-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, M3D1YlROsYqPaqUbBg+p6q1Uc2XRorokJhZREFgwK4tfWku8JNqgtwCN68T9gDBP +avKnvog5fAlvCBLRYZZbg== 0001012870-00-001473.txt : 20000321 0001012870-00-001473.hdr.sgml : 20000321 ACCESSION NUMBER: 0001012870-00-001473 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20000425 FILED AS OF DATE: 20000320 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CNF TRANSPORTATION INC CENTRAL INDEX KEY: 0000023675 STANDARD INDUSTRIAL CLASSIFICATION: TRUCKING (NO LOCAL) [4213] IRS NUMBER: 941444798 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: DEF 14A SEC ACT: SEC FILE NUMBER: 001-05046 FILM NUMBER: 574045 BUSINESS ADDRESS: STREET 1: 3240 HILLVIEW AVE CITY: PALO ALTO STATE: CA ZIP: 94304 BUSINESS PHONE: 6504942900 MAIL ADDRESS: STREET 1: 1717 NW 21ST AVE CITY: PORTLAND STATE: OR ZIP: 97209 FORMER COMPANY: FORMER CONFORMED NAME: CONSOLIDATED FREIGHTWAYS INC DATE OF NAME CHANGE: 19920703 DEF 14A 1 DEFINITIVE PROXY STATEMENT ================================================================================ SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No. ) Filed by the Registrant [X] Filed by a Party other than the Registrant [_] Check the appropriate box: [_] Preliminary Proxy Statement [_] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) [X] Definitive Proxy Statement [_] Definitive Additional Materials [_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12 CNF TRANSPORTATION INC. - -------------------------------------------------------------------------------- (Name of Registrant as Specified In Its Charter) - -------------------------------------------------------------------------------- (Name of Person(s) Filing Proxy Statement, if other than the Registrant) Payment of Filing Fee (Check the appropriate box): [X] No fee required. [_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. (1) Title of each class of securities to which transaction applies: ------------------------------------------------------------------------- (2) Aggregate number of securities to which transaction applies: ------------------------------------------------------------------------- (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): ------------------------------------------------------------------------- (4) Proposed maximum aggregate value of transaction: ------------------------------------------------------------------------- (5) Total fee paid: ------------------------------------------------------------------------- [_] Fee paid previously with preliminary materials. [_] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. (1) Amount Previously Paid: ------------------------------------------------------------------------- (2) Form, Schedule or Registration Statement No.: ------------------------------------------------------------------------- (3) Filing Party: ------------------------------------------------------------------------- (4) Date Filed: ------------------------------------------------------------------------- Notes: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Notice of Annual Meeting and Proxy Statement Annual Meeting of Shareholders APRIL 25, 2000 CNF TRANSPORTATION INC. [LOGO OF CNF TRANSPORTATION INC.] - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CNF TRANSPORTATION INC. [LOGO OF CNF TRANSPORTATION INC.] 3240 HILLVIEW AVENUE TELEPHONE: 650/494-2900 PALO ALTO, CALIFORNIA 94304 ---------------- NOTICE OF ANNUAL MEETING OF SHAREHOLDERS Tuesday, April 25, 2000 9:00 A.M., local time Knowles Room, Hotel du Pont, 11th and Market Streets, Wilmington, Delaware FELLOW SHAREHOLDER: The Annual Meeting of Shareholders of CNF Transportation Inc. will be held at 9:00 A.M., local time, on Tuesday, April 25, 2000, to: 1. Elect four Class III directors for a three-year term. 2. Act upon a proposal to approve certain amendments to the Company's 1997 Equity and Incentive Plan and to re-approve the Plan, as amended, in its entirety. 3. Ratify the appointment of auditors. 4. Transact any other business properly brought before the meeting. Shareholders of record at the close of business on March 6, 2000, are entitled to notice of and to vote at the meeting. Your vote is important. Whether or not you plan to attend, I urge you to SIGN, DATE AND RETURN THE ENCLOSED WHITE PROXY CARD IN THE ENVELOPE PROVIDED, in order that as many shares as possible will be represented at the meeting. If you attend the meeting and prefer to vote in person, you will be able to do so and your vote at the meeting will revoke any proxy you may submit. Sincerely, EBERHARD G.H. SCHMOLLER Secretary March 20, 2000 TABLE OF CONTENTS Proxy Statement............................................................ 1 Board of Directors' Recommendations...................................... 1 Proxy Voting Procedures.................................................. 1 Voting Requirements...................................................... 1 Voting Shares Outstanding................................................ 1 Proxy Voting Convenience................................................. 2 Attendance at the Meeting................................................ 2 Election of Directors...................................................... 2 Stock Ownership by Directors and Executive Officers........................ 10 Information about the Board of Directors and Certain Board Committees...... 11 Compensation of Directors.................................................. 12 Compensation of Executive Officers......................................... 13 I. Summary Compensation Table.......................................... 13 II. Option/SAR Grants Table............................................. 15 III. Option/SAR Exercises and Year-End Value Table....................... 16 IV. Long-Term Incentive Plan Awards Table............................... 17 Compensation Committee Report on Executive Compensation.................... 18 Compensation Committee Interlocks and Insider Participation................ 22 Comparison of Five-Year Cumulative Total Shareholder Return................ 22 Pension Plan Table......................................................... 23 Change in Control Arrangements............................................. 23 Proposal to Approve Certain Amendments to the CNF Transportation Inc. 1997 Equity and Incentive Plan, and to Re-approve the Plan as Amended.......... 24 Appointment of Auditors.................................................... 31 Principal Shareholders..................................................... 32 Compliance with Section 16 of the Exchange Act............................. 32 Confidential Voting........................................................ 33 Submission of Shareholder Proposals........................................ 33 Other Matters.............................................................. 33 Exhibit A.................................................................. A-1
CNF TRANSPORTATION INC. 3240 HILLVIEW AVENUE PALO ALTO, CALIFORNIA 94304 TELEPHONE: 650/494-2900 PROXY STATEMENT March 20, 2000 The Annual Meeting of Shareholders of CNF Transportation Inc. (the "Company") will be held on Tuesday, April 25, 2000. Shareholders of record at the close of business on March 6, 2000 will be entitled to vote at the meeting. This proxy statement and accompanying proxy are first being sent to shareholders on or about March 20, 2000. Board of Directors' Recommendations The Board of Directors of the Company is soliciting your proxy for use at the meeting and any adjournment or postponement of the meeting. The Board recommends a vote for the election of the nominees for directors described below, for approval of the proposed amendments to the Company's 1997 Equity and Incentive Plan and re-approval of the Plan as amended, and for ratification of the appointment of Arthur Andersen LLP as independent auditors. Proxy Voting Procedures To be effective, properly signed proxies must be returned to the Company prior to the meeting. The shares represented by your proxy will be voted in accordance with your instructions. However, if no instructions are given, your shares will be voted in accordance with the recommendations of the Board. Voting Requirements A majority of the votes attributable to all voting shares must be represented in person or by proxy at the meeting to establish a quorum for action at the meeting. Directors are elected by a plurality of the votes cast, and the four nominees who receive the greatest number of votes cast for election of directors at the meeting will be elected directors for a three- year term. Approval of all other matters expected to come before the meeting requires a favorable vote of the holders of a majority of the voting power represented at the meeting. In the election of directors, broker non-votes, if any, will be disregarded and have no effect on the outcome of the vote. With respect to all other matters, abstentions from voting will have the same effect as voting against such matter and broker non-votes, if any, will be disregarded and have no effect on the outcome of such vote. Voting Shares Outstanding At the close of business on March 6, 2000, the record date for the Annual Meeting, there were outstanding and entitled to vote 48,496,199 shares of Common Stock and 836,592 shares of Series B Cumulative Convertible Preferred Stock ("Series B Preferred Stock"). Each share of Common Stock has the right to one non-cumulative vote and each share of Series B Preferred Stock has the right to 6.1 non-cumulative votes. Therefore, an aggregate of 53,599,410 votes are eligible to be cast at the meeting. Proxy Voting Convenience You are encouraged to exercise your right to vote by returning to the Company a properly executed WHITE proxy in the enclosed envelope, whether or not you plan to attend the meeting. This will ensure that your votes are cast. You may revoke or change your proxy at any time prior to its use at the meeting. There are three ways you may do so: (1) give the Company a written direction to revoke your proxy; (2) submit a later dated proxy; or (3) attend the meeting and vote in person. Attendance at the Meeting All shareholders are invited to attend the meeting. Persons who are not shareholders may attend only if invited by the Board of Directors. If you are a shareholder but do not own shares in your name, you must bring proof of ownership (e.g., a current broker's statement) in order to be admitted to the meeting. ELECTION OF DIRECTORS The Board of Directors Recommends a Vote "For" All Nominees The Board of Directors of the Company, pursuant to the By-Laws, has determined that the number of directors of the Company shall be twelve. Unless you withhold authority to vote, your proxy will be voted for election of the nominees named below. The following persons are the nominees of the Board of Directors for election as Class III directors to serve for a three-year term until the 2003 Annual Meeting of Shareholders and until their successors are duly elected and qualified: Robert Alpert Margaret G. Gill Robert Jaunich II Robert P. Wayman If a nominee becomes unable or unwilling to serve, proxy holders are authorized to vote for election of such person or persons as shall be designated by the Board of Directors; however, the management knows of no reason why any nominee should be unable or unwilling to serve. The Company has three classes of directors, each of which is elected for a three-year term. Class I directors will be elected in 2001 and Class II directors will be elected in 2002. All directors have previously been elected by the shareholders, except Gregory L. Quesnel, who was appointed by the Board as a Class I director in May 1998. 2 -------------------------------------------- CLASS III DIRECTORS ROBERT ALPERT Director since 1976 The Alpert Companies private investment group Robert Alpert has managed his own portfolio of companies since 1965. His business career includes 40 years in banking, finance, real estate and entertainment investments. Mr. Alpert is currently Chairman of the Board of Argo Funding Company in Dallas, a private equity investment group. He is also Vice Chairman of The Empire AB in Stockholm Sweden, a public company with 11 subsidiary companies primarily involved in the fabrication and distribution of metal related materials for the construction industry. He has served as Honorary Consul for Sweden in Dallas since 1987. In 1999, Mr. Alpert was awarded a medal of honor from King Carl Gustaf H.M. of Sweden when he made him an "Officer First Class" of the Royal Order of the Polar Star. He is a current member of the Royal Round Table of Swedish Council of America, an exclusive group of Swedish and Swedish-American business, government and cultural leaders. He has served on numerous boards as a director and currently serves on the boards of Texas Industries Inc. and Aladdin Industries LLC. He is an advisory director for I.C. Deal Companies and Argo Capital Partners. Additionally, he is a member of the Advisory Council for the University of Texas at Austin, College of Business Administration; a Trustee Emeritus for Colby College in Maine and former Chairman for the Dallas Foundation for Health, Education and Research, a public charity. Alpert serves as a consultant to La Paloma Films, Inc., which has been financially involved in a series of film ventures over the years from family movies ("Benji The Hunted") as well as several of Horton Foote's movies ("1918" and "Valentine's Day"). La Paloma Films was also involved with the Tony Award and Olivier Award winning hit musical "Crazy for You" in New York and London as well as the US performances of the same production. They are presently involved in the musical hit "Kiss Me Kate", which recently opened on Broadway. Alpert is a member of the Chief Executive Organization and World President's Organization. Mr. Alpert, age 68, is a member of the Director Affairs, the Executive, and the Finance Committees of the Board. [PHOTOGRAPH OF ROBERT ALPERT] 3 MARGARET G. GILL Director since 1995 Former Senior Vice President-Legal, External Affairs and Secretary, AirTouch Communications, a wireless communications company Mrs. Gill served as Senior Vice President-Legal, External Affairs and Secretary of AirTouch Communications from January 1994 until July 1999, when AirTouch was acquired by Vodafone PLC. Prior to joining AirTouch she was for 20 years a partner in the law firm of Pillsbury, Madison & Sutro in San Francisco. From 1983 to 1993, she served as practice group manager and senior partner for the firm's corporate and securities group. Mrs. Gill earned her law degree in 1965 from Boalt Hall Law School, University of California at Berkeley, and holds a Bachelor of Arts degree from Wellesley College. She is a fellow of the American Bar Foundation and serves on the advisory boards for the Institute for Corporate Counsel and the Berkeley Center for Law and Technology. Mrs. Gill, age 60, is also a member of the board of directors of the Episcopal Diocese of California, Episcopal Charities, a trustee and executive committee member of the San Francisco Ballet and Chair of the Gill Family Foundation. Mrs. Gill is a member of the Audit and the Director Affairs Committees of the Board. [PHOTOGRAPH OF MARGARET G. GILL] ROBERT JAUNICH II Director since 1992 Managing Director, The Fremont Group, a private investment corporation Mr. Jaunich joined The Fremont Group, a private investment corporation managing assets of $12+ billion, in January 1991. He is Managing Director and member of the Boards of Directors and the Executive Committees of the Boards for Fremont's principal entities Fremont Group, L.L.C. and Fremont Investors Inc. He is also General Partner of Fremont Partners, L.P., a $605 million fund targeted to make and oversee majority equity investments in operating companies representing a broad spectrum of industries. Additionally, he oversees Fremont's five affiliated venture capital portfolios, representing in excess of $500 million of committed capital (Trinity Ventures, L.P.), and is President of Fremont Capital, Inc., an SEC/NASD registered broker/dealer. In addition to serving on the board of the Company, Mr Jaunich serves as Chairman of several corporations including Crown Pacific, Ltd., Kinetic Concepts, Inc., Tapco International Corporation, Juno Lighting, Inc. and serves on the board of Kerr Group, Inc. He is a Trustee of the non-profit National Recreation Foundation. He is a life member of the World Presidents Organization and was a member of Young Presidents Organization (1980-1990). Mr. Jaunich, age 60, received a B.A. from Wesleyan University, Middletown, Connecticut and a M.B.A. from Wharton Graduate School, University of Pennsylvania. He is Chairman of the Directors Affairs Committee and a member of the Executive and Finance Committees of the Board. [PHOTOGRAPH OF ROBERT JAUNICH II] 4 ROBERT P. WAYMAN Director since 1994 Executive Vice President, Finance and Administration and Chief Financial Officer, Hewlett-Packard Company, a computer-manufacturing company Mr. Wayman joined Hewlett-Packard Company in 1969. After serving in several accounting management positions, he was elected Vice-President and Chief Financial Officer in 1984. He became a Senior Vice President in 1987 and an Executive Vice President in 1992. He assumed additional responsibility for administration in 1992 and was elected to Hewlett- Packard's Board of Directors in 1993. Mr. Wayman, age 54, holds a bachelor's degree in science engineering and a master's degree in business administration from Northwestern University. He is a member of the Board of Directors of Sybase Inc. and is a member of the Board of the Private Sector Council, the Policy Council of the Tax Foundation, the Financial Executives Institute, the Council of Financial Executives of the Conference Board, and the Advisory Board to the Northwestern University School of Business. He is Chairman of the Audit Committee and a member of the Compensation Committee of the Board. [PHOTOGRAPH OF ROBERT P. WAYMAN] 5 -------------------------------------------- CLASS I DIRECTORS RICHARD A. CLARKE Director since 1996 Retired Chairman of the Board, Pacific Gas and Electric Company, one of the nation's largest utility companies Mr. Clarke retired from PG&E in 1995, after serving as chairman of the board for nine years. As chairman and CEO he oversaw management of a $10 billion company that produces electric power and gas and is involved with power plant construction. Mr. Clarke began his association with PG&E as an attorney and served in various managerial positions leading to his appointment as Chairman and CEO. Between 1960 and 1969, he was a partner in the law firm of Rockwell, Fulkerson & Clarke. He is a member of the boards of directors of PG&E and Potlatch Corporation and is an Emeritus member of the President's Council of Sustainable Development. He served as a former Director of Bank of America and as a member of the Business Council. He is a Director of the Nature Conservancy of California and a member of the Board of Trustees of the Boalt Hall Trust-- University of California, Berkeley School of Law, and the Advisory Board of the Walter A. Haas School of Business, University of California, Berkeley. He is Chairman of the Advisory Board of the Center for Organization and Human Resource Effectiveness at the University of California, Berkeley, Co-Chairman of the University of California Outreach Advisory Board and Trustee of the University of California Berkeley Foundation. Mr. Clarke has previously held Board or executive-level posts with the California Business Roundtable, California Chamber of Commerce, Bay Area Council, Bay Area Economic Forum, Edison Electric Institute, and the President's Council on Environmental Quality. A native of San Francisco, Mr. Clarke, age 69, earned his law degree from the University of California, Boalt Hall, and holds a bachelor's degree in political science. He is a member of the Audit and Finance Committees of the Board. [PHOTOGRAPH OF RICHARD A. CLARKE] W. KEITH KENNEDY, JR. Director since 1996 Retired President and Chief Executive Officer, Watkins-Johnson Company, a high-technology corporation specializing in semiconductor manufacturing equipment and electronic products for telecommunications and defense Dr. Kennedy retired as President and Chief Executive Officer of Watkins-Johnson Company in January 2000. He had held that position since January 1998. 