Form 10-K

-----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, A3ZHy2N9ApScevko2184hKlCc4n6A89YvehZst0VpnJgd4tTXlKQHBCc9Ps58vPB HmGdbFIFRMC750eJs2QK0w== 0001012870-03-001326.txt : 20030324 0001012870-03-001326.hdr.sgml : 20030324 20030321192425 ACCESSION NUMBER: 0001012870-03-001326 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 26 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030324 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CNF 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: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-05046 FILM NUMBER: 03612993 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 FORMER COMPANY: FORMER CONFORMED NAME: CNF TRANSPORTATION INC DATE OF NAME CHANGE: 19970509 10-K 1 d10k.htm FORM 10-K Form 10-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2002

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from to

Commission File Number 1-5046

CNF INC.

Incorporated in the State of Delaware

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

3240 Hillview Avenue, Palo Alto, California 94304

Telephone Number (650) 494-2900

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

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

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

8⁷/8% Notes Due 2010

7.35% Notes Due 2005

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

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

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

Aggregate market value of voting stock held by persons other than Directors, Officers and those shareholders holding more than 5% of the outstanding voting stock, based upon the closing price per share Composite Tape on June 30, 2002: $1,302,584,450.

Number of shares of Common Stock outstanding as of February 28, 2003: 49,517,951

DOCUMENTS INCORPORATED BY REFERENCE

Part III

Proxy Statement dated March 24, 2003 (only those portions referenced specifically herein are incorporated in this Form 10-K).

CNF INC.

FORM 10-K

Year Ended December 31, 2002

INDEX

Item		Page
PART I

1.	Business	1

2.	Properties	9

3.	Legal Proceedings	10

4.	Submission of Matters to a Vote of Stockholders	11

PART II

5.	Market for the Registrant’s Common Equity and Related Stockholder Matters	12

6.	Selected Financial Data	13

7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14

8.	Financial Statements and Supplementary Data	32

9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	63

PART III

10.	Directors and Executive Officers of the Registrant	64

11.	Executive Compensation	65

12.	Security Ownership of Certain Beneficial Owners and Management	65

13.	Certain Relationships and Related Transactions	65

14.	Controls and Procedures	65

PART IV

15.	Exhibits, Financial Statement Schedules, and Reports on Form 8-K	66

CNF INC.

FORM 10-K

Year Ended December 31, 2002

PART I

ITEM 1. BUSINESS

Legal Organization

CNF Inc. and its subsidiaries provide supply chain management services for commercial and industrial shipments by land, air and sea throughout North America and the world. CNF Inc. was incorporated in Delaware in 1958, and in 2001, changed its name from CNF Transportation Inc. to CNF Inc.

At December 31, 2002, CNF Inc. owned 100% of the capital stock of Con-Way Transportation Services, Inc.; Con-Way NOW, Inc.; Con-Way Logistics, Inc.; Con-Way Air Express, Inc.; Menlo Worldwide, LLC; Emery Worldwide Airlines, Inc. and other less significant wholly-owned subsidiaries, and a majority ownership interest in the Vector SCM joint venture with General Motors. In connection with events described below, CNF in December 2001 formed Menlo Worldwide, LLC. In December 2002, CNF Inc. transferred 100% of the capital stock of Emery Air Freight Corporation, Menlo Worldwide Expedite!, Inc., and Menlo Logistics, Inc. (also known as Menlo Worldwide Logistics) to Menlo Worldwide, LLC.

Hereinafter, all references to CNF, “the Company,” “we,” “us,” and “our” and all similar references mean CNF Inc. and its subsidiaries, unless otherwise expressly stated or the context otherwise requires.

Reporting Segments

SFAS 131, “Disclosures about Segments of an Enterprise and Related Information,” requires that segment information be presented in the manner in which components are organized for making operating decisions, assessing performance and allocating resources, which may be different than the manner in which components are organized for legal purposes, as described above. Accordingly, for financial purposes, CNF is divided into five reporting segments. The Menlo Worldwide group of businesses, which was formed effective in 2002, represents the collective operating results of the separate Emery Forwarding (formerly Emery Worldwide), Menlo Worldwide Logistics and Menlo Worldwide Other reporting segments.

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

Emery Forwarding reporting segment (Emery or Emery Forwarding). Includes the combined operating results of Emery Air Freight Corporation and its subsidiaries (EAFC), Menlo Worldwide Expedite!, Inc. (formerly Emery Expedite! Inc.) and a portion of the operations of Emery Worldwide Airlines, Inc. (EWA), which ceased air carrier operations in December 2001. Emery Forwarding provides time-definite domestic and international air freight and ocean forwarding services, customs brokerage, and other trade services.

In February 2003, Emery Forwarding announced a plan to change its name to Menlo Worldwide Forwarding. The name change, which is expected to be phased in over the rest of 2003, is intended to unite services offered by the Menlo Worldwide group of businesses under a single brand identity.

Menlo Worldwide Logistics reporting segment (formerly Menlo Logistics). Includes the operating results of Menlo Worldwide Logistics and its subsidiaries. Menlo Worldwide Logistics develops

integrated contract logistics solutions, including the management of complex distribution networks and supply chain engineering and consulting.

Menlo Worldwide Other reporting segment. Includes the operating results of Vector SCM, a joint venture owned by CNF, Inc. and General Motors (“GM”) that serves as the lead logistics manager worldwide for GM. Although CNF owns a majority equity interest in Vector, the operating results of Vector are reported as an equity-method investment based on GM’s ability to control certain operating decisions.

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

For financial information concerning CNF’s geographic and reporting segment operating results, refer to Item 8, “Financial Statements and Supplementary Data,” under Note 15, “Segment Reporting.”

On its website, www.cnf.com, CNF makes available (free of charge) its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission. None of the information on CNF’s website shall be deemed to be a part of this report.

Con-Way Transportation Services

Con-Way Regional Carriers

Con-Way’s primary business units are regional LTL motor carriers that operate regional trucking networks that serve core geographic territories with time-definite service, primarily next-day and second-day, to manufacturing, industrial, commercial and retail business-to-business customers. The regional carriers in 2002 accounted for 96.2% of Con-Way’s revenue and include Con-Way Western Express (CWX), which serves 13 Western states, including Hawaii and Alaska, with service into Mexico; Con-Way Central Express (CCX), which serves 25 central and eastern states; Con-Way Southern Express (CSE), which serves 12 southeastern states, the District of Columbia and Puerto Rico; and Con-Way Canada Express, which serves 9 Canadian provinces.

Con-Way offers service in all 50 states and to some major cities in Canada and Mexico by fully linking its regional carriers. This linked service, which Con-Way refers to as joint service, allows the regional carriers to provide freight delivery between their separate core territories utilizing existing infrastructure, as well as facilitating service into regions on routes that would not otherwise be served.

Typically, LTL carriers transport freight along scheduled routes from multiple shippers to multiple consignees utilizing a network of service centers together with fleets of line-haul and pickup and delivery tractors and trailers. Freight is picked up from customers by local drivers and consolidated for shipment at a service center. The freight is then loaded into trailers and transferred by line-haul drivers to the service center providing service to the delivery area. At the local service center, the freight is transferred to local trailers and delivered to its destination by local drivers.

In July 2002, Con-Way announced an expansion of its next-day and second-day LTL service with Extended Service Lanes (ESL), which utilizes special sleeper-team operations to replace two-day service with next-day service in a large number of markets as well as expand the coverage of second-day service. Also in 2002, Con-Way announced new services under the “Value Zone” brand, including Con-Way Deferred, a shipping option to move transcontinental shipments for price-sensitive customers, and Con-Way Full Load, a full truckload brokerage operation. Truckload carriers generally transport freight along irregular routes from single shippers to single consignees, without the necessity of a network of terminals, using fleets of line-haul sleeper tractors and trailers.

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

Con-Way NOW specializes in time-definite shipments, such as replacement parts, medical equipment and other urgent shipments, where expedited delivery is critical. Con-Way NOW has delivery service in 48 states and parts of Canada.

In 1998, Con-Way created Con-Way Logistics to provide logistics solutions to customers. Con-Way Logistics offers integrated supply chain services for shippers, using its own warehouses, transportation provided by other ground and air carriers as well as Con-Way’s regional carriers, and alliances with leading supply chain software firms to offer solutions to fit its customers’ needs.

In May 2001, Con-Way opened Con-Way Air Express (CAX), an air freight forwarder that arranges freight shipments using transportation provided by other operators, including commercial airlines, dedicated air operators and drayage companies. Through an agency network and connections with other Con-Way components, CAX provides full coverage in the United States and Puerto Rico.

Prior to the sale of most of its assets in August 2000, Con-Way Truckload Services was a full-service, multi-modal truckload company that provided door-to-door delivery of truckload shipments.

Con-Way—Competitive Conditions

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

Menlo Worldwide

Effective January 1, 2002, CNF combined its Emery Forwarding, Menlo Worldwide Logistics and Vector SCM units to form Menlo Worldwide, a new business that provides a full range of logistics services from a single source. The formation of Menlo Worldwide was intended to address a trend among companies to outsource the management of increasingly complex supply chain and logistics services in order to lower costs, reduce inventories, and increase speed, flexibility and efficiency. The Menlo Worldwide companies were aligned to meet this demand by combining their air and ocean freight forwarding competencies, extensive proprietary information systems and full range of value added supply chain management services including transportation, warehouse, inventory management and customs clearance on a global scale. In order to deliver customer-specific solutions using bundled forwarding and logistics services, Menlo Worldwide formed a sales team in which the Menlo Worldwide sales staff market all global services provided by any of the Menlo Worldwide companies.

Menlo Worldwide—Emery Forwarding

Emery Forwarding provides expedited and deferred domestic and international air freight services, ocean container services, and customs brokerage. As described below under “Emery Forwarding—International,” and “Emery Forwarding—North America,” Emery utilizes primarily commercial airlines for the transportation of its customers’ freight in international markets and, for the transportation of freight within North America, Emery relies primarily upon third-party air freight carriers and its own dedicated ground transportation network.

Restructuring Plan

Prior to the restructuring described in the following paragraph, Emery provided air freight services in North America using owned and leased aircraft operated by EWA and, to a lesser extent, owned and leased aircraft operated by third parties. EWA, a separate subsidiary of CNF, is included in the Emery Forwarding reporting segment except for EWA’s previous operations under the now-terminated Priority Mail contract with the U.S. Postal Service (USPS), which are reported separately as discontinued operations.

In June 2001, Emery began an operational restructuring to align it with management’s estimates of future business prospects for domestic heavy air freight and address changes in market conditions, which deteriorated due primarily to a slowing domestic economy and loss of EWA’s contracts with the USPS to transport Express Mail and Priority Mail. The $340.5 million second-quarter restructuring charge in 2001 consisted primarily of non-cash impairment charges and estimated future cash expenditures related primarily to the return to lessors of certain aircraft leased to EWA. Based on issues identified during inspections conducted by the Federal Aviation Administration (FAA), on August 13, 2001, EWA was required to suspend its air carrier operations as part of an interim settlement agreement with the FAA. As a result, EWA furloughed approximately 400 pilots and crewmembers and Emery made arrangements to continue its service to customers by utilizing aircraft operated by several other air carriers. Primarily in response to the FAA action and a worsening global economic downturn, Emery re-evaluated its restructuring plan. On December 5, 2001, CNF announced that Emery in 2002 would become part of CNF’s new Menlo Worldwide group of supply chain services providers and in North America would utilize aircraft operated by other air carriers instead of EWA operating its own fleet of aircraft, and that EWA would permanently cease air carrier operations. In connection with the revised restructuring plan, in the fourth quarter of 2001 Emery recognized additional restructuring charges of $311.7 million for the planned disposal of leased aircraft, cessation of EWA’s remaining operations, employee separation costs for 157 of Emery’s non-pilot employees, and other costs.

For further discussion of FAA actions and other regulatory matters, including the suspension of EWA’s air carrier operations on August 13, 2001 and the surrender of EWA’s air carrier certificate on December 4, 2002, refer to “—Regulation—Air Transportation.”

For further discussion of Emery’s 2001 restructuring plan, refer to “Results of Operations—Menlo Worldwide—Emery Forwarding—Restructuring Charges” under Item 7, “Management’s Discussion and Analysis.” For cumulative activity related to Emery’s 2001 restructuring plan, refer to Note 3, “Restructuring Charges,” under Item 8, “Financial Statements and Supplementary Data.”

For further discussion of Emery’s terminated Express Mail contract with the USPS, refer to “Results of Operations—Menlo Worldwide—Emery Forwarding—Express Mail Contract,” under Item 7, “Management’s Discussion and Analysis.” For a discussion of Emery’s terminated Priority Mail contract with the USPS, refer to “Results of Operations—Discontinued Operations—Priority Mail Contract,” under Item 7, “Management’s Discussion and Analysis.”

Emery Forwarding—International

Internationally, Emery provides air and ocean freight transportation services using primarily commercial airlines and ocean carriers. International business, which comprises shipments that either originate or terminate outside of the United States, is marketed and managed internationally through Emery’s network of foreign subsidiaries, branches and agents. As an international air freight forwarder, Emery procures shipments from its customers, determines the routing, consolidates shipments bound for a particular airport distribution point, and selects the airline for transportation to the distribution point. At the distribution point, Emery or its agent arranges for the consolidated lot to be broken down into its component shipments and for the transportation of the individual shipments to their final destinations.

Emery’s expansion plans have been focused on international operations due to the expectation of greater opportunities in an expanding worldwide economy and the generally lower capital requirements of its international operations, which requires less infrastructure than the North American operations. For 2002, international airfreight revenue, including fuel surcharges, was $1.07 billion or 63.1% of Emery’s total airfreight revenue.

Emery Forwarding—North America

Emery in North America utilizes aircraft operated by third-party air carriers. Emery’s air freight shipments are primarily transported on aircraft owned or leased by third-party air carriers; however, a portion is also transported by an independent air carrier operating aircraft that are owned or leased by EWA, as described below in Item 2, “Properties” under “Menlo Worldwide—Emery Forwarding.” The duration of Emery’s agreements with the third-party air carriers, which range from one week to approximately two years, is intended to provide Emery with the flexibility to adjust its fleet size to meet changes in demand due to seasonality or market conditions.

Emery’s hub-and-spoke system is centered at the Dayton, Ohio International Airport, where its leased air cargo facility (the Hub) and related support facilities are located. The Hub handles a wide variety of shipments, ranging from small packages to heavyweight cargo. While Emery’s freight system is designed to handle parcels, packages and shipments of a variety of sizes and weights, its air freight operations are focused primarily on heavy air freight (defined as shipments of 70 pounds or more). In addition to the Hub, Emery operates nine regional hubs, strategically located around the United States, and a system of service centers and sales offices.

Other Business Units

Emery has established several variable-cost-based business units to enhance the range of services it can offer to its customers. Menlo Worldwide Expedite! is a rapid-response freight-handling subsidiary that provides door-to-door delivery of shipments in North America and overseas. Menlo Worldwide Trade Services (formerly Emery Customs Brokerage) provides full-service customs clearance regardless of mode or carrier. Prior to 2002, the operating results of Emery Global Logistics were included in the Emery Forwarding reporting segment. In connection with the formation of Menlo Worldwide effective January 1, 2002, the North American and International logistics activities of Emery Global Logistics were integrated with Menlo Worldwide Logistics; as a result, the related operating results in 2002 were reported in the Menlo Worldwide Logistics reporting segment and prior-year results were reported in the Emery Forwarding reporting segment.

Competition

The air freight industry is intensely competitive. Principal competitors of Emery include integrated air freight carriers, air freight forwarders and international airlines and, to a lesser extent, trucking companies and passenger and cargo air carriers. Competition in the air freight industry is based on, among other things, freight rates, quality of service, reliability, transit times and scope of operations.

Menlo Worldwide—Menlo Worldwide Logistics

Menlo Worldwide Logistics specializes in developing and managing complex national and global supply and distribution networks, including transportation management, dedicated contract warehousing and dedicated contract carriage. Transportation management refers to the management of third-party transportation providers for customers’ inbound/outbound supply chain needs through the use of state-of-the-art logistics management systems (LMS) to consolidate, book and track shipments. Contract warehousing refers to the optimization of warehouse operations for customers using technology and warehouse management systems (WMS) to reduce inventory carrying costs and supply chain cycle times. For several customers, contract-warehousing operations include light assembly or kitting operations, where manuals, cords or other parts are packed with the finished goods prior to distribution. Menlo Worldwide Logistics’ ability to link these systems with its customers’ internal enterprise resource planning (ERP) systems is intended to provide customers with improved visibility to their supply chains. Contract carriage, which in 2002 continued to represent a declining proportion of revenue, refers to the management of a dedicated transportation fleet for a single customer.

Menlo Worldwide Logistics believes that three industry trends have contributed to its revenue growth. First, a number of businesses are increasingly evaluating their overall logistics costs, including transportation,

warehousing and inventory carrying costs. Second, outsourcing of non-core services, such as distribution, has become more commonplace with many businesses. Finally, the ability to access information through computer networks has increased the value of capturing real-time logistics information to track inventories, shipments and deliveries. Menlo Worldwide Logistics believes that its ability to provide solutions to intricate distribution issues for large companies with complex supply chains has helped Menlo Worldwide Logistics to secure new projects and expand services for existing customers.

At December 31, 2002, Menlo Worldwide Logistics’ client base included 40 companies, many of which are Fortune 200 businesses. Three customers, each of whose long-term unsecured debt securities have a Standard & Poor’s investment-grade credit rating (BBB+ or better), collectively accounted for 41.6% of the revenue reported for the Menlo Worldwide Logistics reporting segment in 2002. Although no single Menlo customer accounted for more than 3.8% of the 2002 consolidated revenue of CNF and its subsidiaries, the loss of significant revenue from any of Menlo Worldwide Logistics’ major customers by termination of the customer relationship for any reason, including the business failure of the customer, could hurt Menlo Worldwide Logistics’ results of operations. Menlo Worldwide Logistics generally seeks to mitigate risks related to the termination of a customer relationship, for reasons other than the business failure of a customer, by requiring that any facility or major equipment lease that it enters into on behalf of a customer must be assumed by the customer upon termination of the contract with Menlo Worldwide Logistics.

Compensation from Menlo Worldwide Logistics’ customers takes different forms, including cost-plus, gain-sharing, transaction, fixed-dollar and consulting fees. In most cases, customers reimburse Menlo Worldwide Logistics’ customer-specific start-up and development costs.

Competition

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

Menlo Worldwide Other

In December 2000, General Motors (GM) and CNF formed a joint venture company called Vector SCM (supply chain management). CNF’s portion of the operating results of Vector SCM (Vector) is reported in the Menlo Worldwide Other reporting segment. Vector was established to reduce GM’s supply chain costs and improve GM’s supply chain management by bringing increased speed, flexibility and reliability to GM’s global supply chain, including shipment of parts to manufacturing plants and its vehicles to dealers. With more dependable deliveries, GM’s goal is to build a vehicle to schedule when necessary and deliver that vehicle as promised to the consumer within a shortened cycle time.

Vector provides logistics services through the development and implementation of technology and physical infrastructure to provide end-to-end visibility and management of the progression of products and materials through GM’s supply chain. Under the terms of the joint venture agreement, the transition of GM’s logistics services and management to Vector SCM is planned to substantially occur over the three-year period from 2001 through 2003. In the first full contract year, logistics services in North America included a redesign of processes related to inbound production materials, vehicle distribution and visibility, premium transportation, international export/import and rail operations monitoring. In 2002, Vector continued the transition of the logistics services and management of GM’s North American logistics and created the framework to complete the transition process. Also in 2002, Vector accelerated the transition of the logistics management of global operations in GM’s three other regions.

Under the terms of the joint venture agreement, Vector shares in any savings realized by GM as a result of reductions in its supply chain costs. CNF owns a majority of the Vector joint venture; however, the operating results of Vector are reported in the Menlo Worldwide Other segment as an equity-method investment based on GM’s ability to control certain operating decisions. For further discussion, refer to Item 7, “Management’s Discussion and Analysis,” under “Results of Operations—Menlo Worldwide—Menlo Worldwide Other.”

CNF Other

In 2002 and 2001, the CNF Other reporting segment included the operating results of Road Systems, Inc. and certain corporate activities. A majority of the revenue from Road Systems was from sales to other CNF subsidiaries and, prior to its bankruptcy in September 2002, Consolidated Freightways Corporation. VantageParts, a distributor and remanufacturer of vehicle component parts and accessories for the heavy-duty truck and trailer industry, was also included in the CNF Other reporting segment until the sale of VantageParts’ assets in May 1999.

Discontinued Operations

Priority Mail Contract

On November 3, 2000, EWA and the USPS announced an agreement to terminate their contract for the transportation and sortation of Priority Mail (the “Priority Mail contract”). The Priority Mail contract was awarded to EWA in April 1997 and the contract was originally scheduled to terminate in the first quarter of 2002, subject to renewal options. Under separate agreements, the USPS agreed to reimburse EWA for Priority Mail contract termination costs and settle claims relating to the underpayment of amounts owed to EWA under the Priority Mail contract. As described under “Results of Operations—Discontinued Operations—Priority Mail Contract,” of Item 7, “Management’s Discussion and Analysis,” claims relating to amounts owed to EWA under the Priority Mail contract were settled in connection with payments from the USPS to EWA in 2002 and 2001.

Spin-Off of CFC

On December 2, 1996, CNF completed the spin-off of Consolidated Freightways Corporation (“CFC”) to CNF’s shareholders. Refer to Item 7, “Management’s Discussion and Analysis” under “Liquidity and Capital Resources—Discontinued Operations—Spin-Off of CFC” for a discussion of matters related to CFC’s filing for bankruptcy in September 2002.

General

Employees

At December 31, 2002, CNF’s operations had approximately 26,200 regular full-time employees. The approximate number of regular full-time employees by segment were as follows: Con-Way, 15,700; Emery Forwarding, 7,000; Menlo Worldwide Logistics, 1,900; Menlo Worldwide Other, 800; CNF Other, 800. The 800 employees included in the CNF Other segment consist primarily of executive, administrative and technology positions that support CNF’s operating subsidiaries.

Cyclicality and Seasonality

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

Regulation

Air Transportation

Based on issues identified during inspections conducted by the FAA, on August 13, 2001, EWA was required to suspend its air carrier operations as part of an interim settlement agreement with the FAA. As a result, EWA furloughed approximately 400 pilots and crewmembers and Emery made arrangements to continue its service to customers without interruption by utilizing aircraft operated by several other air carriers.

In a final settlement agreement with the FAA entered into on September 17, 2001, EWA agreed to pay a $1 million civil penalty related to alleged operations, avionics, and maintenance irregularities. The final settlement agreement was first amended on December 4, 2001 as a result of CNF’s decision to terminate EWA’s air carrier operations, which was announced by CNF on December 5, 2001 in connection with Emery’s 2001 restructuring plan, as discussed more fully in “Results of Operations—Menlo Worldwide—Emery Forwarding—Restructuring Charges,” under Item 7, “Management’s Discussion and Analysis.”

Under the first amended settlement agreement, the FAA agreed not to take action to terminate EWA’s air carrier certificate until, at the earliest, May 15, 2002. The FAA agreed on May 13, 2002 to an extension of the certificate until December 4, 2002. EWA ultimately surrendered its air carrier certificate on December 4, 2002.

Emery is subject to certain FAA regulations pertaining to freight handling, including maintenance and upkeep of air cargo containers and safety. However, since Emery ceased air carrier operations effective August 13, 2001, it no longer is a certificated air carrier and is not subject to FAA aircraft-related safety regulations. Emery is responsible for FAA regulations pertaining to aircraft it owns but does not operate.

During recent years, operations at several airports have been subject to restrictions or curfews on arrivals or departures during certain nighttime hours designed to reduce or eliminate noise for surrounding residential areas. None of these restrictions has materially affected Emery’s operations. If such restrictions were to be imposed with respect to the airports at which Emery’s activities are centered (particularly Emery’s major Hub at the Dayton International Airport), and no alternative airports were available to serve the affected areas, there could be an adverse effect on Emery’s operations.

Ground Transportation

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

At the state level, federal preemption of economic regulation does not prevent the states from regulating motor vehicle safety on their highways. In addition, federal law allows all states to impose insurance requirements on motor carriers conducting business within their borders, and empowers most states to require motor carriers conducting interstate operations through their territory to make annual filings verifying that they hold appropriate registrations from FMCSA. Motor carriers also must pay state fuel taxes and vehicle registration fees, which normally are apportioned on the basis of mileage operated in each state.

Environmental

CNF is subject to stringent laws and regulations that (i) govern activities or operations that may have adverse environmental effects such as discharges to air and water, as well as handling and disposal practices for

solid and hazardous waste, and (ii) impose liability for the costs of cleaning up, and certain damages resulting from, sites of past spills, disposals or other releases of hazardous materials. In particular, under applicable environmental laws, CNF may be responsible for remediation of environmental conditions and may be subject to associated liabilities (including liabilities resulting from lawsuits brought by private litigants) relating to its operations and properties. Environmental liabilities relating to CNF’s properties may be imposed regardless of whether CNF leases or owns the properties in question and regardless of whether such environmental conditions were created by CNF or by a prior owner or tenant, and also may be imposed with respect to properties which CNF may have owned or leased in the past.

CNF’s operations involve the storage, handling and use of diesel and jet fuel and other hazardous substances. In particular, CNF is subject to stringent environmental laws and regulations dealing with underground fuel storage tanks and the transportation of hazardous materials. CNF has been designated a Potentially Responsible Party (PRP) by the EPA with respect to the disposal of hazardous substances at various sites. CNF expects that its share of the clean-up costs will not have a material adverse effect on CNF’s financial condition, cash flows, or results of operations.

Homeland Security

ITEM 2. PROPERTIES

Con-Way Transportation Services

As of December 31, 2002, Con-Way’s regional carriers operated 339 freight service centers, of which 136 were owned and 203 were leased. The service centers, which are strategically located to cover the geographic areas served by Con-Way, represent physical buildings and real property with dock, office and/or shop space ranging in size from approximately 1,400 to 229,000 square feet. These facilities do not include meet-and-turn points, which generally represent small owned or leased real property with no physical structures. The total number of trucks, tractors and trailers utilized by the Con-Way regional carriers at December 31, 2002 was approximately 27,200.

Con-Way Logistics at December 31, 2002 leased 7 warehouses near Mira Loma, California; Chicago, Illinois (2); Atlanta, Georgia; Cranbury, New Jersey; Tigard, Oregon; and Dallas, Texas. The warehouses range in size from approximately 14,000 to 240,000 square feet.

As of December 31, 2002, Con-Way Air Express operated 13 leased warehouse and service center facilities ranging in size from 4,800 to 11,000 square feet.

Menlo Worldwide—Emery Forwarding

Emery’s hub system is centered at the Dayton, Ohio International Airport (the Hub), where its leased air cargo facility and related support facilities are located. The Hub, which encompasses approximately 800,000 square feet, was financed by industrial revenue bonds, of which $108 million in principal amount was outstanding as of December 31, 2002.

As of December 31, 2002, Emery operated 115 freight facilities in North America, including service centers and logistics warehouses, of which 11 were owned and 104 were leased. The freight service centers are strategically located to cover the geographic areas served by Emery. These facilities range in size from approximately 1,000 to 112,000 square feet of office, dock and/or shop space. At December 31, 2002, Emery operated 125 leased facilities in international locations, including service centers, logistics warehouses and office

space. At December 31, 2002, Emery operated 1,430 trucks, tractors and trailers, as well as equipment provided by its agents.

As a result of the 2001 operational restructuring described in Item 7, “Management’s Discussion and Analysis” under “Menlo Worldwide—Emery Forwarding—Restructuring Charges,” only one aircraft of the 37-aircraft fleet that was grounded in connection with the Emery restructuring charge remained under lease as of February 28, 2003.

As described above in Item 1, “Business,” under “Menlo Worldwide—Emery Forwarding,” Emery in North America utilizes aircraft operated by third-party air carriers. Emery’s air freight shipments are primarily transported on aircraft owned or leased by third-party air carriers; however, a portion is also transported by an independent air carrier operating aircraft that are owned or leased by EWA. At December 31, 2002, Emery contracted with a third-party air carrier for the operation of 13 Boeing 727 aircraft, of which 10 were owned by EWA and 3 were leased by EWA. These aircraft owned and leased by EWA were not scheduled for disposal in connection with Emery’s 2001 restructuring plan.

As described in Item 7, “Management’s Discussion and Analysis,” under “Results of Operations—Menlo Worldwide—Emery Forwarding—Express Mail Contract,” the USPS terminated the Express Mail contract effective August 26, 2001. In connection with a settlement agreement, the USPS reimbursed EWA for aircraft and other termination costs but did not take possession of those aircraft. As a result, 20 aircraft owned by EWA and previously used in providing service under the Express Mail contract were grounded and remain in storage. Management intends to dispose of these aircraft, which, as of December 31, 2002, were reported at no book value based on management’s estimates of proceeds and costs related to disposition.

Menlo Worldwide—Menlo Worldwide Logistics

As of December 31, 2002, Menlo Worldwide Logistics operated 57 warehouses, of which 33 were leased by Menlo Worldwide Logistics and 24 were leased or owned by clients of Menlo Worldwide Logistics. The 33 facilities leased by Menlo Worldwide Logistics ranged in size from approximately 13,000 to 400,000 square feet.

At December 31, 2002, Menlo Worldwide Logistics owned and operated approximately 70 trucks, tractors and trailers.

CNF Other

Principal properties of the CNF Other segment included CNF’s leased executive offices in Palo Alto, California, and its Administrative and Technology (AdTech) Center in Portland, Oregon. As of December 31, 2002, CNF’s administrative and technology employees were located at three owned AdTech Center buildings comprising approximately 476,000 square feet.

ITEM 3. LEGAL PROCEEDINGS

Certain legal proceedings of CNF are summarized in Item 8, “Financial Statements and Supplementary Data,” under Note 3, “Restructuring Charges,” and Note 14, “Commitments and Contingencies.” Environmental matters are discussed in Item 1, “Business” under “Regulation—Environmental.”

The Department of Transportation, through its Office of Inspector General, and the FAA have been conducting an investigation relating to the handling of so-called hazardous materials by Emery. The Department of Justice has joined in the investigation and has been seeking to obtain additional information through the grand jury process. The investigation is ongoing and Emery is cooperating fully. CNF is unable to predict the outcome of this investigation or when an outcome will be reached.

EWA has received subpoenas issued by federal grand juries in Massachusetts and the District of Columbia and the USPS Inspector General for documents relating to the Priority Mail contract. EWA has provided, and is continuing to provide, any documents requested.

On February 16, 2000, a DC-8 cargo aircraft operated by EWA personnel crashed shortly after take-off from Mather Field, near Sacramento, California. The crew of three was killed. The cause of the crash has not been conclusively determined. The National Transportation Safety Board (NTSB) is conducting an investigation. A NTSB hearing regarding the crash commenced on May 9 and 10, 2002, and is currently in recess. EWA is currently unable to predict the outcome of this investigation or the effect it may have on Emery or CNF. EAFC, EWA and CNF Inc. have been named as defendants in wrongful death lawsuits brought by the families of the three deceased crew members, seeking compensatory and punitive damages. EAFC, EWA and CNF Inc. also may be subject to other claims and proceedings relating to the crash, which could include other private lawsuits seeking monetary damages and governmental proceedings. Although EAFC, EWA and CNF Inc. maintain insurance that is intended to cover claims that may arise in connection with an airplane crash, there can be no assurance that the insurance will in fact be adequate to cover all possible types of claims. In particular, any claims for punitive damages or any sanctions resulting from possible governmental proceedings would not be covered by insurance.

As a result of EWA’s suspension of its air carrier operations on August 13, 2001, EWA furloughed approximately 400 pilots and crewmembers. Those pilots and crewmembers are represented by the Air Line Pilots Association (ALPA) union under a collective bargaining agreement and ALPA filed a grievance on their behalf protesting the furlough. The grievance sought pay during the course of the suspension, and was subject to arbitration. In October 2002, the arbitrator ruled in favor of EWA, holding that EWA was excused from compliance with the “no-furlough” provision of the collective bargaining agreement, and holding that pilots and crewmembers were entitled only to two weeks’ severance pay.

On December 5, 2001, CNF announced that EWA would cease operating as an air carrier, and in connection therewith terminated the employment of all pilots and crewmembers, bringing the total number of terminated employees in 2001 to 800. Subsequently, ALPA filed a grievance on behalf of the pilots and crewmembers protesting the cessation of EWA’s air carrier operations and Emery’s use of other air carriers. Some aspects of the ALPA matters may be subject to binding arbitration. Based on CNF’s current evaluation, management believes that it has addressed its estimated exposure related to the ALPA matters. However, CNF cannot predict with certainty the ultimate outcome of these matters.

EWA, EAFC, Menlo Worldwide, LLC, CNF Inc. and certain individuals have been named as defendants in a lawsuit filed in state court in California by approximately 140 former EWA pilots and crewmembers. The lawsuit includes claims for wrongful termination and intentional interference with an economic relationship in connection with the suspension and subsequent cessation of EWA’s air carrier operations, and seeks $500 million and certain other unspecified damages. The lawsuit was subsequently removed to federal district court in California. CNF believes that the lawsuit’s claims are without merit, and intends to vigorously defend the lawsuit.

EWA was named as a defendant in a lawsuit and arbitration proceeding brought by a subcontractor that operated aircraft under EWA’s former Express Mail contract with the USPS. The USPS terminated the Express Mail contract “for convenience” on August 26, 2001. The subcontractor sought damages in connection with such termination. In connection with a final settlement agreement with the USPS, as more fully discussed in Item 7, “Management’s Discussion and Analysis,” under “Results of Operations—Menlo Worldwide—Emery Forwarding—Express Mail Contract,” the subcontractor waived all outstanding judicial proceedings and claims against Emery.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS

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

PART II

ITEM 5.

MARKET FOR THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

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

See Item 8, “Financial Statements and Supplementary Data” under Note 16, “Quarterly Financial Data,” for the range of common stock prices and common stock dividends for each of the quarters in 2002 and 2001. At December 31, 2002, CNF had 8,131 common shareholders of record.

ITEM 6. SELECTED FINANCIAL DATA

CNF Inc.

Five Year Financial Summary

(Dollars in thousands except per share data)	2002 (a)			2001 (a)			2000 (a)			1999			1998
SUMMARY OF OPERATIONS
Revenues
Con-Way Transportation Services	$	2,011,477		$	1,912,313		$	2,044,896		$	1,878,216		$	1,683,991
Menlo Worldwide
Emery Forwarding		1,778,712			2,044,794			2,608,142			2,408,416			2,203,474
Menlo Worldwide Logistics		969,089			898,182			890,800			716,008			586,835

		2,747,801			2,942,976			3,498,942			3,124,424			2,790,309
CNF Other		2,841			7,442			28,539			34,661			56,386

Total Revenue	$	4,762,119		$	4,862,731		$	5,572,377		$	5,037,301		$	4,530,686

Operating Income (Loss)
Con-Way Transportation Services	$	147,154		$	157,467		$	227,312		$	228,820		$	206,945
Menlo Worldwide
Emery Forwarding		(11,980	)		(790,345	)		28,365			75,514			64,299
Menlo Worldwide Logistics		31,827			(15,818	)		33,303			22,255			19,459
Menlo Worldwide Other		18,188			(9,415	)		(560	)		—			—

		38,035			(815,578	)		61,108			97,769			83,758
CNF Other		(3,369	)		(2,540	)		1,546			27,649	(i)		3,216

Total Operating Income (Loss)	$	181,820		$	(660,651	)	$	289,966		$	354,238		$	293,919

Depreciation and amortization	$	159,080		$	195,397		$	190,651		$	164,876		$	145,840
Interest expense		23,558			27,992			29,972			25,972			32,627
Income (Loss) from Continuing Operations Before Income Tax (Provision) Benefit		146,244	(d)		(695,933	)(g)		261,196	(h)		332,260	(j)		253,812
Income tax (provision) benefit		(32,035	)(e)		262,367			(109,880	)		(144,752	)		(112,756	)
Net Income (Loss) from Continuing Operations (b)		105,959			(441,849	)		143,055			179,290			132,887
Discontinued operations, net of tax (c)		—			—			—			2,966			(2,078	)
Gain (Loss) from discontinuance, net of tax		(12,398	)(f)		38,975	(c)		(13,508	)(c)		—			—
Cumulative effect of accounting change, net of tax		—			—			(2,744	)		—			—

Net Income (Loss) Applicable to Common Shareholders	$	93,561		$	(402,874	)	$	126,803		$	182,256		$	130,809

PER SHARE
Basic Income (Loss) from Continuing Operations	$	2.16		$	(9.06	)	$	2.95		$	3.72		$	2.79
Discontinued operations, net of tax (c)		—			—			—			0.06			(0.05	)
Gain (Loss) from discontinuance, net of tax		(0.26	)(f)		0.80	(c)		(0.28	)(c)		—			—
Cumulative effect of accounting change, net of tax		—			—			(0.06	)		—			—

Net Income (Loss) Applicable to Common Shareholders	$	1.90		$	(8.26	)	$	2.61		$	3.78		$	2.74

Diluted Income (Loss) from Continuing Operations	$	1.96		$	(9.06	)	$	2.65		$	3.29		$	2.49
Discontinued operations, net of tax (c)		—			—			—			0.06			(0.04	)
Gain (Loss) from discontinuance, net of tax		(0.22	)(f)		0.80	(c)		(0.24	)(c)		—			—
Cumulative effect of accounting change, net of tax		—			—			(0.05	)		—			—

Net Income (Loss) Applicable to Common Shareholders	$	1.74		$	(8.26	)	$	2.36		$	3.35		$	2.45

Common dividends	$	0.40		$	0.40		$	0.40		$	0.40		$	0.40
Common shareholders’ equity	$	13.43		$	12.04		$	20.90		$	19.15		$	15.48

STATISTICS
Total assets	$	2,739,761		$	2,990,020		$	3,244,941		$	3,059,334		$	2,659,105
Long-term obligations		557,610			565,815			534,649			433,446			467,635
Preferred securities of subsidiary trust		125,000			125,000			125,000			125,000			125,000
Capital expenditures		84,838			192,125			235,221			324,604			217,725
Effective (tax) benefit rate		(21.9	)%		37.7	%		(42.1	)%		(43.6	)%		(44.4	)%
Basic average shares		49,139,134			48,752,480			48,490,662			48,189,618			47,659,745
Market price range	$	27.36-$38.28		$	21.05-$39.88		$	20.25-$34.75		$	28.28-$45.52		$	21.63-$49.94
Number of shareholders		8,131			8,561			8,802			9,520			9,870
Number of regular full-time employees		26,200			26,100			28,700			28,300			26,500

(a)

Amounts reported above include items that materially affect the comparability of the segment operating income. For a summary of these items in the three years ended December 31, 2002, refer to Note 15, “Segment Reporting—Unusual and/or Non-Recurring Items” of Item 8, “Financial Statements and Supplementary Data.” Other Items affecting comparability are described in the notes below.

(b)

Reduced by preferred stock dividends.

(c)

Includes the results of Priority Mail operations.

(d)

Includes a $4.6 million loss, $2.8 million after tax, ($0.05 per diluted share) from equity ventures.

(e)

Includes a $25.0 million ($0.44 per diluted share) reversal of accrued taxes related to the settlement with the IRS of aircraft maintenance issues.

(f)

Includes a $2.9 million net-of-tax gain ($0.05 per diluted share) on the final Priority Mail settlement and a $15.3 million net-of-tax loss ($0.27 per diluted share) from the business failure of CFC.

(g)

Includes a $5.3 million loss, $3.3 million after tax, ($0.07 per diluted share) from equity ventures.

(h)

Includes a $2.6 million net gain, $1.5 million after tax, ($0.03 per diluted share) from the sale of securities.

(i)

Includes a $16.5 million net gain, $9.3 million after tax, ($0.17 per diluted share) from a corporate legal settlement, and a $10.1 million net gain, $5.7 million after tax, ($0.10 per diluted share) from the sale of the assets of CNF's former wholesale parts and supplies distributor.

(j)

Includes a $9.6 million net gain, $5.4 million after tax, ($0.10 per diluted share) from the sale of securities.

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis of Results of Operations and Financial Condition (referred to as Management’s Discussion and Analysis) is intended to assist in the understanding and assessment of the principal factors affecting the results of operations, liquidity and capital resources, as well as the critical accounting policies of CNF and its subsidiaries. This discussion and analysis should be read in conjunction with the audited consolidated financial statements and accompanying notes, which include additional information about CNF’s significant accounting policies and practices and the transactions that underlie CNF’s financial results. These policies should be read in conjunction with the financial statements and related notes in Item 8, “Financial Statements and Supplementary Data.”

CNF Inc. is a management company of global supply chain services, specializing in the movement of freight through its principal businesses, which provide supply chain management services for commercial and industrial shipments by land, air and sea throughout North America and the world.

As used in Management’s Discussion and Analysis, all references to CNF, “the Company,” “we,” “us,” and “our” and all similar references mean CNF Inc. and its subsidiaries, unless otherwise expressly stated or the context otherwise requires.

RESULTS OF OPERATIONS

Net income available to common shareholders of $93.6 million ($1.74 per diluted share) in 2002 improved from a net loss applicable to common shareholders of $402.9 million ($8.26 per diluted share) in 2001. Continuing operations generated 2002 net income (after preferred dividends) of $106.0 million ($1.96 per diluted share) compared to a 2001 net loss of $441.8 million ($9.06 per diluted share). In 2000, net income available to common shareholders was $126.8 million ($2.36 per diluted share), primarily due to net income from continuing operations of $143.1 million ($2.65 per diluted share).

Discontinued operations resulted in an after-tax loss of $12.4 million ($0.22 per diluted share) in 2002, an after-tax gain of $39.0 million ($0.80 per diluted share) in 2001, and an after-tax loss of $13.5 million ($0.24 per diluted share) in 2000. Gains and losses from discontinued operations in all periods presented were due to the terminated Priority Mail contract with the U.S. Postal Service, which was fully settled in 2002, except for after-tax losses of $15.3 million recognized in 2002 upon the business failure of Consolidated Freightways Corporation (“CFC”) in September 2002 as described below under “Liquidity and Capital Resources—Discontinued Operations—Spin-Off of CFC.”

Continuing Operations

In 2002, net income from continuing operations (after preferred dividends) improved from the net loss from continuing operations in 2001 as CNF earned operating income of $181.8 million in 2002 compared to an operating loss of $660.7 million in 2001. Net income from continuing operations in 2002 benefited from the settlement of IRS matters, which resulted in a $25.0 million tax benefit in the third quarter of 2002 and reduced the effective tax rate in 2002. Operating income in 2002 was largely due to improved operating results from the Menlo Worldwide businesses and from the net effect of the unusual and/or nonrecurring items, summarized below, while the 2001 operating loss included $652.2 million of restructuring charges at Emery, a $47.5 million loss from the business failure of a Menlo Logistics’ customer, and the net adverse effect of $64.4 million of other unusual and/or nonrecurring items in 2001. Excluding these identified items, operating income in 2002 would have been $156.9 million compared to $103.4 million in 2001 due largely to a decline in the operating loss at Emery Forwarding, partially offset by higher incentive-based employee compensation and an increase in pension costs and other employee benefits expense at all reporting segments. Revenue of $4.76 billion in 2002 fell 2.1%

from $4.86 billion in 2001 due primarily to lower revenue at Emery Forwarding, partially offset by improved revenue from Con-Way Transportation Services and Menlo Worldwide Logistics.

The $441.8 million net loss from continuing operations in 2001 compared to net income from continuing operations of $143.1 million in 2000. In 2001, CNF reported a $660.7 million operating loss compared to operating income of $290.0 million in 2000. The 2001 operating loss reflected the net adverse effect of the restructuring charge, other unusual and/or non-recurring items, and a decline in revenue, which was due in part to weak global economic conditions and the September 11, 2001 terrorist attacks. Operating income in 2000 benefited from higher revenue in comparatively stronger economic conditions. The 12.7% decline in revenue to $4.86 billion in 2001 from $5.57 billion in 2000 was principally due to the comparatively weaker economic environment in 2001, which contributed to revenue declines at Con-Way and at Emery Forwarding, which reflected lower revenue from Emery Worldwide Airlines’ (“EWA”) Express Mail contract with the USPS that was terminated in 2001.

Other net expense in 2002 increased 0.8% from 2001 due largely to higher costs of obtaining letters of credit and declines in the cash-surrender value of corporate-owned life insurance policies, partially offset by lower interest expense on long-term debt. In April 2000, CNF entered into interest rate swaps that effectively converted long-term debt from fixed-rate to floating-rate until these swaps were terminated in December 2002, as more fully discussed under “Other Matters—Market Risk.” Other net expense in 2002 and 2001 included equity venture losses of $4.6 million and $5.3 million, respectively. Other net expense in 2001 increased 22.6% from 2000 due primarily to the $5.3 million equity venture loss in 2001 and a $2.6 million gain from the sale of securities in 2000.

CNF’s results of operations included various items that affected the year-to-year comparability of the reported operating income (loss) of its reporting segments that CNF has identified as being “unusual and/or non-recurring” in the three years ended December 31, 2002. All items summarized in the table below were identified as such by CNF’s management based in part on their materiality to the relevant reporting segment.

(Dollars in thousands)	Years ended December 31,
	2002			2001			2000
Con-Way Transportation Services—
Net gain (loss) from the sale of a property	$	8,675		$	—		$	(5,459	)
Menlo Worldwide—
Emery Forwarding—
Net gain from a payment under the Air Transportation Safety and System Stabilization Act		9,895			—			—
Loss from restructuring charges (Note 3)		—			(652,241	)		—
Loss from a legal settlement on returned aircraft		—			(4,696	)		—
Duplicate airhaul costs (Note 3)		—			(55,800	)		—
Goodwill amortization (Note 1)		—			(10,210	)		(10,864	)
Express Mail operating income		—			6,324			28,245
Express Mail settlement		5,715			—			—
Loss from the termination of aircraft leases		—			—			(11,897	)
Menlo Worldwide Logistics—
Net gain from early termination of a contract		1,850			—			—
Loss from the business failure of a customer		—			(47,454	)		—
CNF Other—
Loss from the business failure of CFC		(3,595	)		—			—
Net gain from the sale of a property		2,367			—			—

Reporting Segments

CNF’s principal businesses consist of Con-Way Transportation Services (Con-Way) and Menlo Worldwide. For financial reporting purposes, CNF is divided into five reporting segments. The operating results of Con-Way

are reported as one reporting segment while Menlo Worldwide is divided into three reporting segments: Emery Forwarding, Menlo Worldwide Logistics, and Menlo Worldwide Other. Also, certain corporate activities and the results of Road Systems, a trailer manufacturer, are reported in the CNF Other reporting segment.

