948			2,815			—
				5,635			8,869			8,991
	CNF Other			1,346			744			1,718
			$	151,460		$	127,763		$	75,831

61

CNF Inc.

Notes to Consolidated Financial Statements — (Continued)

			Years Ended December 31,
			2004		2003		2002
			(Dollars in thousands)
Identifiable Assets
	Con-Way Transportation Services		$	1,185,835	$	1,098,022	$	1,028,233
	Menlo Worldwide
		Logistics		201,274		179,518		176,941
		Other		21,891		29,255		—
				223,165		208,773		176,941
	CNF Other			1,067,053		541,366		600,765
	Assets of discontinued operations			20,348		925,479		980,935
			$	2,496,401	$	2,773,640	$	2,786,874

Geographic Data

      For geographic reporting, 50 percent of freight transportation revenues are allocated to Canadian locations when the origination or destination location is in Canada. Revenues for contract services are allocated to the country in which the services are performed. Long-lived assets outside of the United States were immaterial for all periods presented.

			Years Ended December 31,
			2004		2003		2002
			(Dollars in thousands)
Revenues
	United States		$	3,604,685	$	3,142,446	$	2,920,544
	Canada			51,993		44,201		36,858
		North America		3,656,678		3,186,647		2,957,402
	International			55,701		40,319		35,945
		Total	$	3,712,379	$	3,226,966	$	2,993,347

62

CNF Inc.

Notes to Consolidated Financial Statements — (Continued)

13.     Quarterly Financial Data (Unaudited):

2004 — Quarter Ended				March 31			June 30		September 30			December 31
				(Dollars in thousands except per share data)
Revenues				$	846,920		$	924,382	$	973,619		$	967,458
Operating income					55,448			71,279		78,435			79,005
Income from Continuing Operations Before Income Tax Provision					48,271			58,719		68,712			71,121
Income Tax Provision					18,826			22,900		26,798			27,854
Net Income from Continuing Operations (after preferred stock dividends)					27,423			33,797		39,839			41,147
Loss from Disposal, net of tax					—			—		(260,490	)		(18,259	)
Income (Loss) from Discontinued Operations, net of tax					(3,016	)		1,686		4,444			9,301
Net Income (Loss) Applicable to Common Shareholders				$	24,407		$	35,483	$	(216,207	)	$	32,189
Earnings (Loss) Per Common Share:
	Basic
		Net Income from Continuing Operations		$	0.55		$	0.67	$	0.79		$	0.80
		Loss from Disposal, net of tax			—			—		(5.15	)		(0.35	)
		Income (Loss) from Discontinued Operations, net of tax			(0.06	)		0.04		0.09			0.18
			Net Income (Loss) Applicable to Common Shareholders	$	0.49		$	0.71	$	(4.27	)	$	0.63
	Diluted
		Net Income from Continuing Operations		$	0.50		$	0.61	$	0.72		$	0.74
		Loss from Disposal, net of tax			—			—		(4.70	)		(0.33	)
		Income (Loss) from Discontinued Operations, net of tax			(0.05	)		0.03		0.08			0.17
			Net Income (Loss) Applicable to Common Shareholders	$	0.45		$	0.64	$	(3.90	)	$	0.58
Market price range				$	30.50-$35.84		$	33.55-$42.57	$	38.66-$43.01		$	41.67-$50.96
Common dividends (paid quarterly)					0.10			0.10		0.10			0.10

63

CNF Inc.

Notes to Consolidated Financial Statements — (Continued)

2003 — Quarter Ended				March 31			June 30			September 30			December 31
Revenues				$	762,550		$	796,609		$	837,361		$	830,446
Operating income					43,381			47,961			68,311			65,295
Income from Continuing Operations Before Income Tax Provision					33,714			42,876			60,879			60,048
Income Tax Provision					13,149			16,721			23,743			23,419
Net Income from Continuing Operations (after preferred stock dividends)					18,539			24,086			35,106			34,515
Loss from Discontinued Operations, net of tax					(2,610	)		(7,786	)		(10,315	)		(7,750	)
Net Income Applicable to Common Shareholders				$	15,929		$	16,300		$	24,791		$	26,765
Earnings Per Common Share:
	Basic
		Net Income from Continuing Operations		$	0.37		$	0.49		$	0.71		$	0.69
		Loss from Discontinued Operations, net of tax			(0.05	)		(0.16	)		(0.21	)		(0.15	)
			Net Income Applicable to Common Shareholders	$	0.32		$	0.33		$	0.50		$	0.54
	Diluted
		Net Income from Continuing Operations		$	0.35		$	0.44		$	0.64		$	0.62
		Loss from Discontinued Operations, net of tax			(0.05	)		(0.13	)		(0.18	)		(0.13	)
			Net Income Applicable to Common Shareholders	$	0.30		$	0.31		$	0.46		$	0.49
Market price range				$	27.19-$34.70		$	24.44-$31.47		$	24.95-$33.26		$	31.83-$35.77
Common dividends (paid quarterly)					0.10			0.10			0.10			0.10

64

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

      None.

ITEM 9A. CONTROLS AND PROCEDURES

      (a) Disclosure Controls and Procedures.

      CNF’s management, with the participation of CNF’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of CNF’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, CNF’s Chief Executive Officer and Chief Financial Officer have concluded that CNF’s disclosure controls and procedures are effective as of the end of such period.

      (b) Internal Control Over Financial Reporting.

      There have not been any changes in CNF’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, CNF’s internal control over financial reporting.

      (c) Management’s Report on Internal Control Over Financial Reporting

      Management is responsible for establishing and maintaining adequate internal control over the company’s financial reporting, as such term is defined in Exchange Act Rules 13a-15(f). Management followed the internal control integrated framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) to establish, document, test, and maintain a system of internal control over the financial reporting processes. Management’s assessment is that as of the end of fiscal-year 2004, there is effective internal control over financial reporting.

      KPMG LLP, the independent registered public accounting firm that audited the company’s financial statements included in the annual report has issued an attestation report on management’s assessment of the company’s internal control over financial reporting.

65

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

CNF Inc.:

      We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting, that CNF Inc. maintained effective internal control over financial reporting as of December 31, 2004, based on criteria established in “Internal Control — Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). CNF Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

      We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

      A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

      Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

      In our opinion, management’s assessment that CNF Inc. maintained effective internal control over financial reporting as of December 31, 2004, is fairly stated, in all material respects, based on criteria established in “Internal Control — Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also, in our opinion, CNF Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004, based on criteria established in “Internal Control — Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

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      We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of CNF Inc. and subsidiaries as of December 31, 2004 and 2003, and the related consolidated statements of operations, shareholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2004, and our report dated March 14, 2005 expressed an unqualified opinion on those consolidated financial statements.

/s/ KPMG LLP

KPMG LLP

Portland, Oregon

March 14, 2005

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ITEM 9B. OTHER INFORMATION

      On December 10, 2004, a grant of 30,000 shares of restricted stock was made to John H. Williford, Senior Vice President of CNF and President and Chief Executive Officer of Menlo Worldwide, LLC, a subsidiary of CNF. The shares of restricted stock are scheduled to vest in three equal installments of 10,000 shares each on January 1, 2006, January 1, 2007 and January 1, 2008, although the shares may vest earlier upon the occurrence of certain events, as more fully described in the Restricted Stock Award Agreement dated as December 10, 2004 between CNF and Mr. Williford (See Exhibit 10.74 to this Annual Report on 10-K).

      On December 17, 2004, a grant of 30,000 shares of restricted stock was made to Douglas W. Stotlar following his promotion to Senior Vice President of CNF and President and Chief Executive Officer of Con-Way Transportation Services, Inc., a subsidiary of CNF. The shares of restricted stock are scheduled to vest in three equal installments of 10,000 shares each on January 1, 2007, January 1, 2008 and January 1, 2009, although the shares may vest earlier upon the occurrence of certain events, as more fully described in the Restricted Stock Award Agreement dated as December 17, 2004 between CNF and Mr. Stotlar (See Exhibit 10.75 to this Annual Report on 10-K).

      On December 17, 2004 Mr. Stotlar also received a grant of an option to acquire 40,000 shares of CNF’s stock at an exercise price of $49.11. The option is scheduled to vest in three equal installments on January 1, 2006, January 1, 2007 and January 1, 2008, although the option may vest earlier upon the occurrence of certain events, as more fully described in the Stock Option Agreement dated as December 17, 2004 between CNF and Mr. Stotlar (See Exhibit 10.76 to this Annual Report on 10-K).

      The grants described above were not reported earlier in a Form 8-K filing.

PART III

      Information for Items 10 through 14 of Part III of this Report appears in the Proxy Statement for CNF’s Annual Meeting of Shareholders to be held on April  19, 2005 (“the 2005 Proxy Statement”), as indicated below. For the limited purpose of providing the information required by these items, the 2005 Proxy Statement is incorporated herein by reference.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

      The Executive Officers of CNF, their ages at December 31, 2004, and their applicable business experience are as follows:

      Dr. W. Keith Kennedy, 61, Chairman of the Board and interim Chief Executive Officer of CNF. Named Chairman of CNF in January 2004, Dr. Kennedy had served as Vice Chairman since April 2002. He was named interim CEO effective June 30, 2004 following the retirement of Gregory L. Quesnel. Dr. Kennedy retired in January 2000 as President and Chief Executive Officer of Watkins-Johnson Company, a high-technology corporation specializing in semiconductor manufacturing equipment and electronic products for the telecommunications and defense industries. He had held that position since January 1988. Dr. Kennedy joined Watkins-Johnson in 1968 and was a Division Manager, Group Vice President, and Vice President of Planning Coordination and Shareowner Relations prior to becoming President. A graduate of Cornell University from which he holds B.S.E.E., M.S., and Ph.D. degrees, Dr. Kennedy is a past Chairman and a current Board Member of Joint Venture: Silicon Valley Network, a non-profit regional organization. He also serves on the Board of Lytton Gardens, a non-profit senior community. He previously held Board and/or officer positions with the Boy Scouts of America (Pacific Skyline Council), California State Chamber of Commerce, Silicon Valley Manufacturing Group and the Superschools Foundation of Fremont Union Schools District. Dr. Kennedy is a senior member of the Institute of Electrical and Electronics Engineers.

      Chutta Ratnathicam, 57, Chief Financial Officer and Senior Vice President of CNF. Mr. Ratnathicam has informed the Board of Directors that he will retire as Senior Vice President and Chief Financial Officer of CNF on March 31, 2005. Kevin Schick, who currently serves as Vice President and Controller for Con-Way, will succeed Mr. Ratnathicam as CNF’s Chief Financial Officer. Mr. Ratnathicam joined CNF in 1977 as a corporate

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auditor and, following several increasingly responsible positions, was named Vice President Internal Audit for CNF in 1989. In 1991, he was promoted to Vice President-International for Forwarding. In 1997, Mr. Ratnathicam was named Senior Vice President and Chief Financial Officer of CNF. In September 2000, Mr. Ratnathicam was also named Chief Executive Officer of Forwarding until Forwarding became part of Menlo Worldwide in 2002.

      Douglas W. Stotlar, 44, President and Chief Executive Officer of Con-Way Transportation Service and Senior Vice President of CNF. Mr. Stotlar was named to his current position in December 2004. He previously served as Executive Vice President and Chief Operating Officer of Con-Way, a position he held since June 2002. From 1999 to 2002, he was Executive Vice President of Operations for Con-Way. Prior to joining Con-Way’s corporate office, Mr. Stotlar served as Vice President and General Manager of Con-Way NOW. Mr. Stotlar joined the Con-Way organization in 1985 as a Freight Operations Supervisor for Con-Way Central Express. He subsequently advanced to management posts in Columbus, Ohio, and Fort Wayne, Ind., where he was named Regional Manager. Mr. Stotlar earned his bachelor’s degree in transportation and logistics from Ohio State University.

      Jennifer W. Pileggi, 40, Senior Vice President, General Counsel and Corporate Secretary of CNF. Ms. Pileggi was named to her current position in December 2004. Ms. Pileggi joined CNF’s subsidiary Menlo Logistics in 1996 as Corporate Counsel and was promoted to Vice President in 1999. She was promoted to Vice President and Corporate Counsel of Menlo Worldwide in 2003. Ms. Pileggi is a graduate of Yale University and New York University School of Law, where she achieved a juris doctorate degree. Ms. Pileggi is a member of the American Bar Association and the California State Bar Association.

      John H. Williford, 48, President and Chief Executive Officer of Menlo Worldwide and Senior Vice President of CNF. Mr. Williford joined CNF in 1981 as an Economics/ Senior Marketing Analyst. In 1984, he was named Director of Marketing for CNF’s international operations and was later appointed Director of Marketing for CNF. Since its inception in 1990, Mr. Williford served as the principal executive in charge of Menlo Worldwide Logistics, first as General Manager and then as President and Chief Executive Officer. In 1998, Mr. Williford was named Senior Vice President of CNF. In 2002, Mr. Williford was named President and Chief Executive Officer of Menlo Worldwide.

      Mark C. Thickpenny, 52, Vice President and Treasurer of CNF. Mr. Thickpenny joined CNF in 1995 as Treasury Manager. In 1997, he was named Director and Assistant Treasurer, and in 2000 was promoted to Vice President and Treasurer. Mr. Thickpenny holds a bachelor’s degree in business administration from the University of Notre Dame and a master’s degree in business administration from the University of Chicago Graduate School of Business.

      Kevin Coel, 46, Vice President and Corporate Controller of CNF. Mr. Coel joined CNF in 1990 as CNF’s Corporate Accounting Manager. In 2000, he was named Corporate Controller, and in 2002, was promoted to Vice President. Mr. Coel holds a bachelor’s degree in economics from the University of California at Davis and a master’s degree in business administration from San Jose State University. Mr. Coel is also a member of the American Institute of CPAs.

      Information regarding members of CNF’s Board of Directors is presented under the caption “Election of Directors” in the 2005 Proxy Statement and is incorporated herein by reference. Information regarding CNF’s audit committee financial expert is presented in the 2005 Proxy Statement under the caption “Information about the Board of Directors and Certain Board Committees — Standing Committees — Audit Committee” and is incorporated herein by reference.

      The information required by Item 405 of Regulation S-K is presented in the 2005 Proxy Statement under the caption “Compliance with Section 16 of the Exchange Act” and is incorporated herein by reference.

      The information required by Item 406 of Regulation S-K is presented in the 2005 Proxy Statement under the caption “Information about the Board of Directors and Certain Board Committees — Code of Ethics for Officers” and is incorporated herein by reference.

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ITEM 11. EXECUTIVE COMPENSATION

      Information regarding executive compensation is presented under the caption “Compensation of Executive Officers” in the 2005 Proxy Statement and is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

      (a) Security Ownership of Certain Beneficial Owners. Information regarding security ownership of certain beneficial owners is presented under the caption “Principal Shareholders” in the 2005 Proxy Statement and is incorporated herein by reference.

      (b) Security Ownership of Management. The following table gives information as of December 31, 2004 regarding CNF shares that may be issued upon the exercise of options, warrants, and rights under all of CNF’s existing equity compensation plans.

      Equity Compensation Plan Information

							Number of Securities
		Number of Securities to					Remaining Available for
		be Issued upon			Weighted-Average		Future Issuance under
		Exercise of			Exercise Price of		Equity Compensation
		Outstanding Options,			Outstanding Options,		Plans (Excluding
		Warrants, and			Warrants, and		Securities Reflected in
Plan Category		Rights(a)			Rights(b)		Column(a))(c)
Equity compensation plans approved by
	security holders		2,711,199	(1)	$	29.30		3,885,622	(2)
Equity compensation plans not approved by security holders			0	(3)		0		0	(3)
Total			2,711,199		$	29.30		3,885,622

(1)	Excludes 8,585 phantom stock units, issued under CNF’s deferred compensation plan for executives upon election of certain participants to convert a portion of their deferred compensation account balances into phantom stock units.
(2)	Includes 3,653,541 securities available for issuance in the form of restricted stock, stock options, or other equity-based awards under CNF’s 1997 Equity and Incentive Plans. Also includes 12,808 securities available for issuance in the form of restricted stock or stock options under CNF’s 1994 Amended and Restated Equity Incentive Plan for Non-Employee Directors and 219,273 securities available for issuance in the form of restricted or stock options under CNF’s 2003 Equity and Incentive Plan for Non-Employee Directors.
(3)	Does not include shares purchased under CNF’s Employee Stock Purchase Plan. The Employee Stock Purchase Plan offers participants the opportunity to purchase shares at fair market value using payroll deductions. The shares are purchased by the Plan’s administrator in the open market. The Plan does not contain specific limitation on the number of shares that can be purchased under the plan.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      Not applicable.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

      Information regarding principal accounting fees and services is presented under the caption “Ratification of Auditors” in the 2005 Proxy Statement and is incorporated herein by reference.

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PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

      (a) 1. FINANCIAL STATEMENTS

         2. FINANCIAL STATEMENT SCHEDULE

      Report of Independent Auditors on Financial Statement Schedule Schedule II — Valuation and Qualifying Accounts

         3. EXHIBITS

      Exhibits are being filed in connection with this Report and are incorporated herein by reference. The Exhibit Index on pages 78 through 82 is incorporated herein by reference.

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Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders CNF Inc.:

      We have audited the accompanying consolidated balance sheets of CNF Inc. and subsidiaries as of December 31, 2004 and 2003, and the related consolidated statements of operations, shareholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2004. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

      We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of CNF Inc. and subsidiaries as of December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2004, in conformity with U.S. generally accepted accounting principles.

      We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of CNF Inc.’s internal control over financial reporting as of December 31, 2004, based on criteria established in “Internal Control — Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 14, 2005 expressed an unqualified opinion on management’s assessment of, and the effective operation of, internal control over financial reporting.

/s/ KPMG LLP

KPMG LLP

Portland, Oregon

March 14, 2005

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Report of Independent Registered Public Accounting Firm on Financial Schedule

The Board of Directors and Shareholders CNF Inc.:

      Under date of March 14, 2005, we reported on the consolidated balance sheets of CNF Inc. and subsidiaries as of December 31, 2004 and 2003, and the related consolidated statements of operations, shareholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2004, which are included in this Form 10-K for the year ended December 31, 2004. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedule in this Form 10-K for the years ended December 31, 2004, 2003 and 2002. This financial statement schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion on this financial statement schedule based on our audits.

      In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

/s/ KPMG LLP

KPMG LLP

Portland, Oregon

March 14, 2005

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Schedule II

CNF Inc.

Valuation and Qualifying Accounts

Three Years Ended December 31, 2004

Description

Allowance for uncollectible accounts

			Additions
	Balance at		(1)		(2)
	Beginning of		Charged to Costs		Charged to Other		Deductions			Balance at End
	Period		and Expenses		Accounts		(a)			of Period
	(Dollars in thousands)
2004	$	10,958	$	5,103	$	203	$	(9,648	)	$	6,616
2003		12,046		5,425		—		(6,513	)		10,958
2002		11,814		10,058		—		(9,826	)		12,046

(a)  Accounts written off net of recoveries.

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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.

CNF INC.

(Registrant)

/s/ W. Keith Kennedy, Jr.

W. Keith Kennedy, Jr.

Interim Chief Executive Officer

March 14, 2005

/s/ Chutta Ratnathicam

Chutta Ratnathicam

Senior Vice President and Chief Financial Officer

March 14, 2005

/s/ Kevin S. Coel

Kevin S. Coel

Vice President and Controller

March 14, 2005

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SIGNATURES

      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.

/s/ W. Keith Kennedy, Jr.

W. Keith Kennedy, Jr.

Chairman of the Board

Interim Chief Executive Officer

March 14, 2005

/s/ Margaret G. Gill

Margaret G. Gill, Director

March 14, 2005

/s/ Robert Jaunich II

Robert Jaunich II, Director

March 14, 2005

/s/ Michael J. Murray

Michael J. Murray, Director

March 14, 2005

/s/ John C. Pope

John C. Pope, Director

March 14, 2005

/s/ Robert D. Rogers

Robert D. Rogers, Director

March 14, 2005

/s/ William J. Schroeder

William J. Schroeder, Director

March 14, 2005

76

/s/ Peter W. Stott

Peter W. Stott, Director

March 14, 2005

/s/ Robert P. Wayman

Robert P. Wayman, Director

March 14, 2005

/s/ Chelsea C. White III

Chelsea C. White III, Director

March 14, 2005

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INDEX TO EXHIBITS

ITEM 15(3)

Exhibit No.

(3)     Articles of incorporation and by-laws:

3.1	CNF Inc. Certificate of Incorporation, as amended. (Exhibit 3.1 to CNF’s Form 10-K for the year ended December 31, 2002*)
3.2	CNF Inc. By-laws, as amended September 28, 1998. (Exhibit 3.2 to CNF’s Form 10-K for the year ended December 31, 2002*)

(4)     Instruments defining the rights of security holders, including debentures:

4.1	Certificate of Designations of the Series B Cumulative Convertible Preferred Stock. (Exhibit 4.1 as filed on Form SE dated May 25, 1989*)
4.2	Indenture between the Registrant and Bank One, Columbus, NA, as successor trustee, with respect to 91/8% Notes Due 1999, Medium-Term Notes, Series A and 7.35% Notes due 2005. (Exhibit 4.1 as filed on Form SE dated March 20, 1990*)
4.3	Indenture between the Registrant and The First National Bank of Chicago Bank, trustee, with respect to debt securities. (Exhibit 4(d) as filed on Form S-3 dated June 27, 1995*)
4.4	Indenture between the Registrant and Bank One, Columbus, NA, trustee, with respect to subordinated debt securities. (Exhibit 4(e) as filed on Form S-3 dated June 27, 1995*)
4.5	Form of Security for 7.35% Notes due 2005 issued by Consolidated Freightways, Inc. (Exhibit 4.4 as filed on Form S-4 dated June 27, 1995*)
4.6	Form of Indenture between CNF Transportation Inc. and Bank One Trust Company, National Association (Exhibit 4(d)(i) to CNF’s Form  8-K dated March 3, 2000*)
4.7	Form of Security for 87/8% Notes due 2010 issued by CNF Transportation Inc. (Exhibit 4(i) to CNF’s Form 8-K dated March 3, 2000*)
4.8	Amendment dated August 8, 2003 to 6.00% Senior CNF Plan Guaranteed Notes. (Exhibit 4.16 to CNF’s Form 10-Q for the quarter ended June 30, 2003*)
4.9	$400 million Credit Agreement dated March 11, 2005 among CNF and various financial institutions
4.10	Subsidiary Guaranty Agreement dated as of March 11, 2005, made by Con-Way Transportation Services, Inc., Menlo Worldwide, LLC and Menlo Logistics Inc. in favor of the banks referred to in 4.9.
	Instruments defining the rights of security holders of long-term debt of CNF Inc., and its subsidiaries for which financial statements are required to be filed with this Form 10-K, of which the total amount of securities authorized under each such instrument is less than 10% of the total assets of CNF Inc. and its subsidiaries on a consolidated basis, have not been filed as exhibits to this Form 10-K. CNF agrees to furnish a copy of each applicable instrument to the Securities and Exchange Commission upon request.

(10)     Material contracts:

10.1	Emery Air Freight Plan for Retirees, effective October 31, 1987. (Exhibit 4.23 to the Emery Air Freight Corporation Quarterly Report on Form 10-Q dated November 16, 1987**)
10.2	Supplemental Retirement Plan dated January 1, 1990. (Exhibit 10.31 to CNF’s Form 10-K for the year ended December 31, 1993*#)
10.3	Directors’ 24-Hour Accidental Death and Dismemberment Plan. (Exhibit 10.32 to CNF’s Form 10-K for the year ended December 31, 1993*#)
10.4	Board of Directors’ Compensation Plan dated January 1, 1994. (Exhibit 10.34 to CNF’s Form 10-K for the year ended December 31, 1993*#)
10.5	Directors’ Business Travel Insurance Plan. (Exhibit 10.36 to CNF’s Form 10-K for the year ended December 31, 1993*#)

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10.6	Deferred Compensation Plan for Executives 1998 Restatement. (Exhibit 10.20 to CNF’s Form 10-K for the year ended December 31, 1997.*#)
10.7	Amended and Restated 1993 Nonqualified Employee Benefit Plans Trust Agreement dated January 1, 1995. (Exhibit 10.38 to CNF’s Form 10-K for the year ended December 31, 1994.*#)
10.8	Employee Benefit Matters Agreement by and between Consolidated Freightways, Inc. and Consolidated Freightways Corporation dated December 2, 1996. (Exhibit 10.33 to CNF’s form 10-K for the year ended December 31, 1996.*#)
10.9	Distribution Agreement between Consolidated Freightways, Inc., and Consolidated Freightways Corporation dated November 25, 1996. (Exhibit 10.34 to CNF’s Form 10-K for the year ended December 31, 1996.*)
10.10	Transition Services Agreement between CNF Service Company, Inc. and Consolidated Freightways Corporation dated December 2, 1996. (Exhibit to CNF’s Form 10-K for the year ended December 31, 1996.*)
10.11	Tax Sharing Agreement between Consolidated Freightways, Inc., and Consolidated Freightways Corporation dated December 2, 1996. (Exhibit to CNF’s Form 10-K for the year ended December 31, 1996.*)
10.12	CNF Inc. 1997 Equity and Incentive Plan as amended as of January 31, 2000. (Exhibit A to CNF’s Proxy Statement dated March 20, 2000.*#)
10.13	CNF Inc. Deferred Compensation Plan for Directors 1998 Restatement. (Exhibit 10.34 to CNF’s Form 10-K for the year ended December 31, 1997.*#)
10.14	CNF Inc. Executive Severance Plan. (Exhibit 10.32 to CNF’s Form 10-K for the year ended December 31, 1998.*#)
10.15	Value Management Plan dated June 28, 1999. (Exhibit 10.33 to CNF’s Form 10-K for the year ended December 31, 1999.*#)
10.16	Amendment No. 1 dated June 28, 1999, to the Deferred Compensation Plan for Executives 1998 Restatement. (Exhibit 10.30 to CNF’s Form 10-K for the year ended December 31, 2002.*#)
10.17	Amendment No. 2 dated August 21, 2000, to the Deferred Compensation Plan for Executives 1998 Restatement. (Exhibit 10.31 to CNF’s Form 10-K for the year ended December 31, 2002.*#)
10.18	Amendment No. 3 dated January 1, 2001, to the Deferred Compensation Plan for Executives 1998 Restatement. (Exhibit 10.32 to CNF’s Form 10-K for the year ended December 31, 2002.*#)
10.19	Amendment No. 4 dated May 14, 2001, to the Deferred Compensation Plan for Executives 1998 Restatement. (Exhibit 10.33 to CNF’s Form 10-K for the year ended December 31, 2002.*#)
10.20	Amendment No. 5 dated December 4, 2001 to the Deferred Compensation Plan for Executives 1998 Restatement. (Exhibit 10.34 to CNF’s Form 10-K for the year ended December 31, 2002.*#)
10.21	Amendment No. 1 dated April 30, 1999, to the Amended and Restated Retirement Plan for Directors of CNF Transportation Inc. (Exhibit 10.35 to CNF’s Form 10-K for the year ended December 31, 2002.*#)
10.22	Amendment No. 1 dated December 13, 2000, to the CNF Inc. Executive Severance Plan. (Exhibit 10.39 to CNF’s Form 10-K for the year ended December 31, 2002.*#)
10.23	Amendment No. 2 dated April 30, 2000, to the CNF Inc. Executive Severance Plan. (Exhibit 10.40 to CNF’s Form 10-K for the year ended December 31, 2002.*#)
10.24	Amendment No. 3 dated December 4, 2001, to the CNF Inc. Executive Severance Plan. (Exhibit 10.41 to CNF’s Form 10-K for the year ended December 31, 2002.*#)
10.25	Amendment No. 1 dated August 21, 2000, to the Value Management Plan dated June 28, 1999. (Exhibit 10.32 to CNF’s Form 10-K for the year ended December 31, 2003.*#)
10.26	Amendment No. 2 dated January 29, 2001, to the Value Management Plan dated June 28, 1999. (Exhibit 10.33 to CNF’s Form 10-K for the year ended December 31, 2003.*#)

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10.27	Amendment No. 3 dated May 14, 2001, to the Value Management Plan dated June 28, 1999. (Exhibit 10.34 to CNF’s Form 10-K for the year ended December 31, 2003.*#)
10.28	Amendment No. 4 dated December 4, 2001, to the Value Management Plan dated June 28, 1999. (Exhibit 10.42 to CNF’s Form 10-K for the year ended December 31, 2002.*#)
10.29	Consulting Agreement between CNF Inc. and Gregory L. Quesnel dated February 18, 2004. (Exhibit 10.36 to CNF’s Form 10-K for the year ended December 31, 2003.*#)
10.30	Amendment No. 1 to Amended and Restated Severance Agreement By and Between CNF Inc. and Gregory L. Quesnel dated January 1, 2003. (Exhibit 10.1 to CNF’s Form 10-Q for the quarter ended March 31, 2004*#)
10.31	Amendment No. 1 to Amended and Restated Severance Agreement By and Between CNF Inc. and Gregory L. Quesnel dated January 1, 2003. (Exhibit 10.2 to CNF’s Form 10-Q for the quarter ended March 31, 2004*#)
10.32	Amended and Restated Severance Agreement By and Between CNF Inc. and Sanchayan C. Ratnathicam dated December 4, 2001. (Exhibit 10.3 to CNF’s Form 10-Q for the quarter ended March 31, 2004*#)
10.33	Amendment No. 1 to Amended and Restated Severance Agreement By and Between CNF Inc. and Sanchayan C. Ratnathicam dated January 1, 2003. (Exhibit 10.4 to CNF’s Form 10-Q for the quarter ended March 31, 2004*#)
10.34	Amended and Restated Severance Agreement By and Between CNF Inc. and Eberhard G.H. Schmoller dated December 4, 2001. (Exhibit 10.5 to CNF’s Form 10-Q for the quarter ended March 31, 2004*#)
10.35	Amendment No. 1 to Amended and Restated Severance Agreement By and Between CNF Inc. and Eberhard G.H. Schmoller dated January 1, 2003. (Exhibit 10.6 to CNF’s Form 10-Q for the quarter ended March 31, 2004* #)
10.36	Amended and Restated Severance Agreement By and Between CNF Inc. and Gerald L. Detter dated July 31, 2000. (Exhibit 10.7 to CNF’s Form 10-Q for the quarter ended March 31, 2004*#)
10.37	Amendment No. 1 to Amended and Restated Severance Agreement By and Between CNF Inc. and Gerald L. Detter dated January 1, 2003. (Exhibit 10.8 to CNF’s Form 10-Q for the quarter ended March 31, 2004*#)
10.38	Severance Agreement By and Between Con-Way Transportation Services, Inc. and Gerald L. Detter dated July 31, 2000. (Exhibit 10.9 to CNF’s Form 10-Q for the quarter ended March 31, 2004*#)
10.39	Amendment No. 1 to Amended and Restated Severance Agreement By and Between Con-Way Transportation Services, Inc. and Gerald L. Detter dated January 1, 2003. (Exhibit 10.10 to CNF’s Form 10-Q for the quarter ended March 31, 2004*#)
10.40	Amended and Restated Severance Agreement By and Between CNF Inc. and John H. Williford dated July 31, 2000. (Exhibit 10.11 to CNF’s Form 10-Q for the quarter ended March 31, 2004*#)
10.41	Amendment No. 1 to Amended and Restated Severance Agreement By and Between CNF Inc. and John H. Williford dated January 1, 2003. (Exhibit 10.12 to CNF’s Form 10-Q for the quarter ended March 31, 2004*#)
10.42	Amendment No. 2 to Amended and Restated Severance Agreement By and Between CNF Inc. and John H. Williford dated January 1, 2003. (Exhibit 10.13 to CNF’s Form 10-Q for the quarter ended March 31, 2004*#)
10.43	Severance Agreement By and Between Menlo Worldwide, LLC and John H. Williford dated August 25, 2003. (Exhibit 10.14 to CNF’s Form 10-Q for the quarter ended March 31, 2004*#)
10.44	Amendment No. 1 to Severance Agreement By and Between Menlo Worldwide, LLC and John H. Williford dated January 22, 2004. (Exhibit 10.15 to CNF’s Form 10-Q for the quarter ended March 31, 2004*#)
10.45	Form of CNF Inc. 2001 Amended and Restated Executive Severance Agreement, with attached schedule. (Exhibit 10.16 to CNF’s Form 10-Q for the quarter ended March 31, 2004*#)

80

10.46	Form of CNF Inc. Executive Severance Agreement, with attached schedule. (Exhibit 10.17 to CNF’s Form 10-Q for the quarter ended March 31, 2004*#)
10.47	Form of Con-Way Transportation Services, Inc., Executive Severance Agreement, with attached schedule. (Exhibit 10.18 to CNF’s Form 10-Q for the quarter ended March 31, 2004*#)
10.48	Form of Menlo Worldwide Forwarding, Inc. (formerly Emery Air Freight Corporation) Executive Severance Agreement, with attached schedule. (Exhibit 10.19 to CNF’s Form 10-Q for the quarter ended March 31, 2004*#)
10.49	Form of Menlo Logistics, Inc., Executive Severance Agreement, with attached schedule. (Exhibit 10.20 to CNF’s Form 10-Q for the quarter ended March 31, 2004*#)
10.50	Form of Menlo Worldwide, LLC Executive Severance Agreement, with attached schedule. (Exhibit 10.21 to CNF’s Form 10-Q for the quarter ended March 31, 2004*#)
10.51	Con-Way Transportation Services, Inc. Executive Severance Plan. (Exhibit 10.22 to CNF’s Form 10-Q for the quarter ended March 31, 2004*#)
10.52	Menlo Worldwide Forwarding (formerly Emery Air Freight Corporation) Executive Severance Plan. (Exhibit 10.23 to CNF’s Form 10-Q for the quarter ended March 31, 2004*#)
10.53	Menlo Logistics, Inc. Executive Severance Plan. (Exhibit 10.24 to CNF’s Form 10-Q for the quarter ended March 31, 2004*#)
10.54	Menlo Worldwide, LLC Executive Severance Plan. (Exhibit 10.25 to CNF’s Form 10-Q for the quarter ended March 31, 2004*#)
10.55	Menlo Worldwide Services, LLC Executive Severance Plan. (Exhibit 10.26 to CNF’s Form 10-Q for the quarter ended March 31, 2004*#)
10.56	Menlo Worldwide Technologies, LLC Executive Severance Plan. (Exhibit 10.27 to CNF’s Form 10-Q for the quarter ended March 31, 2004*#)
10.57	CNF Transportation Inc. Executive Severance Plan for Eligible Executives of Vector SCM, LLC. (Exhibit 10.28 to CNF’s Form 10-Q for the quarter ended March 31, 2004*#)
10.58	Menlo Worldwide, LLC Executive Severance Plan for Eligible Executives of Vector SCM, LLC. (Exhibit 10.29 to CNF’s Form 10-Q for the quarter ended March 31, 2004*#)
10.59	CNF Inc. Value Management Plan 2004 Amendment and Restatement. (Exhibit 10.30 to CNF’s Form 10-Q for the quarter ended March 31, 2004*#)
10.60	Stock Purchase Agreement between CNF Inc. and Menlo Worldwide, LLC and United Parcel Service dated October 5, 2004. (Exhibit 99.1 to CNF’s Form 8-K dated October 6, 2004*)
10.61	Transition Services Agreement between CNF Inc and Menlo Worldwide, LLC and United Parcel Service date October 5, 2004. (Exhibit 99.1 to CNF’s Form 8-K dated October 6, 2004*)
10.62	Consulting Agreement between CNF Inc. Gerald L. Detter dated December 6, 2004. (Exhibit 99.1 to CNF’s Form 8-K dated December 8, 2004*)
10.63	Deferred Compensation Plan for Non-Employee Directors dated January 1, 2005. (Exhibit 99.2 to CNF’s Form 8-K dated December 8, 2004*#)
10.64	Deferred Compensation Plan for Executives dated January 1, 2005. (Exhibit 99.3 to CNF’s Form 8-K dated December 8, 2004*#)
10.65	Supplemental Excess Retirement Plan dated January 1, 2005. (Exhibit 99.4 to CNF’s Form 8-K dated December 8, 2004*#)
10.66	Severance Agreement between CNF Inc. and Eberhard G.H. Schmoller dated December 14, 2004. (Exhibit 99.1 to CNF’s Form 8-K dated December 14, 2004*)
10.67	Amendment No. 1 dated December 17, 2004 to the Stock Purchase Agreement between CNF Inc. and Menlo Worldwide, LLC and United Parcel Service dated October 5, 2004. (Exhibit 99.1 to CNF’s Form 8-K dated December 21, 2004*)

81

10.68	Severance Agreement between the Company and Douglas W. Stotlar. (Exhibit 99.1 to CNF’s Form 8-K dated March 4, 2005*#)
10.69	Severance Agreement between the Company and Kevin C. Schick. (Exhibit 99.2 to CNF’s Form 8-K dated March 4, 2005*#)
10.70	Severance Agreement between the Company and Jennifer W. Pileggi. (Exhibit 99.3 to CNF’s Form 8-K dated March 4, 2005*#)
10.71	Severance Agreement between CTS and Douglas W. Sotlar. (Exhibit 99.4 to CNF’s Form 8-K dated March 4, 2005*#)
10.72	Form of Restricted Stock Award Agreement. (Exhibit 99.5 to CNF’s Form 8-K dated March 4, 2005*#)
10.73	Form of Stock Option Agreement. (Exhibit 99.6 to CNF’s Form 8-K dated March 4, 2005*#)
10.74	Restricted Stock Reward Agreement between CNF Inc. and John H. Williford dated December 10, 2004.#
10.75	Restricted Stock Reward Agreement between CNF Inc. and Douglas W. Stotlar dated December 17, 2004.#
10.76	Stock Option Agreement between CNF Inc. and Douglas W. Stotlar dated December 17, 2004. #
10.77	CNF Inc. Summary of Incentive Compensation plans for 2005. #

(12)     Computation of ratios of earnings to fixed charges.