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. Dr. Kennedy, age 56, is a graduate of Cornell University from which he holds B.S.E.E., M.S., and Ph.D. degrees. Dr. Kennedy is a senior member of the Institute of Electrical and Electronics Engineers. He is Chairman of the Compensation Committee and a member of the Director Affairs Committee of the Board. [PHOTOGRAPH OF W. KEITH KENNEDY, JR.] 6 RICHARD B. MADDEN Director since 1992 Retired Chairman and Chief Executive Officer, Potlatch Corporation, a diversified forest products company Mr. Madden was Chief Executive Officer of Potlatch Corporation, from 1971, and Chairman of the Board, from 1977, until his retirement in May of 1994. He was previously associated with Mobil Oil Corporation where he served in various management capacities for fifteen years. Mr. Madden is a director of URS Corporation. He retired as a director of Potlatch on December 31, 1999 and PG&E Corporation on February 16, 2000. He is also a Trustee Emeritus of the American Enterprise Institute, a Senior Advisor for the Boston Consulting Group, Inc., and an Honorary Trustee for the Committee for Economic Development. His civic activities include the Board of Governors of the San Francisco Symphony Association; Board of Directors of the Smith-Kettlewell Eye Research Institute; and a Trustee Emeritus of the San Francisco Foundation and the Corporation of Fine Arts Museums. Mr. Madden, age 70, holds a B.S. degree in engineering from Princeton University, a J.D. degree from the University of Michigan, and a M.B.A. from New York University. He is a member of the Compensation, Executive and Finance Committees of the Board. [PHOTOGRAPH OF RICHARD B. MADDEN] GREGORY L. QUESNEL Director since 1998 President and Chief Executive Officer CNF Transportation Inc. Mr. Quesnel, 51, was named President and Chief Executive Officer of the Company in May 1998. At that time, he was also elected as a member of the Company's Board of Directors. As part of a planned succession, Mr. Quesnel was elected President and Chief Operating Officer in July 1997. Prior to that, Mr. Quesnel was Executive Vice President and Chief Financial Officer of the Company. Mr. Quesnel has 25 years of experience in the transportation industry. He joined the Company as director of accounting in 1975, following several years of professional experience with major corporations in the petroleum and wood products industries. Mr. Quesnel advanced through increasingly responsible positions and in 1986 was promoted to the top financial officer position at the Company's largest subsidiary. In 1990, Mr. Quesnel was elected Vice President and Treasurer of the Company; in 1991, he was elected Senior Vice President and Chief Financial Officer; and he was promoted to Executive Vice President and Chief Financial Officer in 1994. Mr. Quesnel is a member of the Bay Area Council, the California Business Roundtable, and the Conference Board. He also serves as a member of the Executive Committee of the Bay Area Council of the Boy Scouts of America. Mr. Quesnel earned a bachelor's degree in finance from the University of Oregon and holds a master's degree in business administration from the University of Portland. Mr. Quesnel is a member of the Executive and Director Affairs Committees of the Board. [PHOTOGRAPH OF GREGORY L. QUESNEL] 7 -------------------------------------------- CLASS II DIRECTORS DONALD E. MOFFITT Director 1986-1988 Director since 1991 Chairman of the Board, CNF Transportation Inc. Mr. Moffitt was named President and Chief Executive Officer of the Company in 1991 and Chairman of the Board of Directors in 1995. He served as President until June 1997 and as Chief Executive Officer through April 1998. He joined Consolidated Freightways Corporation of Delaware, a former Company subsidiary, as an accountant in 1955 and advanced to Vice President-Finance in 1973. In 1975, he transferred to the Company as Vice President-Finance and Treasurer and in 1981 was elected Executive Vice President-Finance and Administration. In 1983, he assumed the additional duties of President, CF International and Air, Inc., where he directed the Company's international and air freight businesses. Mr. Moffitt was elected Vice Chairman of the Board of the Company in 1986. He retired as an employee and as Vice Chairman of the Board of Directors in 1988 and returned to the Company as Executive Vice President-Finance and Chief Financial Officer in 1990. Mr. Moffitt, age 67, is a member of the Boards of Directors of the U.S. Chamber of Commerce, and is a regional Vice Chairman, Willis Lease Finance Inc., and the Business Advisory Council of the Northwestern University Transportation Center. He also serves on the boards of the San Francisco Bay Area Council, Boy Scouts of America, and the American Red Cross and is a member of the Board of Trustees of the Automotive Safety Foundation and the National Commission Against Drunk Driving. He is a former member of the Board of Directors and the Executive Committee of the Highway Users Federation. Mr. Moffitt is Chairman of the Executive Committee and serves on the Director Affairs Committee of the Board. [PHOTOGRAPH OF DONALD E. MOFFITT] MICHAEL J. MURRAY Director since 1997 President, Global Corporate and Investment Banking Bank of America Corporation Mr. Murray is president of Global Corporate and Investment Banking at Bank of America Corporation and a member of the corporation's Policy Committee. Bank of America has more corporate relationships than any other U.S. bank and maintains offices in 38 countries that represent 93% of the world's gross domestic product. Mr. Murray has responsibility for all corporate client relationships worldwide. In addition, he manages all products and services delivered to clients including traditional corporate credit, risk management, treasury management, and debt and equity capital raising. From March 1997 until the BankAmerica- NationsBank merger in September 1998, Mr. Murray headed BankAmerica Corporation's Global Wholesale Bank and was responsible for its business with large corporate, international, and government clients around the world. Mr. Murray was named a BankAmerica vice chairman and head of the U.S. and International Groups in [PHOTOGRAPH OF MICHAEL J. MURRAY] 8 September 1995. He had been responsible for BankAmerica's U.S. Corporate Group since BankAmerica's merger with Continental Bank Corporation in September 1994. Prior to the BankAmerica-Continental merger, Mr. Murray was vice chairman and head of Corporate Banking for Continental Bank, which he joined in 1969. Mr. Murray, age 55, is a director on the boards of the Technology Solutions Company in Chicago and the Institute of International Finance in Washington, D.C. He also serves on the boards of the Coalition of Service Industries, Washington D.C. and the California Academy of Sciences, San Francisco. Mr. Murray received his BBA from the University of Notre Dame in 1966 and his MBA from the University of Wisconsin in 1968. He is a member of the Audit and Compensation Committees of the Board. ROBERT D. ROGERS Director since 1990 President and Chief Executive Officer, Texas Industries, Inc. a producer of steel, cement, aggregates and concrete Mr. Rogers joined Texas Industries, Inc. in 1963 as General Manager/European Operations. In 1964, he was named Vice President-Finance; in 1968, Vice President-Operations; and in 1970 he became President and Chief Executive Officer. He is also a director of Texas Industries, Inc. Mr. Rogers is a graduate of Yale University and earned a M.B.A. from the Harvard Graduate School of Business. He is Vice Chairman of the British-North American Committee and is a member of the Executive Board for Southern Methodist University Cox School of Business. Mr. Rogers, age 63, served as Chairman of the Federal Reserve Bank of Dallas from 1984 to 1986 and was Chairman of the Greater Dallas Chamber of Commerce from 1986 to 1988. He is Chairman of the Finance Committee and a member of the Compensation Committee of the Board. [PHOTOGRAPH OF ROBERT D. ROGERS] WILLIAM J. SCHROEDER Director since 1996 President & Chief Executive Officer, HolonTech Corporation, a private company specializing in Internet traffic and content management solutions for mission critical websites Mr. Schroeder joined HolonTech Corporation in February 2000 as President and Chief Executive Officer. Prior to joining HolonTech, Schroeder was employed by Diamond Multimedia Systems, Inc. as President and CEO (1994-1999), and before that by Conner Peripherals, Inc., initially as President and Chief Operating Officer (1986-1989) and later as Vice Chairman (1989-1994). Mr. Schroeder also served in various management or technical positions at Priam Corporation, Memorex Corporation, McKinsey & Co., and Honeywell, Inc. and is on the board of directors of Xircom Corporation, S3 Incorporated and Sync Research, Inc. Mr. Schroeder, age 55, holds the M.B.A. degree with High Distinction from Harvard Business School and the M.S.E.E. and B.E.E. degrees from Marquette University. He is a member of the Audit and Finance Committees of the Board. [PHOTOGRAPH OF WILLIAM J. SCHROEDER] 9 STOCK OWNERSHIP BY DIRECTORS AND EXECUTIVE OFFICERS The following table sets forth information regarding beneficial ownership of the Company's Common Stock and Series B Preferred Stock, as of January 31, 2000, by the directors, the executive officers identified in the Summary Compensation Table below and by the directors and executive officers as a group.
Amount and Nature of Beneficial Percent Name of Beneficial Owner Ownership(1) of Class - ------------------------ ---------------------- -------- Robert Alpert.................................. 71,548 Common * 0 Series B Preferred Richard A. Clarke.............................. 12,585 Common * 0 Series B Preferred Gerald L. Detter(2)............................ 179,661 Common * 178 Series B Preferred Margaret G. Gill............................... 10,904 Common * 0 Series B Preferred Robert Jaunich II.............................. 18,295 Common * 0 Series B Preferred W. Keith Kennedy, Jr. ......................... 8,609 Common * 0 Series B Preferred Richard B. Madden.............................. 15,061 Common * 0 Series B Preferred Donald E. Moffitt.............................. 543,444 Common 1.1% 0 Series B Preferred Michael J. Murray.............................. 16,653 Common * 0 Series B Preferred Roger Piazza(3)................................ 48,479 Common * 110 Series B Preferred Gregory L. Quesnel(4).......................... 372,302 Common * 169 Series B Preferred Sanchayan C. Ratnathicam(5).................... 105,490 Common * 135 Series B Preferred Robert D. Rogers............................... 15,031 Common * 0 Series B Preferred Eberhard G.H. Schmoller(6)..................... 211,880 Common * 141 Series B Preferred William J. Schroeder........................... 8,390 Common * 0 Series B Preferred Robert P. Wayman............................... 11,750 Common * 0 Series B Preferred All directors and executive officers as a group (16 persons).................................. 1,650,082 Common 3.3% 733 Series B Preferred
- -------- * Less than one percent of the Company's outstanding shares of Common Stock. (1) Represents shares as to which the individual has sole voting and investment power (or shares such power with his or her spouse). The shares shown for non-employee directors include the 10 following number of shares of Restricted Stock and number of shares which the non-employee director has the right to acquire within 60 days of January 31, 2000 because of vested stock options: Mr. Alpert, 10,913 and 7,520; Mr. Clarke, 2,079 and 7,506; Mrs. Gill, 2,048 and 8,298; Mr. Jaunich, 2,048 and 8,682; Mr. Kennedy, 2,126 and 6,283; Mr. Madden, 2,048 and 9,948; Mr. Moffitt, 11,015 and 476,175; Mr. Murray, 1,437 and 5,216; Mr. Rogers, 2,048 and 9,418; Mr. Schroeder, 2,126 and 2,764; and Mr. Wayman, 2,048 and 8,137. The Restricted Stock and stock options were awarded under and are governed by the Amended and Restated Equity Incentive Plan for Non-Employee Directors, except for 10,000 shares of Restricted Stock and 471,829 stock options that were awarded Mr. Moffitt in his capacity as an executive officer of the Company prior to his retirement. (2) The shares shown include 129,237 shares which Mr. Detter has the right to acquire within 60 days of January 31, 2000, because of vested stock options. (3) The shares shown include 34,540 shares which Mr. Piazza has the right to acquire within 60 days of January 31, 2000 because of vested stock options. (4) The shares shown include 304,837 shares which Mr. Quesnel has the right to acquire within 60 days of January 31, 2000 because of vested stock options. (5) The shares shown include 87,317 shares which Mr. Ratnathicam has the right to acquire within 60 days of January 31, 2000 because of vested stock options. (6) The shares shown include 189,866 shares which Mr. Schmoller has the right to acquire within 60 days of January 31, 2000 because of vested stock options. INFORMATION ABOUT THE BOARD OF DIRECTORS AND CERTAIN BOARD COMMITTEES During 1999, the Board of Directors held six meetings. Each incumbent director attended at least 75% of all meetings of the Board and the committees of the Board on which he or she served. The Board of Directors currently has the following standing committees: Audit Committee, Compensation Committee, Director Affairs Committee, Executive Committee and Finance Committee. Descriptions of the Audit, Compensation and Director Affairs Committees follow: Audit Committee: The Audit Committee recommends to the Board the independent auditors for appointment by the shareholders to perform the annual audit of the Company's accounting records and authorizes the performance of services by the auditors so appointed. The Committee reviews the annual audit of the Company by the independent auditors, and, in addition, annually reviews the results of the examinations of accounting procedures and controls performed by the Company's internal auditors. The members of the Audit Committee are Robert P. Wayman-- Chairman, Richard A. Clarke, Margaret G. Gill, Michael J. Murray and William J. Schroeder. The Committee met four times during 1999. Compensation Committee: The Compensation Committee approves the salaries and other compensation of executive officers and other key employees, except that the Committee recommends to the Board for its approval the salary of the Chief Executive Officer of the Company. The Committee also oversees the administration of the Company's short-term and long-term incentive compensation plans and grants of stock options and other awards under the Company's 1997 Equity and Incentive Plan and reviews the retirement and benefit plans of the Company and its domestic subsidiaries for non-contractual employees. The members of the Compensation Committee are W. Keith Kennedy, Jr.--Chairman, Richard B. Madden, Michael J. Murray, Robert D. Rogers and Robert P. Wayman. The Committee met three times during 1999. 11 Director Affairs Committee: The Director Affairs Committee reviews the qualifications of candidates to serve on the Board of Directors, consults with the management of the Company concerning potential candidates, and recommends to the Board of Directors nominees for membership on the Board. The Committee also oversees directors' compensation, reviews and considers other matters pertaining to the functioning of the Board, and reviews and advises the Board regarding corporate governance issues. Shareholders' proposals for nominees will be given due consideration by the Committee for recommendation to the Board based on the nominees' qualifications. Shareholder nominee proposals should be submitted in writing to the Chairman of the Director Affairs Committee in care of the Corporate Secretary. The members of the Director Affairs Committee are Robert Jaunich II--Chairman, Robert Alpert, Margaret G. Gill, W. Keith Kennedy, Jr., Donald E. Moffitt and Gregory L. Quesnel. The Committee met twice during 1999. COMPENSATION OF DIRECTORS During 1999, each non-employee director was paid an annual retainer of $20,000 and accrued a retirement benefit of $20,000. Non-employee directors were also paid $1,500 per Board meeting attended and $1,000 per Committee meeting attended. Board Committee Chairpersons received an additional $750 per quarter. Directors may elect to defer payment of their fees. Payment of any deferred amount and interest equivalents accrued thereon will be made in a lump sum or in installments beginning no later than the year following the director's final year on the Company's Board. Directors are also provided with certain insurance coverages and, in addition, are reimbursed for travel expenses incurred in attending Board and Committee meetings. For years prior to the year 2000, each director of the Company accrued a retirement benefit for each full calendar month he or she was a non-employee director of the Company in an amount equal to one-twelfth of the annual cash retainer. The retirement benefit vests when a director has served on the Board for five years. The amount accrued prior to 1994 was $30,000 per year of service. In 1994, $15,000 in retirement benefits accrued, and in 1995 and subsequent years, $20,000 in retirement benefits accrued per year of service. Retirement payments continue for the director's number of years of service as a non-employee director up to a maximum of 20 years, with the earliest accruals paid first. The Company terminated the directors' retirement plan, effective December 31, 1999. Concurrent with termination, most directors received stock options in cancellation of their accrued retirement benefits under the plan. The two directors who had already accrued the maximum benefits available under the plan received restricted stock instead of stock options. A total of 38,650 stock options and 17,993 shares of restricted stock were granted in cancellation of directors' retirement benefits. In addition, commencing January 1, 2000, directors receive additional annual grants of options to acquire 500 shares of the Company's stock, as a substitute for retirement benefits that would have accrued under the plan had it not been terminated. Awards of restricted stock and stock options are made from time to time to non-employee directors under the Equity Incentive Plan for Non-Employee Directors, as amended and restated in 1995 (the "Plan"). The original Plan was approved by the Company's shareholders in 1994, and the amended and restated Plan was approved by the Company's shareholders in 1995. Under the Plan, each non-employee director receives a restricted stock grant having a fair market value of $12,500 upon joining the Board and on each January 1 thereafter. In addition, each non-employee director receives a grant of options for 2,500 shares of the Company's Common Stock upon joining the Board and for 1,500 shares on each January 1 thereafter. 12 COMPENSATION OF EXECUTIVE OFFICERS I. SUMMARY COMPENSATION TABLE The following table sets forth the compensation received by the Company's Chief Executive Officer and the four next most highly paid executive officers for the three fiscal years ended December 31, 1999. As used in this Proxy Statement, "Named Executives" means the officers identified in this Summary Compensation Table.