Con-Way Transportation Services

Revenue for Con-Way in 2002 rose 5.2% over 2001 to $2.01 billion due primarily to higher revenue from Con-Way’s regional carriers and from Con-Way’s asset-light businesses, as described below. Revenue per day from the regional carriers, including fuel surcharges, grew 3.5% from 2001 on a 2.5% improvement in revenue per hundredweight (yield) and a 1.0% increase in both total and less-than-truckload (“LTL”) weight per day (weight). Fourth-quarter regional-carrier revenue per day in 2002 increased 9.2% from 2001 as fourth-quarter yield increased 7.6% and total fourth-quarter weight rose 1.5%. Slightly higher weight in 2002 was aided in part by the bankruptcy of CFC in September 2002, but was adversely affected by the loss of a major customer in the first quarter of 2002. Yield in 2002 was adversely affected by lower fuel surcharges, but benefited from the aforementioned lost business of a major customer, which was partly replaced with higher-yielding freight. Continued growth of interregional joint services as a percentage of revenue also benefited yield in 2002, as these services typically command higher rates on longer lengths of haul. In 2002, Con-Way’s asset-light businesses, including Con-Way NOW (NOW), Con-Way Logistics (CLI), and Con-Way Air Express (CAX), increased revenue by $23.0 million over 2001 to $76.7 million. Con-Way defines “asset-light” businesses as those subsidiaries or affiliated companies that require a comparatively smaller capital investment than its less-than-truckload (LTL) operations. Operating income for Con-Way in 2002 declined 6.5% to $147.2 million. Excluding an $8.7 million net gain from the sale of an excess property in 2002, operating income declined 12.1% in 2002 due principally to a 10.9% increase in employee compensation (including incentive-based compensation) and benefits expense, partially offset by the higher revenue. Operating income in 2002 and 2001 included losses from CAX, which began operations in May 2001, and losses from CLI.

Con-Way’s revenue in 2001 fell 6.5% from 2000 to $1.91 billion due primarily to lower revenue from Con-Way’s regional carriers and from the closure in August 2000 of Con-Way Truckload Services, which accounted for revenue of $62.6 million in 2000. Con-Way’s regional carriers’ revenue per day, including fuel surcharges, fell 4.3% in 2001 on declines in total and LTL weight of 3.8% and 3.2%, respectively, with a 0.5% decrease in yield. Weight and yield in 2001 were adversely affected by weak global economic conditions in the U.S. Operating income of $157.5 million in 2001 was 30.7% lower than 2000 due primarily to a decline in revenue, a 10.5% increase in health and welfare costs, and operating losses from CAX. Con-Way’s operating income of $227.3 million in 2000 included a $5.5 million loss from the sale of certain assets of Con-Way Truckload Services. Operating losses from CAX adversely affected operating income in primarily the last half of 2001 while operating losses from CLI reduced operating income in both 2001 and 2000.

Menlo Worldwide

CNF formed the new Menlo Worldwide group of supply chain service providers effective January 1, 2002. For financial reporting purposes, the new Menlo Worldwide group is divided into three reporting segments: Emery Forwarding, Menlo Worldwide Logistics, and Menlo Worldwide Other. Vector SCM, a joint venture with General Motors, is reported in the Menlo Worldwide Other segment as an equity-method investment. In 2002, the Menlo Worldwide group of businesses reported revenue of $2.75 billion and operating income of $38.0 million.

Menlo Worldwide—Emery Forwarding

Operating Results

In 2002, Emery’s revenue was $1.78 billion, a 13.0% decline from 2001, due primarily to lower North American air freight revenue, essentially flat international air freight revenue, and the termination by the

U.S. Postal Service (USPS) of EWA’s contract to transport Express Mail, as described below under “—Express Mail Contract.” In 2001, Emery recognized revenue of $117.0 million from the Express Mail contract until termination of the contract effective August 26, 2001.

Emery’s average international air freight revenue per day (air freight revenue) in 2002, including fuel surcharges, was essentially unchanged from 2001 as a 2.7% improvement in average pounds per day (weight) was offset by a 2.9% decline in revenue per pound (yield). However, international air freight revenue in the last quarter of 2002 grew 17.8% from the last quarter of 2001 as fourth-quarter international weight and yield increased 12.2% and 2.0%, respectively. Growth in international weight in 2002 was attributable in part to improved business levels in international markets served by Emery, particularly in Asia, and, to a lesser extent, from labor-related disruption of ports in the western U.S., which temporarily diverted some international freight from ocean vessels to air carriers. International weight in 2001 reflects lost revenue from the terrorist incident described below under “—Terrorist Attacks.” International yields in 2002 were negatively affected by a decline in fuel surcharges from 2001. North American airfreight revenue, including fuel surcharges, fell 16.7% in 2002 on a 6.8% decline in North American weight and a 10.6% drop in yield. However, the decline in the fourth quarter of 2002 was less acute than the full-year decline, as fourth-quarter North American airfreight revenue in 2002 fell 5.7% from the same quarter of 2001 on a 10.2% decrease in yield and a 5.0% increase in weight. North American weight in 2002 was negatively impacted by comparatively weaker U.S. economic conditions, a reduction in the number of aircraft routes and domestic markets served by Emery, and a loss of business to ground transportation providers, while 2001 was adversely affected by lost business from the September 11, 2001 terrorist attacks. Lower yield in 2002 was due in part to Emery’s efforts to increase second-day and economy service, which contributed to a higher percentage of lower-yield service offerings, and to lower fuel surcharges.

Emery’s operating loss in 2002 improved to $12.0 million from $790.3 million in 2001. Emery’s operating loss in 2002 included a $5.7 million net gain from final settlement of the Express Mail contract and a $9.9 million net gain from a payment under the Air Transportation Safety and System Stabilization Act. Emery’s operating loss in 2001 included restructuring charges of $652.2 million and other unusual and/or nonrecurring items, as detailed above in “Results of Operations—Continuing Operations,” which collectively resulted in a net negative impact of $64.4 million on Emery’s 2001 operating results. Excluding the identified unusual and/or nonrecurring items, Emery’s operating loss would have been $27.6 million in 2002 compared to a $73.7 million operating loss in 2001, due primarily to lower airhaul costs, a 16.7% decline in employee compensation and benefits expense and a decline in depreciation, aircraft rentals and aircraft-related expenses.

In 2001, Emery’s revenue fell 21.6% to $2.04 billion, due primarily to lower North American and international airfreight revenue and the termination of the Express Mail contract, effective August 26, 2001. In 2001, Emery recognized revenue of $117.0 million from the Express Mail contract compared to $229.1 million in 2000. Average international air freight revenue per day in 2001, including fuel surcharges, fell 13.2% from 2000 due to a 14.1% decline in weight, partially offset by a 1.1% improvement in yield. Average North American air freight revenue per day, including fuel surcharges, declined 28.4% as a 30.8% drop in weight offset a 3.6% improvement in yield. International and North American weight declines in 2001 were largely attributable to weak global economic conditions that reduced business activity in Emery’s international and domestic markets and from revenue declines resulting from the September 11, 2001 terrorist attacks. North American weight in 2001 was also adversely affected by loss of business to ground transportation providers and a reduction in the number of aircraft flown and domestic markets served by Emery.

Emery’s $790.3 million operating loss in 2001 reflects $652.2 million of restructuring charges and other unusual and/or nonrecurring items, which collectively resulted in a net negative impact of $64.4 million, as detailed above in “Results of Operations—Continuing Operations.” Emery’s operating income of $28.4 million in 2000 included an $11.9 million unusual loss from the termination of aircraft leases and full-year operating income from the Express Mail contract terminated effective August 26, 2001. Excluding the identified unusual and/or nonrecurring items, Emery would have had an operating loss of $73.7 million in 2001 compared to operating income of $22.9 million in 2000, due primarily to lower revenue in 2001.

Restructuring Charges

In connection with CNF’s announcement of the cessation of EWA’s air carrier operations on December 5, 2001, EWA terminated the employment of all of its pilots and crewmembers, bringing the total number of terminated employees in 2001 to 800. Those pilots and crewmembers are represented by the Air Line Pilots Association (ALPA) union under a collective bargaining agreement. Subsequently, ALPA filed a grievance on behalf of the pilots and crewmembers protesting the cessation of EWA’s air carrier operations and Emery’s use of other air carriers. Some aspects of the ALPA matters may be subject to binding arbitration. Based on CNF’s current evaluation, management believes that it has addressed its estimated exposure related to the ALPA matters. However, there can be no assurance in this regard as CNF cannot predict with certainty the ultimate outcome of these matters.

Following the fourth-quarter restructuring charge in 2001, Emery’s cash flows have reflected the cost of having other air carriers provide service to Emery’s North American customers as well as lease payments and other costs associated with Emery’s remaining fleet of grounded aircraft; however, Emery’s operating expenses have reflected the cost of aircraft operated by other carriers but have not included scheduled rental payments and return costs relating to EWA’s grounded aircraft, as these costs were accrued in connection with the restructuring charges.

As described above, the suspension of EWA’s air carrier operations on August 13, 2001 was a requirement of an interim settlement agreement with the FAA. Under amendments to the settlement agreement with the FAA, EWA’s air carrier certificate was terminated on December 4, 2002. For a detailed discussion of the settlement agreement and related FAA matters, refer to “Regulation—Air Transportation,” under Item 1, “Business.”

In 2002, Emery paid $302.6 million for aircraft leases and return costs, including $288.5 million for the costs of terminating aircraft leases and returning leased aircraft in connection with the 2001 restructuring charges and $14.1 million for other aircraft costs, including payments on aircraft leased by EWA and operated by an independent third-party air carrier. In February 2003, Emery negotiated the early return of 4 additional aircraft, which in 2003 will result in an estimated $24 million reduction of related restructuring reserves. As a result, only one aircraft of the 37-aircraft fleet that was grounded in connection with Emery’s restructuring charges remained under lease as of February 28, 2003.

management believes are reasonable under the circumstances. However, there can be no assurance that actual costs will not differ from this estimate, and that difference would be recognized as additional expense or income in the period when and if that determination can be made.

Refer to Item 8, “Financial Statements and Supplementary Data,” under Note 3, “Restructuring Charges,” for the cumulative activity related to Emery’s 2001 restructuring plan.

Terrorist Attacks

Emery’s operating results in 2001 were adversely affected by the terrorist attacks on September 11, 2001. Contractors providing air carrier service to Emery were grounded on September 11 and 12 and did not resume service until the evening of September 13.

In response to the terrorist attacks, the U.S. Congress passed the Air Transportation Safety and System Stabilization Act (the “Act”), a $15 billion emergency economic assistance package intended to mitigate financial losses in the air carrier industry. The legislation provides for $5 billion in direct loss reimbursement and $10 billion in federal loan guarantees and credits, expands war risk insurance coverage for air carriers, and provides some government assistance for short-term increases in insurance premiums. In March 2002, Emery received an $11.9 million payment under the Act, resulting in the recognition of a $9.9 million first-quarter net gain in 2002. The payment made to Emery under the Act is subject to audit. Emery is seeking additional payments under the Act.

Emery is not able to accurately quantify how the events of September 11, or any subsequent terrorist activities, will affect the global economy, governmental regulation, the air transportation industry, Emery’s costs of providing airfreight services and the demand for Emery’s airfreight services. However, Emery believes that any additional security measures that may be required by future regulations could result in additional costs and could have an adverse effect on its operations and service, as described below under “Other Matters—Business Interruption.”

Express Mail Contract

Effective August 26, 2001, the USPS terminated “for convenience” a contract under which EWA transported Express Mail and other classes of mail for the USPS (the “Express Mail contract”). As described below under “Discontinued Operations,” EWA received a $70.0 million provisional payment from the USPS for termination costs and other claims related to the Express Mail contract on September 26, 2001. The $70.0 million provisional payment was included in Deferred Credits in CNF’s Consolidated Balance Sheets at December 31, 2001 pending settlement with the USPS, at which time it would be used to recover the remaining costs related to the Express Mail contract. Under a subsequent settlement agreement, the USPS on December 17, 2002 paid EWA an additional $5.0 million to settle EWA’s Express Mail contract termination costs, including the reimbursement of certain aircraft and other assets. As a result of the final $5.0 million settlement payment, Emery in December 2002 fully recovered the remaining Express Mail assets and recorded a $5.7 million net gain.

In 2001, Emery recognized revenue of $117.0 million from the transportation of mail under the Express Mail contract, compared to $229.1 million in 2000. Operating income from the Express Mail contract in 2001 was $6.3 million compared to $28.2 million in 2000.

Outlook

Under the new Menlo Worldwide group, management will continue Emery’s focus on increasing the revenue and operating margins of its variable-cost-based international operations. In North America, management will continue to position Emery as a freight forwarder utilizing aircraft operated by other carriers. As a result, management’s strategy is to implement a more flexible variable-cost-based operating structure in

North America to increase the proportion of revenue generated by second-day and deferred delivery services. Management will continue its efforts to reduce Emery’s costs by initiatives intended to reduce the cost structure of the North American service center and hub network and administrative costs.

Menlo Worldwide—Menlo Worldwide Logistics

Revenue of $969.1 million for Menlo Worldwide Logistics increased 7.9% over 2001 due largely to higher revenue recognized from carrier and warehouse management services, partially offset by lower revenue from contract carriage services. Operating income in 2002 of $31.8 million included a $1.9 million net gain from the early termination of a contract and improved from a $15.8 million operating loss in 2001, which resulted primarily from a $47.5 million loss from the business failure of a customer. Excluding these unusual and/or non-recurring items, operating income in 2002 would have been $30.0 million compared to $31.6 million in 2001, a decline of 5.2%. Operating income in 2002 benefited from higher revenues but was adversely affected by higher employee compensation (including incentive-based compensation) and benefits expense, which collectively rose 8.3% over 2001.

Menlo Worldwide Logistics’ revenue of $898.2 million in 2001 rose 0.8% over revenue of $890.8 million in 2000. Revenue in 2001 was adversely affected by weak global economic conditions. Menlo Worldwide Logistics incurred a $15.8 million operating loss in 2001 compared to operating income of $33.3 million in 2000, due principally to a $47.5 million loss from the business failure of a customer in 2001. Excluding the significant nonrecurring loss in 2001, Menlo Worldwide Logistics’ operating income would have been $31.6 million in 2001, a decrease of 5.0% from 2000, due primarily to a decline in the percentage of higher-margin consulting fees, partially offset by an increase in lower-margin transportation management services.

A portion of Menlo Worldwide Logistics’ revenue is attributable to logistics contracts for which Menlo Worldwide Logistics manages the transportation of freight but subcontracts the actual transportation and delivery of products to third parties. Menlo Worldwide Logistics refers to this as purchased transportation. Menlo Worldwide Logistics’ net revenue (revenue less purchased transportation) in 2002 was $286.6 million, compared to $268.5 million in 2001 and $265.6 million in 2000.

Menlo Worldwide—Menlo Worldwide Other

The Menlo Worldwide Other reporting segment includes the results of Vector SCM. Vector is a joint venture formed with General Motors (“GM”) in December 2000 to provide logistics services to GM. Although CNF owns a majority equity interest in Vector, the operating results of Vector are reported as an equity-method investment based on GM’s ability to control certain operating decisions.

CNF reported operating income from Vector of $18.2 million compared to an operating loss of $9.4 million in 2001, which was Vector’s first full year of operation. In one month of operation in 2000, CNF reported an operating loss from Vector of $0.6 million. Improved operating results from Vector in 2002 were due to implementation and acceptance of approved business cases (“ABC”). An ABC is a project, developed with and approved by GM, aimed at reducing costs, assuming operational responsibilities, and/or achievement of operational changes for GM in a particular service area or service areas.

CNF’s operating income in the first half of 2002 included substantially all of Vector’s net income for that period (rather than CNF’s pro rata portion of that net income), because CNF is contractually entitled to substantially all of Vector’s net income to the extent of Vector’s cumulative losses because, under the contract, all of Vector’s losses in prior periods were allocated to CNF. During the second quarter of 2002, CNF’s allocated cumulative losses from the Vector joint venture had been recouped through allocated net income. As a result, GM began sharing in Vector’s net income in the third quarter of 2002.

Under an agreement (“LLC Agreement”), GM has the right to purchase CNF’s membership interest in Vector (“Call Right”) and CNF has the right to require GM to purchase CNF’s membership interest in Vector

(“Put Right”). The Call Right and Put Right are exercisable at the sole discretion of GM and CNF, respectively. Exercise of the Call Right or Put Right would require GM to pay CNF for the full value of CNF’s membership interest in Vector, as determined by approved appraisers using a predetermined valuation formula, and as a result, would likely have a material effect on CNF’s financial condition, cash flows and results of operations.

CNF Other

The CNF Other segment includes the results of Road Systems and certain corporate activities. The $3.4 million operating loss in 2002 included a $3.6 million loss from the business failure of CFC and a $2.4 million net gain from the sale of excess corporate property. An operating loss of $2.5 million in 2001 and operating income of $1.5 million in 2000 included the collective operating results of Road Systems and various corporate activities.

Discontinued Operations

Priority Mail Contract

As a result of the termination of the Priority Mail contract, the results of operations and cash flows of the Priority Mail operations have been segregated and classified as discontinued operations. On November 3, 2000, EWA and the USPS announced an agreement (the “Termination Agreement”) to terminate their contract for the transportation and sortation of Priority Mail (the “Priority Mail contract”). As described below, all claims relating to amounts owed to EWA under the Priority Mail contract were fully settled in connection with payments from the USPS to EWA in 2002 and 2001.

Under the terms of the Termination Agreement, the USPS agreed to reimburse EWA for Priority Mail contract termination costs. On January 7, 2001, the USPS paid EWA $60.0 million toward the termination costs and on July 3, 2002, the USPS paid EWA $6.0 million to fully settle EWA’s Priority Mail contract termination costs, which resulted in a 2002 third-quarter gain from discontinuance of $2.9 million, net of $1.8 million of income taxes.

On September 26, 2001, EWA entered into an agreement with the USPS to settle claims relating to the underpayment of amounts owed to EWA under the Priority Mail contract with the USPS (the “Settlement Agreement”). Under the Settlement Agreement, EWA received a $235.0 million payment from the USPS on September 28, 2001 to settle all non-termination claims under the Priority Mail contract as well as a $70.0 million provisional payment for termination costs related to the separate Express Mail contract with the USPS. These claims were to recover costs of operating under the contract as well as profit and interest thereon. The Priority Mail Termination Agreement described above was unaffected by the Settlement Agreement. As a result of the payment under the Settlement Agreement, unbilled revenue under the contract was fully recovered and EWA in the third quarter of 2001 recognized a gain from discontinuance of $39.0 million, net of $24.9 million of income taxes. EWA in 2000 also recognized a $13.5 million loss, net of $8.6 million of income tax benefits, for estimates of non-reimbursable costs from discontinuance.

Refer to Item 8, “Financial Statements and Supplementary Data,” under Note 2, “Discontinued Operations—Priority Mail Contract,” for further discussion of the discontinued Priority Mail operations.

Spin-Off of CFC

As more fully discussed below under “Liquidity and Capital Resources—Discontinued Operations—Spin-off of CFC,” CNF recognized 2002 third-quarter and fourth-quarter losses from discontinuance of $13.0 million (net of $8.3 million of income taxes) and $2.3 million (net of $1.4 million of income taxes), respectively, in connection with the bankruptcy of CFC in September 2002.

LIQUIDITY AND CAPITAL RESOURCES

In 2002, cash and cash equivalents decreased by $130.4 million from December 31, 2001 to $270.4 million at December 31, 2002. Cash used in investing activities of $84.5 million and financing activities of $54.2 million were funded primarily with a reduction in cash, and to a lesser extent, cash from operations.

Operating activities in 2002 generated net cash of $4.8 million, a decline from $307.4 million of cash generated by operating activities in 2001, due primarily to restructuring-related aircraft lease payments and return costs described above under “Results of Operations—Menlo Worldwide—Emery Forwarding—Restructuring Charges.” Cash in 2002 was provided primarily by net income from continuing operations before non-cash items. “Non-cash items” in all years presented refers to depreciation, amortization, deferred income taxes, provision for uncollectible accounts, equity in earnings or losses of equity-method investments, non-cash gains and losses, and in 2001, also include the restructuring charges and loss from the business failure of a customer. Positive operating cash flows in 2002 were also provided by a $25.9 million increase in accrued liabilities, which consisted primarily of a $52.2 million increase in accrued incentive compensation, and $31.0 million received as partial payment in connection with the termination of interest rate swaps as more fully discussed below under “—Other Matters—Market Risk.” Cash outflows in 2002 consisted primarily of aircraft lease payments and return costs of $302.6 million and defined benefit pension plan funding payments of $76.2 million, as described below under “—Defined Benefit Pension Plan.” Cash from operating activities of $307.4 million in 2001 was largely due to net income from continuing operations before non-cash items, the collection of receivables, and an increase in deferred credits, which reflected receipt of a $70 million provisional payment from the USPS as described above in “Results of Operations—Menlo Worldwide—Emery Forwarding—Express Mail Contract.” Cash outflows in 2001 included primarily declines in accounts payable and accrued liabilities.

Investing activities in 2002 used $84.5 million of cash compared to $194.0 million used in 2001. Capital expenditures of $84.8 million in 2002 fell from $192.1 million in 2001 due primarily to an $84.0 million reduction at Con-Way and a $14.9 million reduction in Emery’s capital expenditures. In 2001, capital expenditures decreased by $43.1 million from 2000 due primarily to the net effect of a $44.2 million reduction at Emery, a $25.3 million reduction in corporate capital expenditures, which reflects the substantial completion in 2000 of a CNF corporate administration and technology facility, and an increase of $26.5 million at Con-Way, which was principally due to $79.4 million of cash spent for the planned periodic replacement of linehaul equipment. In 2000, Con-Way acquired the use of $66.7 million of equipment through operating lease agreements.

Financing activities in 2002 used cash of $54.2 million, due primarily to capital lease payments on aircraft and dividend payments, compared to net cash of $34.6 million used in financing activities in 2001. In 2000, financing activities provided cash of $32.4 million and reflected $197.5 million of net proceeds from the issuance of long-term debt, which in part was used to repay short-term and long-term borrowings outstanding under lines of credit.

CNF has a $385 million revolving credit facility that matures on July 3, 2006. The revolving credit facility is available for cash borrowings and for the issuance of letters of credit up to $385 million. At December 31, 2002, no borrowings were outstanding under the facility and $244.1 million of letters of credit were outstanding, leaving $140.9 million of available capacity for additional letters of credit or cash borrowings, subject to compliance with financial covenants and other customary conditions to borrowing. CNF had other uncommitted unsecured credit facilities totaling $91.3 million at December 31, 2002, which are available to support letters of credit, bank guarantees, and overdraft facilities; at that date, a total of $66.6 million was outstanding under these facilities. Of the total letters of credit outstanding at December 31, 2002, $236.8 million provided collateral for CNF workers’ compensation and vehicular self-insurance programs. See “Forward-Looking Statements” below and Item 8, “Financial Statements and Supplementary Data,” under Note 5, “Debt and Other Financing Arrangements,” for additional information concerning CNF’s $385 million credit facility and some of its other debt instruments, including certain rights and remedies available to the lenders.

IRS Matters

In August 2002, CNF entered into settlement agreements with the Internal Revenue Service (IRS), pursuant to which the parties settled issues related to the deductibility of aircraft maintenance costs for the years 1987 through 2000, and all other open issues under IRS examinations for the years 1987 through 1996. CNF reversed through tax provision the related tax liabilities previously recognized for this issue, resulting in a $25.0 million tax benefit in the third quarter of 2002. As a result of the settlement agreements, CNF was not required to make any additional payments to the IRS over and above a $93.4 million payment made in respect to these issues in 2000. Certain issues remain open for the years 1997 through 2000, but management does not believe that the resolution of those issues is likely to have a material adverse effect on CNF’s financial condition, cash flows or results of operations.

Discontinued Operations

Spin-Off of CFC

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

In September 2002, CFC filed for bankruptcy and ceased most U.S. operations. Following the commencement of its bankruptcy proceeding, CFC ceased making payments with respect to these workers’ compensation and public liability claims. CNF was required to take over payment of some of these claims, and expects that demands for payment will likely be made against it with respect to the remaining claims. CNF estimates the aggregate amount of all of these claims, plus other costs, to be $25.0 million. As a result, CNF accrued additional reserves in 2002, primarily in accrued claims costs in the Consolidated Balance Sheets, and recognized 2002 third-quarter and fourth-quarter losses from discontinuance of $13.0 million (net of $8.3 million of income taxes) and $2.3 million (net of $1.4 million of income taxes), respectively. CNF intends to seek reimbursement from CFC in its bankruptcy proceeding of amounts that CNF pays in respect of all of these claims, although there can be no assurance that CNF will be successful in recovering all or any portion of such payments.

It is possible that the trustees of CFC’s multiemployer pension plans may assert claims that CNF is liable for amounts owing to the plans as a result of CFC’s withdrawal from those plans and, if so, there can be no assurance that those claims would not be material. CNF has received a request for information regarding the spin-off of CFC from representatives from some of the pension funds, and, in accordance with federal law, CNF is in the process of responding to that request. Under federal law, representatives of CFC’s multiemployer plans are entitled to request such information to assist them in determining whether they believe any basis exists for asserting a claim against CNF.

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

If such claims were made, CNF, unless relieved of the obligation through appropriate legal proceedings, would be required under federal law to make periodic cash payments to the multiemployer plans asserting claims against CNF, in an aggregate amount of up to the full amount of those claims. However, under federal law, the claims would initially be decided through arbitration and, upon a final decision by the arbitrator in favor of CNF, the plan trustees would be required to promptly refund those payments, with interest. While the length of time required to reach a final decision in any such arbitration cannot be predicted with certainty, CNF believes that such a decision could be reached within twelve to eighteen months from receipt of claims from the plans, although there can be no assurance in this regard.

CNF currently estimates that the net amount of quarterly payments (after deductibility for tax purposes) could range from $20 million to $25 million (based on certain assumptions), although the actual amount could be greater or less than this estimate. Based on CNF’s current financial condition and management’s projections of CNF’s estimated future financial condition, cash flows and results of operations, as well as a number of other estimates and assumptions, CNF believes that it would have sufficient financial resources to make these periodic payments if it were required to do so. However, there can be no assurance in that regard, and accordingly any requirement to make these periodic payments could have a material adverse effect on CNF’s cash flows.

As a result of the foregoing, there can be no assurance that matters relating to CFC and its bankruptcy proceedings will not have a material adverse effect on CNF’s financial condition, cash flows or results of operations, including potentially triggering downgrades of debt instruments or events of default under credit agreements. See Note 5, “Debt and Other Financing Arrangements,” in Item 8, “Financial Statements and Supplementary Data.”

Priority Mail Contract

As described above under “Results of Operations—Discontinued Operations,” cash flows from the Priority Mail operations have been segregated and classified as net cash flows from discontinued operations in the Statements of Consolidated Cash Flows. As described in Item 8, “Financial Statements and Supplementary Data,” under Note 2, “Discontinued Operations,” EWA received payments in 2002 and 2001 from the USPS related to the discontinued Priority Mail operations.

In January 2001, EWA received a $60.0 million provisional payment toward reimbursable termination costs, as provided under the Termination Agreement signed by EWA and the USPS in November 2000. In September 2001, EWA received a $305.0 million payment from the USPS, including $235.0 million to settle all non-termination claims under the Priority Mail contract. In July 2002, EWA received a $6.0 million payment from the USPS, in addition to the $60.0 million provisional payment in January 2001. The additional $6.0 million payment fully settled EWA’s Priority Mail contract termination costs.

Defined Benefit Pension Plan

CNF periodically reviews the funding status of its defined benefit pension plan for non-contractual employees, and makes contributions from time to time as necessary in order to comply with the funding requirements of the Employee Retirement Income Security Act (“ERISA”). In 2002, CNF contributed $76.2 million in cash payments to the defined benefit pension plans. CNF currently estimates that it will contribute a total of approximately $75 million of cash in 2003. However, this estimate is subject to uncertainties and assumptions, including assumptions as to the rate of return on plan assets and the actual amount of CNF’s cash contributions may differ. Except for cash payments of $76.2 million in 2002 and $13.1 million in 2001, CNF had made no contributions to the defined benefit pension plans since 1995, due in part to the high rate of return realized on plan assets from 1996 through 2000.

exceeded the fair value of plan assets as of December 31, 2002. In accordance with accounting principles generally accepted in the United States, CNF recorded an additional minimum pension liability adjustment in 2002, which increased the accrued pension benefit cost for CNF’s qualified and non-qualified defined benefit pension plans by $45.8 million, increased the intangible pension asset by $6.7 million, and reduced shareholders’ equity by $19.5 million through a net-of-tax increase in accumulated other comprehensive loss. Funding of CNF’s defined benefit pension, as described above, is based on ERISA-defined measurements rather than the recognition and measurement criteria prescribed by accounting principles generally accepted in the United States, which resulted in the minimum pension liability adjustment. Future minimum pension liability adjustments, without sufficient levels of cash funding by CNF, would further reduce shareholders’ equity. As a result of the foregoing, there can be no assurance that matters related to CNF’s defined benefit pension plans will not have a material adverse effect on CNF’s financial condition, cash flows or results of operations, including potentially triggering downgrades of debt instruments or events of default under credit agreements.

The determination of the accrued pension benefit cost includes an unrecognized actuarial loss that results from the cumulative difference between estimated and actual values for the year-end projected pension benefit obligation and the fair value of plan assets. Under accounting principles generally accepted in the United States, any portion of the unrecognized actuarial loss or gain that exceeds ten percent of the greater of the projected benefit obligation or fair value of plan assets must be amortized as an expense over the average service period for employees, approximately thirteen years for CNF. Amortization of the unrecognized actuarial loss at December 31, 2002 will increase the annual pension benefit costs in 2003 by approximately $6 million.

See “Other Matters—Forward-Looking Statements” below, and Note 5, “Debt and Other Financing Arrangements,” and Note 11, “Benefit Plans,” in Item 8, “Financial Statements and Supplementary Data.”

Other

In general, CNF expects its future liquidity to be affected by the timing and amount of cash flows related to capital expenditures, pension plan funding requirements, restructuring charge reserves, repayment of long-term debt and guarantees, capital and operating leases and the preferred securities of a subsidiary trust. The following table summarizes CNF’s contractual cash obligations as of December 31, 2002. Certain of these contractual obligations are reflected in the Consolidated Balance Sheets while others are disclosed as future obligations under accounting principles generally accepted in the United States.

(Dollars in thousands)	Payments Due by Period
	Total		1 Year		2-3 Years		4-5 Years		Over 5 Years
Long-Term Debt and Guarantees	$	420,668	$	12,134	$	126,734	$	54,300	$	227,500
Capital Lease Obligations		177,238		6,819		13,638		13,638		143,143
Operating Leases		298,984		93,793		118,891		55,032		31,268
Purchase Obligations		42,984		42,984		—		—		—

Total	$	939,874	$	155,730	$	259,263	$	122,970	$	401,911

As presented above, cash obligations on long-term debt and guarantees represent principal payments while cash obligations for capital and operating leases represent the notional payments under the lease agreements, including anticipated future cash payments for interest on capital leases. For further discussion, see Item 8, “Financial Statements and Supplementary Data,” under Note 5, “Debt and Other Financing Arrangements,” Note 6, “Leases,” and Note 14, “Commitments and Contingencies.”

CNF’s ratio of total debt to capital decreased to 40.3% at December 31, 2002 from 43.1% at December 31, 2001 due primarily to net income and the repayment of debt and capital lease obligations in 2002.

Estimates and Critical Accounting Policies

CNF makes estimates and assumptions when preparing its financial statements in conformity with accounting principles generally accepted in the United States. These estimates and assumptions affect the amounts reported in the accompanying financial statements and notes thereto. Actual results could differ from those estimates. CNF’s most critical accounting policies upon which management bases estimates are those relating to self-insurance reserves, income taxes, restructuring reserves, defined benefit pension plan costs and goodwill and other intangible assets.

Self-Insurance Reserves

CNF uses a combination of insurance and self-insurance mechanisms to provide for the potential liabilities for medical, casualty, liability, vehicular, cargo and workers’ compensation claims. Liabilities associated with the risks that are retained by CNF are estimated, in part, by considering historical claims experience, medical costs, demographic factors, severity factors and other assumptions. The estimated accruals for these liabilities could be significantly affected if actual costs differ from these assumptions and historical trends.

Income Taxes

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

Restructuring Reserves

The restructuring charges recognized in 2001 were based on significant estimates and assumptions made by management. Refer to “Results of Operations—Menlo Worldwide—Emery Forwarding—Restructuring Charges” above for a description of some of the assumptions used and to Item 8, “Financial Statements and Supplementary Data,” under Note 3, “Restructuring Charges,” for the cumulative activity related to Emery’s 2001 restructuring plan.

Defined Benefit Pension Plan

CNF has a defined benefit pension plan that covers non-contractual employees in the United States. The amounts recognized as pension expense and the accrued pension benefit cost depend upon a number of assumptions and factors, the most significant being (i) the discount rate used to measure the present value of pension obligations and (ii) the assumed rate of return on plan assets. CNF adjusts its discount rate periodically to reflect market conditions, taking into account a number of factors including changes in high-quality corporate bond yields and the advice of its outside actuaries. For purposes of calculating its 2001 year-end accrued pension benefit cost, CNF used a 7.25% discount rate. This rate was also used to calculate the 2002 pension expense. Due to declines in market rates, CNF used a 6.75% discount rate for calculating its 2002 year-end accrued pension benefit cost and will also use that rate to calculate the 2003 pension expense. All other factors held constant, a 0.5% decline in the discount rate increases annual pension expense by approximately $4 million.

Rates of return on plan assets are also affected by economic conditions and market fluctuations. CNF’s assumed rate of return on plan assets is based on historic returns of the plan assets since inception of the plan. In

2002 and 2001, the assumed rate of return on plan assets was 9.5%. Recent declines in market returns have caused CNF to reduce its assumed rate of return for plan assets for 2003 to 9.0%. Using year-end plan asset values, a 0.5% decline in the assumed rate of return of plan assets increases annual pension expense by approximately $2 million.

Goodwill and Other Intangible Assets

Effective January 1, 2002, CNF adopted SFAS 142, “Goodwill and Other Intangible Assets.” SFAS 142 specifies that goodwill and indefinite-lived intangible assets will no longer be amortized but instead will be subject to an annual impairment test. In accordance with the provisions of SFAS 142, CNF ceased goodwill amortization associated with the Emery Forwarding reporting segment. Prior to adoption of SFAS 142, CNF amortized goodwill of $10.2 million in 2001 and $10.9 million in 2000.

Based on an impairment test as of December 31, 2002, CNF was not required to record a charge for goodwill impairment. CNF will perform a fourth-quarter goodwill impairment test on an annual basis and between annual tests in certain circumstances. In assessing the recoverability of the goodwill, CNF must make various assumptions regarding estimated future cash flows and other factors in determining the fair values of the respective assets. If these estimates or their related assumptions change in the future, CNF may be required to record impairment charges for these assets in future periods. Any such resulting impairment charges could have a material adverse effect on CNF’s financial condition, cash flows or results of operations, including potentially triggering downgrades of debt instruments or events of default under credit agreements. See “Other Matters—Forward-Looking Statements” below and Note 5, “Debt and Other Financing Arrangements,” in Item 8, “Financial Statements and Supplementary Data.”

Other Matters

Market Risk

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

CNF is subject to the effect of interest rate fluctuations in the fair value of its long-term debt and capital lease obligations, as summarized in Item 8, “Financial Statements and Supplementary Data,” under Note 5, “Debt and Other Financing Arrangements,” and Note 6, “Leases.” The change in the fair value of CNF’s long-term debt and guarantees given a hypothetical 10% change in interest rates would be approximately $12 million at December 31, 2002.

At December 31, 2002, CNF held three interest rate swap derivatives that were initially entered into as cash flow hedges to mitigate the effects of interest rate volatility on floating-rate operating lease payments. At December 31, 2002, one of the three outstanding interest rate swap derivatives qualified for hedge accounting under SFAS 133. At December 31, 2002, the fair value of this interest rate swap designated as a cash flow hedge was reported as a liability of $0.6 million ($0.4 million after tax). In connection with the restructuring charges described above, EWA made payments in the fourth quarter of 2002 to settle its obligation to pay certain future floating-rate aircraft lease payments previously hedged with two of CNF’s interest rate swap derivatives. Consequently, at December 31, 2002, these interest rate swap derivatives did not qualify for hedge accounting under SFAS 133 and were therefore freestanding derivatives. The estimated fair value of these freestanding derivatives, which is based on converting $62.6 million of future notional payments from a floating rate to a fixed rate, was reported as a $3.9 million liability in Emery’s restructuring reserves as of December 31, 2002.

Until they are terminated, changes in the estimated fair value of these freestanding interest rate swap derivatives will be reported as non-operating income or expense.

Prior to their termination in December 2002, CNF had designated four interest rate swap derivatives as fair value hedges to mitigate the effects of interest rate volatility on the fair value of fixed-rate long-term debt. During 2002, the estimated fair value of these fair value hedges, prior to their termination, increased $19.3 million to $39.8 million, offsetting an equal increase to the carrying amount of the hedged fixed-rate long-term debt. In December 2002, CNF terminated these fair value hedges. Accordingly, CNF in December 2002 received cash of $31.0 million in settlement of three of the four interest rate swaps and recognized a receivable at December 31, 2002 for the fourth swap, which was terminated in December 2002 but was not settled with cash until January 2003. Prior to their termination, the fair value of these derivative instruments was included in Other Assets in the Consolidated Balance Sheets. Consistent with SFAS 133, the $39.8 million cumulative adjustment of the carrying amount of the long-term debt will be accreted to future earnings at the effective interest rate until the debt is extinguished, at which time any unamortized fair-value adjustment would be fully recognized in earnings. Absent the terminated fair value hedges, the long-term debt will cease to be adjusted for fluctuations in fair value attributable to changes in interest rate risk.

At December 31, 2002, CNF had not entered into any derivative contracts to hedge foreign currency exchange exposure.

Cyclicality and Seasonality

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

Business Interruption

Although the operations of CNF’s subsidiaries are largely decentralized, Emery Forwarding maintains a major hub operation at the Dayton International Airport in Dayton, Ohio. While CNF currently maintains property and business interruption insurance covering Emery Forwarding operations at the Dayton hub, its insurance policies contain limits for certain causes of loss, including but not limited to earthquake and flood. Such policies do not insure against property loss or business interruption resulting from a terrorist act. Accordingly, there can be no assurance that this insurance coverage will be sufficient. As a result, a major property loss or sustained interruption in the business operations at the Dayton hub, whether due to terrorist activities or otherwise, could have a material adverse effect on CNF’s financial condition, cash flows, and results of operations.

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

Since 2001, CNF has been subject to compliance with cargo security and transportation regulations issued by the Transportation Security Administration. Beginning in 2002, CNF has been subject to regulations issued by the Department of Homeland Security. CNF is not able to accurately predict how recent events will affect governmental regulation and the transportation industry. However, CNF believes that any additional security measures that may be required by future regulations could result in additional costs and could have an adverse effect on its operations and service.

Employees

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

Accounting Standards

In June 2001, the FASB issued SFAS 143, “Accounting for Asset Retirement Obligations,” which will be effective for CNF on January 1, 2003. SFAS 143 addresses the financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. CNF will adopt SFAS 143 effective January 1, 2003 with no anticipated material impact.

In June 2002, the FASB issued SFAS 146, “Accounting for Costs Associated with Exit or Disposal Activities,” which is effective for exit or disposal activities initiated after December 31, 2002. SFAS 146, once adopted, updates the guidance in EITF Issue No. 94-3. SFAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred, whereas EITF No. 94-3 had allowed for recognition of the liability at the commitment date to an exit plan. CNF will adopt SFAS 146 effective January 1, 2003 and apply the provisions of SFAS 146 to exit or disposal activities initiated after adoption.

In December 2002, the FASB issued SFAS 148, “Accounting for Stock-Based Compensation—Transition and Disclosure.” SFAS 148 amends the transition and disclosure provisions of SFAS 123. See Note 1, “Principal Accounting Policies,” of Item 8, “Financial Statements and Supplementary Data,” for pro forma disclosures required by SFAS 148. CNF is currently evaluating SFAS 148 to determine if it will adopt SFAS 123 to account for stock-based compensation using the fair value method and, if so, when to begin transition to that method.

In November 2002, the FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (FIN 45). During the quarter ended December 31, 2002, CNF adopted the disclosure provisions of FIN 45, which require increased disclosure of guarantees, including those for which likelihood of payment is remote. FIN 45 also requires that, upon issuance of a guarantee, the guarantor must recognize a liability for the fair value of the obligation it assumes under that guarantee. The initial recognition and measurement provisions of FIN 45 are to be applied on a prospective basis to guarantees issued or modified after December 31, 2002. CNF is evaluating the effect of adopting FIN 45.

In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities: an Interpretation of ARB No. 51” (FIN 46). FIN 46 addresses consolidation by business enterprises of entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. Variable interest entities are required to be consolidated by their primary beneficiaries if they do not effectively disperse risks among parties involved. The primary beneficiary of a variable interest entity is the party that absorbs a majority of the entity’s expected losses or receives a majority of its expected residual returns. The consolidation requirements of FIN 46 apply immediately to variable interest entities created after January 31, 2003 and apply to existing entities in the first fiscal year or interim period beginning after June 15, 2003. Certain new disclosure requirements apply to all financial statements issued after January 31, 2003. CNF is evaluating the impact of adopting FIN 46.

Forward-Looking Statements

Certain statements included herein constitute “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to a number of risks and

uncertainties, and should not be relied upon as predictions of future events. All statements other than statements of historical fact are forward-looking statements, including any projections of earnings, revenues, weight, yield, volumes, income or other financial or operating items, any statements of the plans, strategies, expectations or objectives of CNF or management for future operations or other future items, any statements concerning proposed new products or services, any statements regarding CNF’s estimated future contributions to pension plans, any statements regarding expectations as to the early termination of aircraft leases or the costs thereof, any statements as to the adequacy of reserves, any statements regarding the outcome of any claims that may be brought against CNF by CFC’s multi-employer pension plans or regarding the amount of any periodic cash payments that CNF may be required to make while those claims are pending or CNF’s ability to make those periodic payments, any statements regarding future economic conditions or performance, any statements regarding the outcome of legal and other claims and proceedings against CNF, any statements of estimates or belief and any statements or assumptions underlying the foregoing. Certain such forward-looking statements can be identified by the use of forward-looking terminology such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “estimates” or “anticipates” or the negative of those terms or other variations of those terms or comparable terminology or by discussions of strategy, plans or intentions. Such forward-looking statements are necessarily dependent on assumptions, data and methods that may be incorrect or imprecise and there can be no assurance that they will be realized. In that regard, the following factors, among others and in addition to the matters discussed elsewhere in this document and other reports and documents filed by CNF with the Securities and Exchange Commission, could cause actual results and other matters to differ materially from those discussed in such forward-looking statements: changes in general business and economic conditions, including the slowdown in the global economy; the creditworthiness of CNF’s customers and their ability to pay for services rendered; increasing competition and pricing pressure; changes in fuel prices; the effects of the cessation of EWA’s air carrier operations, the possibility of additional unusual charges and other costs and expenses relating to Emery’s operations, the possibility of defaults under CNF’s $385 million credit agreement and other debt instruments, including defaults resulting from additional unusual charges or from any costs or expenses that CNF may incur in connection with CFC’s bankruptcy proceedings or any claims that may be asserted by CFC’s multi-employer pension plans or CNF’s failure to perform in accordance with management’s expectations, or from any additional minimum pension liability adjustments that CNF may be required to record in respect of its defined benefit pension plan, and the possibility that CNF may be required to pledge collateral to secure some of its indebtedness or to repay other indebtedness in the event that the ratings assigned to its long-term senior debt by credit rating agencies are reduced; labor matters, including the grievance by furloughed pilots and crewmembers, renegotiations of labor contracts, labor organizing activities, work stoppages or strikes; enforcement of and changes in governmental regulations, including the effects of new regulations issued by the Department of Homeland Security; environmental and tax matters; the Department of Transportation, FAA and Department of Justice investigation relating to Emery’s handling of hazardous materials; the February 2000 crash of an EWA aircraft and related investigation and litigation; and matters relating to CNF’s 1996 spin-off of CFC, including the possibility that CFC’s multi-employer pension plans may assert claims against CNF and that CNF may be required to make periodic cash payments while those claims are pending; and matters relating to CNF’s defined benefit pension plans, including the possibility that CNF may be required to record additional minimum pension liability adjustments if the market value of plan assets declines further. As a result of the foregoing, no assurance can be given as to future financial condition, cash flows, or results of operations. See Item 8, “Financial Statements and Supplementary Data,” under Note 14, “Commitments and Contingencies,” included elsewhere herein.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CNF INC.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)	December 31,
	2002			2001
Assets
Current Assets
Cash and cash equivalents	$	270,404		$	400,763
Trade accounts receivable, net (Note 1)		716,037			677,684
Other accounts receivable		129,535			56,860
Operating supplies, at lower of average cost or market		19,612			20,244
Prepaid expenses		43,885			46,948
Deferred income taxes (Note 7)		89,015			125,347

Total Current Assets		1,268,488			1,327,846

Property, Plant, and Equipment, at cost
Land		162,767			149,499
Buildings and leasehold improvements		769,536			739,197
Revenue equipment		609,631			618,329
Other equipment		377,110			411,546

		1,919,044			1,918,571
Accumulated depreciation and amortization		(903,690	)		(848,042	)

Net Property and Equipment		1,015,354			1,070,529

Other Assets
Deferred charges and other assets (Note 2)		133,411			224,605
Capitalized software, net		75,674			79,891
Goodwill, net (Note 1)		240,593			240,523
Deferred income taxes (Note 7)		6,241			46,626

		455,919			591,645

Total Assets	$	2,739,761		$	2,990,020

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

CNF INC.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands except per share data)	December 31,
	2002			2001
Liabilities and Shareholders’ Equity
Current Liabilities
Accounts payable	$	356,605		$	338,730
Accrued liabilities (Note 4)		334,758			307,676
Income taxes payable (Note 7)		—			21,501
Accrued claims costs (Note 1)		141,632			126,981
Accrued aircraft leases and return provision (Note 3)		27,770			77,483
Current maturities of long-term debt and capital leases (Notes 5 and 6)		12,289			11,765

Total Current Liabilities		873,054			884,136
Long-Term Liabilities
Long-term debt and guarantees (Note 5)		447,234			436,055
Long-term obligations under capital leases (Note 6)		110,376			129,760
Accrued claims costs (Note 1)		128,447			122,273
Employee benefits (Note 11)		294,541			275,764
Other liabilities and deferred credits (Note 15)		37,941			120,858
Accrued aircraft leases and return provision (Note 3)		5,170			258,087

Total Liabilities		1,896,763			2,226,933


Commitments and Contingencies (Notes 5, 6 and 14)

Company-Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trust Holding Solely Convertible Debentures of the Company (Note 8)		125,000			125,000
Shareholders’ Equity (Note 10)
Preferred stock, no par value; authorized 5,000,000 shares:
Series B, 8.5% cumulative, convertible, $.01 stated value; designated 1,100,000 shares; issued 784,007 and 805,895 shares, respectively		8			8
Additional paid-in capital, preferred stock		119,239			122,568
Deferred compensation, Thrift and Stock Plan (Note 12)		(65,723	)		(73,320	)

Total Preferred Shareholders’ Equity		53,524			49,256

Common stock, $.625 par value; authorized 100,000,000 shares; issued 56,046,790 and 55,559,909 shares, respectively		35,029			34,725
Additional paid-in capital, common stock		345,054			332,066
Retained earnings		506,816			432,918
Deferred compensation, restricted stock (Note 13)		(3,710	)		(1,013	)
Cost of repurchased common stock (6,563,868 and 6,669,393 shares, respectively)		(161,841	)		(164,441	)

		721,348			634,255
Accumulated Other Comprehensive Loss (Note 10)		(56,874	)		(45,424	)

Total Common Shareholders’ Equity		664,474			588,831

Total Shareholders’ Equity		717,998			638,087

Total Liabilities and Shareholders’ Equity	$	2,739,761		$	2,990,020

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

CNF INC.