(21)     Significant Subsidiaries of CNF.

(23)     Consent of Independent Public Auditors.

(31)     Certification of Officers pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

(32)     Certification of Officers pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(99)     Additional documents:

99.1	CNF Inc. 2004 Notice of Annual Meeting and Proxy Statement filed on Form DEF 14A. (Only those portions referenced herein are incorporated in this Form 10-K. Other portions are not required and, therefore, are not “filed” as a part of this Form 10-K.*)
99.2	Note Agreement dated as of July 17, 1989, between the ESOP, Consolidated Freightways, Inc. and the Note Purchasers named therein. (Exhibit 28.1 as filed on Form SE dated July 21, 1989*)
99.3	Guarantee and Agreement dated as of July 17, 1989, delivered by Consolidated Freightways, Inc. (Exhibit 28.2 as filed on Form SE dated July 21, 1989*)
99.4	Form of Restructured Note Agreement between Consolidated Freightways, Inc., Thrift and Stock Ownership Trust as Issuer and various financial institutions as Purchasers named therein, dated as of November 3, 1992. (Exhibit 28.4 to CNF’s Form 10-K for the year ended December 31, 1992*)

Footnotes to Exhibit Index

*	Previously filed with the Securities and Exchange Commission and incorporated herein by reference.
#	Designates a contract or compensation plan for Management or Directors.

82 EX-4.9 2 f04530exv4w9.htm EXHIBIT 4.9

EXECUTION COPY

Exhibit 4.9

$400,000,000

CREDIT AGREEMENT

dated as of

March 11, 2005

among

CNF INC.,
as Borrower

The Banks Party Hereto

PNC BANK, NATIONAL ASSOCIATION
as Syndication Agent

LASALLE BANK NATIONAL ASSOCIATION.,
U.S. BANK NATIONAL ASSOCIATION,
HARRIS TRUST AND SAVINGS BANK
and
BNP PARIBAS,
as Co-Documentation Agents

and

THE BANK OF NEW YORK,
as Administrative Agent

BNY CAPITAL MARKETS, INC.
and
PNC BANK, NATIONAL ASSOCIATION
as Co-Lead Arrangers

BNY CAPITAL MARKETS, INC.
as Sole Book Runner

TABLE OF CONTENTS

	Page
ARTICLE 1 DEFINITIONS
Section 1.01 Definitions	1
Section 1.02 Accounting Terms and Determinations	15
Section 1.03 Types of Borrowings	15
ARTICLE 2 THE CREDITS
Section 2.01 Commitments to Lend	16
Section 2.02 Notice of Committed Borrowing	18
Section 2.03 Money Market Borrowings	19
Section 2.04 Notice to Banks; Funding of Loans; Additional Provisions Relating to Swingline Loans	22
Section 2.05 Notes; Loan Accounts; Records	24
Section 2.06 Maturity of Loans	25
Section 2.07 Interest Rates	25
Section 2.08 Fees	27
Section 2.09 Optional Termination or Reduction of Commitments	28
Section 2.10 Method of Electing Interest Rates	28
Section 2.11 Mandatory Termination of Commitments	29
Section 2.12 Optional Payments	29
Section 2.13 General Provisions as to Payment	30
Section 2.14 Funding Losses	30
Section 2.15 Computation of Interest and Fees	31
Section 2.16 Letters of Credit	31
Section 2.17 Maximum Interest Rate	35
ARTICLE 3 CONDITIONS
Section 3.01 Conditions to Effectiveness	36
Section 3.02 Credit Extensions	37
ARTICLE 4 REPRESENTATIONS AND WARRANTIES
Section 4.01 Corporate Existence and Power	37
Section 4.02 Corporate and Governmental Authorization; No Contravention	38
Section 4.03 Binding Effect	38
Section 4.04 Financial Information	38
Section 4.05 Litigation	39
Section 4.06 Compliance with ERISA	39
Section 4.07 Environmental Matters	39
Section 4.08 Taxes	40
Section 4.09 Subsidiaries	40
Section 4.10 Not an Investment Company; Federal Reserve Regulations	40
Section 4.11 Full Disclosure	40
ARTICLE 5 COVENANTS
Section 5.01 Information	41
Section 5.02 Payment of Obligations	43
Section 5.03 Maintenance of Property; Insurance	43

i

	Page
Section 5.04 Conduct of Business and Maintenance of Existence		43
Section 5.05 Compliance with Laws		44
Section 5.06 Inspection of Property, Books and Records		44
Section 5.07 Debt		44
Section 5.08 Leverage Ratio		45
Section 5.09 Negative Pledge		46
Section 5.10 Consolidations, Mergers and Sales of Assets		48
Section 5.11 Use of Proceeds		49
Section 5.12 Fixed Charge Coverage		49
ARTICLE 6 DEFAULTS
Section 6.01 Events of Default		50
Section 6.02 Notice of Default		52
ARTICLE 7 THE AGENT AND THE CO-AGENTS
Section 7.01 Appointment and Authorization		52
Section 7.02 Agent and Affiliates		52
Section 7.03 Action by Agent		53
Section 7.04 Consultation with Experts; Delegation of Duties		53
Section 7.05 Liability of Agent		53
Section 7.06 Reliance by Agent		53
Section 7.07 Notice of Default		54
Section 7.08 Indemnification		54
Section 7.09 Credit Decision		54
Section 7.10 Successor Agent		55
Section 7.11 Additional Agents		55
ARTICLE 8 CHANGE IN CIRCUMSTANCES
Section 8.01 Basis for Determining Interest Rate Inadequate or Unfair		55
Section 8.02 Illegality		56
Section 8.03 Increased Cost and Reduced Return		57
Section 8.04 Taxes		58
Section 8.05 Base Rate Loans Substituted for Affected Fixed Rate Loans		59
Section 8.06 Substitution of Banks		60
ARTICLE 9 MISCELLANEOUS
Section 9.01 Notices		61
Section 9.02 No Waivers		62
Section 9.03 Expenses; Indemnification		62
Section 9.04 Set-Off; Sharing of Set-offs		62
Section 9.05 Amendments and Waivers		63
Section 9.06 Successors and Assigns		63
Section 9.07 Collateral		65
Section 9.08 Governing Law; Submission to Jurisdiction		66
Section 9.09 Counterparts; Integration		66
Section 9.10 Waiver of Jury Trial		66
Section 9.11 Confidentiality		66
Section 9.12 Survival		67
Section 9.13 Patriot Act Notice		67

ii

SCHEDULE 1A	Commitment Schedule
SCHEDULE 1B	Maximum LC Commitment Schedule
SCHEDULE 2	Pricing Schedule
SCHEDULE 5.07	List of Subsidiary Debt
SCHEDULE 5.09	List of Existing Liens
EXHIBIT A	Form of Note
EXHIBIT B	Form of Money Market Quote Request
EXHIBIT C	Form of Invitation for Money Market Quotes
EXHIBIT D	Form of Money Market Quote
EXHIBIT E	Assignment and Assumption Agreement
EXHIBIT F	Subsidiary Guaranty Agreement
EXHIBIT G	Calculation of Funding Losses
EXHIBIT H	List of Existing Letters of Credit
EXHIBIT I	Form of New Commitment Agreement

iii

CREDIT AGREEMENT

     THIS AGREEMENT dated as of March 11, 2005 is by and among CNF INC., a Delaware corporation, the BANKS party hereto, PNC BANK, NATIONAL ASSOCIATION, as Syndication Agent, LASALLE BANK NATIONAL ASSOCIATION, U.S. BANK NATIONAL ASSOCIATION, HARRIS TRUST AND SAVINGS BANK and BNP PARIBAS, as Co-Documentation Agents, BNY CAPITAL MARKETS, INC. and PNC BANK, NATIONAL ASSOCIATION, as Co-Lead Arrangers, BNY CAPITAL MARKETS, INC., as Sole Book-Runner, and THE BANK OF NEW YORK, as Administrative Agent.

WITNESSETH

     WHEREAS, the Borrower has requested that the Banks provide $400 million in credit facilities for the purposes hereinafter set forth; and

     WHEREAS, the Banks have agreed to make the requested credit facilities available to the Borrower on the terms and conditions hereinafter set forth.

     NOW, THEREFORE, IN CONSIDERATION of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

ARTICLE 1
DEFINITIONS

     Section 1.01 Definitions.

     The following terms, as used herein, have the following meanings:

     “Absolute Rate Auction” means a solicitation of Money Market Quotes setting forth Money Market Absolute Rates pursuant to Section 2.03.

     “Adjusted London Interbank Offered Rate” has the meaning set forth in Section 2.07(b).

     “Administrative Questionnaire” means, with respect to each Bank, an administrative questionnaire in the form prepared by the Agent and submitted to the Agent (with a copy to the Borrower) duly completed by such Bank.

     “Agent” means BNY, as administrative agent for the Banks, and its successors in such capacity.

     “Aggregate Usage” means, at any time, the sum of (i) the aggregate outstanding principal amount of the Loans at such time plus (ii) the aggregate outstanding amount of the LC Liabilities at such time.

     “Agreement” means this Agreement, as it may be amended, modified, supplemented and extended from time to time.

1

     “Applicable Lending Office” means, with respect to any Bank, (i) in the case of its Base Rate Loans, its Domestic Lending Office, (ii) in the case of its Euro-Dollar Loans, its Euro-Dollar Lending Office and (iii) in the case of its Money Market Loans, its Money Market Lending Office.

     “Approved Fund” means any Fund that is administered or managed by (a) a Bank, (b) an Affiliate of a Bank or (c) an entity or an Affiliate of an entity that administers or manages a Bank.

     “Assignee” has the meaning set forth in Section 9.06(c).

     “Auto-Renewal LC” has the meaning set forth in Section 2.16(b)(ii).

     “Bank” means each bank or other financial institution listed on the signature pages hereof, each Assignee which becomes a Bank pursuant to Section 9.06(c), and their respective successors and, where appropriate, shall include the Swingline Bank and each LC Issuing Bank.

     “Base Rate” means, for any day, a rate per annum equal to the higher of (i) the Prime Rate for such day and (ii) the sum of ¹/2 of 1% plus the Federal Funds Rate for such day.

     “Base Rate Loan” means a Committed Loan which bears interest at the Base Rate pursuant to the applicable Notice of Committed Borrowing or Notice of Interest Rate Election or pursuant to Article 8.

     “Base Rate Swingline Loan” means a Swingline Loan which bears interest at the Base Rate pursuant to the applicable Notice of Swingline Borrowing.

     “Benefit Arrangement” means at any time an employee benefit plan within the meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan and which is maintained or otherwise contributed to by any member of the ERISA Group.

     “BNY” means The Bank of New York, and its successors.

     “Borrower” means CNF Inc., a Delaware corporation, and its successors.

     “Borrowing” has the meaning set forth in Section 1.03.

     “Closing Date” has the meaning set forth in Section 3.01.

     “Commitment” means, as the context requires, either (a) the commitment of a Bank to extend credit to the Borrower hereunder or (b) the amount of such commitment, which is (i) with respect to any Bank listed on the Commitment Schedule, the amount set forth opposite the name of such Bank on the Commitment Schedule or (ii) with respect to any Assignee, the amount of the transferor Bank’s Commitment assigned to such Assignee pursuant to Section 9.06(c), in each case as such amount may be reduced from time to time pursuant to Section 2.09 or 2.11 or changed as a result of an assignment pursuant to Section 9.06(c).

2

     “Commitment Schedule” means the Commitment Schedule attached hereto as Schedule 1A.

     “Committed Loan” means a loan made by a Bank pursuant to Section 2.01(a); provided that, if any such loan or loans (or portions thereof) are combined or subdivided pursuant to a Notice of Interest Rate Election, the term “Committed Loan” shall refer to the combined principal amount resulting from such combination or to each of the separate principal amounts resulting from such subdivision, as the case may be.

     “Consolidated Debt” means, at any date, the Debt of the Borrower and its Consolidated Subsidiaries, determined on a consolidated basis as of such date, less, to the extent included in the determination of Debt of the Borrower and its Consolidated Subsidiaries, all obligations of the Borrower and its Consolidated Subsidiaries in respect of interest rate protection agreements, foreign currency exchange agreements, commodity purchase or option agreements or other interest or exchange rate or commodity price hedging agreements.

     “Consolidated EBITDA” means, for any period, the sum of, without duplication, (i) the consolidated net income before income taxes of the Borrower and its Consolidated Subsidiaries for such period plus (ii) to the extent deducted in determining such consolidated income before income taxes, the sum of (A) interest expense, (B) depreciation and amortization, (C) other non-cash items (including charges associated with the Borrower’s existing claims against the United States Postal Service, charges associated with any write-down of goodwill pursuant to FAS 142, charges associated with any write-down of the net assets of the Forwarding Business pursuant to FAS 142 or FAS 144 in connection with the Borrower’s plan to sell and sale of the Forwarding Business and the designation, prior to such sale, of the Forwarding Business as a held-for-sale asset, and charges associated with the grant of stock options and excluding (a) any non-cash item to the extent representing an accrual or reserve for potential cash items in any future period or amortization of a prepaid cash item that was paid in a prior period and (b) ordinary accruals), (D) losses from discontinuances, and (E) losses from any extraordinary and non-recurring items, minus (iii) to the extent increasing net income for such period, gains from discontinuances and any extraordinary, non-recurring or non-cash items, excluding (a) any non-cash item to the extent it represents the reversal of an accrual or reserve for potential cash item in any prior period and (b) ordinary accruals. If an acquisition or series of related acquisitions, or disposition or series of related dispositions, of property that constitutes assets comprising all or substantially all of an operating unit of a business or constitutes all or substantially all of the common equity of a Person (each, a “Subject Transaction”) shall, (x) for purposes of Section 5.12, occur during such period and (y) for purposes of Section 5.08 and the Pricing Schedule, occur during or subsequent to such period and on or prior to the date of any relevant calculation, in each such case, Consolidated EBITDA shall be calculated with respect to such period on a pro forma basis (including pro forma adjustments arising out of events which are directly attributable to a specific transaction, are factually supportable and are expected to have a continuing impact, in each case determined on a basis consistent with Article 11 of Regulation SX promulgated under the Securities Act of 1933, as amended from time to time, and any successor statute, and as interpreted by the staff of the Securities and Exchange Commission, which would include cost savings resulting from head count reduction, closure of facilities and similar restructuring charges, which pro forma adjustments shall be certified by the chief financial officer or chief accounting officer of the Borrower) using the historical financial statements of any business so

3

acquired or disposed of pursuant to such Subject Transaction and the consolidated financial statements of the Borrower which shall be reformulated as if such Subject Transaction had been consummated at the beginning of such period.

     “Consolidated EBITDAR” means, for any period, the sum of (i) Consolidated EBITDA for such period plus (ii) to the extent deducted in determining such Consolidated EBITDA, Consolidated Rental Expense for such period.

     “Consolidated Fixed Charges” means, for any period, the sum of Consolidated Interest Expense and Consolidated Rental Expense for such period.

     “Consolidated Interest Expense” means, for any period, the interest expense of the Borrower and its Consolidated Subsidiaries (but excluding any interest expense relating to (i) the TECONs (as defined in the Existing Credit Agreement), which were repaid as of June of 2004, and (ii) any Debt that is the subject of a legal or a covenant defeasance) determined on a consolidated basis for such period, and adjusted to give pro forma effect to any Subject Transaction (as defined in “Consolidated EBITDA”) that has occurred during such period as if it had occurred on the first day of such period.

     “Consolidated Net Tangible Assets” means at any date the consolidated assets of the Borrower and its Consolidated Subsidiaries (as shown on the most recent consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of the end of a fiscal quarter) after deducting therefrom (i) all current liabilities (excluding current liabilities which are by their terms extendible or renewable at the option of the obligor to a time more than 365 days after the time of determination and excluding current maturities of long-term debt and current maturities of capitalized lease obligations), and (ii) all goodwill, tradenames, trademarks, patents, debt discounts and expense and other intangibles, in each case in this clause (ii), net of applicable amortization (all as shown on the most recent consolidated financial statements of the Borrower and its Consolidated Subsidiaries as of the end of a fiscal quarter).

     “Consolidated Rental Expense” means, for any period, the sum of (without duplication) (a) rental expense for operating leases of the Borrower and its Consolidated Subsidiaries determined on a consolidated basis for such period plus (b) rental expense for operating leases of the Borrower or any of its Consolidated Subsidiaries assigned to a third party and guaranteed by the Borrower or any of its Consolidated Subsidiaries determined on a consolidated basis for such period, and adjusted to give pro forma effect to any Subject Transaction (as defined in “Consolidated EBITDA”) that has occurred during such period as if it had occurred on the first day of such period.

     “Consolidated Subsidiary” means at any date any Subsidiary or other entity the accounts of which would be consolidated with those of the Borrower in its consolidated financial statements if such statements were prepared as of such date.

     “Continuing Director” means (i) any individual who is a director of the Borrower on the Closing Date and (ii) any individual who becomes a director of the Borrower after the Closing Date and is elected or nominated for election as a director of the Borrower by a majority of the individuals who were Continuing Directors immediately before such election or nomination.

4

     “Credit Extension” means the making of a Loan or the issuance, amendment, renewal or extension of a Letter of Credit.

     “Credit Party” means the Agent, the Swingline Bank, an LC Issuing Bank or any Bank, as the case may be.

     “Debt” of any Person means at any date, without duplication:

     (i) all obligations of such Person for borrowed money (other than overdrafts or other similar obligations not outstanding for more than three Domestic Business Days (or in the case of a Foreign Subsidiary, ten Domestic Business Days) arising in the ordinary course of business),

     (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments,

     (iii) all obligations of such Person to pay the deferred purchase price of property or services, except overdrafts or other similar obligations not outstanding for more than three Domestic Business Days (or in the case of a Foreign Subsidiary, ten Domestic Business Days) or trade accounts payable, in each case, arising in the ordinary course of business,

     (iv) all obligations of such Person as lessee which are capitalized in accordance with generally accepted accounting principles,

     (v) all obligations of such Person to reimburse banks for drawings under letters of credit or payments with respect to bankers’ acceptances, which obligations remain unpaid for more than three Domestic Business Days (or in the case of a Foreign Subsidiary, ten Domestic Business Days) after they become due, or, if later, after such Person is notified of the due date thereof,

     (vi) all obligations of the types referred to in clauses (i) to (v), inclusive, of this definition which are secured by a Lien on any asset of such Person, whether or not such obligations are otherwise obligations of such Person; provided that the amount of Debt attributed, for purposes of this Agreement, to any such obligation that is not otherwise an obligation of such Person shall be limited to the lesser of (x) the net book value of the assets of such Person by which such obligation is secured or (y) the amount of such obligation secured thereby (excluding accrued interest for the current period); and

     (vii) all Guarantees by such Person of obligations of others of the types referred to in clauses (i) to (v), inclusive, of this definition (which Guarantees shall be deemed to constitute Debt in an amount equal to the lesser of (x) the maximum amount of such Guarantee and (y) the amount of such obligation of others Guaranteed thereby).

Debt of any Person shall not include any obligation of such Person that is the subject of a legal or covenant defeasance and is fully secured by cash or cash equivalents (which cash or cash equivalents shall not be included as an asset of the Borrower and its Subsidiaries for purposes of this Agreement, including, without limitation, for purposes of Section 5.08 and Schedule 2).

5

     “Default” means any condition or event which constitutes an Event of Default or which with the giving of notice or lapse of time or both would, unless cured or waived, become an Event of Default.

     “Defaulting Bank” means a Bank that defaults in (i) its obligation to fund a Committed Loan or its participation in any Letter of Credit or Swingline Loan, or (ii) its obligation pursuant to the last paragraph of Section 2.01(b).

     “Dollars” and “$” means the lawful currency of the United States.

     “Domestic Business Day” means any day except a Saturday, Sunday or other day on which commercial banks in New York, New York are authorized by law to close; provided that, when used in Section 2.16 with reference to any LC Issuing Bank, the term “Domestic Business Day” shall not include any day on which commercial banks are authorized to close in the jurisdiction where the office at which it books the Letters of Credit issued by it is located.

     “Domestic Lending Office” means, as to each Bank, its office located at its address set forth in its Administrative Questionnaire (or identified in its Administrative Questionnaire as its Domestic Lending Office) or such other office as such Bank may hereafter designate as its Domestic Lending Office by notice to the Borrower and the Agent.

     “Environmental Laws” means any and all federal, state, local and foreign statutes, laws, judicial decisions, regulations, ordinances, rules, judgments, orders, decrees, plans, injunctions, permits, concessions, grants, franchises, licenses, agreements and other governmental restrictions relating to the environment, the effect of the environment on human health or to emissions, discharges or releases of pollutants, contaminants, Hazardous Substances or wastes into the environment including, without limitation, ambient air, surface water, ground water, or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, Hazardous Substances or wastes or the clean-up or other remediation thereof.

     “ERISA” means the Employee Retirement Income Security Act of 1974, as amended, or any successor statute.

     “ERISA Group” means the Borrower and all other corporations, trades or businesses (whether or not incorporated) to the extent collectively treated as a single employer under Section 414 of the Internal Revenue Code.

     “Euro-Dollar Business Day” means any Domestic Business Day on which commercial banks are open for international business (including dealings in dollar deposits) in London.

     “Euro-Dollar Lending Office” means, as to each Bank, its office, branch or affiliate located at its address set forth in its Administrative Questionnaire (or identified in its Administrative Questionnaire as its Euro-Dollar Lending Office) or such other office, branch or affiliate of such Bank as it may hereafter designate as its Euro-Dollar Lending Office by notice to the Borrower and the Agent.

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     “Euro-Dollar Loan” means a Committed Loan which bears interest based upon a Euro-Dollar Rate pursuant to the applicable Notice of Committed Borrowing or Notice of Interest Rate Election.

     “Euro-Dollar Margin” means a rate per annum determined in accordance with the Pricing Schedule.

     “Euro-Dollar Rate” means a rate of interest determined pursuant to Section 2.07(b) on the basis of a London Interbank Offered Rate.

     “Euro-Dollar Reserve Percentage” has the meaning set forth in Section 2.07(b).

     “Event of Default” has the meaning set forth in Section 6.01.

     “Existing Credit Agreement” means the Credit Agreement dated as of July 3, 2001 (as amended) among the Borrower, the banks party thereto, The Chase Manhattan Bank, as Syndication Agent, PNC Bank, ABN-AMRO Bank, N.V. and Citibank, N.A., as Documentation Agents, and Bank of America, N.A., as Agent.

     “Existing Letters of Credit” means the letters of credit issued on or before the Closing Date and listed in Exhibit H hereto.

     “Federal Funds Rate” means, for any day, the rate per annum (rounded upward, if necessary, to the nearest 1/100 of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Domestic Business Day next succeeding such day, provided that (i) if such day is not a Domestic Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Domestic Business Day as so published on the next succeeding Domestic Business Day, and (ii) if no such rate is so published on such next succeeding Domestic Business Day, the Federal Funds Rate for such day shall be the average rate quoted to BNY on such day on such transactions as determined by the Agent.

     “Financing Documents” means this Agreement, the Subsidiary Guaranty Agreement and the Notes, if any.

     “Fixed Rate Loans” means Euro-Dollar Loans, Quoted Rate Swingline Loans or Money Market Loans (excluding Money Market LIBOR Loans bearing interest at the Base Rate pursuant to Section 8.01(a)) or any combination of the foregoing.

     “Foreign Bank” has the meaning set forth in Section 8.04(d).

     “Foreign Subsidiary” means any Subsidiary which is a “controlled foreign corporation” within the meaning of Section 957 of the Internal Revenue Code.

     “Forwarding Business” means all of the issued and outstanding capital stock of Menlo Worldwide Forwarding, Inc., a wholly owned subsidiary of Menlo Worldwide, LLC, and certain assets and liabilities of the Borrower or its Subsidiaries related to the business conducted by

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Menlo Worldwide Forwarding, Inc. as of September 30, 2004, as more specifically described in the Borrower’s filing with the Securities and Exchange Commission on Form 8-K dated as of October 6, 2004, including all exhibits thereto.

     “Fund” means any Person (other than a natural Person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its business.

     “Group” or “Group of Loans” means at any time a group of Loans consisting of (i) all Committed Loans which are Base Rate Loans at such time or (ii) all Committed Loans which are Euro-Dollar Loans of the same type having the same Interest Period at such time; provided that, if a Committed Loan of any particular Bank is converted to or made as a Base Rate Loan pursuant to Section 8.02 or 8.04, such Loan shall be included in the same Group or Groups of Loans from time to time as it would have been in if it had not been so converted or made.

     “Guarantee” by any Person means any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing any Debt of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt (whether arising by virtue of partnership arrangements, by agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise) or (ii) entered into for the purpose of assuring in any other manner the obligee of such Debt of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part), provided that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. The term Guarantee used as a verb has a corresponding meaning.

     “Hazardous Substances” means any toxic, radioactive or otherwise hazardous substance, including petroleum, its derivatives, by-products and other hydrocarbons, or any substance having any constituent elements displaying any of the foregoing characteristics.

     “Indemnified Liabilities” has the meaning set forth in Section 9.03(b).

     “Indemnitee” has the meaning set forth in Section 9.03(b).

     “Interest Period” means:

     (a) with respect to each Euro-Dollar Loan, the period commencing on the date of borrowing therefor specified in the applicable Notice of Borrowing or on the date specified in the applicable Notice of Interest Rate Election and ending one, two, three, six or nine months (or, if made available by all of the Banks, twelve months) thereafter, as the Borrower may elect in the applicable notice; provided that:

     (i) any Interest Period which would otherwise end on a day which is not a Euro-Dollar Business Day shall be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Euro-Dollar Business Day, and

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     (ii) any Interest Period which begins on the last Euro-Dollar Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall, subject to clause (iii) below, end on the last Euro-Dollar Business Day of a calendar month, and

     (iii) any Interest Period which would otherwise end after the Termination Date shall end on the Termination Date;

     (b) with respect to each Money Market LIBOR Loan, the period commencing on the date of borrowing specified in the applicable Notice of Borrowing and ending such number of days thereafter (but not less than seven days or later than six months after the date of such Loan) as the Borrower may elect in accordance with Section 2.03; provided that:

     (i) any Interest Period which would otherwise end on a day which is not a Euro-Dollar Business Day shall be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Euro-Dollar Business Day, and

     (ii) any Interest Period which would otherwise end after the Termination Date shall end on the Termination Date;

     (c) with respect to each Money Market Absolute Rate Loan, the period commencing on the date of borrowing specified in the applicable Notice of Borrowing and ending such number of days thereafter (but not less than seven days or later than 180 days after the date of such Loan) as the Borrower may elect in accordance with Section 2.03; provided that:

     (i) any Interest Period which would otherwise end on a day which is not a Domestic Business Day shall be extended to the next succeeding Domestic Business Day, and

     (ii) any Interest Period which would otherwise end after the Termination Date shall end on the Termination Date; and

     (d) with respect to any Swingline Loan, the period commencing on the date of borrowing specified in the applicable Notice of Swingline Borrowing and ending such number of days thereafter (but not more than thirty (30) days) as the Borrower may elect in accordance with Section 2.02; provided that any Interest Period which would otherwise end on or after the Termination Date shall end on the Domestic Business Day immediately preceding the Termination Date.

     “Internal Revenue Code” means the Internal Revenue Code of 1986, as amended, or any successor statute.

     “LC Commitment” means, with respect to each LC Issuing Bank, the commitment of such LC Issuing Bank to issue Letters of Credit hereunder. The amount of each LC Issuing Bank’s LC Commitment is set forth on Schedule 1B attached hereto, as such Schedule 1B may be adjusted from time to time by the Agent to reflect the increase, decrease, addition or deletion of an LC Issuing Bank’s LC Commitment, as agreed to pursuant to a separate agreement in

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writing between the Borrower and such LC Issuing Bank, such adjustment to Schedule 1B to be effective upon receipt of written notice to the Agent of such agreement from the Borrower and such LC Issuing Bank, provided that any determination by an LC Issuing Bank to increase its LC Commitment shall be in the sole discretion of such LC Issuing Bank.

     “LC Disbursement” means a payment made by an LC Issuing Bank under a Letter of Credit.

     “LC Issuing Bank Exposure” means, at any time, with respect to any LC Issuing Bank, the sum, without duplication, of (a) the aggregate undrawn amount of all outstanding Letters of Credit at such time issued by such LC Issuing Bank plus (b) the aggregate amount of all LC Disbursements made by such LC Issuing Bank that have not yet been reimbursed by the Borrower at such time.

     “LC Issuing Banks” means (a) each Bank set forth on Schedule 1B attached hereto, as such Schedule 1B may be adjusted from time to time by the Agent to reflect the addition or deletion of Banks as LC Issuing Banks, as agreed to pursuant to a separate agreement in writing between the Borrower and the applicable Bank, such adjustment to Schedule 1B to be effective upon receipt of written notice to the Agent of such agreement from the Borrower and such Bank, provided that any determination by a Bank to become an LC Issuing Bank shall be in the sole discretion of such Bank, and provided further that the Borrower, in its sole discretion, may by written notice to the Agent delete any Bank as an LC Issuing Bank at any time when such Bank has no Letters of Credit outstanding, and (b) with respect to the Existing Letters of Credit, each of the Banks listed on Exhibit H, in each case in their capacities as issuers of Letters of Credit. Any LC Issuing Bank may, in its discretion with the consent of the Borrower (such consent not to be unreasonably withheld), arrange for one or more Letters of Credit to be issued by affiliates of such LC Issuing Bank, in which case the term “LC Issuing Bank” shall include any such affiliate with respect to Letters of Credit issued by such Affiliate.

     “LC Liabilities” means, at any time, the sum, without duplication, of (i) the aggregate amount available for drawing under all Letters of Credit outstanding at such time plus (ii) the aggregate unpaid amount at such time of all Reimbursement Obligations in respect of previous drawings made under Letters of Credit.

     “Letter of Credit” means (i) any Existing Letter of Credit and (ii) any financial stand-by letter of credit (including without limitation a Workers’ Compensation Letter of Credit) denominated in Dollars and issued hereunder on or after the Closing Date.

     “LIBOR Auction” means a solicitation of Money Market Quotes setting forth Money Market Margins based on the London Interbank Offered Rate pursuant to Section 2.03.

     “Lien” means with respect to any asset (including without limitation any account receivable), any mortgage, lien, pledge, charge or security interest of any kind, or any encumbrance constituting a security interest, or any other type of preferential arrangement that has the practical effect of creating a security interest, in respect of such asset. For the purposes of this Agreement, the Borrower or any Subsidiary shall be deemed (x) to own subject to a Lien any asset which it has acquired or holds subject to the interest of a vendor or lessor under any

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conditional sale agreement, capital lease or other title retention agreement relating to such asset and (y) not to own subject to a Lien any asset which it leases under a lease that is classified as an operating lease under generally accepted accounting principles.

     “Loan” means a Base Rate Loan, a Euro-Dollar Loan, a Swingline Loan or a Money Market Loan and “Loans” means Base Rate Loans, Euro-Dollar Loans, Swingline Loans or Money Market Loans or any combination of the foregoing.

     “London Interbank Offered Rate” has the meaning set forth in Section 2.07(b).

     “Material Debt” means Debt (other than the Loans) of the Borrower and/or one or more of its Subsidiaries in an aggregate outstanding principal amount exceeding $75,000,000. For purposes of this definition, if the Debt arising from any single transaction has an outstanding principal amount less than $1,000,000, it shall be excluded, but Debts arising from one or more related or unrelated transactions shall be aggregated if the Debt arising from each such transaction has an outstanding principal amount of $1,000,000 or more.

     “Material Plan” means at any time a Plan or Plans having aggregate Unfunded Liabilities in excess of $75,000,000.

     “Minimum Commitment Amount” has the meaning set forth in Section 2.01(a).

     “Minimum Swingline Amount” has the meaning set forth in Section 2.01(c).

     “Money Market Absolute Rate” has the meaning set forth in Section 2.03(d).

     “Money Market Absolute Rate Loan” means a loan to be made by a Bank pursuant to an Absolute Rate Auction.