Annual Compensation Long Term Compensation ------------------------------ ------------------------------ Awards Payouts --------------------- -------- Restricted Securities Other Annual Stock Underlying LTIP All Other Name and Principal Salary Bonus Compensation Awards Options/ Payouts Compensation Position(s) Year ($) (2)($) (3)($) (4)($) SAR'S (#) (5)($) (6)($) - ------------------ ---- -------- -------- ------------ ---------- ---------- -------- ------------ Gregory L. Quesnel 1999 $724,523 $823,133 $33,973 $ 0 160,000/0 $627,600 $2,853 President & Chief 1998 598,071 344,224 23,315 1,838,438 92,500/0 450,296 2,686 Executive Officer 1997 430,430 450,825 587 289,000 75,000/0 0 2,943 Gerald L. Detter(1) 1999 $503,746 $615,794 $ 682 $ 611,250 60,000/0 $321,122 $2,694 Senior Vice President 1998 449,047 802,088 79,293 543,750 42,500/0 217,107 2,682 1997 330,320 566,147 31,398 0 37,000/0 0 3,282 Roger Piazza(1) 1999 $419,741 $228,848 $19,202 $ 0 40,000/0 $162,130 $3,720 Senior Vice President 1998 304,583 27,496 5,237 425,797 40,500/0 112,574 3,572 1997 218,504 294,980 18,389 0 6,000/0 0 2,535 Sanchayan Ratnathicam 1999 $381,376 $346,074 $11,651 $ 0 42,000/0 $162,130 $2,400 Senior Vice President & 1998 358,894 176,752 8,243 462,047 35,000/0 112,574 2,400 Chief Financial Officer 1997 244,684 266,576 476 0 31,000/0 0 2,886 Eberhard G.H. Schmoller 1999 $365,643 $331,800 $19,559 $ 0 40,000/0 $512,540 $2,400 Senior Vice President, 1998 343,743 169,374 20,254 402,938 30,000/0 345,763 2,400 General Counsel and 1997 278,616 247,896 18,678 238,000 20,000/0 0 2,400 Secretary
- -------- (1) Mr. Detter is also President and Chief Executive Officer of Con-Way Transportation Services, Inc., the Company's regional full-service trucking subsidiary. Mr. Piazza is also President and Chief Executive Officer of Emery Air Freight Corporation, the Company's full-service air freight subsidiary. (2) The amounts shown in this column reflect payments under the Company's short-term incentive compensation plans in which all regular, full-time, non-contractual employees of the Company are eligible to participate. They also reflect, in the case of Messrs. Quesnel (for 1997 only) and Detter, special incentive compensation payments made under the Company's short- term incentive compensation plans in which only operating company executives participate. (3) Amounts shown for 1999 in this column include: (a) Long-Term Incentive Plan interest earned and deferred for Messrs. Quesnel and Schmoller of $302 and $6,791, respectively; (b) interest earned on deferred compensation accounts above 120% of the applicable federal rate for Messrs. Quesnel, Piazza, Ratnathicam and Schmoller of $33,518, $19,202, $11,651 and $11,989, respectively; and (c) interest earned on deferred Stock Appreciation Rights accounts above 120% of the applicable federal rate for Messrs. Quesnel, Detter and Schmoller of $153, $682 and $779, respectively. (4) At the end of 1999, based upon the closing price of the Company's common stock on December 31, 1999 ($34.50), Mr. Quesnel held 44,834 restricted shares valued at $1,546,773; Mr. Detter held 34,250 restricted shares valued at $1,181,625; Mr. Piazza held 11,083 restricted shares valued at $382,364; Mr. Ratnathicam held 12,000 restricted shares valued at $414,000; and Mr. Schmoller held 15,167 restricted shares valued at $523,262. Dividends are paid on all 13 shares of restricted stock. All restricted stock held by the Named Executives is performance restricted stock, with the exception of 20,000 shares of restricted stock held by Mr. Detter, which is not subject to performance criteria and which will vest on January 1, 2004. For all performance restricted stock held by each Named Executive, one-third of the shares are eligible for vesting at the end of the first award year and an additional one-third are eligible for vesting at the end of the second and third award years, provided in each case that applicable performance criteria are met. (5) Amounts shown in this column reflect payments earned by the Named Executives for awards granted under the Company's Return on Equity Plan. Payments shown for 1999 are for the three-year award cycle commencing January 1, 1997 and ending December 31, 1999. Payments shown for 1998 are for the three-year award cycle commencing January 1, 1996 and ending December 31, 1998. (6) Amounts shown for 1999 in this column include: (a) Payments by the Company for premiums for taxable group life insurance on behalf of Messrs. Quesnel, Detter and Piazza of $453, $294 and $1,320, respectively. (b) Company contributions to the Thrift and Stock Plan accounts of Messrs. Quesnel, Detter, Piazza, Ratnathicam and Schmoller of $2,400 each. 14 II. OPTION/SAR GRANTS TABLE Option/SAR Grants in Last Fiscal Year
Individual Grants(1) ----------------------------------------------- Number of Securities % of Total Underlying Options/SARs Exercise Grant Options/ Granted to or Base Date SARs Employees in Price Expiration Present Granted(#)(2) Fiscal Year ($/Share) Date Value(3)($) ------------- ------------ --------- ---------- ----------- Gregory L. Quesnel...... 160,000/0 21.65% $30.75 12/08/09 $2,492,800 Gerald L. Detter........ 60,000/0 8.12% 30.75 12/08/09 934,800 Roger Piazza............ 40,000/0 5.41% 30.75 12/08/09 623,200 Sanchayan C. Ratnathicam............ 42,000/0 5.68% 30.75 12/08/09 654,360 Eberhard G.H. Schmoller. 40,000/0 5.41% 30.75 12/08/09 623,200
- -------- (1) No SARs were issued in 1999. (2) One-fourth of all options become exercisable on January 1, 2001 and an additional one-fourth on the second, third and fourth anniversaries of that date; or earlier upon a change in control of the Company. (3) Present value based on modified Black-Scholes option pricing model which includes assumptions for the following variables: (i) option exercise prices equal the fair market values on the dates of grant; (ii) option term equals 5.8 years (based on historical option exercise experience, rather than actual option term of 10 years); (iii) volatility equals 0.50; (iv) risk-free interest rate equals 6.49%; and (v) estimated future average dividend yield equals 1.03%. The Company's use of this model should not be construed as an endorsement of its accuracy in valuing options. The Company's executive stock options are not transferable so the "present value" shown is not currently realizable by the executive. Future compensation resulting from option grants will ultimately depend on the amount by which the market price of the stock exceeds the exercise price on the date of exercise. 15 III. OPTION/SAR EXERCISES AND YEAR-END VALUE TABLE Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal-Year End Option/SAR Values The following table provides information on option/SAR exercises in 1999 by the Named Executives and the value of such officers' unexercised options/SARs at December 31, 1999.
Number of Securities Shares Underlying Unexercised Value of Unexercised In- Acquired Value Options/SARs at the-Money Options/SARs on Exercise Realized FY-End (#)(2) at FY-End ($)(2)(3)(4)(5) (#)(1) ($) Exercisable/Unexercisable Exercisable/Unexercisable ----------- -------- ------------------------- ------------------------- Gregory L. Quesnel...... 4,737 $ 47,035 294,196/230,000 $3,585,260/600,000 Gerald L. Detter........ 26,763 618,609 123,555/90,000 1,337,173/225,000 Roger Piazza............ 0 0 28,915/73,750 286,408/204,844 Sanchayan C. Ratnathicam............ 0 0 81,692/64,500 730,556/157,500 Eberhard G.H. Schmoller. 0 0 187,950/60,000 2,723,018/150,000
- -------- (1) The shares shown in this column for Mr. Quesnel were acquired upon exercise and held, and the shares shown for Mr. Detter were sold following exercise. (2) Mr. Quesnel has 293,587 exercisable options valued at $3,582,978; 230,000 unexercisable options valued at $600,000; and 609 SARs the appreciation on which is valued at $2,282. Mr. Detter has 121,737 exercisable options valued at $1,337,173; 90,000 unexercisable options valued at $225,000; and 1,818 SARs, the appreciation on which is valued at $0. Mr. Piazza has 28,915 exercisable options valued at $286,408; 73,750 unexercisable options valued at $204,844; and no SARs. Mr. Ratnathicam has 81,692 exercisable options valued at $730,556; 64,500 unexercisable options valued at $157,500; and no SARs. Mr. Schmoller has 184,866 exercisable options valued at $2,708,836; 60,000 unexercisable options valued at $150,000; and 3,084 SARs, the appreciation on which is valued at $14,182. The value of outstanding SARs was fixed as described in footnote 5 below when the Company's SAR plan was terminated on March 31, 1990. (3) Based on the closing stock price of $34.50 on December 31, 1999. (4) Numbers shown reflect the value of options granted at various times over a ten-year period. (5) The Company's Incentive Compensation Stock Appreciation Rights Plan ("SAR Plan") was terminated on March 31, 1990. Under the SAR plan, selected key employees were afforded the opportunity to convert cash awards under the Company's short-term incentive compensation plans into SARs corresponding in value to the Company's shares of Common Stock. The SARs fluctuated in value as the price of the Common Stock increased or decreased and earned amounts equal to dividends declared on the Common Stock. When the SAR Plan was terminated, the value of all outstanding SARs was fixed as of that date. Interest equivalents have been credited to outstanding balances of participants since April 1, 1990. Payouts are made in cash and commence upon a participant's prior election or termination of employment with the Company. 16 IV. LONG-TERM INCENTIVE PLAN AWARDS TABLE The following table sets forth information regarding awards made to the Named Executives in 1999 under the Company's Return on Equity Plan. Except for such awards, no Long-Term Incentive Plan Awards were made to the Named Executives in 1999.