STATEMENTS OF CONSOLIDATED OPERATIONS

(Dollars in thousands except per share data)	Years ended December 31,
	2002			2001			2000
Revenues	$	4,762,119		$	4,862,731		$	5,572,377

Costs and Expenses
Operating expenses		3,979,137			4,224,023			4,611,079
General and administrative expenses		461,807			481,916			506,986
Depreciation		139,355			165,202			164,346
Restructuring charges (Note 3)		—			652,241			—

		4,580,299			5,523,382			5,282,411

Operating Income (Loss)		181,820			(660,651	)		289,966

Other Income (Expense)
Investment income		5,557			3,981			2,373
Interest expense		(23,558	)		(27,992	)		(29,972	)
Dividend requirement on preferred securities of subsidiary trust (Note 8)		(6,250	)		(6,250	)		(6,250	)
Miscellaneous, net (Note 1)		(11,325	)		(5,021	)		5,079

		(35,576	)		(35,282	)		(28,770	)

Income (Loss) from Continuing Operations Before Income Tax (Provision) Benefit		146,244			(695,933	)		261,196
Income tax (provision) benefit (Note 7)		(32,035	)		262,367			(109,880	)

Income (Loss) from Continuing Operations Before Accounting Change		114,209			(433,566	)		151,316

Gain (Loss) from discontinuance, net of tax (Note 2)		(12,398	)		38,975			(13,508	)
Cumulative effect of accounting change, net of tax (Note 1)		—			—			(2,744	)

Net Income (Loss)		101,811			(394,591	)		135,064
Preferred stock dividends		8,250			8,283			8,261

Net Income (Loss) Applicable to Common Shareholders	$	93,561		$	(402,874	)	$	126,803

Weighted-Average Common Shares Outstanding (Note 1)
Basic		49,139,134			48,752,480			48,490,662
Diluted		56,655,570			48,752,480			55,901,374
Earnings (Loss) Per Share (Note 1)
Basic
Income (Loss) from continuing operations	$	2.16		$	(9.06	)	$	2.95
Gain (Loss) from discontinuance, net of tax		(0.26	)		0.80			(0.28	)
Cumulative effect of accounting change, net of tax		—			—			(0.06	)

Net Income (Loss) Applicable to Common Shareholders	$	1.90		$	(8.26	)	$	2.61

Diluted
Income (Loss) from continuing operations	$	1.96		$	(9.06	)	$	2.65
Gain (Loss) from discontinuance, net of tax		(0.22	)		0.80			(0.24	)
Cumulative effect of accounting change, net of tax		—			—			(0.05	)

Net Income (Loss) Applicable to Common Shareholders	$	1.74		$	(8.26	)	$	2.36

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

CNF INC.

STATEMENTS OF CONSOLIDATED CASH FLOWS

(Dollars in thousands)	Years ended December 31,
	2002			2001			2000
Cash and Cash Equivalents, Beginning of Year	$	400,763		$	104,515		$	146,263

Operating Activities
Net income (loss)		101,811			(394,591	)		135,064
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Loss (Gain) from discontinuance, net of tax		12,398			(38,975	)		13,508
Cumulative effect of accounting change, net of tax		—			—			2,744
Restructuring charges		—			652,241			—
Loss from the business failure of a customer		—			47,454			—
Depreciation and amortization		159,080			195,397			190,651
Increase (Decrease) in deferred income taxes		105,313			(209,947	)		47
Amortization of deferred compensation		8,607			7,402			7,356
Provision for uncollectible accounts		17,817			17,435			9,070
Equity in (earnings) losses of Vector		(18,188	)		9,415			560
Loss (Gain) on sales of property and equipment, net		(11,348	)		4,636			692
Loss from equity ventures and sale of assets of business, net		4,585			5,251			2,840
Changes in assets and liabilities:
Receivables		(116,737	)		134,265			(131,694	)
Prepaid expenses		3,063			353			(6,169	)
Unamortized aircraft maintenance		—			12,776			(55,419	)
Accounts payable		18,025			(81,963	)		22,634
Accrued liabilities		25,940			(75,328	)		(48,625	)
Accrued claims costs		(475	)		30,005			24,923
Income taxes		(21,501	)		(59,787	)		(49,761	)
Employee benefits		(27,033	)		21,763			31,936
Accrued aircraft leases and return provision		(302,630	)		(8,333	)		(940	)
Deferred charges and credits		36,236			57,527			17,780
Other		9,823			(19,633	)		(4,502	)

Net Cash Provided by Operating Activities		4,786			307,363			162,695

Investing Activities
Capital expenditures		(84,838	)		(192,125	)		(235,221	)
Software expenditures		(14,281	)		(15,668	)		(19,211	)
Proceeds from investments and sale of assets of business		—			—			9,882
Proceeds from sales of property and equipment, net		14,614			13,833			10,441

Net Cash Used in Investing Activities		(84,505	)		(193,960	)		(234,109	)

Financing Activities
Net proceeds from issuance of long-term debt		—			—			197,452
Repayments of long-term debt, guarantees and capital leases		(30,994	)		(7,625	)		(96,513	)
Repayments of short-term borrowings, net		—			—			(40,000	)
Proceeds from exercise of stock options		6,948			3,210			1,792
Payments of common dividends		(19,663	)		(19,522	)		(19,425	)
Payments of preferred dividends		(10,484	)		(10,709	)		(10,903	)

Net Cash Provided by (Used in) Financing Activities		(54,193	)		(34,646	)		32,403

Net Cash Provided by (Used in) Continuing Operations		(133,912	)		78,757			(39,011	)

Net Cash Provided by (Used in) Discontinued Operations		3,553			217,491			(2,737	)

Increase (Decrease) in Cash and Cash Equivalents		(130,359	)		296,248			(41,748	)

Cash and Cash Equivalents, End of Year	$	270,404		$	400,763		$	104,515

Supplemental Disclosure
Cash Paid (Refunded) for income taxes, net	$	(3,779	)	$	13,555		$	110,121

Cash Paid for interest, net of amounts capitalized	$	23,552		$	28,908		$	32,806

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

CNF INC.

STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY

(Dollars in thousands except per share data)	Preferred Stock Series B				Common Stock					Additional Paid-in Capital			Deferred Compen- sation			Retained Earnings			Cost of Repur- chased Common Stock			Accumulated Other Compre- hensive Income (Loss)			Compre- hensive Income (Loss)
	Number of Shares		Amount		Number of Shares		Amount			Additional Paid-in Capital			Deferred Compen- sation			Retained Earnings			Cost of Repur- chased Common Stock						Compre- hensive Income (Loss)
Balance, December 31, 1999	840,407		$	8	55,306,947		$	34,567		$	456,538		$	(89,610	)	$	747,936		$	(169,057	)	$	(12,434	)
Net income (loss)	—			—	—			—			—			—			135,064			—			—		$	135,064
Other comprehensive income:
Foreign currency translation adjustment	—			—	—			—			—			—			—			—			(19,339	)		(19,339	)
Minimum pension liability adjustment	—			—	—			—			—			—			—			—			(4,046	)		(4,046	)

Comprehensive income	—			—	—			—			—			—			—			—			—		$	111,679

Exercise of stock options including tax benefits of $281	—			—	115,732			72			2,001			—			—			—			—
Issuance of restricted stock, net of forfeitures	—			—	3,926			3			295			229			—			—			—
Issuance of employee stock awards	—			—	—			—			1			—			—			24			—
Recognition of deferred compensation	—			—	—			—			—			7,356			—			—			—
Repurchased common stock issued for conversion of preferred stock	(15,505	)		—	—			—			(2,094	)		—			—			2,094			—
Common dividends declared ($.40 per share)	—			—	—			—			—			—			(19,425	)		—			—
Series B, Preferred dividends ($12.93 per share) net of tax benefits of $2,547	—			—	—			—			—			—			(8,261	)		—			—

Balance, December 31, 2000	824,902			8	55,426,605			34,642			456,741			(82,025	)		855,314			(166,939	)		(35,819	)
Net loss	—			—	—			—			—			—			(394,591	)		—			—		$	(394,591	)
Other comprehensive income (loss):
Foreign currency translation adjustment	—			—	—			—			—			—			—			—			(5,404	)		(5,404	)
Cumulative effect of accounting change (Note 9)	—			—	—			—			—			—			—			—			3,005			3,005
Change in fair value of cash flow hedges	—			—	—			—			—			—			—			—			(4,548	)		(4,548	)
Minimum pension liability adjustment	—			—	—			—			—			—			—			—			(2,658	)		(2,658	)

Comprehensive loss	—			—	—			—			—			—			—			—			—		$	(404,196	)

Exercise of stock options including tax benefits of $930	—			—	178,377			111			4,028			—			—			—			—
Issuance of restricted stock, net of forfeitures	—			—	(45,073	)		(28	)		(3,662	)		3,690			—			—			—
Issuance of employee stock awards	—			—	—			—			6			—			—			19			—
Recognition of deferred compensation	—			—	—			—			—			4,002			—			—			—
Repurchased common stock issued for conversion of preferred stock	(19,007	)		—	—			—			(2,479	)		—			—			2,479			—
Common dividends declared ($.40 per share)	—			—	—			—			—			—			(19,522	)		—			—
Series B, Preferred dividends ($12.93 per share) net of tax benefits of $2,323	—			—	—			—			—			—			(8,283	)		—			—

Balance, December 31, 2001	805,895			8	55,559,909			34,725			454,634			(74,333	)		432,918			(164,441	)		(45,424	)
Net income	—			—	—			—			—			—			101,811			—			—		$	101,811
Other comprehensive income (loss):
Foreign currency translation adjustment	—			—	—			—			—			—			—			—			6,934			6,934
Change in fair value of cash flow hedges	—			—	—			—			—			—			—			—			1,149			1,149
Minimum pension liability adjustment	—			—	—			—			—			—			—			—			(19,533	)		(19,533	)

Comprehensive income	—			—	—			—			—			—			—			—			—		$	90,361

Exercise of stock options including tax benefits of $1,884	—			—	377,789			237			8,595			—			—			—			—
Issuance of restricted stock, net of forfeitures	—			—	109,092			67			3,640			(3,707	)		—			—			—
Issuance of employee stock awards	—			—	—			—			7			—			—			17			—
Recognition of deferred compensation	—			—	—			—			—			8,607			—			—			—
Repurchased common stock issued for conversion of preferred stock	(21,888	)		—	—			—			(2,583	)		—			—			2,583			—
Common dividends declared ($.40 per share)	—			—	—			—			—			—			(19,663	)		—			—
Series B, Preferred dividends ($12.93 per share) net of tax benefits of $2,081	—			—	—			—			—			—			(8,250	)		—			—

Balance, December 31, 2002	784,007		$	8	56,046,790		$	35,029		$	464,293		$	(69,433	)	$	506,816		$	(161,841	)	$	(56,874	)

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

CNF INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Principal Accounting Policies

Basis of Presentation and Principles of Consolidation: The consolidated financial statements include the accounts of CNF Inc. and its subsidiaries (the Company or CNF).

Organization: CNF Inc. and its subsidiaries provide supply chain management services for commercial and industrial shipments by land, air and sea throughout North America and the world. CNF’s principal businesses consist of Con-Way Transportation Services (Con-Way) and Menlo Worldwide. However, for financial reporting purposes, CNF is divided into five reporting segments. The operating results of Con-Way are reported as one reporting segment while Menlo Worldwide is divided into three reporting segments: Emery Forwarding, Menlo Worldwide Logistics, and Menlo Worldwide Other. Also, certain corporate activities and the results of Road Systems, a trailer manufacturer, are reported in the separate CNF Other reporting segment.

Con-Way provides regional next-day, second-day and deferred less-than-truckload (LTL) freight trucking throughout the U.S., Canada, and Mexico, as well as expedited transportation, air freight forwarding and truckload brokerage services.

Menlo Worldwide, which was formed effective in 2002, includes the operating results of Emery Forwarding, Menlo Worldwide Logistics and the Menlo Worldwide Other reporting segments. Emery Forwarding provides time-definite domestic and international air freight and ocean forwarding services, customs brokerage, and other trade services. Menlo Worldwide Logistics develops integrated contract logistics solutions, including the management of complex distribution networks and supply chain engineering and consulting. The Menlo Worldwide Other reporting segment includes Vector SCM, a joint venture owned by CNF and General Motors that serves as the lead logistics manager worldwide for General Motors.

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

For further discussion of CNF’s discontinued operations, including the terminated Priority Mail contract with the U.S. Postal Service (USPS) and the impact in 2002 from the 1996 spin-off of Consolidated Freightways Corporation (CFC), refer to Note 2, “Discontinued Operations.”

Estimates: Management makes estimates and assumptions when preparing the financial statements in conformity with accounting principles generally accepted in the United States. These estimates and assumptions affect the amounts reported in the accompanying financial statements and notes thereto. Actual results could differ from those estimates.

Recognition of Revenues: CNF recognizes revenue when services have been performed, persuasive evidence of an arrangement exists, the revenue amount is fixed or determinable and collectibility is probable. Effective January 1, 2000, CNF prospectively adopted a change in accounting method for recognition of its freight transportation revenue and now recognizes the allocation of freight transportation revenue between reporting periods based on relative transit time in each reporting period with expenses recognized as incurred. Previously, revenue for Con-Way and Emery was recognized when freight was received for shipment and the estimated costs of performing the transportation service were accrued. Revenue from contracts is recognized in accordance with contractual terms as services are provided.

Cash Equivalents: Short-term interest-bearing instruments with maturities of three months or less at the date of purchase are considered cash equivalents.

Trade Accounts Receivable, Net: Trade accounts receivable are net of allowances of $22,402,000 and $22,675,000 at December 31, 2002 and 2001, respectively.

CNF INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Property, Plant and Equipment: Property, plant and equipment are depreciated primarily on a straight-line basis over their estimated useful lives, which are generally 25 years for buildings and improvements, 10 years or less for aircraft, 5 to 10 years for tractor and trailer equipment and 3 to 10 years for most other equipment. Leasehold improvements are amortized over the shorter of the terms of the respective leases or the useful lives of the assets.

Expenditures for equipment maintenance and repairs are charged to operating expenses as incurred; betterments are capitalized. Gains (losses) on sales of equipment are recorded in operating expenses.

Capitalized Software: Capitalized software, net, consists of costs to purchase and develop internal-use software. Amortization of capitalized software is computed on an item-by-item basis over a period of 3 to 10 years, depending on the estimated useful life of the software. Amortization expense related to capitalized software was $18,498,000, $19,098,000, and $15,479,000 for the years ended December 31, 2002, 2001, and 2000, respectively.

Goodwill and Other Intangible Assets: Effective January 1, 2002, CNF adopted SFAS 142, “Goodwill and Other Intangible Assets.” SFAS 142 specifies that goodwill and indefinite-lived intangible assets will no longer be amortized but instead will be subject to an annual impairment test. In accordance with the provisions of SFAS 142, CNF ceased goodwill amortization associated with the Emery Forwarding reporting segment. Prior to adoption of SFAS 142, CNF amortized goodwill of $10.2 million in 2001 and $10.9 million in 2000. Based on an impairment test as of December 31, 2002, CNF was not required to record a charge for goodwill impairment. CNF will perform a fourth-quarter goodwill impairment test on an annual basis and between annual tests in certain circumstances. The following table indicates the impact on net income and earnings per share if the non-amortization provisions of FAS 142 had been applied beginning January 1, 2000.

(Dollars in thousands, except per share data)	Years ended December 31,
	2002		2001			2000
Net income (loss) from continuing operations before accounting change, as reported	$	105,959	$	(441,849	)	$	143,055
Goodwill amortization, net of tax, that would have been excluded from net income (loss) if non-amortization provisions had been applied		—		6,361			6,290

Pro forma net income (loss) from continuing operations as if non-amortization provisions had been applied	$	105,959	$	(435,488	)	$	149,345

Earnings (loss) per share from continuing operations before accounting change:
Basic:
As reported	$	2.16	$	(9.06	)	$	2.95

Pro forma	$	2.16	$	(8.93	)	$	3.08

Diluted:
As reported	$	1.96	$	(9.06	)	$	2.65

Pro forma	$	1.96	$	(8.93	)	$	2.77

Impairment of Long-Lived Assets: CNF reviews long-lived assets and certain identifiable intangibles for impairment whenever events or circumstances indicate that the total amount of an asset may not be recoverable. An impairment loss is recognized when estimated future undiscounted cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount. If the asset is not considered

CNF INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

recoverable, an amount equal to the excess of the carrying amount over the estimated fair value will be charged against the asset with a corresponding expense to the income statement. See Note 3, “Restructuring Charges,” for information concerning impairment charges recognized in 2001. See also “—New Accounting Standards” below.

Income Taxes: CNF follows the liability method of accounting for income taxes.

Accrued Claims Costs: CNF provides for the uninsured costs of medical, casualty, liability, vehicular, cargo and workers’ compensation claims. Such costs are estimated each year based on historical claims and unfiled claims relating to operations conducted through December 31. The actual costs may vary from estimates based on trends of losses for filed claims and claims estimated to be incurred but not filed. The long-term portion of accrued claims costs relate primarily to workers’ compensation and vehicular claims that are estimated to be payable over several years.

CNF participates in a reinsurance pool to reinsure mostly general liability workers’ compensation and vehicular liabilities. Each participant in the pool cedes losses to the pool and assumes an equivalent amount of losses. Reinsurance does not relieve CNF of its liabilities under the original policy. In the opinion of management, potential exposure to CNF for non-payment of reinsurance pool participants is minimal.

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

Earnings (Loss) Per Share (EPS): Basic EPS for continuing operations is computed by dividing reported net income (loss) from continuing operations before accounting change (after preferred dividends) by the weighted-average common shares outstanding. The calculation of diluted EPS for continuing operations is calculated as follows:

(Dollars in thousands except per share data)	Years ended December 31,
	2002		2001			2000
Earnings (Loss):
Net income (loss) from continuing operations before accounting change	$	105,959	$	(441,849	)	$	143,055
Add-backs:
Dividends on preferred stock, net of replacement funding		1,334		—			1,424
Dividends on preferred securities of subsidiary trust, net of tax		3,816		—			3,816

	$	111,109	$	(441,849	)	$	148,295

Shares
Weighted-average shares outstanding		49,139,134		48,752,480			48,490,662
Stock options		700,331		—			342,826
Series B preferred stock		3,691,105		—			3,942,886
Preferred securities of subsidiary trust		3,125,000		—			3,125,000

		56,655,570		48,752,480			55,901,374

Diluted earnings (loss) per share from continuing operations	$	1.96	$	(9.06	)	$	2.65

CNF INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

For the year ended December 31, 2001, convertible securities and stock options were anti-dilutive. As a result, the assumed shares and related add-back to net loss from continuing operations under the if-converted method have been excluded from the calculation of diluted EPS. If the securities had been dilutive, the assumed shares under the if-converted method would have been as follows: stock options—461,040 shares, series B preferred stock—3,794,159, preferred securities of subsidiary trust—3,125,000 shares.

Stock-Based Compensation: As described in Note 13, “Stock-Based Compensation,” officers and non-employee directors have been granted options under CNF’s stock option plans to purchase common stock of CNF at prices equal to the market value of the stock on the date of grant. CNF accounts for stock-based compensation utilizing the intrinsic value method in accordance with the provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.” Accordingly, no compensation expense is recognized for fixed option plans because the exercise prices of employee stock options equal or exceed the market prices of the underlying stock on the dates of grant.

The following table sets forth the effect on net income (loss) and earnings (loss) per share if CNF had applied the fair-value based method and recognition provisions of SFAS 123, “Accounting for Stock-Based Compensation,” to stock-based compensation:

(Dollars in thousands except per share data)	Years ended December 31,
	2002			2001			2000
Net income (loss) from continuing operations before accounting change, as reported	$	105,959		$	(441,849	)	$	143,055
Additional compensation cost, net of tax, that would have been included in net income (loss) if the fair value method had been applied		(7,354	)		(9,570	)		(15,120	)

Pro forma net income (loss) from continuing operations as if the fair value method had been applied	$	98,605		$	(451,419	)	$	127,935

Earnings (loss) per share from continuing operations before accounting change:
Basic:
As reported	$	2.16		$	(9.06	)	$	2.95

Pro Forma	$	2.01		$	(9.26	)	$	2.64

Diluted:
As reported	$	1.96		$	(9.06	)	$	2.65

Pro Forma	$	1.83		$	(9.26	)	$	2.38

These pro forma effects of applying SFAS 123 may not be indicative of future amounts.

Derivative Instruments and Hedging Activities: As described in Note 9, “Derivative Instruments and Hedging Activities,” CNF adopted SFAS 133, “Accounting for Derivative Instruments and Hedging Activities,” effective January 1, 2001. The $3.0 million after-tax gain representing the cumulative effect of adopting the new accounting standard decreased Accumulated Other Comprehensive Loss.

Equity-Method Investments: CNF owns a majority equity interest in Vector SCM (Vector), a joint venture with General Motors (GM). Vector was formed in December 2000 to provide logistics services to GM. Although CNF owns a majority interest in Vector, the operating results of Vector are reported as an equity-

CNF INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

method investment in the Menlo Worldwide Other reporting segment based on GM’s ability to control certain operating decisions.

In addition, CNF provided venture capital funding, primarily in 2001 and 2000, to various companies focused on developing technology-based solutions in the transportation industry. Portions of CNF’s investment in these companies, which are accounted for as cost and equity-method investments, were written down in 2002 and 2001 and reported as non-operating losses in Miscellaneous, Net in the Consolidated Statements of Operations. At December 31, 2002, CNF’s remaining net investment in these ventures was $5.1 million.

New Accounting Standards: In June 2001, the FASB issued SFAS 143, “Accounting for Asset Retirement Obligations,” which will be effective for CNF on January 1, 2003. SFAS 143 addresses the financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. CNF will adopt SFAS 143 effective January 1, 2003 with no anticipated material impact.

In December 2002, the FASB issued SFAS 148, “Accounting for Stock-Based Compensation—Transition and Disclosure.” SFAS 148 amends the transition and disclosure provisions of SFAS 123. See “—Stock-Based Compensation” above for pro forma disclosures required by SFAS 148. CNF is currently evaluating SFAS 148 to determine if it will adopt SFAS 123 to account for stock-based compensation using the fair value method and, if so, when to begin transition to that method.

Reclassification: Certain amounts in prior years’ financial statements have been reclassified to conform to the current-year presentation.

CNF INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

2. Discontinued Operations

Priority Mail Contract: As a result of the termination of the Priority Mail contract described below, the results of operations and cash flows of the Priority Mail operations have been segregated and classified as discontinued operations. On November 3, 2000, Emery Worldwide Airlines (EWA) and the U.S. Postal Service (USPS) announced an agreement (the “Termination Agreement”) to terminate their contract for the transportation and sortation of Priority Mail (the “Priority Mail contract”). As described below, all claims relating to amounts owed to EWA under the Priority Mail contract were fully settled in connection with payments from the USPS to EWA in 2002 and 2001.

After EWA filed a claim for redetermined higher prices in the third quarter of 1999 and until termination of the Priority Mail contract on January 7, 2001, EWA recorded revenue only in amounts up to the costs incurred. As a result, Emery reported Priority Mail revenue of $10.2 million in 2001 and $594.0 million in 2000. EWA in 2000 also recognized a $13.5 million loss, net of $8.6 million of income tax benefits, for estimated non-reimbursable costs from discontinuance.

Net current liabilities of the discontinued Priority Mail operations of $3.2 million and $5.6 million at December 31, 2002 and 2001, respectively, were included in Accrued Liabilities in the Consolidated Balance Sheets. At December 31, 2001, net non-current assets of discontinued Priority Mail operations of $3.1 million were included in Deferred Charges and Other Assets in the Consolidated Balance Sheets.

Spin-Off of CFC: On December 2, 1996, CNF completed the spin-off of Consolidated Freightways Corporation (“CFC”) to CNF’s shareholders. CNF recognized 2002 third-quarter and fourth-quarter losses from discontinuance of $13.0 million (net of $8.3 million of income taxes) and $2.3 million (net of $1.4 million of income taxes), respectively, in connection with the bankruptcy of CFC in September 2002. For further detailed discussion of this matter, see Note 14, “Commitments and Contingencies,” and Item 7, “Management’s Discussion and Analysis,” under “Liquidity and Capital Resources—Discontinued Operations—Spin-Off of CFC.”

3. Restructuring Charges

CNF INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

due primarily to a slowing domestic economy and loss of EWA’s contracts with the USPS to transport Express Mail and Priority Mail. The $340.5 million second-quarter restructuring charge in 2001 consisted primarily of non-cash impairment charges and estimated future cash expenditures related primarily to the return to lessors of certain aircraft leased to EWA. Based on issues identified during inspections conducted by the Federal Aviation Administration (FAA), on August 13, 2001, EWA was required to suspend its air carrier operations as part of an interim settlement agreement with the FAA. As a result, EWA furloughed approximately 400 pilots and crewmembers and Emery made arrangements to continue its service to customers by utilizing aircraft operated by several other air carriers. Primarily in response to the FAA action and a worsening global economic downturn, Emery re-evaluated its restructuring plan. On December 5, 2001, CNF announced that Emery in 2002 would become part of CNF’s new Menlo Worldwide group of supply chain services providers and in North America would utilize aircraft operated by other air carriers instead of EWA operating its own fleet of aircraft, and that EWA would permanently cease air carrier operations. In connection with the revised restructuring plan, in the fourth quarter of 2001 Emery recognized additional restructuring charges of $311.7 million for the planned disposal of leased aircraft, cessation of EWA’s remaining operations, employee separation costs for 157 of Emery’s non-pilot employees, and other costs.

The following table represents the cumulative activity related to Emery’s 2001 restructuring plan:

(Dollars in millions)	Total Charges		Cash Payments			Charged Against Assets			Reserves at December 31, 2002
Employee separations	$	6.1	$	(5.0	)	$	—		$	1.1
Asset impairments		278.0		—			(278.0	)		—
Aircraft and other costs		368.1		(301.5	)		—			66.6

	$	652.2	$	(306.5	)	$	(278.0	)	$	67.7

CNF INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

and $14.1 million for other aircraft costs, including payments on aircraft leased by EWA and operated by an independent third-party air carrier. In February 2003, Emery negotiated the early return of 4 additional aircraft, which in 2003 will result in an estimated $24 million reduction of related restructuring reserves. As a result, only one aircraft of the 37-aircraft fleet that was grounded in connection with Emery’s restructuring charges remained under lease as of February 28, 2003.

The restructuring charges recognized by Emery during 2001 reflect CNF’s estimate of the costs of terminating EWA’s air carrier operations and restructuring Emery’s business and related matters. CNF believes that the estimate is adequate to cover these costs based on information currently available and assumptions management believes are reasonable under the circumstances. However, there can be no assurance that actual costs will not differ from this estimate, and that difference would be recognized as additional expense or income in the period when and if that determination can be made.

4. Accrued Liabilities

As of December 31, accrued liabilities consisted of the following:

(Dollars in thousands)	2002		2001
Holiday and vacation pay	$	69,035	$	66,757
Incentive compensation		62,209		10,019
Wages and salaries		33,012		32,848
Taxes other than income taxes		29,371		37,197
Estimated revenue adjustments		19,345		23,781
Accrued interest		5,119		5,568
Net current liabilities of discontinued operations (Note 2)		3,215		5,573
Other accrued liabilities		113,452		125,933

Total accrued liabilities	$	334,758	$	307,676

5. Debt and Other Financing Arrangements

As of December 31, long-term debt and guarantees consisted of the following:

(Dollars in thousands)	2002			2001
Mortgage note payable, 3.50%, due 2004 (interest payable annually)	$	4,068		$	—
7.35% Notes due 2005 (interest payable semi-annually)		100,000			100,000
TASP Notes guaranteed, 6.00% to 8.54%, due through 2009 (interest payable semi-annually)		111,800			120,500
8⁷/8% Notes due 2010 (interest payable semi-annually), net of discount and including fair market value adjustment		238,700			219,455
Industrial Revenue Bonds due 2014 (interest payable quarterly at a floating rate of 3.10% at December 31, 2002)		4,800			4,800

		459,368			444,755
Less current maturities		(12,134	)		(8,700	)

Total long-term debt and guarantees	$	447,234		$	436,055

Revolving Credit Facility: CNF has a $385 million revolving credit facility that matures on July 3, 2006. The revolving credit facility is available for cash borrowings and for the issuance of letters of credit up to

CNF INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

$385 million. At December 31, 2002 and 2001, no borrowings were outstanding under the facility and, at December 31, 2002, $244.1 million of letters of credit were outstanding, leaving $140.9 million of available capacity for additional letters of credit or cash borrowings, subject to compliance with financial covenants and other customary conditions to borrowing. Of the total letters of credit outstanding at December 31, 2002, $236.8 million provided collateral for CNF workers’ compensation and vehicular self-insurance programs. Borrowings under the agreement bear interest at a rate based upon specified indices plus a margin dependent on CNF’s credit rating. At December 31, 2001, CNF had no cash borrowings outstanding under this agreement.

The credit agreement contains various restrictive covenants, including a limitation on the incurrence of additional indebtedness and the requirement for specified levels of consolidated net worth and fixed-charge coverage. Due in large part to the fourth-quarter 2001 restructuring charge incurred in connection with the cessation of EWA’s air carrier operations as described in Note 3, “Restructuring Charges,” CNF was required to amend its revolving credit agreement in December 2001 in order to remain in compliance with the financial covenants in that agreement. The amended credit agreement provides that, if CNF’s senior unsecured long-term debt securities are rated at less than investment grade by Standard & Poor’s and Moody’s, CNF, including its principal subsidiaries, will be required to pledge its accounts receivable as collateral to secure borrowings and other amounts due under the revolving credit facility, subject to specified limitations, and, if the aggregate borrowings and other amounts due under the revolving credit facility exceed a specified amount, CNF, including its principal subsidiaries, will be required to provide such additional collateral as the agent bank under the credit facility may reasonably request. The lowest investment grade rating for Standard & Poor’s and Moody’s is “BBB–” and “Baa3,” respectively. CNF’s senior unsecured long-term debt is currently rated “BBB–” by Standard & Poor’s with a stable outlook and “Baa3” by Moody’s with a negative outlook, and, as a result, any further reduction in CNF’s senior unsecured long-term debt ratings by both of these credit rating agencies will require that CNF, including its principal subsidiaries, pledge collateral to secure the credit facility as described above. To the extent CNF, including its principal subsidiaries, pledges collateral to secure amounts due under the debt facility, CNF, including its principal subsidiaries, may also be required to pledge some or all of that collateral to equally and ratably secure its $200 million aggregate principal amounts of 8⁷/8% Notes due 2010, its $100 million aggregate principal amount of 7.35% notes due 2005, and the aggregate principal amount of notes due through 2009 issued by CNF’s Thrift and Stock Plan, which are described below.

Other Uncommitted Credit Facilities: CNF had other uncommitted unsecured credit facilities totaling $91.3 million at December 31, 2002, which are available to support letters of credit, bank guarantees, and overdraft facilities; at that date, a total of $66.6 million of letters of credit was outstanding under these facilities.

Thrift and Stock Plan Notes: CNF guarantees the notes issued by CNF’s Thrift and Stock Plan (TASP). As of December 31, 2002, there was $49.8 million aggregate principal amount of Series A TASP notes outstanding, bearing interest at a rate of 6.00% per annum and maturing on January 1, 2006, and $62.0 million aggregate principal amount of Series B TASP notes outstanding, bearing interest at a rate of 8.54% per annum and maturing on January 1, 2009. The Series A notes contain financial covenants that require CNF to maintain minimum amounts of net worth and fixed-charge coverage. Holders of the Series B notes issued by CNF’s TASP have the right to require CNF to repurchase those notes if, among other things, both Moody’s and Standard & Poor’s have publicly rated CNF’s long-term senior debt at less than investment grade unless, within 45 days, CNF shall have obtained, through a guarantee, letter of credit or other permitted credit enhancement or otherwise, a credit rating for such notes of at least “A” from Moody’s or Standard & Poor’s (or another nationally recognized rating agency selected by the holders of such notes) and shall maintain a rating on such notes of “A” or better thereafter. As a result, any further decrease in CNF’s long-term senior debt ratings by both of these credit rating agencies would give the holders of Series B TASP notes the right to require CNF to repurchase those notes unless CNF was able to obtain appropriate credit enhancement as described above, and there can be no assurance that CNF would be able to do so. The occurrence of any event or condition requiring

CNF INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

CNF to repay these TASP notes could likely have a material adverse effect on CNF’s financial condition, cash flows, and results of operations.

8⁷/8% Notes Due 2010: The $200 million aggregate principal amount of 8⁷/8% Notes contain certain covenants limiting the incurrence of additional liens. Prior to their termination in December 2002, CNF had designated four interest rate swap derivatives as fair value hedges to mitigate the effects of interest rate volatility on the fair value of CNF’s 8⁷/8% Notes due 2010. During 2002, the estimated fair value of these fair value hedges, prior to their termination, increased $19.3 million to $39.8 million, offsetting an equal increase to the carrying amount of the hedged fixed-rate long-term debt. In December 2002, CNF terminated these fair value hedges. Consistent with SFAS 133, the $39.8 million cumulative adjustment of the carrying amount of the 8⁷/8% Notes due 2010 will be accreted to future earnings at the effective interest rate until the debt is extinguished, at which time any unamortized fair-value adjustment would be fully recognized in earnings. Absent the terminated fair value hedges, the 8⁷/8% Notes due 2010 will cease to be adjusted for fluctuations in fair value attributable to changes in interest rates. Including accretion of the fair-value adjustment and amortization of a discount recognized upon issuance, interest expense on the 8⁷/8% Notes due 2010 will be recognized at an annual effective interest rate of 5.6%.

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

In 2002, Con-Way acquired real property in part with the assumption of a $4.1 million note payable, which is secured by the acquired property. The note is payable with two equal principal payments in January of 2003 and 2004.

CNF’s consolidated interest expense as presented on the Statements of Consolidated Operations is net of capitalized interest of $455,000 in 2002, $864,000 in 2001, and $4,636,000 in 2000. The aggregate annual maturities and sinking fund requirements of Long-Term Debt and Guarantees for the next five years ending December 31 are $12,134,000 in 2003, $14,034,000 in 2004, $112,700,000 in 2005, $33,600,000 in 2006 and $20,700,000 in 2007.

As of December 31, 2002 and 2001, the estimated fair value of long-term debt was $459,251,000 and $447,208,000, respectively. Fair values were estimated based on quoted market prices or on the current rates offered for debt with similar terms and maturities.

6. Leases

CNF and its subsidiaries are obligated under non-cancelable leases. The principal capital lease covers a sorting facility in Dayton, Ohio (the Hub). The Hub is financed by City of Dayton, Ohio revenue bonds. These bonds consist of $46 million of Series A bonds due in February 2018 with an interest rate of 5.625%. The remaining $62 million are due in 2009 and bear rates of interest between 6.05% and 6.20%, and have call provisions.

CNF INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Future minimum lease payments with initial or remaining non-cancelable lease terms in excess of one year, at December 31, 2002, were as follows:

(Dollars in thousands)	Capital Leases			Operating Leases
Year ending December 31:
2003	$	6,819		$	93,793
2004		6,819			69,082
2005		6,819			49,809
2006		6,819			32,737
2007		6,819			22,295
Thereafter (through 2018)		143,143			31,268

Total minimum lease payments		177,238		$	298,984

Amount representing interest		(66,707	)

Present value of minimum lease payments		110,531
Current maturities of obligations under capital leases		(155	)

Long-term obligations under capital leases	$	110,376

Certain operating and capital leases contain financial covenants. The most restrictive covenants require CNF to maintain minimum amounts of fixed-charge coverage and net worth. Certain operating leases also contain provisions that allow CNF to extend the leases for various renewal periods.

Rental expense for operating leases comprised the following:

(Dollars in thousands)	Years ended December 31,
	2002			2001			2000
Minimum rentals	$	141,970		$	226,604		$	240,429
Sublease rentals		(3,582	)		(3,668	)		(6,069	)
Amortization of deferred gains		—			(193	)		(1,147	)

	$	138,388		$	222,743		$	233,213

At December 31, 2002, CNF had one interest rate swap agreement designated as a cash flow hedge to mitigate the effects of interest rate volatility on floating-rate operating lease payments. The interest rate swap, which expires in 2003, effectively converts $20.5 million of floating-rate lease obligations to fixed-rate obligations. Interest rate differentials to be paid or received are recognized over the life of the agreement as adjustments to operating expense. See Note 9, “Derivative Instruments and Hedging Activities.”

At December 31, 2002, Con-Way was party to an operating lease agreement under which it intends to exercise a purchase option to acquire revenue equipment at an estimated fair value of $15.3 million. The anticipated equipment acquisition is expected to be reported as a capital expenditure in 2003.

CNF INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

7. Income Taxes

The components of the (provision) benefit for income taxes for the years ended December 31 were as follows:

(Dollars in thousands)	2002			2001			2000
Current (provision) benefit
Federal	$	85,369		$	59,859		$	(89,020	)
State and local		69			2,801			(7,383	)
Foreign		(5,648	)		(4,628	)		(13,430	)

		79,790			58,032			(109,833	)

Deferred (provision) benefit
Federal	$	(104,556	)	$	183,077		$	1,583
State and local		(7,775	)		21,258			(1,630	)
Foreign		506			—			—

		(111,825	)		204,335			(47	)

	$	(32,035	)	$	262,367		$	(109,880	)

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

The components of deferred tax assets and liabilities at December 31 related to the following:

(Dollars in thousands)	December 31,
	2002		2001
Deferred tax assets
Reserves for employee benefits	$	107,221	$	93,408
Reserves for accrued claims costs		65,929		64,652
Reserves for post retirement health benefits		27,885		29,602
Reserves for restructuring charges		17,332		123,678
Other reserves not currently deductible		18,911		27,222

		237,278		338,562

Deferred tax liabilities
Depreciation and amortization		125,396		117,559
Other		16,626		49,030

		142,022		166,589

Net deferred tax asset	$	95,256	$	171,973

Deferred tax assets and liabilities in the Consolidated Balance Sheets are classified based on the related asset or liability creating the deferred tax. Deferred taxes not related to a specific asset or liability are classified based on the estimated period of reversal. Although realization is not assured, management believes it more likely than not that all deferred tax assets will be realized.

CNF INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

	Years ended December 31,
	2002		2001		2000
Federal statutory tax (provision) benefit rate	(35.0	)%	35.0	%	(35.0	)%
State income tax (provision) benefit (net of federal income tax benefit)	(5.4	)	3.3		(2.8	)
Foreign taxes less than (in excess of) U.S. statutory rate	1.3		—		(1.0	)
Non-deductible operating expenses	(2.5	)	(0.4	)	(0.8	)
Amortization of goodwill	—		(0.5	)	(1.2	)
Foreign tax credits, net	1.4		—		0.5
IRS Settlement	17.1		—		—
Other, net	1.2		0.3		(1.8	)

Effective income (tax) benefit rate	(21.9	)%	37.7	%	(42.1	)%

The cumulative undistributed earnings of CNF’s foreign subsidiaries (approximately $46.8 million at December 31, 2002), which if remitted are subject to withholding tax, have been reinvested indefinitely in the respective foreign subsidiaries’ operations unless it becomes advantageous for tax or foreign exchange reasons to remit these earnings. Therefore, no withholding or U.S. taxes have been provided on this amount. The amount of withholding tax that would be payable on remittance of the undistributed earnings would approximate $3.7 million.

In August 2002, CNF entered into settlement agreements with the IRS, pursuant to which the parties settled issues related to the deductibility of aircraft maintenance costs for the years 1987 through 2000, and all other open issues under IRS examinations for the years 1987 through 1996, as discussed in Note 14, “Commitments and Contingencies—IRS Matters.” CNF reversed through tax provision the related tax liabilities previously recognized for this issue, resulting in a $25.0 million tax benefit in the third quarter of 2002.

8. Preferred Securities of Subsidiary Trust

On June 11, 1997, CNF Trust I (the Trust), a Delaware business trust wholly owned by CNF, issued 2,500,000 of its $2.50 Term Convertible Securities, Series A (TECONS) to the public for gross proceeds of $125 million. The combined proceeds from the issuance of the TECONS and the issuance to CNF of the common securities of the Trust were invested by the Trust in $128.9 million aggregate principal amount of 5% convertible subordinated debentures due June 1, 2012 (the Debentures) issued by CNF. The Debentures are the sole assets of the Trust.

Holders of the TECONS are entitled to receive cumulative cash distributions at an annual rate of $2.50 per TECONS (equivalent to a rate of 5% per annum of the stated liquidation amount of $50 per TECONS). CNF has guaranteed, on a subordinated basis, distributions and other payments due on the TECONS, to the extent the Trust has funds available therefore and subject to certain other limitations (the “Guarantee”). The Guarantee, when taken together with the obligations of CNF under the Debentures, the Indenture pursuant to which the Debentures were issued, and the Amended and Restated Declaration of Trust of the Trust [including its obligations to pay costs, fees, expenses, debts and other obligations of the Trust (other than with respect to the TECONS and the common securities of the Trust)], provide a full and unconditional guarantee of amounts due on the TECONS.

The Debentures are redeemable for cash, at the option of CNF, in whole or in part, on or after June 1, 2000 at a price equal to 103.125% of the principal amount, declining annually to par if redeemed on or after June 1,

CNF INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

2005, plus accrued and unpaid interest. In certain circumstances relating to federal income tax matters, the Debentures may be redeemed by CNF at 100% of the principal plus accrued and unpaid interest. Upon any redemption of the Debentures, a like aggregate liquidation amount of TECONS will be redeemed. The TECONS do not have a stated maturity date, although they are subject to mandatory redemption upon maturity of the Debentures on June 1, 2012, or upon earlier redemption.

Each TECONS is convertible at any time prior to the close of business on June 1, 2012 at the option of the holder into shares of CNF’s common stock at a conversion rate of 1.25 shares of CNF’s common stock for each TECONS, subject to adjustment in certain circumstances.

9. Derivative Instruments and Hedging Activities

Effective January 1, 2001, CNF adopted SFAS 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended by SFAS 137 and SFAS 138. SFAS 133 establishes accounting and reporting standards requiring that every derivative instrument, as defined, be recorded on the balance sheet as either an asset or liability measured at fair value and that changes in fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Qualifying hedges allow a derivative’s gain or loss to offset related results on the hedged item in the income statement or be deferred in Other Comprehensive Income (Loss) until the hedged item is recognized in earnings.

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

CNF formally documents its hedge relationships, including identifying the hedge instruments and hedged items, as well as its risk management objectives and strategies for entering into the hedge transaction. At hedge inception and at least quarterly thereafter, CNF assesses whether the derivatives are effective in offsetting changes in either the cash flows or fair value of the hedged item. If a derivative ceases to be a highly effective hedge, CNF will discontinue hedge accounting, and any gains or losses on the derivative instrument would be recognized in earnings during the period it no longer qualifies for hedge accounting.

For derivatives designated as cash flow hedges, changes in the derivative’s fair value are recognized in Other Comprehensive Income (Loss) until the hedged item is recognized in earnings. Any change in fair value resulting from ineffectiveness is recognized immediately in earnings. For derivatives designated as fair value hedges, changes in the derivative’s fair value are recognized in earnings and offset by changes in the fair value of the hedged item, which are recognized in earnings to the extent that the derivative is effective.

In accordance with the transition provisions of SFAS 133, in the first quarter of 2001 CNF recorded in Other Assets a transition adjustment of $20.6 million to recognize the estimated fair value of interest rate swap derivatives, a $4.9 million ($3.0 million after tax) transition adjustment in Accumulated Other Comprehensive Income (Loss) to recognize the estimated fair value of interest rate swap derivatives designated as cash flow hedges, and a $15.7 million transition adjustment in Long-Term Debt to recognize the estimated effect of interest rate changes on the fair value of fixed-rate debt, which was hedged with interest rate swap derivatives designated as fair value hedges.

CNF INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

December 31, 2002, one of the three outstanding interest rate swap derivatives qualified for hedge accounting under SFAS 133. At December 31, 2002, the fair value of this interest rate swap designated as a cash flow hedge was reported as a liability of $0.6 million ($0.4 million after tax). In connection with the restructuring charges described above, EWA made payments in the fourth quarter of 2002 to settle its obligation to pay certain future floating-rate aircraft lease payments previously hedged with two of CNF’s interest rate swap derivatives. Consequently, at December 31, 2002, these interest rate swap derivatives did not qualify for hedge accounting under SFAS 133 and were therefore freestanding derivatives. The estimated fair value of these freestanding derivatives, which is based on converting $62.6 million of future notional payments from a floating rate to a fixed rate, was reported as a $3.9 million liability in Emery’s restructuring reserves as of December 31, 2002. Until they are terminated, changes in the estimated fair value of these freestanding interest rate swap derivatives will be reported as non-operating income or expense.