     “Money Market Lending Office” means, as to each Bank, its Domestic Lending Office or such other office, branch or affiliate of such Bank as it may hereafter designate as its Money Market Lending Office by notice to the Borrower and the Agent; provided that any Bank may from time to time by notice to the Borrower and the Agent designate separate Money Market Lending Offices for its Money Market LIBOR Loans, on the one hand, and its Money Market Absolute Rate Loans, on the other hand, in which case all references herein to the Money Market Lending Office of such Bank shall be deemed to refer to either or both of such offices, as the context may require.

     “Money Market LIBOR Loan” means a loan to be made by a Bank pursuant to a LIBOR Auction (including such a loan bearing interest at the Base Rate pursuant to Section 8.01(a)).

     “Money Market Loan” means a Money Market LIBOR Loan or a Money Market Absolute Rate Loan.

     “Money Market Margin” has the meaning set forth in Section 2.03(d).

     “Money Market Quote” means an offer by a Bank to make a Money Market Loan in accordance with Section 2.03.

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     “Money Market Quote Request” means a request, substantially in the form of Exhibit B, by the Borrower for one or more Money Market Quotes.

     “Moody’s” means Moody’s Investors Service, Inc., a Delaware corporation, and its successors or, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, “Moody’s” shall be deemed to refer to any other nationally recognized securities rating agency designated by the Required Banks, with the approval of the Borrower, by notice to the Agent and the Borrower.

     “Multiemployer Plan” means at any time an employee pension benefit plan within the meaning of Section 400l(a)(3) of ERISA to which any member of the ERISA Group is then making or accruing an obligation to make contributions or has within the preceding five plan years made contributions, including for these purposes any Person which ceased to be a member of the ERISA Group during such five year period.

     “Notes” means promissory notes of the Borrower, substantially in the form of Exhibit A hereto, evidencing the obligation of the Borrower to repay the Loans, and “Note” means any one of such promissory notes issued hereunder.

     “Notice of Borrowing” means a Notice of Committed Borrowing, a Notice of Money Market Borrowing or a Notice of Swingline Borrowing.

     “Notice of Committed Borrowing” has the meaning set forth in Section 2.02(a).

     “Notice of Money Market Borrowing” has the meaning set forth in Section 2.03(f).

     “Notice of Interest Rate Election” has the meaning set forth in Section 2.10(a)(ii).

     “Notice of Swingline Borrowing” has the meaning set forth in Section 2.02(b).

     “Obligor” means each of the Borrower and the Subsidiary Guarantors, and “Obligors” means all of the foregoing.

     “Outstanding Committed Exposure” means, as to any Bank at any time, an amount equal to the sum of (i) the aggregate principal amount of its Committed Loans outstanding at such time, plus (ii) its participation interest in the LC Liabilities at such time, plus (iii) its Percentage at such time (or, in the event that the aggregate Commitments shall have expired or otherwise terminated, immediately before giving effect to such expiration or termination) of the outstanding principal balance of the Swingline Loans.

     “Outstanding Total Credit Exposure” means, as to any Bank at any time, the sum of (i) the aggregate principal amount of its Money Market Loans outstanding at such time plus (ii) its Outstanding Committed Exposure at such time.

     “Parent” means, with respect to any Bank, any Person controlling such Bank.

     “Participant” has the meaning set forth in Section 9.06(b).

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     “Patriot Act” has the meaning set forth in Section 9.13.

     “PBGC” means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA.

     “Percentage” means, with respect to each Bank, the percentage that such Bank’s Commitment constitutes of the aggregate amount of the Commitments of all Banks.

     “Person” means an individual, a corporation, a limited liability company, a partnership, an association, a trust or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof.

     “Plan” means at any time an employee pension benefit plan (other than a Multiemployer Plan) which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Internal Revenue Code and either (i) is maintained, or contributed to, by any member of the ERISA Group for employees of any member of the ERISA Group or (ii) has at any time within the preceding five years been maintained, or contributed to, by any Person which was at such time a member of the ERISA Group for employees of any Person which was at such time a member of the ERISA Group.

     “Pricing Schedule” means the Pricing Schedule attached hereto as Schedule 2.

     “Prime Rate” means, for any day, the rate per annum in effect for such day as publicly announced from time to time by BNY as its prime commercial lending rate at its principal office in New York City. Such rate is a rate set by BNY based upon various factors including BNY’s costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate. Any change in such rate announced by BNY shall take effect at the opening of business on the day specified in the public announcement of such change.

     “Quarterly Dates” means each March 31, June 30, September 30 and December 31.

     “Quoted Rate” means, for any day in an Interest Period of a Swingline Loan, the rate mutually agreed to by the Borrower and the Swingline Bank for such Interest Period.

     “Quoted Rate Swingline Loan” means a Swingline Loan which bears interest at the Quoted Rate pursuant to the applicable Notice of Swingline Borrowing.

     “Regulation U” means Regulation U of the Board of Governors of the Federal Reserve System, as in effect from time to time.

     “Reimbursement Obligations” means, at any time, the aggregate of all obligations of the Borrower then outstanding under Section 2.16 to reimburse an LC Issuing Bank for amounts paid by such LC Issuing Bank in respect of any drawing under any Letter of Credit.

     “Required Banks” means at any time Banks having more than 50% of the aggregate amount of the Commitments or, if the Commitments shall have been terminated, having more than 50% of the Aggregate Usage.

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     “S&P” means Standard & Poor’s Ratings Group, a division of The McGraw Hill Companies, Inc., or if Standard & Poor’s Ratings Group shall no longer perform the functions of a securities rating agency, “S&P” shall be deemed to refer to any other nationally recognized securities rating agency designated by the Required Banks, with the approval of the Borrower, by notice to the Agent and the Borrower.

     “Significant Subsidiary” means any Subsidiary (other than Emery Insurance Company Limited) of the Borrower which has total assets or revenues in excess of 10% of the consolidated total assets or consolidated revenues of the Borrower and its Consolidated Subsidiaries, all calculated at the date of the most recent financial statements delivered to the Agent pursuant to Section 5.01 or, in the case of revenues, for the twelve calendar months then ended.

     “Subsidiary” means any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect or appoint a majority of the Person or Persons (whether directors, managers, trustees or other Persons performing similar functions) having the power to direct or cause the direction of the management and policies of such corporation or other entity is at the time owned or controlled, directly or indirectly, by the Borrower or one or more of the Borrower’s other Subsidiaries or a combination thereof (it being understood that Vector SCM, LLC is not, as of the Closing Date, a Subsidiary).

     “Subsidiary Guarantors” means, at any date, (i) Con-Way Transportation Services, Inc., (ii) Menlo Worldwide, LLC, (iii) Menlo Logistics, Inc. and (iv) each other Subsidiary of the Borrower which is a party to the Subsidiary Guaranty Agreement as of such date.

     “Subsidiary Guaranty Agreement” means a Subsidiary Guaranty Agreement among the Borrower, the Subsidiary Guarantors and the Agent, as executed and delivered pursuant to Section 3.01(c) and as the same may be amended from time to time in accordance with the terms thereof.

     “Swingline Commitment Amount” means Fifty Million Dollars ($50,000,000), as such amount may be reduced from time to time pursuant to Section 2.09 or 2.11.

     “Swingline Bank” means BNY in its capacity as such and any successors or assigns in such capacity.

     “Swingline Loans” shall have the meaning set forth in Section 2.01(c)

     “Taxes” has the meaning set forth in Section 8.04(a).

     “Termination Date” means March 11, 2010.

     “Third Party Affiliate” means (i) any Person or any group of Persons (within the meaning of Section 13 or 14 of the Securities Exchange Act of 1934, as amended) that directly, or indirectly through one or more intermediaries, controls the Borrower (a “Controlling Person”) or (ii) any Person (other than the Borrower or a Subsidiary) which is controlled by or is under common control with a Controlling Person. As used herein, the term “control” means possession, directly or indirectly, of the power to direct or cause the direction of the management

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or policies of a Person, whether through the ownership of voting securities, by contract or otherwise.

     “Unfunded Liabilities” means, with respect to any Plan at any time, the amount (if any) by which (i) the value of all benefit liabilities under such Plan, determined on a plan termination basis using the assumptions prescribed by the PBGC for purposes of Section 4044 of ERISA, exceeds (ii) the fair market value of all Plan assets allocable to such liabilities under Title IV of ERISA (excluding any accrued but unpaid contributions), all determined as of the then most recent valuation date for such Plan, but only to the extent that such excess represents a potential liability of a member of the ERISA Group to the PBGC or any other Person under Title IV of ERISA.

     “United States” means the United States of America, including the States and the District of Columbia, but excluding its territories and possessions.

     “Unused Commitments” means, at any time, the difference between the aggregate Commitments of all Banks on such date and the Aggregate Usage on such day before giving effect to any new Credit Extension.

     “Wholly-Owned Subsidiary” means any Subsidiary all of the shares of capital stock or other ownership interests of which (except directors’ qualifying shares) are at the time directly or indirectly (through Subsidiaries) owned by the Borrower.

     “Workers’ Compensation Letter of Credit” means any letter of credit which is used to secure obligations of the Borrower or its Subsidiaries under workers’ compensation or similar laws.

     Section 1.02 Accounting Terms and Determinations.

     Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared in accordance with generally accepted accounting principles as in effect from time to time, applied on a basis consistent (except for changes agreed to by the Borrower’s independent public accountants) with the most recent audited consolidated financial statements of the Borrower and its Consolidated Subsidiaries delivered to the Agent; provided that, if the Borrower notifies the Agent that the Borrower wishes to amend any covenant in Article 5 to eliminate the effect of any change in generally accepted accounting principles on the operation of such covenant (or if the Agent notifies the Borrower that the Required Banks wish to amend Article 5 for such purpose), then the Borrower’s compliance with such covenant shall be determined on the basis of generally accepted accounting principles in effect immediately before the relevant change in generally accepted accounting principles became effective, until either such notice is withdrawn or such covenant is amended in a manner satisfactory to the Borrower and the Required Banks.

     Section 1.03 Types of Borrowings.

     The term “Borrowing” denotes the aggregation of Loans of one or more Banks to be made to the Borrower pursuant to Section 2.01 or 2.03 on the same date, all of which Loans are

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of the same type (subject to Article 8) and, except in the case of Base Rate Loans, have the same Interest Period or initial Interest Period. Borrowings are classified for purposes of this Agreement either by reference to the pricing of Loans comprising such Borrowing (e.g., a “Euro-Dollar Borrowing” is a Borrowing comprised of Euro-Dollar Loans) or by reference to the provisions of Article 2 under which participation therein is determined (i.e., a “Committed Borrowing” is a Borrowing under Section 2.01(a) in which all Banks participate in proportion to their Commitments, while a “Money Market Borrowing” is a Borrowing under Section 2.03 in which the Bank participants are determined on the basis of their bids in accordance therewith and a “Swingline Borrowing” is a Borrowing under Section 2.01(c)).

ARTICLE 2
THE CREDITS

     Section 2.01 Commitments to Lend.

     (a) Committed Loans. Each Bank (severally and not jointly) agrees, on the terms and conditions set forth in this Agreement, to make revolving loans in Dollars to the Borrower pursuant to this Section from time to time prior to the Termination Date; provided that, immediately after each such Committed Loan is made, the Outstanding Committed Exposure of such Bank would not exceed its Commitment and the Aggregate Usage would not exceed the aggregate Commitments. Each Borrowing pursuant to this Section 2.01(a) shall be in an aggregate principal amount equal to the lesser (such lesser amount, the “Minimum Committed Amount”) of (i) $10,000,000 or any larger integral multiple of $1,000,000, and (ii) the amount of the Unused Commitments, and shall be made from the several Banks ratably in accordance with their respective Percentages. Within the foregoing limits, the Borrower may borrow under this Section, prepay Committed Loans to the extent permitted by Section 2.12 and reborrow under this Section at any time prior to the Termination Date.

     (b) Increase in Commitments for Committed Loans. The Borrower shall have the right at any time after the Closing Date to increase the aggregate amount of Commitments hereunder by up to $100,000,000 (up to $500,000,000 in total aggregate Commitments) without the consent of the Banks, subject however to the satisfaction of each of the following terms and conditions:

     (i) concurrently with the Borrower’s request for such increase hereunder, the Borrower shall deliver to the Agent, a certificate of the chief financial officer or the chief accounting officer of the Borrower certifying to the Agents and the Bank that no Default has occurred and is continuing;

     (ii) such increase shall be allocated in the following order:

     (A) first, to the existing Banks consenting to an increase in the amount of their additional Commitment (each a “Consenting Bank”); provided that (1) on or before the tenth Domestic Business Day following notification of a requested increase in the aggregate Commitments, each Bank shall notify the Borrower of the desired increase (but not in excess of the aggregate amount requested by the Borrower), if any, in its Commitment (with respect to each Bank, its “Target Increase”), (2) if the aggregate Target Increases of all Consenting Banks shall

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exceed the increase in the aggregate Commitments requested by the Borrower, the Commitments of each Consenting Bank shall be increased on a pro rata basis according to the existing Percentage of such Consenting Bank, provided, further, that in the event any Consenting Bank’s Commitment would, but for the terms of this proviso, be increased pursuant to this clause (2) by an amount in excess of such Consenting Bank’s Target Increase, such Consenting Bank’s Commitment shall instead be increased by its Target Increase and such excess (the “Excess Amount”) together with the Excess Amount, if any, of each other Consenting Bank, shall be allocated among the remaining Consenting Banks in accordance with this clause (2) until either the increase in the aggregate Commitments requested by the Borrower have been fully allocated or the amount of such increase allocated to each Consenting Bank equals its Target Increase; and

     (B) second, to any other commercial bank, financial institution or “accredited investor” (as defined in Regulation D of the Securities and Exchange Commission) reasonably acceptable to the Agent, each LC Issuing Bank, the Swingline Bank and the Borrower;

     (iii) each Person providing a new Commitment shall execute a New Commitment Agreement substantially in the form of Exhibit I hereto and, upon such execution and the satisfaction of the other terms and conditions of this Section 2.01(b), such Person shall thereupon become a party hereto and have the rights and obligations of a Bank under this Agreement as more specifically provided in the New Commitment Agreement; and

     (iv) the Agent shall promptly notify each Bank, the Swingline Bank and each LC Issuing Bank of (A) the new aggregate Commitments and (B) each Bank’s Percentage, in each case after giving effect to the one-time increase in Commitments referred to in this Section 2.01(b).

     On the date (which date shall be a Domestic Business Day) on which the increase in the aggregate Commitments occurs (the “Increase Date”) (1) the Agent and the Banks shall make adjustments among the Banks with respect to the Committed Loans outstanding hereunder and amounts of principal, interest, fees and other amounts paid or payable with respect thereto (and participations in Letters of Credit and Swingline Loans) as shall be necessary in order to reallocate among the Banks such outstanding amounts (and participations in Letters of Credit and Swingline Loans) based on the new Percentages and to otherwise carry out fully the terms of this Section 2.01(b), and (2) in connection with each transfer of all or any portion of a Committed Loan by a Bank in connection with such adjustments, such Bank may in its sole discretion treat such transfer as a prepayment for purposes of Section 2.14 and the Borrower shall pay to such Bank the amount, if any, owing to such Bank pursuant to such Section as a result thereof. The Borrower agrees that, in connection with any such increase in the aggregate Commitments, it will promptly provide a Note to each Bank providing a new Commitment, if such Bank has requested a Note in accordance with Section 2.05(b), substantially in the form of the Note attached hereto as Exhibit A. Each of the parties hereto acknowledges and agrees that no Bank shall be obligated to increase its Commitment pursuant to the terms of this Section 2.01(b). Each Bank with Committed

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Loans outstanding immediately prior to the Increase Date shall, to the extent deemed necessary by the Agent and the Borrower to appropriately reallocate the aggregate Commitments and give effect to the new Commitments, sell a portion of its Loans and participation interests in any unpaid Reimbursement Obligations and Swingline Loans to the Banks providing new Commitments hereunder so that, after giving effect thereto, each Bank’s percentage of outstanding Loans and participations shall equal its percentage of outstanding Commitments.

     (c) Swingline Loans. The Swingline Bank, in its individual capacity, agrees, on the terms and conditions set forth in this Agreement, to make revolving loans (“Swingline Loans”) in Dollars to the Borrower pursuant to this Section from time to time prior to the Termination Date; provided that, immediately after each such Swingline Loan is made (i) the aggregate outstanding principal amount of all Swingline Loans shall not exceed the Swingline Commitment Amount, and (ii) the Aggregate Usage would not exceed the aggregate Commitments. The Agent will, upon request of the Swingline Bank, confirm the Aggregate Usage. Each Swingline Loan shall be in a minimum principal amount equal to the lesser (such lesser amount, “Minimum Swingline Amount”) of (x) $1,000,000 or any larger integral multiple of $1,000,000 and (y) the unused Swingline Commitment Amount. Within the foregoing limits, the Borrower may borrow under this Section, prepay Swingline Loans to the extent permitted by Section 2.12 and reborrow under this Section at any time prior to the Termination Date. Notwithstanding anything to the contrary contained in this Agreement (1) the Swingline Bank shall not be obligated to make any Swingline Loan at a time when any Bank shall be in default of its obligations hereunder unless arrangements to eliminate the Swingline Bank’s risk with respect to such Defaulting Bank’s participation in such Swingline Loan shall have been made for the benefit of the Swingline Bank and such arrangements are satisfactory to the Swingline Bank, and (2) the Swingline Bank shall not make a Swingline Loan if, no later than one Domestic Business Day prior to the date of Borrowing with respect to such Swingline Loan, it shall have received written notice from any Bank that the conditions set forth in Article 3 with respect thereto have not been satisfied.

     Section 2.02 Notice of Committed Borrowing.

     (a) Committed Loans. The Borrower shall give the Agent notice (a “Notice of Committed Borrowing”) not later than (x) 12:00 Noon (New York City time) on the Domestic Business Day before each Base Rate Borrowing (or the same Domestic Business Day, as the Agent may agree, provided that if any Bank is a Foreign Bank that does not have a lending office in the United States, the consent of such Bank shall be required for such shorter notice) and (y) 1:00 P.M. (New York City time) on the third Euro-Dollar Business Day before each Euro-Dollar Borrowing, specifying:

     (i) the date of such Borrowing, which shall be a Domestic Business Day in the case of a Base Rate Borrowing or a Euro-Dollar Business Day in the case of a Euro-Dollar Borrowing,

     (ii) the aggregate amount of such Borrowing,

     (iii) whether the Loans comprising such Borrowing are to bear interest initially at the Base Rate or based upon a Euro-Dollar Rate, and

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     (iv) in the case of a Euro-Dollar Borrowing, the duration of the Interest Period applicable thereto, subject to the provisions of the definition of Interest Period;

provided that the Borrower may not deliver a Notice of Committed Borrowing if after giving effect to the requested Borrowing there would be more than ten Committed Euro-Dollar Borrowings outstanding.

              (b) Swingline Loans. The Borrower shall give the Swingline Bank (with a copy to the Agent) notice (a “Notice of Swingline Borrowing”) not later than 12:00 Noon (New York City time) on the date of each Swingline Borrowing, specifying:

     (i) the date of such Borrowing, which shall be a Domestic Business Day,

     (ii) the aggregate amount of such Borrowing,

     (iii) whether the Loans comprising such Borrowing are to bear interest initially at the Base Rate or the Quoted Rate, and

     (iv) the duration of the Interest Period applicable thereto, subject to the provisions of the definition of Interest Period.

     Section 2.03 Money Market Borrowings.

     (a) The Money Market Option. In addition to Committed Borrowings pursuant to Section 2.01(a) and Swingline Borrowings pursuant to Section 2.01(c), the Borrower may, as set forth in this Section, request the Banks to make offers to make Money Market Loans to the Borrower on any day prior to the Termination Date, provided that, immediately after each such Money Market Loan is made, the Aggregate Usage will not exceed the aggregate Commitments. The Banks may, but shall have no obligation to, make such offers and the Borrower may, but shall have no obligation to, accept any such offers in the manner set forth in this Section.

     (b) Money Market Quote Request. When the Borrower wishes to request offers to make Money Market Loans under this Section, it shall transmit to the Agent by facsimile transmission a Money Market Quote Request so as to be received no later than (x) 1:00 P.M. (New York City time) on the fifth Euro-Dollar Business Day prior to the date of Borrowing proposed therein, in the case of a LIBOR Auction or (y) 11:30 A.M. (New York City time) on the Domestic Business Day next preceding the date of Borrowing proposed therein, in the case of an Absolute Rate Auction (or, in either case, such other time or date as the Borrower and the Agent shall have mutually agreed and shall have notified to the Banks not later than the date of the Money Market Quote Request for the first LIBOR Auction or Absolute Rate Auction for which such change is to be effective) specifying:

     (i) the proposed date of Borrowing, which shall be a Euro-Dollar Business Day in the case of a LIBOR Auction or a Domestic Business Day in the case of an Absolute Rate Auction,

     (ii) the aggregate amount of such Borrowing, which shall be $10,000,000 or a larger integral multiple of $1,000,000,

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     (iii) the duration of the Interest Period applicable thereto, subject to the provisions of the definition of Interest Period, and

     (iv) whether the Money Market Quotes requested are to set forth a Money Market Margin or a Money Market Absolute Rate.

The Borrower may request offers to make Money Market Loans for more than one Interest Period in a single Money Market Quote Request. No Money Market Quote Request shall be given within five Euro-Dollar Business Days (or such other number of days as the Borrower and the Agent may agree) of any other Money Market Quote Request.

     (c) Invitation for Money Market Quotes. Promptly upon receipt of a Money Market Quote Request, the Agent shall send to the Banks by facsimile transmission an invitation for Money Market Quotes substantially in the form of Exhibit C hereto, which shall constitute an invitation by the Borrower to each Bank to submit Money Market Quotes offering to make the Money Market Loans to which such Money Market Quote Request relates in accordance with this Section.

     (d) Submission and Contents of Money Market Quotes.

     (i) Each Bank may submit a Money Market Quote containing an offer or offers to make Money Market Loans in response to any invitation for Money Market Quotes. Each Money Market Quote must comply with the requirements of this subsection (d) and must be submitted to the Agent by facsimile transmission at its offices specified in or pursuant to Section 9.01 not later than (x) 2:00 P.M. (New York City time) on the fourth Euro-Dollar Business Day prior to the proposed date of Borrowing, in the case of a LIBOR Auction or (y) 10:15 A.M. (New York City time) on the proposed date of Borrowing, in the case of an Absolute Rate Auction (or, in either case, such other time or date as the Borrower and the Agent shall have mutually agreed and shall have notified to the Banks not later than the date of the Money Market Quote Request for the first LIBOR Auction or Absolute Rate Auction for which such change is to be effective); provided that Money Market Quotes submitted by the Agent (or any affiliate of the Agent) in the capacity of a Bank may be submitted, and may only be submitted, if the Agent or such affiliate notifies the Borrower of the terms of the offer or offers contained therein not later than (x) one hour prior to the deadline for the other Banks, in the case of a LIBOR Auction or (y) 15 minutes prior to the deadline for the other Banks, in the case of an Absolute Rate Auction. Subject to Articles 3 and 6, any Money Market Quote so made shall be irrevocable except with the written consent of the Agent given on the instructions of the Borrower.

     (ii) Each Money Market Quote shall be in substantially the form of Exhibit D hereto and shall in any case specify:

     (A) the proposed date of Borrowing,

     (B) the principal amount of the Money Market Loan for which each such offer is being made, which principal amount (w) may be greater than or less than the Commitment of the quoting Bank, (x) must be $5,000,000 or a larger

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integral multiple of $1,000,000, (y) may not exceed the principal amount of Money Market Loans for which offers were requested and (z) may be subject to an aggregate limitation as to the principal amount of Money Market Loans for which offers being made by such quoting Bank may be accepted,

     (C) in the case of a LIBOR Auction, the margin above or below the applicable London Interbank Offered Rate (the “Money Market Margin”) offered for each such Money Market Loan, expressed as a percentage (specified to the nearest 1/10,000 of 1%) to be added to or subtracted from such base rate,

     (D) in the case of an Absolute Rate Auction, the rate of interest per annum (specified to the nearest 1/10,000 of 1%) (the “Money Market Absolute Rate”) offered for each such Money Market Loan, and

     (E) the identity of the quoting Bank.

A Money Market Quote may set forth up to five separate offers by the quoting Bank with respect to each Interest Period specified in the related invitation for Money Market Quotes.

     (iii) Any Money Market Quote shall be disregarded if it:

     (A) is not substantially in conformity with Exhibit D hereto or does not specify all of the information required by subsection (d)(ii);

     (B) contains qualifying, conditional or similar language;

     (C) proposes terms other than or in addition to those set forth in the applicable invitation for Money Market Quotes; or

     (D) arrives after the time set forth in subsection (d)(i).

     (e) Notice to Borrower. The Agent shall promptly notify the Borrower of the terms (x) of any Money Market Quote submitted by a Bank that is in accordance with subsection (d) and (y) of any Money Market Quote that amends, modifies or is otherwise inconsistent with a previous Money Market Quote submitted by such Bank with respect to the same Money Market Quote Request. Any such subsequent Money Market Quote shall be disregarded by the Agent unless such subsequent Money Market Quote is submitted solely to correct a manifest error in such former Money Market Quote. The Agent’s notice to the Borrower shall specify (A) the aggregate principal amount of Money Market Loans for which offers have been received for each Interest Period specified in the related Money Market Quote Request, (B) the respective principal amounts and Money Market Margins or Money Market Absolute Rates, as the case may be, so offered and (C) if applicable, limitations on the aggregate principal amount of Money Market Loans for which offers in any single Money Market Quote may be accepted.

     (f) Acceptance and Notice by Borrower. Not later than 11:30 A.M. (New York City time) on (x) the third Euro-Dollar Business Day prior to the proposed date of Borrowing, in the case of a LIBOR Auction or (y) the proposed date of Borrowing, in the case of an Absolute Rate Auction (or, in either case, such other time or date as the Borrower and the Agent shall have

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mutually agreed and shall have notified the Banks not later than the date of the Money Market Quote Request for the first LIBOR Auction or Absolute Rate Auction for which such change is to be effective), the Borrower shall notify the Agent of its acceptance or non-acceptance of the offers so notified to it pursuant to subsection (e). In the case of acceptance, such notice (a “Notice of Money Market Borrowing”) shall specify the aggregate principal amount of offers for each Interest Period that are accepted. The Borrower may accept any Money Market Quote in whole or in part; provided that:

     (i) the aggregate principal amount of each Money Market Borrowing may not exceed the applicable amount set forth in the related Money Market Quote Request,

     (ii) the principal amount of each Money Market Borrowing must be $10,000,000 or a larger integral multiple of $1,000,000,

     (iii) acceptance of offers may only be made on the basis of ascending Money Market Margins or Money Market Absolute Rates, as the case may be, and

     (iv) the Borrower may not accept any offer that is described in subsection (d)(iii) or that otherwise fails to comply with the requirements of this Agreement.

     (g) Allocation by Agent. If offers are made by two or more Banks with the same Money Market Margins or Money Market Absolute Rates, as the case may be, for a greater aggregate principal amount than the amount in respect of which such offers are accepted for the related Interest Period, the principal amount of Money Market Loans in respect of which such offers are accepted shall be allocated by the Agent among such Banks as nearly as possible (in multiples of $1,000,000, as the Agent may deem appropriate) in proportion to the aggregate principal amounts of such offers. Determinations by the Agent of the amounts of Money Market Loans shall be conclusive in the absence of manifest error.

     Section 2.04 Notice to Banks; Funding of Loans; Additional Provisions Relating to Swingline Loans.

     (a) Upon receipt of a Notice of Committed Borrowing or a Notice of Money Market Borrowing, the Agent shall promptly notify each Bank of the contents thereof and of such Bank’s share (if any) of such Borrowing and such Notice of Borrowing shall not thereafter be revocable by the Borrower. Upon receipt of a Notice of Swingline Borrowing by the Swingline Bank, such Notice of Borrowing shall not thereafter be revocable by the Borrower.

     (b) Not later than (x) 12:00 Noon (New York City time) on the date of each Borrowing other than a Base Rate Borrowing and (y) 1:00 P.M. (New York City time) on the date of each Base Rate Borrowing, each Bank participating therein shall make available its share of such Borrowing, in Federal or other funds immediately available in New York City, to the Agent at its address referred to in Section 9.01. Unless the Agent determines that any applicable condition specified in Article 3 has not been satisfied, the Agent will, promptly after receipt thereof, make the funds so received from the Banks available to the Borrower at the Agent’s aforesaid address.

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     (c) Unless the Agent shall have received notice from a Bank prior to the date of any Borrowing that such Bank will not make available to the Agent such Bank’s share of such Borrowing, the Agent may assume that such Bank has made such share available to the Agent on the date of such Borrowing in accordance with subsection (b) of this Section 2.04 and the Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent that such Bank shall not have so made such share available to the Agent, such Bank and the Borrower severally agree to repay to the Agent, within one Domestic Business Day after demand, such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Agent, at (i) in the case of the Borrower, a rate per annum equal to the higher of the Federal Funds Rate and the interest rate applicable thereto pursuant to Section 2.07 and (ii) in the case of such Bank, the Federal Funds Rate. If such Bank shall repay to the Agent such corresponding amount, such amount so repaid shall constitute such Bank’s Loan included in such Borrowing for purposes of this Agreement.

     (d) No Bank shall be responsible for the failure or delay by any other Bank in its obligation to make its ratable share of a Borrowing hereunder; provided, however, that the failure of any Bank to fulfill its obligations hereunder shall not relieve any other Bank of its obligations hereunder.

     (e) Except as otherwise expressly provided in this Agreement, if any Credit Party shall fail to remit to any other Credit Party an amount payable by such first Credit Party to such other Credit Party pursuant to this Agreement on the date when such amount is due, such payments shall be made by such first Credit Party together with interest thereon for each date from the date such amount is due until the date such amount is paid to such other Credit Party at a rate per annum equal to the Federal Funds Rate.

     (f) The Swingline Bank may, at any time, in its sole discretion, by written notice to the Borrower and the Banks, demand repayment of its Swingline Loans by way of a Committed Loan, in which case the Borrower shall be deemed to have requested a Committed Loan comprised solely of Base Rate Loans in the amount of such Swingline Loans; provided, however, that any such demand shall be deemed to have been given one Domestic Business Day prior to (a) the Termination Date, and (b) upon acceleration of the Loans and other obligations under this Agreement pursuant to Section 6.01. Each Bank hereby irrevocably agrees to make its pro rata share (based on its Percentage) of each such Committed Loan in the amount, in the manner and on the date specified in the preceding sentence notwithstanding (a) the amount of such Borrowing may not comply with the minimum amount for advances of Committed Loans otherwise required hereunder, (b) whether any conditions specified in Section 3.02 are then satisfied, (c) whether a Default or an Event of Default then exists, (d) failure of any such request or deemed request for a Committed Loan to be made by the time otherwise required hereunder, (e) whether the date of such Borrowing is a date on which Committed Loans are otherwise permitted to be made hereunder, (f) any termination of the Commitments immediately prior to or contemporaneously with such Borrowing, or (g) any other reason whatsoever. In the event that any Committed Loan cannot for any reason be made on the date otherwise required above (including, without limitation, as a result of the commencement of a proceeding under federal bankruptcy laws with respect to the Borrower), or if the Swingline Bank otherwise demands the purchase of participations in its Swingline Loans, then each Bank hereby agrees that it shall forthwith purchase (as of the date such Borrowing would

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otherwise have occurred or the date demanded by the Swingline Bank, but adjusted for any payments received from the Borrower on or after such date and prior to such purchase) from the Swingline Bank a participation interest in the outstanding Swingline Loans in such amount as shall be necessary to cause each Bank to share in such Swingline Loans ratably based upon its Percentage (determined immediately before giving effect to any expiration or other termination of the aggregate Commitments), provided that (A) all interest payable on the Swingline Loans shall be for the account of the Swingline Bank until the date as of which such participation interest is funded and (B) at the time any purchase of such participation interest pursuant to this sentence is actually made, the purchasing Bank shall be required to pay to the Swingline Bank, to the extent not paid to the Swingline Bank by the Borrower in accordance with the terms of Section 2.07, interest on the principal amount of participation interests purchased for each day from and including the day upon which such Borrowing would otherwise have occurred to but excluding the date of payment for such participation interests, at a rate equal to the Federal Funds Rate.

     Section 2.05 Notes; Loan Accounts; Records.

     (a) The Loans of each Bank shall be evidenced by one or more accounts maintained by such Bank on behalf of its Applicable Lending Office in accordance with paragraph (d) below.

     (b) The Borrower hereby agrees that if any Bank requests a promissory note to evidence the Loans of such Bank, the Borrower shall promptly execute and deliver to such Bank a promissory note substantially in the form of Exhibit A attached hereto, payable to the order of such Bank. In addition, each Bank may, by notice to the Borrower and the Agent, request that its Loans of a particular type be evidenced by a separate Note in an amount equal to the aggregate unpaid principal amount of such Loans. Each such Note shall be in substantially the form of Exhibit A hereto with appropriate modifications to reflect the fact that it evidences solely Loans of the relevant type. Each reference in this Agreement to the “Note” of such Bank shall be deemed to refer to and include any or all of such Notes, as the context may require.

     (c) Promptly after receipt of any Bank’s Note pursuant to Section 3.01(b), the Agent shall forward such Note to such Bank.

(d) (i) Each Bank shall maintain an account or accounts evidencing each Loan made by such Bank to the Borrower from time to time, including the amounts of principal and interest payable and paid to such Bank from time to time under this Agreement. Each Bank will make reasonable efforts to maintain the accuracy of its account or accounts and to promptly update its account or accounts from time to time, as necessary.

     (ii) The Agent shall maintain the Register pursuant to Section 9.06 and a subaccount for each Bank, in which Register and subaccounts (taken together) shall be recorded (A) the amount, type and Interest Period, if any, of each such Loan hereunder, (B) the amount of any principal or interest due and payable or to become due and payable to each Bank hereunder and (C) the amount of any sum received by the Agent hereunder from or for the account of the Borrower and each Bank’s share thereof. The Agent will make reasonable efforts to maintain the accuracy of the subaccounts referred to in the preceding sentence and to promptly update such subaccounts from time to time, as necessary.

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     (iii) The entries made in the accounts, Register and subaccounts maintained pursuant to subsection (ii) above (and, if consistent with the entries of the Agent, subsection (i) above) shall be prima facie evidence of the existence and amounts of the obligations of the Borrower therein recorded; provided, however, that the failure of any Bank or the Agent to maintain any such account, such Register or such subaccount, as applicable, or any error therein, shall not in any manner affect the obligation of the Borrower to repay the Loans and other amounts owing hereunder to such Bank.

     Section 2.06 Maturity of Loans.

     (a) Each Committed Loan shall mature, and the principal amount thereof shall be due and payable (together with accrued and unpaid interest thereon), on the Termination Date.

     (b) Each Swingline Loan shall mature, and the principal amount thereof shall be due and payable (together with accrued and unpaid interest thereon), on the last day of the Interest Period applicable to such Borrowing.

     (c) Each Money Market Loan included in any Money Market Borrowing shall mature, and the principal amount thereof shall be due and payable, on the last day of the Interest Period applicable to such Borrowing.