Number of Performance or Estimated Future Payouts under Shares, Units Other Period the Return on Equity Plan (1) or Other Until Maturation ------------------------------------ Name Rights (#) or Payout Threshold ($) Target ($) Maximum ($) ---- ------------- ---------------- ------------- ---------- ----------- Gregory L. Quesnel...... 45,000 12/31/01 $ 0 $447,750 $895,500 Gerald L. Detter........ 27,500 12/31/01 0 273,625 547,250 Roger Piazza............ 22,500 12/31/01 0 223,875 447,750 Sanchayan C. Ratnathicam............ 22,500 12/31/01 0 223,875 447,750 Eberhard G.H. Schmoller. 21,000 12/31/01 0 208,950 417,900
- -------- (1) Target payouts are made if the Return on Equity for the applicable award period is equal to a specified target percentage. For Returns on Equity below the target percentage, the payouts decrease in accordance with a specified payout table and drop to zero if the Return on Equity is less than the target percentage by 5 or more percentage points. For Returns on Equity above the target percentage, the payouts increase in accordance with the payout table, up to a maximum of twice the target payout if the Return on Equity exceeds the target percentage by 5 or more percentage points. 17 COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION To the Board of Directors: The members of the Compensation Committee of the Board of Directors administer the Company's executive compensation program, the purpose of which is to: a) align the Company's rewards strategy with its business objectives; b) support a culture of strong performance; and c) attract, retain and motivate highly talented executives. Executive compensation consists of three components: base salary, short-term incentive compensation, and long-term incentive compensation. The Company has put a significant portion of total compensation for all executives "at risk" through short-term and long-term incentive compensation. It is the Company's policy to tie a greater portion of an executive's total compensation to performance of the Company and its subsidiaries than is the case for Company employees generally. In keeping with the general policy of pay for performance, an even greater portion of the total compensation for the executives named in the Summary Compensation Table on page 13 ("Named Executives") is tied to performance than is the case for Company executives generally. Each year the Committee reviews a report by an independent executive compensation consultant engaged by the Company. That consultant compares the Company's executive compensation to the compensation of similar executives at peer companies as well as in general industry. The comparison covers all aspects of compensation: Base salaries, annual bonuses and long-term incentive awards. As part of the 1998 engagement (for 1999 compensation), the consultant concluded that, taken together, the elements of the Company's executive compensation package deliver pay opportunities that are within the competitive norm. In addition, the consultant was asked to review various long-term incentive allocation methodologies and to recommend a formula appropriate for the Company and consistent with practices in comparable companies. The allocation formula recommended by the consultant takes into consideration each executive's organizational position, decision-making influence, and accountability over the strategic results of the Company. In 1999, after review and consideration, the Committee decided that starting in the year 2000, the Company's executive compensation will be compared to executive compensation paid by the companies that comprise the Dow Jones Transportation Average ("DJTA") which includes some of the peer companies. Base Salary In 1999, the Company continued its practice of paying base salaries that are competitive with those of other companies in the freight transportation and supply chain management industry, taking into account the Company's size compared to those companies. For 1999, we reviewed base salaries for executive officers against competitive salary data for officers in similar positions at peer companies as well as surveys of executive compensation for general industry. The Committee determined that several executive's base salaries were somewhat low in comparison to those of comparable officers in other companies, and that executive salaries of other officers, while generally in line with those of comparable officers at other companies, should be nominally increased. As a result, at the beginning of 1999, Messrs. Quesnel, Detter, Piazza, Ratnathicam and Schmoller received salary increases of 14%, 10%, 3%, 4% and 4.1%, respectively. The base salaries for all Named Executives, other than the Chief Executive Officer, were approved by the Committee. The 1999 salary of Mr. Quesnel was approved by the Board of Directors as discussed below under "CEO Compensation." Short-Term Incentive Compensation The Company's short-term incentive compensation plans are reviewed and approved annually by the Committee. The plans are then incorporated into the Company's business plan for the ensuing year 18 and presented to the Board of Directors for approval and adoption. These plans provide for annual awards to regular, full-time, non-contractual employees. The Committee has delegated to the Chief Executive Officer and other executive officers the responsibility and authority to administer the Company's short- term incentive plans for non-executive employees. At the end of the year, each major operating subsidiary develops goals which reflect its business objectives for the following year. These goals represent measurable performance objectives such as profits, revenue, returns on equity, assets or capital, expenses and service. The parent Company goals generally represent a compilation of the profit goals of the subsidiaries. In 1999, the performance objective for Messrs. Quesnel, Ratnathicam and Schmoller was based on pre-tax, pre-incentive income of the parent Company; the performance objective for Mr. Detter was based on the pre-incentive operating income of Con-Way Transportation Services, Inc.; and the performance objective for Mr. Piazza was based on pre-incentive operating income of Emery. Upon attainment of the established performance goals, each plan participant (including the Named Executives) earns incentive compensation determined as a percentage of base salary ("target incentive"), with the target incentive varying depending upon the level of attainment of the established performance goals and the participant's level of responsibility. In addition, each participant's incentive compensation is capped at an amount equal to twice the target incentive. In 1999, operating income of Con-Way and Emery increased 11% and 17%, respectively, over 1998 operating income, and the Company's net income applicable to common shareholders increased 39% over 1998 levels. Under the plans, Messrs. Quesnel, Detter, Piazza, Ratnathicam and Schmoller earned incentive compensation of $823,133, $248,011, $228,848, $346,074 and $331,800, respectively. In 1999 the Committee also continued the annual bonus for operating company executives, with bonus payments tied to the achievement of targeted operating ratios. Among the Named Executives, Messrs. Detter and Piazza were eligible to participate in the bonus program. Based upon results of operations for 1999, Mr. Piazza did not receive an operating bonus and Mr. Detter received an operating bonus of $367,783. Long-Term Incentive Compensation The Committee believes that executives should have a large stake in the risks and rewards of long-term ownership of the Company. The CNF Transportation Inc. Equity and Incentive Plan, which was approved at the Company's 1997 Annual Meeting of Shareholders, provides for the granting of restricted stock awards, options to purchase shares of the Company's Common Stock, and other types of long-term awards to key employees of the Company and its subsidiaries. After reviewing information and recommendations provided by the above- mentioned executive compensation consultant and adjusting for individual factors, in 1999 the Committee granted non-qualified and incentive stock options for a total of 735,100 shares to executives of the Company and its subsidiaries, effective December 8, 1999. The stock options granted in 1999 to the Named Executives are set forth in the Option/SAR Grants Table on page 15. In 1999, the Committee also elected to make a long-term compensation award in the form of restricted stock to one of the Named Executives. In that regard, Mr. Detter received an award for 20,000 shares that will vest on January 1, 2004. This award was granted in order to provide additional incentive to Mr. Detter to remain with the Company. In order to maintain the Company's overall long-term incentive compensation at competitive levels, in 1999 the Committee made awards to senior executives under the Company's Return on Equity Plan, which provides for the payments of cash bonuses based on exceeding specified increases in the 19 Company's shareholder equity. Awards were made under the Plan for the first time in 1996. Bonus payments for the 1997 award cycle, which ended on December 31, 1999, were made in January 2000. Among the Named Executives, Messrs. Quesnel, Detter, Piazza, Ratnathicam and Schmoller earned bonus payments of $627,600, $321,122, $162,130, $162,130 and $512,540, respectively. As part of its review of executive compensation, the Committee decided, based on management's recommendation, to make no further awards under the Return on Equity Plan, but for the year 2000, to make awards under a new long- term incentive plan called the Value Management Plan. Under that plan, which has rolling three year cycles with a new cycle beginning each year, long-term incentive awards are paid on a criterion called "total business return" which is, in turn, based on cash generation and capital efficiency. Long-term incentive compensation awards made to Mr. Quesnel during 1999 are discussed in more detail below under "CEO Compensation." Stock Ownership Guidelines The Committee established stock ownership guidelines in 1998 for senior executive officers as a way to further align their financial interests with those of shareholders. The officers are expected to make continuing progress towards compliance with these guidelines, with a goal of full compliance with the guidelines by June 2001. The guidelines are as follows: Chief Executive Officer--five times base salary; a group of five other senior executive officers, consisting of the Chief Financial Officer, the General Counsel, and the President of each of the Company's three major business units--three times base salary. For purposes of determining compliance with these guidelines, officers receive ownership credit for all Company stock owned, directly or indirectly, over which they (or their spouses) have the power to dispose, all Company stock held in retirement plans (including 401(k) plans), and one-half of the value of vested "in-the-money" stock options. Each of the officers subject to the guidelines has made progress towards meeting the goals established by guidelines. CEO Compensation In May 1998, GregoryL. Quesnel, formerly President and Chief Operating Officer of the Company, succeeded Donald E. Moffitt, and now holds the title of President and Chief Executive Officer of the Company. The Committee recommended, and the Board approved, a 1999 annualized base salary for Mr. Quesnel of $712,500. This amount was recommended by the Committee and approved by the Board based on Mr. Quesnel's experience and on the recommendation of the Company's independent executive compensation consultant. In 1999, Mr. Quesnel earned short-term incentive compensation of $823,133, based on the pre-tax, pre-incentive income objective for the parent Company established at the beginning of 1999. As discussed under "Long-Term Incentive Compensation" on page 19, for 1999 Mr. Quesnel and the other Named Executives received as long-term compensation a combination of stock options, restricted stock grants, and awards under the Return on Equity Plan. Based upon the recommendation of the Company's independent executive compensation consultant, the long-term awards made to Mr. Quesnel for 1999 have an aggregate projected value of approximately three and one-half times his annual salary if the Company achieves its goals relating to profit, return on equity and shareholder value. Policy on Deductibility of Compensation The federal income tax law limits the deductibility of certain compensation paid to the Chief Executive Officer and the four other most highly compensated executives (the "covered employees") 20 in excess of the statutory maximum of $1 million per covered employee. The Committee's general policy is, where feasible, to structure compensation paid to the covered employees so as to maximize the deductibility of such compensation for federal income tax purposes; however, there may be circumstances where portions of such compensation will not be deductible. In 1999, as in prior years, no covered employee received compensation which was not deductible. Under the federal income tax law, certain compensation, including "performance-based compensation," is excluded from the $1 million deductibility limit. The Company's 1997 Equity and Incentive Plan, which was approved at the Company's 1997 Annual Meeting of Shareholders, allows the Committee to make certain short- and long-term incentive compensation awards to covered employees that qualify as "performance-based compensation." The Committee intends to use such awards, where feasible, to carry out its general policy of providing a competitive compensation package which also structures compensation paid to the covered employees so as to maximize the deductibility of such compensation for federal income tax purposes. THE COMPENSATION COMMITTEE W. Keith Kennedy, Jr., Chairman Robert D. Rogers Richard B. Madden Robert P. Wayman Michael J. Murray Richard A. Clarke*
* Mr. Clarke was a member of the Committee until May 3, 1999. He reviewed and approved this report. 21 COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Members of the Compensation Committee are all independent directors of the Company and have no other relationships with the Company and its subsidiaries. COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL SHAREHOLDER RETURN* CNF Transportation Inc., S & P Mid Cap 400 Index, Peer Group Index
Cumulative Total Return ----------------------------------------- 4Q94 4Q95 4Q96 4Q97 4Q98 4Q99 ------ ------ ------ ------ ------ ------ CNF $100.0 $120.1 $118.4 $208.8 $204.4 $189.8 S&P Midcap 400 $100.0 $130.9 $156.1 $206.4 $245.9 $282.1 Custom Peer Group $100.0 $105.7 $109.7 $159.7 $188.8 $176.6
* Assumes $100 invested on December 31, 1994 in CNF Transportation Inc. (then known as Consolidated Freightways, Inc.), S & P Mid Cap 400 Index and the Peer Group Index, described below, and that any dividends were reinvested. The Peer Group Index is a market-capitalization weighted index consisting of the common stocks of the following corporations: Airborne Freight Corporation, American Freightways Corporation, Federal Express Corporation, Pittston Co.-- Burlington Group, Ryder System Inc. and US Freightways Corporation. This Peer Group Index is the same as in last year's Proxy Statement, although Caliber Systems, Inc., which last year was listed as a separate member of the Peer Group, is now a part of Federal Express Corporation. 22 PENSION PLAN TABLE ESTIMATED ANNUAL RETIREMENT BENEFITS The following table illustrates the approximate annual pension that may become payable to an employee in the higher salary classifications under the Company's retirement plans.
Average Final Total Earnings During Years of Plan Participation Highest Five Consecutive Years ------------------------------------------------ of Last Ten Years of Employment 15 20 25 30 35 - ----------------------------------- -------- -------- -------- ---------- ---------- $ 200,000 $ 43,599 $ 62,132 $ 80,665 $ 99,198 $ 117,732 $ 300,000 $ 66,099 $ 94,132 $122,165 $ 150,198 $ 178,232 $ 400,000 $ 88,599 $126,132 $163,665 $ 201,198 $ 238,732 $ 500,000 $111,099 $158,132 $205,165 $ 252,198 $ 299,232 $ 600,000 $133,599 $190,132 $246,665 $ 303,198 $ 359,732 $ 700,000 $156,099 $222,132 $288,165 $ 354,198 $ 420,232 $ 800,000 $178,599 $254,132 $329,665 $ 405,198 $ 480,732 $ 900,000 $201,099 $286,132 $371,165 $ 456,198 $ 541,232 $1,000,000 $223,599 $318,132 $412,665 $ 507,198 $ 601,732 $1,100,000 $246,099 $350,132 $454,165 $ 558,198 $ 662,232 $1,200,000 $268,599 $382,132 $495,665 $ 609,198 $ 722,732 $1,300,000 $291,099 $414,132 $537,165 $ 660,198 $ 783,232 $1,400,000 $313,599 $446,132 $578,665 $ 711,198 $ 843,732 $1,500,000 $336,099 $478,132 $620,165 $ 762,198 $ 904,232 $1,600,000 $358,599 $510,132 $661,665 $ 813,198 $ 964,732 $1,700,000 $381,099 $542,132 $703,165 $ 864,198 $1,025,232 $1,800,000 $403,599 $574,132 $744,665 $ 915,198 $1,085,732 $1,900,000 $426,099 $606,132 $786,165 $ 966,198 $1,146,232 $2,000,000 $448,599 $638,132 $827,665 $1,017,198 $1,206,732
Compensation covered for the Named Executives is the highest five-year average over the last ten years of employment of the "Salary" and "Bonus", as such terms are used in the Summary Compensation Table on page 13, and of certain other compensation. Retirement benefits shown are payable at or after age 65 in the form of a single life annuity, using the current level of Social Security benefits to compute the adjustment for such benefits. Applicable law limits the annual benefits which may be paid from a tax- qualified retirement plan to $130,000 per year currently, and prevents pension accruals for compensation in excess of $170,000 per year and for deferred compensation. The Company has adopted non-qualified plans to provide for payment out of the Company's general funds of benefits not covered by the qualified plans. The table above represents total retirement benefits which may be paid from a combination of qualified and non-qualified plans. As of December 31, 1999, Messrs. Quesnel, Detter, Piazza, Ratnathicam and Schmoller had 24, 31, 21, 22 and 25 years of plan participation, respectively. ---------------- CHANGE IN CONTROL ARRANGEMENTS The Company has entered into severance agreements with each of Messrs. Quesnel, Detter, Piazza, Ratnathicam and Schmoller. Each severance agreement provides that if such officer's employment with the Company is actually or constructively terminated within two years of a change in control (as defined in the severance agreement), or prior to a change in control at the direction of a person or entity which subsequently acquires control of the Company, the officer generally will receive, 23 among other things, (i) a lump sum cash payment equal to three times the officer's base salary as of the date of termination (or as of the change of control, if higher); (ii) a lump sum cash payment equal to three times the highest of (a) the officer's average annual bonus over the three years prior to the termination of employment, (b) the officer's average annual bonus over the three years prior to the change in control, or (c) the officer's target bonus for the year of the termination of employment; (iii) life, disability, health, dental and accidental insurance benefits for three years; and (iv) a lump sum payment reflecting the value of three additional years of retirement benefits. The executives will also be entitled to receive additional payments to the extent necessary to compensate them for any excise taxes payable by them under the federal laws applicable to excess parachute payments. ---------------- PROPOSAL TO APPROVE CERTAIN AMENDMENTS TO THE CNF TRANSPORTATION INC. 1997 EQUITY AND INCENTIVE PLAN, AND TO RE-APPROVE THE PLAN AS AMENDED The Board of Directors of the Company has placed on the agenda of the meeting a proposal for the shareholders of the Company to approve certain amendments to the CNF Transportation Inc. 1997 Equity and Incentive Plan (the "Plan"), and to re-approve the Plan, as amended, in its entirety. The proposed amendments to the Plan would increase by 4,000,000 (from 2,200,000 to 6,200,000) the maximum number of shares reserved for issuance under the Plan, and would increase by 1,000,000 (from 550,000 to 1,550,000) the maximum number of shares that may be awarded to a single individual over the term of the Plan. The term of the Plan is 10 years, and unless terminated earlier by the Board the Plan will terminate on January 17, 2007. The Board of Directors has unanimously approved the amendments to the Plan, subject to approval by the shareholders of the Company. A copy of the Plan, as amended, is attached hereto as Exhibit A. The Plan was adopted by the Board of Directors on January 17, 1997, subject to approval by the shareholders of the Company, and was approved by shareholders at the Company's Annual Meeting of Shareholders held on April 28, 1997. The Plan was put in place to assist the Company in attracting, retaining and motivating highly talented executives, and to help align the interests of those executives with the interests of the Company's shareholders by providing for the grant of awards that pay off only if the price of the Company's common stock increases or specified performance goals are achieved. As discussed more fully in the "Compensation Committee Report on Executive Compensation" starting on page 18, the Compensation Committee maintains a policy of "pay for performance" for executives, and in accordance with that policy has made stock options and other performance-based awards an integral part of the total compensation payable to the Company's executives. For example, for the year 2000 over 80% of the Chief Executive Officer's compensation, and over 70% of the compensation of the other Named Executives, has been placed "at risk" through the grant of stock options and other performance-based awards under the Plan. Because of the emphasis on stock options and other performance-based awards as a part of executive compensation, as of March 6, 2000 only 128,917 shares of Stock remained available for issuance under the Plan. In order to make it possible for the Committee to make additional awards under the Plan, and thereby continue its policy of pay for performance, the Board is seeking shareholder approval to increase the total number of shares authorized for issuance under the Plan from 2,200,000 to 6,200,000. The Company estimates that the additional 4,000,000 shares will be sufficient to cover awards made under the Plan for at least five years, and expects that issuance of the additional shares will result in dilution generally in line with historical levels and transportation industry norms. The Plan is being submitted for re-approval by shareholders so that, among other reasons, certain awards granted under the Plan that are intended to qualify as "performance-based compensation" under Section 162(m) ("Section 162(m)") of the Internal Revenue Service Code of 1986, as amended, 24 (the "Code") may so qualify. Section 162(m) denies a deduction by an employer for certain compensation in excess of $1 million per year paid by a publicly traded corporation to the following individuals who are employed at the end of the employer's taxable year ("Covered Employees"): the chief executive officer, and the four most highly compensated executive officers (other than the chief executive officer) for whom compensation disclosure is required under the proxy rules. Certain compensation, including compensation based on the attainment of performance goals, is excluded from this deduction limit if certain requirements are met. One of these requirements is that the material terms (including the performance goals) pursuant to which the compensation is to be paid be disclosed to and approved by shareholders prior to payment. This requirement was originally met when the Company's shareholders approved the Plan in 1997. However, Section 162(m) requires under certain