Prior to their termination in December 2002, CNF had designated four interest rate swap derivatives as fair value hedges to mitigate the effects of interest rate volatility on the fair value of fixed-rate long-term debt. During 2002, the estimated fair value of these fair value hedges, prior to their termination, increased $19.3 million to $39.8 million, offsetting an equal increase to the carrying amount of the hedged fixed-rate long-term debt. In December 2002, CNF terminated these fair value hedges. Accordingly, CNF in December 2002 received cash of $31.0 million in settlement of three of the four interest rate swaps and recognized a receivable at December 31, 2002 for the fourth swap, which was terminated in December 2002 but was not settled with cash until January 2003. Prior to their termination, the fair value of these derivative instruments was included in Other Assets in the Consolidated Balance Sheets. Consistent with SFAS 133, the $39.8 million cumulative adjustment of the carrying amount of long-term debt will be accreted to future earnings at the effective interest rate until the debt is extinguished, at which time any unamortized fair-value adjustment would be fully recognized in earnings. Absent the terminated fair value hedges, the long-term debt will cease to be adjusted for fluctuations in fair value attributable to changes in interest rates.

10. Shareholders’ Equity

Series B Preferred Stock: In 1989, the Board of Directors designated a series of 1,100,000 preferred shares as Series B Cumulative Convertible Preferred Stock, $.01 stated value, which is held by the CNF Thrift and Stock Plan (TASP). The Series B preferred stock is convertible into common stock, as described in Note 12, “Thrift and Stock Plan,” at the rate of 4.71 shares for each share of preferred stock subject to antidilution adjustments in certain circumstances. Holders of the Series B preferred stock are entitled to vote with the common stock and are entitled to a number of votes in such circumstances equal to the product of (a) 1.3 multiplied by (b) the number of shares of common stock into which the Series B preferred stock is convertible on the record date of such vote. Holders of the Series B preferred stock are also entitled to vote separately as a class on certain other matters. The TASP trustee is required to vote the allocated shares based upon instructions from the participants; unallocated shares are voted in proportion to the voting instructions received from the participants with allocated shares.

Accumulated Other Comprehensive Income (Loss): SFAS 130, “Reporting Comprehensive Income,” requires companies to report a measure of all changes in equity except those resulting from investment by owners and distribution to owners, in a financial statement for the period in which they are recognized. CNF has disclosed Comprehensive Income (Loss) in the Statements of Consolidated Shareholders’ Equity.

CNF INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following is a summary of the components of Accumulated Other Comprehensive Loss:

(Dollars in thousands)	December 31,
	2002			2001
Cumulative effect of change in accounting for derivative instruments and hedging activities (Note 9)	$	—		$	3,005
Accumulated change in fair value of cash flow hedges (Note 9)		(394	)		(4,548	)
Accumulated foreign currency translation adjustments		(25,848	)		(32,782	)
Minimum pension liability adjustment (Note 11)		(30,632	)		(11,099	)

Accumulated other comprehensive loss	$	(56,874	)	$	(45,424	)

11. Benefit Plans

Pension Plans: CNF has a non-contributory defined benefit pension plan (the Plan) covering non-contractual employees in the United States. CNF’s annual pension expense and contributions are based on an independent actuarial computation. CNF’s funding policy is to evaluate its tax and cash position and the Plan’s funded status to maximize the tax deductibility of its contributions for the year. Benefits under the Plan are based on a career average of an employee’s five highest consecutive annual salaries. Approximately 70% of the Plan assets are invested in publicly traded equity securities and approximately 23% are invested in publicly traded fixed-income securities. The remainder is invested in temporary cash investments, real estate funds and investment capital funds.

CNF also has a supplemental retirement program that provides additional benefits for compensation excluded from the basic Plan. The annual pension expense for these programs is based on independent actuarial computations using assumptions consistent with the Plan. At December 31, 2002 and 2001, the accrued benefit obligation was $26,920,000 and $24,040,000, respectively, and the net annual pension expense was $4,716,000 in 2002, $5,540,000 in 2001, and $4,951,000 in 2000.

Recent declines in the equity markets have caused the market value of the defined benefit pension plan assets to decrease. As a result, the accumulated benefit obligation (ABO) of CNF’s defined benefit pension plans exceeded the fair value of plan assets as of December 31, 2002. In accordance with accounting principles generally accepted in the United States, CNF recorded an additional minimum pension liability adjustment in 2002, which increased the accrued pension benefit cost for CNF’s qualified and non-qualified defined benefit pension plans by $45.8 million, increased the intangible pension asset by $6.7 million, and reduced shareholders’ equity by $19.5 million through a net-of-tax increase in Accumulated Other Comprehensive Loss.

Post Retirement Medical Plan: CNF has a retiree medical plan that provides benefits to all non-contractual employees at least 55 years of age with 10 years or more of service. The retiree medical plan limits benefits for participants who were not eligible to retire before January 1, 1993, to a defined dollar amount based on age and years of service and does not provide employer-subsidized retiree medical benefits for employees hired on or after January 1, 1993.

CNF INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following sets forth the changes in pension and post retirement medical benefit obligations and the determination of the accrued benefit costs that are included in Employee Benefits in the Consolidated Balance Sheets at December 31:

(Dollars in thousands)	Pension Plans						Post Retirement Medical Plan
	2002			2001			2002			2001
Change in benefit obligation:
Projected benefit obligation at beginning of year	$	557,041		$	465,243		$	75,637		$	53,923
Service cost—benefits earned during the year		38,931			37,936			1,671			1,178
Interest cost on projected benefit obligation		44,743			39,400			5,418			5,003
Curtailment gain		—			(15,787	)		—			—
Actuarial loss		65,866			42,466			12,373			20,986
Amendments and benefit obligations		627			996			—			(1,055	)
Benefits paid		(16,160	)		(13,213	)		(4,780	)		(4,398	)

Projected benefit obligation at end of year	$	691,048		$	557,041		$	90,319		$	75,637

Change in plan assets:
Fair value of plan assets at beginning of year	$	413,242		$	410,944		$	—		$	—
Actual return on plan assets		(39,468	)		(18,586	)		—			—
Company contributions		76,200			13,112			4,780			4,398
Transfers from defined contribution plan		—			20,985			—			—
Benefits paid		(16,160	)		(13,213	)		(4,780	)		(4,398	)

Fair value of plan assets at end of year	$	433,814		$	413,242		$	—		$	—

Funded status of the plans	$	(257,234	)	$	(143,799	)	$	(90,319	)	$	(75,637	)
Unrecognized actuarial loss		154,129			7,384			19,436			7,097
Unrecognized prior service costs (benefits)		7,542			8,736			(1,095	)		(1,279	)
Unrecognized net asset at transition		(1,082	)		(2,181	)		—			—

Accrued benefit cost	$	(96,645	)	$	(129,860	)	$	(71,978	)	$	(69,819	)

Weighted-average assumptions as of December 31:
Discount rate		6.75	%		7.25	%		6.75	%		7.25	%
Expected long-term rate of return on assets		9.50	%		9.50	%		—			—
Rate of compensation increase		4.00	%		4.50	%		—			—

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

(Dollars in thousands)	Pension Plan									Post Retirement Medical Plan
	2002			2001			2000			2002			2001			2000
Service cost—benefits earned during the year	$	38,931		$	37,936		$	33,866		$	1,671		$	1,178		$	1,449
Interest cost on benefit obligation		44,743			39,400			33,571			5,418			5,003			6,669
Expected return on plan assets		(41,240	)		(38,944	)		(40,866	)		—			—			—
Net amortization and deferral		551			(292	)		(7,523	)		(150	)		(55	)		(144	)

Net benefit expense	$	42,985		$	38,100		$	19,048		$	6,939		$	6,126		$	7,974

The weighted-average assumptions for discount rate and rate of compensation increase, as reported above, were used in the calculation of the accrued benefit cost as of December 31. However, the assumption for the 9.5% expected long-term rate of return on assets, as reported above, was used in the calculation of periodic

CNF INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

pension expense for 2002 and 2001 rather than in the determination of accrued pension benefit cost as of December 31, 2002 and 2001, respectively. In 2003, pension expense will be calculated with a 6.75% discount rate, a 4.00% assumed rate of compensation increase and an expected long-term rate of return on plan assets of 9.0%, which declined from the expected return of 9.5% used in the determination of pension expense in 2002, due primarily to the recent decline in equity markets.

At December 31, 2002, a 10.25% annual rate of increase in the per capita cost of covered medical benefits was assumed for 2003 and was assumed to decrease gradually to 5.5% for 2009 and remain at that level thereafter. A 5.5% annual rate of increase in the per capita cost of dental and vision benefits was assumed for 2003 and was assumed to remain at that level thereafter. A one-percentage-point change in assumed health care cost trend rates would change the aggregate service and interest cost by approximately $300,000 and the accumulated benefit obligation by approximately $5,000,000.

Other Compensation Plans: CNF and each of its subsidiaries have adopted various plans relating to the achievement of specific goals to provide incentive compensation for designated employees. Total compensation earned by salaried participants of those plans was $69,170,000, $8,712,000, and $36,134,000 in 2002, 2001, and 2000, respectively, and by hourly participants was $40,202,000, $7,308,000, and $30,612,000 in 2002, 2001, and 2000, respectively.

12. Thrift and Stock Plan

CNF sponsors the CNF Thrift and Stock Plan (TASP), a voluntary defined contribution plan with a leveraged ESOP feature, for non-contractual U.S. employees. In 1989, the TASP borrowed $150,000,000 to purchase 986,259 shares of CNF’s Series B Cumulative Convertible Preferred Stock. This stock is only issuable to the TASP trustee. The TASP satisfies CNF’s contribution requirement by matching up to 50% of the first 3% of a participant’s basic compensation. CNF contributions to the TASP were $12,841,000 in 2002, $12,314,000 in 2001, and $13,282,000 in 2000, in the form of common and preferred stock.

The Series B Preferred Stock earns a dividend of $12.93 per share and is used to repay the TASP debt. Any shortfall is paid in cash by CNF. Dividends on these preferred shares are deductible for income tax purposes and, accordingly, are reflected net of their tax benefits in the Statements of Consolidated Operations. Allocation of preferred stock to participants’ accounts is based upon the ratio of the current year’s principal and interest payments to the total TASP debt. Since CNF guarantees the debt, it is reflected in Long-term Debt and Guarantees in the Consolidated Balance Sheets. The TASP guarantees are reduced as principal is paid.

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

Deferred compensation expense is recognized as the preferred shares are allocated to participants and is equivalent to the cost of the preferred shares allocated and the TASP interest expense for the year, reduced by the dividends paid to the TASP. Deferred compensation expense of $7,597,000, $7,282,000, and $6,998,000 was recognized in 2002, 2001, and 2000, respectively.

At December 31, 2002, the TASP owned 784,007 shares of Series B preferred stock, of which 356,778 shares have been allocated to employees. At December 31, 2002, CNF has reserved, authorized and unissued common stock adequate to satisfy the conversion feature of the Series B preferred stock.

CNF INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

13. Stock-Based Compensation

Stock Options: Officers and non-employee directors have been granted options under CNF’s stock option plans to purchase common stock of CNF at prices equal to the market value of the stock on the date of grant. Options granted prior to June 30, 1998 generally are exercisable one year from the date of grant. Stock option grants awarded subsequent to June 30, 1998 generally vest ratably over four years following the grant date. The options generally expire 10 years from the dates of grant.

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

The weighted-average grant-date fair value of options granted in 2002, 2001 and 2000 was $13.91, $11.71, and $14.26 per share, respectively, and was estimated using the Black-Scholes option pricing model with the following assumptions:

	2002	2001	2000
Risk-free interest rate	3.1%–5.3%	4.2%–5.1%	5.6%–6.9%
Expected life (years)	5.9	5.9	5.8
Expected volatility	47%	49%	60%
Expected dividend yield	1.2%	1.2%	1.4%

The following is a summary of stock option data:

	Number of Options		Wtd. Avg. Exercise Price
Outstanding at December 31, 1999	3,224,996		$	27.13
Granted	1,749,950			26.24
Exercised	(115,732	)		15.48
Expired or canceled	(131,267	)		33.02

Outstanding at December 31, 2000	4,727,947		$	26.90
Granted	1,311,404			25.48
Exercised	(178,377	)		18.01
Expired or canceled	(137,200	)		33.43

Outstanding at December 31, 2001	5,723,774		$	26.69
Granted	866,748			31.53
Exercised	(377,789	)		18.39
Expired or canceled	(90,942	)		30.12

Outstanding at December 31, 2002	6,121,791		$	27.84


Options exercisable as of December 31:
2002	2,630,626		$	28.05
2001	2,462,480		$	26.17
2000	2,013,257		$	24.78

CNF INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following is a summary of the stock options outstanding and exercisable at December 31, 2002:

	Outstanding Options				Exercisable Options
Range of Exercise Prices	Number of Options	Remaining Life in Years	Wtd. Avg. Exercise Price		Number of Options	Wtd. Avg. Exercise Price
$12.61–$18.89	308,780	2.6	$	17.46	308,780	$	17.46
$19.32–$27.06	3,283,801	7.2		24.77	1,015,516		23.00
$29.63–$43.06	2,529,210	7.1		33.10	1,306,330		34.48

Restricted Stock: Under terms of CNF’s stock-based compensation plans, shares of CNF’s common stock were awarded to five executive officers in 2002 and are awarded annually to directors. Restrictions on the shares issued to executive officers generally expire one-third per year dependent on the achievement of certain market prices of CNF’s common stock. Shares are valued at the market price of CNF’s common stock at the date of award.

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

	2002			2001			2000
	Shares	Wtd. Avg. Fair Value		Shares	Wtd. Avg. Fair Value		Shares	Wtd. Avg. Fair Value
Awarded	109,092	$	31.46	4,059	$	33.81	19,258	$	34.50
Forfeited	—		—	49,132		29.82	15,332		23.87

The weighted-average fair value for shares awarded in 2000 excludes 15,276 shares awarded for settlement of pension liabilities due to certain directors.

Total compensation expense recognized for restricted stock in 2002 was $1,010,000. CNF reversed net compensation expense recognized for restricted stock in the amount of $3,300,000 in 2001. Total compensation expense recognized for restricted stock in 2000 was $358,000.

At December 31, 2002, CNF had 644,513 common shares available for the grant of stock options, restricted stock, or other stock-based incentive compensation.

14. Commitments and Contingencies

IRS Matters: In August 2002, CNF entered into settlement agreements with the IRS, pursuant to which the parties settled issues related to the deductibility of aircraft maintenance costs for the years 1987 through 2000, and all other open issues under IRS examinations for the years 1987 through 1996. CNF reversed through tax provision the related tax liabilities previously recognized for this issue, resulting in a $25.0 million tax benefit in the third quarter of 2002. As a result of the settlement agreements, CNF was not required to make any additional payments to the IRS over and above a $93.4 million payment made in respect to these issues in 2000. Certain issues remain open for the years 1997 through 2000, but management does not believe that the resolution of those issues is likely to have a material adverse effect on CNF’s financial condition, cash flows, or results of operations.

Spin-Off of CFC: On December 2, 1996, CNF completed the spin-off of Consolidated Freightways Corporation (“CFC”) to CNF’s shareholders. In connection with the spin-off of CFC, CNF agreed to indemnify certain states, insurance companies and sureties against the failure of CFC to pay certain workers’ compensation,

CNF INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

tax and public liability claims that were pending as of September 30, 1996. In some cases, these indemnities are supported by letters of credit and surety bonds under which CNF is liable to the issuing bank or the surety company.

In September 2002, CFC filed for bankruptcy and ceased most U.S. operations. Following the commencement of its bankruptcy proceeding, CFC ceased making payments with respect to these workers’ compensation and public liability claims. CNF was required to take over payment of some of these claims, and expects that demands for payment will likely be made against it with respect to the remaining claims. CNF estimates the aggregate amount of all of these claims, plus other costs, to be $25.0 million. As a result, CNF accrued additional reserves in 2002, primarily in Accrued Claims Costs in the Consolidated Balance Sheets, and recognized 2002 third-quarter and fourth-quarter losses from discontinuance of $13.0 million (net of $8.3 million of income taxes) and $2.3 million (net of $1.4 million of income taxes), respectively. CNF intends to seek reimbursement from CFC in its bankruptcy proceeding of amounts that CNF pays in respect of these claims, although there can be no assurance that CNF will be successful in recovering all or any portion of such payments.

In addition, CFC was, at the time of the spin-off, and remains a party to certain multiemployer pension plans covering some of its current and former employees. The cessation of its U.S. operations will result in CFC’s “complete withdrawal” (within the meaning of applicable federal law) from these multiemployer plans, at which point it will become obligated, under federal law, to pay its share of any unfunded vested benefits under those plans. It is possible that the trustees of CFC’s multiemployer pension plans may assert claims that CNF is liable for amounts owing to the plans as a result of CFC’s withdrawal from those plans and, if so, there can be no assurance that those claims would not be material. For further detailed discussion of this matter, see Item 7, “Management’s Discussion and Analysis” under “Liquidity and Capital Resources—Discontinued Operations—Spin-Off of CFC.”

As a result of the matters discussed above and in Item 7, “Management’s Discussion and Analysis,” CNF can provide no assurance that these matters will not have a material adverse effect on CNF’s financial condition, cash flows or results of operations.

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

At December 31, 2002, Con-Way was committed to purchase tractors totaling $27.6 million.

15. Segment Reporting

Consistent with SFAS 131, “Disclosures about Segments of an Enterprise and Related Information,” CNF discloses segment information in the manner in which the components are organized for making operating decisions, assessing performance and allocating resources. CNF’s principal businesses consist of Con-Way Transportation Services and Menlo Worldwide. However, for financial reporting purposes, CNF is divided into five reporting segments. The operating results of Con-Way are reported as one reporting segment while Menlo Worldwide is divided into three reporting segments: Emery Forwarding, Menlo Worldwide Logistics, and Menlo Worldwide Other. The Menlo Worldwide Other reporting segment includes Vector SCM, a joint venture owned by CNF and General Motors that serves as the lead logistics manager worldwide for General Motors. Also, certain corporate activities and the results of Road Systems, a trailer manufacturer, are reported in the CNF Other reporting segment.

CNF INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Financial Data

Intersegment revenue and related operating income have been eliminated to reconcile to consolidated revenue and operating income. Management evaluates segment performance primarily based on revenue and operating income; therefore, other items included in pretax income, consisting primarily of interest income or expense, are not reported in segment results. Corporate expenses are generally allocated based on measurable services provided to each segment or, for general corporate expenses, based on segment revenue or capital. Identifiable corporate assets consist primarily of deferred charges and other assets, property and equipment and deferred taxes. Certain corporate assets that are used to provide shared data processing and other administrative services are not allocated to individual segments.

(Dollars in thousands)	Years ended December 31,
	2002			2001			2000
Revenues before Intersegment Eliminations
Con-Way Transportation Services	$	2,011,910		$	1,913,021		$	2,045,580
Menlo Worldwide
Emery Forwarding		1,778,919			2,045,044			2,628,816
Menlo Worldwide Logistics		982,897			909,694			903,964

		2,761,816			2,954,738			3,532,780
CNF Other		13,269			29,750			50,681
Intersegment Revenue Eliminations		(24,876	)		(34,778	)		(56,664	)

	$	4,762,119		$	4,862,731		$	5,572,377

Intersegment Revenue Eliminations by Segment
Con-Way Transportation Services	$	(433	)	$	(708	)	$	(684	)
Menlo Worldwide
Emery Forwarding		(207	)		(250	)		(20,674	)
Menlo Worldwide Logistics		(13,808	)		(11,512	)		(13,164	)

		(14,015	)		(11,762	)		(33,838	)
CNF Other		(10,428	)		(22,308	)		(22,142	)

	$	(24,876	)	$	(34,778	)	$	(56,664	)

Revenues from External Customers
Con-Way Transportation Services	$	2,011,477		$	1,912,313		$	2,044,896
Menlo Worldwide
Emery Forwarding		1,778,712			2,044,794			2,608,142
Menlo Worldwide Logistics		969,089			898,182			890,800

		2,747,801			2,942,976			3,498,942
CNF Other		2,841			7,442			28,539

	$	4,762,119		$	4,862,731		$	5,572,377

CNF INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollars in thousands)	Years ended December 31,
	2002			2001			2000
Operating Income (Loss)
Con-Way Transportation Services	$	147,154		$	157,467		$	227,312
Menlo Worldwide
Emery Forwarding		(11,980	)		(790,345	)		28,365
Menlo Worldwide Logistics		31,827			(15,818	)		33,303
Menlo Worldwide Other		18,188			(9,415	)		(560	)

		38,035			(815,578	)		61,108
CNF Other		(3,369	)		(2,540	)		1,546

	$	181,820		$	(660,651	)	$	289,966

Depreciation and Amortization
Con-Way Transportation Services	$	95,484		$	101,749		$	93,115
Menlo Worldwide
Emery Forwarding		42,036			71,966			80,620
Menlo Worldwide Logistics		10,304			8,044			6,939

		52,340			80,010			87,559
CNF Other		11,256			13,638			9,977

	$	159,080		$	195,397		$	190,651

Capital Expenditures
Con-Way Transportation Services	$	65,122		$	149,113		$	122,592
Menlo Worldwide
Emery Forwarding		9,007			23,910			68,087
Menlo Worldwide Logistics		8,991			12,184			12,291

		17,998			36,094			80,378
CNF Other		1,718			6,918			32,251

	$	84,838		$	192,125		$	235,221

Identifiable Assets
Con-Way Transportation Services	$	1,028,233		$	1,021,800		$	1,011,734
Menlo Worldwide
Emery Forwarding		998,851			1,090,670			1,516,394
Menlo Worldwide Logistics		176,882			183,501			170,326

		1,175,733			1,274,171			1,686,720
CNF Other		535,795			694,049			546,487

	$	2,739,761		$	2,990,020		$	3,244,941

CNF INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Unusual and/or Non-Recurring Items

(Dollars in thousands)	Years ended December 31,
	2002			2001			2000
Con-Way Transportation Services—
Net gain (loss) from the sale of a property	$	8,675		$	—		$	(5,459	)

Menlo Worldwide—
Emery Forwarding—
Net gain from a payment under the Air Transportation Safety and System Stabilization Act		9,895			—			—
Loss from restructuring charges (Note 3)		—			(652,241	)		—
Loss from a legal settlement on returned aircraft		—			(4,696	)		—
Duplicate airhaul costs (Note 3)		—			(55,800	)		—
Goodwill amortization (Note 1)		—			(10,210	)		(10,864	)
Express Mail operating income		—			6,324			28,245
Express Mail settlement		5,715			—			—
Loss from the termination of aircraft leases		—			—			(11,897	)
Menlo Worldwide Logistics—
Net gain from early termination of a contract		1,850			—			—
Loss from the business failure of a customer		—			(47,454	)		—

CNF Other—
Loss from the business failure of CFC		(3,595	)		—			—
Net gain from the sale of a property		2,367			—			—

Terrorist Attacks: Emery’s operating results in 2001 were adversely affected by the terrorist attacks on September 11, 2001. Contractors providing air carrier service to Emery were grounded on September 11 and 12 and did not resume service until the evening of September 13.

Express Mail Contract: Effective August 26, 2001, the USPS terminated “for convenience” a contract under which EWA transported Express Mail and other classes of mail for the USPS (the “Express Mail contract”). As described above under Note 2, “Discontinued Operations,” EWA received a $70.0 million provisional payment from the USPS for termination costs and other claims related to the Express Mail contract on September 26, 2001. The $70.0 million provisional payment was included in Deferred Credits in CNF’s

CNF INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Consolidated Balance Sheets at December 31, 2001 pending settlement with the USPS, at which time it would be used to recover the remaining costs related to the Express Mail contract. Under a subsequent settlement agreement, the USPS on December 17, 2002 paid EWA an additional $5.0 million to settle EWA’s Express Mail contract termination costs, including the reimbursement of certain aircraft and other assets. As a result of the final $5.0 million settlement payment, Emery in December 2002 fully recovered the remaining Express Mail assets and recorded a $5.7 million net gain.

Geographic Data

For geographic reporting, freight transportation revenues are allocated to international locations (except for Canada) when one or both of the shipment origination or destination locations are outside of the United States. Canada, which operates as an integrated part of the North America freight operations, is allocated 50 percent of the revenue when either the origination or destination location is in Canada and the other location is in the United States or an international location. Revenues for contract services are allocated to the country in which the services are performed. Long-lived assets outside of the United States were immaterial for all periods presented.

(Dollars in thousands)	Years ended December 31,
	2002		2001		2000
Revenues
United States	$	3,504,768	$	3,609,692	$	4,127,040
Canada		110,465		117,740		149,862

North America		3,615,233		3,727,432		4,276,902
International		1,146,886		1,135,299		1,295,475

Total	$	4,762,119	$	4,862,731	$	5,572,377

CNF INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

16. Quarterly Financial Data

CNF INC. AND SUBSIDIARIES

QUARTERLY FINANCIAL DATA

(Unaudited)

(Dollars in thousands except per share data)

2002—Quarter Ended	March 31			June 30			September 30			December 31
Revenues	$	1,067,074		$	1,186,273		$	1,230,147		$	1,278,625
Operating income		40,364	(b)		43,909			43,525	(c)		54,022	(f)
Income from continuing operations before income tax (provision) benefit		33,222			35,884			33,843			43,295	(g)
Income tax (provision) benefit		(12,956	)		(13,995	)		11,801	(d)		(16,885	)
Net income from continuing operations(a)		18,261			19,846			43,642			24,210
Loss from discontinuance, net of tax		—			—			(10,139	)(e)		(2,259	)(h)
Net Income Available to Common Shareholders	$	18,261		$	19,846		$	33,503		$	21,951
Per share:
Basic earnings (loss)
Income from continuing operations	$	0.37		$	0.40		$	0.89		$	0.49
Loss from discontinuance, net of tax		—			—			(0.21	)		(0.04	)

Net Income Available to Common Shareholders	$	0.37		$	0.40		$	0.68		$	0.45

Diluted earnings (loss)
Income from continuing operations	$	0.35		$	0.37		$	0.79		$	0.45
Loss from discontinuance, net of tax		—			—			(0.18	)		(0.04	)

Net Income Available to Common Shareholders	$	0.35		$	0.37		$	0.61		$	0.41

Market price range	$	29.55–$35.00		$	30.30–$38.28		$	27.36–$38.05		$	28.91–$34.10
Common dividends		0.10			0.10			0.10			0.10

2001—Quarter Ended	March 31			June 30			September 30			December 31
Revenues	$	1,278,465		$	1,256,608		$	1,184,959		$	1,142,699
Operating income (loss)		33,728			(351,987	)(i,j)		(5,370	)(j)		(337,022	)(i,j)
Income (Loss) from continuing operations before income tax (provision) benefit		25,928			(359,661	)		(13,214	)		(348,986	)(k)
Income tax (provision) benefit		(10,371	)		133,852			4,889			133,997
Net income (loss) from continuing operations(a)		13,517			(227,888	)		(10,377	)		(217,101	)
Gain from discontinuance, net of tax		—			—			38,975			—
Net Income (Loss) Applicable to Common Shareholders	$	13,517		$	(227,888	)	$	28,598		$	(217,101	)
Per share:
Basic earnings (loss)
Income (Loss) from continuing operations	$	0.28		$	(4.67	)	$	(0.21	)	$	(4.45	)
Gain from discontinuance, net of tax		—			—			0.80			—

Net Income (Loss) Applicable to Common Shareholders	$	0.28		$	(4.67	)	$	0.59		$	(4.45	)

Diluted earnings (loss)
Income (loss) from continuing operations	$	0.26		$	(4.67	)	$	(0.21	)	$	(4.45	)
Gain from discontinuance, net of tax		—			—			0.80			—

Net Income (Loss) Applicable to Common Shareholders	$	0.26		$	(4.67	)	$	0.59		$	(4.45	)

Market price range	$	27.23–$39.88		$	25.86–$33.74		$	21.05–$32.91		$	21.60–$33.25
Common dividends		0.10			0.10			0.10			0.10

CNF INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(a)

Reduced by preferred stock dividends.

(b)

Includes an $11.0 million net gain, $6.7 million after tax, ($0.12 per diluted share) from the sale of properties, a $9.9 million net gain, $6.0 million after tax ($0.11 per diluted share) from a payment under the Air Transportation Safety and System Stabilization Act, and a $1.9 million net gain, $1.1 million after tax ($0.02 per diluted share) from an early contract termination.

(c)

Includes a $3.6 million loss, $2.2 million after tax ($0.04 per diluted share) from the business failure of CFC.

(d)

Includes a $25.0 million ($0.44 per diluted share) reversal of accrued taxes related to the settlement with the IRS of aircraft maintenance issues.

(e)

Includes a $2.9 million net-of-tax gain ($0.05 per diluted share) on the final Priority Mail settlement, and a $13.0 million net-of-tax loss ($0.23 per diluted share) from the business failure of CFC.

(f)

Includes a $5.7 million gain, $3.5 million after tax ($0.06 per diluted share) from the final Express Mail settlement.

(g)

Includes a $3.7 million loss, $2.2 million after tax ($0.04 per diluted share) from equity ventures.

(h)

Includes $2.3 million net-of-tax loss ($0.04 per diluted share) from the business failure of CFC.

(i)

Includes a $340.5 million loss, $213.9 million after tax, in June ($4.67 per diluted share), a $311.7 million loss, $192.1 million after tax, in December ($3.93 per diluted share) from restructuring charges and a $4.7 million loss in June, $2.9 million after tax, ($0.06 per diluted share) from a legal settlement on returned aircraft.

(j)

Includes a $31.6 million loss, $19.3 million after tax, in June ($0.40 per diluted share), a $6.3 million loss, $3.8 million after tax, in July ($0.08 per diluted share), a $9.5 million loss, $5.9 million after tax, in December ($0.12 per diluted share) from the business failure of a customer, and duplicate airhaul costs of $17.0 million, $10.4 million after tax, in the third quarter ($0.21 per diluted share) and $38.8 million, $23.9 million after tax, in the fourth quarter ($0.49 per diluted share).

(k)

Includes a $5.3 million loss, $3.3 million after tax, ($0.07 per diluted share) from equity ventures.

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

PART III

Information for Items 10 through 12 of Part III of this Report appears in the Proxy Statement for CNF’s 2002 Annual Meeting of Shareholders to be held on April 22, 2003, as indicated below and that information on those pages is incorporated herein by reference.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The Executive Officers of CNF, their ages at December 31, 2002, and their applicable business experience are as follows:

Gregory L. Quesnel, 54, President and Chief Executive Officer of CNF. Mr. Quesnel joined the CNF organization 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 1990, was elected Vice President and Treasurer of CNF; 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. As part of a planned succession, Mr. Quesnel was elected President and Chief Operating Officer in July 1997. In May 1998, Mr. Quesnel was named President and Chief Executive Officer of CNF. At that time, he was also elected as a member of the CNF Board of Directors. Mr. Quesnel is a member of 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 and is a member of the Board of Directors of Potlatch Corporation. 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 Committee of the Board.

Chutta Ratnathicam, 55, Chief Financial Officer and Senior Vice President of CNF. Mr. Ratnathicam joined CNF in 1977 as a corporate auditor and following several increasingly responsible positions was named Vice President Internal Audit for CNF in 1989. In 1991, he was promoted to Vice President—International for Emery. In 1997, Mr. Ratnathicam was named Senior Vice President and Chief Financial Officer of CNF. In September 2000, Mr. Ratnathicam was named Chief Executive Officer of Emery. Mr. Ratnathicam returned as Chief Financial Officer of CNF upon Emery in 2002 becoming part of CNF’s new Menlo Worldwide group of supply chain service providers.

Gerald L. Detter, 58, President and Chief Executive Officer of Con-Way Transportation Services and Senior Vice President of CNF. Mr. Detter joined the former Consolidated Freightways Corporation of Delaware (CFCD) in 1964 as a dockman and advanced through several positions of increasing responsibility to become Division Manager in Detroit, Michigan in 1976. In 1982, he was named the first President and Chief Executive Officer of Con-Way Central Express. In 1997, Mr. Detter was named to his current position.

Eberhard G.H. Schmoller, 59, Senior Vice President, General Counsel and Corporate Secretary of CNF. Mr. Schmoller joined CFCD in 1974 as a staff attorney and in 1976 was promoted to CFCD Assistant General Counsel. In 1983, he was appointed Vice President and General Counsel of the former CF AirFreight and assumed the same position with Emery after its acquisition by CNF in 1989. Mr. Schmoller was named Senior Vice President and General Counsel of CNF in 1993.

John H. Williford, 46, President and Chief Executive Officer of Menlo Worldwide and Senior Vice President of CNF. Mr. Williford joined CNF in 1981 as an Economics/Senior Marketing Analyst. In 1984, he was named Director of Marketing for CNF’s international operations and was later appointed Director of Marketing for CNF. Since its inception in 1990, Mr. Williford served as the principal executive in charge of Menlo Worldwide Logistics, first as General Manager and then as President and Chief Executive Officer. In 1998, Mr. Williford was named Senior Vice President of CNF. In 2002, John Williford was named President and Chief Executive Officer of Menlo Worldwide.

Mark C. Thickpenny, 50, Vice President and Treasurer of CNF. Mr. Thickpenny joined CNF in 1995 as Treasury Manager. In 1997, he was named Director and Assistant Treasurer, and in 2000 was promoted to Vice President and Treasurer. Prior to joining CNF, Mr. Thickpenny served as the chief financial officer of a California-based credit union. Mr. Thickpenny holds a bachelor’s degree in business administration from the University of Notre Dame and a master’s degree in business administration from the University of Chicago Graduate School of Business.

Kevin Coel, 44, Vice President and Corporate Controller of CNF. Mr. Coel joined CNF in 1990 as CNF’s Corporate Accounting Manager. In 2000, he was named Corporate Controller, and in 2002, was promoted to Vice President. Mr. Coel is a certified public accountant, holds a bachelor’s degree in economics from the University of California at Davis and a master’s degree in business administration from San Jose State University.

Information regarding members of CNF’s Board of Directors is presented under the caption “Election of Directors” in CNF’s Proxy Statement dated March 24, 2003 and is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

Information regarding executive compensation is presented under the caption “Compensation of Executive Officers” in CNF’s Proxy Statement dated March 24, 2003 and is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information regarding security ownership of certain beneficial owners and management is presented under the captions “Stock Ownership by Directors and Executive Officers” and “Principal Shareholders” in CNF’s Proxy Statement dated March 24, 2003 and is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Not applicable.

ITEM 14. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures. CNF’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of CNF’s disclosure controls and procedures (as such term is defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the Evaluation Date, CNF’s disclosure controls and procedures are effective in alerting them on a timely basis to material information relating to CNF (including its consolidated subsidiaries) required to be included in CNF’s reports filed or submitted under the Exchange Act.

(b) Changes in Internal Controls. Since the Evaluation Date, there have not been any significant changes in CNF’s internal controls or in other factors that could significantly affect these internal controls.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)

1. Financial Statements

2. Financial Statement Schedule

Report of Independent Auditors on Financial Statement Schedule

Schedule II—Valuation and Qualifying Accounts

3. Exhibits

Exhibits are being filed in connection with this Report and are incorporated herein by reference. The Exhibit Index on pages 76 through 79 is incorporated herein by reference.

(b)

Reports on Form 8-K

One report on Form 8-K, dated May 30, 2002, filed during the quarter ended June 30, 2002, reported a change in auditors from Arthur Andersen LLP to KPMG LLP.

One report on Form 8-K, dated August 12, 2002, filed during the quarter ended September 30, 2002, reported under Item 9 the announcement that CNF submitted to the Securities and Exchange Commission (SEC) the Statements under Oath of the principal executive officer and principal financial officer in accordance with the SEC’s June 27, 2002 Order requiring the filing of sworn statements pursuant to Section 21(a)(1) of the Securities and Exchange Act of 1934.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Form 10-K Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized.

						CNF INC. (Registrant)

March 21, 2003						/s/ GREGORY L. QUESNEL Gregory L. Quesnel President and Chief Executive Officer

March 21, 2003						/s/ CHUTTA RATNATHICAM Chutta Ratnathicam Senior Vice President and Chief Financial Officer

March 21, 2003						/s/ KEVIN S. COEL Kevin S. Coel Vice President and Controller

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

March 21, 2003		/s/ DONALD E. MOFFITT Donald E. Moffitt Chairman of the Board

March 21, 2003		/s/ GREGORY L. QUESNEL Gregory L. Quesnel President, Chief Executive Officer and Director

March 21, 2003		/s/ ROBERT ALPERT Robert Alpert Director

March 21, 2003		/S/ KEVIN BURNS Kevin Burns Director

March 21, 2003		/s/ MARGARET G. GILL Margaret G. Gill Director

March 21, 2003		/s/ ROBERT JAUNICH II Robert Jaunich II Director

March 21, 2003		/s/ W. KEITH KENNEDY, JR. W. Keith Kennedy, Jr. Director

March 21, 2003		/s/ MICHAEL J. MURRAY Michael J. Murray Director

March 21, 2003		/s/ JOHN C. POPE John C. Pope Director

March 21, 2003		/s/ ROBERT D. ROGERS Robert D. Rogers Director

March 21, 2003		/s/ WILLIAM J. SCHROEDER William J. Schroeder Director

March 21, 2003		/s/ ROBERT P. WAYMAN Robert P. Wayman Director

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Gregory L. Quesnel, certify that:

I have reviewed this annual report on Form 10-K of CNF Inc.;

Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

The registrant’s other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

March 21, 2003

/s/ GREGORY L. QUESNEL

Gregory L. Quesnel

Chief Executive Officer

I, Chutta Ratnathicam, certify that:

I have reviewed this annual report on Form 10-K of CNF Inc.;

evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

March 21, 2003

/s/ CHUTTA RATNATHICAM

Chutta Ratnathicam

Chief Financial Officer

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Shareholders of CNF Inc.:

We have audited the accompanying consolidated balance sheet of CNF Inc. and subsidiaries as of December 31, 2002, and the related consolidated statements of operations, shareholders’ equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. The consolidated financial statements of CNF Inc. and subsidiaries as of December 31, 2001, and for each of the years in the two-year period ended December 31, 2001, were audited by other auditors who have ceased operations. Those auditors’ report dated January 25, 2002 (except with respect to the increase in the unsecured revolving credit facility as discussed in Note 5, as to which the date is February 22, 2002) on those consolidated financial statements was unqualified, before the revision and restatement described in Notes 1 and 15, respectively, to the consolidated financial statements and included an explanatory paragraph that described the change in the Company’s method of accounting for recognition of its in-transit freight transportation revenue.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the 2002 consolidated financial statements referred to above present fairly, in all material respects, the financial position of CNF Inc. and subsidiaries as of December 31, 2002, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

As discussed above, the consolidated financial statements of CNF Inc. and subsidiaries as of December 31, 2001, and for each of the years in the two-year period ended December 31, 2001, were audited by other auditors who have ceased operations. As described in Note 1 to the consolidated financial statements, these consolidated financial statements have been revised to include the transitional disclosures required by Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS 142), which was adopted by the Company as of January 1, 2002. Further, as described in Note 15 to the consolidated financial statements, the Company changed the composition of its reportable segments in 2002, and the amounts in the 2001 and 2000 consolidated financial statements relating to reportable segments have been restated to conform to the 2002 composition of reportable segments. We audited the adjustments that were applied to restate the disclosures for reportable segments reflected in the 2001 and 2000 consolidated financial statements. In our opinion, the SFAS 142 transitional disclosures for 2001 and 2000 in Note 1 to the consolidated financial statements are appropriate and the adjustments that were applied to restate the 2001 and 2000 reportable segment disclosures in Note 15 to the consolidated financial statements are appropriate and have been properly applied. However, we were not engaged to audit, review, or apply any procedures to the 2001 and 2000 consolidated financial statements of CNF Inc. and subsidiaries other than with respect to such disclosures and adjustments and, accordingly, we do not express an opinion or any other form of assurance on the 2001 and 2000 consolidated financial statements taken as a whole.

/s/ KPMG LLP
KPMG LLP

San Francisco, California

January 24, 2003 (except with respect to

the negotiated return of leased aircraft as discussed

in Note 3, as to which the date is February 3, 2003)

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

The Board of Directors and Shareholders of CNF Inc.:

We have audited the accompanying consolidated balance sheet of CNF Inc. (a Delaware corporation) and subsidiaries as of December 31, 2001 and 2000, and the related consolidated statement of operations, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of CNF Inc. and subsidiaries as of December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States.

As explained in Note 1 to the consolidated financial statements effective January 1, 2000, the Company changed its method of accounting for recognition of its in-transit freight transportation revenue.

/s/ ARTHUR ANDERSEN LLP
Arthur Andersen LLP

San Francisco, California

January 25, 2002

(except with respect to the increase in the

unsecured revolving credit facility as discussed

in Note 5, as to which the date is February 22, 2002)

THIS IS A COPY OF THE REPORT PREVIOUSLY ISSUED BY ARTHUR ANDERSEN LLP. THIS REPORT HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP.

ARTHUR ANDERSEN LLP WERE THE INDEPENDENT ACCOUNTANTS FOR CNF INC. UNTIL MAY 30, 2002. REPRESENTATIVES OF ARTHUR ANDERSEN LLP ARE NOT AVAILABLE TO PROVIDE THE CONSENT REQUIRED FOR THE INCORPORATION BY REFERENCE OF THEIR REPORT ON THE FINANCIAL STATEMENTS OF CNF INC. APPEARING IN THIS ANNUAL REPORT INTO REGISTRATION STATEMENTS FILED BY CNF INC. WITH THE SECURITIES AND EXCHANGE COMMISSION AND CURRENTLY EFFECTIVE UNDER THE SECURITIES ACT OF 1933. BECAUSE ARTHUR ANDERSEN LLP HAVE NOT CONSENTED TO THE INCORPORATION BY REFERENCE OF THEIR REPORT, INVESTORS WILL NOT BE ABLE TO RECOVER AGAINST ARTHUR ANDERSEN LLP UNDER SECTION 11 OF THE SECURITIES ACT OF 1933 FOR ANY UNTRUE STATEMENTS OF A MATERIAL FACT CONTAINED IN THE FINANCIAL STATEMENTS AUDITED BY ARTHUR ANDERSEN LLP THAT ARE CONTAINED IN THIS REPORT OR ANY OMISSIONS TO STATE A MATERIAL FACT REQUIRED TO BE STATED THEREIN.

INDEPENDENT AUDITORS’ REPORT ON FINANCIAL STATEMENT SCHEDULE

To the Board of Directors and Shareholders of CNF Inc.:

Under date of January 24, 2003 (except with respect to the negotiated return of leased aircraft as discussed in Note 3, as to which the date is February 3, 2003), we reported on the consolidated balance sheet of CNF Inc. and subsidiaries as of December 31, 2002, and the related statements of operations, shareholders’ equity, and cash flows for the year then ended, which are included in this Form 10-K for the year ended December 31, 2002. In connection with our audit of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedule in this Form 10-K for the year ended December 31, 2002. This financial statement schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion on this financial statement schedule based on our audit. The financial statement schedule for each of the years in the two-year period ended December 31, 2001 was audited by other auditors who have ceased operations. Those auditors’ reports dated January 25, 2002 on this financial statement schedule was unqualified.

In our opinion, such financial statement schedule for the year ended December 31, 2002, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth herein.

The consolidated financial statements of CNF Inc. and subsidiaries as of December 31, 2001, and for each of the years in the two-year period ended December 31, 2001, were audited by other auditors who have ceased operations. As described in Note 1 to the consolidated financial statements, these consolidated financial statements have been revised to include the transitional disclosures required by Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS 142), which was adopted by the Company as of January 1, 2002. Further, as described in Note 15 to the consolidated financial statements, the Company changed the composition of its reportable segments in 2002, and the amounts in the 2001 and 2000 financial statements relating to reportable segments have been restated to conform to the 2002 composition of reportable segments. We audited the adjustments that were applied to restate the disclosures for reportable segments reflected in the 2001 and 2000 financial statements. In our opinion, the SFAS 142 transitional disclosures for 2001 and 2000 in Note 1 to the consolidated financial statements are appropriate and the adjustments that were applied to restate the 2001 and 2000 reportable segment disclosures in Note 15 to the consolidated financial statements are appropriate and have been properly applied. However, we were not engaged to audit, review, or apply any procedures to the 2001 and 2000 consolidated financial statements or financial statement schedule of CNF Inc. other than with respect to such disclosures and adjustments and, accordingly, we do not express an opinion or any form of assurance on the 2001 or 2000 consolidated financial statements taken as a whole.

/s/ KPMG LLP
KPMG LLP

January 24, 2003 (except with respect to the

negotiated return of leased aircraft as discussed

in Note 3, as to which the date is February 3, 2003).

INDEPENDENT PUBLIC ACCOUNTANTS’ REPORT ON FINANCIAL STATEMENT SCHEDULE

To the Shareholders and Board of Directors of CNF Inc.:

We have audited in accordance with auditing standards generally accepted in the United States, the consolidated financial statements included in CNF Inc.’s 2001 Annual Report to Shareholders incorporated by reference in this Form 10-K, and have issued our report thereon dated January 25, 2002 (except with respect to the increase in the unsecured revolving credit facility as discussed in Note 5, as to which the date is February 22, 2002). Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The Schedule II—Valuation and Qualifying Accounts on page S-2 is the responsibility of the Company’s management and is presented for purposes of complying with the Securities and Exchange Commission’s rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.

/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP

San Francisco, California

January 25, 2002

THIS IS A COPY OF THE REPORT PREVIOUSLY ISSUED BY ARTHUR ANDERSEN LLP. THIS REPORT HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP.

SCHEDULE II

CNF INC.

VALUATION AND QUALIFYING ACCOUNTS

THREE YEARS ENDED DECEMBER 31, 2002

(Dollars in thousands)

DESCRIPTION

Allowance for Uncollectible Accounts

	Balance at Beginning of Period		Additions				Deductions (a)			Balance at End of Period
	Balance at Beginning of Period		(1) Charged to Costs and Expenses		(2) Charged to Other Accounts		Deductions (a)			Balance at End of Period
2002	$	22,675	$	17,817	$	—	$	(18,090	)	$	22,402
2001		21,722		17,435		—		(16,482	)		22,675
2000		26,163		9,070		—		(13,511	)		21,722
(a) Accounts written off net of recoveries.