     Section 2.07 Interest Rates.

     (a) Each Base Rate Loan shall bear interest on the outstanding principal amount thereof, for each day from the date such Loan is made until it becomes due, at a rate per annum equal to the Base Rate for such day. Such interest shall be payable quarterly in arrears on each Quarterly Date and, with respect to the principal amount of any Base Rate Loan converted to a Euro-Dollar Loan, on the date such amount is so converted. Any overdue principal of or interest on any Base Rate Loan (and any overdue fees) shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the sum of 2% plus the Base Rate for such day.

     (b) Each Euro-Dollar Loan shall bear interest on the outstanding principal amount thereof, for each day during each Interest Period applicable thereto, at a rate per annum equal to the sum of the Euro-Dollar Margin for such day plus the Adjusted London Interbank Offered Rate applicable to such Interest Period. Such interest shall be payable for each Interest Period on the last day thereof and, if such Interest Period is longer than three months, at the end of each three month interval after the first day thereof.

     The “Adjusted London Interbank Offered Rate” applicable to any Interest Period means a rate per annum equal to the quotient obtained (rounded upward, if necessary, to the next higher 1/100 of 1%) by dividing (i) the applicable London Interbank Offered Rate by (ii) 1.00 minus the Euro-Dollar Reserve Percentage.

     The “London Interbank Offered Rate” applicable to any Interest Period means the rate per annum (rounded upward, if necessary, to the next higher 1/100^th of 1%) in each case determined by the Agent to be equal to:

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     (i) the offered rate that appears on the Dow Jones Telerate Screen Page 3750 (or any successor page) that displays an average British Bankers Association Interest Settlement Rate for deposits in Dollars (for delivery on the first day of the applicable Interest Period) for a term (and having a maturity) equivalent to the applicable Interest Period at approximately 11:00 a.m. (London time) two Euro-Dollar Business Days prior to the first day of the applicable Interest Period; or

     (ii) if for any reason the foregoing rate in clause (i) is unavailable or undeterminable, the offered rate on such other page or other service that displays an average British Bankers Association Interest Settlement Rate for deposits in Dollars (for delivery on the first day of the applicable Interest Period) for a term (and having a maturity) equivalent to the applicable Interest Period at approximately 11:00 a.m. (London time) two Euro-Dollar Business Days prior to the first day of the applicable Interest Period; or

     (iii) if for any reason the foregoing rates in clauses (i) and (ii) are unavailable or undeterminable, the rate of interest at which deposits in Dollars for delivery on the first day of the applicable Interest Period in same day funds in the approximate amount of BNY’s Percentage of the applicable Euro-Dollar Loan (but in no event less than $1,000,000) for a term (and having a maturity) equivalent to the applicable Interest Period would be offered by the London branch of BNY to leading banks in the London interbank market at approximately 11:00 a.m. (London time) two Euro-Dollar Business Days prior to the first day of the applicable Interest Period.

     “Euro-Dollar Reserve Percentage” means for any day that percentage (expressed as a decimal) which is in effect on such day, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including any marginal, special, emergency or supplemental reserves) for a member bank of the Federal Reserve System in New York City with deposits exceeding five billion dollars in respect of “Eurocurrency liabilities”. The Adjusted London Interbank Offered Rate shall be adjusted automatically on and as of the effective date of any change in the Euro-Dollar Reserve Percentage.

     (c) Any overdue principal of or interest on any Euro-Dollar Loan shall bear interest, payable on demand, for each day from and including the date payment thereof was due to but excluding the date of actual payment, at a rate per annum equal to the sum of 2% plus the higher of (i) the sum of the Euro-Dollar Margin for such day plus the Adjusted London Interbank Offered Rate applicable to such Loan on the day before such payment was due and (ii) the Euro-Dollar Margin for such day plus the quotient obtained (rounded upward, if necessary, to the next higher 1/100 of 1%) by dividing (x) the rate per annum (rounded upward, if necessary, to the next higher 1/100 of 1%) at which one day (or, if such amount due remains unpaid more than three Euro-Dollar Business Days, then for such other period of time not longer than three months as the Agent may select) deposits in dollars in an amount approximately equal to such overdue payment is offered by the London branch of BNY to leading banks London interbank market for the applicable period by (y) 1.00 minus the Euro-Dollar Reserve Percentage (or, if the circumstances described in clause (a) or (b) of Section 8.01 shall exist, at a rate per annum equal to the sum of 2% plus the Base Rate for such day).

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     (d) Each Swingline Loan shall bear interest on the outstanding principal amount thereof, for each day from the date such Loan is made until it becomes due, at a rate per annum equal to (i) in the case of Base Rate Swingline Loans, the Base Rate for such day and (ii) in the case of each Quoted Rate Swingline Loan, the Quoted Rate applicable thereto for such day. Such interest shall be payable (1) in the case of each Quoted Rate Swingline Loan, on the last day of the Interest Period applicable thereto, and (2) in the case of each Base Rate Swingline Loan, quarterly in arrears on each Quarterly Date. Any overdue principal of or interest on any Swingline Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the sum of 2% plus the Base Rate for such day.

     (e) Subject to Section 8.01(a), each Money Market LIBOR Loan shall bear interest on the outstanding principal amount thereof, for the Interest Period applicable thereto, at rate per annum equal to the sum of the London Interbank Offered Rate for such Interest Period (determined in accordance with Section 2.07(c) as if the related Money Market LIBOR Borrowing were a Committed Euro-Dollar Borrowing) plus (or minus) the Money Market Margin quoted by the Bank making such Loan in accordance with Section 2.03. Each Money Market Absolute Rate Loan shall bear interest on the outstanding principal amount thereof, for the Interest Period applicable thereto, at a rate per annum equal to the Money Market Absolute Rate quoted by the Bank making such Loan in accordance with Section 2.03. Such interest shall be payable for each Interest Period on the last day thereof and if such Interest Period is longer than three months, at the end of each three month interval after the first day thereof. Any overdue principal of or interest on any Money Market Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the sum of 2% plus the Base Rate for such day.

     (f) The Agent shall determine each interest rate applicable to the Loans hereunder. The Agent shall give prompt notice to the Borrower and the participating Banks of each rate of interest so determined, and its determination thereof shall be conclusive in the absence of manifest error.

     Section 2.08 Fees.

          (a) Facility Fee. The Borrower shall pay to the Agent for the account of each Bank a facility fee for each day at the “Facility Fee Rate” for such day (determined in accordance with the Pricing Schedule). Such facility fee shall accrue for each day (i) from and including the Closing Date to but excluding the Termination Date (or earlier date of termination of the Commitments in their entirety) on the amount of such Bank’s Commitment (whether used or unused) on such day and (ii) after the Termination Date (or earlier date of termination of the Commitments in their entirety), on such Bank’s share of the Aggregate Usage. Fees accrued under this Section shall be payable quarterly in arrears (i) on each Quarterly Date, (ii) on the date on which the Commitments terminate in their entirety, (iii) following the Termination Date, on demand, and (iv) on each optional reduction of the Commitments, to the extent thereof.

          (b) Agent’s Fees. The Borrower shall pay to the Agent for its own account fees in the amounts and at the times previously agreed upon between the Borrower and the Agent.

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     Section 2.09 Optional Termination or Reduction of Commitments.

     The Borrower may, upon at least three Domestic Business Days’ notice to the Agent (or such shorter period as the Agent may agree), (i) terminate the Commitments at any time, if no Loans or LC Liabilities are outstanding at such time, (ii) ratably reduce from time to time by an aggregate amount of $5,000,000 or any larger integral multiple of $1,000,000, the aggregate amount of the Commitments in excess of the Aggregate Usage or (iii) reduce from time to time by an aggregate amount of $5,000,000 or any larger multiple of $1,000,000, the Swingline Commitment Amount in excess of the outstanding amount of the Swingline Loans.

     Section 2.10 Method of Electing Interest Rates.

     (i) The Loans included in each Committed Borrowing shall bear interest initially at the Euro-Dollar Rate or the Base Rate, as specified by the Borrower in the applicable Notice of Committed Borrowing. Thereafter, the Borrower may from time to time elect to change or continue the type of interest rate borne by each Group of Loans (subject in each case to the provisions of Article 8), as follows:

     (A) if such Loans are Base Rate Loans, the Borrower may elect to convert such Loans to Euro-Dollar Loans as of any Euro-Dollar Business Day, and

     (B) if such Loans are Euro-Dollar Loans, the Borrower may elect to convert such Loans to Base Rate Loans or elect to continue such Loans as Euro-Dollar Loans for an additional Interest Period, in each case effective on the last day of the then current Interest Period applicable to such Loans.

provided that (i) no Loan may be converted into a Euro-Dollar Loan when any Event of Default has occurred and is continuing and the Administrative Agent has or the Required Banks have determined that such a conversion is not appropriate and (ii) no Loan may be converted into a Euro-Dollar Loan after the date that is one month prior to the Termination Date. Each such election shall be made by delivering a notice (a “Notice of Interest Rate Election”) to the Agent at least three Euro-Dollar Business Days before the conversion or continuation selected in such notice is to be effective. A Notice of Interest Rate Election may, if it so specifies, apply to only a portion of the aggregate principal amount of the relevant Group of Loans; provided that (i) such portion is allocated ratably among the Loans comprising such Group and (ii) the portion to which such Notice applies, and the remaining portion to which it does not apply are each $10,000,000 or any larger multiple of $1,000,000.

     (ii) Each Notice of Interest Rate Election shall specify:

     (A) the Group of Loans (or portion thereof) to which such notice applies;

     (B) the date on which the conversion or continuation selection in such notice is to be effective, which shall comply with the applicable clause of subsection (a) above;

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     (C) if the Loans comprising such Group are to be converted, the new type of Loans and, if such new Loans are Euro-Dollar Loans, the duration of the additional Interest Period applicable thereto; and

     (D) if such Loans are to be continued as Euro-Dollar Loans for an additional Interest Period, the duration of such additional Interest Period.

Each Interest Period specified in a Notice of Interest Rate Election shall comply with the provisions of the definition of Interest Period.

     (iii) Upon receipt of Notice of Interest Rate Election from the Borrower pursuant to subsection (a) above, the Agent shall promptly notify each Bank of the contents thereof and such notice shall not thereafter be revocable by the Borrower. If the Borrower fails to deliver a timely Notice of Interest Rate Election to the Agent for any Group of Euro-Dollar Rate Loans, such Loans shall be converted to Base Rate Loans on the last day of the then current Interest Period applicable thereto.

     Section 2.11 Mandatory Termination of Commitments.

     Unless previously terminated, the Commitments shall terminate on the Termination Date, and all Loans and LC Liabilities (whether or not contingent) then outstanding (together with accrued interest thereon) shall be due and payable on such date.

     Section 2.12 Optional Payments.

     (a) The Borrower may (i) upon the same Domestic Business Day’s notice to the Agent, prepay any Base Rate Loans (or any Money Market Borrowing bearing interest at the Base Rate pursuant to Section 8.01(a)) in whole at any time, or from time to time in part, in amounts aggregating $500,000 or any larger integral multiple of $100,000, by paying the principal amount to be prepaid together with accrued interest thereon to the date of prepayment, (ii) upon at least three Euro-Dollar Business Days’ notice to the Agent, prepay any Group of Euro-Dollar Loans, in whole at any time, or from time to time in part, in amounts aggregating $5,000,000 or any larger integral multiple of $1,000,000, by paying the principal amount to be prepaid together with accrued interest thereon to the date of prepayment, or (iii) at any time prepay any Swingline Loans. Each such optional prepayment shall be applied to prepay ratably the Loans of the several Banks included in such Group or Borrowing. In connection with any such prepayment of any Euro-Dollar Loan, the Borrower shall comply with the provisions of Section 2.14.

     (b) Except as provided in subsection (a) above, the Borrower may not prepay all or any portion of the principal amount of any Money Market Loan or Quoted Rate Swingline Loan prior to the maturity thereof.

     (c) Upon receipt of a notice of prepayment of Committed Loans pursuant to this Section, the Agent shall promptly notify each Bank of the contents thereof and of such Bank’s ratable share (if any) of such prepayment and such notice shall not thereafter be revocable by the Borrower.

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     Section 2.13 General Provisions as to Payment.

     (a) The Borrower shall make each payment of principal of, and interest on, the Loans and of fees hereunder, and (except to the extent otherwise provided in Section 2.16) the Reimbursement Obligations, not later than 1:00 P.M. (New York City time) on the date when due, in Federal or other funds immediately available in New York City, without condition or deduction for any counterclaim, defense, recoupment or setoff, to the Agent at its address referred to in Section 9.01. The Agent will promptly distribute (i) to each Bank its ratable share of each such payment received by the Agent for the account of the Banks, (ii) to each LC Issuing Bank each payment received by the Agent for the account of such LC Issuing Bank, and (iii) to the Swingline Bank each payment received by the Agent for the account of the Swingline Bank. Whenever any payment of principal of, or interest on, the Base Rate Loans, the Swingline Loans, the Money Market Absolute Rate Loans or of fees shall be due on a day which is not a Domestic Business Day, the date for payment thereof shall be extended to the next succeeding Domestic Business Day. Whenever any payment of principal of, or interest on, the Euro-Dollar Loans or the Money Market LIBOR Loans shall be due on a day which is not a Euro-Dollar Business Day, the date for payment thereof shall be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case the date for payment thereof shall be the next preceding Euro-Dollar Business Day. If the date for any payment of principal is extended in accordance with this Section 2.13, by operation of law or otherwise, interest thereon shall be payable for such extended time.

     (b) Unless the Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Banks hereunder that the Borrower will not make such payment in full, the Agent may assume that the Borrower has made such payment in full to the Agent on such date and the Agent may, in reliance upon such assumption, cause to be distributed to each Bank on such due date an amount equal to the amount then due such Bank. If and to the extent that the Borrower shall not have so made such payment, each Bank shall repay to the Agent forthwith on demand such amount distributed to such Bank together with interest thereon, for each day from the date such amount is distributed to such Bank until the date such Bank repays such amount to the Agent, at the Federal Funds Rate.

     Section 2.14 Funding Losses.

     If the Borrower makes any payment of principal with respect to any Fixed Rate Loan, or any Euro-Dollar Loan is converted to a Base Rate Loan (whether such payment or conversion is pursuant to Articles 2, 6 or 8 or otherwise) on any day other than the last day of an Interest Period applicable thereto, or the last day of an applicable period fixed pursuant to Section 2.07(c), or if the Borrower fails to borrow any Fixed Rate Loan, or to prepay, convert or continue any Euro-Dollar Loan, after notice has been given to any Bank in accordance with Sections 2.04(a) or 2.10(a), the Borrower shall pay to each Bank within 15 days after demand an amount calculated as provided in Exhibit G hereto to indemnify such Bank for any loss incurred by it (or by an existing or scheduled Participant in the related Loan) in obtaining, liquidating or employing deposits from third parties, provided that such Bank shall have delivered to the Borrower a certificate setting forth such amount and the calculation thereof in reasonable detail.

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     Section 2.15 Computation of Interest and Fees.

     Interest based on the Prime Rate hereunder shall be computed on the basis of a year of 365 days (or 366 days in a leap year) and paid for the actual number of days elapsed (including the first day but excluding the last day). All other interest and all letter of credit fees and facility fees shall be computed on the basis of a year of 360 days and paid for the actual number of days elapsed (including the first day but excluding the last day).

     Section 2.16 Letters of Credit.

     (a) General. Subject to the terms and conditions set forth herein, the Borrower may at any time and from time to time prior to the Termination Date request the issuance of Letters of Credit by an LC Issuing Bank for its own account, and the amendment, renewal (other than with respect to any Auto-Renewal LC) or extension of any Letter of Credit, in each case in form and substance reasonably acceptable to the Agent and such LC Issuing Bank. In the event of any inconsistency between the terms and conditions of this Agreement and the terms and conditions of any form of letter of credit application or other agreement submitted by the Borrower to, or entered into by the Borrower with, any LC Issuing Bank relating to any Letter of Credit, the terms and conditions of this Agreement shall control.

     (b) (i) Notice of Issuance, Amendment, Renewal, Extension; Certain Conditions. To request the issuance of a Letter of Credit (or the amendment, renewal (other than with respect to any Auto-Renewal LC) or extension of an outstanding Letter of Credit, the Borrower shall hand deliver or telecopy (or transmit by electronic communication, if arrangements for doing so have been approved by the applicable LC Issuing Bank) to the applicable LC Issuing Bank and the Agent (reasonably in advance of the requested date of issuance, amendment, renewal or extension) a notice requesting the issuance of a Letter of Credit, or identifying the Letter of Credit to be amended, renewed or extended, and specifying the date of issuance, amendment, renewal or extension (which shall be a Domestic Business Day), the date on which such Letter of Credit is to expire (which shall comply with paragraph (c) of this Section), the amount of such Letter of Credit, the name and address of the beneficiary thereof and such other information as shall be necessary to prepare, amend, renew or extend such Letter of Credit. If requested by the applicable LC Issuing Bank, the Borrower also shall submit a letter of credit application on such LC Issuing Bank’s standard form in connection with any request for a Letter of Credit. A Letter of Credit shall be issued, amended, renewed or extended only if (and upon issuance, amendment, renewal or extension of each Letter of Credit the Borrower shall be deemed to represent and warrant that), after giving effect to such issuance, amendment, renewal or extension, the LC Issuing Bank Exposure of such LC Issuing Bank would not exceed its LC Commitment. The Agent will, upon request of any LC Issuing Bank, confirm the Aggregate Usage. Notwithstanding anything to the contrary contained in this Agreement (1) no LC Issuing Bank shall be obligated to issue, amend, renew or extend any Letter of Credit at a time when any Bank shall be in default of its obligations hereunder unless arrangements to eliminate such LC Issuing Bank’s risk with respect to such Bank’s participation in such Letter of Credit shall have been made for the benefit of such LC Issuing Bank and such arrangements are satisfactory to such LC Issuing Bank, and (2) no LC Issuing Bank shall issue, amend, renew or extend any Letter of Credit if, no later than one Domestic Business Day prior to the date of such issuance, amendment, renewal or extension, it shall have received written notice from the Agent or

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Required Lenders that the conditions set forth in Section 3.02 with respect thereto have not been satisfied.

     (ii) Auto-Renewal LCs. If the Borrower so requests in any Letter of Credit request, the applicable LC Issuing Bank may, in its sole and absolute discretion, agree to issue a Letter of Credit that has automatic renewal provisions (each, an “Auto-Renewal LC”); provided that any such Auto-Renewal LC must permit the applicable LC Issuing Bank to prevent any such renewal at least once in each twelve-month period (commencing with the date of issuance of such Letter of Credit) by giving prior notice not later than the day in each such twelve-month period specified in such Letter of Credit (the “Non-Renewal Date”). Unless otherwise directed by the LC Issuing Bank, the Borrower shall not be required to make a specific request to the LC Issuing Bank for any such renewal.

     (c) Expiration Date. Each Letter of Credit (other than an Auto-Renewal LC) shall expire at or prior to the close of business on the earlier of (i) the date one year after the date of the issuance of such Letter of Credit (or, in the case of any renewal or extension thereof, one year after such renewal or extension) and (ii) the date that is five Domestic Business Days prior to the Termination Date.

     (d) Participations. By the issuance of a Letter of Credit (or an amendment to a Letter of Credit increasing the amount thereof) and without any further action on the part of any LC Issuing Bank or the Banks, the LC Issuing Bank in respect of such Letter of Credit hereby grants to each Bank, and each Bank hereby acquires from such LC Issuing Bank, a participation in such Letter of Credit equal to such Bank’s Percentage as of the date thereof of the aggregate amount available to be drawn under such Letter of Credit. In consideration and in furtherance of the foregoing, each Bank hereby absolutely and unconditionally agrees to pay to the Agent, for the account of such LC Issuing Bank, such Bank’s participation percentage of each LC Disbursement made by such LC Issuing Bank and not reimbursed by the Borrower on the date due as provided in paragraph (e) of this Section, or of any reimbursement payment required to be refunded to the Borrower for any reason. Each Bank acknowledges and agrees that its obligation to acquire participations pursuant to this paragraph in respect of Letters of Credit is absolute and unconditional and shall not be affected by any circumstance whatsoever, including any amendment, renewal or extension of any Letter of Credit or the occurrence and continuance of a Default or reduction or termination of the Commitments, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever.

     (e) Reimbursement. If any LC Issuing Bank shall make any LC Disbursement in respect of a Letter of Credit, the Borrower shall reimburse such LC Disbursement by paying to the Agent an amount equal to such LC Disbursement not later than 2:00 p.m., New York City time, on the date that such LC Disbursement is made or the next Business Day if the Borrower has requested a Committed Loan to finance such reimbursement, if the Borrower shall have received notice of such LC Disbursement prior to 10:00 a.m., New York City time, on such date, or, if such notice has not been received by the Borrower prior to such time on such date, then not later than 2:00 p.m., New York City time, on the Business Day immediately following the day that the Borrower receives such notice or the next Business Day if the Borrower has requested a Committed Loan to finance such reimbursement; provided that, the Borrower may, subject to the conditions to borrowing set forth herein, request in accordance with Section 2.02 that such

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payment be financed with (X) a Base Rate Borrowing (notwithstanding the fact that such LC Disbursement may be less than the Minimum Committed Amount), or (Y) a Swingline Loan (notwithstanding the fact that such LC Disbursement may be less than the Minimum Swingline Amount), in each case in an equivalent amount and, accordingly, the Borrower’s obligation to make such payment shall be discharged and replaced by the resulting Base Rate Borrowing or Swingline Loan, as the case may be. If the Borrower fails to make such payment when due, the Agent shall notify each Bank of the applicable LC Disbursement, the payment then due from the Borrower in respect thereof and such Bank’s share thereof. Promptly following receipt of such notice, each Bank shall pay to the Agent its share of the payment then due from the Borrower, in the same manner as provided in Section 2.04 with respect to Loans made by such Bank (and Section 2.04 shall apply, mutatis mutandis, to the payment obligations of the Banks), and the Agent shall promptly pay to such LC Issuing Bank the amounts so received by it from the Banks. Promptly following receipt by the Agent of any payment from the Borrower pursuant to this paragraph, the Agent shall distribute such payment to such LC Issuing Bank or, to the extent that Banks have made payments pursuant to this paragraph for the account of such LC Issuing Bank, then to such Banks and the LC Issuing Bank as their interests may appear. Any payment made by a Bank pursuant to this paragraph for the account of such LC Issuing Bank for any LC Disbursement (other than the funding of a Base Rate Borrowing or a Swingline Loan as contemplated above) shall not constitute a Loan and shall not relieve the Borrower of its obligation to reimburse such LC Disbursement.

     (f) Obligations Absolute. The Borrower’s obligation to reimburse LC Disbursements as provided in paragraph (e) of this Section shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement under any and all circumstances whatsoever and irrespective of (i) any lack of validity or enforceability of any Letter of Credit or this Agreement, or any term or provision therein, (ii) any draft or other document presented under a Letter of Credit proving to be forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in any respect, (iii) payment by the applicable LC Issuing Bank under a Letter of Credit against presentation of a draft or other document that does not comply with the terms of such Letter of Credit, or (iv) any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section, constitute a legal or equitable discharge of, or provide a right of setoff against, the Borrower’s obligations hereunder. Neither the Agent, the Banks nor any LC Issuing Bank shall have any liability or responsibility by reason of or in connection with the issuance, amendment, renewal, extension or transfer of any Letter of Credit or any payment or failure to make any payment thereunder (irrespective of any of the circumstances referred to in the preceding sentence), or any error, omission, interruption, loss or delay in transmission or delivery of any draft, notice or other communication under or relating to any Letter of Credit (including any document required to make a drawing thereunder), any error in interpretation of technical terms or any consequence arising from causes beyond the control of the applicable LC Issuing Bank; provided that the foregoing provisions of this clause (f) shall not be construed to excuse any LC Issuing Bank from liability to the Borrower to the extent of any direct damages (as opposed to consequential damages, claims in respect of which are hereby waived by the Borrower to the extent permitted by applicable law) suffered by the Borrower that are caused by such LC Issuing Bank’s failure to exercise care when determining whether drafts and other documents presented under a Letter of Credit comply with the terms thereof. The parties hereto expressly agree that, in the absence of gross negligence or willful misconduct on the part of such

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LC Issuing Bank (as finally determined by a court of competent jurisdiction), such LC Issuing Bank shall be deemed to have exercised care in each such determination. In furtherance of the foregoing and without limiting the generality thereof, the parties agree that, with respect to documents presented which appear on their face to be in substantial compliance with the terms of a Letter of Credit, the applicable LC Issuing Bank may, in its sole discretion, either accept and make payment upon such documents without responsibility for further investigation, regardless of any notice or information to the contrary, or refuse to accept and make payment upon such documents if such documents are not in strict compliance with the terms of such Letter of Credit.

     (g) Disbursement Procedures. Each LC Issuing Bank shall, promptly following its receipt thereof, examine all documents purporting to represent a demand for payment under a Letter of Credit issued by such LC Issuing Bank. Such LC Issuing Bank shall promptly notify the Agent and the Borrower by telephone (confirmed by telecopy) of such demand for payment and whether such LC Issuing Bank has made or will make an LC Disbursement thereunder; provided that any failure to give or delay in giving such notice shall not relieve the Borrower of its obligation to reimburse such LC Issuing Bank or otherwise make payments to the Banks with respect to any such LC Disbursement.

     (h) Interim Interest. If any LC Issuing Bank shall make any LC Disbursement, then, unless the Borrower shall reimburse such LC Disbursement in full on the date such LC Disbursement is made, the unpaid amount thereof shall bear interest, for each day from and including the date such LC Disbursement is made to but excluding the date that the Borrower reimburses such LC Disbursement, at the rate per annum then applicable to Base Rate Borrowings; provided that, if the Borrower fails to reimburse such LC Disbursement when due pursuant to paragraph (e) of this Section, then such unpaid amount shall bear interest at a rate per annum equal to 2% plus the Base Rate. Interest accrued pursuant to this paragraph shall be for the account of the applicable LC Issuing Bank, except that interest accrued on and after the date of payment by any Bank pursuant to paragraph (e) of this Section for the account of such LC Issuing Bank shall be for the account of such Bank to the extent of such payment.

     (i) Cash Collateralization. If any Event of Default shall occur and be continuing, on the Domestic Business Day that the Borrower receives notice from the Agent or the Required Banks (or, if the maturity of the Loans has been accelerated, Banks with LC Exposure representing greater than 50% of the total LC Liabilities) demanding the deposit of cash collateral pursuant to this paragraph, the Borrower shall deposit in an account with the Agent, in the name of the Agent and for the benefit of the Banks, an amount in cash equal to the LC Liabilities as of such date plus any accrued and unpaid interest thereon; provided that the obligation to deposit such cash collateral shall become effective immediately, and such deposit shall become immediately due and payable, without demand or other notice of any kind, upon the occurrence of any Event of Default with respect to the Borrower described in clause (g) or (h) of Section 6.01. Such deposit shall be held by the Agent as collateral for the payment and performance of the obligations of the Borrower under this Agreement. The Agent shall have exclusive dominion and control, including the exclusive right of withdrawal, over such account. Other than any interest earned on the investment of such deposits, which investments shall be made at the option and sole discretion of the Agent and at the Borrower’s risk and expense, such deposits shall not bear interest. Interest or profits, if any, on such investments shall accumulate in such account. Moneys in such account shall be applied by the Agent to reimburse the LC Issuing

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Banks for LC Disbursements for which they have not been reimbursed and, to the extent not so applied, shall be held for the satisfaction of the reimbursement obligations of the Borrower for the LC Exposure at such time or, if the maturity of the Loans has been accelerated (but subject to the consent of Banks with LC Liabilities representing greater than 50% of the total LC Liabilities), be applied to satisfy other obligations of the Borrower under this Agreement. If the Borrower is required to provide an amount of cash collateral hereunder as a result of the occurrence of an Event of Default, such amount (to the extent not applied as aforesaid) shall be returned to the Borrower within three Business Days after all Events of Default have been cured or waived or all obligations hereunder have been paid (except for obligations which survive termination and are not then owing).

     (j) LC Fees. The Borrower shall pay to the Agent, for the account of the Banks ratably (prior to the expiration or other termination of the aggregate Commitments, in accordance with their respective Percentages and, thereafter, in accordance with their participation interests in the LC Liabilities), a letter of credit fee at (i) the LC Fee Rate on the aggregate amount available for drawings under each Letter of Credit (other than Workers’ Compensation Letters of Credit) outstanding from time to time and (ii) the LC Fee Rate minus 0.05% per annum on the aggregate amount available for drawings under each Workers’ Compensation Letter of Credit outstanding from time to time . Each such fee shall be payable in arrears on the last day of each fiscal quarter of the Borrower for so long as such Letter of Credit is outstanding and on the expiry date thereof. The Borrower shall pay to each LC Issuing Bank additional fronting fees and expenses in the amounts and at the times agreed between the Borrower and such LC Issuing Bank. The LC Issuing Banks shall furnish to the Agent upon request such information as the Agent shall require in order to calculate the amount of any fee payable under this subsection (j). “LC Fee Rate” means, for any day, a rate per annum equal to the Euro-Dollar Margin for such day.

     (k) LC Commitment Adjustment. The Borrower shall promptly notify the Agent of any adjustment agreed to between the Borrower and an LC Issuing Bank in the LC Commitment of such LC Issuing Bank.

     Section 2.17 Maximum Interest Rate.

     (a) Nothing contained in this Agreement or the Notes shall require the Borrower to pay interest for the account of any Bank at a rate exceeding the maximum rate permitted by applicable law.

     (b) If the amount of interest payable for the account of any Bank on any interest payment date in respect of the immediately preceding interest computation period, computed pursuant to Sections 2.07 and 2.15, would exceed the maximum amount permitted by applicable law to be charged by such Bank, the amount of interest payable for its account on such interest payment date shall be automatically reduced to such maximum permissible amount.

     (c) If the amount of interest payable for the account of any Bank in respect of any interest computation period is reduced pursuant to subsection (b) of this Section and the amount of interest payable for its account in respect of any subsequent interest computation period, computed pursuant to Sections 2.07 and 2.15, would be less than the maximum amount

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permitted by applicable law to be charged by such Bank, then the amount of interest payable for its account in respect of such subsequent interest computation period shall be automatically increased to such maximum permissible amount; provided that at no time shall the aggregate amount by which interest paid for the account of any Bank has been increased pursuant to this subsection (c) exceed the aggregate amount by which interest paid for its account has theretofore been reduced pursuant to subsection (b) of this Section.

ARTICLE 3
CONDITIONS

     Section 3.01 Conditions to Effectiveness.

     This Agreement shall become effective as of the date (the “Closing Date”) when all of the following conditions to effectiveness shall be satisfied:

     (a) the Agent shall have received counterparts hereof signed by each of the parties hereto (or, in the case of any party as to which an executed counterpart shall not have been received, the Agent shall have received in form satisfactory to it of facsimile or other written confirmation from such party that it has executed a counterpart hereof);

     (b) the Agent shall have received a duly executed Note for the account of each Bank requesting the same dated as of the Closing Date complying with the provisions of Section 2.05;

     (c) the Agent shall have received counterparts of a Subsidiary Guaranty Agreement, substantially in the form of Exhibit F hereto, duly executed by each of the Obligors listed on the signature pages thereof;

     (d) the Agent shall have received an opinion of legal counsel for the Borrower relating to the transactions contemplated hereby, in form and substance reasonably satisfactory to the Agent;

     (e) receipt by the Agent of verification, in form and substance reasonably satisfactory to the Agent, that the Borrower’s Existing Credit Agreement has been terminated and all loans and other amounts owing thereunder have been paid in full (or will be paid in full with the initial Loan advance hereunder) (provided that letters of credit that remain outstanding under the Existing Credit Agreement shall either be supported by Letters of Credit issued under this Agreement or become Letters of Credit under this Agreement);

     (f) the Agent shall have received all documents the Agent may reasonably request relating to the existence of the Obligors, the corporate authority for and the validity of the Financing Documents and any other matters relevant hereto, all in form and substance satisfactory to the Agent; and

     (g) certification by the Borrower that the Borrower has paid all fees and expenses owing on the Closing Date by the Borrower to the Credit Parties;

The Agent shall promptly notify each of the other Credit Parties and the Borrower of the Closing Date, and such notice shall be conclusive and binding on all parties hereto.

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     Section 3.02 Credit Extensions.

     In addition to the requirements set forth in Section 3.01, the obligation of any Bank to make a Loan on the occasion of any Borrowing and the obligation of an LC Issuing Bank to issue, amend, renew or extend a Letter of Credit on the occasion of a request therefor by the Borrower are each subject to the satisfaction of the following conditions (in addition to those set forth in Section 2.16(d), if applicable):

     (a) receipt (i) by the Agent of a Notice of Borrowing as required by Section 2.02 or 2.03, as the case may be, in the case of a Borrowing or (ii) by such LC Issuing Bank of a notice as required by Section 2.16, in the case of a Letter of Credit;

     (b) the fact that, after giving effect to such Credit Extension, the Aggregate Usage will not exceed the aggregate amount of the Commitments;

     (c) the fact that, immediately before and after such Credit Extension, no Default shall have occurred and be continuing;

     (d) the fact that the representations and warranties of the Borrower contained in this Agreement (other than the representations and warranties set forth in Sections 4.04(c), 4.05(a), 4.06, 4.07 and 4.11(b)) shall be true in all material respects on and as of the date of such Credit Extension; and

     (e) with respect to any Credit Extension to be made on the Closing Date, the fact that the representations and warranties of the Borrower contained in Sections 4.04(c), 4.05(a), 4.06, 4.07 and 4.11(b) shall be true in all material respects on and as of the Closing Date.

Each Credit Extension shall be deemed to be a representation and warranty by the Borrower on the date of such Credit Extension as to the facts specified in clauses (b), (c) and (d) of this Section. Each Credit Extension arising out of an Auto-Renewal LC shall be deemed to occur on the last Domestic Business Day upon which the LC Issuing Bank that issued such Auto-Renewal LC could have, in accordance with the terms of such Auto-Renewal LC, given notice the effect of which would have been to prevent the automatic renewal of such Auto-Renewal LC.

ARTICLE 4
REPRESENTATIONS AND WARRANTIES

     The Borrower represents and warrants to the Agent and the Banks that:

     Section 4.01 Corporate Existence and Power.

     The Borrower (a) is a corporation duly incorporated, validly existing and in good standing under the laws of Delaware, and (b) has all corporate powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted, except, with respect to clause (b), where failure to do so could not reasonably be

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expected to have a material adverse effect on the business, financial position or results of operations of the Borrower and its Consolidated Subsidiaries, considered as a whole.

     Section 4.02 Corporate and Governmental Authorization; No Contravention.

     The execution, delivery and performance by each Obligor of the Financing Documents to which it is a party are within its corporate or limited liability company powers, as the case may be, have been duly authorized by all necessary corporate or limited liability company action, as the case may be, require no material action by or in respect of, or material filing with, any governmental body, agency or official and do not contravene, or constitute a default under, any material provision of any applicable law or regulation or of the certificate of incorporation or by-laws or certificate of formation or operating agreement, as the case may be, of such Obligor or of any material agreement, judgment, injunction, order, decree or other instrument binding upon such Obligor or any Subsidiary or result in the creation or imposition of any Lien on any material asset of such Obligor or any Subsidiary.