circumstances that shareholders periodically re-approve the Plan. In addition, Section 162(m) requires that shareholders approve any increase in the individual limit on awards under the Plan. The Plan, as amended, increases the limit on the number of shares of Stock that may be awarded to a single individual over the term of the Plan from 550,000 to 1,550,000. This increase in the number of shares is being proposed so that the same percentage (25%) of the total shares available for issuance under the Plan may be issued to a single individual (i.e., 550,000 is 25% of 2,200,000; 1,550,000 is 25% of 6,200,000). As is the case in many other companies, the individual serving as the Company's Chief Executive Officer typically receives the largest awards under the Plan. To date, approximately 17% of the total shares of Stock awarded under the Plan have been awarded to individuals serving as Company's Chief Executive Officer when the awards were made. Accordingly, if the Plan is re-approved by shareholders and the other conditions of Section 162(m) relating to the exclusion for performance-based compensation are satisfied, certain compensation paid to Covered Employees pursuant to the Plan will not be subject to the deduction limit of Section 162(m). If the Plan is not re-approved by shareholders, the Plan as previously in effect will continue and the Company will consider alternative means by which to compensate executives. The following description of the Plan, is qualified in its entirety by reference to the complete text of the Plan, attached hereto as Exhibit A. The text of the Plan incorporates the proposed amendments described above. Capitalized terms used herein will, unless otherwise defined, have the meanings assigned to them in the text of the Plan. General The purposes of the Plan are to afford an incentive to selected employees of the Company and its Subsidiaries and Affiliates to continue as employees, to increase their efforts on behalf of the Company and to promote the success of the Company's business. The Plan generally provides for the grant of various types of stock- and cash-based compensation. The Plan includes both a Long-Term Incentive Program and an Annual Incentive Bonus Program. Pursuant to the Long-Term Incentive Program, the Plan provides for the granting of stock options ("Options"), including incentive stock options ("ISOs") and non-qualified stock options ("NQSOs"); stock appreciation rights ("SARs"), which may be granted in tandem with or independently of Options; restricted stock and restricted stock units ("Restricted Awards"); dividend equivalents; and other stock- and cash-based awards ("Other Awards"). As more fully described below, the Annual Incentive Bonus Program provides for the granting of short-term cash-based awards. The Plan also authorizes the Committee (as defined below) to provide procedures for the deferral of the receipt of awards. All awards will be evidenced by an agreement (an "Award Agreement") setting forth the terms and conditions applicable thereto. Plan Administration The Plan will be administered by a committee of the Board (the "Committee"), the composition of which will at all times satisfy the provisions of Rule 16b- 3 promulgated under the Securities Exchange 25 Act of 1934, as amended, and Section 162(m). The Plan provides that no member of the Board or the Committee will be liable for any action or determination taken or made in good faith with respect to the Plan. Subject to the terms of the Plan, the Committee has the right, among other things, to administer the Plan and to exercise all the powers and authorities either specifically granted to it under the Plan or necessary or advisable in the administration of the Plan, including the authority to grant awards; to determine the persons to whom and the time or times at which awards shall be granted; to determine the type and number of awards to be granted, the number of shares of stock to which an award may relate and the terms, conditions, restrictions and Performance Goals (as defined below) relating to any award; to determine Performance Goals no later than such time as required to ensure that an underlying award which is intended to comply with the requirements of Section 162(m) so complies; to determine whether, to what extent, and under what circumstances an award may be settled, canceled, forfeited, exchanged or surrendered; to make adjustments in the terms and conditions (including Performance Goals, if any) applicable to awards; to designate affiliates; to construe and interpret the Plan and any award; to prescribe, amend and rescind rules and regulations relating to the Plan, to determine the terms and provisions of the award agreements; and to make all other determinations deemed necessary or advisable for the administration of the Plan. However, the Committee shall not have the authority to lower the exercise price of any outstanding Option or SAR (other than in connection with stock splits, stock dividends and similar capital adjustments described below), nor shall the Committee have the authority to settle, cancel or exchange any outstanding Option or SAR in consideration for the grant of a new award with a lower exercise price. Shares Subject to the Plan The maximum number of shares of Common Stock reserved for the grant of awards under the Plan is 6,200,000, subject to adjustment as provided in the Plan. The per share market value of the Common Stock was $30.38 on March 6, 2000. No more than 900,000 shares of Common Stock may be awarded in the aggregate in respect of Restricted Stock and Restricted Stock Units over the term of the Plan, and no more than 1,550,000 shares may be awarded in the form of stock-based awards (including Options, SARs, Restricted Awards, dividend equivalents and stock-based Other Awards) to a single individual over the term of the Plan, in each case subject to adjustment as described below. Shares subject to an award that is forfeited, canceled, exchanged, surrendered or terminated will again be available for issuance under the Plan, to the extent of such forfeiture, cancellation, exchange, surrender or termination. The Plan provides that, in the event of any dividend or other distribution, recapitalization, stock split, reverse split, reorganization, merger, consolidation, spin-off, combination, repurchase, or share exchange, or other similar corporate transaction or event, which affects the stock such that an adjustment is appropriate in order to prevent dilution or enlargement of rights under the Plan, then the Committee shall make such equitable changes or adjustments s it deems necessary or appropriate to any or all of (i) the number and kind of shares of stock or cash that may thereafter be issued in connection with awards, (ii) the number and kind of shares of stock or cash issued or issuable in respect of outstanding awards, (iii) the exercise price, grant price, or purchase price relating to any award, (iv) the Performance Goals and (v) the individual limitations applicable to awards. Eligibility Discretionary grants of awards may be made to any employee of the Company or its Subsidiaries or Affiliates who is determined by the Committee to be eligible for participation in the Plan, consistent with the purposes of the Plan. 26 Long-Term Incentive Program Options Options will vest and become exercisable over the exercise period, at such times and upon such conditions as the Committee determines and as set forth in the Award Agreement. The Committee may accelerate the exercisability of any outstanding Option at such time and under such circumstances as it deems appropriate. Options are generally exercisable during the optionee's lifetime only by the optionee. The Award Agreements will contain provisions regarding the exercise of Options following termination of employment with or service to the Company, including terminations due to the death, disability or retirement of an award recipient, or upon a Change in Control of the Company (as defined in the Plan). In addition to the terms and conditions governing NQSOs, ISOs awarded under the Plan must comply with the requirements set forth in Section 422 of the Code. The purchase price per share of Common Stock subject to the exercise of an Option will be as determined by the Committee but may not be less than the Fair Market Value per share on the date of grant, subject to adjustment in accordance with the antidilution provisions described in "Shares Subject to the Plan", above. Upon the exercise of any Option, the purchase price may be fully paid in cash, by delivery of Common Stock previously owned by the optionee equal in value to the purchase price, or by having shares of Common Stock with a fair market value (on the date of exercise) equal to the purchase price withheld by the Company or sold by a broker-dealer under qualifying circumstances (or in any combination of the foregoing). Stock Appreciation Rights Unless the Committee determines otherwise, an SAR (1) granted in tandem with an NQSO may be granted at the time of grant of the related NQSO or at any time thereafter or (2) granted in tandem with an ISO may only be granted at the time of grant of the related ISO. A SAR will be exercisable only to the extent the underlying Option is exercisable. Upon exercise of an SAR, the grantee will receive, with respect to each share subject thereto, an amount equal in value to the excess of (1) the Fair Market Value of one share of Common Stock on the date of exercise over (2) the grant price of the SAR (which in the case of a SAR granted in tandem with an Option will be the purchase price of the underlying Option, and which in the case of any other SAR will be the price determined by the Committee). With respect to SARs that are granted in tandem with Options, each such SAR will terminate upon the termination or exercise of the pertinent portion of the related Option, and the pertinent portion of the related Option will terminate upon the exercise of any such SAR. Restricted Stock and Restricted Stock Units A Restricted Stock award is an award of Common Stock subject to such restrictions on transferability and other restrictions as the Committee may impose at the date of grant or thereafter. Each Restricted Stock award shall be subject to restrictions, imposed at the date of grant, relating to either or both of (1) the attainment of Performance Goals by the Company or (2) the continued employment of the grantee with the Company, a Subsidiary or an Affiliate. All performance-based Restricted Stock Awards will have a minimum vesting period of one year. With respect to any shares of Restricted Stock subject to restrictions which lapse solely based on the grantee's continuation of employment with the Company, a Subsidiary or an Affiliate, such restrictions shall lapse over a vesting schedule (so long as the grantee remains employed with the Company, a Subsidiary or an Affiliate ) no shorter in duration than three years from the date of grant; provided that, such vesting schedule may provide for partial or installment vesting from time to time during such period. Unless an Award Agreement provides otherwise, a Restricted Stock recipient will have all of the rights of a shareholder during the restriction period, including the right to vote Restricted Stock and the right to receive dividends thereon. 27 If the recipient of an award of Restricted Stock terminates employment with the Company during the applicable restricted period, Restricted Stock and any accrued but unpaid dividends or dividend equivalents that are at that time still subject to restrictions will be forfeited (unless the applicable Award Agreement or the Committee provide otherwise). Recipients of Restricted Stock Units will be entitled to receive cash or shares of Common Stock, as determined by the Committee, upon expiration of the restricted period specified for such Restricted Stock Units in the related Award Agreement. The Committee may place restrictions on Restricted Stock units which lapse, in whole or in part, on the attainment of certain Performance Goals. Upon termination of employment with the Company during any applicable deferral period to which forfeiture conditions apply, or upon failure to satisfy any other conditions precedent to the delivery of cash or Common Stock pursuant to a Restricted Stock Unit award, all such units that are subject to deferral or restriction will be forfeited (unless the applicable Award Agreement or the Committee provides otherwise). Dividend Equivalents Dividend equivalents may be granted, which relate to Options, Rights or other awards under the Plan, or may be granted as freestanding awards. The Committee may provide, at the grant date or thereafter, that dividend equivalents will be paid or distributed to a grantee when accrued with respect to Options, Rights or other awards under the Plan, or will be deemed to have been reinvested in additional shares of Common Stock (or such other investment vehicles as the Committee may specify). Dividend equivalents which are not freestanding will be subject to all conditions and restrictions applicable to the underlying awards to which they relate. Other Awards The Committee may grant such other stock-based or cash-based awards under the Long-Term Incentive Plan as it deems consistent with the purposes of the Plan. Such awards may be granted with value and payment contingent upon the attainment of specified individual or Company (or Subsidiary) Performance Goals, so long as such goals relate to periods of performance in excess of one calendar year. The maximum payment in respect of such Other Awards that a grantee may receive under the Plan with respect to any performance period is $3 million. Payments in respect of such Other Awards may be decreased (or, with respect to any grantee who is not a Covered Employee, increased) in the sole discretion of the Committee. The Committee must certify the achievement of Performance Goals prior to the payment of Other Awards. Annual Incentive Bonus Program The Committee is authorized to grant awards to grantees under the Annual Incentive Bonus Program (the "Program"). Awards granted under the Program may be contingent on the attainment by the Company of one or more Performance Goals over a period of one year or less. The maximum payment that any grantee may receive under the Annual Incentive Bonus Program with respect to any plan year is $3 million. Payments may be decreased (or, with respect to any participant who is not a Covered Employee, increased) in the sole discretion of the Committee based on such factors as it deems appropriate. No payment shall be made prior to the certification by the Committee that any applicable Performance Goals have been attained. Performance Goals The Committee may provide that the payment of an award (or vesting thereof) will be contingent on the attainment of Performance Goals. Performance Goals are generally defined in the Plan as goals 28 which are based on one or more of the following criteria: (i) pre-tax income or after-tax income, (ii) operating profit, (iii) return on equity, assets, capital or investment, (iv) earnings or book value per share, (v) sales or revenues, (vi) operating expenses, (vii) stock price appreciation, (viii) total shareholder return (i.e., stock price appreciation plus dividends) and (ix) implementation or completion of critical projects or processes. Where applicable, Performance Goals will be expressed in terms of attaining a specified level of the particular criteria or attaining a specified increase or decrease in the particular criteria, and may be applied to one or more of the Company, Subsidiary or Affiliate, or a division or strategic business unit of the Company, or may be applied to the performance of the Company relative to a market index, a group of other companies or a combination thereof, all as determined by the Committee. Performance Goals may include a threshold level of performance below which no payment will be made (or no vesting will occur), levels of performance at which specified payments will be made (or specified vesting will occur), and maximum level of performance above which no additional payment will be made (or at which full vesting will occur). Performance Goals will be determined in accordance with generally accepted accounting principles and are subject to certification by the Committee. The Committee has the authority to make equitable adjustments to the Performance Goals in recognition of unusual or non-recurring events affecting the Company or any Subsidiary or Affiliate or the financial statements of the Company or any Subsidiary or Affiliate, in response to changes in applicable laws or regulations, or to account for items of gain, loss or expense determined to be extraordinary or unusual in nature or infrequent in occurrence or related to the disposal of a segment of a business or related to a change in accounting principles. Amendment; Termination The Plan will terminate ten years after its adoption by the Board, unless sooner terminated. The Board may at any time terminate or amend the Plan in whole or in part. However, termination or amendment of the Plan may not adversely affect the rights of any participant without his or her consent, under awards previously granted under the Plan. Miscellaneous The Company is authorized to withhold from any award granted, any payment relating to an award under the Plan (including from a distribution of Common Stock), or any other payment to a grantee, amounts of withholding and other taxes due in connection with the award, and to take such other action as the Committee may deem advisable to enable the Company and grantees to satisfy obligations for the payment of withholding taxes and other tax obligations relating to the award. This authority includes the right to withhold or receive Common Stock or other property and to make cash payments in respect thereof in satisfaction of a grantee's tax obligations. Unless otherwise provided by the Committee in an Award Agreement, awards granted under the Plan are not transferable, except by will or the laws of descent and distribution or pursuant to a qualified domestic relations order. ---------------- 29 CERTAIN FEDERAL INCOME TAX CONSEQUENCES Set forth below is a discussion of certain federal income tax consequences relating to awards that may be granted pursuant to the Plan. Stock Options Non-Qualified Stock Options In the case of an NQSO, an optionee generally will not be taxed upon the grant of an option. Rather, at the time of exercise of such NQSO (and in the case of an untimely exercise of an ISO), the optionee will generally recognize ordinary income for federal income tax purposes in an amount equal to the excess of the then fair market value of the shares purchased over the purchase price. The Company will generally be entitled to a tax deduction at the time and in the amount that the optionee recognizes ordinary income. Incentive Stock Options In the case of an ISO, an optionee will generally be in receipt of taxable income upon the disposition of the shares acquired upon exercise of the ISO, rather than upon the grant of the ISO or upon its timely exercise. If certain holding period requirements have been satisfied with respect to outstanding shares so acquired, taxable income will constitute long-term capital gain and the Company will not be entitled to a tax deduction. The tax consequences of any untimely exercise of an ISO will be determined in accordance with the rules applicable to NQSOs. The amount by which the fair market value of the stock on the exercise date of an ISO exceeds the option price will generally be an item of tax preference for purposes of the "alternative minimum tax" imposed by Section 55 of the Code. Exercise with Shares An optionee who pays the purchase price upon exercise of an option, in whole or in part, by delivering already owned shares of Common Stock will generally not recognize gain or loss on the shares surrendered at the time of such delivery, except under certain circumstances relating to ISOs. Rather, such gain or loss recognition will generally occur upon disposition or the shares acquired in substitution for the shares surrendered. SARs A grant of stock appreciation rights has no federal income tax consequences at the time of grant. Upon the exercise of stock appreciation rights, the value of the shares and cash received is generally taxable to the grantee as ordinary income, and the Company generally will be entitled to a corresponding deduction. Restricted Stock Generally, the grant of restricted stock has no federal income tax consequences at the time of grant. Rather, at the time the shares are no longer subject to a substantial risk of forfeiture (as defined in the Code), the grantee will recognize ordinary income in an amount equal to the fair market value of such shares. A grantee may, however, elect to be taxed at the time of the grant. The Company generally will be entitled to a deduction at the time and in the amount that the grantee recognizes ordinary income. 30 Restricted Stock Units In the case of Restricted Stock Units, a grantee generally will not be taxed upon the grant of such units but, rather, will recognize ordinary income upon the receipt of cash, shares or other property in payment of such Units. The amount recognized as ordinary income will equal the amount of cash received plus the value of shares and other property received. The Company generally will be entitled to a deduction at the time and in the amount that the grantee recognizes ordinary income. The foregoing summary constitutes a brief overview of the principal federal income tax consequences relating to the above-described awards based upon current federal income tax laws. This summary is not intended to be exhaustive and does not describe state, local or foreign tax consequences. Amounts Awarded Under the Plan Because participation in the Plan and the amount and terms of awards under the Plan are at the discretion of the Committee (subject to the terms of the Plan) and because Performance Goals may vary from award to award and from grantee to grantee, benefits under the Plan are not presently determinable. Compensation paid and other benefits granted to named executive officers of the Company for the 1999 fiscal year are set forth in the Summary Compensation Table appearing on page 13 of this Proxy Statement. Shareholder Approval; Board Recommendation Approval of the proposal requires the affirmative vote of a majority of the voting power represented at the meeting. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDMENTS TO THE CNF TRANSPORTATION INC. 1997 EQUITY AND INCENTIVE PLAN, AND FOR RE-APPROVAL OF THE PLAN AS AMENDED. ---------------- APPOINTMENT OF AUDITORS At last year's annual meeting, shareholders approved the appointment of Arthur Andersen LLP as independent public accountants to audit the consolidated financial statements of the Company for the year ended December 31, 1999. The Board recommends that shareholders vote in favor of ratifying the reappointment of Arthur Andersen LLP as the Company's independent auditors for the year ending December 31, 2000. A representative of the firm will be present at the Annual Meeting of Shareholders with the opportunity to make a statement if he or she desires to do so and to respond to questions from shareholders. The Company has been informed by Arthur Andersen LLP that neither the firm nor any of its members or their associates has any direct financial interest or material indirect financial interest in the Company or its affiliates. ---------------- 31 PRINCIPAL SHAREHOLDERS According to information furnished to the Company as of February 14, 2000, the only persons known to the Company to own beneficially an interest in 5% or more of the shares of Common Stock or Series B Preferred Stock are set forth below. All such information is as reported in the most recent Schedule 13G filed by each such person with the Securities and Exchange Commission.