Allowance for Costs of Discontinued Operations

	Balance at Beginning of Period		Additions				Deductions			Balance at End of Period
	Balance at Beginning of Period		(1) Charged to Costs and Expenses		(2) Charged to Other Accounts		Deductions			Balance at End of Period
2002	$	3,257	$	—	$	—	$	(2,037	)	$	1,220
2001		22,144		3,561		—		(22,448	)		3,257
2000		—		22,144		—		—			22,144

Restructuring Reserves

	Balance at Beginning of Period		Additions				Deductions			Balance at End of Period
	Balance at Beginning of Period		(1) Charged to Costs and Expenses		(2) Charged to Other Accounts		Deductions			Balance at End of Period
2002	$	370,536	$	—	$	—	$	(302,861	)	$	67,675
2001		—		652,241		—		(281,705	)		370,536

INDEX TO EXHIBITS

ITEM 15a(3)

Exhibit No.
(3)	Articles of incorporation and by-laws:

	3.1	CNF Transportation Inc. Certificate of Incorporation, as amended.

	3.2	CNF Transportation Inc. By-laws, as amended September 28, 1998

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

	4.1	Certificate of Designations of the Series B Cumulative Convertible Preferred Stock. (Exhibit 4.1 as filed on Form SE dated May 25, 1989*)

	4.2	Indenture between the Registrant and Bank One, Columbus, NA, as successor trustee, with respect to 9¹/8% Notes Due 1999, Medium-Term Notes, Series A and 7.35% Notes due 2005. (Exhibit 4.1 as filed on Form SE dated March 20, 1990*)

	4.3	Indenture between the Registrant and The First National Bank of Chicago Bank, trustee, with respect to debt securities. (Exhibit 4(d) as filed on Form S-3 dated June 27, 1995*)

	4.4	Indenture between the Registrant and Bank One, Columbus, NA, trustee, with respect to subordinated debt securities. (Exhibit 4(e) as filed on Form S-3 dated June 27, 1995*)

	4.5	Form of Security for 7.35% Notes due 2005 issued by Consolidated Freightways, Inc. (Exhibit 4.4 as filed on Form S-4 dated June 27, 1995*)

	4.6	Declaration of Trust of the Trust (Exhibit 4(k) to CNF’s Amendment 1 to Form S-3 dated May 30, 1997*)

	4.7	Form of Amended and Restated Declaration of Trust of the Trust, including form of Trust Preferred Security. (Exhibit 4(l) to CNF’s Amendment 1 to Form S-3 dated May 9, 1997*)

	4.8	Form of Guarantee Agreement with respect to Trust Preferred Securities. (Exhibit 4(m) to CNF’s Amendment 1 to Form S-3 dated May 30, 1997*)

	4.9	Form of Indenture between CNF Transportation Inc. and Bank One Trust Company, National Association (Exhibit 4(d)(i) to CNF’s Form 8-K dated March 3, 2000*).

	4.10	Form of Security for 8⁷/8% Notes due 2010 issued by CNF Transportation Inc. (Exhibit 4(i) to CNF’s Form 8-K dated March 3, 2000*).

	4.11	$350 Million Credit Agreement dated July 3, 2001 among CNF Inc. and various financial institutions.

	4.12	Security Agreement for the $350 Million Credit Agreement dated December 21, 2001.

	4.13	Amendment No. 1 dated December 21, 2001 to the $350 Million Credit Agreement.

	4.14	Amendment No. 2 dated February 22, 2002 to the $350 Million Credit Agreement.
Instruments defining the rights of security holders of long-term debt of CNF Inc., and its subsidiaries for which financial statements are required to be filed with this Form 10-K, of which the total amount of securities authorized under each such instrument is less than 10% of the total assets of CNF Inc. and its subsidiaries on a consolidated basis, may not have been filed as exhibits to this Form 10-K. CNF agrees to furnish a copy of each applicable instrument to the Securities and Exchange Commission upon request.
(10)	Material contracts:

	10.1	Consolidated Freightways, Inc. Long-Term Incentive Plan of 1988 as amended through Amendment 3. (Exhibit 10.2 as filed on Form SE dated March 25, 1991*#)

Exhibit No.
	10.2	Emery Air Freight Plan for Retirees, effective October 31, 1987. (Exhibit 4.23 to the Emery Air Freight Corporation Quarterly Report on Form 10-Q dated November 16, 1987**)

	10.3	Employee Stock Ownership Trust Agreement, dated as of October 8, 1987, as amended, between Emery Air Freight Corporation and Arthur W. DeMelle, Daniel J. McCauley and Daniel W. Shea, as Trustees under the ESOP Trust. (Exhibit 4.34 to the Emery Air Freight Corporation Annual Report on Form 10-K dated March 28, 1988**)

	10.4	Amended and Restated Subscription and Stock Purchase Agreement dated as of December 31, 1987 between Emery Air Freight Corporation and Boston Safe Deposit and Trust Company in its capacity as successor trustee under the Emery Air Freight Corporation Employee Stock Ownership Plan Trust (“Boston Safe”). (Exhibit B to the Emery Air Freight Corporation Current Report on Form 8-K dated January 11, 1988**)

	10.5	Supplemental Subscription and Stock Purchase Agreement dated as of January 29, 1988 between Emery Air Freight Corporation and Boston Safe. (Exhibit B to the Emery Air Freight Corporation Current Report on Form 8-K dated February 12, 1988**)

	10.6	Trust Indenture, dated as of November 1, 1988, between City of Dayton, Ohio and Security Pacific National Trust Company (New York), as Trustee and Bankers Trust Company, Trustee. (Exhibit 4.1 to Emery Air Freight Corporation Current Report on Form 8-K dated December 2, 1988**)

	10.7	Bond Purchase Agreement dated November 7, 1988, among the City of Dayton, Ohio, the Emery Air Freight Corporation and Drexel Burnham Lambert Incorporated. (Exhibit 28.7 to the Emery Air Freight Corporation Current Report on Form 8-K dated December 2, 1988**)

	10.8	Lease agreement dated November 1, 1988 between the City of Dayton, Ohio and Emery Air Freight Corporation. (Exhibit 10.1 to the Emery Air Freight Corporation Annual Report on Form 10-K for the year ended December 31, 1988**)

	10.9	Official Statement of the Issuer’s Special Facilities Revenue Refunding Bonds, 1993 Series E and F dated September 29, 1993 among the City of Dayton, Ohio and Emery Air Freight Corporation. (Exhibit 10.1 to CNF’s Form 10-Q for the quarterly period ended September 30, 1993*).

	10.10	Trust Indenture, dated September 1, 1993 between the City of Dayton, Ohio and Banker’s Trust Company as Trustee. (Exhibit 10.2 to CNF’s Form 10-Q for the quarterly period ended September 30, 1993*).

	10.11	Supplemental Lease Agreement dated September 1, 1993 between the City of Dayton, Ohio, as Lessor, and Emery Air Freight Corporation, as Lessee. (Exhibit 10.3 to CNF’s Form 10-Q for the quarterly period ended September 30, 1993*).

	10.12	Supplemental Retirement Plan dated January 1, 1990. (Exhibit 10.31 to CNF’s Form 10-K for the year ended December 31, 1993*#)

	10.13	Directors’ 24-Hour Accidental Death and Dismemberment Plan. (Exhibit 10.32 to CNF’s Form 10-K for the year ended December 31, 1993*#)

	10.14	Executive Split-Dollar Life Insurance Plan dated January 1, 1994. (Exhibit 10.33 to CNF’s Form 10-K for the year ended December 31, 1993*#)

	10.15	Board of Directors’ Compensation Plan dated January 1, 1994. (Exhibit 10.34 to CNF’s Form 10-K for the year ended December 31, 1993*#)

	10.16	Directors’ Business Travel Insurance Plan. (Exhibit 10.36 to CNF’s Form 10-K for the year ended December 31, 1993*#)

	10.17	Deferred Compensation Plan for Executives 1998 Restatement. (Exhibit 10.20 to CNF’s Form 10-K for the year ended December 31, 1997.*#)

Exhibit No.
	10.18	Amended and Restated 1993 Nonqualified Employee Benefit Plans Trust Agreement dated January 1, 1995. (Exhibit 10.38 to CNF’s Form 10-K for the year ended December 31, 1994.*#)

	10.19	Amended and Restated Retirement Plan for Directors of Consolidated Freightways, Inc. dated January 1, 1994. (Exhibit 10.40 to CNF’s Form 10-K for the year ended December 31, 1994.*#)

	10.20	CNF Transportation Inc. Return on Equity Plan, as amended through Amendment No. 1 (Exhibit 10.24 to CNF’s Form 10-K for the year ended December 31, 1997.*#)

	10.21	Employee Benefit Matters Agreement by and between Consolidated Freightways, Inc. and Consolidated Freightways Corporation dated December 2, 1996. (Exhibit 10.33 to CNF’s Form 10-K for the year ended December 31, 1996.*#)

	10.22	Distribution Agreement between Consolidated Freightways, Inc., and Consolidated Freightways Corporation dated November 25, 1996. (Exhibit 10.34 to CNF’s Form 10-K for the year ended December 31, 1996.*)

	10.23	Transition Services Agreement between CNF Service Company, Inc. and Consolidated Freightways Corporation dated December 2, 1996. (Exhibit to CNF’s Form 10-K for the year ended December 31, 1996.*)

	10.24	Tax Sharing Agreement between Consolidated Freightways, Inc., and Consolidated Freightways Corporation dated December 2, 1996. (Exhibit to CNF’s Form 10-K for the year ended December 31, 1996.*)

	10.25	CNF Transportation Inc. 1997 Equity and Incentive Plan as amended as of January 31, 2000. (Exhibit A to CNF’s Proxy Statement dated March 20, 2000.*#)

	10.26	CNF Transportation Inc. Deferred Compensation Plan for Directors 1998 Restatement. (Exhibit 10.34 to CNF’s Form 10-K for the year ended December 31, 1997.*#)

	10.27	CNF Transportation Inc. Executive Severance Plan. (Exhibit 10.32 to CNF’s Form 10-K for the year ended December 31, 1998.*#)

	10.28	CNF Inc. Summary of Incentive Compensation plans for 2002.*#

	10.29	Value Management Plan dated June 28, 1999.*#

	10.30	Amendment No. 1 dated June 28, 1999, to the Deferred Compensation Plan for Executives 1998 Restatement.

	10.31	Amendment No. 2 dated August 21, 2000, to the Deferred Compensation Plan for Executives 1998 Restatement.

	10.32	Amendment No. 3 dated January 1, 2001, to the Deferred Compensation Plan for Executives 1998 Restatement.

	10.33	Amendment No. 4 dated May 14, 2001, to the Deferred Compensation Plan for Executives 1998 Restatement.

	10.34	Amendment No. 5 dated December 4, 2001 to the Deferred Compensation Plan for Executives 1998 Restatement.

	10.35	Amendment No. 1 dated April 30, 1999, to the Amended and Restated Retirement Plan for Directors of CNF Transportation Inc.

	10.36	Amendment No. 2 dated June 28, 1999, to the CNF Transportation Inc. Return on Equity Plan, as amended through Amendment No. 1.

	10.37	Amendment No. 3 dated August 21, 2000, to the CNF Transportation Inc. Return on Equity Plan, as amended through Amendment No. 1.

	10.38	Amendment No. 4 dated May 14, 2001, to the CNF Transportation Inc. Return on Equity Plan, as amended through Amendment No. 1.

Exhibit No.

10.39	Amendment No. 1 dated December 13, 2000, to the CNF Transportation Inc. Executive Severance Plan.

10.40	Amendment No. 2 dated April 30, 2000, to the CNF Transportation Inc. Executive Severance Plan.

10.41	Amendment No. 3 dated December 4, 2001, to the CNF Transportation Inc. Executive Severance Plan.

10.42	Amendment No. 4 dated December 4, 2001, to the Value Management Plan dated June 28, 1999.

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

(12.b)	Computation of ratios of earnings to combined fixed charges and preferred stock dividends.

(21)	Significant Subsidiaries of CNF.

(23.1)	Consent of Independent Public Accountants

(99)	Additional documents:

	99.1	CNF Inc. 2002 Notice of Annual Meeting and Proxy Statement dated March 24, 2003 and filed on Form DEF 14A. (Only those portions referenced herein are incorporated in this Form 10-K. Other portions are not required and, therefore, are not “filed” as a part of this Form 10-K.*)

	99.2	Note Agreement dated as of July 17, 1989, between the ESOP, Consolidated Freightways, Inc. and the Note Purchasers named therein. (Exhibit 28.1 as filed on Form SE dated July 21, 1989*)

	99.3	Guarantee and Agreement dated as of July 17, 1989, delivered by Consolidated Freightways, Inc. (Exhibit 28.2 as filed on Form SE dated July 21, 1989*).

	99.4	Form of Restructured Note Agreement between Consolidated Freightways, Inc., Thrift and Stock Ownership Trust as Issuer and various financial institutions as Purchasers named therein, dated as of November 3, 1992. (Exhibit 28.4 to CNF’s Form 10-K for the year ended December 31, 1992*).

	99.5	Certification by the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

	99.6	Certification by the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

The remaining exhibits have been omitted because either (1) they are neither required nor applicable or (2) the required information has been included in the consolidated financial statements or notes thereto.

Footnotes to Exhibit Index

Previously filed with the Securities and Exchange Commission and incorporated herein by reference.

Incorporated by reference to indicated reports filed under the Securities Act of 1934, as amended, by Emery Air Freight Corporation File No. 1-3893.

Designates a contract or compensation plan for Management or Directors.

EX-3.1 3 dex31.htm CNF TRANSPORTATION INC. CERTIFICATE OF INCORPORATION CNF Transportation Inc. Certificate of Incorporation

Exhibit 3.1

CNF INC.

INCORPORATED IN DELAWARE AUGUST 13, 1958

UNDER THE CORPORATE NAME OF

CONSOLIDATED FREIGHTWAYS COMPANY

CERTIFICATE OF INCORPORATION

As Amended April 24, 2001

CERTIFICATE OF INCORPORATION

CNF INC.

As Amended April 24, 2001

FIRST. The name of the corporation is CNF INC.

SECOND. Its principal office in the State of Delaware is located at 1209 Orange Street, in the City of Wilmington, County of New Castle. The name and address of its resident agent is The Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801.

THIRD. The nature of the business of the corporation and the objects or purposes to be transacted, promoted or carried on by it are hereinafter set forth in Section 3.2 of this ARTICLE THIRD:

3.1 The following definitions shall apply to the following terms as used in this ARTICLE THIRD:

(a) Transport Instrumentality: Anything used or useful in or for transportation, including, without limiting the generality thereof, trucks, tractors, trailers, automobiles, vehicles, vessels, ships, boats, aircraft and other conveyances and equipment of any and all kinds;

(b) Evidence of Indebtedness: Bonds, debentures, notes, coupons, mortgages, commercial paper and any other instrument evidencing indebtedness, however created, issued or granted and whether full paid or subject to further payment;

(c) Certificate of Interest: Certificates of stock, script, interim receipts, participation certificates, voting trust certificates, subscription warrants, option warrants and any other instruments evidencing interest in shares, capital or other property, however created, issued or granted and whether full paid or subject to further payment;

(d) Entity: Corporations, public, quasi-public or private, of any kind, wherever and however organized, as well as individuals, partnerships and firms, joint stock companies, associations, syndicates, trusts, trustees, governments, governmental subdivisions and municipalities.

3.2 The nature of the business of the corporation and the objects or purposes to be transacted, promoted or carried on by it are:

(a) To buy, lease, hire, exchange, and otherwise acquire, own or hold, deal in, sell, mortgage, or otherwise encumber and dispose of real property and any and all interests therein; to improve such real property and to engage in the business of owning, erecting, constructing, maintaining and managing buildings and other improvements of any kind and character.

(b) To manufacture, buy, lease, hire, exchange, and otherwise acquire, own or hold, deal in, sell, mortgage or otherwise encumber and dispose of personal property of every kind and character and any and all interests therein.

(c) To manufacture, buy, lease, hire, exchange, and otherwise acquire, own or hold, deal in, sell, mortgage or otherwise encumber and dispose of any Transport Instrumentality.

(d) To manufacture, buy, exchange, barter and otherwise acquire, own, handle, prepare for market, trade, deal in, sell, exchange and otherwise dispose of goods, wares, merchandise, commodities, materials, and supplies of every kind, class and description.

(e) To subscribe for or cause to be subscribed for, purchase, receive, or otherwise acquire, own or hold, mortgage, pledge, sell, assign, negotiate, deal in, exchange, transfer, or otherwise dispose of Certificates of Interest and Evidences of Indebtedness created, issued or granted by any Entity, and while the owner thereof to

possess and to exercise in respect thereof all rights, powers and privileges of ownership, including the right to vote thereon or in respect thereof, and to do any acts or things designed to protect, preserve, or enhance the value of any thereof; to guarantee the payment of dividends on any Certificate of Interest of any Entity, and to become surety in respect to, endorse, or otherwise guarantee the payment of the principal of or interest on any Evidence of Indebtedness of any Entity; to become surety for or to guarantee the carrying out or performance of any and all contracts, leases and obligations of every kind of any Entity, and in particular, of any Entity the Certificates of Interest or Evidences of Indebtedness of which are at any time held by or for the corporation; and to do any acts or things designed to protect, preserve, improve, or enhance the value of any such Certificate of Interest or Evidence of Indebtedness.

(f) To buy, lease, hire, exchange, and otherwise acquire, own or hold, deal in, sell, mortgage, or otherwise encumber or dispose of all or any part of the business, good will, rights to property and assets of every kind of any Entity.

(g) To pay for any and all properties of the corporation in whole or in part with cash or other property or with Certificates of Interest or Evidences of Indebtedness of the corporation or otherwise.

(h) To purchase, apply for, obtain, register, take on lease or otherwise acquire, hold, own, use, mortgage, pledge, sell, assign, lease, transfer, or otherwise dispose of, grant licenses in respect of, or otherwise turn to account letters patent, trade marks, trade names, copyrights, and similar rights and property however created, issued, or granted, or any interest therein, or rights thereunder, or any inventions, improvements, processes, licenses, formulas, or devices which may seem capable of being used for or in connection with any of the objects or purposes of the corporation.

(i) To borrow or raise money for any of the objects or purposes of the corporation without limit as to amount; to issue from time to time Evidences of Indebtedness, secured or unsecured, of the corporation for money so borrowed, or in payment for property acquired, or for any of the other objects or purposes of the corporation, or in connection with its business, and to secure such Evidences of Indebtedness by mortgage, deed of trust, pledge or other lien upon, or assignment or agreement in respect of any or all the properties, assets, rights, licenses, privileges or franchises of the corporation, acquired or to be acquired, and to pledge, sell, or otherwise dispose of any or all such Evidences of Indebtedness of the corporation for its corporate purposes.

(j) To participate in or in the formation of, or to organize any group or syndicate which shall acquire by purchase, subscription, or otherwise, or which shall underwrite the issue of or the offer to any class of security holders of any Certificates of Interest or Evidences of Indebtedness of any Entity.

(k) To enter into a partnership (as general or special partner) or joint venture with any Entity.

(l) To lend money with or without security therefor to any Entity; to promote, organize, incorporate, reorganize, finance, procure capital or credit for or assist financially or otherwise any Entity in any manner or by any method whatsoever, and to do any and all things necessary or convenient to carry any such purposes into effect.

(m) To issue, own and hold, sell, transfer, reissue or cancel Evidences of Indebtedness or Certificates of Interest of the corporation in the manner and to the extent now or hereafter authorized or permitted by the laws of the State of Delaware.

(n) To carry out all or any part of the foregoing objects and purposes as principal, agent, broker, factor, contractor, or otherwise, either alone or in conjunction with any Entity, and in any part of the world; and in carrying on its business, and for the purpose of attaining or furthering any of its objects or purposes, to make and perform such contracts of every kind and description, to do such acts and things and to exercise any and all such powers as a natural person could lawfully make, perform, do or exercise.

(o) To carry on any or all of the operations or business of the corporation in any and all states, territories, possessions, colonies, and dependencies of the United States of America, in the District of Columbia, and in any or all foreign countries; to have one or more offices within and without the State of Delaware; to do any and all

things necessary, suitable, convenient or proper for or in connection with or incidental to the accomplishment of any of the purposes or the attainment of any one or more of the objects herein enumerated or designed directly or indirectly to promote the interests of the corporation or to enhance the value of any of its properties; and in general, to do any and all things and exercise any and all powers which it may now or hereafter be lawful for the corporation to do or to exercise under the laws of the State of Delaware now or hereafter applicable to the corporation.

Provided, however, that anything in the foregoing clauses to the contrary notwithstanding, the corporation shall not engage in the business of transportation of passengers or property for compensation in interstate or foreign commerce.

3.3 The objects and purposes specified in the foregoing clauses of Section 3.2 shall, except where otherwise expressed, be in no wise limited or restricted by reference to or inference from the objects and purposes specified in any other clause in the Certificate of Incorporation, but the objects and purposes specified in each of the foregoing clauses of Section 3.2 shall be regarded as independent objects and purposes.

FOURTH. A. Number of Classes of Shares Authorized The total number of shares of all classes of stock which the corporation shall have authority to issue is 105,000,000 shares, of which 5,000,000 shares shall constitute Preferred Stock (the “Preferred Stock”), without par value, and 100,000,000 shares shall constitute Common Stock (the “Common Stock”) having a par value of $.625 per share.

B. Reclassification of Outstanding Common Stock Each share of Common Stock (par value $1.25 per share) of the corporation issued and outstanding (including treasury shares) is hereby reclassified, changed into and shall be two (2) fully paid and non-assessable shares of Common Stock (par value $.625 per share) of the corporation.

C. Description of Classes of Stock The designations and the powers, preferences and rights of the Preferred Stock and of the Common Stock, and the qualifications, limitations or restrictions thereof, are as follows:

1. Preferred Stock to be Issued in Series

Any of the shares of Preferred Stock may be issued from time to time in one or more series. Subject to the limitations and restrictions in this ARTICLE FOURTH set forth, the Board of Directors, by resolution or resolutions, is authorized to create or provide for any such series, and to fix the designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof, including, without limitation, the authority to fix or alter the dividend rights, dividend rates, conversion rights, exchange rights, voting rights, rights and terms of redemption (including sinking and purchase fund provisions), the redemption price or prices, the dissolution preferences and the rights in respect to any distribution of assets of any wholly unissued series of Preferred Stock and the number of shares constituting any such series, and the designation thereof, or any of them and to increase or decrease the number of shares of any series so created, subsequent to the issue of that series but not below the number of shares of such series then outstanding. In case the number of shares of any series shall be so decreased, the shares constituting such decrease shall resume the status which they had prior to the adoption of the resolution originally fixing the number of shares of such series.

2. Provisions Applicable to All Series of Preferred Stock and to the Common Stock

(a) There shall be no limitation or restriction on any variation between any of the different series of Preferred Stock as to the designations, preferences and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions thereof; and the several series of Preferred Stock may, except as hereinafter in this ARTICLE FOURTH otherwise expressly provided, vary in any and all respects as fixed and determined by the resolution or resolutions of the Board of Directors providing for the issuance of the various series; provided, however, that all shares of any one series of Preferred Stock shall have the same designation, preferences and relative, participating, optional or other special rights and qualifications, limitations and restrictions.

(b) No holder of Preferred Stock or of Common Stock shall be entitled as such, as a matter of right, to subscribe for or purchase any shares of Preferred Stock or Common Stock of the corporation, whether now or hereafter

authorized, or securities convertible into, exchangeable for, or carrying the right to acquire, Preferred Stock or Common Stock of the corporation whether now or hereafter authorized.

(c) The entire voting power and all voting rights, except as otherwise required by law, or as otherwise fixed by resolution or resolutions of the Board of Directors with respect to one or more series of Preferred Stock, shall be vested exclusively in the Common Stock. The amount of either the authorized Preferred Stock or Common Stock, or the amount of both such classes of stock, may be increased or decreased by the affirmative vote of the holders of a majority of the stock of the corporation entitled to vote. Each stockholder of the corporation who at the time possesses voting power for any purpose shall be entitled to one vote for each share of such stock standing in his name on the books of the corporation.

FIFTH. The minimum amount of capital with which the corporation will commence business is One Thousand Dollars ($1,000.00).

SIXTH. The names and places of residence of the incorporators are as follows:

Names		Residences
H.K. Webb		Wilmington, Delaware
S.E. Manuel		Wilmington, Delaware
A.D. Atwell		Wilmington, Delaware

SEVENTH. The corporation is to have perpetual existence.

EIGHTH. The private property of the stockholders shall not be subject to the payment of corporate debts to any extent whatever.

NINTH. In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized:

(a) To make, alter or repeal the by-laws of the corporation.

(b) To authorize and cause to be executed mortgages and liens upon the real and personal property of the corporation.

(c) To set apart out of any of the funds of the corporation available for dividends a reserve or reserves for any proper purpose and to abolish any such reserve in the manner in which it was created.

(d) By resolution passed by a majority of the whole Board, to designate one or more committees, each committee to consist of two or more of the directors of the corporation, which, to the extent provided in the resolution or in the by-laws of the corporation, shall have and may exercise the powers of the Board of Directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it. Such committee or committees shall have such name or names as may be stated in the by-laws of the corporation or as may be determined from time to time by resolution adopted by the Board of Directors.

(e) When and as authorized by the affirmative vote of the holders of a majority of the stock issued and outstanding having voting power given at a stockholders’ meeting duly called for that purpose, or when authorized by the written consent of the holders of a majority of the voting stock issued and outstanding, to sell, lease or exchange all of the property and assets of the corporation, including its good will and its corporate franchises, upon such terms and conditions and for such consideration, which may be in whole or in part shares of stock, and/or other securities of, any other corporation or corporations, as its Board of Directors shall deem expedient and for the best interests of the corporation.

TENTH. Whenever a compromise or arrangement is proposed between the corporation and its creditors or any class of them and/or between the corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of the corporation or of any creditor or stockholder thereof, or on the application of any receiver or receivers appointed for the corporation under the provisions of section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for the corporation under the provisions of section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of the corporation as consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of the corporation, as the case may be, and also on the corporation.

ELEVENTH. A. Meetings of stockholders may be held outside the State of Delaware, if the by-laws so provide. The books of the corporation may be kept (subject to any provision contained in the statutes) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the by-laws of the corporation. Elections of directors need not be by ballot unless the by-laws of the corporation shall so provide.

B. The number of directors shall be determined by the Board of Directors or the stockholders, provided, however, that the number thereof shall never be less than twelve nor greater than fifteen. A director need not be a stockholder. The directors shall be divided into three classes, designated Class I, Class II, and Class III, as nearly equal in number as the then total number of directors permits. At the 1985 annual meeting of stockholders, Class I directors shall be elected for a one-year term, Class II directors for a two-year term and Class III directors for a three-year term. At each succeeding annual meeting of stockholders beginning in 1986, successors to the class of directors whose term expires at that annual meeting shall be elected for a three-year term. If the number of directors is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible, and any additional directors of any class elected to fill a vacancy resulting from an increase in such class shall hold office for a term that shall coincide with the remaining term of that class, but in no case will a decrease in the number of directors shorten the term of any incumbent director. A director shall hold office until the annual meeting for the year in which his term expires and until his successor shall be elected and shall qualify, subject, however, to prior death, resignation, retirement, disqualification or removal from office. Any vacancy on the Board of Directors, including any vacancy that results from an increase in the number of directors may be filled by a majority of the Board of Directors then in office, although less than a quorum, or by a sole remaining director. Any director elected to fill a vacancy shall have the same remaining term as that of his predecessor.

Notwithstanding the foregoing, whenever the holders of any one or more classes or series of Preferred Stock issued by the corporation shall have the right, voting separately by class or series, to elect directors at an annual or special meeting of stockholders, the election, term of office, filling of vacancies and other features of such directorships shall be governed by the terms of this Certificate of Incorporation applicable thereto, and such directors so elected shall not be divided into classes pursuant to this Article unless expressly provided by such terms.

Any amendment, change or repeal of this Article, or any other amendment to this Certificate of Incorporation that will have the effect of permitting circumvention of or modifying this paragraph B of ARTICLE ELEVENTH, shall require the favorable vote, at a stockholders’ meeting, of the holders of at least 80 of the then-outstanding shares of stock of the corporation entitled to vote.

TWELFTH. Notwithstanding anything in this Certificate of Incorporation to the contrary, any action required or permitted to be taken at a meeting of stockholders may be taken without a meeting only if 80 or more of the voting power of the stockholders entitled to vote thereon consent thereto in writing.

Any amendment, change or repeal of this ARTICLE TWELFTH, or any other amendment to this Certificate of Incorporation that will have the effect of permitting circumvention or modifying this ARTICLE TWELFTH, shall require the favorable vote, at a stockholders’ meeting, of the holders of at least 80 of the then-outstanding shares of stock of the corporation entitled to vote.

THIRTEENTH. The corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation.

FOURTEENTH. To the fullest extent permitted by Delaware statutory or decisional law, as amended or interpreted, no director of the Corporation shall be personally liable to the Corporation or its shareholders for monetary damages for breach of fiduciary duty as a director. This Article Fourteenth does not affect the availability of equitable remedies for breach of fiduciary duties.

We, THE UNDERSIGNED, being each of the incorporators hereinbefore named, for the purpose of forming a corporation pursuant to the General Corporation law of the State of Delaware, do make this certificate, hereby declaring and certifying that the facts herein stated are true, and accordingly have hereunto set our hands and seals this 12th day of August, A.D. 1958.

H.K. WEBB (Seal)

S.E. MANUEL (Seal)

A.D. ATWELL (Seal)

STATE OF DELAWARE

COUNTY OF NEW CASTLE—ss:

BE IT REMEMBERED that on this 12th day of August, A.D. 1958, personally came before me, a Notary Public for the State of Delaware, H.K. Webb, S.E. Manuel and A.D. Atwell, all of the parties to the foregoing Certificate of Incorporation, known to me personally to be such and severally acknowledged the said certificate to be the act and deed of the signers respectively and that the facts therein stated are truly set forth.

GIVEN under my hand and seal of office the day and year aforesaid.

M. RUTH MANNERING

Notary Public

M. Ruth Mannering

Notary Public

Appointed Feb. 12, 1957

State of Delaware

Term Two Years

CERTIFICATE

THE UNDERSIGNED,_______________________________________________________________________Secretary of CNF Inc., does hereby certify that the foregoing is a true and correct copy of the Certificate of Incorporation of CNF INC., as amended to date hereof.

IN WITNESS whereof the undersigned has hereunto set his hand and affixed the seal of said corporation this________________day of____________________, ____________.

Secretary of CNF Inc.

EX-3.2 4 dex32.htm CNF TRANSPORTATION INC. BY-LAWS, AS AMENDED SEPTEMBER 28, 1998 CNF Transportation Inc. By-laws, as amended September 28, 1998

Exhibit 3.2

CNF INC.

INCORPORATED IN DELAWARE AUGUST 13, 1958

UNDER THE CORPORATE NAME OF

CONSOLIDATED FREIGHTWAYS COMPANY

BYLAWS

As Amended April 30, 2001

CNF INC.

BYLAWS

As Amended April 30, 2001

ARTICLE I

OFFICES

SECTION 1. Registered Office. The registered office of the Corporation in the State of Delaware shall be in the City of Wilmington, County of New Castle.

SECTION 2. Other Offices. The Corporation shall also have and maintain a principal office or place of business at such place as may be fixed by the Board of Directors, and may also have other offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine or as the business of the Corporation may require.

ARTICLE II

STOCKHOLDERS’ MEETINGS

SECTION 1. Place of Meetings. Meetings of the stockholders of the Corporation shall be held at such place, either within or without the State of Delaware, as may be designated from time to time by the Board of Directors or, if not so designated, then at the principal office of the Corporation.

SECTION 2. Annual Meetings. The annual meetings of the stockholders of the Corporation for the purpose of election of directors and for such other business as may lawfully come before the meetings shall be held on a date and at a time designated from time to time by the Board of Directors. No business may be transacted at an annual meeting of stockholders, other than business that is either (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors (or any duly authorized committee thereof), (b) otherwise properly brought before the annual meeting by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (c) otherwise properly brought before the annual meeting by any stockholder of the Corporation (i) who is a stockholder of record on the date of the giving of the notice provided for in this Section 2 and on the record date for the determination of stockholders entitled to vote at such annual meeting and (ii) who complies with the notice procedures set forth in this Section 2.

In addition to any other applicable requirement, for business to be properly brought before an annual meeting by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Secretary of the Corporation.

To be timely, a stockholder’s notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Corporation not less than ninety (90) days nor more than one hundred twenty (120) days prior to the anniversary date of the immediately preceding annual meeting of stockholders; provided, however, that in the event that the annual meeting is called for a date that is not within thirty (30) days before or after such anniversary date, notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which notice of the date of the annual meeting was mailed or public disclosure of the date of the annual meeting was made, whichever first occurs.

To be in proper written form, a stockholder’s notice to the Secretary must set forth as to each matter such stockholder proposes to bring before this annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and record address of such stockholder, (iii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such stockholder, (iv) a description of all arrangements or understandings between such stockholder and any other person or persons (including their names) in connection with the proposal of such business by such stockholder and any material interest of such stockholder in business and (v) a representation that such stockholder intends to appear in person or by proxy at the annual meeting to bring such business before the meeting.

Notwithstanding anything in the Bylaws to the contrary, no business shall be conducted at the annual meeting except in accordance with the procedures set forth in this Section 2.

The Chairman of an annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section 2, and if he should so determine, he shall so declare to the meeting and any such business shall not be transacted.

SECTION 3. Special Meetings. Special Meetings. Special meetings of the stockholders of the Corporation may be called, for any purpose or purposes, by the Chief Executive Officer or the Board of Directors at any time. Upon written request of any stockholder or stockholders holding in the aggregate a majority of the voting power of all stockholders, the Secretary shall call a meeting of stockholders to be held not less than thirty (30) and not more than ninety (90) days after the receipt of the request, on such date and at such time and place as may be designated by the Board of Directors. If the Secretary, within forty-five (45) days following receipt of the request, shall neglect or refuse to call the meeting in accordance with the provisions of the preceding sentence, the stockholder or stockholders making the request may do so.

SECTION 4. Notice of Meetings. Except as otherwise provided by law or the Certificate of Incorporation, written notice of each meeting of stockholders shall be given not less than ten nor more than 50 days before the date of the meeting to each stockholder entitled to vote thereat, directed to his address as it appears upon the books of the Corporation; said notice to specify the place, date and hour and purpose or purposes of the meeting. When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken unless the adjournment is for more than thirty days, or unless after the adjournment a new record date is fixed for the adjourned meeting, in which event a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Notice of the time, place and purpose of any meeting of stockholders may be waived in writing, either before or after such meeting, and will be waived by any stockholder by his attendance thereat in person or by proxy. Any stockholder so waiving notice of such meeting shall be bound by the proceedings of any such meeting in all respects as if due notice thereof had been given.

SECTION 5. Quorum. At all meetings of stockholders, except where otherwise provided by statute or by the Certificate of Incorporation, or by the Bylaws, the presence, in person or by proxy duly authorized, of the holders of a majority of the outstanding shares of stock entitled to vote shall constitute a quorum for the transaction of business. Shares, the voting of which at said meeting has been enjoined, or which for any reason cannot be lawfully voted at such meeting shall not be counted to determine a quorum at said meeting. In the absence of a quorum any meeting of stockholders may be adjourned, from time to time, by vote of the holders of a majority of the shares represented thereat, but no other business shall be transacted at such meeting. At such adjourned meeting at which a quorum is present or represented any business may be transacted which might have been transacted at the original meeting. The stockholders present at a duly called or convened meeting, at which a quorum is present, may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. Except as otherwise provided by law, the Certificate of Incorporation or these Bylaws, all action taken by the holders of a majority of the voting power represented at any meeting at which a quorum is present shall be valid and binding upon the Corporation.

SECTION 6. Voting Rights. Except as otherwise provided by law, only persons in whose names shares entitled to vote stand on the stock records of the Corporation on the record date for determining the stockholders entitled to vote at said meeting shall be entitled to vote at such meeting. Shares standing in the names of two or more persons shall be voted or represented in accordance with the determination of the majority of such persons, or, if only one of such persons is present in person or represented by proxy, such person shall have the right to vote such shares and such shares shall be deemed to be represented for the purpose of determining a quorum. Every person entitled to vote or execute consents shall have the right to do so either in person or by an agent or agents authorized by a written proxy executed by such person or his duly authorized agent, which proxy shall be filed with the Secretary of the Corporation at or before the meeting at which it is to be used. Said proxy so appointed need not be a stockholder. No proxy shall be voted on after three years from its date unless the proxy provides for a longer period. List of Stockholders.

SECTION 7. List of Stockholders. The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at said meeting, arranged in alphabetical order, showing the address of and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held and which place shall be specified in the notice of the meeting, or, if not specified, at the place where said meeting is to be held, and the list shall be produced and kept at the time and place of meeting during the whole time thereof, and may be inspected by any stockholder who is present.

SECTION 8. Action Without Meeting. Whenever the vote of stockholders at a meeting thereof is required or permitted to be taken in connection with any corporate action by any provisions of the statutes or of the Certificate of Incorporation, the meeting and vote of stockholders may be dispensed with: (1) if all of the stockholders who would have been entitled to vote upon the action if such meeting were held shall consent in writing to such corporate action being taken; or (2) if the Certificate of Incorporation authorizes the action to be taken with the written consent of the holders of less than all of the stock who would have been entitled to vote upon the action if a meeting were held, then on the written consent of the stockholders having not less than such percentage of the number of votes as may be authorized in the Certificate of Incorporation; provided that in no case shall the written consent be by the holders of stock having less than the minimum percentage of the vote required by statute for the proposed corporate action, and provided that prompt notice must be given to all stockholders of the taking of corporate action without a meeting and by less than unanimous written consent.

SECTION 9. Rules of Conduct. The Board of Directors of the Company shall be entitled to make such rules or regulations for the conduct of meetings of stockholders as it shall deem necessary, appropriate or convenient. Subject to such rules and regulations of the Board of Directors, if any, the chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are necessary, appropriate or convenient for the proper conduct of the meeting, including, without limitation, establishing an agenda or order of business for the meeting, rules and procedures for maintaining order at the meeting and the safety of those present, limitations on participation in such meeting to stockholders of record of the Corporation and their duly authorized and constituted proxies, and such other persons as the chairman shall permit, restrictions on entry to the meeting after the time fixed for the commencement thereof, limitations on the time allotted to questions or comments by participants and regulation of the opening and closing of the polls for balloting on matters which are to be voted on by ballot. Unless, and to the extent, determined by the Board of Directors or the chairman of the meeting, meetings of shareholders shall not be required to be held in accordance with rules of parliamentary procedure. ARTICLE III

ARTICLE III

DIRECTORS

SECTION 1. Powers. The powers of the Corporation shall be exercised, its business conducted and its property controlled by the Board of Directors.

SECTION 2. Number, Qualifications and Classification. (a) A majority of the directors holding office may by resolution increase or decrease the number of directors, provided, however, that the number thereof shall never be less than twelve nor greater than fifteen. A director need not be a stockholder. The directors shall be divided into three classes, designated Class I, Class II and Class III, as nearly equal in number as the then total number of directors permits. At the 1985 annual meeting of stockholders, Class I directors shall be elected for a one-year term. Class II directors for a two-year term and Class III directors for a three-year term. At each succeeding annual meeting of stockholders beginning in 1986, successors to the class of directors whose term expires at that annual meeting shall be elected for a three-year term. If the number of directors is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible, and any additional directors of any class elected to fill a vacancy resulting from an increase in such class shall hold office for a term that shall coincide with the remaining term of that class, but in no case will a decrease in the number of directors shorten the term of any incumbent director. A director shall hold office until the annual meeting for the year in which his term expires and until his successor shall be elected and shall qualify, subject,

however, to prior death, resignation, retirement, disqualification or removal from office. Any vacancy on the Board of Directors, including any vacancy that results from an increase in the number of directors, may be filled by a majority of the Board of Directors then in office, although less than a quorum, or by a sole remaining director. Any director elected to fill a vacancy shall have the same remaining term as that of his predecessor.

(b) Notwithstanding the foregoing, whenever the holders of any one or more classes or series of Preferred Stock issued by the Corporation shall have the right, voting separately by class or series, to elect directors at an annual or special meeting of stockholders, the election, term of office, filling of vacancies and other features of such directorships shall be governed by the terms of the Certificate of Incorporation applicable thereto, and such directors so elected shall not be divided into classes pursuant to these Bylaws unless expressly provided by such terms.

(c) Any amendment, change or repeal of this Section 2 of Article III, or any other amendment to these Bylaws that will have the effect of permitting circumvention of or modifying this Section 2 of Article III, shall require the favorable vote, at a stockholders’ meeting, of the holders of at least 80% of the then-outstanding shares of stock of the Corporation entitled to vote.

SECTION 3. [Intentionally Omitted.]

SECTION 4. Vacancies. A vacancy in the Board of Directors shall be deemed to exist in the case of the death, resignation or removal of any director, or if the number of directors constituting the whole Board be increased, or if the stockholders, at any meeting of stockholders at which directors are to be elected, fail to elect the number of directors then constituting the whole Board.

SECTION 5. Resignations. Any director may resign at any time by delivering his written resignation to the Secretary, such resignation to specify whether it will be effective at a particular time, upon receipt by the Secretary or at the pleasure of the Board of Directors. If no such specification is made, it shall be deemed effective at the pleasure of the Board of Directors.

SECTION 6. Meetings. (a) The annual meeting of the Board of Directors shall be held at such time and place as the Board may determine. No notice of the annual meeting of the Board of Directors shall be necessary if such meeting is held immediately after the annual stockholders’ meeting and at the place where such stockholders’ meeting is held. If the annual meeting of the Board of Directors is held on a different date, or at a different time or place, notice of the date, time and place of such annual meeting of the Board of Directors shall be furnished to each director in accordance with the procedures of Article III, Section 6(c) of these Bylaws. The annual meeting of the Board of Directors shall be held for the purpose of electing officers and transacting such other business as may lawfully come before it.

(b) Regular meetings of the Board of Directors shall be held at such place within or without the State of Delaware, and at such times as the Board may from time to time determine, and if so determined no notice thereof need be given.

(c) Special meetings may be called at any time and place within or without the State of Delaware upon the call of the Chief Executive Officer or Secretary or any two directors. Notice of the date, time, place and purposes of each special meeting, and notice of the date, time and place of each annual and regular meeting for which notice is required to be given, shall be sent by mail at least seventy-two hours in advance of the time of the meeting, or by telegram at least forty-eight hours in advance of the time of the meeting, or by facsimile at least twenty-four hours in advance of the time of the meeting, to the address or facsimile number (as applicable) of each director. Notice of any special meeting may be waived in writing at any time before or after the meeting and will be waived by any director by attendance thereat.

SECTION 7. Quorum and Voting. (a) A majority of the whole Board of Directors shall constitute a quorum for all purposes, provided, however, at any meeting whether a quorum be present or otherwise, a majority of the directors present may adjourn from time to time and place to place, within or without the State of Delaware, without notice other than by announcement at the meeting.

(b) At each meeting of the Board at which a quorum is present all questions and business shall be determined by a vote of a majority of the directors present, unless a different vote be required by law or by the Certificate of Incorporation.

SECTION 8. Action Without Meeting. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board or of such committee, as the case may be, consent thereto in writing, and such writing or writings are filed with the minutes of proceedings of the Board or committee.

SECTION 9. Fees and Compensation. Directors shall not receive any stated salary for their services as directors, but, by resolution of the Board, compensation in a reasonable amount may be fixed by the Board, including, without limitation, compensation in the form of an annual retainer, a fee for each Board or Board Committee meeting attended, reimbursement for expenses of attendance at any such meeting, or any combination of any of the foregoing. Nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity as an officer, agent, employee, or otherwise, and receiving compensation therefor.

SECTION 10. Maximum Age of Directors. Directors who have attained the age of 72 years shall be ineligible to stand for election or reelection as a director. Except as may otherwise be determined by the Board of Directors, a director who has attained the age of 72 years whose term as a director continues beyond the annual meeting of shareholders next following attainment of 72 years shall retire and resign as a director at the first directors’ meeting following such annual meeting of shareholders. Unless otherwise determined by the Board of Directors in accordance with the preceding sentence, for this purpose such resignation will be automatic and need not meet the requirements for resignation set forth in Section 5 of this Article III.

SECTION 11. Nominations of Persons for Election to the Board of Directors. Only persons who are nominated in accordance with the following procedures set forth in these Bylaws shall be eligible for election as directors of the Corporation. Nominations of persons for election to the Board of Directors may be made at any annual meeting of stockholders (a) by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (b) by any stockholder of the Corporation (i) who is a stockholder of record on the date of the giving of the notice provided for in this Section 11 and on the record date for the determination of stockholders entitled to vote and (II) who complies with the notice procedures set forth in this Section 11.

In addition to any other applicable requirements, for a nomination to be made by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Secretary of the Corporation.

To be in proper written form, a stockholder’s notice to the Secretary must set forth (a) as to each person whom the stockholder proposes to nominate for election as a director (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by the person and (iv) any other information relating to the person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules and regulations promulgated thereunder; and (b) as to the stockholder giving the notice (i) the name and record address of such stockholder, (ii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such stockholder, (iii) a description of all arrangements or understandings between such stockholder and each proposed nominee and any other person or persons (including their names) pursuant to

which the nomination(s) are to be made by such stockholder, (iv) a representation that such stockholder intends to appear in person or by proxy at the annual meeting to nominate the persons named in its notice and (v) any other information relating to such stockholder that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder. Such notice must be accompanied by a written consent of each proposed nominee to be named as a nominee and to serve as a director if elected. The Corporation may require any proposed nominee to furnish any other information that may reasonably be required by the Corporation to determine the qualifications of such proposed nominee to serve as a director of the Corporation. No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forth herein. These provisions shall not apply to nomination of any persons entitled to be separately elected by holders of Preferred Stock.

The Chairman of the annual meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedures, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded.

ARTICLE IV

OFFICERS AND COMMITTEES

SECTION 1. Officers Designated. The executive officers of the Corporation shall be chosen by the Board of Directors and shall be the Chairman of the Board, the President, one or more Vice Presidents, the Secretary, one or more Assistant Secretaries, the Treasurer, one or more Assistant Treasurers, and such other executive officers as the Board of Directors from time to time may designate. The Board of Directors shall designate either the Chairman of the Board or the President as the Chief Executive Officer of the Corporation. The officer so designated shall have charge of the actual conduct and operation of the business of the Corporation, subject to the control and direction of the Board of Directors. The Chief Executive Officer shall, with the consent of the Board of Directors, assign such additional titles to Vice Presidents as he shall deem appropriate and designate the succession of officers to act in his stead in his absence or disability. He may appoint additional Vice Presidents who shall not, however, be executive officers. He shall assign all duties not otherwise specified by these Bylaws to all officers and employees of the Corporation.

SECTION 2. Election, Qualification, Tenure of Office, and Duties of Executive Officers and Other Officers. (a) At the annual meeting of the Board of Directors following their election by the stockholders, the directors shall elect all executive officers of the Corporation. Any one person may hold any number of offices of the Corporation at any one time unless specifically prohibited therefrom by law. The Chairman of the Board shall be a director but no other officer need be a director.

(b) Each executive officer shall hold office from the date of his election either until the date of his voluntary resignation, or death, or until the next annual meeting of the Board of Directors and until a successor shall have been duly elected and qualified, whichever shall first occur; provided that any such officer may be removed by the Board of Directors whenever in its judgment the best interest of the Corporation will be served thereby, and the Board may elect another in the place and stead of the person so removed.