     Section 4.03 Binding Effect.

     This Agreement constitutes a valid and binding agreement of the Borrower and the Notes, when executed and delivered in accordance with this Agreement, will constitute valid and binding obligations of the Borrower, in each case enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency or similar laws affecting creditors’ rights generally and general principles of equity (regardless of whether considered in a proceeding at law or in equity). The Subsidiary Guaranty Agreement, when executed and delivered by each Obligor, will constitute a valid and binding agreement of such Obligor, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency or similar laws affecting creditors’ rights generally and general principles of equity (regardless of whether considered in a proceeding at law or in equity).

     Section 4.04 Financial Information.

     (a) The consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of December 31, 2003 and the related statements of consolidated income, consolidated cash flows and consolidated shareholders’ equity for the fiscal year then ended, reported on by KPMG LLP and set forth in the Borrower’s 2003 Annual Report to Shareholders, a copy of which has been delivered to the Agent (for posting on Intralinks for the Banks or otherwise), fairly present, in conformity with generally accepted accounting principles, the consolidated financial position of the Borrower and its Consolidated Subsidiaries as of such date and their consolidated results of operations and cash flows for such fiscal year.

     (b) The unaudited condensed consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of September 30, 2004 and the related unaudited condensed statements of consolidated income and consolidated cash flows for the three months then ended, set forth in the Borrower’s quarterly report for the fiscal quarter ended September 30, 2004 as filed with the Securities and Exchange Commission on Form 10-Q, a copy of which has been delivered to the Agent, fairly present, on a basis consistent with the financial statements referred to in subsection (a) of this Section (except as otherwise disclosed therein), the consolidated

38

financial position of the Borrower and its Consolidated Subsidiaries as of such date and their consolidated results of operations and cash flows for such nine-month period (subject to normal year-end adjustments and the absence of footnotes).

     (c) As of the Closing Date, there has been no material adverse change since December 31, 2003 in the business, financial position or results of operations of the Borrower and its Consolidated Subsidiaries, considered as a whole.

     Section 4.05 Litigation.

     There is no action, suit or proceeding pending against, or to the knowledge of the Borrower threatened against the Borrower or any of its Subsidiaries before any court or arbitrator or any governmental body, agency or official (a) as of the Closing Date, which could reasonably be expected to have a material adverse effect on the business, financial position or results of operations of the Borrower and its Consolidated Subsidiaries, considered as a whole, or (b) which in any manner draws into question the validity of any Financing Document.

     Section 4.06 Compliance with ERISA.

     As of the Closing Date, each member of the ERISA Group has fulfilled its obligations under the minimum funding standards of ERISA and the Internal Revenue Code with respect to each Plan and is in compliance in all respects with the presently applicable provisions of ERISA and the Internal Revenue Code with respect to each Plan, except to the extent that noncompliance could not reasonably be expected to result, individually or in the aggregate, in a material adverse effect on the business, financial position or results of operations of the Borrower and its Consolidated Subsidiaries, considered as a whole. As of the Closing Date, no member of the ERISA Group has (i) sought a waiver of the minimum funding standard under Section 412 of the Internal Revenue Code in respect of any Plan, (ii) failed to make any contribution or payment to any Plan or Multiemployer Plan or in respect of any Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement, which has resulted in the imposition of a Lien or the posting of a bond or other security under ERISA or the Internal Revenue Code, except to the extent such Lien, bond or other security could not reasonably be expected to result, individually or in the aggregate, in a material adverse effect on the business, financial position or results of operations of the Borrower and its Consolidated Subsidiaries, considered as a whole, or (iii) incurred any liability under Title IV of ERISA other than a liability to the PBGC for premiums under Section 4007 of ERISA, except to the extent such liability could not reasonably be expected to result, individually or in the aggregate, in a material adverse effect on the business, financial position or results of operations of the Borrower and its Consolidated Subsidiaries, considered as a whole.

     Section 4.07 Environmental Matters.

     As of the Closing Date, to the knowledge of the Borrower, liabilities and costs of the Borrower and its Subsidiaries associated with compliance with Environmental Laws are unlikely (after taking into account the Borrower’s reserves for such liabilities and costs) to result in a material adverse effect on the business, financial position or results of operations of the Borrower and its Consolidated Subsidiaries, considered as a whole.

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     Section 4.08 Taxes.

     The Borrower and its Subsidiaries have filed all United States Federal income tax returns and all other material tax returns which are required to be filed by them and have paid all taxes due pursuant to such returns or pursuant to any assessment received by the Borrower or any Subsidiary, except for (i) any taxes or assessments, the amount of which is not individually or in the aggregate material or (ii) any taxes or assessments being contested in good faith. The charges, accruals and reserves on the books of the Borrower and its Subsidiaries in respect of taxes or other governmental charges are, in the opinion of the Borrower, adequate.

     Section 4.09 Subsidiaries.

     As of the Closing Date, each of the Borrower’s Subsidiaries is a corporation, limited liability company or other legal Person duly incorporated or formed, validly existing and in good standing under the laws of its jurisdiction of incorporation or formation, and has all corporate, limited liability company or organizational, as the case may be, powers and all governmental licenses, authorizations, consents and approvals required to carry, on its business as now conducted, except where failure to do so could not reasonably be expected to have a material adverse effect on the business, financial position or results of operations of the Borrower and its Consolidated Subsidiaries, considered as a whole. As of the Closing Date, each Subsidiary Guarantor is a Wholly-Owned Subsidiary of the Borrower.

     Section 4.10 Not an Investment Company; Federal Reserve Regulations.

     (a) Neither the Borrower nor any Subsidiary Guarantor is an “investment company” within the meaning of the Investment Company Act of 1940, as amended.

     (b) Immediately before and after giving effect to each Credit Extension, Margin Stock (within the meaning of Regulation U) will constitute less than 25% of the Borrower’s assets as determined in accordance with Regulation U.

     Section 4.11 Full Disclosure.

     (a) All information heretofore furnished by the Borrower to the Agent or any Bank for purposes of or in connection with this Agreement or any transaction contemplated hereby is, taken as a whole, and all such information hereafter furnished by the Borrower to the Agent or any Bank will be, taken as a whole, true and accurate in all material respects on the date as of which such information is stated or certified. The Borrower has disclosed to the Banks in writing any and all facts (which shall be deemed to include facts contained in the Borrower’s publicly available filings with the Securities Exchange Commission) which materially and adversely affect or could reasonably be expected to materially and adversely affect the ability of the Borrower to perform its obligations under this Agreement.

     (b) As of the Closing Date, the Borrower has disclosed to the Agent in writing any and all facts (which shall be deemed to include facts contained in the Borrower’s publicly available filings with the Securities Exchange Commission) which materially and adversely affect or could reasonably be expected to materially and adversely affect the business, operations or financial condition of the Borrower and its Consolidated Subsidiaries, taken as a whole.

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ARTICLE 5
COVENANTS

     The Borrower agrees that, so long as any Bank has any Commitment or any Loan or LC Liability remains outstanding, which in the case of any LC Liability has not been fully cash collateralized (or supported by other credit enhancement) in form and substance satisfactory to the Agent and each LC Issuing Bank:

     Section 5.01 Information.

     The Borrower will deliver to the Agent:

     (a) as soon as available and in any event within 120 days after the end of each fiscal year of the Borrower, the audited consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of the end of such fiscal year and the related audited statements of consolidated income, consolidated cash flows and consolidated shareholders’ equity for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on in a manner acceptable to the Securities and Exchange Commission by KPMG LLP or other independent public accountants of nationally recognized standing;

     (b) as soon as available and in any event within 45 days after the end of each of the first three quarters of each fiscal year of the Borrower, the condensed consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of the end of such quarter, the related condensed statement of income for such quarter and the related condensed statements of income and consolidated cash flows for the portion of the Borrower’s fiscal year ended at the end of such quarter, setting forth in the case of such statements of consolidated income and consolidated cash flows in comparative form the figures for the corresponding periods of the Borrower’s previous fiscal year, all certified (subject to normal year-end adjustments and the absence of footnotes) as to fairness of presentation in all material respects by the chief financial officer or the chief accounting officer of the Borrower;

     (c) simultaneously with the delivery of each set of financial statements referred to in clauses (a) and (b) above, a certificate of the chief financial officer or the chief accounting officer of the Borrower (i) setting forth in reasonable detail the calculations required to establish whether the Borrower was in compliance with the requirements of Sections 5.07, 5.08, 5.09 and 5.12 on the date of such financial statements and (ii) stating whether any Default exists on the date of such certificate and, if any Default then exists, setting forth the details thereof and the action which the Borrower is taking or proposes to take with respect thereto;

     (d) simultaneously with the delivery of each set of financial statements referred to in clause (a) above, a statement of the firm of independent public accountants (to the extent available from such firm) which reported on such statements as to whether

41

anything has come to their attention to cause them to believe that any Default existed on the date of such statements and;

     (e) within five Domestic Business Days after any officer of the Borrower obtains knowledge of any Default, if such Default is then continuing, a certificate of the chief financial officer or the chief accounting officer of the Borrower setting forth the details thereof and the action which the Borrower is taking or proposes to take with respect thereto;

     (f) promptly upon the mailing thereof to the shareholders of the Borrower generally, copies of all financial statements, reports and proxy statements so mailed;

     (g) promptly upon the filing thereof, copies of all registration statements (other than the exhibits thereto and any registration statements on Form S-8 or its equivalent) and reports on Forms 10-K, 10-Q and 8-K (or their equivalents) which the Borrower shall have filed with the Securities and Exchange Commission;

     (h) promptly if and when any member of the ERISA Group (i) gives or is required to give notice to the PBGC of any “reportable event” (as defined in Section 4043 of ERISA) with respect to any Plan which might constitute grounds for a termination of such Plan under Title IV of ERISA, or knows that the plan administrator of any Plan has given or is required to give notice of any such reportable event, a copy of the notice of such reportable event given or required to be given to the PBGC; (ii) receives notice of complete or partial withdrawal liability under Title IV of ERISA or notice that any Multiemployer Plan is in reorganization, is insolvent or has been terminated, which could, when aggregated with any liability incurred by any member of the ERISA Group as a result of any other such withdrawal liability, reorganization, insolvency or termination, give rise to aggregate liabilities of the ERISA Group in excess of $75,000,000, a copy of such notice; (iii) receives notice from the PBGC under Title IV of ERISA of an intent to terminate, impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or appoint a trustee to administer any Plan, a copy of such notice; (iv) applies for a waiver of the minimum funding standard under Section 412 of the Internal Revenue Code, a copy of such application; (v) gives notice of intent to terminate any Plan under Section 4041(c) of ERISA, a copy of such notice and other information filed with the PBGC; (vi) gives notice of withdrawal from any Plan pursuant to Section 4063 or ERISA, which could, when aggregated with any liability incurred by any member of the ERISA Group as a result of any other such withdrawal, give rise to aggregate liabilities of the ERISA Group in excess of $75,000,000, a copy of such notice; or (vii) fails to make any payment or contribution to any Plan or Multiemployer Plan or in respect of any Benefit Arrangement or makes any amendment to any Plan or Benefit Arrangement which has resulted in the imposition of a Lien or the posting of a bond or other security valued in an amount when aggregated with the value of any other such Lien, bond or security imposed on any member of the ERISA Group in excess of $75,000,000, a certificate of the chief financial officer or the chief accounting officer of the Borrower setting forth details as to such occurrence and action, if any, which the Borrower or applicable member of the ERISA Group is required or proposes to take;

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     (i) from time to time such additional information regarding the financial position or business of the Borrower and its Subsidiaries as the Agent, at the request of any Bank, may reasonably request; and

     (j) promptly such other information with documentation required by bank regulatory authorities under applicable “know your customer” and anti-money laundering rules and regulations (including, without limitation, the Patriot Act), as from time to time may be reasonably requested by the Agent or any Bank.

     Section 5.02 Payment of Obligations.

     The Borrower will pay and discharge, and will cause each Subsidiary to pay and discharge, at or before maturity, all their respective obligations and liabilities, including, without limitation, tax liabilities, except where (i) the same are contested in good faith by appropriate proceedings or (ii) such non-payment could not reasonably be expected to have a material adverse affect on the business, operations or financial condition of the Borrower and its Consolidated Subsidiaries, taken as a whole, and will maintain, and will cause each Subsidiary to maintain, in accordance with generally accepted accounting principles, appropriate reserves for the accrual of any of the same.

     Section 5.03 Maintenance of Property; Insurance.

     (a) The Borrower will keep, and will cause each Subsidiary to keep, all property useful and necessary in its business in good working order and condition (ordinary, wear and tear and unexpected accidents or catastrophes excepted), except to the extent the non-maintenance of which could not reasonably be expected to have a material adverse affect on the business, operations or financial condition of the Borrower and its Consolidated Subsidiaries, taken as a whole.

     (b) The Borrower will maintain, and will cause each Subsidiary to maintain, with financially sound and reputable insurers, insurance against liabilities to third parties, casualties affecting property used in its business and other risks of the kinds customarily insured against by corporations of established reputation engaged in the same or similar business and similarly situated, of such types and in such amounts as are customarily carried under similar circumstances by such other corporations; provided that, in lieu of any such insurance, the Borrower or any such Subsidiary may maintain a system or systems of self-insurance and reinsurance which will accord with sound practices of similarly situated corporations maintaining such systems and with respect to which the Borrower or such Subsidiary will maintain adequate insurance reserves, all in accordance with generally accepted accounting principles and in accordance with sound insurance principles or practice.

     Section 5.04 Conduct of Business and Maintenance of Existence.

     The Borrower will continue, and will cause each Subsidiary to continue, to engage in business of the same general type as now conducted by the Borrower and its Subsidiaries or reasonable extensions thereof, and will preserve, renew and keep in full force and effect, and will cause each Subsidiary to preserve, renew and keep in full force and effect their respective corporate or limited liability company existence and their respective rights, privileges and

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franchises necessary or desirable in the normal conduct of business; provided that nothing in this Section 5.04 shall prohibit (i) any merger or consolidation permitted by Section 5.10 or (ii) the termination (whether by dissolution, liquidation or wind-up) of the corporate or limited liability company existence of any Subsidiary if the Borrower in good faith determines that such termination is in the best interest of the Borrower and is not materially disadvantageous to the Banks.

     Section 5.05 Compliance with Laws.

     The Borrower will comply, and will cause each Subsidiary to comply, in all respects with all applicable laws, ordinances, rules, regulations, and requirements of governmental authorities (including, without limitation, Environmental Laws and ERISA and the rules and regulations thereunder), except where (i) the necessity of compliance therewith is contested in good faith by appropriate proceedings or (ii) failures to comply therewith could not, in the aggregate, reasonably be expected to have a material adverse effect on the business, consolidated financial position or consolidated results of operations of the Borrower and its Consolidated Subsidiaries, taken as a whole.

     Section 5.06 Inspection of Property, Books and Records.

     The Borrower will keep, and will cause each Subsidiary to keep, proper books of record and account in which full, true and correct entries shall be made of all dealings and transactions in relation to its business and activities. The Borrower will permit, and will cause any Significant Subsidiary to permit representatives of any Bank, at such Bank’s expense, to visit and inspect any of their respective properties to examine and make abstracts from any of their respective books and records and to discuss their respective affairs, finances and accounts with their respective officers, employees and independent accountants, in each case to the extent reasonably requested by such Bank to enable it to evaluate the credit of the Borrower and such Significant Subsidiary, confirm the Borrower’s compliance with the provisions of the Financing Documents, exercise and enforce such Bank’s rights under the Financing Documents or otherwise make decisions relating thereto, but subject to any limitations imposed by law or by confidentiality agreements binding on the Borrower or the relevant Significant Subsidiary and excluding materials subject to attorney-client privilege or attorney work product. Such visits, inspections, examinations and discussions shall be conducted at such reasonable times and as often as the relevant Bank or Banks may reasonably request and the Borrower shall be entitled to participate in or observe all such visits, inspections, examinations and discussions.

     Section 5.07 Debt.

     Total Debt of all Subsidiaries then outstanding will at no time exceed $75,000,000; provided that such total Debt shall not include:

     (i) Debt of a Subsidiary owing to the Borrower;

     (ii) Debt of a Subsidiary owing to another Subsidiary (except, in the case of Debt held by a Subsidiary that is not wholly owned, directly or indirectly, by the Borrower, the portion of such Debt allocable, on a pro rata basis, to the minority interest);

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     (iii) Guarantees by a Subsidiary of Debt of the Borrower or Debt of another Subsidiary;

     (iv) Debt of a Subsidiary outstanding on December 31, 2004 and listed on Schedule 5.07 or any refinancing of such Debt, provided that the principal amount of refinancing Debt excluded from total Debt pursuant to this clause (iv) shall not exceed the principal amount of the Debt refinanced thereby (plus accrued interest owing thereon and the amount of fees, premiums and expenses charged or otherwise paid in connection with any such refinancing);

     (v) Debt of a Subsidiary secured by a purchase money Lien or in respect of capitalized lease obligations permitted by Section 5.09(b) (or any refinancing thereof); provided that the aggregate outstanding principal amount of all Debt of all Subsidiaries excluded from total Debt pursuant to this clause (v) shall not at any time exceed $150,000,000 (plus accrued interest owing thereon and the amount of fees, premiums and expenses charged or otherwise paid in connection with any such refinancing);

     (vi) Debt of a Subsidiary existing at the time of acquisition of such Subsidiary by the Borrower or another Subsidiary and not created in contemplation thereof (and any refinancing thereof); provided that the principal amount of refinancing Debt excluded from total Debt pursuant to this clause (vi) shall not exceed the principal amount of the Debt refinanced thereby (plus accrued interest owing thereon and the amount of fees, premiums and expenses charged or otherwise paid in connection with any such refinancing);

     (vii) Debt of a Subsidiary secured by Liens permitted by Section 5.09(c) or 5.09(d) (and any refinancing thereof); provided that the principal amount of refinancing Debt excluded from total Debt pursuant to this clause (vii) shall not exceed the principal amount of the Debt refinanced thereby (plus accrued interest owing thereon and the amount of fees, premiums and expenses charged or otherwise paid in connection with any such refinancing); and

     (viii) Guarantees by a Subsidiary of Debt of an ESOP Trust.

As used herein, the term “ESOP Trust” means a trust created under an employee stock ownership plan as defined in Section 407(d)(6) of ERISA which benefits employees of a member of the ERISA Group.

     Section 5.08 Leverage Ratio.

     The ratio of (i) Consolidated Debt (minus unrestricted cash and cash equivalents, marketable securities with a maturity date of 90 days or less (provided that such marketable securities, if short-term, have an A-1 rating by S&P or P-1 rating by Moody’s or, if long-term, an A rating or better by S&P or the Moody’s equivalent) and auction rate securities subject to a “dutch auction” process within 90 days or less (provided that such auction rate securities have a AAA rating or the Moody’s equivalent), in each case, at the time of acquisition, of the Borrower

45

and its Subsidiaries, taken as a whole, in excess of $100,000,000) to (ii) Consolidated EBITDA for the immediately preceding four fiscal quarter period in respect of which financial statements were delivered to the Agent pursuant to Section 5.01, shall at all times be less than or equal to 3.50 to 1.

     Section 5.09 Negative Pledge.

     Neither the Borrower nor any Subsidiary will create, assume or suffer to exist any Lien on any asset now owned or hereafter acquired by it, except:

     (a) any Lien existing on any asset of any Person at the time such Person becomes a Subsidiary, and not created in contemplation of such event at the request of the Borrower or any of its Subsidiaries or for the benefit of any of their respective creditors (other than creditors of such Person);

     (b) (i) any purchase money Lien on any property (including accessions thereto and proceeds thereof) acquired by the Borrower or any Subsidiary or hereafter constructed or improved by the Borrower or any Subsidiary, to secure or provide for the payment of all or a part of the purchase price thereof, or any Debt incurred to finance the purchase thereof or cost of construction or cost of improvement of such property and for which a bona fide firm commitment in writing was executed prior to, contemporaneously with or within l80 days after acquisition of such property, or the completion of construction or improvement thereof, as the case may be, provided that no such Lien shall extend to any other property (other than proceeds, replacements, accessions and improvements thereof or thereto) of the Borrower or any Subsidiary and (ii) any Lien relating to capitalized lease obligations of the Borrower or any Subsidiary;

     (c) any Lien on any asset of any Person existing at the time such Person is merged or consolidated with or into the Borrower or a Subsidiary and not created in contemplation of such event at the request of the Borrower or any of its Subsidiaries or for the benefit of any of their respective creditors (other than creditors of such Person);

     (d) any Lien existing on any asset prior to the acquisition thereof by the Borrower or a Subsidiary and not created in contemplation of such acquisition at the request of the Borrower or any of its Subsidiaries or for the benefit of any of their respective creditors;

     (e) any Lien arising out of the refinancing, extension, renewal or refunding of any Debt secured by any Lien permitted by any of the foregoing clauses of this Section, provided that such Debt is not increased (except accrued interest owing thereon and in the amount of fees, premiums and expenses charged or otherwise paid in connection with such transaction) and is not secured by any additional assets;

     (f) any Lien on (i) the common stock or other ownership interest of any Subsidiary Guarantor, but only if after giving effect to such Lien or other ownership interest the Borrower would own, directly or indirectly, at least 80% of the common stock

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of such Subsidiary Guarantor free and clear of Liens or (ii) the common stock or other ownership interest of any other Subsidiary;

     (g) Liens for taxes, assessments or other governmental charges which are not yet due and payable or that are being contested in good faith;

     (h) (i) Liens incidental to the conduct of business or the ownership of properties and assets (including landlords’, carriers’, warehousemen’s, mechanics’, materialmen’s and other similar Liens), (ii) Liens directly or indirectly securing (1) any obligation under an indemnity, performance guarantee or similar undertaking or guarantee thereof issued by or on behalf of the Borrower or its Subsidiaries, (2) any obligation to reimburse or indemnify any other Person in connection with a performance guaranty or similar undertaking or guarantee thereof issued by or on behalf of the Borrower or its Subsidiaries, which indemnity, guarantee or undertaking in either case (1) or (2) above is issued to secure or support any contract or other obligation (other than a contract or other obligation evidencing Debt of the Borrower and its Subsidiaries) entered into by or otherwise binding upon the Borrower or any of its Subsidiaries in the ordinary course of business, (iii) Liens directly or indirectly created to secure the performance of bids, tenders, leases, or trade contracts, or to secure statutory obligations (including obligations under workers compensation, unemployment insurance and other social security legislation), surety or appeal bonds or nonqualified benefit plans, (iv) Liens of customs or revenue authorities in the ordinary course of business, or (v) Liens with respect to cash or cash equivalents securing defeased (legal or covenant) liabilities;

     (i) Liens resulting from judgments not constituting an Event of Default;

     (j) Liens securing debt of a Subsidiary owed to the Borrower or to a Subsidiary Guarantor;

     (k) Liens in existence as of the Closing Date and listed on Schedule 5.09;

     (m) leases, subleases, survey exceptions, easements, rights-of-way, restrictions and other similar charges or encumbrances incidental to the ownership of property or assets or the ordinary conduct of the Borrower or any Subsidiary’s business;

     (n) Liens on property of the Borrower or any Subsidiary (except Liens on the capital stock or debt of the Borrower or any Subsidiary Guarantor) in favor of the United States of America or any state thereof, or any agency or political subdivision of either, or in favor of any other country or agency or political subdivision thereof, in each case (i) to secure payments (other than Debt) pursuant to contract or statute in the ordinary course of business or (ii) to secure Debt created, incurred or guaranteed for the purpose of financing all or any part of the purchase price or the cost of construction or improvement of the property subject to such Liens, including Liens incurred in connection with pollution control, industrial revenue bond or other similar financings;

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     (o) other Liens arising in the ordinary course of its business which (i) do not secure Debt, (ii) do not secure any obligation in an amount exceeding $50,000,000 and (iii) do not in the aggregate materially detract from the value of the assets of the Borrower and its Subsidiaries or materially impair the use thereof in the operation of their business, taken as a whole;

     (p) any Lien on accounts receivable if, immediately after such Lien arises, the aggregate uncollected balance of all accounts receivable sold or subjected to Liens by the Borrower and its Subsidiaries would not exceed 15% of the consolidated accounts receivable of the Borrower and its Subsidiaries as of the end of its then most recently ended fiscal quarter (excluding, for purposes of this clause (p) accounts receivable charged off in accordance with the charge-off policies applicable to the unsold accounts receivable of the Borrower and its Subsidiaries) for which financial statements were delivered to the Agent pursuant to Section 5.01; and

     (q) Liens not otherwise permitted by the foregoing clauses of this Section securing Debt or other obligations if, immediately after giving effect to the incurrence thereof, the Debt or other obligations secured by such Liens would not exceed 15% of Consolidated Net Tangible Assets as of the end of the immediately preceding fiscal quarter of the Borrower for which financial statements were delivered to the Agent pursuant to Section 5.01.

     Section 5.10 Consolidations, Mergers and Sales of Assets.

     The Borrower will not, and will not permit any Subsidiary to, consolidate or merge with, or sell, lease or otherwise transfer any of its assets to, any Person or dissolve, liquidate or wind up its affairs (other than in accordance with Section 5.04(ii)), except that nothing in this Section 5.10 shall prohibit:

     (a) the merger or consolidation of the Borrower with or into another Person if the entity surviving such consolidation or merger is the Borrower,

     (b) the merger or consolidation of a Subsidiary Guarantor with or into another Person if the entity surviving such consolidation or merger is or becomes a Subsidiary Guarantor in accordance with Article 3 of the Subsidiary Guaranty Agreement,

     (c) the merger or consolidation of a Subsidiary (other than a Subsidiary Guarantor) with or into another Person if the entity surviving such consolidation or merger is the Borrower or a Subsidiary, provided that if such other Person is the Borrower or a Subsidiary Guarantor, the Borrower or such Subsidiary Guarantor is the surviving entity,

     (d) any sale, lease or other transfer of any asset (including, in the case of clause (ii) pursuant to a merger or consolidation) either (i) in the ordinary course of business or (ii) for fair value if after giving effect thereto, the aggregate consideration received for all of their assets sold, leased or otherwise transferred under this clause (ii) during any fiscal year of the Borrower does not exceed $100,000,000;

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provided that, in the case of (x) any such merger or consolidation or (y) any such sale, lease or other transfer of any asset not in the ordinary course of business, no Default shall have occurred and be continuing after giving effect thereto.

     Section 5.11 Use of Proceeds.

     Each Credit Extension will be used by the Borrower and its Subsidiaries for general corporate purposes, including, without limitation, acquisitions by the Borrower or any of its Subsidiaries. No Loan or Letter of Credit will be used, directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of buying or carrying any “margin stock” within the meaning of Regulation U.

     Section 5.12 Fixed Charge Coverage.

     The ratio of Consolidated EBITDAR to Consolidated Fixed Charges shall be, as of the last day of each fiscal quarter (beginning with the fiscal quarter ended March 31, 2005), greater than or equal to 1.875 to 1 for the most recently ended four fiscal quarters for which financial statements were delivered to the Agent pursuant to Section 5.01.

     Section 5.13 Transactions with Third Party Affiliates.

     The Borrower will not, and will not permit any Subsidiary to, directly or indirectly, pay any funds to or for the account of, make any investment (whether by acquisition of stock or indebtedness, by loan, advance, transfer of property, guarantee or other agreement to pay, purchase or service, directly or indirectly, any Debt, or otherwise) in, lease, sell, transfer or otherwise dispose of any assets, tangible or intangible, to, or participate in, or effect any transaction in connection with any joint enterprise or other joint arrangement with, any Third Party Affiliate; provided that nothing in this Section 5.13 shall prohibit:

     (a) the Borrower from declaring or paying any lawful dividend so long as, immediately after giving effect thereto, no Default would occur or be continuing;

     (b) the Borrower or any Subsidiary from making sales to or purchases from any Third Party Affiliate and, in connection therewith, extending credit or making payments, or from making payments for services rendered by any Third Party Affiliate, if such sales or purchases are made or such services are rendered in the ordinary course of business and on a basis no less advantageous to the Borrower or such Subsidiary than would be the case in an arm’s-length transaction;

     (c) the Borrower or any Subsidiary from making payments of principal, interest and premium on any Debt of the Borrower or such Subsidiary held by a Third Party Affiliate if the terms of such Debt are established on a basis no less advantageous to the Borrower or such Subsidiary than would be the case in an arm’s-length transaction; or

     (d) the Borrower or any Subsidiary from participating in or effecting any transaction in connection with any joint enterprise or other joint arrangement with any

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Third Party Affiliate if the Borrower or such Subsidiary participates in the ordinary course of its business and on a basis no less advantageous than the basis on which such Third Party Affiliate participates.

ARTICLE 6
DEFAULTS

     Section 6.01 Events of Default.

     If one or more of the following events (“Events of Default”) shall have occurred and be continuing:

     (a) the Borrower shall fail to pay any principal of any Loan or Reimbursement Obligation when due, or shall fail to pay within three Domestic Business Days of the due date thereof any interest, fees or other amount payable hereunder;

     (b) the Borrower shall fail to observe or perform any covenant contained in Sections 5.07 to 5.12, inclusive, or in Section 3.01 of the Subsidiary Guaranty Agreement;

     (c) the Borrower shall fail to observe or perform any covenant or agreement contained in any (i) Financing Document (other than those covered by clause (a) or (b) above) for 30 days after written notice thereof has been given to the Borrower by the Agent at the request of any Bank, or (ii) Section 5.01(e) for 30 days;

     (d) any representation, warranty, certification or statement made by the Borrower or any Subsidiary Guarantor in any Financing Document or any amendment thereof or in any certificate, financial statement or other document delivered pursuant to any Financing Document shall prove to have been incorrect in any material respect when made (or deemed made);

     (e) the Borrower or any Subsidiary shall fail to make any payment in respect of any Material Debt within three Domestic Business Days after such payment is due or, if longer, within any grace period otherwise applicable to such payment;

     (f) any event or condition shall occur which results in the acceleration of the maturity of Material Debt or enables the holders of Material Debt or any Person acting on their behalf to accelerate the maturity thereof;

     (g) the Borrower, any Significant Subsidiary, or group of Subsidiaries of the Borrower that, taken together, would constitute a Significant Subsidiary, shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a

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general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any corporate action to authorize any of the foregoing;

     (h) an involuntary case or other proceeding shall be commenced against the Borrower, any Significant Subsidiary, or group of Subsidiaries of the Borrower that, taken together, would constitute a Significant Subsidiary, seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of 60 days; or an order for relief shall be entered against the Borrower, any Significant Subsidiary, or group of Subsidiaries of the Borrower that, taken together, would constitute a Significant Subsidiary, under the federal bankruptcy laws as now or hereafter in effect;

     (i) any member of the ERISA Group shall fail to pay when due an amount or amounts aggregating in excess of $75,000,000 which it shall have become liable to pay under Title IV of ERISA; or notice of intent to terminate a Material Plan shall be filed under Title IV of ERISA by any member of the ERISA Group, any plan administrator or any combination of the foregoing; or the PBGC shall institute proceedings under Title IV of ERISA to terminate, to impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or to cause a trustee to be appointed to administer any Material Plan; or a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudication that any Material Plan must be terminated; or there shall occur a complete or partial withdrawal from, or a default, within the meaning of Section 4219(c)(5) of ERISA, with respect to, one or more Multiemployer Plans which could cause one or more members of the ERISA Group to incur a current payment obligation in excess of $75,000,000;

     (j) a final judgment or order for the payment of money in excess of $75,000,000 (to the extent not covered by insurance, net of any applicable deductible) shall be entered or filed against the Borrower or any Subsidiary and such judgment or order shall continue unsatisfied, unvacated and unstayed for a period of 60 days;

     (k) any person or group of persons (within the meaning of Section 13 or 14 of the Securities Exchange Act of 1934, as amended) shall have acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated by the Securities and Exchange Commission under said Act) of 30% or more of the outstanding shares of common stock of the Borrower or Continuing Directors shall cease to constitute a majority of the Borrower’s board of directors;

     (l) the Borrower or any Subsidiary Guarantor shall take any action that causes the guarantee by any Subsidiary Guarantor set forth in the Subsidiary Guaranty Agreement to be revoked or invalidated, or to cease to be in full force and effect (other than pursuant to Section 4.03 of the Subsidiary Guaranty Agreement), or the Borrower or any Subsidiary Guarantor (or any Person acting on behalf of the Borrower or any

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Subsidiary Guarantor) shall deny or disaffirm any of the obligations of any Subsidiary Guarantor set forth in the Subsidiary Guaranty Agreement (except to the extent such obligations have ceased to be in effect pursuant to Section 4.03 of the Subsidiary Guaranty Agreement);

then, and in every such event, the Agent shall (i) if requested by the Required Banks, by notice to the Borrower terminate the Commitments and they shall thereupon terminate and (ii) if requested by the Required Banks by notice to the Borrower declare the unpaid principal amount of the Loans (together with accrued interest thereon) to be, and the unpaid principal amount of the Loans shall thereupon become, immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower; provided that in the case of any of the Events of Default specified in clause (g) or (h) above with respect to the Borrower, without any notice to any Obligor or any other act by the Agent or the Banks, the Commitments shall thereupon terminate and the unpaid principal amount of the Loans (together with accrued interest thereon) shall become immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower.

     Section 6.02 Notice of Default.

     The Agent shall give notice to the Borrower under Section 6.01(c) promptly upon being requested to do so by any Bank and shall thereupon notify all the Banks thereof.

ARTICLE 7
THE AGENT AND THE CO-AGENTS

     Section 7.01 Appointment and Authorization.

     Each Bank irrevocably appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers and perform such duties under the Financing Documents as are expressly delegated to the Agent by the terms thereof, together with all such powers as are reasonably incidental thereto.

     Section 7.02 Agent and Affiliates.

     BNY shall have the same rights and powers under the Financing Documents as any other Bank and may exercise or refrain from exercising the same as though it were not the Agent. BNY and its affiliates may accept deposits from, lend money to, and generally engage in any kind of business with the Borrower or any Subsidiary, or affiliate of the Borrower, as if it were not the Agent hereunder and without notice to or consent of the Banks. The Banks acknowledge that, pursuant to such activities, the Agent or its affiliates may receive information regarding any Obligor or its Affiliates (including information that may be subject to confidentiality obligations in favor of such Obligor or such Affiliate) and acknowledge that the Agent and its affiliates shall be under no obligation to provide such information to them.

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     Section 7.03 Action by Agent.

     The obligations of the Agent under the Financing Documents are only those expressly set forth therein. Notwithstanding any provision to the contrary contained elsewhere herein or in any other Financing Document, the Agent shall not have any duties or responsibilities, except those expressly set forth herein, nor shall the Agent have or be deemed to have any fiduciary relationship with any Bank or participant, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Financing Document or otherwise exist against the Agent. Without limiting the generality of the foregoing sentence, the use of the term “agent” herein and in the other Financing Documents with reference to the Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable law. Instead, such term is used merely as a matter of market custom, and is intended to create or reflect only an administrative relationship between independent contracting parties.