Amount and Nature of Percent Name and Address Beneficial Ownership of Class ---------------- -------------------- -------- T. Rowe Price Associates, Inc. 258,500 Common (1) *% and T. Rowe Price Trust Company 588,738 Preferred (1) 5.4% 100 East Pratt Street Baltimore, MD 21202 FMR Corp. 6,126,356 Common (2) 12.7% 82 Devonshire Street Boston, MA 02109
- -------- *Less than 1% (1) T. Rowe Price Associates, Inc. ("Price Associates") has sole voting power over 6,600 shares, shared voting power over 3,603,311 shares, sole dispositive power over 258,500 shares and shared dispositive power over 3,603,311 shares. T. Rowe Price Trust Company, the trustee under the Company's Thrift and Stock Plan ("Trust Company"), has sole voting power over 0 shares, shared voting power over 3,603,311 shares, sole dispositive power over 0 shares and shared dispositive power over 3,603,311 shares. The holdings include 588,738 shares of Series B Preferred Stock (which Preferred Stock is held pursuant to the CNF Transportation Inc. Thrift and Stock Plan). Such shares of Series B Preferred Stock represent 70% of all outstanding shares of Series B Preferred Stock. Each share of Series B Preferred Stock has the right to 6.1 noncumulative votes on each matter submitted to the meeting. The Series B Preferred Stock is convertible at the Trust Company's option under certain circumstances into 4.708 shares of Common Stock for each share of Series B Preferred Stock. On a fully converted basis, these holdings represent 5.4% of the Common Stock. Price Associates serves as investment advisor with shared power to vote these securities. For purposes of the reporting requirements of the Securities Exchange Act of 1934, Price Associates and the Trust Company are deemed to be the beneficial owners of the Common Stock and Series B Preferred Stock which has not been allocated to participants' accounts under the Thrift and Stock Plan. However, Price Associates and the Trust Company expressly disclaim that they are, in fact, the beneficial owners of such securities. (2) FMR Corp., through its subsidiaries Fidelity Management & Research Company and Fidelity Management Trust Company, and Fidelity International Limited, an affiliate of FMR Corp., have, in the aggregate, sole voting power over 173,666 shares, shared voting power over 0 shares, sole dispositive power over 6,126,356 shares and shared dispositive power over 0 shares. ---------------- COMPLIANCE WITH SECTION 16 OF THE EXCHANGE ACT The Company believes that during 1999, its executive officers and directors have complied with all filing requirements under Section 16 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). ---------------- 32 CONFIDENTIAL VOTING Under the confidential voting policy adopted by the Board of Directors, all proxies, ballots and voting materials that identify the votes of specific shareholders will be kept confidential from the Company except as may be required by law or to assist in the pursuit or defense of claims or judicial actions, and except in the event of a contested proxy solicitation. In addition, comments written on proxies, ballots, or other voting materials, together with the name and address of the commenting shareholder, will be made available to the Company without reference to the vote of the shareholder, except where such vote is included in the comment or disclosure is necessary to understand the comment. Certain vote tabulation information may also be made available to the Company, provided that the Company is unable to determine how any particular shareholder voted. Access to proxies, ballots and other shareholder voting records will be limited to inspectors of election who are not employees of the Company and to certain Company employees and agents engaged in the receipt, count and tabulation of proxies. ---------------- SUBMISSION OF SHAREHOLDER PROPOSALS Shareholder proposals intended form inclusion in the next year's proxy statement pursuant to Rule 14a-8 under the Exchange Act must be directed to the Corporate Secretary, CNF Transportation Inc., at 3240 Hillview Avenue, Palo Alto, California 94304, and must be received by November 20, 2000. In order for proposals of shareholders made outside of Rule 14a-8 under the Exchange Act to be considered "timely" within the meaning of Rule 14a-4(c) under the Exchange Act, such proposals must be received by the corporate Secretary at the above address by January 25, 2001. The Company's Bylaws require that proposals of shareholder made outside of Rule 14a-8 under the Exchange Act must be submitted, in accordance with the requirements of the Bylaws, not later than January 25, 2001 and not earlier than December 26, 2000. ---------------- OTHER MATTERS The Company will furnish to interested shareholders, free of charge, a copy of its 1999 Annual Report on Form 10-K filed with the Securities and Exchange Commission. The report will be available for mailing after April 10, 1999. Please direct your written request to the Corporate Secretary, CNF Transportation Inc., 3240 Hillview Avenue, Palo Alto, California 94304. Your Board knows of no other matters to be presented at the meeting. If any other matters come before the meeting, it is the intention of the proxy holders to vote on such matters in accordance with their best judgment. ---------------- The expense of proxy solicitation will be borne by the Company. The solicitation is being made by mail and may also be made by telephone, telegraph, facsimile, or personally by directors, officers, and regular employees of the Company who will receive no extra compensation for their services. In addition, the Company has engaged the services of Innisfree M&A Incorporated, New York, New York, to assist in the solicitation of proxies at a fee of $10,000, plus expenses. The Company has also engaged Chase Mellon Shareholder Services to act as inspector of elections. The Company will reimburse banks, brokerage firms and other custodians, nominees and fiduciaries for reasonable expenses incurred by them in sending proxy material to beneficial owners of the Company's voting stock. 33 IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AND VOTED AT THE MEETING. PLEASE SIGN, DATE AND RETURN THE ACCOMPANYING WHITE PROXY CARD AS SOON AS POSSIBLE WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING. BY ORDER OF THE BOARD OF DIRECTORS EBERHARD G.H. SCHMOLLER Secretary March 20, 2000 34 EXHIBIT A CNF TRANSPORTATION INC. 1997 EQUITY AND INCENTIVE PLAN (AS AMENDED AS OF JANUARY 31, 2000) 1. Purpose; Types of Awards; Construction. The purposes of the 1997 Equity and Incentive Plan of CNF Transportation Inc. (the "Plan") are to afford an incentive to selected employees of CNF Transportation Inc. (the "Company") or any Subsidiary or Affiliate that now exists or hereafter is organized or acquired, to continue as employees, to increase their efforts on behalf of the Company and to promote the success of the Company's business. Pursuant to the Long-Term Incentive Program described herein, there may be granted stock options (including "incentive stock options" and "non-qualified stock options"), stock appreciation rights (either in connection with stock options granted under the Plan or independently of stock options), restricted stock, restricted stock units, dividend equivalents and other long-term stock- or cash-based Awards, and pursuant to the Annual Incentive Bonus Program described herein, there may be granted short-term stock-or cash-based Awards. The Plan is designed so that Awards granted hereunder intended to comply with the requirements for "performance-based compensation" under Section 162(m) of the Code may comply with such requirements and insofar as may be applicable to such Awards, the Plan shall be interpreted in a manner consistent with such requirements. 2. Definitions. For purposes of the Plan, the following terms shall be defined as set forth below: (a) "Affiliate" means an affiliate of the Company, as defined in Rule 12b-2 promulgated under Section 12 of the Exchange Act. (b) "Annual Incentive Bonus Program" means the program described in Section 6(c) hereof. (c) "Award" means any Option, SAR, Restricted Stock, Restricted Stock Unit, Dividend Equivalent or Other Stock-Based Award or Other Cash-Based Award granted under the Plan. (d) "Award Agreement" means any written agreement, contract, or other instrument or document evidencing an Award. (e) "Board" means the Board of Directors of the Company. (f) "Change in Control" means a change in control of the Company, which will be deemed to have occurred if: (i) any "person," as such term is used in Sections 13(d) and 14(d) of the Exchange Act (other than (A) the Company or its affiliates, (B) any trustee or other fiduciary holding securities under an employee benefit plan of the Company or its affiliates, and (C) any corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of the common stock, par value $0.625 per share, of the Company), is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such person any securities acquired directly from the Company or its affiliates) representing 25% or more of the combined voting power of the Company's then outstanding voting securities; (ii) the following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on the Effective Date, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent A-1 solicitation, relating to the election of directors of the Company) whose appointment or election by the Board or nomination for election by the Company's stockholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the Effective Date or whose appointment, election or nomination for election was previously so approved or recommended; (iii) there is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other corporation, other than (A) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving or parent entity) more than 50% of the combined voting power of the voting securities of the Company or such surviving or parent entity outstanding immediately after such merger or consolidation or (B) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no "person" (as defined above), directly or indirectly, acquired 25% or more of the combined voting power of the Company's then outstanding securities (not including in the securities beneficially owned by such person any securities acquired directly from the Company or its affiliates); or (iv) the stockholders of the Company approve a plan of complete liquidation of the Company or there is consummated an agreement for the sale or disposition by the Company of assets having an aggregate book value at the time of such sale or disposition of more than 75% of the total book value of the Company's assets on a consolidated basis (or any transaction having a similar effect), other than any such sale or disposition by the Company (including by way of spin-off or other distribution) to an entity, at least 50% of the combined voting power of the voting securities of which are owned immediately following such sale or disposition by stockholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale or disposition. (g) "Code" means the Internal Revenue Code of 1986, as amended from time to time. (h) "Committee" means the committee established by the Board to administer the Plan, the composition of which shall at all times satisfy the provisions of Rule 16b-3 and Section 162(m) of the Code; provided, however, that the Board may, if it so chooses, retain authority to administer all or any part of the Plan and, to the extent the Board does so, references in the Plan to "Committee" shall mean and be references to the Board. (i) "Company" means CNF Transportation Inc., a corporation organized under the laws of the State of Delaware, or any successor corporation. (j) "Dividend Equivalent" means a right, granted to a Grantee under Section 6(b)(v), to receive cash or Stock equal in value to dividends paid with respect to a specified number of shares of Stock. Dividend Equivalents may be awarded on a free-standing basis or in connection with another Award, and may be paid currently or on a deferred basis. (k) "Effective Date" means January 27, 1997, the date that the Plan was adopted by the Board. (l) "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time, and as now or hereafter construed, interpreted and applied by regulations, rulings and cases. (m) "Fair Market Value" per share of Stock as of a particular date means (i) the closing sales price per share of Stock on the national securities exchange on which the Stock is principally traded, for the last preceding date on which there was a sale of such Stock on such exchange, or (ii) if the shares of Stock are then traded in an over- the-counter market, the average of the closing bid and asked prices for the shares of Stock in such over-the-counter A-2 market for the last preceding date on which there was a sale of such Stock in such market, or (iii) if the shares of Stock are not then listed on a national securities exchange or traded in an over-the-counter market, such value as the Committee, in its sole discretion, shall determine. (n) "Grantee" means a person who, as an employee of the Company, a Subsidiary or an Affiliate, has been granted an Award under the Plan. (o) "ISO" means any Option intended to be and designated as an incentive stock option within the meaning of Section 422 of the Code. (p) "Long-Term Incentive Program" means the program described in Section 6(b) hereof. (q) "NQSO" means any Option that is designated as a non-qualified stock option. (r) "Option" means a right, granted to a Grantee under Section 6(b)(i), to purchase shares of Stock. An Option may be either an ISO or an NQSO; provided that ISOs may be granted only to employees of the Company or a Subsidiary. (s) "Other Cash-Based Award" means an Award under the Annual Incentive Bonus Program or the Long-Term Incentive Program, which Award is not denominated or valued by reference to Stock, including an Award which is subject to the attainment of Performance Goals or otherwise as permitted under the Plan. (t) "Other Stock-Based Award" means an Award under the Long-Term Incentive Program that is denominated or valued in whole or in part by reference to Stock and is payable in cash. (u) "Performance Goals" means performance goals based on one or more of the following criteria: (i) pre-tax income or after-tax income, (ii) operating profit, (iii) return on equity, assets, capital or investment, (iv) earnings or book value per share, (v) sales or revenues, (vi) operating expenses, (vii) Stock price appreciation, (viii) total shareholder return (i.e., Stock price appreciation plus dividends) and (ix) implementation or completion of critical projects or processes. Where applicable, the Performance Goals may be expressed in terms of attaining a specified level of the particular criteria or the attainment of a percentage increase or decrease in the particular criteria, and may be applied to one or more of the Company, a Subsidiary or Affiliate, or a division or strategic business unit of the Company, or may be applied to the performance of the Company relative to a market index, a group of other companies or a combination thereof, all as determined by the Committee. The Performance Goals may include a threshold level of performance below which no payment will be made (or no vesting will occur), levels of performance at which specified payments will be made (or specified vesting will occur), and a maximum level of performance above which no additional payment will be made (or at which full vesting will occur). Each of the foregoing Performance Goals shall be determined in accordance with generally accepted accounting principles and shall be subject to certification by the Committee; provided that the Committee shall have the authority to make equitable adjustments to the Performance Goals in recognition of unusual or non-recurring events affecting the Company or any Subsidiary or Affiliate or the financial statements of the Company or any Subsidiary or Affiliate, in response to changes in applicable laws or regulations, or to account for items of gain, loss or expense determined to be extraordinary or unusual in nature or infrequent in occurrence or related to the disposal of a segment of a business or related to a change in accounting principles. (v) "Plan" means this CNF Transportation Inc. 1997 Equity and Incentive Plan, as amended from time to time. (w) "Plan Year" means a calendar year. A-3 (x) "Restricted Stock" means an Award of shares of Stock to a Grantee under Section 6(b)(iii) that may be subject to certain transferability and other restrictions and to a risk of forfeiture (including by reason of not satisfying certain Performance Goals). (y) "Restricted Stock Unit" means a right granted to a Grantee under Section 6(b)(iv) to receive Stock or cash at the end of a specified deferral period, which right may be conditioned on the satisfaction of certain requirements (including the satisfaction of certain Performance Goals). (z) "Rule 16b-3" means Rule 16b-3, as from time to time in effect promulgated by the Securities and Exchange Commission under Section 16 of the Exchange Act, including any successor to such Rule. (aa) "Stock" means shares of the common stock, par value $.625 per share, of the Company. (bb) "SAR" or "Stock Appreciation Right" means the right, granted to a Grantee under Section 6(b)(ii), to be paid an amount measured by the appreciation in the Fair Market Value of Stock from the date of grant to the date of exercise of the right, with payment to be made in cash or Stock as specified in the Award or determined by the Committee. (cc) "Subsidiary" means any corporation in an unbroken chain of corporations beginning with the Company if, at the time of granting of an Award, each of the corporations (other than the last corporation in the unbroken chain) owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in the chain. 