(c) Chairman of the Board: The Chairman of the Board shall preside at all meetings of the stockholders, of the Board of Directors, and of the Executive Committee. He shall have the responsibility of keeping the directors informed on all policy matters, and shall have such other powers and perform such other duties as may be prescribed by the Board.

(d) President: The President shall, in the absence of the Chairman of the Board preside at all meetings of the stockholders, the Board of Directors and the Executive Committee. He shall exercise all of the powers and discharge all of the other duties of the Chairman of the Board in the absence of the Chairman of the Board. He shall perform such other duties as may be prescribed by the Chairman of the Board.

(e) Vice Presidents: The Vice Presidents shall have such duties and have such other powers as shall be prescribed by the Chief Executive Officer. Such Vice President as may be designated by the Board of Directors or the Chairman of the Board shall preside at all meetings of the stockholders.

(f) Secretary: The Secretary shall record all the proceedings of the meetings of the Corporation and of the directors in a book or books kept for that purpose. He shall attend to the giving and serving of all notices on behalf of the Corporation. He shall have the custody of the corporate seal and affix the same to such instruments as may be required. He shall have such other powers and perform such other duties as may be prescribed by the Chief Executive Officer.

(g) Assistant Secretaries: Assistant Secretaries shall assist the Secretary in the performance of his duties and any one of the Assistant Secretaries may perform all of the duties of the Secretary if at any time he shall be unable to act. Assistant Secretaries shall have such other powers and perform such other duties as may be prescribed by the Chief Executive Officer.

(h) Treasurer: The Treasurer shall have charge of the custody, control and disposition of all funds of the Corporation and shall account for same. He shall have such other powers and perform such other duties as may be prescribed by the Chief Executive Officer.

(i) Assistant Treasurers: Assistant Treasurers shall assist the Treasurer in the performance of his duties and any one of the Assistant Treasurers may perform all of the duties of the Treasurer if at any time he shall be unable to act. Assistant Treasurers shall have such other powers and perform such other duties as may be prescribed by the Chief Executive Officer.

SECTION 3. Committees. (a) Executive Committee. The Board of Directors shall, by resolution passed by a majority of the whole Board, appoint an Executive Committee of not less than three members, all of whom shall be directors. The Executive Committee, to the extent permitted by law, shall have and may exercise when the Board of Directors is not in session all powers of the Board in the management of the business and affairs of the Corporation and may authorize the seal of the Corporation to be affixed to all papers which may require it. It shall be the duty of the Secretary of the Corporation to record the minutes of all actions of the Executive Committee.

(b) Other Committees. The Board of Directors may, by resolution passed by a majority of the whole Board, from time to time appoint such other committees as may be permitted by law. The Chief Executive Officer may appoint such other committees as he finds necessary to the conduct of the Corporation’s business. Such other committees appointed by the Board of Directors or the Chief Executive Officer shall have such powers and perform such duties as may be prescribed by the body or person appointing such committee.

(c) Term; Number of Committee Members. The members of all committees of the Board of Directors shall serve a term coexistent with that member’s remaining term as a member of the Board of Directors, or until such time as the Board of Directors shall replace that member on such committee or ask that member to accept another committee assignment in its stead. The Board, subject to the provisions of subsection (a) and (b) of this Section 3, may at any time increase or decrease the number of members of a committee or terminate the existence of a committee; provided, that no committee, while it exists, shall consist of less than three members. The membership of a committee member shall terminate on the date of his death or voluntary resignation, but the Board may at any time for any reason remove any individual committee member and the Board may fill any committee vacancy created by death, resignation, removal or increase in the number of members of the committee. The Board of Directors may designate one or more directors as alternate members of any committee, to replace any absent or disqualified member at any meeting of the committee. If the qualified members of a committee, in attendance at a committee meeting, believe that the absence or disqualification of one or more members of that committee seriously impairs the function of that committee, such remaining qualified members, whether or not constituting a quorum, may by unanimous action appoint another member of the Board of Directors to act as a committee member at that meeting.

(d) Notice of Committee Meetings. Notice of the date, time and place of each committee meeting shall be sent to each committee member by mail at least seventy-two hours in advance of the time of the meeting, or by telegram at least forty-eight hours in advance of the time of the meeting, or by facsimile at least twenty-four hours in advance of the time of the meeting, to the address or facsimile number (as applicable) of each committee member.

ARTICLE V

CAPITAL STOCK

SECTION 1. Form and Execution of Certificates. Certificates for the shares of stock of the Corporation shall be in such form as are consistent with the Certificate of Incorporation and applicable law. Every holder of stock in the Corporation shall be entitled to have a certificate signed by, or in the name of the Corporation by, the Chairman of the Board, President or any Vice President and by the Treasurer or Assistant Treasurer or the Secretary or Assistant Secretary, certifying the number of shares owned by him in the Corporation. Where such certificate is countersigned by a transfer agent other than the Corporation or its employee, or by a registrar other than the Corporation or its employee, any other signature on the certificate may be a facsimile. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent, or registrar at the date of issue.

SECTION 2. Lost Certificates. The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require and/ or to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost or destroyed.

SECTION 3. Transfers. Transfers of record of shares of the capital stock of the Corporation shall be made upon its books by the holders thereof, in person or by attorney duly authorized, and upon the surrender of a certificate or certificates for a like number of shares, properly endorsed or accompanied by a properly endorsed stock power.

SECTION 4. Fixing Record Dates. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. If no record date is fixed: (1) the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; and (2) the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.

SECTION 5. Registered Stockholders. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.

ARTICLE VI

OTHER SECURITIES OF THE CORPORATION

All bonds, debentures and other corporate securities of the Corporation, other than stock certificates, may be signed by the Chairman of the Board, the President or any Vice President, or such other person as may be authorized by the Board of Directors, and the corporate seal impressed thereon or a facsimile of such seal imprinted thereon and attested by the signature of the Secretary or an Assistant Secretary, or the Treasurer or an

Assistant Treasurer, or such other person as may be authorized by the Board of Directors; provided, however, that where any such bond, debenture or other corporate security shall be authenticated by a trustee under an indenture pursuant to which such bond, debenture or other corporate securities shall be issued, the signatures of the persons signing and attesting the corporate seal on such bond, debenture or other corporate security may be the imprinted facsimile of the signatures of such persons. Interest coupons appertaining to any such bond, debenture or other corporate security, authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an Assistant Treasurer of the Corporation, or such other person as may be authorized by the Board of Directors, or bear imprinted thereon the facsimile signature of such person. In case any person who shall have signed or attested any bond, debenture or other corporate security, or whose facsimile signature shall appear thereon or on any such interest coupon, shall have ceased to be an officer before the bond, debenture or other corporate security so signed or attested shall have been delivered, such bond, debenture or other corporate security nevertheless may be adopted by the Corporation and issued and delivered as though the person who signed the same or whose facsimile signature shall have been used thereon had not ceased to be such officer of the Corporation.

ARTICLE VII

SECURITIES OWNED BY THE CORPORATION

Power to Vote. Unless otherwise ordered by the Board of Directors, the Chief Executive Officer, or any officer designated in writing by the Chief Executive Officer, shall have full power and authority in the name and on behalf of the Corporation, to vote and to act either in person or by proxy at any meeting of the holders of stock or securities in any corporation upon and in respect of any securities therein which the Corporation may hold, and shall possess and may exercise in the name of the Corporation any and all rights and powers incident to the ownership of such stock or securities which, as the owner thereof, the Corporation shall possess and might exercise including the right to give written consents in respect to action taken or to be taken. The Board of Directors may from time to time confer like powers upon any other person or persons.

ARTICLE VIII

CORPORATE SEAL

The corporate seal shall consist of a die bearing the inscription, “CNF Inc.”—Corporate Seal—Delaware.”

ARTICLE IX

AMENDMENTS

These Bylaws may be repealed, altered or amended or new Bylaws adopted by written consent of stockholders in the manner authorized by Section 8 of Article II or at any meeting of the stockholders, either annual or special, by the affirmative vote of a majority of the stock entitled to vote at such meeting. The Board of Directors shall also have the authority to repeal, alter or amend these Bylaws or adopt new Bylaws by unanimous written consent or by the affirmative vote of a majority of the whole Board at any annual, regular, or special meeting subject to the power of the stockholders to change or repeal such Bylaws.

ARTICLE X

MISCELLANEOUS

SECTION 1. Definitions. As used in these Bylaws and wherever the context shall require, the word “person” shall include associations, partnerships and corporations as well as individuals; words in the masculine gender shall include the feminine and associations, partnerships and corporations; words in the singular shall include the plural and words in the plural may mean only the singular, and words “additional compensation” shall mean and include all bonus, profit sharing, retirement, deferred compensation, and all other additional compensation plans or arrangements affecting persons individually or as a group.

SECTION 2. Notices. Whenever, under any provisions of these Bylaws, notice is required to be given to any stockholder, the same shall be given in writing, timely and duly deposited in the United States Mail, postage

prepaid, and addressed to his last known post office address as shown by the stock record of the Corporation or its transfer agent. Any notice required to be given to any director may be given by the method hereinabove stated, by personal delivery, or by telegram, except that such notice, other than one which is delivered personally, shall be sent to such address as such director shall have filed in writing with the Secretary of the Corporation, or, in the absence of such filing, to the last known post office address of such director. If no address of a stockholder or director be known, such notice may be sent to the principal office of the Corporation. An affidavit of mailing, executed by a duly authorized and competent employee of the Corporation or its transfer agent appointed with respect to the class of stock affected, specifying the name and address or the names and addresses of the stockholder or stockholders, director or directors, to whom any such notice or notices was or were given, and the time and method of giving the same, shall be conclusive evidence of the statements therein contained. All notices given by mail, as above provided, shall be deemed to have been given as at the time of mailing and all notices given by telegram shall be deemed to have been given as at the sending time recorded by the telegraph company transmitting the same. It shall not be necessary that the same method of giving be employed in respect of all directors, but one permissible method may be employed in respect of any one or more, and any other permissible method or methods may be employed in respect of any other or others.

The period or limitation of time within which any stockholder may exercise any option or right, or enjoy any privilege or benefit, or be required to act, or within which any directors may exercise any power or right, or enjoy any privilege, pursuant to any notice sent him in the manner above provided, shall not be affected or extended in any manner by the failure of such stockholder or such director to receive such notice. Whenever any notice is required to be given under the provisions of the statutes or of the Certificate of Incorporation, or of these Bylaws, a waiver thereof in writing signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. Whenever notice is required to be given, under any provision of law or of the Certificate of Incorporation or Bylaws of the Corporation, to any person with whom communication is unlawful, the giving of such notice to such person shall not be required and there shall be no duty to apply to any governmental authority or agency for a license or permit to give such notice to such person. Any action or meeting which shall be taken or held without notice to any such person with whom communication is unlawful shall have the same force and effect as if such notice had been duly given. In the event that the action taken by the Corporation is such as to require the filing of a certificate under any provision of the Delaware General Corporation Law, the certificate shall state, if such is the fact and if notice is required, that notice was given to all persons entitled to receive notice except such persons with whom communication is unlawful.

SECTION 3. Indemnification of Officers, Directors, Employees and Agents. (a) Right to Indemnification. Each person who was or is made a party or is threatened to be made a party to or is involved in any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative (hereinafter a “Proceeding”), by reason of the fact that he, or a person of whom he is the legal representative, is or was a director, officer, employee, or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee, or agent of another corporation or of a partnership, joint venture, trust, or other enterprise, including service with respect to employee benefit plans, whether the basis of the Proceeding is alleged action in an official capacity as a director, officer, employee, or agent or in any other capacity while serving as a director, officer, employee, or agent, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than were permitted prior to amendment) against all expenses, liability, and loss (including attorneys’ fees, judgments, fines, ERISA excise taxes or penalties, and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith; provided, however, that except as to actions to enforce indemnification rights pursuant to paragraph (c) of this Section, the Corporation shall indemnify any such person seeking indemnification in connection with a Proceeding (or part thereof) initiated by such person only if the Proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. The right to indemnification conferred in this Article shall be a contract right for the benefit of the Corporation’s directors, officers, employees, and agents.

(b) Authority to Advance Expenses. Expenses incurred (including attorneys’ fees) by an officer or director (acting in his capacity as such) in defending a Proceeding shall be paid by the Corporation in advance of the final disposition of such Proceeding, provided, however, that if required by the Delaware General Corporation Law, as amended, such expenses shall be advanced only upon delivery to the Corporation of an undertaking by or on

behalf of such director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized in this Article or otherwise. Such expenses incurred by other employees or agents of the Corporation (or by the directors or officers not acting in their capacity as such, including service with respect to employee benefit plans) may be advanced upon such terms and conditions as the Board of Directors deems appropriate.

(c) Right of Claimant to Bring Suit. If a claim under paragraph (a) or (b) of this Section is not paid in full by the Corporation within sixty days after a written claim has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense (including attorneys’ fees) of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending a Proceeding in advance of its final disposition where the required undertaking has been tendered to the Corporation) that the claimant has not met the standards of conduct that make it permissible under the Delaware General Corporation Law for the Corporation to indemnify the claimant for the amount claimed. The burden of proving such a defense shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper under the circumstances because he has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the claimant had not met such applicable standard of conduct, shall be a defense to the action or create a presumption that claimant has not met the applicable standard of conduct.

(d) Provisions Nonexclusive. The rights conferred on any person by this Section shall not be exclusive of any other rights that such person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, Bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office.

(e) Authority to Insure. The Corporation may purchase and maintain insurance to protect itself and any person who is or was a director, officer, employee, or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise against any liability, expense, or loss asserted against or incurred by such person, whether or not the Corporation would have the power to indemnify him against such liability, expense, or loss under applicable law or the provisions of this Article.

(f) Survival of Rights. The rights provided by this Section shall continue as to a person who has ceased to be a director, officer, employee, or agent and shall inure to the benefit of the heirs, executors, and administrators of such a person.

(g) Effect of Amendment. Any amendment, repeal, or modification of this Section shall not (a) adversely affect any right or protection of any director, officer, employee, or agent existing at the time of such amendment, repeal, or modification, or (b) apply to the indemnification of any such person for liability, expense, or loss stemming from actions or omissions occurring prior to such amendment, repeal, or modification.

CERTIFICATE

The undersigned,______________________________________________________________________________Secretary of CNF INC., does hereby certify that the foregoing is a true and correct copy of the Bylaws of CNF INC., as amended to date hereof.

In witness whereof the undersigned has hereunto set his hand and affixed the seal of said corporation this day of________________, ______________.

Secretary of CNF Inc.

EX-4.11 5 dex411.htm $385 MILLION AMENDED AND RESTATED CREDIT AGREEMENT $385 Million Amended And Restated Credit Agreement

EXHIBIT 4.11

$350,000,000

CREDIT AGREEMENT

dated as of

July 3, 2001

among

CNF Inc.,

as Borrower

The Banks Party Hereto

THE CHASE MANHATTAN BANK,

as Syndication Agent

PNC BANK,

ABN-AMRO BANK, N.V.

and

CITIBANK, N.A.,

as Documentation Agents

and

BANK OF AMERICA, N.A.,

as Agent

Arranged by:

BANC OF AMERICA SECURITIES LLC,

as Sole Lead Arranger and Sole Book Manager

TABLE OF CONTENTS

ARTICLE 1 DEFINITIONS		1
Section 1.01 Definitions		1
Section 1.02 Accounting Terms and Determinations		12
Section 1.03 Types of Borrowings		12

ARTICLE 2 THE CREDITS		12
Section 2.01 Commitments to Lend		12
Section 2.02 Notice of Committed Borrowing		14
Section 2.03 Money Market Borrowings		14
Section 2.04 Notice to Banks; Funding of Loans; Additional Provisions Relating to Swingline Loans		17
Section 2.05 Notes; Loan Accounts; Records		19
Section 2.06 Maturity of Loans		20
Section 2.07 Interest Rates		20
Section 2.08 Fees		22
Section 2.09 Optional Termination or Reduction of Commitments		22
Section 2.10 Method of Electing Interest Rates		22
Section 2.11 Mandatory Termination of Commitments		24
Section 2.12 Optional Payments		24
Section 2.13 General Provisions as to Payment		24
Section 2.14 Funding Losses		25
Section 2.15 Computation of Interest and Fees		25
Section 2.16 Letters of Credit		25
Section 2.17 Maximum Interest Rate		29
Section 2.18 Pro Rata Treatment		30

ARTICLE 3 CONDITIONS		30
Section 3.01 Conditions to Effectiveness		30
Section 3.02 Credit Extensions		31

ARTICLE 4 REPRESENTATIONS AND WARRANTIES		31
Section 4.01 Corporate Existence and Power		31
Section 4.02 Corporate and Governmental Authorization; No Contravention		31
Section 4.03 Binding Effect		32
Section 4.04 Financial Information		32
Section 4.05 Litigation		32
Section 4.06 Compliance with ERISA		33
Section 4.07 Environmental Matters		33
Section 4.08 Taxes		33
Section 4.09 Subsidiaries		33
Section 4.10 Not an Investment Company		34
Section 4.11 Full Disclosure		34

ARTICLE 5 COVENANTS		34
Section 5.01 Information		34
Section 5.02 Payment of Obligations		36
Section 5.03 Maintenance of Property; Insurance		36
Section 5.04 Conduct of Business and Maintenance of Existence		36
Section 5.05 Compliance with Laws		36
Section 5.06 Inspection of Property, Books and Records		37
Section 5.07 Debt		37

Section 5.08 Minimum Consolidated Net Worth.		37
Section 5.09 Negative Pledge		38
Section 5.10 Consolidations, Mergers and Sales of Assets		39
Section 5.11 Use of Proceeds		39
Section 5.12 Fixed Charge Coverage		39
Section 5.13 Transactions with Third Party Affiliates		40
Section 5.14 Restructuring Charge		40

ARTICLE 6 DEFAULTS		40
Section 6.01 Events of Default		40
Section 6.02 Notice of Default		42
Section 6.03 Cash Cover		42

ARTICLE 7 THE AGENT AND THE CO-AGENTS		43
Section 7.01 Appointment and Authorization		43
Section 7.02 Agent and Affiliates		43
Section 7.03 Action by Agent		43
Section 7.04 Consultation with Experts; Delegation of Duties		43
Section 7.05 Liability of Agent		44
Section 7.06 Reliance by Agent		44
Section 7.07 Notice of Default		44
Section 7.08 Indemnification		44
Section 7.09 Credit Decision		45
Section 7.10 Successor Agent		45
Section 7.11 Additional Agents		45

ARTICLE 8 CHANGE IN CIRCUMSTANCES		45
Section 8.01 Basis for Determining Interest Rate Inadequate or Unfair		45
Section 8.02 Illegality		46
Section 8.03 Increased Cost and Reduced Return		46
Section 8.04 Taxes		47
Section 8.05 Base Rate Loans Substituted for Affected Fixed Rate Loans		49
Section 8.06 Substitution of Banks		49

ARTICLE 9 MISCELLANEOUS		50
Section 9.01 Notices		50
Section 9.02 No Waivers		50
Section 9.03 Expenses; Indemnification		50
Section 9.04 Set-Off; Sharing of Set-offs		51
Section 9.05 Amendments and Waivers		51
Section 9.06 Successors and Assigns		51
Section 9.07 Collateral		53
Section 9.08 Governing Law; Submission to Jurisdiction		53
Section 9.09 Counterparts; Integration		53
Section 9.10 Waiver of Jury Trial		54
Section 9.11 Confidentiality		54
Section 9.12 Survival		54

SCHEDULE 1		Commitment Schedule

SCHEDULE 2		Pricing Schedule

EXHIBIT A		Form of Note

EXHIBIT B		Form of Money Market Quote Request

EXHIBIT C		Form of Invitation for Money Market Quotes

EXHIBIT D		Form of Money Market Quote

EXHIBIT E		Assignment and Assumption Agreement

EXHIBIT F		Subsidiary Guaranty Agreement

EXHIBIT G		Calculation of Funding Losses

EXHIBIT H		List of Existing Letters of Credit

EXHIBIT I		Form of Officer’s Certificate

EXHIBIT J		Form of New Commitment Agreement

iii

CREDIT AGREEMENT

THIS AGREEMENT dated as of July 3, 2001 is by and among CNF INC., a Delaware corporation, the BANKS party hereto, THE CHASE MANHATTAN BANK, as Syndication Agent, PNC BANK, ABN-AMRO BANK, N.V. and CITIBANK, N.A., as Documentation Agents, and BANK OF AMERICA, N.A., as Agent.

WITNESSETH

WHEREAS, the Borrower has requested that the Banks provide $350 million in credit facilities for the purposes hereinafter set forth; and

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

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

ARTICLE 1

DEFINITIONS

Section 1.01 Definitions.

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

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

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

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

“Agent” means Bank of America, and its successors in such capacity.

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

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

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

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

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

“Bank” means each bank listed on the signature pages hereof, each Assignee which becomes a Bank pursuant to Section 9.06(c), and their respective successors.

“Bank of America” means Bank of America, N.A., and its successors.

“Base Rate” means, for any day, a rate per annum equal to the higher of (i) the Prime Rate for such day and (ii) the sum of ½ of 1% plus the Federal Funds Rate for such day.

“Base Rate Loan” means a Committed Loan which bears interest at the Base Rate pursuant to the applicable Notice of Committed Borrowing or Notice of Interest Rate Election or pursuant to Section 2.10(c) or Article 8.

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

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

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

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

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

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

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

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

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

“Consolidated EBITDAR” means, for any period, the sum of (i) the consolidated income before income taxes of the Borrower and its Consolidated Subsidiaries for such period plus (ii) to the extent deducted in determining such consolidated income before income taxes, the sum of (A) Consolidated

Interest Expense, (B) depreciation and amortization, (C) Consolidated Rental Expense, (D) the Restructuring Charge and (E) non-cash charges associated with the Borrower’s existing claims against the United States Postal Service.

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

“Consolidated Interest Expense” means, for any period, the interest expense of the Borrower and its Consolidated Subsidiaries, determined on a consolidated basis for such period.

“Consolidated Net Worth” means at any date the consolidated shareholders’ equity of the Borrower and its Consolidated Subsidiaries determined as of such date.

“Consolidated Rental Expense” means, for any period, the sum of (without duplication) (a) rental expense for operating leases of the Borrower and its Consolidated Subsidiaries determined on a consolidated basis for such period plus (b) rental expense for operating leases of the Borrower or any of its Consolidated Subsidiaries assigned to a third party and guaranteed by the Borrower or any of its Consolidated Subsidiaries determined on a consolidated basis for such period.

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

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

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

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

(i) all obligations of such Person for borrowed money,

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

(iii) all obligations of such Person to pay the deferred purchase price of property or services, except trade accounts payable arising in the ordinary course of business,

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

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

(vi) all obligations of the types referred to in clauses (i) to (v), inclusive, of this definition which are secured by a Lien on any asset of such Person, whether or not such obligations are otherwise obligations of such Person; provided that the amount of Debt attributed,

for purposes of this Agreement, to any such obligation that is not otherwise an obligation of such Person shall be limited to the lesser of(x) the net book value of the assets of such Person by which such obligation is secured or (y) the amount of such obligation secured thereby (excluding accrued interest for the current period); and

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

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

“Domestic Business Day” means any day except a Saturday, Sunday or other day on which commercial banks in Charlotte, North Carolina and New York, New York are authorized by law to close; provided that, when used in Section 2.16 with reference to any LC Issuing Bank, the term “Domestic Business Day” shall not include any day on which commercial banks are authorized to close in the jurisdiction where the LC Office of such LC Issuing Bank is located.

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

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

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

“ERISA Group” means the Borrower, any Subsidiary, and all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Borrower or any Subsidiary, are treated as a single employer under Section 414 of the Internal Revenue Code.

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

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

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

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

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

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

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

“Existing Credit Agreement” means the Amended and Restated Credit Agreement dated as of November 21, 1996 among the Borrower, the banks party thereto, ABN-AMRO Bank, N.V., Bank of America National Trust and Savings Association, The First National Bank of Chicago and Morgan Guaranty Trust Company of New York, as LC Issuing Banks, ABN-AMRO Bank, N.V., Bank of America National Trust and Savings Association and The First National Bank of Chicago, as Co-Agents and Morgan Guaranty Trust Company of New York, as Agent.

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

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

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

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

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

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

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

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

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

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

“Insignificant Subsidiaries” means Subsidiaries which, if aggregated and considered as a single Subsidiary, would not have total assets, shareholders’ equity or revenues in excess of 10% of the consolidated total assets, consolidated shareholders’ equity or consolidated revenues, respectively, of the Borrower and its Consolidated Subsidiaries, all calculated at the date of the most recent financial statements delivered to the Banks pursuant to Section 5.01 or, in the case of revenues, for the twelve calendar months then ended.

“Interest Period” means:

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

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

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

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

(b) with respect to each Money Market LIBOR Loan, the period commencing on the date of borrowing specified in the applicable Notice of Borrowing and ending one week, two weeks, three weeks or any whole number of months thereafter, as the Borrower may elect in accordance with Section 2.03; provided that:

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

unless such Euro-Dollar Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Euro-Dollar Business Day;

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

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

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

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

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

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

“Investment” means any investment in any Person, whether by means of share purchase, capital contribution, loan or otherwise.

“LC Issuing Banks” means (a) Bank of America, Citibank, N.A. and any other Bank which agrees to issue Letters of Credit hereunder pursuant to the terms hereof, and (b) initially, ABN AMRO Bank N.V. solely with respect to the Existing Letters of Credit issued by it, in each case in their capacities as issuers of Letters of Credit.

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

“LC Office” means, with respect to each LC Issuing Bank, the office at which it books the Letters of Credit issued by it hereunder.

“LC Payment Date” has the meaning set forth in Section 2.16(g).

“LC Reimbursement Date” means, with respect to any Letter of Credit, an LC Payment Date applicable to such Letter of Credit, or, if later, the Domestic Business Day next succeeding the Domestic Business Day on which the Agent shall have notified the Borrower of such LC Payment Date and of the amount payable by the LC Issuing Bank under such Letter of Credit on such LC Payment Date.

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

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

“Lien” means (i) with respect to any asset (including without limitation any account receivable), any mortgage, lien, pledge, charge, security interest or encumbrance of any kind, or any other type of preferential arrangement that has the practical effect of creating a security interest, in respect of such asset and (ii) with respect to any account receivable, any sale of such account receivable. For the purposes of this Agreement, the Borrower or any Subsidiary shall be deemed (x) to own subject to a Lien any asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such asset and (y) not to own subject to a Lien any asset which it leases under a lease that is classified as an operating lease under generally accepted accounting principles.

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

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

“Material Commitments” means commitments to extend credit which, if extended, would constitute Debt of the Borrower and/or one or more of its Subsidiaries in an aggregate amount exceeding $40,000,000. For purposes of this definition, any commitment for less than $1,000,000 shall be excluded, but commitments arising from one or more related or unrelated transactions shall be aggregated if each such commitment is for $1,000,000 or more.

“Material Debt” means Debt (other than the Notes) of the Borrower and/or one or more of its Subsidiaries in an aggregate outstanding principal amount exceeding $40,000,000. For purposes of this definition, if the Debt arising from any single transaction has an outstanding principal amount less than $1,000,000, it shall be excluded, but Debts arising from one or more related or unrelated transactions shall be aggregated if the Debt arising from each such transaction has an outstanding principal amount of $1,000,000 or more.

“Material Plan” means at any time a Plan or Plans having aggregate Unfunded Liabilities in excess of $40,000,000.

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

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

“Money Market Lending Office” means, as to each Bank, its Domestic Lending Office or such other office, branch or affiliate of such Bank as it may hereafter designate as its Money Market Lending

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

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

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

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

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

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

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

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

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

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

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

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

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

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

“Outstanding LC Exposure” means, as to any Bank at any time, an amount equal to its Percentage of the LC Liabilities at such time.

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

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

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

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

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

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

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

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

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

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

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

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

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

“Required Banks” means at any time Banks having more than 50% of the aggregate amount of the Commitments or, if the Commitments shall have been terminated, having more than 50% of the aggregate amount of the Outstanding Credit Exposures (excluding Money Market Loans).

“Restructuring Charge” means a charge related to the reorganization of the Borrower’s Emery Worldwide unit and/or to the sale, lease, outsourcing or other transfer of all or a portion of the airline operations of Emery Worldwide Airlines, Inc.

“Subsidiary” means any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by the Borrower.

“Subsidiary Guarantors” means Con-Way Transportation Services, Inc., a Delaware corporation, Emery Air Freight Corporation, a Delaware corporation, Emery Worldwide Airlines, Inc., a Nevada corporation, Menlo Logistics, Inc., a Delaware corporation, and each other Subsidiary which becomes a party to the Subsidiary Guaranty Agreement pursuant to Article 3 thereof, and their respective successors.

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

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

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

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

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

“Termination Date” means July 3, 2006.

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

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

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

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

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

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

Section 1.02 Accounting Terms and Determinations.

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

Section 1.03 Types of Borrowings.

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

ARTICLE 2

THE CREDITS

Section 2.01 Commitments to Lend.

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

(b) Increase in Commitments for Committed Loans. The Borrower shall have the right within 90 days of the Closing Date to increase the aggregate amount of Commitments hereunder by $50,000,000 up to $400,000,000 in total aggregate Commitments without the consent of the Banks, subject however to the satisfaction of each of the following terms and conditions:

(i) no Default or Event of Default shall exist and be continuing at the time of such increase;

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

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

(A) first, to the existing Banks consenting to an increase in the amount of their additional Commitments; provided that (1) on or before the tenth Domestic Business Day following notification of a requested increase in the aggregate Commitments, each Bank shall notify the Borrower of the desired increase, if any, in its Commitment, (2) if the aggregate increases in the Commitments requested by the existing Banks shall exceed the requested increase in the aggregate Commitments, the Commitments of such Banks shall be increased on a pro rata basis according to the existing Percentage of such Banks and (3) no Bank shall be required to, or be under any obligation to, increase its Commitment without such Bank’s consent; and

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

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

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

On the date (which date shall be a Domestic Business Day) on which the increase in the aggregate Commitments occurs the Agent and the Banks shall make adjustments among the Banks with respect to the Committed Loans outstanding hereunder and amounts of principal, interest, fees and other amounts paid or payable with respect thereto as shall be necessary in order to reallocate among the Banks such outstanding amounts based on the new Percentages and to otherwise carry out fully the terms of this Section 2.01(b). The Borrower agrees that, in connection with any such increase in the aggregate Commitments, it will promptly provide to each Bank providing a new or increased Commitment (upon surrender of the existing Note, if any of such Bank in the case of an existing Bank) a Note, if such Bank has requested a Note in accordance with Section 2.05(b), in the amount of its new or increased (as applicable) Commitment substantially in the form of the Note attached hereto as Exhibit A (but, in the case of a new Note given to an existing Bank that increases its Commitments, with notation thereon that it is given in substitution for and replacement of the original Note, or any replacement notes thereof). Each of the parties hereto acknowledges and agrees that no Bank shall be obligated to increase its Commitment pursuant to the terms of this Section 2.01(b).

(c) Swingline Loans. The Swingline Bank, in its individual capacity, agrees, on the terms and conditions set forth in this Agreement, to make revolving loans (“Swingline Loans”) in Dollars to the Borrower pursuant to this Section from time to time prior to the Termination Date; provided that, immediately after each such Swingline Loan is made, the aggregate outstanding principal amount of all Swingline Loans shall not exceed the Swingline Commitment Amount. Each Swingline Loan shall be in a minimum principal amount of $1,000,000 or any larger integral multiple of $1,000,000 (or, if less, the unused Swingline Commitment Amount). Within the foregoing limits, the Borrower may borrow under this Section, prepay Swingline Loans to the extent permitted by Section 2.12 and reborrow at any time prior to the Termination Date under this Section.

Section 2.02 Notice of Committed Borrowing.

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

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

(ii) the aggregate amount of such Borrowing,

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

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

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

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

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

(ii) the aggregate amount of such Borrowing,

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

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

Section 2.03 Money Market Borrowings.

(a) The Money Market Option. In addition to Committed Borrowings pursuant to Section 2.01(a) and Swingline Borrowings pursuant to Section 2.01(b), the Borrower may, as set forth in

this Section, request the Banks to make offers to make Money Market Loans to the Borrower on any day prior to the Termination Date. The Banks may, but shall have no obligation to, make such offers and the Borrower may, but shall have no obligation to, accept any such offers in the manner set forth in this Section.

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

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

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

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

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

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

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

(d) Submission and Contents of Money Market Quotes.

(i) Each Bank may submit a Money Market Quote containing an offer or offers to make Money Market Loans in response to any invitation for Money Market Quotes. Each Money Market Quote must comply with the requirements of this subsection (d) and must be submitted to the Agent by telex or facsimile transmission at its offices specified in or pursuant to Section 9.01 not later than (x) 2:00 P.M. (New York City time) on the fourth Euro-Dollar Business Day prior to the proposed date of Borrowing, in the case of a LIBOR Auction or (y) 10:15 A.M. (‘New York City time) on the proposed date of Borrowing, in the case of an Absolute Rate Auction (or, in either case, such other time or date as the Borrower and the Agent shall have mutually agreed and shall have notified to the Banks not later than the date of the Money Market Quote Request

for the first LIBOR Auction or Absolute Rate Auction for which such change is to be effective); provided that Money Market Quotes submitted by the Agent (or any affiliate of the Agent) in the capacity of a Bank may be submitted, and may only be submitted, if the Agent or such affiliate notifies the Borrower of the terms of the offer or offers contained therein not later than (x) one hour prior to the deadline for the other Banks, in the case of a LIBOR Auction or (y) 15 minutes prior to the deadline for the other Banks, in the case of an Absolute Rate Auction. Subject to Articles 3 and 6, any Money Market Quote so made shall be irrevocable except with the written consent of the Agent given on the instructions of the Borrower.

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

(A) the proposed date of Borrowing,

(B) the principal amount of the Money Market Loan for which each such offer is being made, which principal amount (w) may be greater than or less than the Commitment of the quoting Bank, (x) must be $5,000,000 or a larger integral multiple of $1,000,000, (y) may not exceed the principal amount of Money Market Loans for which offers were requested and (z) may be subject to an aggregate limitation as to the principal amount of Money Market Loans for which offers being made by such quoting Bank may be accepted,

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

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

(E) the identity of the quoting Bank.

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

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

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

(B) contains qualifying, conditional or similar language;

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

(e) Notice to Borrower. The Agent shall promptly notify the Borrower of the terms (x) of any Money Market Quote submitted by a Bank that is in accordance with subsection (d) and (y) of any Money Market Quote that amends, modifies or is otherwise inconsistent with a previous Money Market

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

(f) Acceptance and Notice by Borrower. Not later than 11:30 A.M. (New York City time) on (x) the third Euro-Dollar Business Day prior to the proposed date of Borrowing, in the case of a LIBOR Auction or (y) the proposed date of Borrowing, in the case of an Absolute Rate Auction (or, in either case, such other time or date as the Borrower and the Agent shall have mutually agreed and shall have notified to the Banks not later than the date of the Money Market Quote Request for the first LIBOR Auction or Absolute Rate Auction for which such change is to be effective), the Borrower shall notify the Agent of its acceptance or non-acceptance of the offers so notified to it pursuant to subsection (e). In the case of acceptance, such notice (a “Notice of Money Market Borrowing”) shall specify the aggregate principal amount of offers for each Interest Period that are accepted. The Borrower may accept any Money Market Quote in whole or in part; provided that:

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

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

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

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

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

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

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

(b) Not later than (x) 12:00 Noon (New York City time) on the date of each Borrowing other than a Base Rate Borrowing and (y) 1:00 P.M. (New York City time) on the date of each Base Rate

Borrowing, each Bank participating therein shall make available its share of such Borrowing, in Federal or other funds immediately available in New York City, to the Agent at its address referred to in Section 9.01. Unless the Agent determines that any applicable condition specified in Article 3 has not been satisfied, the Agent will, promptly upon receipt thereof, make the funds so received from the Banks available to the Borrower at the Agent’s aforesaid address.

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

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

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

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

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

Section 2.05 Notes; Loan Accounts; Records.

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

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

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

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

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

Section 2.06 Maturity of Loans.

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

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

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

Section 2.07 Interest Rates.

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

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

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

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

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

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

(iii) if for any reason the foregoing rates in clauses (i) and (ii) are unavailable or undeterminable, the rate of interest at which deposits in Dollars for delivery on the first day of the applicable Interest Period in same day funds in the approximate amount of the applicable Euro-Dollar Loan for a term equivalent to the applicable Interest Period would be offered by the London branch of Bank of America to leading banks in the London interbank market at approximately 11:00 a.m. (London time) two Euro-Dollar Business Days prior to the first day of the applicable Interest Period.

“Euro-Dollar Reserve Percentage” means for any day that percentage (expressed as a decimal) which is in effect on such day, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement for a member bank of the Federal Reserve System in New York City with deposits exceeding five billion dollars in respect of “Eurocurrency liabilities” (or in respect of any other category, of liabilities which includes deposits by reference to which the interest rate on Euro-Dollar Loans is determined or any category, of extensions of credit or other assets which includes loans by a non-United States office of any Bank to United States residents). The Adjusted London Interbank Offered Rate shall be adjusted automatically on and as of the effective date of any change in the Euro-Dollar Reserve Percentage.

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

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

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

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

Section 2.08 Fees.

(a) Facility Fee. The Borrower shall pay to the Agent for the account of the Banks ratably in accordance with their respective Percentages a facility fee for each day at the “Facility Fee Rate” for such day (determined in accordance with the Pricing Schedule). Such facility fee shall accrue for each day (i) from and including the Closing Date to but excluding the Termination Date (or earlier date of termination of the Commitments in their entirety) on the aggregate amount of the Commitments (whether used or unused) on such day and (ii) if any Committed Loans, Swingline Loans or LC Liabilities remain outstanding after the Commitments terminate in their entirety, then for each day from and including the date on which the Commitments terminate in their entirety to but excluding the first day thereafter on which no Committed Loans, Swingline Loans or LC Liabilities remain outstanding, on the aggregate outstanding amount of the Committed Loans, the Swingline Loans and the LC Liabilities on such day. Fees accrued under this Section shall be payable quarterly on each Quarterly Date and on the date on which the Commitments terminate in their entirety (and, if later, the first day thereafter on which no Committed Loans, Swingline Loans or LC Liabilities remain outstanding).

(b) Utilization Fee. The Borrower shall pay to the Agent for the account of the Banks ratably in accordance with their respective Percentages a utilization fee for each day from and including the Closing Date to but excluding the Termination Date (or earlier date of termination of the Commitments in their entirety) that the average outstanding Loans for such day exceed an amount equal to fifty percent (50%) of the aggregate Commitments of the Banks equal to the product of (A) the Aggregate Usage (excluding any Money Market Loans) times (B) the “Utilization Fee Rate” for such day (determined in accordance with the Pricing Schedule). The utilization fee shall be payable quarterly on each Quarterly Date and on the date on which the Commitments terminate in their entirety (and, if later, the first day thereafter on which no Committed Loans, Swingline Loans or LC Liabilities remain outstanding).

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

Section 2.09 Optional Termination or Reduction of Commitments.

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

Section 2.10 Method of Electing Interest Rates.

(a) Committed Loans.

(i) The Loans included in each Committed Borrowing shall bear interest initially at the Euro-Dollar Rate or the Base Rate, as specified by the Borrower in the applicable Notice of

Committed Borrowing. Thereafter, the Borrower may from time to time elect to change or continue the type of interest rate borne by each Group of Loans (subject in each case to the provisions of Article 8), as follows:

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

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

Each such election shall be made by delivering a notice (a “Notice of Interest Rate Election”) to the Agent at least three Euro-Dollar Business Days before the conversion or continuation selected in such notice is to be effective. A Notice of Interest Rate Election may, if it so specifies, apply to only a portion of the aggregate principal amount of the relevant Group of Loans; provided that (i) such portion is allocated ratably among the Loans comprising such Group and (ii) the portion to which such Notice applies, and the remaining portion to which it does not apply are each $10,000,000 or any larger multiple of $1,000,000.

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

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

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

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

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

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

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

(b) Swingline Loans. The Loans included in each Swingline Borrowing shall bear interest initially at the Quoted Rate or the Base Rate, as specified by the Borrower in the applicable Notice of Swingline Borrowing.

Section 2.11 Mandatory Termination of Commitments.

Unless previously terminated, the Commitments shall terminate on the Termination Date, and any Loans then outstanding (together with accrued interest thereon) shall be due and payable on such date.

Section 2.12 Optional Payments.

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

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

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

Section 2.13 General Provisions as to Payment.

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

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

such Bank together with interest thereon, for each day from the date such amount is distributed to such Bank until the date such Bank repays such amount to the Agent, at the Federal Funds Rate.

Section 2.14 Funding Losses.

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

Section 2.15 Computation of Interest and Fees.

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

Section 2.16 Letters of Credit.

(a) On the Closing Date, each LC Issuing Bank that has issued an Existing Letter of Credit on or before the Closing Date shall be deemed, without further action by any party hereto, to have sold to each Bank, and each Bank shall be deemed, without further action by any party hereto, to have purchased from such LC Issuing Bank, a participation in such Existing Letter of Credit and the related LC Liabilities in proportion to its Percentage.

(b) Subject to the terms and conditions set forth in this Agreement (including without limitation the condition set forth in Section 3.02(b)) and in reliance on the agreements of the other Banks set forth in this Section 2.16,

(i) Bank of America, as LC Issuing Bank, agrees to issue Letters of Credit hereunder from time to time on and after the Closing Date and before the Termination Date upon the request of the Borrower, provided that, immediately after each such Letter of Credit is issued, the aggregate outstanding amount of LC Liabilities in respect of all Letters of Credit issued by Bank of America, as LC Issuing Bank, shall not exceed $125,000,000;

(ii) Citibank, N.A., as LC Issuing Bank, agrees to issue Letters of Credit hereunder from time to time on and after the Closing Date and before the Termination Date upon the request of the Borrower, provided that immediately after each such Letter of Credit is issued, the aggregate outstanding amount of LC Liabilities in respect of all Letters of Credit issued by Citibank, N.A., as LC Issuing Bank, shall not exceed $100,000,000; and

(iii) each other LC Issuing Bank agrees to issue Letters of Credit hereunder from time to time on after after the Closing Date and before the Termination Date upon the request of the Borrower, provided that immediately after each such Letter of Credit is issued, the aggregate

outstanding amount of LC Liabilities in respect of all Letters of Credit issued by each such LC Issuing Bank shall not exceed the aggregate amount agreed to by such LC Issuing Bank and the Borrower;

Upon the issuance by an LC Issuing Bank of a Letter of Credit in accordance with this subsection (b), such LC Issuing Bank shall be deemed, without further action by any party hereto, to have sold to each Bank, and each Bank shall be deemed, without further action by any party hereto, to have purchased from such LC Issuing Bank, a participation in such Letter of Credit and the related LC Liabilities in proportion to its Percentage.

(c) No Letter of Credit issued on or after the Closing Date shall have an original expiry date later than one year after the issuance thereof. No Letter of Credit shall be extended on or after the Closing Date unless (i) such extension is for a period not exceeding one year and (ii) the LC Issuing Bank agrees to so extend such Letter of Credit (or, in the case of an “evergreen” Letter of Credit, its ability to give a notice to prevent such extension expires) no earlier than three months before the then existing expiry date. No Letter of Credit shall have an original or extended expiry date later than the fifth Domestic Business Day prior to the Termination Date.

(d) Notwithstanding anything contained herein to the contrary, no LC Issuing Bank shall be under any obligation to issue, renew or extend any Letter of Credit if any order, judgment or decree of any court or governmental authority or arbitrator shall by its terms enjoin or restrain the LC Issuing Bank from issuing a Letter of Credit, or any applicable law, rule or regulation or any request or directive (whether or not having the force of law) from any governmental authority with jurisdiction over the LC Issuing Bank shall prohibit, or request that the LC Issuing Bank refrain from, the issuance of letters of credit generally or any such Letter of Credit in particular, provided, that nothing contained in this paragraph (d) shall affect the obligation of any other LC Issuing Bank to issue Letters of Credit in accordance with this Section 2.16.

(e) The Borrower shall give the relevant LC Issuing Bank at least three Domestic Business Days’ prior notice (or such shorter notice as the relevant LC Issuing Bank shall agree) of (x) the issuance of each Letter of Credit to be issued by it after the Closing Date and (y) each extension of a Letter of Credit issued by it, specifying in each case (i) the date of such issuance or extension, (ii) the expiry date or extended expiry date of such Letter of Credit (which shall comply with subsection (c) above), (iii) the proposed terms of such Letter of Credit and (iv) the nature of the transactions proposed to be supported thereby. The issuance of any Letter of Credit after the Closing Date shall be subject to the conditions precedent set forth in Article 3 (the LC Issuing Bank having no duty to ascertain whether such conditions precedent are satisfied, other than to confirm with the Agent on the date of issuance that such issuance will not cause the Aggregate Usage to exceed the aggregate amount of the Commitments) and subject to the additional conditions precedent that such Letter of Credit shall be satisfactory to such LC Issuing Bank and that the Borrower shall have executed and delivered such other instruments and agreements relating to such Letter of Credit as such LC Issuing Bank shall have reasonably requested. The extension of any Letter of Credit shall be subject to the conditions precedent set forth in Article 3 (the LC Issuing Bank having no duty to ascertain whether such conditions precedent are satisfied). Upon issuing or extending any Letter of Credit, the LC Issuing Bank shall promptly notify the Agent of such issuance or extension. In addition, the L/C Issuing Bank will provide to the Agent, and upon receipt thereof the Agent will disseminate to the Banks, quarterly (and more frequently upon request) a detailed summary report on its Letters of Credit and the activity thereon, including, among other things, the beneficiary, the face amount, and the expiry date.

(f) The Borrower shall pay to the Agent, for the account of the Banks ratably in accordance with their respective Percentages, a letter of credit fee at (i) the LC Fee Rate on the aggregate amount

available for drawings under each Letter of Credit (other than Workers’ Compensation Letters of Credit) outstanding from time to time and (ii) the LC Fee Rate minus 0.05% per annum on the aggregate amount available for drawings under each Workers’ Compensation Letter of Credit outstanding from time to time. Each such fee shall be payable in arrears on the last day of each fiscal quarter of the Borrower for so long as such Letter of Credit is outstanding and on the expiry date thereof. The Borrower shall pay to each LC Issuing Bank additional fronting fees and expenses in the amounts and at the times agreed between the Borrower and such LC Issuing Bank. The LC Issuing Banks shall furnish to the Agent upon request such information as the Agent shall require in order to calculate the amount of any fee payable under this subsection (f).