     Section 7.04 Consultation with Experts; Delegation of Duties.

     The Agent may consult with legal counsel (who may be counsel for an Obligor), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the advice of such counsel, accountants or experts. The Agent may execute any of its duties under this Agreement or any other Financing Document by or through agents, employees or attorneys-in-fact and shall be entitled to advice of counsel and other consultants or experts concerning all matters pertaining to such duties. The Agent shall not be responsible for the negligence or misconduct of any agent or attorney-in-fact that it selects in the absence of gross negligence or willful misconduct by the Agent.

     Section 7.05 Liability of Agent.

     Neither the Agent nor any of its affiliates nor any of their respective directors, officers, agents or employees shall be liable for any action taken or not taken by it in connection herewith (i) with the consent or at the request of the Required Banks or (ii) in the absence of its own gross negligence or willful misconduct. Neither the Agent nor any of its affiliates nor any of their respective directors, officers, agents or employees shall be responsible for or have any duty to ascertain, inquire into or verify (i) any statement, warranty or representation made in connection with the Financing Documents or any borrowing hereunder; (ii) the performance or observance of any of the covenants or agreements of the Borrower; (iii) the satisfaction of any condition specified in Article 3, except receipt of items required to be delivered to the Agent; or (iv) the validity, effectiveness or genuineness of the Financing Documents or any other instrument or writing furnished in connection therewith.

     Section 7.06 Reliance by Agent.

     (a) The Agent shall be entitled to rely, and shall not incur any liability by acting in reliance, upon any notice, consent, certificate, statement, or other writing (which may be a bank wire, facsimile transmission or similar writing) believed by it to be genuine or to be signed by the proper party or parties. The Agent shall be fully justified in failing or refusing to take any

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action under any Financing Document unless it shall first receive such advice or concurrence of the Required Banks as it deems appropriate and, if it so requests, it shall first be indemnified to its satisfaction by the Banks against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action.

     (b) For purposes of determining compliance with the conditions specified in Section 3.01, each Bank that has signed this Agreement shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter either sent by the Agent to such Bank for consent, approval, acceptance or satisfaction, or required thereunder to be consented to or approved by or acceptable or satisfactory to a Bank.

     Section 7.07 Notice of Default.

     The Agent shall be deemed not to have knowledge or notice of the occurrence of any Default, except with respect to defaults in the payment of principal, interest and fees required to be paid to the Agent for the account of the Banks, unless the Agent shall have received written notice from a Bank or the Borrower referring to this Agreement, describing such Default and stating that such notice is a “notice of default.” The Agent will notify the Banks of its receipt of any such notice. The Agent shall take such action with respect to such Default as may be directed by the Required Banks in accordance with Article 6; provided, however, that unless and until the Agent has received any such direction, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default as it shall deem advisable or in the best interest of the Banks.

     Section 7.08 Indemnification.

     Each Bank shall indemnify the Agent, its affiliates and their respective directors, officers, agents and employees (to the extent not reimbursed by the Borrower), against any Indemnified Liabilities (except for any such Indemnified Liabilities that result from such indemnitees’ gross negligence or willful misconduct, provided that no action taken in accordance with the direction of the Required Banks shall be deemed to constitute gross negligence or willful misconduct for purposes of this Section), in each case ratably in accordance with its Percentage (or in the event that the aggregate Commitments have expired or otherwise terminated, in accordance with its pro rata share of the aggregate Outstanding Total Credit Exposure of all Banks).

     Section 7.09 Credit Decision.

     Each Bank acknowledges that it has, independently and without reliance upon the Agent, its affiliates or any other Bank, and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Bank acknowledges that neither the Agent, its affiliates nor any other Bank has made any representation or warranty to it, and that no act by the Agent hereinafter taken, including any consent to and acceptance of any assignment or review of the affairs of any Obligor or any affiliate thereof, shall be deemed to constitute any representation or warranty by the Agent or its affiliates to any Bank as to any matter, including whether the Agent or its affiliates have disclosed material information in their possession. Each Bank also acknowledges that it will, independently and without reliance upon the Agent, its affiliates or any other Bank, and based on

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such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking any action under the Financing Documents. Except for notices, reports and other documents expressly required to be furnished to the Banks by the Agent herein, the Agent shall not have any duty or responsibility to provide any Bank with any credit or other information concerning the business, prospects, operations, property, financial and other condition or creditworthiness of any of the Obligors or any of their respective Affiliates which may come into the possession of the Agent or its affiliates.

     Section 7.10 Successor Agent.

     The Agent may resign at any time by giving notice thereof to the Banks and the Borrower. Upon any such resignation, the Required Banks shall have the right, with the prior consent (such consent not to be unreasonably withheld) of the Borrower provided that no Default has occurred and is continuing, to appoint a successor Agent. If no successor Agent shall have been so appointed by the Required Banks (with the Borrower’s consent, to the extent required), and shall have accepted such appointment, within 30 days after the retiring Agent gives notice of resignation, then the retiring Agent may, on behalf of the Banks, appoint a successor Agent, which shall be a commercial bank organized or licensed under the laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $1,000,000,000. Upon the acceptance of its appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. After any retiring Agent’s resignation hereunder as Agent, the provisions of this Article shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent.

     Section 7.11 Additional Agents.

     No Bank identified as a “syndication agent”, “co-documentation agent”, or “co-lead arranger” on the facing page hereof, on the signature pages hereto or otherwise herein shall have any right, power, obligation, liability, responsibility or duty of any kind under the Financing Documents (except those applicable to it in its capacity as a Bank) or any fiduciary relationship with any other Bank.

ARTICLE 8
CHANGE IN CIRCUMSTANCES

     Section 8.01 Basis for Determining Interest Rate Inadequate or Unfair.

     If on or prior to the first day of any Interest Period for any Euro-Dollar Borrowing or Money Market LIBOR Loan:

               (a) the Agent determines that deposits in Dollars (in the applicable amounts) are not being offered in the relevant market for such Interest Period, or

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               (b) Banks having 50% or more of either the aggregate Commitments or the aggregate principal amount of the affected Loans advise the Agent that the Adjusted London Interbank Offered Rate, as determined by the Agent, will not adequately and fairly reflect the cost to such Banks of funding their Euro-Dollar Loans or Money Market LIBOR Loans for such Interest Period,

the Agent shall forthwith give notice thereof to the Borrower and the Banks, whereupon until the Agent notifies the Borrower that the circumstances giving rise to such suspension no longer exist, (i) the obligations of the Banks to make Euro-Dollar Loans or Money Market LIBOR Loans or to continue or convert outstanding Loans as or into Euro-Dollar Loans shall be suspended and (ii) each outstanding Euro-Dollar Loan shall be converted into a Base Rate Loan on the last day of the then current Interest Period applicable thereto. Unless the Borrower notifies the Agent at least two Domestic Business Days before the date of any Euro-Dollar Borrowing or Money Market LIBOR Borrowing for which a Notice of Borrowing has previously been given that it elects not to borrow on such date, (i) such Borrowing shall instead be made as a Base Rate Borrowing and (ii) if such Borrowing is a Money Market LIBOR Borrowing, the Money Market LIBOR Loans comprising such Borrowing shall bear interest on the unpaid principal amount thereof for each day from and including the first day to but excluding the last day of the Interest Period applicable thereto at the Base Rate for such day.

     Section 8.02 Illegality.

     If after the date hereof, the adoption of any applicable law, rule or regulation, or any change in any applicable law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (or its Applicable Lending Office) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency shall make it unlawful or impossible for any Bank (or its Applicable Lending Office) to make or fund any Euro-Dollar Loan or Money Market LIBOR Loan, or maintain its Euro-Dollar Loans or Money Market LIBOR Loans (excluding Money Market LIBOR Loans bearing interest at the Base Rate pursuant to Section 8.01(a)) and such Bank shall so notify the Agent, the Agent shall forthwith give notice thereof to the other Banks and the Borrower, whereupon until such Bank notifies the Borrower and the Agent that the circumstances giving rise to such suspension no longer exist, the obligation of such Bank to make or fund Euro-Dollar Loans, to continue or convert outstanding Loans as or into Euro-Dollar Loans or to continue such outstanding Money Market LIBOR Loans, shall be suspended. Before giving any notice to the Agent pursuant to this Section, such Bank shall designate a different Applicable Lending Office if such designation will avoid the need for giving such notice and will not, in the judgment of such Bank, be otherwise disadvantageous to such Bank. If such notice is given, each Euro-Dollar Loan and each Money Market LIBOR Loan of such Bank then outstanding shall be converted to a Base Rate Loan either (a) on the last day of the then current Interest Period applicable to such Euro-Dollar Loan if such Bank may lawfully continue to maintain and fund such Loan as a Euro-Dollar Loan or Money Market LIBOR Loan to such day or (b) immediately if such Bank shall determine that it may not lawfully continue to maintain and fund such Loan as a Euro-Dollar Loan or as a Money Market LIBOR Loan to such day.

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     Section 8.03 Increased Cost and Reduced Return.

     (a) If after (x) the date hereof, in the case of any Committed Loan, Swingline Loan, Letter of Credit, Reimbursement Obligation or any obligation to make Committed Loans or to issue Letters of Credit or (y) the date of the related Money Market Quote, in the case of any Money Market Loan, the adoption of any applicable law, rule or regulation, or any change in any applicable law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency, charged with the interpretation or administration thereof, or compliance by any Bank (or its Applicable Lending Office) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency shall impose, modify or deem applicable any reserve (including, without limitation, any such requirement imposed by the Board of Governors of the Federal Reserve System, but excluding with respect to any Euro-Dollar Loan any such requirement included in an applicable Euro-Dollar Reserve Percentage), special deposit, insurance assessment or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Bank (or its Applicable Lending Office) or shall impose on any Bank (or its Applicable Lending Office) or on the London interbank market any other condition affecting its Fixed Rate Loans, its Note, its Reimbursement Obligations or its obligation to make Fixed Rate Loans or issue Letters of Credit and the result of any of the foregoing is to increase the cost to such Bank (or its Applicable Lending Office) of making or maintaining any Fixed Rate Loan or issuing any Letter of Credit, or to reduce the amount of any sum received or receivable by such Bank (or its Applicable Lending Office) under this Agreement or under its Note, if any, with respect thereto, by an amount deemed by such Bank to be material, then, within 30 days after demand by such Bank (with a copy to the Agent), the Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank for such increased cost or reduction.

     (b) If any Bank shall have determined that, after the date hereof, the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change in any such law rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on capital of such Bank (or its Parent) as a consequence of such Bank’s obligations hereunder to a level below that which such Bank (or its Parent) could have achieved but for such adoption, change, request or directive (taking into consideration its policies with respect to capital adequacy) by an amount deemed by such Bank to be material, then from time to time, within 30 days after demand by such Bank (with a copy to the Agent), the Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank (or its Parent) for such reduction.

     (c) Each Bank will use its best efforts promptly to notify the Borrower and the Agent of any event of which it has knowledge, occurring after the date hereof, which will entitle such Bank to compensation pursuant to this Section and will designate a different Applicable Lending Office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the judgment of such Bank, be otherwise disadvantageous to such Bank. A certificate of any Bank claiming compensation under this Section and setting forth the additional amount or amounts to be paid to it hereunder shall be conclusive in the absence of manifest error.

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In determining such amount, such Bank may use any reasonable averaging and attribution methods. Notwithstanding the foregoing, the Borrower shall not be obligated to pay any amounts contemplated by this Section 8.03 which were incurred by such Bank more than 180 days prior to the date of such demand, such 180 day period to be extended to the extent that the event entitling such Bank to compensation pursuant to this Section is retroactive.

     Section 8.04 Taxes.

     (a) Any and all payments by the Borrower to or for the account of any Bank or the Agent hereunder or under any Note shall be made free and clear of and without deduction for any and all present or future taxes, duties, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each Bank and the Agent, taxes imposed on its income, and franchise taxes imposed on it, by the jurisdiction under the laws of which such Bank or the Agent (as the case may be) is organized or any political subdivision thereof and, in the case of each Bank, taxes imposed on its income, and franchise or similar taxes imposed on it, by the jurisdiction of such Bank’s Applicable Lending Office or any political subdivision thereof (all such non-excluded taxes, duties, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as “Taxes”). If the Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder or under any Note to any Bank or the Agent, (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 8.04) such Bank or the Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions, (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority, or other authority in accordance with applicable law and (iv) the Borrower shall furnish to the Agent, at its address referred to in Section 9.01, the original or a certified copy of a receipt evidencing payment thereof.

     (b) In addition, the Borrower agrees to pay any present or future stamp or documentary taxes and any other excise or property taxes, or charges or similar levies which arise from any payment made hereunder or under any Note or from the execution or delivery of, or otherwise with respect to, this Agreement or any Note (hereinafter referred to as “Other Taxes”).

     (c) The Borrower agrees to indemnify each Bank and the Agent for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed or asserted by any jurisdiction on amounts payable under this Section 8.04) paid by such Bank or the Agent (as the case may be) and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto. This indemnification shall be made within 30 days from the date such Bank or the Agent (as the case may be) makes demand therefor.

     (d) Each Bank organized under the laws of a jurisdiction outside the United States (a “Foreign Bank”), on or prior to the date of its execution and delivery of this Agreement in the case of each Bank listed on the signature pages hereof and on or prior to the date on which it becomes a Bank in the case of each other Bank, and from time to time thereafter if requested in writing by the Borrower (but only so long as such Bank remains lawfully able to do so), shall provide the Borrower with (i) Internal Revenue Service Form W-8 BEN or W-8 ECI, as

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appropriate, or any successor form prescribed by the Internal Revenue Service, certifying that such Bank is entitled to benefits under an income tax treaty to which the United States is a party which reduces the rate of withholding tax on payments of interest or certifying that the income receivable pursuant to this Agreement is effectively connected with the conduct of a trade or business in the United States, (ii) Internal Revenue Service Form W-8 or W-9, as appropriate, or any successor form prescribed by the Internal Revenue Service, and/or (iii) any other form or certificate required by any taxing authority (including any certificate required by Sections 871(h) and 881(c) of the Internal Revenue Code, including, without limitation, in the case of Section 881(c) of the Internal Revenue Code, a certificate that such Bank (i) is not a “bank” under Section 881(c)(3)(A) of the Internal Revenue Code, (ii) is not a 10-percent shareholder within the meaning of Section 881(c)(3)(B) of the Internal Revenue Code and (iii) is not a controlled foreign corporation receiving interest from a related person within the meaning of Section 881(c)(3)(C) of the Internal Revenue Code), certifying that such Bank is entitled to an exemption from tax on payments pursuant to this Agreement or any of the other Financing Documents. If the form provided by a Bank at the time such Bank first becomes a party to this Agreement indicates a United States interest withholding tax rate in excess of zero, withholding tax at such rate shall be considered excluded from “Taxes” as defined in Section 8.04(a).

     (e) For any period with respect to which a Bank has failed to provide the Borrower with the appropriate form pursuant to Section 8.04(d) (unless such failure is due to a change in treaty, law or regulation, or any change in the interpretation or administration thereof by any governmental authority, occurring subsequent to the date on which a form originally was required to be provided), such Bank shall not be entitled to indemnification under Section 8.04(a) with respect to Taxes imposed by the United States; provided that should a Bank, which is otherwise exempt from or subject to a reduced rate of withholding tax, become subject to Taxes because of its failure to deliver a form required hereunder, the Borrower shall take such steps as such Bank shall reasonably request to assist such Bank to recover such Taxes.

     (f) If the Borrower is required to pay additional amounts to or for the account of any Bank pursuant to this Section 8.04, then such Bank will change the jurisdiction of its Applicable Lending Office so as to eliminate or reduce any such additional payment which may thereafter accrue if such change, in the judgment of such Bank, is not otherwise disadvantageous to such Bank.

     Section 8.05 Base Rate Loans Substituted for Affected Fixed Rate Loans.

     (a) If (i) the obligation of any Bank to make, or continue or convert outstanding Loans as or into, Euro-Dollar Loans or Money Market LIBOR Loans has been suspended pursuant to Section 8.02 or (ii) any Bank has demanded compensation under Section 8.03 or 8.04 with respect to its Euro-Dollar Loans or Money Market LIBOR Loans and the Borrower shall, by at least five Euro-Dollar Business Days’ prior notice to such Bank through the Agent, have elected that the provisions of this Section 8.05(a) shall apply to such Bank, then, unless and until such Bank notifies the Borrower that the circumstances giving rise to such suspension or demand for compensation no longer exist, all Loans which would otherwise be made by such Bank as (or continued as or converted into) Euro-Dollar Loans or Money Market LIBOR Loans shall be made or continued instead as Base Rate Loans (on which interest and principal shall be payable contemporaneously with the related Euro-Dollar Loans or Money Market LIBOR Loans, as the

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case may be, of the other Banks). If such Bank notifies the Borrower that the circumstances giving rise to such notice no longer exist, the principal amount of each such Base Rate Loan that was a Euro-Dollar Loan shall be converted into a Euro-Dollar Loan on the first day of the next succeeding Interest Period applicable to the related Euro-Dollar Loans of the other Banks.

     (b) If (i) any Bank has demanded compensation under Section 8.03 with respect to its Euro-Dollar Loans or Money Market LIBOR Loans or (ii) the Borrower has become obligated to pay any Taxes or other amounts to or for the account of any Bank pursuant to Section 8.04, and the Borrower shall, by at least five Euro-Dollar Business Days’ prior notice to the Banks through the Agent, have elected that the provisions of this Section 8.05(b) shall apply to all of the Banks, then the Borrower shall, on the fifth Euro-Dollar Business Day following such notice, prepay in full the then outstanding principal amount of each outstanding Euro-Dollar Loan and Money Market LIBOR Loan of each Bank, together with accrued interest thereon.

     Section 8.06 Substitution of Banks.

     If (i) any Bank has demanded compensation under Section 8.03, (ii) the Borrower has become obligated to pay any Taxes or other amounts to or for the account of any Bank pursuant to Section 8.04 (such Bank, in either clause (i) or (ii), an “Increased Cost Bank”), (iii) any Bank has become a Defaulting Bank and has failed to cure its default within five days after the Borrower’s request that it cure such default or (iv) in connection with any proposed amendment, modification, termination, waiver or consent contemplated by Sections 9.05(ii) to 9.05(vi), inclusive, the consent of Required Banks shall have been obtained but the consent of one or more of such other Banks (each a “Non-Consenting Bank”) whose consent is required has not been obtained, in each case, then, with respect to each such Increased Cost Bank, Defaulting Bank or Non-Consenting Bank (each a “Selling Bank”), the Borrower shall have the right, with the assistance of the Agent, to seek one or more banks or other institutions satisfactory to the Borrower and the Agent (collectively, the “Purchasing Banks”) willing to purchase the Selling Bank’s Loans, its participation interests of any unpaid Reimbursement Obligations and Swingline Loans and assume the Commitment of the Selling Bank, all on the terms specified in this Section 8.06. The Selling Bank shall be obligated (and hereby irrevocably agrees) to sell its Loans and its participation interests in any unpaid Reimbursement Obligations and Swingline Loans to such Purchasing Bank or Banks (which may include one or more of the Banks) in accordance with the provisions of Section 9.06(c) within 5 days after receiving notice from the Borrower requiring it to do so, at an aggregate price equal to the outstanding principal amount thereof, plus unpaid interest accrued thereon to but excluding the date of sale. In connection with any such sale, and as a condition thereof, the Borrower shall pay to the Selling Bank all fees accrued for its account hereunder to but excluding the date of such sale, plus, if demanded by the Selling Bank at least two Domestic Business Days prior to such sale, (i) the amount of any indemnity which would be due to the Selling Bank under Section 2.14 if the Borrower had prepaid the outstanding Fixed Rate Loans of the Selling Bank on the date of such sale and (ii) any additional compensation, Taxes or other amounts accrued for its account under Section 8.03 or 8.04, as applicable, to but excluding, said date (it being understood that the Selling Bank shall retain its right to be compensated after the date of such sale for any such accrued amounts remaining unpaid) and shall pay to the Agent the administrative fee referred to in Section 9.06(c). Upon such sale, the Purchasing Bank or Banks shall assume the Commitment of the Selling Bank, and the Selling Bank shall be released from its obligations hereunder to a

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corresponding extent, and, such Purchasing Bank shall be a Bank party to this Agreement, shall be deemed to be an Assignee hereunder and shall have all the rights and obligations of a Bank with a Commitment equal to its ratable share of the Commitment of the Selling Bank. Upon the consummation of any sale pursuant to this Section 8.06, the Selling Bank, the Agent and the Borrower shall make appropriate arrangements so that, if required, each Purchasing Bank receives a new Note. In the event such Selling Bank is a Non-Consenting Bank, each Purchasing Bank shall consent, at the time of such assignment, to each matter in respect of which such Selling Bank was a Non-Consenting Bank. Upon the prepayment of all amounts owing to any Selling Bank and the termination of such Selling Bank’s Commitments, if any, such Selling Bank shall no longer constitute a “Bank” for purposes hereof; provided, any rights of such Selling Bank to indemnification hereunder shall survive as to such Selling Bank. If the Selling Bank is also an LC Issuing Bank, its obligation to issue, amend, renew or extend Letters of Credit shall terminate concurrently with such sale and its status as an LC Issuing Bank (but not its right to indemnification hereunder) shall terminate when the LC Liabilities relating to all Letters of Credit issued by it have been reduced to zero or have been fully cash collateralized or supported by other letters of credit, in each case, in a manner satisfactory to the LC Issuing Bank.

ARTICLE 9
MISCELLANEOUS

     Section 9.01 Notices.

     All notices, requests and other communications (“notices”) to any party hereunder shall be in writing (including facsimile transmission or similar writing) and shall be given to such party (a) in the case of the Borrower, at its address or facsimile number set forth on the signature pages hereof, (b) in the case of the Agent and the Banks, at its address or facsimile number set forth on Schedule 3 or (c) in the case of any party, at such other address or facsimile number as such party may hereafter specify for the purpose by notice to the Agent and the Borrower. Each such notice shall be effective (i) if given by facsimile transmission, when such facsimile is transmitted to the facsimile transmission number specified in or pursuant to this Section 9.01 and telephonic confirmation of receipt thereof is received, or (ii) if given by mail or by any other means, when delivered at the address specified in this Section; provided that notices to one or more Credit Parties under Article 2 or Article 8 shall not be effective until received.

     Notwithstanding the foregoing, notices to the Banks hereunder may be delivered or furnished by electronic communication (including e-mail and Internet or intranet websites) pursuant to procedures approved by the Agent, provided that the foregoing shall not apply to notices to any Bank, the Swingline Bank or any LC Issuing Bank pursuant to Article 2 if such Bank, the Swingline Bank or such LC Issuing Bank, as applicable, has notified the Agent that it is incapable of receiving, or that it is contrary to such bank’s policies to receive, notices under such Article by electronic communication. The Agent or any Credit Party may, in its discretion, agree to accept notices to it hereunder by electronic communications pursuant to procedures approved by it, provided that approval of such procedures may be limited to particular notices. Unless the Agent otherwise prescribes, (i) notices sent to an e-mail address shall be deemed received upon the sender’s receipt of an acknowledgement from the intended recipient (such as by the “return receipt requested” function, as available, return e-mail or other written acknowledgement); provided, however, that if such notice is not sent during the normal business

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hours of the recipient, such notice shall be deemed to have been sent at the opening of business on the next business day of the recipient, and (ii) notices posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient at its e-mail address as described in the foregoing clause (i) of notification that such notice is available and identifying the website address therefor.

     Section 9.02 No Waivers.

     No failure or delay by any Credit Party in exercising any right, power or privilege under any Financing Document shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law.

     Section 9.03 Expenses; Indemnification.

     (a) The Borrower shall pay (i) all out-of-pocket expenses of the Agent and its affiliates, including reasonable fees and disbursements of special counsel for the Agent, in connection with the preparation and administration of the Financing Documents, any waiver or consent thereunder or any amendment thereof or any Default thereunder or any event or condition reasonably alleged by any Credit Party to be a possible Default thereunder and (ii) if an Event of Default occurs, all out-of-pocket expenses incurred by the Agent, its affiliates and each Bank, including reasonable fees and disbursements of counsel, in connection with such Event of Default and collection, bankruptcy, insolvency and other enforcement proceedings resulting therefrom.

     (b) The Borrower agrees, in addition to but not in duplication of any other indemnity otherwise provided herein, to indemnify each Credit Party and its affiliates and the respective directors, officers, agents and employees thereof (each an “Indemnitee”) and hold each Indemnitee harmless from and against any and all liabilities, losses, damages, costs and expenses of any kind, including, without limitation, the reasonable fees and disbursements of counsel, which may be incurred by such Indemnitee in connection with any investigative, administrative or judicial proceeding (whether or not such Indemnitee shall be designated a party thereto) brought or threatened and relating to or arising out of the Financing Documents or any actual or proposed use of proceeds of Loans hereunder (all of the foregoing in subsection (a) above and this subsection (b), collectively, the “Indemnified Liabilities”); provided that no Indemnitee shall have the right to be indemnified hereunder for such Indemnitee’s own gross negligence or willful misconduct as determined by a court of competent jurisdiction.

     Section 9.04 Set-Off; Sharing of Set-offs.

     Each Bank agrees that if it shall, by exercising any right of set-off or counterclaim or otherwise, receive (i) payment of a proportion of the aggregate amount of principal and interest due with respect to any Loan held by it which is greater than the proportion received by any other Bank in respect of the aggregate amount of principal and interest due with respect to any Loan held by such other Bank or (ii) payment of a proportion of its participation in the LC Liabilities or Swingline Loans which is greater that the proportion received by any other Bank in

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respect of its participation in the LC Liabilities or Swingline Loans, as the case may be, the Bank receiving such proportionately greater payment shall purchase such participations in the Loans, the LC Liabilities and the Swingline Loans, as the case may be, held by the other Banks, and such other adjustments shall be made, as may be required so that all such payments of principal and interest with respect to the Loans held by the Banks shall be shared by the Banks pro rata and all such payments with respect to participations in the LC Liabilities and the Swingline Loans shall be shared pro rata by the Banks participating therein; provided that nothing in this Section shall impair the right of any Credit Party to exercise any right of set-off or counterclaim it may have and to apply the amount subject to such exercise to the payment of indebtedness of the Borrower other than its indebtedness under the Loans and the LC Liabilities. The Borrower agrees, to the fullest extent it may effectively do so under applicable law, that any holder of a participation in a Loan or the LC Liabilities, whether or not acquired pursuant to the foregoing arrangements, may exercise rights of set-off or counterclaim and other rights with respect to such participation as fully as if such holder of a participation were a direct creditor of the Borrower in the amount of such participation.

     Section 9.05 Amendments and Waivers.

     Any provision of this Agreement or the Notes may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Borrower and the Required Banks (and, if the rights or duties of the Agent, the Swingline Bank or any LC Issuing Bank are affected thereby, by the Agent, the Swingline Bank or such LC Issuing Bank, as the case may be); provided that no such amendment or waiver shall, unless signed by all the Banks directly affected thereby, (i) increase the Commitment of any Bank over the amount then in effect (it being understood and agreed that a waiver of any Default shall not constitute an increase in any Commitment of any Bank), (ii) reduce the principal of, or rate of interest on, any Loan or any Reimbursement Obligation, or of any fees hereunder (other than as a result of waiving the applicability of any post-Default increase in interest rates or fees) (provided that amendments to the definitions of Consolidated Debt and Consolidated EBITDA shall only require the consent of Required Banks), (iii) postpone the date fixed for any payment of principal of or interest on any Loan, any Reimbursement Obligation or any fees hereunder or for any termination of any Commitment, (iv) amend this Section or modify the definition of Required Banks, (v) change the percentage of the Commitments, the Outstanding Committed Exposures, the Outstanding Total Credit Exposures, the LC Liabilities or of the aggregate unpaid principal amount of the Loans, in each case, which shall be required for the Banks or any of them to take any action under this Section or any other provision of the Financing Documents, (vi) change the manner of application of any payments made under this Agreement or the Notes or (vii) amend, modify or waive any provision of Sections 2.06, 2.11, 9.03, 9.04 or 9.12.

     Section 9.06 Successors and Assigns.

     (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the Borrower may not assign or otherwise transfer any of its rights under this Agreement or the Notes, if any, without the prior written consent of all Banks.

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     (b) Any Bank may at any time, grant to one or more banks or other institutions (each a “Participant”) participating interests in its Commitment or any or all of its Outstanding Total Credit Exposure. In the event of any such grant by a Bank of a participating interest to a Participant, such Bank shall remain responsible for the performance of its obligations hereunder, and the Borrower and the other Credit Parties shall continue to deal solely and directly with such Bank in connection with such Bank’s rights and obligations under this Agreement. Any agreement pursuant to which any Bank may grant such a participating interest shall provide that such Bank shall retain the sole right and responsibility to enforce the obligations of the Borrower hereunder including, without limitation, the right to approve any amendment, modification or waiver of any provision of this Agreement; provided that such participation agreement may provide that such Bank will not agree to any modification, amendment or waiver of this Agreement described in clauses (i), (ii) or (iii) of Section 9.05 or the immediately succeeding sentence without the consent of the Participant. The Borrower agrees that each Participant shall, to the extent provided in its participation agreement and subject to subsection (e) of this Section 9.06, be entitled to the benefits of Article 8 with respect to its participating interest to the same extent as if it were a Bank hereunder.

     (c) Any Bank may at any time assign to one or more banks or other institutions (each an “Assignee”) all, or, subject to the next sentence, a proportionate part of all, of its rights and obligations under this Agreement and the Notes, if any, held by such Bank and such Assignee shall assume such rights and obligations, pursuant to an Assignment and Assumption Agreement in substantially the form of Exhibit E hereto (an “Assignment and Assumption Agreement”) executed by such Assignee and such transferor Bank, with (and subject to) the subscribed consent (which shall not be unreasonably withheld) of the Borrower, each LC Issuing Bank, the Swingline Bank and the Agent; provided that (i) if an Assignee is another Bank, an affiliate of a Bank, or an Approved Fund, the consent of the Borrower, each LC Issuing Bank, the Swingline Bank and the Agent shall not be required unless all or any portion of such transferor Bank’s Commitment, participation in any Letter of Credit or obligation to participate in any Swingline Loan is being assigned and (ii) if an Event of Default has occurred and is continuing, the consent of the Borrower shall not be required; and provided further that such assignment may, but need not, include rights of the transferor Bank in respect of outstanding Money Market Loans. No assignment of only a proportionate part of the rights and obligations of a Bank under this Agreement and the Notes, if any, held by such Bank may be made unless each of (i) the part assigned (i.e., the “Assigned Amount” set forth in the related Assignment and Assumption Agreement) and (ii) the part retained by the transferor Bank and any of its affiliates equals $5,000,000 or any larger integral multiple of $1,000,000. Upon (x) execution and delivery to the Agent of an Assignment and Assumption Agreement, (y) payment by such Assignee to such transferor Bank of an amount equal to the purchase price agreed between such transferor Bank and such Assignee, and (z) receipt by the Agent of an administrative fee in the amount of $3,500 from such transferor Bank or such Assignee for processing such assignment (if such Assignee is not another Bank, an affiliate of a Bank or an Approved Fund), such Assignee shall be a Bank party to this Agreement and shall have all the rights and obligations of a Bank with a Commitment as set forth in such Assignment and Assumption Agreement, and the transferor Bank shall be released from its obligations hereunder to a corresponding extent, and no further consent or action by any party shall be required. Upon the consummation of any assignment pursuant to this subsection (c), the transferor Bank, the Agent and the Borrower shall make

64

appropriate arrangements so that, if required, a new Note is issued to the Assignee. If the Assignee is not incorporated under the laws of the United States of America or a state thereof, it shall deliver to the Borrower and the Agent certification as to exemption from deduction or withholding of any United States Federal income taxes in accordance with Section 8.04.

     (d) Any Bank may at any time pledge or assign all or any portion of its rights under this Agreement and its Note to a Federal Reserve Bank. No such assignment shall release the transferor Bank from its obligations hereunder.

     (e) No Assignee, Participant or other transferee of any Bank’s rights shall be entitled to receive any greater payment under Section 8.03 or 8.04 than such Bank would have been entitled to receive with respect to the rights transferred, unless such transfer is made with the Borrower’s prior written consent or by reason of the provisions of Section 8.02, 8.03 or 8.04 requiring such Bank to designate a different Applicable Lending Office under certain circumstances or at a time when the circumstances giving rise to such greater payment did not exist.

     (f) The Agent, acting solely for this purpose as an agent of the Borrower, shall maintain at its office in New York, New York a copy of each Assignment and Assumption Agreement delivered to it and a register for the recordation of the names and addresses of the Banks, and the Commitments of, and principal amount of the Loans and LC Liabilities owing to, each Banks pursuant to the terms hereof from time to time (the “Register”). The entries in the Register shall be conclusive, and the Borrower, the Agent and the Banks may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Bank hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrower and any Agent, at any reasonable time and from time to time upon reasonable prior notice.

     (g) Notwithstanding anything to the contrary contained herein, if at any time BNY assigns all of its Commitment and Loans pursuant to subsection (c) above and resigns as Agent pursuant to Section 7.10, BNY may, upon five (5) Domestic Business Days’ notice to the Borrower, resign as Swingline Bank. In the event of any such resignation as Swingline Bank, the Borrower shall be entitled to appoint from among the Banks a successor Bank (with the consent of such Bank) as Swingline Bank hereunder; provided, however, that no failure by the Borrower to appoint any such successor shall affect the resignation of BNY as Swingline Bank. If BNY resigns as Swingline Bank, it shall retain all the rights of the Swingline Bank provided for hereunder with respect to Swingline Loans made by it and outstanding as of the effective date of such resignation, including the right to require the Banks to make Base Rate Loans or fund participations in outstanding Swingline Loans pursuant to Section 2.04(f).

     Section 9.07 Collateral.

     Each Credit Party represents to each other Credit Party that it in good faith is not relying upon any “margin stock” (as defined in Regulation U) as collateral in the extension or maintenance of the credit provided for in this Agreement.

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     Section 9.08 Governing Law; Submission to Jurisdiction.

     This Agreement and each Note shall be governed by and construed in accordance with the laws of the State of New York. The Borrower hereby submits to the nonexclusive jurisdiction of the United States District Court for the Southern District of New York and of any New York State court sitting in New York City for purposes of all legal proceedings arising out of or relating to the Financing Documents or the transactions contemplated thereby. The Borrower irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum.

     Section 9.09 Counterparts; Integration.

     This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement constitutes the entire agreement and understanding among the parties hereto and supersedes any and all prior agreements and understandings, oral or written, relating to the subject matter hereof.

     Section 9.10 Waiver of Jury Trial.

     EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY AND IRREVOCABLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER ANY FINANCING DOCUMENT OR IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO ANY FINANCING DOCUMENT, OR THE TRANSACTIONS RELATED THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER FOUNDED IN CONTRACT OR TORT OR OTHERWISE; AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE SIGNATORIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.