3. Administration. The Plan shall be administered by the Committee. The Committee shall have the authority in its discretion, subject to and not inconsistent with the express provisions of the Plan, to administer the Plan and to exercise all the powers and authorities either specifically granted to it under the Plan or necessary or advisable in the administration of the Plan, including, without limitation, the authority to grant Awards; to determine the persons to whom and the time or times at which Awards shall be granted; to determine the type and number of Awards to be granted, the number of shares of Stock to which an Award may relate and the terms, conditions, restrictions and Performance Goals relating to any Award; to determine Performance Goals no later than such time as is required to ensure that an underlying Award which is intended to comply with the requirements of Section 162(m) of the Code so complies; to determine whether, to what extent, and under what circumstances an Award may be settled, canceled, forfeited, exchanged, or surrendered; to make adjustments in the terms and conditions (including Performance Goals) applicable to Awards; to designate Affiliates; to construe and interpret the Plan and any Award; to prescribe, amend and rescind rules and regulations relating to the Plan; to determine the terms and provisions of the Award Agreements (which need not be identical for each Grantee); and to make all other determinations deemed necessary or advisable for the administration of the Plan. Notwithstanding the foregoing and except as otherwise provided in the second paragraph of Section 5 below, the Committee shall not have the authority to lower the exercise price of any outstanding option or SAR, nor shall the Committee have the authority to settle, cancel or exchange any outstanding option or SAR in consideration for the grant of a new award with a lower exercise price. The Committee may appoint a chairperson and a secretary and may make such rules and regulations for the conduct of its business as it shall deem advisable, and shall keep minutes of its meetings. All determinations of the Committee shall be made by a majority of its members either present in person or participating by conference telephone at a meeting or by written consent. The Committee may delegate to one or more of its members or to one or more agents such administrative duties as it may deem advisable, and the Committee or any person to whom it has delegated duties as aforesaid may employ one or more persons to render advice with respect to any responsibility the Committee or such person may have under the Plan. All decisions, determinations and interpretations A-4 of the Committee shall be final and binding on all persons, including the Company, and any Subsidiary, Affiliate or Grantee (or any person claiming any rights under the Plan from or through any Grantee) and any stockholder. No member of the Board or Committee shall be liable for any action taken or determination made in good faith with respect to the Plan or any Award granted hereunder. 4. Eligibility. Awards may be granted to selected employees of the Company and its present or future Subsidiaries and Affiliates, in the discretion of the Committee. In determining the persons to whom Awards shall be granted and the type of any Award (including the number of shares to be covered by such Award), the Committee shall take into account such factors as the Committee shall deem relevant in connection with accomplishing the purposes of the Plan. 5. Stock Subject to the Plan. The maximum number of shares of Stock reserved for the grant or settlement of Awards under the Plan shall be 6,200,000, subject to adjustment as provided herein. No more than 1,550,000 shares of Stock may be awarded in the aggregate in respect of stock-based awards (including Options, SARs, Restricted Stock and Restricted Stock Units) to a single individual over the term of the Plan and no more than 900,000 shares of Stock may be awarded in the aggregate in respect of Restricted Stock and Restricted Stock Units to all Grantees over the term of the Plan, in each case subject to adjustment as provided herein. Determinations made in respect of the limitation set forth in the preceding sentence shall be made in a manner consistent with Section 162(m) of the Code. Such shares may, in whole or in part, be authorized but unissued shares or shares that shall have been or may be reacquired by the Company in the open market, in private transactions or otherwise. If any shares subject to an Award are forfeited, canceled, exchanged or surrendered or if an Award otherwise terminates or expires without a distribution of shares to the Grantee, the shares of stock with respect to such Award shall, to the extent of any such forfeiture, cancellation, exchange, surrender, termination or expiration, again be available for Awards under the Plan. Upon the exercise of any Award granted in tandem with any other Awards or awards, such related Awards or awards shall be canceled to the extent of the number of shares of Stock as to which the Award is exercised and, notwithstanding the foregoing, such number of shares shall no longer be available for Awards under the Plan. In the event that the Committee shall determine that any dividend or other distribution (whether in the form of cash, Stock, or 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 Grantees under the Plan, then the Committee shall make such equitable changes or adjustments as it deems necessary or appropriate to any or all of (i) the number and kind of shares of Stock or cash that may thereafter be issued in connection with Awards, (ii) the number and kind of shares of Stock or cash issued or issuable in respect of outstanding Awards, (iii) the exercise price, grant price, or purchase price relating to any Award; provided that, with respect to ISOs, such adjustment shall be made in accordance with Section 424(h) of the Code, (iv) the Performance Goals and (v) the individual limitations applicable to Awards. 6. Specific Terms of Awards. (a) General. The term of each Award shall be for such period as may be determined by the Committee. Subject to the terms of the Plan and any applicable Award Agreement, payments to be made by the Company or a Subsidiary or Affiliate upon the grant, maturation, or exercise of an Award may be made in Stock or cash, or a combination thereof, as the A-5 Committee shall determine at the date of grant or thereafter and may be made in a single payment or transfer, in installments, or on a deferred basis. The Committee may make rules relating to installment or deferred payments with respect to Awards, including the rate of interest to be credited with respect to such payments. In addition to the foregoing, the Committee may impose on any Award or the exercise thereof, at the date of grant or thereafter, such additional terms and conditions, not inconsistent with the provisions of the Plan, as the Committee shall determine. (b) Long-Term Incentive Program. The Committee is authorized to grant to Grantees the following Awards under the Long-Term Incentive Program, as deemed by the Committee to be consistent with the purposes of the Plan. The Committee shall determine the terms and conditions of such Awards at the date of grant or thereafter. (i) Options. The Committee is authorized to grant Options to Grantees on the following terms and conditions: (A) Type of Award. The Award Agreement evidencing the grant of an Option under the Plan shall designate the Option as an ISO or an NQSO. (B) Exercise Price. The exercise price per share of Stock purchasable under an Option shall be determined by the Committee; provided that, such exercise price shall be not less than the Fair Market Value of a share on the date of grant of such Option. The exercise price for Stock subject to an Option may be paid in cash or by an exchange of Stock previously owned by the Grantee, or a combination of both, in an amount having a combined value equal to such exercise price. A Grantee may also elect to pay all or a portion of the aggregate exercise price by having shares of Stock with a Fair Market Value on the date of exercise equal to the aggregate exercise price withheld by the Company or sold by a broker-dealer. (C) Term and Exercisability of Options. Options shall be exercisable over the exercise period (which shall not exceed ten years from the date of grant), at such times and upon such conditions as the Committee may determine, as reflected in the Award Agreement; provided that, the Committee shall have the authority to accelerate the exercisability of any outstanding Option at such time and under such circumstances as it, in its sole discretion, deems appropriate. An Option may be exercised to the extent of any or all full shares of Stock as to which the Option has become exercisable, by giving written notice of such exercise to the Committee or its designated agent. (D) Termination of Employment, etc. An Option may not be exercised unless the Grantee is then in the employ of the Company or a Subsidiary or an Affiliate (or a company or a parent or subsidiary company of such company issuing or assuming the Option in a transaction to which Section 424(a) of the Code applies), and unless the Grantee has remained continuously so employed since the date of grant of the Option; provided that, the Award Agreement may contain provisions extending the exercisability of Options, in the event of specified terminations, to a date not later than the expiration date of such Option. (E) Other Provisions. Options may be subject to such other conditions including, but not limited to, restrictions on transferability of the shares acquired upon exercise of such Options, as the Committee may prescribe in its discretion or as may be required by applicable law. A-6 (ii) SARs. The Committee is authorized to grant SARs to Grantees on the following terms and conditions: (A) In General. Unless the Committee determines otherwise, an SAR (1) granted in tandem with an NQSO may be granted at the time of grant of the related NQSO or at any time thereafter or (2) granted in tandem with an ISO may only be granted at the time of grant of the related ISO. An SAR granted in tandem with an Option shall be exercisable only to the extent the underlying Option is exercisable. (B) SARs. An SAR shall confer on the Grantee a right to receive an amount with respect to each share subject thereto, upon exercise thereof, equal to the excess of (1) the Fair Market Value of one share of Stock on the date of exercise over (2) the grant price of the SAR (which in the case of an SAR granted in tandem with an Option shall be equal to the exercise price of the underlying Option, and which in the case of any other SAR shall be such price as the Committee may determine). (iii) Restricted Stock. The Committee is authorized to grant Restricted Stock to Grantees on the following terms and conditions: (A) Issuance and Restrictions. Restricted Stock shall be subject to such restrictions on transferability and other restrictions as the Committee may impose at the date of grant or thereafter, which restrictions may lapse separately or in combination at such times, under such circumstances, in such installments, or otherwise, as the Committee may determine; provided, however, notwithstanding the foregoing, each Restricted Stock award shall be subject to restrictions, imposed at the date of grant, relating to either of both of (1) the attainment of Performance Goals by the Company or (2) the continued employment of the Grantee with the Company, a Subsidiary or an Affiliate. All performance based Restricted Stock Awards will have a minimum vesting period of one year. With respect to any shares of Restricted Stock subject to restrictions which lapse solely based on the Grantee's continuation of employment with the Company, a Subsidiary or an Affiliate, such restrictions shall lapse over a vesting schedule (so long as the Grantee remains employed with the Company, a Subsidiary or an Affiliate) no shorter in duration than three years from the date of grant; provided that, such vesting schedule may provide for partial or installment vesting from time to time during such period. Except to the extent otherwise provided in an Award Agreement, a Grantee granted Restricted Stock shall have all of the rights of a stockholder including, without limitation, the right to vote Restricted Stock and the right to receive dividends thereon (subject to subsection (D) below). (B) Forfeiture. Upon termination of employment with the Company or a Subsidiary or Affiliate, during the applicable restriction period, Restricted Stock and any accrued but unpaid dividends or Dividend Equivalents that are at that time subject to restrictions shall be forfeited; provided that, the Committee may provide, by rule or regulation or in any Award Agreement, or may determine in any individual case, that restrictions or forfeiture conditions relating to Restricted Stock will be waived in whole or in part in the event of terminations resulting from specified causes, and the Committee may in other cases waive in whole or in part the forfeiture of Restricted Stock. (C) Certificates for Stock. Restricted Stock granted under the Plan may be evidenced in such manner as the Committee shall determine. If certificates representing Restricted Stock are registered in the name of the Grantee, such certificates shall bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such Restricted Stock, and the Company shall retain physical possession of the certificate. A-7 (D) Dividends. Dividends paid on Restricted Stock shall be either paid at the dividend payment date, or deferred for payment to such date as determined by the Committee, in cash or in shares of unrestricted Stock having a Fair Market Value equal to the amount of such dividends. Stock distributed in connection with a stock split or stock dividend, and distributed as a dividend, shall be subject to restrictions and a risk of forfeiture to the same extent as the Restricted Stock with respect to which such Stock or has been distributed. (iv) Restricted Stock Units. The Committee is authorized to grant Restricted Stock Units to Grantees, subject to the following terms and conditions: (A) Award and Restrictions. Delivery of Stock or cash, as determined by the Committee, will occur upon expiration of the deferral period specified for Restricted Stock Units by the Committee. The Committee may condition the vesting and/or payment of Restricted Stock Units, in whole or in part, upon the attainment of Performance Goals. (B) Forfeiture. Upon termination of employment during the applicable deferral period or portion thereof to which forfeiture conditions apply, or upon failure to satisfy any other conditions precedent to the delivery of Stock or cash to which such Restricted Stock Units relate, all Restricted Stock Units that are then subject to deferral or restriction shall be forfeited; provided that, the Committee may provide, by rule or regulation or in any Award Agreement, or may determine in any individual case, that restrictions or forfeiture conditions relating to Restricted Stock Units will be waived in whole or in part in the event of termination resulting from specified causes, and the Committee may in other cases waive in whole or in part the forfeiture of Restricted Stock Units. (v) Dividend Equivalents. The Committee is authorized to grant Dividend Equivalents to Grantees. The Committee may provide, at the date of grant or thereafter, that Dividend Equivalents shall be paid or distributed when accrued or shall be deemed to have been reinvested in additional Stock, or other investment vehicles as the Committee may specify, provided that Dividend Equivalents (other than freestanding Dividend Equivalents) shall be subject to all conditions and restrictions of the underlying Awards to which they relate. (vi) Other Stock- or Cash-Based Awards. The Committee is authorized tosed Awards or Other Cash-Based Awards, as deemed by the Committee to be consistent with the purposes of the Plan. Awards granted pursuant to this paragraph may be granted with value and payment contingent upon the attainment of certain Performance Goals, so long as such goals relate to periods of performance in excess of one calendar year. The Committee shall determine the terms and conditions of such Awards at the date of grant or thereafter. The maximum payment that any Grantee may receive pursuant to an Award granted under this paragraph in respect of any performance period shall be $3,000,000. Payments earned hereunder may be decreased or, with respect to any Grantee who is not a "covered employee" within the meaning of Section 162(m) of the Code (a "Covered Employee"), increased in the sole discretion of the Committee based on such factors as it deems appropriate. No payment shall be made prior to the certification by the Committee that any applicable Performance Goals have been attained. The Committee may establish such other rules applicable to the Other Stock- or Cash- Based Awards to the extent not inconsistent with Section 162(m) of the Code. (c) Annual Incentive Bonus Program. The Committee is authorized to grant Awards to Grantees pursuant to the Annual Incentive Bonus Program in the form of Other Cash-Based Awards, as deemed by the Committee to be consistent with the purposes of the Plan. Grantees will A-8 be selected by the Committee with respect to participation for a Plan Year. Each Award granted under the Annual Incentive Bonus Program in respect of a Plan Year will be contingent on the attainment by the Company of one or more Performance Goals. The maximum payment that any Grantee may receive pursuant to an Award granted under the Annual Incentive Bonus Program in respect of any Plan Year shall be $3,000,000. Payments earned hereunder may be decreased or, with respect to any Grantee who is not a Covered Employee, increased in the sole discretion of the Committee based on such factors as it deems appropriate. No payment shall be made prior to the certification by the Committee that any applicable Performance Goals have been attained. The Committee may establish such other rules applicable to the Annual Incentive Bonus Program to the extent not inconsistent with Section 162(m) of the Code. 7. Change in Control Provisions. Unless otherwise determined by the Committee and evidenced in an Award Agreement, in the event of a Change of Control: (a) any Award carrying a right to exercise that was not previously exercisable and vested shall become fully exercisable and vested; and (b) the restrictions, deferral limitations, payment conditions, and forfeiture conditions applicable to any other Award granted under the Plan shall lapse and such Awards shall be deemed fully vested, and any Performance Goals imposed with respect to Awards shall be deemed to be fully achieved. 