“LC Fee Rate” means, for any day, a rate per annum equal to the Euro-Dollar Margin for such day.

(g) Upon receipt from the beneficiary of any Letter of Credit of any demand for payment under such Letter of Credit, the relevant LC Issuing Bank shall notify the Agent and the Agent shall promptly notify the Borrower and each other Bank as to the amount to be paid by the Issuing Bank as a result of such demand and the proposed payment date (the “LC Payment Date”). The responsibility of such LC Issuing Bank to the Borrower and each Bank shall be only to determine that the documents (including each demand for payment) delivered under each Letter of Credit issued by it in connection with such presentment shall be in conformity in all material respects with such Letter of Credit. Each LC Issuing Bank shall endeavor to exercise the same care in the issuance and administration of the Letters of Credit issued by it as it does with respect to letters of credit in which no participations are granted, it being understood that in the absence of any gross negligence or willful misconduct by such LC Issuing Bank, each Bank shall be unconditionally and irrevocably liable without regard to the occurrence of any Event of Default or any condition precedent whatsoever, to reimburse such LC Issuing Bank on demand for (i) such Bank’s Percentage of the amount of each payment made by such LC Issuing Bank under each Letter of Credit issued by it to the extent such amount is not reimbursed by the Borrower pursuant to subsection (g) below plus (ii) interest on the foregoing amount to be reimbursed by such Bank, for each day from the date of such LC Issuing Bank’s demand for such reimbursement (or, if such demand is made after 11:00 A.M. (New York City time) on such date, from the next succeeding Domestic Business Day) to the date on which such Bank pays the amount to be reimbursed by it, at a rate of interest per annum equal to the Federal Funds Rate for such day.

(h) Unless otherwise expressly agreed by the LC Issuing Bank and the Borrower when a Letter of Credit is issued, (i) the rules of the “International Standby Practices 1998” published by the Institute of International Banking Law & Practice (or such later version thereof as may be in effect at the time of issuance) shall apply to each standby Letter of Credit, and (ii) the rules of the Uniform Customs and Practice for Documentary Credits, as most recently published by the International Chamber of Commerce (the “ICC”) at the time of issuance (including the ICC decision published by the Commission on Banking Technique and Practice on April 6, 1998 regarding the European single currency (euro)) shall apply to each commercial Letter of Credit.

(i) The Borrower shall be irrevocably and unconditionally obligated to reimburse each LC Issuing Bank on or by the applicable LC Reimbursement Date for any amounts paid by such LC Issuing Bank upon any drawing under any Letter of Credit issued by it, without presentment, demand, protest or other formalities of any kind; provided that neither the Borrower nor any Bank shall hereby be precluded from asserting any claim for direct (but not consequential) damages suffered by the Borrower or such Bank to the extent, but only to the extent, caused by (i) the willful misconduct or gross negligence of such LC Issuing Bank in determining whether a request presented under any Letter of Credit issued by it complied with the terms of such Letter of Credit or (ii) such LC Issuing Bank’s failure to pay under any Letter of Credit issued by it after the presentation to it of a request strictly complying with the terms and

conditions of such Letter of Credit. All such amounts paid by such LC Issuing Bank and remaining unpaid by the Borrower shall bear interest, payable on demand, for each day until paid at a rate per annum equal to (x) the Base Rate for such day if such day falls on or before the applicable LC Reimbursement Date and (y) the sum of 2% plus the Base Rate for such day if such day falls after such LC Reimbursement Date. Each LC Issuing Bank will pay to each Bank ratably in accordance with its Percentage all amounts received from the Borrower for application in payment, in whole or in part of the Reimbursement Obligations in respect of any Letter of Credit issued by such LC Issuing Bank, but only to the extent such Bank has made payment to such LC Issuing Bank in respect of such Letter of Credit pursuant to subsection (g).

(j) If, after the date hereof, the adoption of any applicable law, rule or regulation, or any change in any applicable law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank or LC Issuing Bank with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency shall impose, modify or deem applicable any reserve, special deposit or similar requirement against or with respect to or measured by reference to Letters of Credit issued or to be issued hereunder or participations therein, and the result shall be to increase the cost to any Bank or LC Issuing Bank of issuing or maintaining any Letter of Credit or any participation therein, or reduce any amount receivable by any Bank or LC Issuing Bank hereunder in respect of any Letter of Credit (which increase in cost, or reduction in amount receivable, shall be the result of such Bank’s or LC Issuing Bank’s reasonable allocation of the aggregate of such increases or reductions resulting from such event), then, upon demand by such Bank or LC Issuing Bank, the Borrower agrees to pay to such Bank or LC Issuing Bank, from time to time as specified by such Bank or LC Issuing Bank, such additional amounts as shall be sufficient to compensate such Bank or LC Issuing Bank for such increased costs or reductions in amount incurred by such Bank or LC Issuing Bank. A certificate of such Bank or LC Issuing Bank submitted by such Bank or LC Issuing Bank to the Borrower shall be conclusive as to the amount thereof in the absence of manifest error.

(k) The Borrower’s obligations under this Section 2.16 shall be absolute and unconditional under any and all circumstances and irrespective of any setoff, counterclaim or defense to payment which the Borrower may have or have had against any LC Issuing Bank, any Bank or any beneficiary of a Letter of Credit. The Borrower further agrees with the LC Issuing Banks and the Banks that the LC Issuing Banks and the Banks shall not be responsible for, and the Borrower’s Reimbursement Obligations in respect of any Letter of Credit shall not be affected by, among other things, the validity or genuineness of documents or of any endorsements thereon, even if such documents should in fact prove to be in any or all respects invalid, fraudulent or forged, or any dispute between or among the Borrower, any of its Subsidiaries, the beneficiary of any Letter of Credit or any financing institution or other party to whom any Letter of Credit may be transferred or any claims, or defenses whatsoever of the Borrower or any of its Subsidiaries against the beneficiary, of any Letter of Credit or any such transferee. No LC Issuing Bank shall be liable for any error, omission, interruption or delay in transmission, dispatch or delivery of any message or advice, however transmitted, in connection with any Letter of Credit issued, extended or renewed by it. The Borrower agrees that any action taken or omitted by an LC Issuing Bank or any Bank under or in connection with each Letter of Credit and the related drafts and documents, if done in good faith and without gross negligence, shall be binding upon the Borrower and shall not put such LC Issuing Bank or any Bank under any liability to the Borrower.

(l) To the extent not inconsistent with subsection (k) above, each LC Issuing Bank shall be entitled to rely, and shall be fully protected in relying upon, any Letter of Credit, draft, writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype message, statement, order or other document believed by it to be genuine and correct and to have been signed, sent

or made by the proper Person or Persons and upon advice and statements of legal counsel, independent accountants and other experts selected by such LC Issuing Bank. Each LC Issuing Bank shall be fully justified in failing or refusing to take any action under this Agreement unless it shall first have received such advice or concurrence of the Required Banks as it reasonably deems appropriate or it shall first be indemnified to its reasonable satisfaction by the Banks against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. Notwithstanding any other provision of this Section 2.16, each LC Issuing Bank shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement in accordance with a request of the Required Banks, and such request and any action taken or failure to act pursuant thereto shall be binding upon the Banks and all future holders of participations in any Letters of Credit.

(m) The Borrower hereby agrees to indemnify and hold harmless each Bank, each LC Issuing Bank and the Agent, and their respective directors, officers, agents and employees from and against any and all claims and damages, losses, liabilities, costs or expenses which such Bank, such LC Issuing Bank or the Agent may incur (or which may be claimed against such Bank, such LC Issuing Bank or the Agent by any Person whatsoever) by reason of or in connection with the execution and delivery or transfer of or payment or failure to pay under any Letter of Credit or any actual or proposed use of any Letter of Credit, including, without limitation, any claims, damages, losses, liabilities, costs or expenses which an LC Issuing Bank may incur by reason of or in connection with the failure of any other Bank to fulfill or comply with its obligations to such LC Issuing Bank hereunder (but nothing herein contained shall affect any rights the Borrower may have against any defaulting Bank); provided that the Borrower shall not be required to indemnify, any Bank, any LC Issuing Bank or the Agent for any claims, damages, losses, liabilities, costs or expenses to the extent, but only to the extent, caused by (i) the willful misconduct or gross negligence of an LC Issuing Bank in determining whether a request presented under any Letter of Credit issued by it complied with the terms of such Letter of Credit or (ii) an LC Issuing Bank’s failure to pay under any Letter of Credit issued by it after the presentation to it of a request strictly complying with the terms and conditions of such Letter of Credit; and provided further that the foregoing indemnity shall not apply with respect to any costs or expenses arising out of any claim by any Person other than the beneficiary, or account party under the relevant Letter of Credit unless such costs and expenses shall have been reasonably incurred. Nothing in this subsection (m) is intended to limit the obligations of the Borrower under any other provision of this Agreement.

(n) Each Bank shall, ratably in accordance with its Percentage, indemnify each LC Issuing Bank, its affiliates and their respective directors, officers, agents and employees (to the extent not reimbursed by the Borrower) against any cost, expense (including reasonable counsel fees and disbursements), claim, demand, action, loss or liability (except such as result from such indemnitees’ gross negligence or willful misconduct or such LC Issuing Bank’s failure to pay, under any Letter of Credit issued by it after the presentation to it of a request strictly complying with the terms and conditions of the Letter of Credit) that such indemnitees may suffer or incur in connection with this Section 2.16 or any action taken or omitted by such indemnitees hereunder.

(o) In its capacity as a Bank, each LC Issuing Bank shall have the same rights and obligations as any other Bank. The obligations of the LC Issuing Banks under the Financing Documents are several and not joint.

Section 2.17 Maximum Interest Rate.

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

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

(c) If the amount of interest payable for the account of any Bank in respect of any interest computation period is reduced pursuant to subsection (b) of this Section and the amount of interest payable for its account in respect of any subsequent interest computation period, computed pursuant to Section 2.07, would be less than the maximum amount permitted by applicable law to be charged by such Bank, then the amount of interest payable for its account in respect of such subsequent interest computation period shall be automatically increased to such maximum permissible amount; provided that at no time shall the aggregate amount by which interest paid for the account of any Bank has been increased pursuant to this subsection (c) exceed the aggregate amount by which interest paid for its account has theretofore been reduced pursuant to subsection (b) of this Section.

Section 2.18. Pro Rata Treatment.

Except to the extent otherwise provided herein, each Committed Loan advance, each payment or repayment of principal of any Committed Loan or any Reimbursement Obligation, each payment of interest on any Committed Loan or any Reimbursement Obligation, each payment of the facility fee, utilization fee or letter of credit fee, each reduction of Commitments, and each conversion or extension of a Committed Loan shall be allocated pro rata among the Banks according to their respective Percentages.

ARTICLE 3

CONDITIONS

Section 3.01 Conditions to Effectiveness.

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

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

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

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

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

(e) receipt by the Agent of verification, in form and substance reasonably satisfactory to the Agent, that the Borrower’s Existing Credit Agreement has been terminated and all loans and other

amounts owing thereunder have been paid in full (or will be paid in full with the initial Loan advance hereunder);

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

(g) payment by the Borrower of all fees and expenses owing on the Closing Date by the Borrower to the Banks and the Agent.

Section 3.02 Credit Extensions.

The obligation of any Bank to make a Loan on the occasion of any Borrowing and the obligation of an LC Issuing Bank to issue or extend a Letter of Credit on the occasion of a request therefor by the Borrower (or to permit an automatic extension of an “evergreen” Letter of Credit) are each subject to the satisfaction of the following conditions (in addition to those set forth in Section 2.16(d), if applicable):

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

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

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

(d) the fact that the representations and warranties of the Borrower contained in this Agreement shall be true on and as of the date of such Credit Extension.

Each Credit Extension hereunder shall be deemed to be a representation and warranty by the Borrower on the date of such Credit Extension as to the facts specified in clauses (b), (c) and (d) of this Section.

ARTICLE 4

REPRESENTATIONS AND WARRANTIES

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

Section 4.01 Corporate Existence and Power.

The Borrower is a corporation duly incorporated, validly existing and in good standing under the laws of Delaware, and has all corporate powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted.

Section 4.02 Corporate and Governmental Authorization; No Contravention.

The execution, delivery and performance by each Obligor of the Financing Documents to which it is a party are within its corporate or limited liability company powers, as the case may be, have been duly authorized by all necessary, corporate or limited liability company action, as the case may be,

require no action by or in respect of, or filing with, any governmental body, agency or official and do not contravene, or constitute a default under, any provision of any applicable law or regulation or of the certificate of incorporation or by-laws or certificate of formation or operating agreement, as the case may be, of such Obligor or of any agreement, judgment, injunction, order, decree or other instrument binding upon such Obligor or any Subsidiary or result in the creation or imposition of any Lien on any asset of such Obligor or any Subsidiary.

Section 4.03 Binding Effect.

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

Section 4.04 Financial Information.

(a) The consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of December 31, 2000 and the related statements of consolidated income, consolidated cash flows and consolidated shareholders’ equity for the fiscal year then ended, reported on by Arthur Andersen LLP and set forth in the Borrower’s 2000 Annual Report to Shareholders, a copy of which has been delivered to each of the Banks, fairly present, in conformity with generally accepted accounting principles, the consolidated financial position of the Borrower and its Consolidated Subsidiaries as of such date and their consolidated results of operations and cash flows for such fiscal year.

(b) The unaudited condensed consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of March 31, 2001 and the related unaudited condensed statements of consolidated income and consolidated cash flows for the three months then ended, set forth in the Borrower’s quarterly report for the fiscal quarter ended March 31, 2001 as filed with the Securities and Exchange Commission on Form 10-Q, a copy of which has been delivered to each of the Banks, fairly present, on a basis consistent with the financial statements referred to in subsection (a) of this Section, the consolidated financial position of the Borrower and its Consolidated Subsidiaries as of such date and their consolidated results of operations and cash flows for such three-month period (subject to normal year-end adjustments).

(c) Other than the Restructuring Charge and/or the sale, lease, outsourcing or other transfer of all or a portion of the operations of Emery Worldwide Airlines, Inc., there has been no material adverse change since December 31, 2000 in the business, financial position, results of operations or prospects of the Borrower and its Consolidated Subsidiaries, considered as a whole.

Section 4.05 Litigation.

There is no action, suit or proceeding pending against, or to the knowledge of the Borrower threatened against the Borrower or any of its Subsidiaries before any court or arbitrator or any governmental body, agency or official (i) in which there is a reasonable possibility that a final judgment in excess of $40,000,000 will be entered or filed against the Borrower or any of its Subsidiaries, (ii) in which there is a reasonable possibility of an adverse decision which could, in a manner not involving the

payment of damages, materially adversely affect the business of the Borrower and its Subsidiaries, considered as a whole, or (iii) which in any manner draws into question the validity of any Financing Document.

Section 4.06 Compliance with ERISA.

Each member of the ERISA Group has fulfilled its obligations under the minimum funding standards of ERISA and the Internal Revenue Code with respect to each Plan and is in compliance in all respects with the presently applicable provisions of ERISA and the Internal Revenue Code with respect to each Plan, except to the extent that noncompliance could not materially adversely affect the business, consolidated financial position or consolidated results of operations of the Borrower and its Consolidated Subsidiaries. No member of the ERISA Group has (i) sought a waiver of the minimum funding standard under Section 412 of the Internal Revenue Code in respect of any Plan, (ii) failed to make any contribution or payment to any Plan or Multiemployer Plan or in respect of any Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement, which has resulted or could result in the imposition of a Lien or the posting of a bond or other security under ERISA or the Internal Revenue Code or (iii) incurred any liability under Title IV, of ERISA other than a liability to the PBGC for premiums under Section 4007 of ERISA.

Section 4.07 Environmental Matters.

In the ordinary, course of its business, the Borrower conducts periodic reviews of the effect of Environmental Laws on the business, operations and properties of the Borrower and its Subsidiaries, in the course of which it identifies and evaluates associated liabilities and costs (including, without limitation, any capital or operating expenditures required for clean-up or closure of properties presently or previously owned, any capital or operating expenditures required to achieve or maintain compliance with environmental protection standards imposed by law or as a condition of any license, permit or contract, any related constraints on operating activities, including any periodic or permanent shutdown of any facility or reduction in the level of or change in the nature of operations conducted there at, any costs or liabilities in connection with off-site disposal of wastes or Hazardous Substances, and, any actual or potential liabilities to third parties, including employees, and any related costs and expenses). On the basis of such reviews, the Borrower has reasonably concluded that such associated liabilities and costs, including the costs of compliance with Environmental Laws, are unlikely (after taking into account the Borrower’s reserves for such liabilities and costs) to have a material adverse effect on the business, financial condition, results of operations or prospects of the Borrower and its Consolidated Subsidiaries, considered as a whole.

Section 4.08 Taxes.

United States Federal income tax returns of the Borrower and its Subsidiaries have been examined and closed through the fiscal year ended December 31, 1986. The Borrower and its Subsidiaries have filed all United States Federal income tax returns and all other material tax returns which are required to be filed by them and have paid all taxes due pursuant to such returns or pursuant to any assessment received by the Borrower or any Subsidiary. The charges, accruals and reserves on the books of the Borrower and its Subsidiaries in respect of taxes or other governmental charges are, in the opinion of the Borrower, adequate.

Section 4.09 Subsidiaries.

Each of the Borrower’s Subsidiaries is a corporation or limited liability company duly incorporated or formed, validly existing and in good standing under the laws of its jurisdiction of

incorporation or formation, and has all corporate or limited liability company, as the case may be, powers and all material governmental licenses, authorizations, consents and approvals required to carry, on its business as now conducted. Each Subsidiary Guarantor is a Wholly-Owned Subsidiary of the Borrower.

Section 4.10 Not an Investment Company.

The Borrower is not, and is not controlled by, an “investment company” within the meaning of the Investment Company Act of 1940, as amended.

Section 4.11 Full Disclosure.

All information heretofore furnished by the Borrower to the Agent or any Bank for purposes of or in connection with this Agreement or any transaction contemplated hereby is, and all such information hereafter furnished by the Borrower to the Agent or any Bank will be, true and accurate in all material respects on the date as of which such information is stated or certified. The Borrower has disclosed to the Banks in writing any and all facts which materially and adversely affect or may materially and adversely affect (to the extent the Borrower can now reasonably foresee) the business, operations or financial condition of the Borrower and its Consolidated Subsidiaries, taken as a whole, or the ability of the Borrower to perform its obligations under this Agreement.

ARTICLE 5

COVENANTS

The Borrower agrees that, so long as any Bank has any Commitment or any Outstanding LC Exposure hereunder or any amount payable under any Note remains unpaid:

Section 5.01 Information.

The Borrower will deliver to each of the Banks:

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

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

(c) simultaneously with the delivery, of each set of financial statements referred to in clauses (a) and (b) above, a certificate of the chief financial officer or the chief accounting officer

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

(d) simultaneously with the delivery of each set of financial statements referred to in clause (a) above, a statement of the firm of independent public accountants which reported on such statements (i) whether anything has come to their attention to cause them to believe that any Default existed on the date of such statements and (ii) confirming the calculations set forth in the officer’s certificate delivered simultaneously therewith pursuant to clause (c) above;

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

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

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

(h) if and when any member of the ERISA Group (i) gives or is required to give notice to the PBGC of any “reportable event” (as defined in Section 4043 of ERISA) with respect to any Plan which might constitute grounds for a termination of such Plan under Title IV of ERISA, or knows that the plan administrator of any Plan has given or is required to give notice of any such reportable event, a copy of the notice of such reportable event given or required to be given to the PBGC; (ii) receives notice of complete or partial withdrawal liability under Title IV of ERISA or notice that any Multiemployer Plan is in reorganization, is insolvent or has been terminated, which could, when aggregated with any liability incurred after December 31, 2000 by any member of the ERISA Group as a result of any other such withdrawal liability, reorganization, insolvency or termination, give rise to aggregate liabilities of the ERISA Group in excess of $5,000,000, a copy of such notice; (iii) receives notice from the PBGC under Title IV of ERISA of an intent to terminate, impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or appoint a trustee to administer any Plan, a copy of such notice; (iv) applies for a waiver of the minimum funding, standard under Section 412 of the Internal Revenue Code, a copy of such application; (v) gives notice of intent to terminate any Plan under Section 4041(c) of ERISA, a copy of such notice and other information filed with the PBGC; (vi) gives notice of withdrawal from any Plan pursuant to Section 4063 or ERISA, which could, when aggregated with any liability incurred after June 30, 1996 by any member of the ERISA Group as a result of any other such withdrawal, give rise to aggregate liabilities of the ERISA Group in excess of $5,000,000, a copy of such notice; or (vii) fails to make any payment or contribution to any Plan or Multiemployer Plan or in respect of any Benefit Arrangement or makes any amendment to any Plan or Benefit Arrangement which has resulted or could result in the imposition of a Lien or the posting of a bond or other security, a certificate of the chief financial officer or the chief accounting officer of the Borrower setting forth details as to such occurrence and action, if any, which the Borrower or applicable member of the ERISA Group is required or proposes to take; and

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

Section 5.02 Payment of Obligations.

The Borrower will pay and discharge, and will cause each Subsidiary to pay and discharge, at or before maturity, all their respective material obligations and liabilities, including, without limitation, tax liabilities, except where the same are contested in good faith by appropriate proceedings, and will maintain, and will cause each Subsidiary to maintain, in accordance with generally accepted accounting principles, appropriate reserves for the accrual of any of the same.

Section 5.03 Maintenance of Property; Insurance.

(a) The Borrower will keep, and will cause each Subsidiary to keep, all property useful and necessary in its business in good working order and condition, ordinary, wear and tear excepted.

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

Section 5.04 Conduct of Business and Maintenance of Existence.

The Borrower will continue, and will cause each Subsidiary to continue, to engage in business of the same general type as now conducted by the Borrower and its Subsidiaries, and will preserve, renew and keep in full force and effect, and will cause each Subsidiary to preserve, renew and keep in full force and effect their respective corporate or limited liability company existence and their respective rights, privileges and franchises necessary or desirable in the normal conduct of business; provided that nothing in this Section 5.04 shall prohibit (i) any merger or consolidation permitted by Section 5.10 or (ii) the termination (whether by dissolution, liquidation or wind-up) of the corporate or limited liability company existence of any Subsidiary (other than a Subsidiary Guarantor) if the Borrower in good faith determines that such termination is in the best interest of the Borrower and is not materially disadvantageous to the Banks.

Section 5.05 Compliance with Laws.

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

Section 5.06 Inspection of Property, Books and Records.

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

Section 5.07 Debt.

(a) The ratio of Consolidated Debt to Consolidated Net Worth shall not at any time exceed 1.65 to 1.

(b) Total Debt of all Subsidiaries will at no time exceed $75,000,000; provided that, for purposes of this subsection (b), such total Debt shall not include:

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

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

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

(iv) Debt of a Subsidiary outstanding on March 31, 2001 or any refinancing of such Debt, provided that the principal amount of refinancing Debt excluded from total Debt pursuant to this clause (iv) shall not exceed the principal amount of the Debt refinanced thereby;

(v) Debt of a Subsidiary secured by a purchase money Lien permitted by Section 5.09(b); provided that the aggregate outstanding principal amount of all Debt excluded from total Debt pursuant to this clause (v) shall not at any time exceed $150,000,000; and

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

As used herein, the term “ESOP Trust” means a trust created under an employee stock ownership plan as defined in Section 407(d)(6) of ERISA which purchases capital stock of the relevant Subsidiary for the benefit of employees of such Subsidiary and its subsidiaries.

Section 5.08 Minimum Consolidated Net Worth.

Consolidated Net Worth shall not at any time be less than $850,000,000 as reduced from time to time by an amount equal to the after-tax Restructuring Charge (which Restructuring Charge shall not

exceed the amount set forth in Section 5.14); provided that such amount shall be increased (i) as of December 31, 2001 by an amount equal to 50% of the consolidated net income of the Borrower and its Consolidated Subsidiaries for the nine months then ended, if such consolidated net income is positive, and (ii) as of the last day of each fiscal year thereafter by an amount equal to 50% of the consolidated net income of the Borrower and its Consolidated Subsidiaries for such fiscal year, if such consolidated net income is positive.

Section 5.09 Negative Pledge.

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

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

(b) any purchase money Lien on any property constituting a fixed asset or a surface or air transportation vehicle used in the freight business hereafter acquired by the Borrower or any Subsidiary or hereafter constructed or improved by the Borrower or any Subsidiary, to secure or provide for the payment of all or a part of the purchase price thereof, or any Debt incurred to finance the purchase thereof or cost of construction or cost of improvement of such property and for which a bona fide firm commitment in writing was executed prior to, contemporaneously with or within l80 days after acquisition of such property, or the completion of construction or improvement thereof, as the case may be, provided that no such Lien shall extend to any other property of the Borrower or any Subsidiary;

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

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

(e) any Lien arising out of the refinancing, extension, renewal or refunding of any Debt secured by any Lien permitted by any of the foregoing clauses of this Section, provided that such Debt is not increased and is not secured by any additional assets;

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

(g) Liens arising in the ordinary course of its business which (i) do not secure Debt, (ii) do not secure any obligation in an amount exceeding $50,000,000 and (iii) do not in the aggregate materially detract from the value of its assets or materially impair the use thereof in the operation of its business:

(h) any Lien on accounts receivable if, immediately after such Lien arises, the aggregate uncollected balance of all accounts receivable sold or subjected to Liens by the Borrower and its Subsidiaries (excluding accounts receivable charged off in accordance with the charge-off policies applicable to the unsold accounts receivable of the Borrower and its Subsidiaries) would not exceed 15% of the consolidated accounts receivable of the Borrower and its Subsidiaries as of the end of its then most recently ended fiscal quarter; and

(i) Liens not otherwise permitted by the foregoing clauses of this Section securing Debt or other obligations in an aggregate principal amount at any time outstanding not to exceed the sum or $15,000,000 plus 10% of Consolidated Net Worth as of the end of the immediately preceding fiscal quarter of the Borrower.

Section 5.10 Consolidations, Mergers and Sales of Assets.

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

(a) the merger of a Subsidiary into the Borrower,

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

(c) the sale, lease or other transfer of any aircraft either (i) in the ordinary course of business or (ii) for fair value if after giving effect thereto, the aggregate consideration received for all aircraft sold, leased or otherwise transferred under this clause (ii) during any fiscal year of the Borrower does not exceed $150,000,000, and

(d) any sale, lease or other transfer of any asset (including aircraft not permitted to be sold, leased or otherwise transferred pursuant to clause (c) above) either (i) in the ordinary course of business or (ii) for fair value if after giving effect thereto, the aggregate consideration received for all of their assets sold, leased or otherwise transferred under this clause (ii) during any fiscal year of the Borrower does not exceed $100,000,000;

provided that, in the case of (x) any such merger or consolidation or (y) any such sale, lease or other transfer of any asset not in the ordinary course of business, no Default shall have occurred and be continuing after giving effect thereto.

Section 5.11 Use of Proceeds.

The proceeds of the Loans made under this Agreement will be used by the Borrower for general corporate purposes. None of such proceeds will be used, directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of buying or carrying any “margin stock” within the meaning of Regulation U.

Section 5.12 Fixed Charge Coverage.

As of the end of each fiscal quarter, the ratio of Consolidated EBITDAR for the period of four consecutive fiscal quarters ending as of the last day of such quarter to Consolidated Fixed Charges for the period of four consecutive fiscal quarters ending as of the last day of such quarter will not be less than 1.875 to 1.

Section 5.13 Transactions with Third Party Affiliates.

The Borrower will not, and will not permit any Subsidiary to, directly or indirectly, pay any funds to or for the account of, make any investment (whether by acquisition of stock or indebtedness, by loan, advance, transfer of property, guarantee or other agreement to pay, purchase or service, directly or indirectly, any Debt, or otherwise) in, lease, sell, transfer or otherwise dispose of any assets, tangible or intangible, to, or participate in, or effect any transaction in connection with any joint enterprise or other joint arrangement with, any Third Party Affiliate; provided that nothing in this Section 5.13 shall prohibit:

(a) the Borrower from declaring or paying any lawful dividend so long as, after giving effect thereto, no Default shall have occurred and be continuing;

(b) the Borrower or any Subsidiary from making sales to or purchases from any Third Party Affiliate and, in connection therewith, extending credit or making payments, or from making payments for services rendered by any Third Party Affiliate, if such sales or purchases are made or such services are rendered in the ordinary course of business and on an arm’s-length basis;

(c) the Borrower or any Subsidiary from making payments of principal, interest and premium on any Debt of the Borrower or such Subsidiary held by a Third Party Affiliate if the terms of such Debt are established on an arm’s-length basis; or

(d) the Borrower or any Subsidiary from participating in or effecting any transaction in connection with any joint enterprise or other joint arrangement with any Third Party Affiliate if the Borrower or such Subsidiary participates in the ordinary course of its business and on a basis no less advantageous than the basis on which such Third Party Affiliate participates.

Section 5.14 Restructuring Charge.

The pre-tax amount of the Restructuring Charge shall not exceed in the aggregate $350,000,000 and the cash component of such pre-tax amount shall not exceed in the aggregate $75,000,000.

ARTICLE 6

DEFAULTS

Section 6.01 Events of Default.

If one or more of the following events (“Events of Default”) shall have occurred and be continuing:

(a) the Borrower shall fail to pay any principal of any Loan or Reimbursement Obligation when due, or shall fail to pay within three Domestic Business Days of the due date thereof any interest, fees or other amount payable hereunder;

(b) the Borrower shall fail to observe or perform any covenant contained in Sections 5.07 to 5.12, inclusive, or Section 5.14, or in Section 3.01 of the Subsidiary Guaranty Agreement;

(c) the Borrower shall fail to observe or perform any covenant or agreement contained in any Financing Document (other than those covered by clause (a) or (b) above) for 30 days after written notice thereof has been given to the Borrower by the Agent at the request of any Bank;

(d) any representation, warranty, certification or statement made by the Borrower in any Financing Document or any amendment thereof or in any certificate, financial statement or other document delivered pursuant to any Financing Document shall prove to have been incorrect in any material respect when made (or deemed made);

(e) the Borrower or any Subsidiary shall fail to make any payment in respect of any Material Debt within three Domestic Business Days after such payment is due or, if longer, within any grace period otherwise applicable to such payment;

(f) any event or condition shall occur which results in the acceleration of the maturity of Material Debt or enables the holders of Material Debt or any Person acting on their behalf to accelerate the maturity thereof, or any default by the Borrower or any Subsidiary shall occur which results in the termination of Material Commitments prior to the scheduled termination thereof or enables Persons extending Material Commitments to terminate such Material Commitments prior to the scheduled termination thereof;

(g) the Borrower or any Subsidiary (except Insignificant Subsidiaries) shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any corporate action to authorize any of the foregoing;

(h) an involuntary case or other proceeding shall be commenced against the Borrower or any Subsidiary (except Insignificant Subsidiaries) seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of 60 days; or an order for relief shall be entered against the Borrower or any Subsidiary (except Insignificant Subsidiaries) under the federal bankruptcy laws as now or hereafter in effect;

(i) any member of the ERISA Group shall fail to pay when due an amount or amounts aggregating in excess of $40,000,000 which it shall have become liable to pay under Title IV of ERISA; or notice of intent to terminate a Material Plan shall be filed under Title IV of ERISA by any member of the ERISA Group, any plan administrator or any combination of the foregoing; or the PBGC shall institute proceedings under Title IV of ERISA to terminate, to impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or to cause a trustee to be appointed to administer any Material Plan; or a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudication that any Material Plan must be terminated; or there shall occur a complete or partial withdrawal from, or a default, within the meaning of Section 4219(c)(5) of ERISA, with respect to, one or more Multiemployer Plans

which could cause one or more members of the ERISA Group to incur a current payment obligation in excess of $40,000,000.

(j) a final judgment or order for the payment of money in excess of $40,000,000 shall be entered or filed against the Borrower or any Subsidiary and such judgment or order shall continue unsatisfied, unvacated and unstayed for a period of 30 days;

(k) any person or group of persons (within the meaning of Section 13 or 14 of the Securities Exchange Act of 1934, as amended) shall have acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated by the Securities and Exchange Commission under said Act) of 30% or more of the outstanding shares of common stock of the Borrower or Continuing Directors shall cease to constitute a majority of the Borrower’s board of directors;

(l) the Borrower shall cease to own, directly or indirectly, at least 80% of the common stock or other equity interests of each Subsidiary Guarantor (other than a Subsidiary Guarantor that is released from its obligations under the Subsidiary Guaranty in accordance with the terms thereof) free and clear of all Liens; or

(m) the Borrower or any Subsidiary Guarantor shall take any action that causes the guarantee by any Subsidiary Guarantor set forth in the Subsidiary Guaranty Agreement to be revoked or invalidated, or to cease to be in full force and effect (other than pursuant to Section 4.03 of the Subsidiary Guaranty Agreement), or the Borrower or any Subsidiary Guarantor (or any Person acting on behalf of the Borrower or any Subsidiary Guarantor) shall deny or disaffirm any of the obligations of any Subsidiary Guarantor set forth in the Subsidiary Guaranty Agreement;

then, and in every such event, the Agent shall (i) if requested by the Required Banks, by notice to the Borrower terminate the Commitments and they shall thereupon terminate and (ii) if requested by the Required Banks by notice to the Borrower declare the Notes (together with accrued interest thereon) to be, and the Notes shall thereupon become, immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower; provided that in the case of any of the Events of Default specified in clause (g) or (h) above with respect to any Obligor, without any notice to the Obligors or any other act by the Agent or the Banks, the Commitments shall thereupon terminate and the Notes (together with accrued interest thereon) shall become immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower.

Section 6.02 Notice of Default.

The Agent shall give notice to the Borrower under Section 6.01(c) promptly upon being requested to do so by any Bank and shall thereupon notify all the Banks thereof.

Section 6.03 Cash Cover.

The Borrower agrees, in addition to the provisions of Section 6.01 hereof, that upon the occurrence and during the continuance of any Event of Default, it shall, if requested by the Agent upon instruction from the Required Banks, pay (and, in the case of any of the Events of Default specified in clause (g) or (h) above with respect to any Obligor, forthwith, without any demand or the taking of any other action by the Agent or any Bank, it shall pay) to the Agent an amount in immediately available funds equal to the then aggregate amount of the LC Liabilities to be held as security therefor for the benefit of the Banks and the LC Issuing Banks.

ARTICLE 7

THE AGENT AND THE CO-AGENTS

Section 7.01 Appointment and Authorization.

Each Bank irrevocably appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers and perform such duties under the Financing Documents as are expressly delegated to the Agent by the terms thereof, together with all such powers as are reasonably incidental thereto.

Section 7.02 Agent and Affiliates.

Bank of America shall have the same rights and powers under the Financing Documents as any other Bank and may exercise or refrain from exercising the same as though it were not the Agent. Bank of America and its affiliates may accept deposits from, lend money to, and generally engage in any kind of business with the Borrower or any Subsidiary, or affiliate of the Borrower as if it were not the Agent hereunder and without notice to or consent of the Banks. The Banks acknowledge that, pursuant to such activities, the Agent or its affiliates may receive information regarding any Obligor or its Affiliates (including information that may be subject to confidentiality obligations in favor of such Obligor or such Affiliate) and acknowledge that the Agent and its affiliates shall be under no obligation to provide such information to them.

Section 7.03 Action by Agent.

The obligations of the Agent under the Financing Documents are only those expressly set forth therein. Notwithstanding any provision to the contrary contained elsewhere herein or in any other Financing Document, the Agent shall not have any duties or responsibilities, except those expressly set forth herein, nor shall the Agent have or be deemed to have any fiduciary relationship with any Bank or participant, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Financing Document or otherwise exist against the Agent. Without limiting the generality of the foregoing sentence, the use of the term “agent” herein and in the other Financing Documents with reference to the Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable law. Instead, such term is used merely as a matter of market custom, and is intended to create or reflect only an administrative relationship between independent contracting parties.

Section 7.04 Consultation with Experts; Delegation of Duties.

The Agent may consult with legal counsel (who may be counsel for an Obligor), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the advice of such counsel, accountants or experts. The Agent may execute any of its duties under this Agreement or any other Financing Document by or through agents, employees or attorneys-in-fact and shall be entitled to advice of counsel and other consultants or experts concerning all matters pertaining to such duties. The Agent shall not be responsible for the negligence or misconduct of any agent or attorney-in-fact that it selects in the absence of gross negligence or willful misconduct by the Agent.

Section 7.05 Liability of Agent.

Neither the Agent nor any of its affiliates nor any of their respective directors, officers, agents or employees shall be liable for any action taken or not taken by it in connection herewith (i) with the consent or at the request of the Required Banks or (ii) in the absence of its own gross negligence or willful misconduct. Neither the Agent nor any of its affiliates nor any of their respective directors, officers, agents or employees shall be responsible for or have any duty to ascertain, inquire into or verify (i) any statement, warranty or representation made in connection with the Financing Documents or any borrowing hereunder; (ii) the performance or observance of any of the covenants or agreements of the Borrower; (iii) the satisfaction of any condition specified in Article 3, except receipt of items required to be delivered to the Agent; or (iv) the validity, effectiveness or genuineness of the Financing Documents or any other instrument or writing furnished in connection therewith.

Section 7.06 Reliance by Agent.

(a) The Agent shall be entitled to rely, and shall not incur any liability by acting in reliance, upon any notice, consent, certificate, statement, or other writing (which may be a bank wire, telex or similar writing) believed by it to be genuine or to be signed by the proper party or parties. The Agent shall be fully justified in failing or refusing to take any action under any Financing Document unless it shall first receive such advice or concurrence of the Required Banks as it deems appropriate and, if it so requests, it shall first be indemnified to its satisfaction by the Banks against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action.

(b) For purposes of determining compliance with the conditions specified in Section 3.01, each Bank that has signed this Agreement shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter either sent by the Agent to such Bank for consent, approval, acceptance or satisfaction, or required thereunder to be consented to or approved by or acceptable or satisfactory to a Bank.

Section 7.07 Notice of Default.

The Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default, except with respect to defaults in the payment of principal, interest and fees required to be paid to the Agent for the account of the Banks, unless the Agent shall have received written notice from a Bank or the Borrower referring to this Agreement, describing such Default or Event of Default and stating that such notice is a “notice of default.” The Agent will notify the Banks of its receipt of any such notice. The Agent shall take such action with respect to such Default or Event of Default as may be directed by the Required Banks in accordance with Article 6; provided, however, that unless and until the Agent has received any such direction, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable or in the best interest of the Banks.

Section 7.08 Indemnification.

Each Bank shall, ratably in accordance with its Percentage, indemnify the Agent, its affiliates and their respective directors, officers, agents and employees (to the extent not reimbursed by the Borrower), pro rata, against any Indemnified Liabilities (except for any such Indemnified Liabilities that result from such indemnitees’ gross negligence or willful misconduct, provided that no action taken in accordance with the direction of the Required Banks shall be deemed to constitute gross negligence or willful misconduct for purposes of this Section).

Section 7.09 Credit Decision.

Each Bank acknowledges that it has, independently and without reliance upon the Agent, its affiliates or any other Bank, and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Bank acknowledges that neither the Agent, its affiliates nor any other Bank has made any representation or warranty to it, and that no act by the Agent hereinafter taken, including any consent to and acceptance of any assignment or review of the affairs of any Obligor or any affiliate thereof, shall be deemed to constitute any representation or warranty by the Agent or its affiliates to any Bank as to any matter, including whether the Agent or its affiliates have disclosed material information in their possession. Each Bank also acknowledges that it will, independently and without reliance upon the Agent, its affiliates or any other Bank, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking any action under the Financing Documents. Except for notices, reports and other documents expressly required to be furnished to the Banks by the Agent herein, the Agent shall not have any duty or responsibility to provide any Bank with any credit or other information concerning the business, prospects, operations, property, financial and other condition or creditworthiness of any of the Obligors or any of their respective Affiliates which may come into the possession of the Agent or its affiliates.

Section 7.10 Successor Agent.

The Agent may resign at any time by giving notice thereof to the Banks and the Borrower. Upon any such resignation, the Required Banks shall have the right, after consultation with the Borrower, to appoint a successor Agent. If no successor Agent shall have been so appointed by the Required Banks, and shall have accepted such appointment, within 30 days after the retiring Agent gives notice of resignation, then the retiring Agent may, on behalf of the Banks, appoint a successor Agent, which shall be a commercial bank organized or licensed under the laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $1,000,000,000. Upon the acceptance of its appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. After any retiring Agent’s resignation hereunder as Agent, the provisions of this Article shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent.

Section 7.11 Additional Agents.

No Bank identified as a “syndication agent”, “documentation agent”, “co-agent” or “lead manager” on the facing page hereof, on the signature pages hereto or otherwise herein shall have any right, power, obligation, liability, responsibility or duty of any kind under the Financing Documents (except those applicable to it in its capacity as a Bank) or any fiduciary relationship with any other Bank.

ARTICLE 8

CHANGE IN CIRCUMSTANCES

Section 8.01 Basis for Determining Interest Rate Inadequate or Unfair.

If on or prior to the first day of any Interest Period for any Fixed Rate Borrowing:

(a) the Agent determines that deposits in dollars (in the applicable amounts) are not being offered in the relevant market for such Interest Period, or

(b) in the case of Euro-Dollar Loans, Banks having 50% or more of the aggregate principal amount of the affected Loans advise the Agent that the Adjusted London Interbank Offered Rate, as determined by the Agent, will not adequately and fairly reflect the cost to such Banks of funding their Euro-Dollar Loans for such Interest Period,

the Agent shall forthwith give notice thereof to the Borrower and the Banks, whereupon until the Agent notifies the Borrower that the circumstances giving rise to such suspension no longer exist, (i) the obligations of the Banks to make Euro-Dollar Loans or to continue or convert outstanding Loans as or into Euro-Dollar Loans shall be suspended and (ii) each outstanding Euro-Dollar Loan shall be converted into a Base Rate Loan on the last day of the then current Interest Period applicable thereto. Unless the Borrower notifies the Agent at least two Domestic Business Days before the date of any Fixed Rate Borrowing for which a Notice of Borrowing has previously been given that it elects not to borrow on such date, (i) if such Fixed Rate Borrowing is a Committed Borrowing, such Borrowing shall instead be made as a Base Rate Borrowing and (ii) if such Fixed Rate Borrowing is a Money Market LIBOR Borrowing, the Money Market LIBOR Loans comprising such Borrowing shall bear interest on the unpaid principal amount thereof for each day from and including the first day to but excluding the last day of the Interest Period applicable thereto at the Base Rate for such day.

Section 8.02 Illegality.

If after the date hereof, the adoption of any applicable law, rule or regulation, or any change in any applicable law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (or its Euro-Dollar Lending Office) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency shall make it unlawful or impossible for any Bank (or its Euro-Dollar Lending Office) to make, maintain or fund its Euro-Dollar Loans and such Bank shall so notify the Agent, the Agent shall forthwith give notice thereof to the other Banks and the Borrower, whereupon until such Bank notifies the Borrower and the Agent that the circumstances giving rise to such suspension no longer exist, the obligation of such Bank to make Euro-Dollar Loans, or to continue or convert outstanding Loans as or into Euro-Dollar Loans, shall be suspended. Before giving any notice to the Agent pursuant to this Section, such Bank shall designate a different Euro-Dollar Lending Office if such designation will avoid the need for giving such notice and will not, in the judgment of such Bank, be otherwise disadvantageous to such Bank. If such notice is given, each Euro-Dollar Loan of such Bank then outstanding shall be converted to a Base Rate Loan either (a) on the last day of the then current Interest Period applicable to such Euro-Dollar Loan if such Bank may lawfully continue to maintain and fund such Loan as a Euro-Dollar Loan to such day or (b) immediately if such Bank shall determine that it may not lawfully continue to maintain and fund such Loan as a Euro-Dollar Loan to such day.

Section 8.03 Increased Cost and Reduced Return.

(a) If after (x) the date hereof, in the case of any Committed Loan or any obligation to make Committed Loans or (y) the date of the related Money Market Quote, in the case of any Money Market Loan, the adoption of any applicable law, rule or regulation, or any change in any applicable law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency, charged with the interpretation or administration thereof, or compliance by any Bank (or its Applicable Lending Office) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency shall impose, modify or deem applicable any reserve (including, without limitation, any such requirement imposed by the Board of Governors of the Federal Reserve System, but excluding with respect to any Euro-Dollar Loan

any such requirement included in an applicable Euro-Dollar Reserve Percentage), special deposit, insurance assessment or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Bank (or its Applicable Lending Office) or shall impose on any Bank (or its Applicable Lending Office) or on the United States market for certificates of deposit or the London interbank market any other condition affecting its Fixed Rate Loans, its Note or its obligation to make Fixed Rate Loans and the result of any of the foregoing is to increase the cost to such Bank (or its Applicable Lending Office) of making or maintaining any Fixed Rate Loan, or to reduce the amount of any sum received or receivable by such Bank (or its Applicable Lending Office) under this Agreement or under its Note, if any, with respect thereto, by an amount deemed by such Bank to be material, then, within 30 days after demand by such Bank (with a copy to the Agent), the Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank for such increased cost or reduction.

(b) If any Bank shall have determined that, after the date hereof, the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change in any such law rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on capital of such Bank (or its Parent) as a consequence of such Bank’s obligations hereunder to a level below that which such Bank (or its Parent) could have achieved but for such adoption, change, request or directive (taking into consideration its policies with respect to capital adequacy) by an amount deemed by such Bank to be material, then from time to time, within 30 days after demand by such Bank (with a copy to the Agent), the Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank (or its Parent) for such reduction.

(c) Each Bank will use its best efforts promptly to notify the Borrower and the Agent of any event of which it has knowledge, occurring after the date hereof, which will entitle such Bank to compensation pursuant to this Section and will designate a different Applicable Lending Office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the judgment of such Bank, be otherwise disadvantageous to such Bank. A certificate of any Bank claiming compensation under this Section and setting forth the additional amount or amounts to be paid to it hereunder shall be conclusive in the absence of manifest error. In determining such amount, such Bank may use any reasonable averaging and attribution methods.

Section 8.04 Taxes.

(a) Any and all payments by the Borrower to or for the account of any Bank or the Agent hereunder or under any Note shall be made free and clear of and without deduction for any and all present or future taxes, duties, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each Bank and the Agent, taxes imposed on its income, and franchise taxes imposed on it, by the jurisdiction under the laws of which such Bank or the Agent (as the case may be) is organized or any political subdivision thereof and, in the case of each Bank, taxes imposed on its income, and franchise or similar taxes imposed on it, by the jurisdiction of such Bank’s Applicable Lending Office or any political subdivision thereof (all such non-excluded taxes, duties, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as “Taxes”). If the Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder or under any Note to any Bank or the Agent, (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 8.04) such Bank or the Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions, (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority, or other authority

in accordance with applicable law and (iv) the Borrower shall furnish to the Agent, at its address referred to in Section 9.01, the original or a certified copy of a receipt evidencing payment thereof.