     Section 9.11 Confidentiality.

     Each Credit Party agrees to keep confidential this Agreement and any proprietary or financial information obtained by such Credit Party based on a review of the books and records of the Borrower or any Subsidiary pursuant to Section 5.06 and any other information to the extent such information has been stated by the Borrower to be confidential; provided that nothing herein shall prevent any Credit Party from disclosing this Agreement or such information (i) to any other Credit Party in connection with the transactions contemplated by the Financing Documents, (ii) to the officers, directors, employees, agents, attorneys and accountants of such party and its affiliates who have a need to know such information in accordance with customary banking practices and who receive such information having been made aware of the restrictions

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set forth in this Section, (iii) upon the order of any court or administrative agency, (iv) upon the requests or demand of any regulatory agency or authority having jurisdiction over such party or its affiliates, (v) which has been publicly disclosed, (vi) which has been obtained from any Person other than the Borrower and its Subsidiaries, provided that such Person is not known to it to be bound by a confidentiality agreement with the Borrower or its Subsidiaries or known to it to be otherwise prohibited from transmitting the information to it by a contractual, legal or fiduciary obligation, (vii) in connection with the exercise of any remedy under the Financing Documents or (viii) to any actual or proposed participant, assignee or swap counterparty of all or any of its rights under the Financing Documents, provided that such proposed participant or assignee shall have agreed in writing, for the benefit of the Borrower as a third-party beneficiary, to be bound by the provisions of this Section.

     Section 9.12 Survival.

     All indemnities set forth herein, including, without limitation, in Sections 2.14, 2.16, 7.08, 8.03, 8.04 and 9.03, shall survive the execution and delivery of this Agreement, the making of the Loans, the issuance of the Letters of Credit, the repayment of the Loans, LC Liabilities and other obligations under the Financing Documents and the expiration or other termination of the Commitments hereunder.

     Section 9.13 Patriot Act Notice.

     Each Bank and the Agent (for itself and not on behalf of any Bank) hereby notifies the Borrower that pursuant to the requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “Patriot Act”), it is required to obtain, verify and record information that identifies the Borrower, which information includes the name and address of the Borrower and other information that will allow such Bank or the Agent, as applicable, to identify the Borrower in accordance with the Patriot Act.

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CNF INC.
CREDIT AGREEMENT

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written

CNF INC., a Delaware corporation

By:

Name:

Title:

3240 Hillview Avenue

Palo Alto, California 94304

Facsimile number: (415) 813-0158

Telephone number: (415) 813-5321

CNF INC.
CREDIT AGREEMENT

THE BANK OF NEW YORK,

in its capacity as a Bank, as an LC Issuing Bank, as the Swing Line Bank and as the Agent

By:

Name:

Title:

The Bank of New York

10990 Wilshire Boulevard

Suite 1125

Los Angeles, California 90024

Attention: Elizabeth Ying

Facsimile: (310) 996-8667

Telephone: (310) 996-8661

CNF INC.
CREDIT AGREEMENT

PNC BANK, NATIONAL ASSOCIATION

By:

Name:

Title:

CNF INC.
CREDIT AGREEMENT

LASALLE BANK NATIONAL ASSOCIATION

By:

Name:

Title:

CNF INC.
CREDIT AGREEMENT

U.S. BANK NATIONAL ASSOCIATION

By:

Name:

Title:

CNF INC.
CREDIT AGREEMENT

HARRIS TRUST AND SAVINGS BANK

By:

Name:

Title:

CNF INC.
CREDIT AGREEMENT

BNP PARIBAS

By:

Name:

Title:

By:

Name:

Title:

CNF INC.
CREDIT AGREEMENT

JPMORGAN CHASE BANK, N.A.

By:

Name:

Title:

CNF INC.
CREDIT AGREEMENT

MORGAN STANLEY BANK

By:

Name:

Title:

CNF INC.
CREDIT AGREEMENT

KEYBANK NATIONAL ASSOCIATION

By:

Name:

Title:

CNF INC.
CREDIT AGREEMENT

THE BANK OF NOVA SCOTIA

By:

Name:

Title:

CNF INC.
CREDIT AGREEMENT

SUMITOMO MITSUI BANKING CORP.

By:

Name:

Title:

CNF INC.
CREDIT AGREEMENT

WILLIAM STREET COMMITMENT CORPORATION
(Recourse only to assets of William Street Commitment Corporation)

By: Name:

Title:

EX-4.9

exv4w9

EX-4.10

Exhibit 4.10

EXHIBIT F
SUBSIDIARY GUARANTY AGREEMENT

     THIS AGREEMENT dated as of March 11, 2005 among CNF, a Delaware corporation (the “Borrower”), each of the Subsidiary Guarantors party hereto from time to time (collectively, the “Subsidiary Guarantors”) and The Bank of New York, as Agent.

     WHEREAS, the Borrower has entered into that Credit Agreement (as the same may be amended, modified, supplemented and extended from time to time, the “Credit Agreement”) dated as of March 11, 2005 among the Borrower, the Banks party thereto and The Bank of New York, as Agent (the “Agent”), pursuant to which the Borrower may be entitled, subject to certain conditions, to borrow up to $500,000,000;

     WHEREAS, the Credit Agreement provides, among other things, that one condition to its effectiveness is the execution and delivery of a guaranty substantially in the form of this Agreement by the Borrower and the Subsidiary Guarantors listed on the signature pages hereof; and

     WHEREAS, in conjunction with the transactions contemplated by the Credit Agreement and in consideration of the financial and other support that the Borrower has provided, and such financial and other support as the Borrower may in the future provide, to the Subsidiary Guarantors, and in order to induce the Banks and the Agent to enter into the Credit Agreement, the Subsidiary Guarantors listed on the signature pages hereof are willing to guaranty the obligations of the Borrower under the Credit Agreement and the Notes issued pursuant thereto;

     NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

ARTICLE 1
DEFINITIONS

     Section 1.01 Definitions.

     Terms defined in the Credit Agreement and not otherwise defined herein are used herein as therein defined. In addition, the following term, as used herein, has the following meaning:

     “Guarantied Obligations” means (i) all obligations of the Borrower in respect of principal of and interest on the Loans and the Notes, (ii) all Reimbursement Obligations (including interest thereon) and other obligations of the Borrower in respect of Letters of Credit, (iii) all other amounts payable by the Borrower under the Credit Agreement or the Notes, if any, and (iv) all renewals or extensions of the foregoing, in each case whether now outstanding or hereafter arising. The Guarantied Obligations shall include, without limitation, any interest, costs, fees and expenses which accrue on or with respect to any of the foregoing, whether before or after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of any one or more of the Borrower and the Subsidiary Guarantors, and any such interest, costs, fees and expenses that would have accrued thereon or with respect thereto but for the commencement of such case, proceeding or other action.

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ARTICLE 2
GUARANTIES

     Section 2.01 The Guaranties.

     Subject to Section 2.03, the Subsidiary Guarantors hereby, jointly and severally, unconditionally and irrevocably guaranty to the Banks, the LC Issuing Banks, the Swingline Bank and the Agent and to each of them, the due and punctual payment of all Guarantied Obligations as and when the same shall become due and payable, whether at maturity, by declaration or otherwise, according to the terms thereof. In case of failure by the Borrower punctually to pay any indebtedness guarantied hereby, the Subsidiary Guarantors, subject to Section 2.03, hereby jointly, severally and, to the extent permitted by law, unconditionally agree to make such payment punctually as and when the same shall become due and payable, whether at maturity, or by demand, declaration, acceleration or otherwise.

     Section 2.02 Guaranties Unconditional; Waiver.

     To the extent permitted by applicable law, the obligations of each Subsidiary Guarantor under this Article 2 shall be unconditional and absolute and without limiting the generality of the foregoing, shall, to the extent permitted by law, not be released, discharged or otherwise affected by:

     (a) any extension, renewal, settlement, compromise, waiver or release in respect of any obligation of any other Obligor under any Financing Document, by operation of law or otherwise;

     (b) any modification or amendment (including any increase in the aggregate Commitments and any increase in the obligations of the Borrower under the Financing Documents) of or supplement to any other Financing Document or any Letter of Credit;

     (c) any modification, amendment, waiver, release, non-perfection or invalidity of any direct or indirect security, or of any guaranty or other liability of any third party, for any obligation of any other Obligor under any Financing Document;

     (d) any change in the corporate existence, structure or ownership of any other Obligor or any insolvency, bankruptcy, reorganization or other similar proceeding affecting any other Obligor or its assets or any resulting release or discharge of any obligation of any other Obligor contained in any Financing Document;

     (e) the existence of any claim, set-off or other rights which any Subsidiary Guarantor may have at any time against any other Obligor, the Agent, any LC Issuing Bank, the Swingline Bank, any Bank or any other Person, whether or not arising in connection with the Financing Documents; provided that nothing herein shall prevent the assertion of any such claim by separate suit or compulsory counterclaim;

     (f) any invalidity or unenforceability relating to or against any other Obligor for any reason of any Financing Document, or any provision of applicable law or regulation purporting to prohibit the payment by any other Obligor of the principal of or interest on any Note or any Reimbursement Obligation or any other amount payable by any other Obligor under any Financing Document; or

     (g) any other act or omission to act or delay of any kind by any other Obligor, the Agent, any LC Issuing Bank, the Swingline Bank, any Bank or any other Person or any other

2

circumstance whatsoever (other than payment in full of all Guarantied Obligations) that might, but for the provisions of this paragraph, constitute a legal or equitable discharge of the obligations of any Subsidiary Guarantor under this Article 2.

With respect to its obligations hereunder, to the extent permitted by applicable law, each Subsidiary Guarantor hereby expressly waives diligence, presentment, demand of payment, protest and all notices whatsoever, and any requirement that the Agent or any Bank exhaust any right, power or remedy or proceed against any Person under any of the Financing Documents or against any other Person under any other guarantee of, or security for, any of the Guaranteed Obligations.

     In accordance with Section 2856 of the California Civil Code, each Subsidiary Guarantor unconditionally and irrevocably waives any and all rights and defenses available to it by reason of Sections 2787 to 2855, inclusive, 2899 and 3433 of the California Civil Code. No other provision of this Agreement shall be construed as limiting the generality of any of the covenants and waivers set forth in this paragraph. As provided below, this Agreement shall be governed by, and shall be construed and enforced in accordance with, the laws of the State of New York. This paragraph is included solely out of an abundance of caution, and shall not be construed to mean that any of the above-referenced provisions of California law are in any way applicable to this Agreement or to any of the Guarantied Obligations.

     Section 2.03 Fraudulent Transfer.

     Anything in this Guaranty Agreement to the contrary notwithstanding, the obligations of each Subsidiary Guarantor hereunder shall be limited to a maximum aggregate amount equal to the greatest amount that would not render such Subsidiary Guarantor’s obligations hereunder subject to avoidance as a fraudulent transfer, obligation or conveyance under Section 548 of Title 11 of the United States Code or any provisions of applicable state law (collectively, the “Fraudulent Transfer Laws”), in each case after giving effect to all other liabilities of such Subsidiary Guarantor, contingent or otherwise, that are relevant under the Fraudulent Transfer Laws (specifically excluding, however, any liabilities of such Subsidiary Guarantor (A) in respect of intercompany debt owed or owing to the Borrower or affiliates of the Borrower to the extent that such debt would be discharged in an amount equal to the amount paid by such Subsidiary Guarantor hereunder and (B) under any Guarantee of senior unsecured debt or indebtedness subordinated in right of payment to the Guaranteed Obligations, which Guarantee contains a limitation as to maximum amount similar to that set forth in this Section 2.03, pursuant to which the liability of such Subsidiary Guarantor hereunder is included in the liabilities taken into account in determining such maximum amount) and after giving effect as assets to the value (as determined under the applicable provisions of the Fraudulent Transfer Laws) of any rights to subrogation, contribution, reimbursement, indemnity or similar rights of such Subsidiary Guarantor pursuant to (I) applicable law or (II) any agreement providing for an equitable allocation among such Subsidiary Guarantor and other affiliates of the Borrower of obligations arising under guarantees by such parties (including the agreements described in Section 2.08).

     Section 2.04 Discharge; Reinstatement in Certain Circumstances.

     Except as otherwise provided in Sections 3.01(c) and 4.03 hereof, each Subsidiary Guarantor’s obligations under this Article 2 shall remain in full force and effect until the Commitments are terminated, the LC Liabilities are reduced to zero, and the principal of and interest on the Loans and all other amounts payable by the Borrower under the Financing Documents shall have been paid in full. If at any time any payment of the principal of or interest on any Loan or any Reimbursement Obligation or any other amount payable by the Borrower under any Financing Document is rescinded or must be otherwise restored or returned upon the insolvency, bankruptcy or reorganization of any Obligor or otherwise, each

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Subsidiary Guarantor’s obligations under this Article 2 with respect to such payment shall be reinstated at such time as though such payment had become due but had not been made at such time.

     Section 2.05 Subrogation.

     Each Subsidiary Guarantor that makes a payment hereunder with respect to a Guarantied Obligation shall be subrogated to the rights of the payee against the Borrower with respect to such payment, provided, that until the Commitments have terminated, and all Guarantied Obligations have been paid in full and no Person or court or governmental authority shall have made any request for the return or reimbursement of any funds from the Agent or any Bank in connection with monies received under the Financing Documents (i) such Subsidiary Guarantor shall not enforce any such right against the Borrower (or enforce any right of reimbursement or contribution relating to such payment against the Borrower or any other Subsidiary Guarantor) and (ii) the rights against the Borrower to which such Subsidiary Guarantor is subrogated and any rights of reimbursement or contribution that such Subsidiary Guarantor may have against the Borrower or any other Subsidiary Guarantor shall be subordinate and junior in right of payment to all other obligations of the Borrower or such other Subsidiary Guarantor, as the case may be, under the Financing Documents.

     Section 2.06 Stay of Acceleration.

     If acceleration of the time for payment of any amount payable by the Borrower under the Financing Documents is stayed upon the insolvency, bankruptcy or reorganization of the Borrower, all such amounts otherwise subject to acceleration under the terms of the Financing Documents shall, to the extent permitted by law, nonetheless be payable by each Subsidiary Guarantor hereunder forthwith on demand by the Agent made at the request of the Required Banks.

     Section 2.07 Taxes.

     Without limiting the generality of any other provision hereof each Subsidiary Guarantor agrees that, if it makes a payment hereunder with respect to a Guaranteed Obligation, it will have the same obligations with respect to such payment and any related Taxes or Other Taxes as the Borrower would have had under Section 8.04 of the Credit Agreement if such payment had been made by the Borrower.

     Section 2.08 Right of Contribution.

     The Subsidiary Guarantors hereby agree, as among themselves, that if any Subsidiary Guarantor shall become an Excess Funding Guarantor (as defined below), each other Subsidiary Guarantor shall, on demand of such Excess Funding Guarantor (but subject to the succeeding provisions of this Section 2.08), pay to such Excess Funding Guarantor an amount equal to such Subsidiary Guarantor’s Pro Rata Share (as defined below and determined, for this purpose, without reference to the properties, assets, liabilities and debts of such Excess Funding Guarantor) of such Excess Payment (as defined below). The payment obligation of any Subsidiary Guarantor to any Excess Funding Guarantor under this Section 2.08 shall be subordinate and subject in right of payment to the prior payment in full of the obligations of such Subsidiary Guarantor under the other provisions of this Article 2, and such Excess Funding Guarantor shall not exercise any right or remedy with respect to such excess until payment and satisfaction in full of all of such obligations. For purposes hereof, (a) “Excess Funding Guarantor” shall mean, in respect of any obligations arising under the other provisions of this Article 2 (hereafter, the “Obligations”), a Subsidiary Guarantor that has paid an amount in excess of its Pro Rata Share of the Obligations; (b) “Excess Payment” shall mean, in respect of any Obligations, the amount paid by an Excess Funding Guarantor in excess of its Pro Rata Share of such Obligations; and (c) “Pro Rata Share”, for the purposes of this Section 2.08, shall mean, for any Subsidiary Guarantor, the ratio (expressed as a percentage) of (i) the amount by which the aggregate present

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fair saleable value of all of its assets and properties exceeds the amount of all debts and liabilities of such Subsidiary Guarantor (including contingent, subordinated, unmatured, and unliquidated liabilities, but excluding the obligations of such Subsidiary Guarantor hereunder) to (ii) the amount by which the aggregate present fair saleable value of all assets and other properties of the Borrower and all of the Subsidiary Guarantors exceeds the amount of all of the debts and liabilities (including contingent, subordinated, unmatured, and unliquidated liabilities, but excluding the obligations of the Borrower under the Financing Documents and the Subsidiary Guarantors hereunder) of the Borrower and all of the Subsidiary Guarantors, all as of the Closing Date (if any Subsidiary Guarantor becomes a party hereto subsequent to the Closing Date, then for the purposes of this Section 2.08 such subsequent Subsidiary Guarantor shall be deemed to have been a Subsidiary Guarantor as of the Closing Date and the information pertaining to, and only pertaining to, such Subsidiary Guarantor as of the date such Subsidiary Guarantor became a Subsidiary Guarantor shall be deemed true as of the Closing Date).

ARTICLE 3
ADDITIONAL SUBSIDIARY GUARANTORS

     Section 3.01 Additional Subsidiary Guarantors; release of Subsidiary Guarantors.

     (a) On the Closing Date and on each Reporting Date thereafter, the Borrower shall cause one or more Subsidiaries that are not then Subsidiary Guarantors to execute and deliver to the Agent a letter substantially in the form of Exhibit F-1 hereto, whereupon such Subsidiary shall become a party hereto and both a Subsidiary Guarantor and an Obligor for all purposes of the Financing Documents, to the extent necessary such that after giving effect thereto, as of the most recently ended fiscal quarter for which financial statements have been delivered, only non-Significant Subsidiaries and Foreign Subsidiaries will be Non-Guarantor Subsidiaries. On or promptly following the date on which the Borrower shall directly or indirectly acquire (through an acquisition of assets, a merger or otherwise) a Significant Subsidiary that is not a Subsidiary Guarantor or a Foreign Subsidiary, the Borrower shall cause such Significant Subsidiary to execute and deliver to the Agent a letter substantially in the form of Exhibit F-1 hereto, whereupon such Significant Subsidiary shall become a party hereto and both a Subsidiary Guarantor and an Obligor for all purposes of the Financing Documents. Upon each such execution and delivery, the Borrower shall be deemed to make a representation and warranty as to the facts set forth in Sections 4.02, 4.03, and 4.09 of the Credit Agreement. “Non-Guarantor Subsidiary” means, at any time, any Subsidiary that is not a Subsidiary Guarantor at such time. “Reporting Date” means the date that is 30 days after delivery of the Borrower’s annual or quarterly financial statements to the Agent pursuant to Section 5.01 of the Credit Agreement.

     (b) On each Reporting Date, the Borrower shall deliver to the Agent a list of the Subsidiary Guarantors, a list of the Non-Guarantor Subsidiaries, and calculations in reasonable detail demonstrating compliance with Section 3.01(a).

     (c) At any time or from time to time upon receipt by the Agent of a certificate, signed on behalf of the Borrower by the chief financial officer or chief accounting officer of the Borrower, requesting the release of a Subsidiary Guarantor from its obligations under this Agreement in connection with the direct or indirect sale, transfer, disposition or conveyance of a majority of the equity interests in such Subsidiary Guarantor permitted under Section 5.10 of the Credit Agreement, representing and warranting that such sale, transfer, disposition or conveyance is permitted under Section 5.10 of the Credit Agreement, such Subsidiary Guarantor shall be automatically be released from its obligations hereunder upon the consummation of such sale, transfer, disposition or conveyance. The Agent shall, at the sole cost and expense of the Borrower, execute and deliver to the Borrower such instrument or other document as may be reasonably requested by the Borrower evidencing the release of such Subsidiary Guarantor hereunder.

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ARTICLE 4
MISCELLANEOUS

     Section 4.01 Notices.

     Unless otherwise specified herein, all notices, requests and other communications (“notices”) to any party hereunder shall be in writing (including facsimile transmission or similar writing) and shall be given to such party at its address or facsimile number set forth on the signature pages hereof or on its letter substantially in the form of Exhibit F-1 hereto, as applicable (or, in the case of any Subsidiary Guarantor as to which no such address or facsimile number is so set forth, to it at the address or facsimile number of the Borrower set forth on the signature pages hereof) or such other address or facsimile number as such party may hereafter specify for the purpose by notice to the Agent. Each such notice shall be effective (i) if given by facsimile transmission, when such facsimile is transmitted to the facsimile transmission number specified in or pursuant to this Section 4.01 and telephonic confirmation of receipt thereof is received or (ii) if given by mail or by any other means, when delivered at the address specified in this Section 4.01.

     Section 4.02 No Waiver.

     No failure or delay by the Agent or any Bank in exercising any right, power or privilege under this Agreement or any other Financing Document shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein and therein provided shall be cumulative and not exclusive of any rights or remedies provided by law.

     Section 4.03 Amendments and Waivers; Termination.

     Any provision of this Agreement may be amended or waived if, and only if, such amendment or waiver is in writing and is signed by the Borrower, each Subsidiary Guarantor and the Agent with the prior written consent of the Required Banks; provided that except as otherwise provided in Section 3.01(c), the consent of each Bank shall be required to release all or substantially all of the Subsidiary Guarantors from their obligations hereunder; and provided further that (x) Subsidiary Guarantors may become parties to this Agreement in accordance with Section 3.01(a) and (y) Subsidiary Guarantors may be released from this Agreement in accordance with Section 3.01(c), in each case, without the consent of Required Banks.

     Section 4.04 Governing Law; Submission to Jurisdiction; Waiver of a Jury Trial.

     This Agreement shall be construed in accordance with and governed by the law of the State of New York. Each of the Subsidiary Guarantors hereby agrees to be bound by each provision of the Credit Agreement which purports to bind all Obligors to the same extent as if it were a party thereto.

     Section 4.05 Successors and Assigns.

     This Agreement is for the benefit of the Banks, the Swingline Bank, the LC Issuing Banks and the Agent and their respective successors and assigns and in the event of an assignment of the Loans, the Reimbursement Obligations, the Notes or other amounts payable under the Financing Documents, the rights hereunder, to the extent applicable to the indebtedness so assigned, shall be transferred with such indebtedness. All the provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.

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     Section 4.06 Counterparts; Effectiveness.

     This Agreement may be signed in any number of counterparts, each of which shall be an original, and all of which taken together shall constitute a single instrument, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement shall become effective when the Agent shall have received a counterpart hereof signed by the Borrower and one or more of the Subsidiary Guarantors and when the Credit Agreement shall become effective in accordance with its terms. Thereafter, upon execution and delivery of a letter substantially in the form of Exhibit F-1 hereto on behalf of any other Subsidiary Guarantor, this Agreement shall become effective with respect to such Subsidiary Guarantor as of the date of such delivery.

     Section 4.07 Submission to Jurisdiction.

     The Borrower and each Subsidiary Guarantor hereby submits to the nonexclusive jurisdiction of the United States District Court for the Southern District of New York and of any New York State court sitting in New York City for purposes of all legal proceedings arising out of or relating to this Subsidiary Guaranty or the transactions contemplated thereby. The Borrower and each Subsidiary Guarantor irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum.

     Section 4.08 Waiver of a Jury Trial.

     EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY AND IRREVOCABLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER THIS AGREEMENT OR IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO THIS AGREEMENT, OR THE TRANSACTIONS RELATED THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER FOUNDED IN CONTRACT OR TORT OR OTHERWISE; AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE SIGNATORIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.

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CNF INC.
SUBSIDIARY GUARANTY AGREEMENT

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the date first above written.

BORROWER:	CNF INC., a Delaware corporation
	By:                                                                                 Name:
	Title:
	3240 Hillview Avenue Palo Alto, California 94304 Facsimile number: 415-813-0160 Telephone number: 415-494-2900

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CNF INC.
SUBSIDIARY GUARANTY AGREEMENT

SUBSIDIARY GUARANTORS:	CON-WAY TRANSPORTATION SERVICES, INC., a Delaware corporation
	By:                                                                                 Name: Title:
	c/o CNF Inc.
	3240 Hillview Avenue
	Palo Alto, California 94304
	Facsimile number: 415-813-0160
	Telephone number: 415-494-2900
	MENLO WORLDWIDE, LLC, a Delaware limited liability company
	By:                                                                                 Name: Title:
	c/o CNF Inc. 3240 Hillview Avenue
	Palo Alto, California 94304
	Facsimile number: 415-813-0160
	Telephone number: 415-494-2900
	MENLO LOGISTICS, INC., a Delaware corporation
	By:                                                                                 Name: Title:
	c/o CNF Inc.
	3240 Hillview Avenue
	Palo Alto, California 94304
	Facsimile number: 415-813-0160
	Telephone number: 415-494-2900

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CNF INC.
SUBSIDIARY GUARANTY AGREEMENT

THE BANK OF NEW YORK, as Agent

By:                                                                                
Name:
Title:

10

EXHIBIT F-1

[Date]

The Bank of New York, as Agent
 under the Credit Agreement referred to below
One Wall Street, 18th Floor
New York, New York 10286
Attention: ___

Gentlemen:

     Reference is made to the Credit Agreement (as amended, modified, supplemented and extended, the “Credit Agreement”) dated as of March 11, 2005 among CNF Inc., a Delaware corporation (the “Borrower”), the Banks party thereto and The Bank of New York, as Agent (the “Agent”), and to the Subsidiary Guaranty Agreement (as amended, modified, supplemented and extended, the “Subsidiary Guaranty”) dated as of March 11, 2005 among the Borrower, the Subsidiary Guarantors party thereto and the Agent, as amended, copies of each of which have been furnished to the undersigned.

     The undersigned hereby agrees and confirms that effective as of the date hereof, the undersigned is a party to the Subsidiary Guaranty Agreement and both an “Obligor” and a “Subsidiary Guarantor” for all purposes of the Financing Documents (as defined in the Credit Agreement).

Very truly yours,

[NAME OF SUBSIDIARY GUARANTOR]

By:

Name:

Title:

Address:

Facsimile number:

Telephone number:

EX-10.74

Exhibit 10.74

CNF INC.

RESTRICTED STOCK AWARD AGREEMENT

THIS AGREEMENT, entered into as of the 10^th day of December 2004, between CNF Inc., a Delaware corporation (hereinafter called “Company”), John H. Williford (hereinafter called “Recipient”), and the Secretary of the Company (hereinafter called “Escrow Holder”).

WITNESSETH:

WHEREAS, the Company has adopted the CNF Inc. 1997 Equity and Incentive Plan, as amended (as so amended, the “Plan”), which Plan is incorporated into this Agreement by reference;

WHEREAS, the Company encourages its executive officers to own shares of the Company’s stock and thereby to align their interests more closely with the interests of the other stockholders of the Company, and desires to motivate Recipient by providing Recipient with a direct interest in the Company’s attainment of its financial goals, and desires to provide a financial incentive that will help attract and retain the most qualified executive officers; and

WHEREAS, the Company has determined that it would be to the advantage and interest of the Company and its stockholders to issue to Recipient the restricted stock provided for in this Agreement as an incentive for increased efforts and successful achievements;

NOW, THEREFORE, in consideration of the foregoing premises, and the mutual covenants herein contained, the parties hereto agree with each other as follows:

1.

Defined Terms. Except as otherwise indicated herein, all capitalized terms used in this Agreement without definition shall have the meanings given to such terms in the Plan.

2.

Restricted Stock Award. As of the date of this Agreement, the Company has issued to Recipient 30,000 shares of its Common Stock (hereinafter called the “Stock”) as a restricted stock award (“Restricted Stock Award”). Stock certificates evidencing the Stock will be delivered to Escrow Holder, accompanied by blank stock powers executed by Recipient, to be held by Escrow Holder as provided herein, for the use and benefit of, and subject to the rights of and limitations upon Recipient as the owner thereof as herein set forth. All shares of Stock issued hereunder shall be deemed issued to Recipient as fully paid and nonassessable             shares and, subject to Paragraphs 3, 4 and 5 below, Recipient shall have all rights of a stockholder with respect thereto, including the right to vote, to receive dividends (including stock dividends), to participate in stock splits or other recapitalizations, and to exchange such shares in a merger, consolidation or other reorganization. The Company shall pay the

1

	costs and charges of Escrow Holder and any applicable stock transfer taxes. Recipient hereby acknowledges that Recipient is acquiring the Stock issued hereunder for investment and not with a view to the distribution thereof, and that Recipient does not intend to subdivide Recipient’s interest in the Stock with any other person.
3.	Restrictions. Until such time as a share of Stock vests or is forfeited in accordance with Paragraph 4 below, such share shall be classified as a “Restricted Security” and shall be subject to the following:

(a)	All Restricted Securities shall be evidenced by one or more certificates which are held by Escrow Holder and which bear the following legend:
	“These shares are subject to the restrictions enumerated in the CNF Inc. 1997 Equity and Incentive Plan and in the Restricted Stock Award Agreement dated as of December 10, 2004 between CNF Inc. and the registered holder of these shares.”
	Upon vesting of any shares of Stock, the Company shall cause new stock certificates to be issued to evidence the Stock. All shares of Stock that have vested, and that therefore are no longer classified as Restricted Securities, shall be evidenced by a new certificate which does not bear the legend referred to above, which certificate shall be delivered by Escrow Holder to Recipient.
	All shares (if any) of Stock which remain unvested at such time, and which therefore continue to be classified as Restricted Securities, shall be evidenced by a new certificate bearing the legend referred to above, which certificate shall be delivered to and held by Escrow Holder.
(b)	All Restricted Securities shall be subject to the limitations on transferability set forth in Section 8(a) of the Plan, except that the Committee may, in its discretion, (i) pursuant to rules adopted by the Committee, permit transfer(s) of Restricted Securities in connection with Recipient’s estate planning, and (ii) permit transfers upon divorce or marital dissolution other than pursuant to a Qualified Domestic Relations Order.
(c)	All distributions on or in respect of any Restricted Securities (including dividends on any Restricted Securities, whether payable in cash, stock or other property) shall be subject to the provisions of Paragraph 5 below.

4.   Vesting; Forfeiture.

(a)   The shares of Stock shall vest in three (3) equal installments of 10,000 shares each, commencing on January 1, 2006 and continuing on each January 1 thereafter to and including January 1, 2008, provided that

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Recipient has been an active full-time employee of the Company, a Subsidiary, or an Affiliate at all times during the period from the date of this Agreement until such date.

(b)

All shares of Stock (if any) which have not vested shall be automatically, immediately and irrevocably forfeited if Recipient ceases to be an active full-time employee of the Company, a Subsidiary or an Affiliate for any reason. Upon forfeiture of any shares of Stock, all right, title and interest of Recipient in such Stock, and in any distributions contemplated by Paragraph 5 (other than cash dividends received by Recipient pursuant to Paragraph 5 prior to such forfeiture), shall thereupon cease; and all right, title and interest in and to such Stock and distributions shall vest in the Company, with no compensation or consideration to Recipient.

5.   Distributions on Restricted Securities.

(a)	Any securities or other property (other than cash) received as the result of ownership of Restricted Securities (“Additional Securities”) including, but not by way of limitation, warrants and securities received as a stock dividend or stock split, or as a result of a recapitalization or reorganization, shall be held by Escrow Holder in the same manner and subject to the same restrictions as the Restricted Securities with respect to which they were issued. Recipient shall be entitled to direct Escrow Holder to exercise any warrant or option received as Additional Securities upon supplying the funds necessary to do so, in which event the securities so purchased shall constitute Additional Securities, or Recipient may direct Escrow Holder to sell any such warrant or option, in which case the proceeds shall be held by Escrow Holder in accordance with the provisions of subparagraph (b) below.
	In the event any Restricted Securities or Additional Securities consist of a security that is by its terms or otherwise convertible into or exchangeable for another security at the election of the holder thereof, Recipient may exercise any such right of conversion or exchange in the event the failure to exercise or delay in exercising such right would result in its loss or diminution in value, and any securities so acquired shall constitute Additional Securities. In the event of any change in certificates evidencing Restricted Securities or Additional Securities by reason of any recapitalization, reorganization or other transaction which results in the creation of Additional Securities, Escrow Holder is authorized to deliver to the issuer the certificates evidencing Restricted Securities or Additional Securities in exchange for the certificates which they replace, which shall be deemed to be Additional Securities.
(b)	All cash dividends payable in respect of any Restricted Securities shall be paid to Recipient on the dividend payment date on which such cash

3

dividends are paid to other registered holders of the Company’s Common Stock. The Company shall deliver to Escrow Holder for the account of Recipient all distributions, other than cash dividends on the Restricted Securities, paid or made in cash with respect to Restricted Securities and Additional Securities (“Cash Distributions”). Escrow Holder shall hold all such Cash Distributions until deliverable to Recipient in accordance with subparagraph (c) below.

(c)

Concurrently with the delivery to Recipient, pursuant to Paragraph 3 above, of certificates evidencing any shares of Stock that have vested and therefore are no longer Restricted Securities, Escrow Holder shall also deliver to Recipient (i) one or more certificates evidencing all shares of Additional Securities distributed to Escrow Holder in respect of such Stock (which certificate(s) shall not contain the legend referred to in Paragraph 3 above) and (ii) all Cash Distributions received by Escrow Holder in respect of such Stock and Additional Securities, less any applicable federal or state withholding taxes.

6.   Taxes

(a)

Recipient agrees to make appropriate arrangements for the satisfaction of any applicable federal, state or local income, employment or other tax withholding requirements (collectively, the “Taxes”) applicable to the receipt of Stock hereunder upon the lapse of restrictions with respect thereto.

(b)

Upon demand, Recipient shall promptly reimburse the Company for all applicable Taxes paid by the Company. At its discretion, the Company may withhold any distribution under this Agreement in whole or in part until such payment is made to the Company. In lieu thereof, the Company or an Affiliate may withhold such amounts as are necessary to pay such Taxes from any fees, salary, bonus or other amounts payable by the Company or an Affiliate to Recipient, or may withhold a number of shares of Stock having a market value of not less than the amount of such Taxes and cancel (in whole or in part) any such shares in order to satisfy the payment of such Taxes.

7.	Committee Decisions Conclusive. All decisions of the Committee upon any question arising under the Plan or under this Agreement shall be final and binding on all parties.
8.	No Right to Continued Employment, etc. Nothing in this Agreement, the Restricted Stock Award granted hereunder or any other agreement entered into pursuant hereto (i) shall confer upon Recipient the right to continue in the employ of the Company, any Subsidiary or any Affiliate or to be entitled to any remuneration or benefits not set forth herein or in any such other agreement or

4

(ii) interfere with or limit in any way the right of the Company or any such Subsidiary or Affiliate to terminate Recipient’s employment.