8. General Provisions. (a) Nontransferability. Unless otherwise provided in an Award Agreement, Awards shall not be transferable by a Grantee except by will or the laws of descent and distribution or pursuant to a qualified domestic relations order as defined under the Code or Title I of the Employee Retirement Income Security Act of 1974, as amended, and shall be exercisable during the lifetime of a Grantee only by such Grantee or his guardian or legal representative. (b) No Right to Continued Employment, etc. Nothing in the Plan or in any Award granted or any Award Agreement or other agreement entered into pursuant hereto shall confer upon any Grantee 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 in the Plan or such Award Agreement, or other agreement or to interfere with or limit in any way the right of the Company or any such Subsidiary or Affiliate to terminate such Grantee's employment. (c) Taxes. The Company or any Subsidiary or Affiliate is authorized to withhold from any Award granted, any payment relating to an Award under the Plan, including from a distribution of Stock, or any other payment to a Grantee, amounts of withholding and other taxes due in connection with any transaction involving an Award, and to take such other action as the Committee may deem advisable to enable the Company and Grantees to satisfy obligations for the payment of withholding taxes and other tax obligations relating to any Award. This authority shall include authority to withhold or receive Stock or other property and to make cash payments in respect thereof in satisfaction of a Grantee's tax obligations. (d) Stockholder Approval; Amendment and Termination. The Plan shall take effect on the Effective Date but the Plan (and any grants of Awards made prior to the stockholder approval mentioned herein) shall be subject to the requisite approval of the stockholders of the Company, which approval must occur within twelve (12) months of the date that the Plan is adopted by the Board. In the event that the stockholders of the Company do not ratify the Plan at a meeting of the stockholders at which such issue is considered and voted upon, then A-9 upon such event the Plan and all rights hereunder shall immediately terminate and no Grantee (or any permitted transferee thereof) shall have any remaining rights under the Plan or any Award Agreement entered into in connection herewith. The Board may at any time and from time to time alter, amend, suspend, or terminate the Plan in whole or in part. Notwithstanding the foregoing, no amendment shall affect adversely any of the rights of any Grantee, without such Grantee's consent, under any Award theretofore granted under the Plan. Unless earlier terminated by the Board pursuant to the provisions of the Plan, the Plan shall terminate on the tenth anniversary of its Effective Date. No Awards shall be granted under the Plan after such termination date. (e) No Rights to Awards; No Stockholder Rights. No Grantee shall have any claim to be granted any Award under the Plan, and there is no obligation for uniformity of treatment of Grantees. Except as provided specifically herein, a Grantee or a transferee of an Award shall have no rights as a stockholder with respect to any shares covered by the Award until the date of the issuance of a stock certificate to him for such shares. (f) Unfunded Status of Awards. The Plan is intended to constitute an "unfunded" plan for incentive and deferred compensation. With respect to any payments not yet made to a Grantee pursuant to an Award, nothing contained in the Plan or any Award shall give any such Grantee any rights that are greater than those of a general creditor of the Company. (g) No Fractional Shares. No fractional shares of Stock shall be issued or delivered pursuant to the Plan or any Award. The Committee shall determine whether cash or other Awards shall be issued or paid in lieu of such fractional shares or whether such fractional shares or any rights thereto shall be forfeited or otherwise eliminated. (h) Regulations and Other Approvals. (i) The obligation of the Company to sell or deliver Stock with respect to any Award granted under the Plan shall be subject to all applicable laws, rules and regulations, including all applicable federal and state securities laws, and the obtaining of all such approvals by governmental agencies as may be deemed necessary or appropriate by the Committee. (ii) Each Award is subject to the requirement that, if at any time the Committee determines, in its absolute discretion, that the listing, registration or qualification of Stock issuable pursuant to the Plan is required by any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body is necessary or desirable as a condition of, or in connection with, the grant of an Award or the issuance of Stock, no such Award shall be granted or payment made or Stock issued, in whole or in part, unless listing, registration, qualification, consent or approval has been effected or obtained free of any conditions not acceptable to the Committee. (iii) In the event that the disposition of Common Stock acquired pursuant to the Plan is not covered by a then current registration statement under the Securities Act of 1933, as amended (the "Securities Act"), and is not otherwise exempt from such registration, such Stock shall be restricted against transfer to the extent required by the Securities Act or regulations thereunder, and the Committee may require a Grantee receiving Stock pursuant to the Plan, as a condition precedent to receipt of such Stock, to represent to the Company in writing that the Stock acquired by such Grantee is acquired for investment only and not with a view to distribution. (i) Governing Law. The Plan and all determinations made and actions taken pursuant hereto shall be governed by the laws of the State of Delaware without giving effect to the conflict of laws principles thereof. A-10 CNF TRANSPORTATION INC. This Proxy is Solicited on Behalf of the Board of Directors of CNF Transportation Inc. P R O X Y The undersigned appoints R.A. CLARKE, W.K. KENNEDY, JR. AND R.B. MADDEN and each of them, the proxies of the undersigned, with full power of substitution, to vote the stock of CNF TRANSPORTATION INC., which the undersigned may be entitled to vote at the Annual Meeting of Shareholders to be held on Tuesday, April 25, 2000 at 9:00 A.M. and at any adjournments or postponements thereof. The proxies are authorized to vote in their discretion upon such other business as may properly come before the meeting and any and all adjournments or postponements thereof. Election of four Class III directors for a three-year term. Nominees: Robert Alpert Margaret G. Gill Robert Jaunich II Robert P. Wayman You are encouraged to specify your choices by marking the appropriate boxes, SEE REVERSE SIDE, but you need not mark any boxes if you wish to vote in accordance with the Board of Directors' recommendations. PLEASE SIGN THIS CARD ON THE REVERSE SIDE
[x] Please mark your votes as in this example This proxy, when properly executed, will be voted in the manner directed herein. If no direction is made, this proxy will be voted FOR the election of directors and FOR items 2 and 3 below. - ----------------------------------------------------------------------------------------------------------------------------------- The Board of Directors recommends a vote FOR the election of directors and FOR items 2 and 3 below. - ----------------------------------------------------------------------------------------------------------------------------------- 1. Election of Directors FOR WITHHELD For, except vote withheld from the 2. Amendment and approval FOR AGAINST ABSTAIN (see reverse) ---- ---- nominee(s). of the Company's 1997 ---- ---- ---- | | | | Equity and Incentive | | | | | | ---- ---- ---------------------------------- Plan ---- ---- ---- FOR AGAINST ABSTAIN 3. Ratify appointment of ---- ---- ---- independent Auditors | | | | | | ---- ---- ---- - ----------------------------------------------------------------------------------------------------------------------------------- The proxies are hereby authorized to vote in their discretion upon such other matters as may properly come before the meeting and any adjournments or postponements thereof. DATE: , 2000 -------------------------------- SIGNATURE(S): ------------------------------- ------------------------------------------- NOTE: Please sign exactly as your name appears hereon. Joint owners should each sign. When signing as an attorney, executor, administrator, trustee or guardian, please | give full title as such.
================================================================================ CNF TRANSPORTATION INC. COMMON STOCK FUND Direction of Participant to Trustee of CNF Transportation Inc. Common Stock Fund The undersigned hereby directs the Trustee of the CNF Transportation Inc. Common Stock Fund to vote all shares of CNF Transportation Inc. common stock credited to the individual account of the undersigned under the Common Stock Fund at the Annual Meeting of Shareholders of CNF Transportation Inc. to be held on Tuesday, April 25, 2000 at 9:00 A.M. and at any adjournments or postponements thereof. The Trustee is hereby directed to authorize the proxies to vote in their discretion upon such other business as may properly come before the meeting and any and all adjournments or postponements thereof. Election of four Class III directors for a three-year term. Nominees: Robert Alpert Margaret G. Gill Robert Jaunich II Robert P. Wayman You are encouraged to specify your choices by marking the appropriate boxes, SEE REVERSE SIDE, but you need not mark any boxes if you wish to direct the Trustee to vote in accordance with the Board of Directors' recommendations. PLEASE SIGN THIS CARD ON THE REVERSE SIDE
[x] Please mark your |7897 votes as in this --- example. This direction cannot be voted unless it is properly signed and returned. If properly signed and returned, the Trustee will vote as directed by the undersigned or, if no choice is specified, the Trustee will vote FOR the election of directors and FOR items 2 and 3 below. - ------------------------------------------------------------------------------------------------------------------------------------ The Board of Directors recommends a vote FOR the election of directors and FOR items 2 and 3 below. - ------------------------------------------------------------------------------------------------------------------------------------ FOR WITHHELD FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN 1. Election of ---- ---- 2. Amendment and ---- ---- ---- 3. Ratify appointment of ---- ---- ---- Directors. | | | | approval of the | | | | | | Independent Auditors. | | | | | | (see reverse) ---- ---- Company's 1997 ---- ---- ---- ---- ---- ---- Equity and Incentive Plan. For, except vote withheld from the following nominee(s): - --------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ The Trustee is hereby directed to authorize the proxies to vote in their discretion upon such other business as may properly come before the meeting and any and all adjournments or postponements thereof. Please sign exactly as name appears hereon. --------------------------------------------------- --------------------------------------------------- SIGNATURE(S) DATE
================================================================================ CNF TRANSPORTATION INC. THRIFT AND STOCK PLAN Direction of Participant to Trustee of CNF Transportation Inc. Thrift and Stock Plan (Common Stock and Preferred Stock) The undersigned hereby directs the Trustee of the CNF Transportation Inc. Thrift and Stock Plan to vote all shares of CNF Transportation Inc. common stock and preferred stock credited to the individual account of the undersigned under the Plan at the Annual Meeting of Shareholders of CNF Transportation Inc. to be held on Tuesday, April 25, 2000 at 9:00 A.M. and at any adjournments or postponements thereof. The Trustee is hereby directed to authorize the proxies to vote in their discretion upon such other business as may properly come before the meeting and any and all adjournments or postponements thereof. Election of four Class III directors for a three-year term. Nominees: Robert Alpert Margaret G. Gill Robert Jaunich II Robert P. Wayman You are encouraged to specify your choices by marking the appropriate boxes, SEE REVERSE SIDE, but you need not mark any boxes if you wish to direct the Trustee to vote in accordance with the Board of Directors' recommendations. PLEASE SIGN THIS CARD ON THE REVERSE SIDE [x] Please mark your votes as in this example. This direction cannot be voted unless it is properly signed and returned. If properly signed and returned, the Trustee will vote as directed by the undersigned or, if no choice is specified, the Trustee will vote FOR the election of directors and FOR Items 2 and 3 below. - -------------------------------------------------------------------------------- The Board of Directors recommends a vote FOR the election of directors and FOR Items 2 and 3 below. - -------------------------------------------------------------------------------- FOR WITHHELD FOR AGAINST ABSTAIN 1. Election of [_] [_] 2. Amendment and [_] [_] [_] Directors. approval of the (see reverse) Company's 1997 Equity and Incentive Plan. For, except vote withheld from the following nominee(s): - --------------------------------- FOR AGAINST ABSTAIN 3. Ratify appointment of [_] [_] [_] Independent Auditors. - -------------------------------------------------------------------------------- The Trustee is hereby directed to authorize the proxies to vote in their discretion upon such other business as may properly come before the meeting and any and all adjournments or postponements thereof. Please sign exactly as name appears hereon. _________________________________________ _________________________________________ SIGNATURE(S) DATE DIRECTION FORM SERIES B CUMULATIVE CONVERTIBLE PREFERRED STOCK Direction to Trustee (USE ONLY IF YOU WISH TO VOTE PREFERRED SHARES SEPARATELY) The undersigned hereby directs the Trustee of the CNF Transportation Inc. Thrift and Stock Plan to vote all shares of CNF Transportation Inc. preferred stock credited to the individual account of the undersigned under the Plan at the Annual Meeting of Shareholders of CNF Transportation Inc. to be held on Tuesday, April 25, 2000 at 9:00 A.M. or at any adjournments or postponements thereof. This direction cannot be voted unless it is properly signed and returned. If properly signed and returned, the Trustee will vote as directed by the undersigned or, if no choice is specified, the Trustee will vote FOR the election of directors and FOR Items 2 and 3 below, as described in the accompanying proxy statement. 1. Election of Four Class III directors for a three-year term. Nominees: Robert Alpert, Margaret G. Gill, Robert Jaunich II, Robert P. Wayman. [_] Vote FOR all nominees listed above; except vote withheld from the following nominees (if any): ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- [_] Vote WITHHELD from all nominees. 2. Amendment and approval of the CNF Transportation Inc. 1997 Equity and Incentive Plan. FOR [_] AGAINST [_] ABSTAIN [_] 3. Ratify appointment of Arthur Andersen LLP as the Company's auditors for the year 2000. FOR [_] AGAINST [_] ABSTAIN [_] The Trustee is hereby directed to authorize the proxies to vote in their discretion upon such other business as may properly come before the meeting and any and all adjournments or postponements thereof. , 2000 _____________________________________ Signature of Participant _____________________________________ Name(Please Print) _____________________________________ Address(Please Print) _____________________________________ City State Zip Code [LOGO OF CNF TRANSPORTATION] Eberhard G.H. Schmoller Secretary March 20, 2000 Dear Fellow Employee: Enclosed is proxy material for the CNF Transportation Inc. Annual Meeting of Shareholders to be held on April 25, 2000. This material is being sent to you as a participant in the CNF Transportation Inc. Thrift and Stock Plan and includes (1) the Company's 2000 Proxy Statement and 1999 Annual Report, (2) a card to instruct T. Rowe Price Trust Company, the Plan trustee, as to how you wish the shares credited to your account to be voted, (3) if you wish to instruct the Trustee to vote the preferred shares of stock credited to your account differently than the common shares, a direction form to instruct the Trustee as to how you wish to vote such preferred shares, and (4) an envelope to forward your instructions to First Chicago Trust Company of New York, the Company's stock transfer agent. In order to vote the shares credited to your account, you must complete and return the enclosed instruction card giving the trustee specific voting instructions for the common and preferred shares. If you wish, you may sign and return the card without giving specific voting instructions and the shares will be voted as recommended by the CNF Transportation Inc. Board of Directors. The instruction card will direct the trustee to vote both the common and preferred shares of stock credited to your account. If you wish to vote the preferred shares of stock differently than the common shares, you must also complete the preferred stock direction form and return it to First Chicago Trust Company of New York with the instruction card. Under the terms of the Plan, the trustee votes the shares of each class of stock credited to your account for which it does not receive a signed instruction card on a timely basis in the same manner and proportion as the shares of stock for which it does receive valid voting instructions on a timely basis. Your instruction card must be returned directly to First Chicago Trust Company of New York, the Company's stock transfer agent. It will be treated confidentially by the transfer agent and the trustee. The exercise of shareholder voting rights is a very important feature of the Plan because it allows you to participate directly in the affairs of the Company. We urge you to exercise your voting rights. In order for the trustee to comply with your instructions, First Chicago Trust Company of New York must receive your completed instruction card no later than April 20, 2000. Sincerely, 3240 HILLVIEW AVENUE, PALO ALTO, CA 94304, 650-494-2900 [LOGO OF CNF TRANSPORTATION] Eberhard G.H. Schmoller Secretary March 20, 2000 Dear Fellow Employee: Enclosed is proxy material for the CNF Transportation Inc. Annual Meeting of Shareholders to be held on April 25, 2000. This material is being sent to you as a participant in the CNF Transportation Inc. Common Stock Fund and includes (1) the Company's 2000 Proxy Statement and 1999 Annual Report, (2) a card to instruct Mellon Bank, the Fund trustee, as to how you wish the shares of CNF Transportation Inc. credited to your account to be voted, and (3) an envelope to send your instruction card to First Chicago Trust Company of New York, the Company's stock transfer agent. In order to vote the shares credited to your account, you must complete and return the enclosed instruction card giving the trustee specific voting instructions. If you wish, you may sign and return the card without giving specific voting instructions in which case your shares will be voted as recommended by the CNF Transportation Inc. Board of Directors. Under the terms of the Plan, the trustee votes any shares credited to your account for which it does not receive a signed instruction card on a timely basis in the same manner and proportion as the shares of stock for which it does receive valid voting instructions on a timely basis. Your instruction card must be returned directly to First Chicago Trust Company of New York, the Company's stock transfer agent. It will be treated confidentially by the transfer agent and the trustee. The exercise of shareholder voting rights is a very important feature of the Common Stock Fund because it allows you to participate directly in the affairs of the Company. We urge you to exercise your voting rights. In order for the trustee to comply with your instructions, First Chicago Trust Company of New York must receive your completed instruction card no later than April 20, 2000. Sincerely, /s/ Eberhard G.H. Schmoller 3240 HILLVIEW AVENUE, PALO ALTO, CA 94304, 650-494-2900 -----END PRIVACY-ENHANCED MESSAGE-----