9.   Notice. Any notice or other paper required to be given or sent pursuant to the terms of this Agreement shall be sufficiently given or served hereunder to any party when transmitted by registered or certified mail, postage prepaid, addressed to the party to be served as follows:

Company:	CNF Inc., 3240 Hillview Avenue, Palo Alto, California 94304 Attn.: Corporate Secretary
Recipient:	At Recipient’s address as it appears under Recipient’s signature to this Agreement, or to such other address as Recipient may specify in writing to Escrow Holder

	Any party may designate another address for receipt of notices so long as notice is given in accordance with this Paragraph 9.
10.	Amendment; Modification. This Agreement may not be modified or amended, and any provision hereof may not be waived, except pursuant to a written agreement signed by the Company and Recipient. Any such modification, amendment or waiver signed by, or binding upon, Recipient, shall be valid and binding upon any and all persons or entities who may, at any time, have or claim any rights under or pursuant to this Agreement.
11.	Severability. If any provision of this Agreement shall be invalid or unenforceable, such invalidity or unenforceability shall attach only to such provision and shall not in any manner affect or render invalid or unenforceable any other severable provision of this Agreement, and this Agreement shall be carried out as if such invalid or unenforceable provision were not contained herein.
12.	Successors. Except as otherwise expressly provided herein, this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, executors, administrators, successors and assigns.
13.	Governing Law. The interpretation and enforcement of this Agreement shall be governed by the internal laws of the State of California without regard to principles of conflicts of laws.
14.	Counterparts. This Agreement may be executed in counterparts, all of which taken together shall be deemed one original.

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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first above written.

	EXECUTIVE OFFICER		CNF INC.
By:	/s/ John H. Williford		By:	/s/ Eberhard G.H. Schmoller
	John H. Williford		Eberhard G.H. Schmoller
			Senior Vice President, General
Address: 416 Raymundo Drive			Counsel and Secretary
	Woodside CA 94062
		By:	/s/ Eberhard G.H. Schmoller
			Eberhard G.H. Schmoller
			Escrow Holder

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EX-10.75

Exhibit 10.75

CNF INC.

RESTRICTED STOCK AWARD AGREEMENT

THIS AGREEMENT, entered into as of the 17^th day of December 2004, between CNF Inc., a Delaware corporation (hereinafter called “Company”), Douglas W. Stotlar (hereinafter called “Recipient”), and the Secretary of the Company (hereinafter called “Escrow Holder”).

WITNESSETH:

WHEREAS, the Company has adopted the CNF Inc. 1997 Equity and Incentive Plan, as amended (as so amended, the “Plan”), which Plan is incorporated into this Agreement by reference;

WHEREAS, the Company encourages its executive officers to own shares of the Company’s stock and thereby to align their interests more closely with the interests of the other stockholders of the Company, and desires to motivate Recipient by providing Recipient with a direct interest in the Company’s attainment of its financial goals, and desires to provide a financial incentive that will help attract and retain the most qualified executive officers; and

WHEREAS, the Company has determined that it would be to the advantage and interest of the Company and its stockholders to issue to Recipient the restricted stock provided for in this Agreement as an incentive for increased efforts and successful achievements;

NOW, THEREFORE, in consideration of the foregoing premises, and the mutual covenants herein contained, the parties hereto agree with each other as follows:

1.

Defined Terms. Except as otherwise indicated herein, all capitalized terms used in this Agreement without definition shall have the meanings given to such terms in the Plan.

2.

Restricted Stock Award. As of the date of this Agreement, the Company has issued to Recipient 30,000 shares of its Common Stock (hereinafter called the “Stock”) as a restricted stock award (“Restricted Stock Award”). Stock certificates evidencing the Stock will be delivered to Escrow Holder, accompanied by blank stock powers executed by Recipient, to be held by Escrow Holder as provided herein, for the use and benefit of, and subject to the rights of and limitations upon Recipient as the owner thereof as herein set forth. All shares of Stock issued hereunder shall be deemed issued to Recipient as fully paid and nonassessable shares and, subject to Paragraphs 3, 4 and 5 below, Recipient shall have all rights of a stockholder with respect thereto, including the right to vote, to receive dividends (including stock dividends), to participate in stock splits or other recapitalizations, and to exchange such shares in a merger, consolidation or other reorganization. The Company shall pay the

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	costs and charges of Escrow Holder and any applicable stock transfer taxes. Recipient hereby acknowledges that Recipient is acquiring the Stock issued hereunder for investment and not with a view to the distribution thereof, and that Recipient does not intend to subdivide Recipient’s interest in the Stock with any other person.
3.	Restrictions. Until such time as a share of Stock vests or is forfeited in accordance with Paragraph 4 below, such share shall be classified as a “Restricted Security” and shall be subject to the following:

(a)	All Restricted Securities shall be evidenced by one or more certificates which are held by Escrow Holder and which bear the following legend:
	“These shares are subject to the restrictions enumerated in the CNF Inc. 1997 Equity and Incentive Plan and in the Restricted Stock Award Agreement dated as of December 17, 2004 between CNF Inc. and the registered holder of these shares.”
	Upon vesting of any shares of Stock, the Company shall cause new stock certificates to be issued to evidence the Stock. All shares of Stock that have vested, and that therefore are no longer classified as Restricted Securities, shall be evidenced by a new certificate which does not bear the legend referred to above, which certificate shall be delivered by Escrow Holder to Recipient.
	All shares (if any) of Stock which remain unvested at such time, and which therefore continue to be classified as Restricted Securities, shall be evidenced by a new certificate bearing the legend referred to above, which certificate shall be delivered to and held by Escrow Holder.
(b)	All Restricted Securities shall be subject to the limitations on transferability set forth in Section 8(a) of the Plan, except that the Committee may, in its discretion, (i) pursuant to rules adopted by the Committee, permit transfer(s) of Restricted Securities in connection with Recipient’s estate planning, and (ii) permit transfers upon divorce or marital dissolution other than pursuant to a Qualified Domestic Relations Order.
(c)	All distributions on or in respect of any Restricted Securities (including dividends on any Restricted Securities, whether payable in cash, stock or other property) shall be subject to the provisions of Paragraph 5 below.

4.   Vesting; Forfeiture.

(a)   The shares of Stock shall vest in three (3) equal installments of 10,000 shares each, commencing on January 1, 2007 and continuing on each January 1 thereafter to and including January 1, 2009, provided that

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Recipient has been an active full-time employee of the Company, a Subsidiary, or an Affiliate at all times during the period from the date of this Agreement until such date.

(b)

All shares of Stock (if any) which have not vested shall be automatically, immediately and irrevocably forfeited if Recipient ceases to be an active full-time employee of the Company, a Subsidiary or an Affiliate for any reason. Upon forfeiture of any shares of Stock, all right, title and interest of Recipient in such Stock, and in any distributions contemplated by Paragraph 5 (other than cash dividends received by Recipient pursuant to Paragraph 5 prior to such forfeiture), shall thereupon cease; and all right, title and interest in and to such Stock and distributions shall vest in the Company, with no compensation or consideration to Recipient.

5.   Distributions on Restricted Securities.

(a)	Any securities or other property (other than cash) received as the result of ownership of Restricted Securities (“Additional Securities”) including, but not by way of limitation, warrants and securities received as a stock dividend or stock split, or as a result of a recapitalization or reorganization, shall be held by Escrow Holder in the same manner and subject to the same restrictions as the Restricted Securities with respect to which they were issued. Recipient shall be entitled to direct Escrow Holder to exercise any warrant or option received as Additional Securities upon supplying the funds necessary to do so, in which event the securities so purchased shall constitute Additional Securities, or Recipient may direct Escrow Holder to sell any such warrant or option, in which case the proceeds shall be held by Escrow Holder in accordance with the provisions of subparagraph (b) below.
	In the event any Restricted Securities or Additional Securities consist of a security that is by its terms or otherwise convertible into or exchangeable for another security at the election of the holder thereof, Recipient may exercise any such right of conversion or exchange in the event the failure to exercise or delay in exercising such right would result in its loss or diminution in value, and any securities so acquired shall constitute Additional Securities. In the event of any change in certificates evidencing Restricted Securities or Additional Securities by reason of any recapitalization, reorganization or other transaction which results in the creation of Additional Securities, Escrow Holder is authorized to deliver to the issuer the certificates evidencing Restricted Securities or Additional Securities in exchange for the certificates which they replace, which shall be deemed to be Additional Securities.
(b)	All cash dividends payable in respect of any Restricted Securities shall be paid to Recipient on the dividend payment date on which such cash

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dividends are paid to other registered holders of the Company’s Common Stock. The Company shall deliver to Escrow Holder for the account of Recipient all distributions, other than cash dividends on the Restricted Securities, paid or made in cash with respect to Restricted Securities and Additional Securities (“Cash Distributions”). Escrow Holder shall hold all such Cash Distributions until deliverable to Recipient in accordance with subparagraph (c) below.

(c)

Concurrently with the delivery to Recipient, pursuant to Paragraph 3 above, of certificates evidencing any shares of Stock that have vested and therefore are no longer Restricted Securities, Escrow Holder shall also deliver to Recipient (i) one or more certificates evidencing all shares of Additional Securities distributed to Escrow Holder in respect of such Stock (which certificate(s) shall not contain the legend referred to in Paragraph 3 above) and (ii) all Cash Distributions received by Escrow Holder in respect of such Stock and Additional Securities, less any applicable federal or state withholding taxes.

6.   Taxes

(a)

Recipient agrees to make appropriate arrangements for the satisfaction of any applicable federal, state or local income, employment or other tax withholding requirements (collectively, the “Taxes”) applicable to the receipt of Stock hereunder upon the lapse of restrictions with respect thereto.

(b)

Upon demand, Recipient shall promptly reimburse the Company for all applicable Taxes paid by the Company. At its discretion, the Company may withhold any distribution under this Agreement in whole or in part until such payment is made to the Company. In lieu thereof, the Company or an Affiliate may withhold such amounts as are necessary to pay such Taxes from any fees, salary, bonus or other amounts payable by the Company or an Affiliate to Recipient, or may withhold a number of shares of Stock having a market value of not less than the amount of such Taxes and cancel (in whole or in part) any such shares in order to satisfy the payment of such Taxes.

7.	Committee Decisions Conclusive. All decisions of the Committee upon any question arising under the Plan or under this Agreement shall be final and binding on all parties.
8.	No Right to Continued Employment, etc. Nothing in this Agreement, the Restricted Stock Award granted hereunder or any other agreement entered into pursuant hereto (i) shall confer upon Recipient the right to continue in the employ of the Company, any Subsidiary or any Affiliate or to be entitled to any remuneration or benefits not set forth herein or in any such other agreement or

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(ii) interfere with or limit in any way the right of the Company or any such Subsidiary or Affiliate to terminate Recipient’s employment.

9.   Notice. Any notice or other paper required to be given or sent pursuant to the terms of this Agreement shall be sufficiently given or served hereunder to any party when transmitted by registered or certified mail, postage prepaid, addressed to the party to be served as follows:

Company:	CNF Inc., 3240 Hillview Avenue, Palo Alto, California 94304 Attn.: Corporate Secretary
Recipient:	At Recipient’s address as it appears under Recipient’s signature to this Agreement, or to such other address as Recipient may specify in writing to Escrow Holder

	Any party may designate another address for receipt of notices so long as notice is given in accordance with this Paragraph 9.
10.	Amendment; Modification. This Agreement may not be modified or amended, and any provision hereof may not be waived, except pursuant to a written agreement signed by the Company and Recipient. Any such modification, amendment or waiver signed by, or binding upon, Recipient, shall be valid and binding upon any and all persons or entities who may, at any time, have or claim any rights under or pursuant to this Agreement.
11.	Severability. If any provision of this Agreement shall be invalid or unenforceable, such invalidity or unenforceability shall attach only to such provision and shall not in any manner affect or render invalid or unenforceable any other severable provision of this Agreement, and this Agreement shall be carried out as if such invalid or unenforceable provision were not contained herein.
12.	Successors. Except as otherwise expressly provided herein, this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, executors, administrators, successors and assigns.
13.	Governing Law. The interpretation and enforcement of this Agreement shall be governed by the internal laws of the State of California without regard to principles of conflicts of laws.
14.	Counterparts. This Agreement may be executed in counterparts, all of which taken together shall be deemed one original.

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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first above written.

	EXECUTIVE OFFICER		CNF INC.
By:	/s/ Douglas W. Stotlar	By:	/s/ Eberhard G.H. Schmoller
	Douglas W. Stotlar
			Eberhard G.H. Schmoller
			Senior Vice President, General
Address: 8400 Cedar Hills Drive			Counsel and Secretary
	Dexter MI 84130
		By:	/s/ Eberhard G.H. Schmoller
			Eberhard G.H. Schmoller
			Escrow Holder

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EX-10.76

Exhibit 10.76

prepared for:	Douglas W. Stotlar
	80582 - CTS

The Compensation Committee of the Board of Directors of CNF Inc. has awarded you, as Optionee, the following stock options to purchase shares of CNF common stock:

Award effective date:	December 17, 2004
Non-qualified stock options:	40,000 shares
Grant price per share:	$49.11
Vesting:	One-third per year for three years, with the first one-third vested on January 1, 2006
Fully vested:	January 1, 2008
Expiration date:	December 17, 2014

These options are subject to the provisions of the CNF Inc. 1997 Equity and Incentive Plan as amended, and the attached Terms and Conditions which are part of this Stock Option Agreement. These documents and any documents that may be issued in the future constitute a Prospectus under the Securities Act of 1933, as amended, covering the securities issuable to you upon exercise of your options. If you would like to receive a copy of the plan document, please call the Manager of Executive Compensation at 650-813-5355.

You will receive a copy of the Company’s Annual Report to Shareholders. If you would like another copy of the report, please call the Manager of Executive Compensation. The report will be sent to you at no charge promptly upon request.

I accept the stock options described above and the attached Terms and Conditions of the Stock Option Agreement. I also accept the provisions of the CNF Inc. 1997 Equity and Incentive Plan as amended.

Signature /s/ Douglas W. Stotlar Date December 21, 2004

If you have questions regarding your options, or you wish to take action with respect to your options, please call Eberhard G. H. Schmoller, Senior Vice President, General Counsel and Secretary at 650-813-5326 or Gary S. Cullen, Deputy General Counsel at 650-813-5371.

For your convenience a return envelope is included with this packet.

Governing options awarded on December 17, 2004

This document constitutes part of a prospectus of CNF Inc. covering securities that have been registered under the Securities Act of 1933.

Except as otherwise stated in the Stock Option Agreement (the ‘Agreement’) to which these Terms and Conditions are attached and form a part, and subject to the terms and conditions of the CNF Inc. 1997 Equity and Incentive Plan (the ‘Plan’), which Plan is incorporated herein by reference, the following apply to the Option (as defined below). (Capitalized terms used herein without definition shall have the meanings given to such terms in the Plan).

1.

The Company grants to Optionee (the person designated in the Agreement as the grantee thereof) the right and option to purchase (the ‘Option’), on the terms and conditions of the Agreement and as hereinafter set forth, shares of the presently authorized but unissued Common Stock ($0.625 par value) of the Company (hereinafter called the ‘Stock’), or shares of authorized and issued Stock reacquired by the Company and held in its treasury. The purchase price of the Stock subject to the Option shall be as set forth in the Agreement but shall not be less than the Fair Market Value of a share of Common Stock on the grant date (award effective date) of the Option.

2.

In consideration of the Option, Optionee agrees to remain as an active full-time employee of the Company or of a Subsidiary or Affiliate at all times during the period beginning with the date on which the Option was granted and ending on January 1, 2008 or at the time of Retirement. whichever occurs first, and, except to the extent that the Option has theretofore vested pursuant to Paragraph 3 below, if such employment is terminated within said period the Option shall become null and void.

As used herein:

Retirement means retirement under the Company’s established retirement plan as in effect on the date of Optionee’s termination of employment on or after age 65 (Normal Retirement Date) or after attaining age 55 with combined age in whole or partial years (rounded to the nearest whole month) plus years of service equal to at least 85 (the Rule of 85). As of the date hereof, the Company’s retirement plan provides that an employee who at the time of his termination of employment is eligible to receive benefits under a qualified defined benefit plan of the Company or a Subsidiary or an Affiliate shall be deemed to have retired only if such employee elects within sixty (60) days from his last day of employment to commence receiving monthly benefits under such plan. The Company may, in its sole discretion, revise such plan at any time or from time to time.

3.	Except as otherwise provided in Paragraph 4, the period for exercising the Option (the ‘Option Period’) shall be the period, which will commence upon the vesting of the Option (as specified below) and will end on the tenth anniversary of the date on which the Option was granted (referred to herein as the ‘Terminal Date’ of the Option).
	The Option will vest in three (3) equal installments on the first, second, and third anniversaries of the first day of January following the date on which the Option was granted. If the Option consists of incentive stock options (“ISOs”) and non-qualified stock options (“NQSOs”), the ISOs and NQSOs will vest on a pro rata basis on such anniversaries.
	In addition, any unvested portion of the Option will vest in its entirety upon the occurrence of any of the following:

(a)	Optionee’s death;
(b)	Optionee ceases to be an active full-time employee as a result of a Disability; or
(c)	A ‘Change in Control’.

As used herein:

Disability means a substantial mental or physical disability, as determined by the Committee in its sole discretion; and

4.   In the following circumstances, the Option Period specified in Paragraph 3 shall not apply, and the Option shall be exercisable as set forth below:

(a)	If Optionee ceases to be an active full-time employee of the Company or of a Subsidiary or an Affiliate during the Option Period (other than (i) for Cause (as defined below), (ii) on account of Retirement, (iii) following a Change in Control applicable to Optionee or (iv) as a result of Optionee’s death or Disability), the Option shall thereafter be exercisable only to the extent vested at the time Optionee ceases to be so employed and only prior to the end of the 3-month period commencing with such cessation of employment or prior to the Terminal Date of the Option, whichever shall first occur.
	If Optionee is absent from work with the Company or an affiliate because of his Disability or if he is on leave of absence for the purpose of serving the government of the country in which the principal place of employment of Optionee is located, either in a military or civilian capacity, or for such other purpose or reason as the Committee may approve, Optionee shall not be deemed during the period of any such absence, by virtue of such absence alone, to have terminated his employment with the Company or a Subsidiary or an Affiliate, except as the Committee may otherwise expressly provide.
(b)	If the employment of Optionee is terminated for Cause, the Option (including any portion of the Option that may have vested) shall terminate on the date of such termination of employment and shall thereupon not be exercisable to any extent whatsoever. As used herein, ‘Cause’ means (i) the failure or refusal by Optionee to perform, or neglect in the performance of, his duties, functions or responsibilities, or (ii) Optionee’s commission of such acts of dishonesty, fraud, misrepresentation or other acts of moral turpitude, or such other acts or omissions of Optionee, as the Committee, in the exercise of its sole discretion, considers to constitute Cause.
(c)	If the Optionee ceases to be an active full-time employee on account of Retirement, vesting shall continue under Paragraph 3 and the Option shall be exercisable until one year after the final installment has vested, or on or prior to the Terminal Date of the Option, whichever shall first occur.
(d)	If Optionee ceases to be an active full-time employee of the Company, a Subsidiary or an Affiliate following a Change in Control applicable to Optionee, the Option may be exercised by Optionee within the 3-year period beginning on the date of the Change in Control, or on or prior to the Terminal Date of the Option, whichever shall first occur.
(e)	If Optionee ceases to be an active full-time employee of the Company, a Subsidiary or an Affiliate as a result of Optionee’s Disability, the Option may be exercised by Optionee within the 3-year period beginning on the date Optionee ceases to be so employed, or on or prior to the Terminal Date of the Option, whichever shall first occur.
(f)	If Optionee should die (i) while in the employ of the Company or of a Subsidiary or Affiliate, or (ii) within the 3-month period commencing with his termination of employment with the Company or one of its Subsidiaries or Affiliates (other than for Cause or as a result of Optionee’s death or Disability), or (iii) within the 3-year period commencing his cessation of active full-time employment with the Company or one of its Subsidiaries or Affiliates as a result of his Disability, or (iv) within the 1-year period commencing from the final option vest date in the case of Retirement, the Option may be exercised by Optionee’s executor or administrator, or by the person or persons to whom Optionee’s rights under the Option shall pass by will or by the applicable laws of descent and distribution, within one year from date of death of Optionee, or the Terminal Date of the Option, whichever shall first occur.

5.   Optionee may exercise the Option, to the extent vested and with respect to all or part of the shares of Stock then subject to such exercise, by giving the Company written notice of such exercise, specifying the number of shares as to which the Option is so exercised and tendering either (i) cash or a certified check, bank draft or postal or express money order payable to the order of the Company for an amount in lawful money of the United States equal to the Grant price of such shares, or (ii) properly endorsed or transferable shares of Stock with a value equal to the Grant price of such shares, or (iii) a combination of (i) and (ii) above having an aggregate value equal to the Grant price of such shares. In addition, Optionee may effect a ‘cashless’ exercise of the Option by immediately selling a part of the Option shares and using the proceeds therefrom to pay the Grant price of all of the Option Shares. For a cashless exercise, Optionee shall be responsible for all brokerage commissions, transaction fees and other charges of the

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	executing broker. No partial exercise of the Option may be for less than 100 shares unless fewer than 100 shares are outstanding under the Option, in which case the Option may be exercised as to the total of such shares. In no event shall the Company be required to issue fractional shares.
	As soon as practicable after receipt of such notice, the Company shall, without transfer or issue tax and (except for withholding tax arrangements contemplated by paragraph 14 hereof) without other incidental expense to Optionee, deliver to Optionee at the office of the Company, 3240 Hillview Avenue, Palo Alto, California 94304, or such other place as may be mutually acceptable to the Company and Optionee, a certificate or certificates for such shares; provided, however, that the time of such delivery may be postponed by the Company for such period as may be required for it with reasonable diligence to comply with applicable requirements under the Federal securities acts, as amended, any applicable listing requirements of any national securities exchange, and requirements under any other law or regulation applicable to the issuance or transfer of such shares. If Optionee fails to pay for or accept delivery of all or any part of the number of shares specified in the notice of exercise, his right to purchase such undelivered shares may be terminated by the Company at its election.
6.	In the event that the Committee shall determine that any dividend or other distribution (whether in the form of cash, Stock or other property), recapitalization, Stock split, reverse split, reorganization, merger, consolidation, spin-off, combination, repurchase or share exchange, or other similar corporate transaction or event, affects the Stock such that an adjustment is appropriate in order to prevent dilution or enlargement of the rights of Optionee hereunder, then the Committee shall make such equitable changes or adjustments as it deems necessary or appropriate to any or both of (i) the number and kind of shares of Stock or cash issued or issuable in respect of the Option or (ii) the exercise price or Grant price of the Option.
7.	The Option shall, during Optionee’s lifetime, be exercisable only by him or her, and neither the Option nor any right hereunder shall be transferable by Optionee by operation of law or otherwise, other than by will or the laws of descent and distribution or pursuant to a qualified domestic relations order (‘QDRO’); provided, however, the Committee may, in its discretion, (i) pursuant to rules adopted by the Committee, permit transfer(s) of all or part of the Option in connection with Optionee’s estate planning, and (ii) permit transfers upon divorce or marital dissolution other than pursuant to a QDRO. In the event of an attempt by Optionee to alienate, assign, pledge, hypothecate, or otherwise dispose of the Option or of any right hereunder, except as provided for herein, or in the event of the levy of any attachment, execution, or similar process upon the rights or interest hereby conferred, the Company at its election may terminate the Option by notice to Optionee and the Option shall thereupon become null and void.
8.	The Committee may under such terms and conditions as it deems appropriate at any time subsequent to the grant of the Option authorize the surrender by Optionee of up to 50% of the unexercised Option and authorize a payment in consideration therefore at a cash amount equal to the difference obtained by subtracting the Grant price from the Fair Market Value of the Stock on the date of such surrender; provided, that the Committee determines that such settlement is consistent with the purposes of the Plan. The Committee may also provide that the cash payment shall not exceed a specified percentage of the aggregate exercise price of the Stock subject to the Option. If Optionee is so authorized to surrender a percentage of the unexercised Option he may do so only upon exercise of an identical percentage of the unexercised Option. The Committee shall have the sole authority and discretion to consent to or disapprove of the election of Optionee to receive cash in partial settlement of the Option.
9.	Neither Optionee nor any person entitled to exercise Optionee’s Option in the event of his or her death shall have any of the rights of a shareholder with respect to the shares of stock subject to the Option except to the extent that such person has properly exercised the Option.
10.	Optionee agrees to promptly notify the Company of the sale of any ISOs that were initially exercised and held in order for the Company to be able to comply with applicable federal and state tax withholding laws.

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11.	Any notice required to be given by Optionee under the terms of the Option shall be addressed to the Company in care of its General Counsel at 3240 Hillview Avenue, Palo Alto, California 94304, and any notice to be given to Optionee shall be addressed to him or her at his or her last known address as shown on the Company’s records or such other address as either party hereto may hereafter designate in writing to the other. Any such notice shall be deemed to have been duly given when enclosed in a properly sealed envelope or wrapper addressed as aforesaid, registered or certified and deposited (postage or registration or certification fee prepaid) in a post office or branch post office regularly maintained by the United States.
12.	All decisions of the Committee upon any question arising under the Plan or any Stock Option Agreement shall be conclusive.
13.	Nothing herein contained shall affect Optionee’s right to participate in and receive benefits from and in accordance with the then current provisions of any pension, insurance, or other employment welfare plan or program of the Company.
14.	Nothing in the Stock Option Agreement (including these Terms and Conditions) or any other agreement entered into pursuant hereto (i) shall confer upon Optionee the right to continue in the employ of the Company, any Subsidiary or any Affiliate or to be entitled to any remuneration or benefits not set forth herein or in any such other agreement or (ii) interfere with or limit in any way the right of the Company or any such Subsidiary or Affiliate to terminate Optionee’s employment.
15.	Optionee agrees, in connection with the Option, to make appropriate arrangements with the Company or his employer for satisfaction of any applicable federal, state or local income tax withholding requirements or social security requirements.
16.	The Agreement and these Terms and Conditions shall be binding upon and inure to the benefit of any successor or successors of the Company.
17.	The interpretation, performance, and enforcement of the Stock Option Agreement and these Terms and Conditions shall be governed by the laws of the State of Delaware.

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EX-10.77

Exhibit 10.77

CNF INC.
SUMMARY OF INCENTIVE COMPENSATION PLANS FOR
2005

For 2005, CNF Inc. and certain of its subsidiaries (each a “CNF Company”) have adopted short-term incentive compensation plans that provide for annual incentive compensation to be paid to plan participants if certain performance goals are met by the applicable CNF Company. This document summarizes the general terms of those plans. The plans vary in terms of the performance measures to be met, and the amount of compensation to be paid, but generally contain the terms as described below.

THE PLANS

In order to motivate eligible employees to perform more effectively and efficiently, each CNF Company has established a short-term incentive compensation plan (Plan), under which participants are eligible to receive short-term incentive compensation payments based upon calendar year 2005 Incentive Performance Goals.

DESIGNATION OF PARTICIPANTS

Participation in each Plan is primarily limited to full-time non-contractual employees of the applicable CNF Company. A master list of each Plan’s participants is maintained in the office of the President of the applicable CNF Company.

ELIGIBILITY FOR PAYMENT

Participants generally commence participation in the Plans on January 1, 2005. Eligible employees who are employed by a CNF Company after January 1 commence participation at the beginning of the first full calendar quarter after joining the CNF Company. Calendar quarters begin January 1, April 1, July 1, and October 1 or the
first working day thereafter. A participant who commences participation in the Plan during the 2005 Plan year, and who participates less than four full quarters, receives a pro rata payment based on the number of full calendar quarters of Plan participation.

Subject to the following exceptions, no participant is eligible to receive any payment under a Plan unless on the date the payment is actually made that person is then currently (i) employed by a CNF Company and (ii) a Plan participant.

EXCEPTION 1. A Plan participant who is employed by a CNF Company through December 31, 2005, but leaves that employment or otherwise becomes ineligible after December 31, 2005 but before the final payment is made relating to 2005, unless terminated for cause, is entitled to receive payments under the Plan.

EXCEPTION 2. An appropriate pro rata payment will be made (1) to a Plan participant who retires prior to December 31, 2005 pursuant to the CNF Inc. Retirement Plan and who, at the time of retirement, was a participant in the Plan, (2) to the heirs, legatees, administrators or executors of a Plan participant who dies prior to December 31, 2005 and who, at the time of death, was a participant in the Plan, (3) to a Plan participant who is placed on an approved leave prior to December 31, 2005, or (4) to a Plan participant who is transferred to another CNF Company and who remains an employee through December 31, 2005.

METHOD OF PAYMENT

Each Plan participant is assigned an incentive participation factor as a percent of annual compensation. The incentive participation factor is indexed to specific performance goals such as revenue, profit, etc.

Minimum and incentive factor performance goals are established separately for each Plan. Participants are not entitled to any payments under the Plan until the minimum performance goal is achieved. Incentive compensation for the assigned goals will be earned on a pro rata basis for accomplishments between the minimum level and the incentive plan goals and may be earned at a different rate for performance over the incentive plan goal.

The maximum payment that any Plan participant may receive is 200% of incentive compensation factor. In addition, the aggregate amount of payments to all participants is limited to the amount of a specified pool of funds.

DATE OF PAYMENT

The President of each CNF Company may authorize a partial payment of the estimated annual incentive compensation earned under the Plan to be made in December 2005. The final payment to participants, less any previous partial payment, is to be made on or before March 15, 2006.

INCENTIVE PERFORMANCE GOALS

Incentive Performance Goals are defined by each Plan but generally consist of profits equal to earnings before deducting any amounts expensed for Loss and Damage, Workers Compensation, Company and/or qualified subsidiary incentive plans, income taxes and for some plans interest income and expense. Incentive Performance Goals may also include specific levels of revenue, profit, or other measurable factors. The Compensation Committee of the CNF Board of Directors reserves the right to define and determine whether an extraordinary item is to be included in the calculated profit figure.

ANNUAL COMPENSATION

Annual Compensation for incentive purposes for each Plan participant is that participant’s annualized salary before any incentive or other special compensation (including, but not limited to, short and long term disability insurance plan payments) as of February 1^st 2005 for participants eligible as of the beginning of the year. For those qualifying in subsequent quarters, the first pay period following the date the participant becomes eligible to participate in this Plan will be used. The term “special compensation” used herein does not include deferred salary arrangements wherein the participant could have chosen to receive the deferred salary in the Plan year.

LAWS GOVERNING PAYMENTS

No payment shall be made under this Plan in an amount that is prohibited by law.

AMENDMENT, SUSPENSION, AND ADMINISTRATION OF PLAN

The Board of Directors of the CNF Company may at any time amend, suspend, or terminate the operation of the Plans, by thirty-day written notice to the Plan participants, and has full discretion as to the administration and interpretation of this Plan. No participant in this Plan shall at any time have any right to receive any payment under this Plan until such time, if any, as any payment is actually made.

DURATION OF PLANS

The Plans are for the calendar year 2005 only.

EX-12

Exhibit 12

CNF INC.
COMPUTATION OF RATIOS OF EARNINGS (LOSS) TO FIXED CHARGES
Year Ended December 31,

(Dollars in thousands)

	2004			2003			2002			2001			2000
Fixed Charges:
Interest expense	$	39,695		$	29,597		$	22,825		$	27,009		$	29,967
Capitalized interest		173			241			455			864			3,082
Amortization of debt expense		3,952			1,118			1,114			857			837
Dividend requirement on Series B Preferred Stock (1)		9,797			10,072			10,331			10,606			10,808
Interest component of rental expense (2)		6,590			8,976			8,974			12,675			9,830
Fixed Charges	$	60,207		$	50,004		$	43,699		$	52,011		$	54,524
Earnings (Loss):
Income (Loss) from continuing operations before taxes (3)	$	246,823		$	197,517		$	152,328		$	85,007		$	212,054
(Income) Loss from equity-method investment		(18,253	)		(20,718	)		(18,188	)		9,415			560
		228,570			176,799			134,140			94,422			212,614
Fixed charges		60,207			50,004			43,699			52,011			54,524
Capitalized interest		(173	)		(241	)		(455	)		(864	)		(3,082	)
Preferred dividend requirements (4)		(9,797	)		(10,072	)		(10,331	)		(10,606	)		(10,808	)
	$	278,807		$	216,490		$	167,053		$	134,963		$	253,248
Ratio		4.6	x		4.3	x		3.8	x		2.6	x		4.6	x

(1)	Dividends on shares of the Series B cumulative convertible preferred stock are used to pay debt service on notes issued by the CNF’s Thrift and Stock Plan.
(2)	Estimate of the interest portion of lease payments.
(3)	For the year ended December 31, 2001, Menlo Worldwide Logistics results included a $47.5 million loss from the business failure of a customer.
(4)	Preferred stock dividend requirements included in Fixed Charges but not deducted in the determination of Income (Loss) from Continuing Operations Before Income Taxes.

EX-21

Exhibit 21

CNF INC.
SIGNIFICANT SUBSIDIARIES
December 31, 2004

     CNF and its significant subsidiaries were:

		State or
	Percent of	Province or
	Stock Owned	Country of
Parent and Significant Subsidiaries	by CNF	Incorporation
CNF Inc.		Delaware
Significant Subsidiaries of CNF Inc.:
Con-Way Transportation Services, Inc.	100	Delaware
Menlo Worldwide, LLC	100	Delaware
Emery Worldwide Airlines, Inc.	100	Nevada

EX-23

Exhibit 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

     We consent to the incorporation by reference in the registration statements (Nos. 333-48733, 333-92399, 333-36180, 333-54558, 333-102749, and 333-104803 on Form S-8, 333-56667 on Form S-3 and 333-116211 on Form S-4) of CNF Inc. and subsidiaries of our reports dated March 14, 2005 with respect to the consolidated balance sheets of CNF Inc. as of December 31, 2004 and 2003, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2004, and the related financial statement schedule, management’s assessment of the effectiveness of internal control over financial reporting as of December 31, 2004 and the effectiveness of internal controls over financial reporting as of December 31, 2004, which reports appear in the December 31, 2004 annual report on Form 10-K of CNF Inc.

	/s/     KPMG LLP
	KPMG LLP
Portland, Oregon March 14, 2005

EX-31

Exhibit 31

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, W. Keith Kennedy, Jr. certify that:

1.	I have reviewed this annual report on Form 10-K of CNF Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a.	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b.	designed internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.   The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.	all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

	/s/ W. Keith Kennedy, Jr.
March 14, 2005
	W. Keith Kennedy, Jr. Interim Chief Executive Officer

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Chutta Ratnathicam, certify that:

1. I have reviewed this annual report on Form 10-K of CNF Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b. designed internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

d. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

	/s/ Chutta Ratnathicam
March 14, 2005
	Chutta Ratnathicam
	Chief Financial Officer

EX-32

Exhibit 32

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 10-K of CNF Inc. (the “Company”) for the period ended December 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, W. Keith Kennedy, Jr., Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1)	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: March 14, 2005

/s/ W. Keith Kennedy, Jr.

                                                            
Name: W. Keith Kennedy, Jr.
Title: Interim Chief Executive Officer

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 10-K of CNF Inc. (the “Company”) for the period ended December 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Chutta Ratnathicam, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1)	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: March 14, 2005

/s/ Chutta Ratnathicam

                                                                                
Name: Chutta Ratnathicam
Title: Chief Financial Officer