(b) In addition, the Borrower agrees to pay any present or future stamp or documentary taxes and any other excise or property taxes, or charges or similar levies which arise from any payment made hereunder or under any Note or from the execution or delivery of, or otherwise with respect to, this Agreement or any Note (hereinafter referred to as “Other Taxes”).

(c) The Borrower agrees to indemnify each Bank and the Agent for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed or asserted by any jurisdiction on amounts payable under this Section 8.04) paid by such Bank or the Agent (as the case may be) and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto. This indemnification shall be made within 30 days from the date such Bank or the Agent (as the case may be) makes demand therefor.

(d) Each Bank organized under the laws of a jurisdiction outside the United States (a “Foreign Bank”), on or prior to the date of its execution and delivery of this Agreement in the case of each Bank listed on the signature pages hereof and on or prior to the date on which it becomes a Bank in the case of each other Bank, and from time to time thereafter if requested in writing by the Borrower (but only so long as such Bank remains lawfully able to do so), shall provide the Borrower with (i) Internal Revenue Service Form W-8 BEN or W-8 ECI, as appropriate, or any successor form prescribed by the Internal Revenue Service, certifying that such Bank is entitled to benefits under an income tax treaty to which the United States is a party which reduces the rate of withholding tax on payments of interest or certifying that the income receivable pursuant to this Agreement is effectively connected with the conduct of a trade or business in the United States, (ii) Internal Revenue Service Form W-8 or W-9, as appropriate, or any successor form prescribed by the Internal Revenue Service, and/or (iii) any other form or certificate required by any taxing authority (including any certificate required by Sections 871(h) and 881(c) of the Internal Revenue Code, including, without limitation, in the case of Section 881(c) of the Internal Revenue Code, a certificate that such Bank (i) is not a “bank” under Section 881(c)(3)(A) of the Internal Revenue Code, (ii) is not a 10-percent shareholder within the meaning of Section 881(c)(3)(B) of the Internal Revenue Code and (iii) is not a controlled foreign corporation receiving interest from a related person within the meaning of Section 881(c)(3)(C) of the Internal Revenue Code), certifying that such Bank is entitled to an exemption from tax on payments pursuant to this Agreement or any of the other Financing Documents. If the form provided by a Bank at the time such Bank first becomes a party to this Agreement indicates a United States interest withholding tax rate in excess of zero, withholding tax at such rate shall be considered excluded from “Taxes” as defined in Section 8.04(a).

(e) For any period with respect to which a Bank has failed to provide the Borrower with the appropriate form pursuant to Section 8.04(d) (unless such failure is due to a change in treaty, law or regulation, or any change in the interpretation or administration thereof by any governmental authority, occurring subsequent to the date on which a form originally was required to be provided), such Bank shall not be entitled to indemnification under Section 8.04(a) with respect to Taxes imposed by the United States; provided that should a Bank, which is otherwise exempt from or subject to a reduced rate of withholding tax, become subject to Taxes because of its failure to deliver a form required hereunder, the Borrower shall take such steps as such Bank shall reasonably request to assist such Bank to recover such Taxes.

(f) If the Borrower is required to pay additional amounts to or for the account of any Bank pursuant to this Section 8.04, then such Bank will change the jurisdiction of its Applicable Lending Office so as to eliminate or reduce any such additional payment which may thereafter accrue if such change, in the judgment of such Bank, is not otherwise disadvantageous to such Bank.

Section 8.05 Base Rate Loans Substituted for Affected Fixed Rate Loans.

(a) If (i) the obligation of any Bank to make, or continue or convert outstanding Loans as or into, Euro-Dollar Loans has been suspended pursuant to Section 8.02 or (ii) any Bank has demanded compensation under Section 8.03 or 8.04 with respect to its Euro-Dollar Loans and the Borrower shall, by at least five Euro-Dollar Business Days’ prior notice to such Bank through the Agent, have elected that the provisions of this Section 8.05(a) shall apply to such Bank, then, unless and until such Bank notifies the Borrower that the circumstances giving rise to such suspension or demand for compensation no longer exist, all Loans which would otherwise be made by such Bank as (or continued as or converted into) Euro-Dollar Loans shall be made instead as Base Rate Loans (on which interest and principal shall be payable contemporaneously with the related Fixed Rate Loans of the other Banks). If such Bank notifies the Borrower that the circumstances giving rise to such notice no longer exist, the principal amount of each such Base Rate Loan shall be converted into a Euro-Dollar Loan on the first day of the next succeeding Interest Period applicable to the related Euro-Dollar Loans of the other Banks.

(b) If (i) any Bank has demanded compensation under Section 8.03 with respect to its Euro-Dollar Loans or (ii) the Borrower has become obligated to pay any Taxes or other amounts to or for the account of any Bank pursuant to Section 8.04, and the Borrower shall, by at least five Euro-Dollar Business Days’ prior notice to the Banks through the Agent, have elected that the provisions of this Section 8.05(b) shall apply to all of the Banks, then the Borrower shall, on the fifth Euro-Dollar Business Day following such notice, prepay in full the then outstanding principal amount of each outstanding Euro-Dollar Loan of each Bank, together with accrued interest thereon.

Section 8.06 Substitution of Banks.

If (i) any Bank has demanded compensation under Section 8.03 or (ii) the Borrower has become obligated to pay any Taxes or other amounts to or for the account of any Bank pursuant to Section 8.04 (such Bank, in either case, being called a “Selling Bank”), the Borrower shall have the right, with the assistance of the Agent, to seek one or more banks or other institutions satisfactory to the Borrower and the Agent (collectively, the “Purchasing Banks”) willing to purchase the Selling Bank’s Note and its share of any unpaid Reimbursement Obligations and assume the Commitment of the Selling Bank, all on the terms specified in this Section 8.06. The Selling Bank shall be obligated to sell its Note and its share of any unpaid Reimbursement Obligations to such Purchasing Bank or Banks (which may include one or more of the Banks) within 15 days after receiving notice from the Borrower requiring it to do so, at an aggregate price equal to the outstanding principal amount thereof, plus unpaid interest accrued thereon to but excluding the date of sale. In connection with any such sale, and as a condition thereof, the Borrower shall pay to the Selling Bank all fees accrued for its account hereunder to but excluding the date of such sale, plus, if demanded by the Selling Bank at least two Domestic Business Days prior to such sale, (i) the amount of any compensation which would be due to the Selling Bank under Section 2.14 if the Borrower had prepaid the outstanding Fixed Rate Loans of the Selling Bank on the date of such sale and (ii) any additional compensation, Taxes or other amounts accrued for its account under Section 8.03 or 8.04, as applicable, to but excluding, said date (it being understood that the Selling Bank shall retain its right to be compensated after the date of such sale for any such accrued amounts remaining unpaid). Upon such sale, the Purchasing Bank or Banks shall assume the Commitment of the Selling Bank, and the Selling Bank shall be released from its obligations hereunder to a corresponding extent. If any Purchasing Bank is not already one of the Banks, the Selling Bank, as assignor, such Purchasing Bank, as assignee, the Borrower and the Agent shall enter into an assignment and assumption agreement substantially in the form of Exhibit E hereto, whereupon such Purchasing Bank shall be a Bank party to this Agreement, shall be deemed to be an Assignee hereunder and shall have all the rights and obligations of a Bank with a Commitment equal to its ratable share of the Commitment of the Selling Bank. Upon the consummation

of any sale pursuant to this Section 8.06, the Selling Bank, the Agent and the Borrower shall make appropriate arrangements so that, if required, each Purchasing Bank receives a new Note. If the Selling Bank is also an LC Issuing Bank, its obligation to issue or extend Letters of Credit (or permit an automatic extension of an “evergreen” Letter of Credit) shall terminate concurrently with such sale and its status as an LC Issuing Bank (but not its right to indemnification hereunder) shall terminate when the LC Liabilities relating to all Letters of Credit issued by it have been reduced to zero.

ARTICLE 9

MISCELLANEOUS

Section 9.01 Notices.

All notices, requests and other communications to any party hereunder shall be in writing (including bank wire, telex, facsimile transmission or similar writing) and shall be given to such party (a) in the case of the Borrower, at its address or telex number or facsimile number set forth on the signature pages hereof, (b) in the case of the Agent and the Banks, at its address or telex number of facsimile number set forth on Schedule 3 or (c) in the case of any party, at such other address or telex number or facsimile number as such party may hereafter specify for the purpose by notice to the Agent and the Borrower. Each such notice, request or other communication shall be effective (i) if given by telex, when such telex is transmitted to the telex number specified in this Section and the appropriate answerback is received, (ii) if given by facsimile transmission, when such facsimile is transmitted to the facsimile transmission number specified in or pursuant to this Section 9.01 and telephonic confirmation of receipt thereof is received, (iii) if given by mail, 72 hours after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid or (iv) if given by any other means, when delivered at the address specified in this Section; provided that notices to the Agent or the LC Issuing Banks under Article 2 or Article 8 shall not be effective until received.

Section 9.02 No Waivers.

No failure or delay by the Agent, any Bank or any LC Issuing Bank in exercising any right, power or privilege under any Financing Document shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law.

Section 9.03 Expenses; Indemnification.

(a) The Borrower shall pay (i) all out-of-pocket expenses of the Agent, including fees and disbursements of special counsel for the Agent, in connection with the preparation and administration of the Financing Documents, any waiver or consent thereunder or any amendment thereof or any Default thereunder or any event or condition reasonably alleged by any Bank to be a possible Default thereunder and (ii) if an Event of Default occurs, all out-of-pocket expenses incurred by the Agent and each Bank, including fees and disbursements of counsel, in connection with such Event of Default and collection, bankruptcy, insolvency and other enforcement proceedings resulting therefrom.

(b) The Borrower agrees to indemnify the Agent, each Co-Agent and each Bank, their respective affiliates and the respective directors, officers, agents and employees of the foregoing (each an “Indemnitee”) and hold each Indemnitee harmless from and against any and all liabilities, losses, damages, costs and expenses of any kind, including, without limitation, the reasonable fees and disbursements of counsel, which may be incurred by such Indemnitee in connection with any

investigative, administrative or judicial proceeding (whether or not such Indemnitee shall be designated a party thereto) brought or threatened relating to or arising out of the Financing Documents (other than the provisions thereof relating to Letters of Credit as to which indemnification is provided in Section 2.16(m)) or any actual or proposed use of proceeds of Loans hereunder; provided that no Indemnitee shall have the right to be indemnified hereunder for such Indemnitee’s own gross negligence or willful misconduct as determined by a court of competent jurisdiction.

Section 9.04 Set-Off; Sharing of Set-offs.

Each Bank agrees that if it shall, by exercising any right of set-off or counterclaim or otherwise, receive (i) payment of a proportion of the aggregate amount of principal and interest due with respect to any Note held by it which is greater than the proportion received by any other Bank in respect of the aggregate amount of principal and interest due with respect to any Note held by such other Bank or (ii) payment of a proportion of its participation in the LC Liabilities which is greater that the proportion received by any other Bank in respect of its participation in the LC Liabilities, the Bank receiving such proportionately greater payment shall purchase such participations in the Notes or the LC Liabilities (as the case may be) held by the other Banks, and such other adjustments shall be made, as may be required so that all such payments of principal and interest with respect to the Notes held by the Banks shall be shared by the Banks pro rata and all such payments with respect to the LC Liabilities shall be shared pro rata by the Banks participating therein; provided that nothing in this Section shall impair the right of any Bank to exercise any right of set-off or counterclaim it may have and to apply the amount subject to such exercise to the payment of indebtedness of the Borrower other than its indebtedness under the Notes and the LC Liabilities. The Borrower agrees, to the fullest extent it may effectively do so under applicable law, that any holder of a participation in a Note or the LC Liabilities, whether or not acquired pursuant to the foregoing arrangements, may exercise rights of set-off or counterclaim and other rights with respect to such participation as fully as if such holder of a participation were a direct creditor of the Borrower in the amount of such participation.

Section 9.05 Amendments and Waivers.

Any provision of this Agreement or the Notes may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Borrower and the Required Banks (and, if the rights or duties of the Agent or any LC Issuing Bank are affected thereby, by the Agent or such LC Issuing Bank, as the case may be); provided that no such amendment or waiver shall, unless signed by all the Banks directly affected thereby, (i) increase the Commitment of any Bank over the amount then in effect (it being understood and agreed that a waiver of any Default or Event of Default shall not constitute an increase in any Commitment of any Bank), (ii) reduce the principal of, or rate of interest on, any Loan or any Reimbursement Obligation, or of any fees hereunder (other than as a result of waiving the applicability of any post-Default increase in interest rates or fees), (iii) postpone the date fixed for any payment of principal of or interest on any Loan, any Reimbursement Obligation or any fees hereunder or for any termination of any Commitment, (iv) amend this Section or modify the definition of Required Banks or otherwise change the percentage of the Commitments, the Outstanding Credit Exposures or the Outstanding LC Exposures or of the aggregate unpaid principal amount of the Notes which shall be required for the Banks or any of them to take any action under this Section or any other provision of the Financing Documents, (v) change the manner of application of any payments made under this Agreement or the Notes or (vi) amend, modify or waive any provision of Section 2.18, 9.03, 9.04 or 9.12.

Section 9.06 Successors and Assigns.

(a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the Borrower may not assign or

otherwise transfer any of its rights under this Agreement or the Notes, if any, without the prior written consent of all Banks.

(b) Any Bank may at any time, grant to one or more banks or other institutions (each a “Participant”) participating interests in its Commitment or any or all of its Loans or its Outstanding LC Exposure. In the event of any such grant by a Bank of a participating interest to a Participant, such Bank shall remain responsible for the performance of its obligations hereunder, and the Borrower and the Agent shall continue to deal solely and directly with such Bank in connection with such Bank’s rights and obligations under this Agreement. Any agreement pursuant to which any Bank may grant such a participating interest shall provide that such Bank shall retain the sole right and responsibility to enforce the obligations of the Borrower hereunder including, without limitation, the right to approve any amendment, modification or waiver of any provision of this Agreement; provided that such participation agreement may provide that such Bank will not agree to any modification, amendment or waiver of this Agreement described in clause (i), (ii) or (iii) of Section 9.05 without the consent of the Participant. The Borrower agrees that each Participant shall, to the extent provided in its participation agreement and subject to subsection (e) of this Section 9.06, be entitled to the benefits of Article 8 with respect to its participating interest to the same extent as if it were a Bank hereunder.

(c) Any Bank may at any time assign to one or more banks or other institutions (each an “Assignee”) all, or, subject to the next sentence, a proportionate part of all, of its rights and obligations under this Agreement and the Notes, if any, held by such Bank and such Assignee shall assume such rights and obligations, pursuant to an Assignment and Assumption Agreement in substantially the form of Exhibit E hereto (an “Assignment and Assumption Agreement”) executed by such Assignee and such transferor Bank, with (and subject to) the subscribed consent of the Borrower (which shall not be unreasonably withheld) and the Agent; provided that (i) if an Assignee is another Bank, an affiliate of such transferor Bank or an Approved Fund, the consent of the Borrower and the Agent shall not be required and (ii) if an Event of Default has occurred and is continuing, the consent of the Borrower shall not be required; and provided further that such assignment may, but need not, include rights of the transferor Bank in respect of outstanding Money Market Loans. No assignment of only a proportionate part of the rights and obligations of a Bank under this Agreement and the Notes, if any, held by such Bank may be made unless each of (i) the part assigned (i.e., the “Assigned Amount” set forth in the related Assignment and Assumption Agreement) and (ii) the part retained by the transferor Bank equals or exceeds $10,000,000. Upon execution and delivery to the Agent of an Assignment and Assumption Agreement and payment by such Assignee to such transferor Bank of an amount equal to the purchase price agreed between such transferor Bank and such Assignee, such Assignee shall be a Bank party to this Agreement and shall have all the rights and obligations of a Bank with a Commitment as set forth in such Assignment and Assumption Agreement, and the transferor Bank shall be released from its obligations hereunder to a corresponding extent, and no further consent or action by any party shall be required. Upon the consummation of any assignment pursuant to this subsection (c), the transferor Bank, the Agent and the Borrower shall make appropriate arrangements so that, if required, a new Note is issued to the Assignee. In connection with any such assignment, the transferor Bank shall pay to the Agent an administrative fee for processing such assignment in the amount of $3,500. If the Assignee is not incorporated under the laws of the United States of America or a state thereof, it shall deliver to the Borrower and the Agent certification as to exemption from deduction or withholding of any United States Federal income taxes in accordance with Section 8.04.

(d) Any Bank may at any time pledge or assign all or any portion of its rights under this Agreement and its Note to a Federal Reserve Bank. No such assignment shall release the transferor Bank from its obligations hereunder.

(e) No Assignee, Participant or other transferee of any Bank’s rights shall be entitled to receive any greater payment under Section 8.03 or 8.04 than such Bank would have been entitled to receive with respect to the rights transferred, unless such transfer is made with the Borrower’s prior written consent or by reason of the provisions of Section 8.02, 8.03 or 8.04 requiring such Bank to designate a different Applicable Lending Office under certain circumstances or at a time when the circumstances giving rise to such greater payment did not exist.

(f) The Agent, acting solely for this purpose as an agent of the Borrower, shall maintain at its office in Charlotte, North Carolina a copy of each Assignment and Assumption Agreement delivered to it and a register for the recordation of the names and addresses of the Banks, and the Commitments of, and principal amount of the Loans and LC Liabilities owing to, each Banks pursuant to the terms hereof from time to time (the “Register”). The entries in the Register shall be conclusive, and the Borrower, the Agent and the Banks may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Bank hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrower and any Agent, at any reasonable time and from time to time upon reasonable prior notice.

(g) Notwithstanding anything to the contrary contained herein, if at any time Bank of America assigns all of its Commitment and Loans pursuant to subsection (c) above and resigns as Agent pursuant to Section 7.10, Bank of America may, upon five (5) Domestic Business Days’ notice to the Borrower, resign as Swingline Bank. In the event of any such resignation as Swingline Bank, the Borrower shall be entitled to appoint from among the Banks a successor Swingline Bank hereunder; provided, however, that no failure by the Borrower to appoint any such successor shall affect the resignation of Bank of America as Swingline Bank. If Bank of America resigns as Swingline Bank, it shall retain all the rights of the Swingline Bank provided for hereunder with respect to Swingline Loans made by it and outstanding as of the effective date of such resignation, including the right to require the Banks to make Base Rate Loans or fund participations in outstanding Swingline Loans pursuant to Section 2.04(f).

Section 9.07 Collateral.

Each of the Banks represents to the Agent and each of the other Banks that it in good faith is not relying upon any “margin stock” (as defined in Regulation U) as collateral in the extension or maintenance of the credit provided for in this Agreement.

Section 9.08 Governing Law; Submission to Jurisdiction.

This Agreement and each Note shall be governed by and construed in accordance with the laws of the State of New York. The Borrower hereby submits to the nonexclusive jurisdiction of the United States District Court for the Southern District of New York and of any New York State court sitting in New York City for purposes of all legal proceedings arising out of or relating to the Financing Documents or the transactions contemplated thereby. The Borrower irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum.

Section 9.09 Counterparts; Integration.

This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This

Agreement constitutes the entire agreement and understanding among the parties hereto and supersedes any and all prior agreements and understandings, oral or written, relating to the subject matter hereof.

Section 9.10 Waiver of Jury Trial.

EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY AND IRREVOCABLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER ANY LOAN DOCUMENT OR IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO ANY LOAN DOCUMENT, OR THE TRANSACTIONS RELATED THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER FOUNDED IN CONTRACT OR TORT OR OTHERWISE; AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE SIGNATORIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.

Section 9.11 Confidentiality.

The Agent, each LC Issuing Bank and each Bank agrees to keep confidential this Agreement and any proprietary or financial information obtained by the Agent, such LC Issuing Bank or such Bank, as the case may be, based on a review of the books and records of the Borrower or any Subsidiary pursuant to Section 5.06 and any other information to the extent such information has been stated by the Borrower to be confidential; provided that nothing herein shall prevent the Agent, any LC Issuing Bank or any Bank from disclosing this Agreement or such information (i) to the Agent, any LC Issuing Bank or any other Bank in connection with the transactions contemplated by the Financing Documents, (ii) to the officers, directors, employees, agents, attorneys and accountants of such party and its affiliates who have a need to know such information in accordance with customary banking practices and who receive such information having been made aware of the restrictions set forth in this Section, (iii) upon the order of any court or administrative agency, (iv) upon the requests or demand of any regulatory agency or authority having jurisdiction over such party, (v) which has been publicly disclosed, (vi) which has been obtained from any Person other than the Borrower and its Subsidiaries, provided that such Person is not known to it to be bound by a confidentiality agreement with the Borrower or its Subsidiaries or known to it to be otherwise prohibited from transmitting the information to it by a contractual, legal or fiduciary obligation, (vii) in connection with the exercise of any remedy under the Financing Documents or (viii) to any actual or proposed participant or assignee of all or any of its rights under the Financing Documents, provided that such proposed participant or assignee shall have agreed in writing, for the benefit of the Borrower as a third-party beneficiary, to be bound by the provisions of this Section.

Section 9.12 Survival.

All indemnities set forth herein, including, without limitation, in Section 2.14, 2.16(m), 2.16(n), 7.08, 8.03, 8.04 or 9.03 shall survive the execution and delivery of this Agreement, the making of the Loans, the issuance of the Letters of Credit, the repayment of the Loans, LC Liabilities and other obligations under the Financing Documents and the termination of the Commitments hereunder.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written

BORROWER:		CNF INC., a Delaware corporation

		By:
		Name: Title:

		3240 Hillview Avenue Palo Alto, California 94304 Facsimile number: (415) 813-0158 Telephone number: (415) 813-5321

ADMINISTRATIVE AGENT:		BANK OF AMERICA, N.A., in its capacity as Agent

		By:
		Name: Title:

		Operations Contact: Bank of America, N.A. 901 Main Street, 14^th Floor Dallas, Texas 75202 Attn: Marija Salic Telephone: 214-209-0592 Facsimile: 214-290-9417

		Credit Contact: Bank of America, N.A. 231 South LaSalle Street Chicago, IL 60697 Attn: Charles A. McDonell Telephone: 312-828-6225 Facsimile: 312-974-8811


BANKS:		BANK OF AMERICA, N.A.,

		By:
		Name: Title:

		PNC BANK

		By:
		Name: Title:

		U.S. BANK NATIONAL ASSOCIATION

		By:
		Name: Title:

		MELLON BANK, N.A.

		By:
		Name: Title:

		ABN AMRO BANK N.V.

		By:
		Name: Title:

		THE CHASE MANHATTAN BANK

		By:
		Name: Title:

		THE BANK OF NEW YORK

		By:
		Name: Title:


		DEUTSCHE POSTBANK AG

		By:
		Name: Title:

		CITICORP USA, INC.

By:

Name:

Title:

SCHEDULE 1

COMMITMENT SCHEDULE

BANK	COMMITMENT
BANK OF AMERICA, N.A.	$	50,000,000
PNC BANK	$	40,000,000
U.S. BANK NATIONAL ASSOCIATION	$	35,000,000
MELLON BANK, N.A.	$	25,000,000
ABN AMRO BANK N.V.	$	50,000,000
THE CHASE MANHATTAN BANK	$	50,000,000
THE BANK OF NEW YORK	$	25,000,000
DEUTSCHE POSTBANK AG	$	25,000,000
CITICORP USA, INC.	$	50,000,000

TOTAL	$	350,000,000

SCHEDULE 2

PRICING SCHEDULE

Each of “Facility Fee Rate”, “Utilization Fee Rate” and “Euro-Dollar Margin” means, for any day, the rate set forth below in the row opposite such term and in the column corresponding to the Pricing Level that applies for such day:

Pricing Level	Level I		Level II		Level III		Level IV		Level V
Facility Fee Rate	0.125	%	0.150	%	0.200	%	0.250	%	0.375	%
Utilization Fee Rate	0.125	%	0.125	%	0.000	%	0.000	%	0.000	%
Euro-Dollar Margin	0.625	%	0.725	%	1.050	%	1.250	%	1.375	%

For purposes of this Schedule, the following terms have the following meanings:

“Level I Pricing” applies for any day if, on such day, the Borrower’s long-term debt is rated BBB+ or higher by S&P or Baa1 or higher by Moody’s.

“Level II Pricing” applies for any day if, on such day, (i) the Borrower’s long-term debt is rated BBB or higher by S&P or Baa2 or higher by Moody’s and (ii) Level I Pricing does not apply.

“Level III Pricing” applies for any day if, on such day, (i) the Borrower’s long-term debt is rated BBB- or higher by S&P or Baa3 or higher by Moody’s and (ii) neither Level I Pricing nor Level II Pricing applies.

“Level IV Pricing” applies for any day if, on such day, (i) the Borrower’s long-term debt is rated BB+ or higher by S&P or Ba1 or higher by Moody’s and (ii) neither Level I Pricing, Level II Pricing nor Level III Pricing applies.

“Level V Pricing” applies for any day if, on such day, (i) the Borrower’s long-term debt is rated BB or lower by S&P or Ba2 or lower by Moody’s or (ii) the Borrower’s long-term debt is not rated by either S&P or Moody’s.

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

“Pricing Level” refers to the determination of which of Level I, Level II, Level III, Level IV or Level V Pricing applies for a day.

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

The credit ratings to be utilized for purposes of this Schedule are those assigned to the senior unsecured long-term debt securities of the Borrower without third-party credit enhancement, and any rating assigned to any other debt security of the Borrower shall be disregarded. The ratings in effect for any day are those in effect at the close of business on such day. In the case of split ratings from S&P and Moody’s, the rating to be used to determine the applicable Pricing Level is the higher of the two (e.g.,

BBB/Baal results in Level I Pricing): provided that if the split is more than one full rating category, the intermediate (or the higher of the two intermediate ratings) will be used (e.g., BBB+/Baa3 results in Level II Pricing and A-/Baa3 results in Level I Pricing).

SCHEDULE 3

NOTICE ADDRESSES

Bank	Operations Contact	Credit Contact
Bank of America, N.A.	Bank of America, N.A. 901 Main Street, 14th Floor Dallas, Texas 75202 Attn: Marija Salic Telephone: 214-209-0592 Facsimile: 214-290-9417	Bank of America, N.A. 231 South LaSalle Street Chicago, IL 60697 Attn: Charles A. McDonell Telephone: 312-828-6225 Facsimile: 312-974-8811

PNC Bank	PNC Bank Firstside Center 500 First Avenue, 4th Floor Pittsburgh, PA 15219 Attn: Karen Bayer Telephone: 412-768-7630 Facsimile: 412-768-4586	PNC Bank One PNC Plaza 249 Fifth Avenue Pittsburgh, PA 15222 Attn: Richard Seymour Telephone: 412-762-2480 Facsimile: 412-762-5485

Citicorp USA, Inc.	Citicorp USA, Inc. 2 Penn’s Way, Suite 200 New Castle, DE 19720 Attn: Lee Z. Ocasio Telephone: 302-894-6065 Facsimile: 302-894-6120	Citicorp USA, Inc. 787 W. 5th Street Los Angeles, CA 90071 Attn: Walter Larsen Telephone: 213-239-1501 Facsimile: 213-623-3592

U.S. Bank National Association	U.S. Bank National Association 555 SW Oak Street, PL0631 Portland, OR 97204 Attn: David Richoux Telephone: 503-275-4560 Facsimile: 503-275-4600	U.S. Bank National Association 555 SW Oak Street, PL40529A Portland, OR 97204 Attn: Aaron J. Gordon Telephone: 503-275-6738 Facsimile: 503-275-5428

Mellon Bank, N.A.	Mellon Bank, N.A. Three Mellon Bank Center, Rm 1204 Pittsburgh, PA 15259 Attn: Emma Borza Telephone: 412-234-7365 Facsimile: 412-209-6122	Mellon Bank, N.A. 400 S. Hope Street, 5th Floor Los Angeles, CA 90071 Attn: John N. Cate Telephone: 213-553-9561 Facsimile: 213-629-0492

ABN AMRO Bank N.V.	ABN AMRO Bank N.V. 208 South LaSalle St., Ste 1500 Chicago, IL 60604-1003 Attn: Loan Administration Telephone: 312-992-5152 Facsimile: 312-992-5157	ABN AMRO Bank N.V. 101 California Street, 45th Floor San Francisco, CA 94111-5812 Attn: Jim Redmond Telephone: 415-984-3700 Facsimile: 415-362-3524

The Chase Manhattan Bank	The Chase Manhattan Bank 1 Chase Manhattan Plaza, 8th Floor New York, NY 10081 Attn: May Fong Telephone: 212-552-7314 Facsimile: 212-552-5650	The Chase Manhattan Bank 270 Park Avenue, 48th Floor New York, NY 10017 Attn: Karen Sharf Telephone: 212-270-5659 Facsimile: 212-270-5127

Bank	Operations Contact	Credit Contact

The Bank of New York	The Bank of New York One Wall Street, 22nd Floor New York, NY 10005 Attn: Dawn Hertling Telephone: 212-635-6742 Facsimile: 212-635-6399	The Bank of New York 10990 Wilshire Blvd., Ste 1125 Los Angeles, CA 90024 Attn: Elizabeth T. Ying Telephone: 310-996-8661 Facsimile: 310-996-8667

Deutsche Postbank AG	Deutsche Postbank AG Luxembourg Branch International Finance Postfach 11 21 L—2966 Luxemburg-Senningerberg Attn: Thomas Pfleger Telephone: (0 03 52) 34 95 31 250 Facsimile: (0 03 52) 34 95 32 666	Deutsche Postbank AG Luxembourg Branch International Finance Postfach 11 21 L—2966 Luxemburg-Senningerberg Attn: Thomas Pfleger Telephone: (0 03 52) 34 95 31 250 Facsimile: (0 03 52) 34 95 32 666

EXHIBIT A

FORM OF NOTE

July 3, 2001

For value received, CNF INC., a Delaware corporation (the “Borrower”), promises to pay to the order of , it successors and assigns (the “Bank”), for the account of its Applicable Lending Office, the unpaid principal amount of each Loan made by the Bank to the Borrower pursuant to the Credit Agreement referred to below on the maturity date provided for in the Credit Agreement. The Borrower promises to pay interest on the unpaid principal amount of each such Loan on the dates and at the rate or rates provided for in the Credit Agreement. All such payments of principal and interest shall be made in lawful money of the United States in Federal or other immediately available funds at the office of the Agent provided in the Credit Agreement.

All Loans made by the Bank, the respective types thereof and all repayments of the principal thereof shall be recorded by the Bank on the account or accounts maintained by the Bank in accordance with Section 2.05(d)(i) of the Credit Agreement; provided that the failure of the Bank to make any such recordation or endorsement, or any error in the making thereof, shall not affect the obligations of the Borrower hereunder or under the Credit Agreement.

This note is one of the Notes referred to in the Credit Agreement (as amended, modified, supplemented and extended, the “Credit Agreement”) dated as of July 3, 2001 among the Borrower, the Banks party thereto, and Bank of America, N.A., as Agent. Terms defined in the Credit Agreement are used herein with the same meanings. Reference is made to the Credit Agreement for provisions for the prepayment hereof and the acceleration of the maturity hereof.

Payment of principal and interest on this Note is unconditionally guaranteed by the Subsidiary Guarantors pursuant to the Subsidiary Guaranty Agreement, subject to the limitations contained therein.

This Note shall be governed by, and construed and interpreted in accordance with, the law of the State of New York.

IN WITNESS WHEREOF, the Borrower has caused this Note to be duly executed by its duly authorized officer as of the day and year first above written.

CNF INC., a Delaware corporation

By:

Name:

Title:

A-1

EXHIBIT B

FORM OF MONEY MARKET QUOTE REQUEST

[Date]

To:		Bank of America, N.A., as Agent (the “Agent”)

From:		CNF Inc. (the “Borrower”)

Re		Credit Agreement (as amended, modified, supplemented and extended, the “Credit Agreement”) dated as of July 3, 2001 among the Borrower, the Banks party thereto and the Agent

We hereby give notice pursuant to Section 2.03 of the Credit Agreement that we request Money Market Quotes for the following proposed Money Market Borrowing(s)

Date of Borrowing:

Principal Amount:^*

Interest Period:^**

Such Money Market Quotes should offer a Money Market [Margin] [Absolute Rate]. [The applicable base rate is the London Interbank Offered Rate.]

Terms used herein have the meanings assigned to them in the Credit Agreement.

CNF INC., a Delaware corporation

By:

Name:

Title:

* Amount must be $10,000,000 or a larger multiple of $1,000,000.

^**

Not less than one week (LIBOR Auction) or not less than 7 days (Absolute Rate Auction), subject to the provisions of the definition of Interest Period.

B-1

EXHIBIT C

FORM OF INVITATION FOR MONEY MARKET QUOTES

[Date]

To:		[Name of Bank]

Re:		Invitation for Money Market Quotes to CNF Inc. (the “Borrower”)

Pursuant to Section 2.03 of the Credit Agreement dated as of July 3, 2001 among the Borrower, the Banks party thereto and Bank of America, N.A., as Agent, we are pleased on behalf of the Borrower to invite you to submit Money Market Quotes to the Borrower for the following proposed Money Market Borrowing(s).

Date of Borrowing:

Principal Amount:

Interest Period:

Such Money Market Quotes should offer a Money Market [Margin] [Absolute Rate]. [The applicable base rate is the London Interbank Offered Rate.]

Please respond to this invitation by no later than [2:00 P.M.] [10:15 A.M.] (New York City time) on [date].

BANK OF AMERICA, N.A., as Agent

By:

Name:

Title:

C-1

EXHIBIT D

FORM OF MONEY MARKET QUOTE

To:	Bank of America, N.A., as Agent

Re:	Money Market Quote to CNF Inc. (the “Borrower”)

In response to your invitation on behalf of the Borrower dated , 200 , we hereby make the following Money Market Quote on the following terms:

1.	Quoting Bank:

2.	Person to contact at Quoting Bank:

3.	Date of Borrowing: *

4.	We hereby offer to make Money Market Loan(s) in the following principal amounts, for the following Interest Periods and at the following rates:

Principal Amount**

Interest Period***

Money Market [Margin****]

[Absolute Rate]*****

[Provided, that the aggregate principal amount of Money Market Loans for which the above offers may be accepted shall not exceed $ .]^**

* As specified in the related Invitation.

** Principal amount bid for each Interest Period may not exceed principal amount requested. Specify aggregate limitation if the sum of the individual offers exceeds the amount the Bank is willing to lend. Bids must be made for $5,000,000 or a larger integral multiple of $1,000,000.

*** Not less than one week or not less than 7 days, as specified in the related Invitation. No more than five bids are permitted for each Interest Period.

**** Margin over or under the London Interbank Offered Rate determined for the applicable Interest Period. Specify percentage (to the nearest 1/10,000 of 1%) and specify whether “PLUS” or “MINUS”.

***** Specify rate of interest per annum (to the nearest 1/10,000 of 1%).

D-1

We understand and agree that the offer(s) set forth above, subject to the satisfaction of the applicable conditions set forth in the Credit Agreement dated as of July 3, 2001 among the Borrower, the Banks party thereto and Bank of America, N.A., as Agent, irrevocably obligates us to make the Money Market Loan(s) for which any offer(s) are accepted, in whole or in part.

Very truly yours,

[NAME OF BANK]

Dated

By:

Name:

Title:

D-2

EXHIBIT E

ASSIGNMENT AND ASSUMPTION AGREEMENT

AGREEMENT dated as of , 200 between [ASSIGNOR] (the “Assignor”) and [ASSIGNEE] (the “Assignee”).

WHEREAS, this Assignment and Assumption Agreement (the “Agreement”) relates to the Credit Agreement (as amended, modified, supplemented and extended, the “Credit Agreement”) dated as of July 3, 2001 among the Borrower, the Assignor and the other Banks party thereto and Bank of America, N.A., as Agent;

WHEREAS, as provided under the Credit Agreement, the Assignor has a Commitment in the amount of $ to make Loans to the Borrower and to participate in Letters of Credit issued at the request of the Borrower;

WHEREAS, Committed Loans made to the Borrower by the Assignor under the Credit Agreement are outstanding on the date hereof, and participations by the Assignor in Letters of Credit issued by the LC Issuing Banks at the request of the Borrower under the Credit Agreement are outstanding on the date hereof, in the amounts of $ and $ respectively; and

WHEREAS, the Assignor proposes to assign to the Assignee all of the rights of the Assignor under the Credit Agreement in respect of a portion of its Commitment thereunder in an amount equal to $ (the “Assigned Amount”), together with a corresponding portion of its outstanding Committed Loans and its participations in outstanding Letters of Credit, and the Assignee proposes to accept assignment of such rights and assume the corresponding obligations from the Assignor on such terms;

NOW, THEREFORE, in consideration of the foregoing and the mutual agreements contained herein, the parties hereto agree as follows:

SECTION 1. Definitions. All capitalized terms not otherwise defined herein have the respective meanings set forth in the Credit Agreement.

SECTION 2. Assignment. The Assignor hereby assigns and sells to the Assignee all of the rights of the Assignor under the Credit Agreement to the extent of the Assigned Amount, and the Assignee hereby accepts such assignment from the Assignor and assumes all of the obligations of the Assignor under the Credit Agreement to the extent of the Assigned Amount, including the purchase from the Assignor of the corresponding portion of the principal amount of the Committed Loans made by the Assignor and participations in Letters of Credit of the Assignor outstanding at the date hereof. Upon the execution and delivery hereof by the Assignor, the Assignee, the Borrower and the Agent and the payment of the amounts specified in Section 3 required to be paid on the date hereof (i) the Assignee shall, as of the date hereof, succeed to the rights and be obligated to perform the obligations of a Bank under the Credit Agreement with a Commitment in an amount equal to the Assigned Amount, holding Committed Loans and participations in Letters of Credit in amounts corresponding to the Assigned Amount, and (ii) the Commitment, Committed Loans and Letter of Credit participations of the Assignor shall, as of the date hereof, be reduced by corresponding amounts and the Assignor released from its obligations under the Credit Agreement to the extent such obligations have been assumed by the Assignee. The assignment provided for herein shall be without recourse to the Assignor.

SECTION 3. Payments. As consideration for the assignment and sale contemplated in Section 2 hereof, the Assignee shall pay to the Assignor on the date hereof in Federal funds the amount

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heretofore agreed between them.* It is understood that facility fees, utilization fees and Letter of Credit commissions accrued to the date hereof are for the account of the Assignor and such fees and commissions accruing on and after the date hereof are for the account of the Assignee. Each of the Assignor and the Assignee hereby agrees that if it receives any amount under the Credit Agreement which is for the account of the other party hereto, it shall receive the same for the account of such other party to the extent of such other party’s interest therein and shall promptly pay the same to such other party.

SECTION 4. [Consent of the Borrower and the Agent;] Issuance of Note to Assignee. [This Agreement is conditioned upon the consent of the Borrower and the Agent pursuant to Section 9.06(c) of the Credit Agreement. The execution of this Agreement by the Borrower and the Agent is evidence of this consent.] Pursuant to Section 9.06(c) of the Credit Agreement, the Borrower agrees to execute and deliver a Note if requested by the Assignor in accordance with the provisions of Section 2.05(b) of the Credit Agreement payable to the order of the Assignee to evidence the Loans assigned to it and hereafter made by it pursuant to the assignment and assumption provided for herein.

SECTION 5. Non-Reliance on Assignor. The Assignor makes no representation or warranty in connection with, and shall have no responsibility with respect to, the solvency, financial condition, or statements of the Borrower or any Subsidiary Guarantor, or the validity and enforceability of the obligations of the Borrower or any Subsidiary Guarantor in respect of the Financing Documents. The Assignee acknowledges that it has, independently and without reliance on the Assignor, and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and will continue to be responsible for making its own independent appraisal of the business, affairs and financial condition of the Borrower and the Subsidiary Guarantors.

SECTION 6. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York.

SECTION 7. Counterparts. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effects as if the signatures thereto and hereto were upon the same instrument.

* Amount should combine principal together with accrued interest and breakage compensation, if any, to be paid by the Assignee. It may be preferable in an appropriate case to specify these amounts generically or by formula rather than as a fixed sum.

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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed a by their duly authorized officers as of the date first above written.


		[ASSIGNOR]

		By:
		Name: Title:

		[ASSIGNEE]

		By:
		Name: Title:

CONSENTED TO:

BANK OF AMERICA, N.A., as Agent

By:

Name:

Title:

CNF INC., a Delaware corporation

By:

Name:

Title:

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EXHIBIT F

SUBSIDIARY GUARANTY AGREEMENT

THIS AGREEMENT dated as of July 3, 2001 among CNF, a Delaware corporation (the “Borrower”), each of the Subsidiary Guarantors listed on the signature pages hereof under the caption “Subsidiary Guarantors” and each Person that shall, at any time after the date hereof, become a “Subsidiary Guarantor” hereunder pursuant to Article 3 hereof (collectively, the “Subsidiary Guarantors”) and Bank of America, N.A., as Agent.

WHEREAS, the Borrower has entered into that Credit Agreement (as the same may be amended, modified, supplemented and extended from time to time, the “Credit Agreement”) dated as of July 3, 2001 among the Borrower, the Banks party thereto and Bank of America, N.A., as Agent (the “Agent”), pursuant to which the Borrower is entitled, subject to certain conditions, to borrow up to $400,000,000;

WHEREAS, the Credit Agreement provides, among other things, that one condition to its effectiveness is the execution and delivery of a guaranty substantially in the form of this Agreement by the Borrower and the Subsidiary Guarantors listed on the signature pages hereof; and

WHEREAS, in conjunction with the transactions contemplated by the Credit Agreement and in consideration of the financial and other support that the Borrower has provided, and such financial and other support as the Borrower may in the future provide, to the Subsidiary Guarantors, and in order to induce the Banks and the Agent to enter into the Credit Agreement, the Subsidiary Guarantors listed on the signature pages hereof are willing to guaranty the obligations of the Borrower under the Credit Agreement and the Notes issued pursuant thereto;

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

ARTICLE 1

DEFINITIONS

Section 1.01 Definitions.

Terms defined in the Credit Agreement and not otherwise defined herein are used herein as therein defined. In addition, the following term, as used herein, has the following meaning:

“Guarantied Obligations” means (i) all obligations of the Borrower in respect of principal of and interest on the Loans and the Notes, (ii) all Reimbursement Obligations (including interest thereon) and other obligations of the Borrower in respect of Letters of Credit, (iii) all other amounts payable by the Borrower under the Credit Agreement or the Notes, if any, and (iv) all renewals or extensions of the foregoing, in each case whether now outstanding or hereafter arising. The Guarantied Obligations shall include, without limitation, any interest, costs, fees and expenses which accrue on or with respect to any of the foregoing, whether before or after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of any one or more of the Borrower and the Subsidiary Guarantors, and any such interest, costs, fees and expenses that would have accrued thereon or with respect thereto but for the commencement of such case, proceeding or other action.

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ARTICLE 2

GUARANTIES

Section 2.01 The Guaranties.

Subject to Section 2.03, the Subsidiary Guarantors hereby, jointly and severally, unconditionally and irrevocably guaranty to the Banks, the LC Issuing Banks and the Agent and to each of them, the due and punctual payment of all Guarantied Obligations as and when the same shall become due and payable, whether at maturity, by declaration or otherwise, according to the terms thereof. In case of failure by the Borrower punctually to pay any indebtedness guarantied hereby, the Subsidiary Guarantors, subject to Section 2.03, hereby jointly, severally and, to the extent permitted by law, unconditionally agree to cause such payment to be made punctually as and when the same shall become due and payable, without any demand or notice whatsoever, whether at maturity, or by declaration or otherwise, and as if such payment were made by the Borrower.

Section 2.02 Guaranties Unconditional; Waiver.

To the extent permitted by applicable law, the obligations of each Subsidiary Guarantor under this Article 2 shall be unconditional and absolute and without limiting the generality of the foregoing, shall, to the extent permitted by law, not be released, discharged or otherwise affected by:

(a) any extension, renewal, settlement, compromise, waiver or release in respect of any obligation of any other Obligor under any Financing Document, by operation of law or otherwise;

(b) any modification or amendment of or supplement to any other Financing Document or any Letter of Credit;

(c) any modification, amendment, waiver, release, non-perfection or invalidity of any direct or indirect security, or of any guaranty or other liability of any third party, for any obligation of any other Obligor under any Financing Document;

(d) any change in the corporate existence, structure or ownership of any other Obligor or any insolvency, bankruptcy, reorganization or other similar proceeding affecting any other Obligor or its assets or any resulting release or discharge of any obligation of any other Obligor contained in any Financing Document;

(e) the existence of any claim, set-off or other rights which any Subsidiary Guarantor may have at any time against any other Obligor, the Agent, the LC Issuing Banks, any Bank or any other Person, whether or not arising in connection with the Financing Documents; provided that nothing herein shall prevent the assertion of any such claim by separate suit or compulsory counterclaim;

(f) any invalidity or unenforceability relating to or against any other Obligor for any reason of any Financing Document, or any provision of applicable law or regulation purporting to prohibit the payment by any other Obligor of the principal of or interest on any Note or any Reimbursement Obligation or any other amount payable by any other Obligor under any Financing Document; or

(g) any other act or omission to act or delay of any kind by any other Obligor, the Agent, the LC Issuing Banks, any Bank or any other Person or any other circumstance

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whatsoever that might, but for the provisions of this paragraph, constitute a legal or equitable discharge of the obligations of any Subsidiary Guarantor under this Article 2.

With respect to its obligations hereunder, to the extent permitted by applicable law, each Subsidiary Guarantor hereby expressly waives diligence, presentment, demand of payment, protest and all notices whatsoever, and any requirement that the Agent or any Bank exhaust any right, power or remedy or proceed against any Person under any of the Financing Documents or against any other Person under any other guarantee of, or security for, any of the Guaranteed Obligations.

Section 2.03 Limit of Liability.

Each Subsidiary Guarantor shall be liable under this Agreement only for amounts aggregating up to the largest amount that would not render its obligations hereunder subject to avoidance under Section 548 of the United States Bankruptcy Code or any comparable provisions of any applicable state law.

Section 2.04 Discharge; Reinstatement in Certain Circumstances.

Except as otherwise provided in Section 4.03 hereof, each Subsidiary Guarantor’s obligations under this Article 2 shall remain in full force and effect until the Commitments are terminated, the LC Liabilities are reduced to zero, and the principal of and interest on the Loans and all other amounts payable by the Borrower under the Financing Documents shall have been paid in full. If at any time any payment of the principal of or interest on any Loan or any Reimbursement Obligation or any other amount payable by the Borrower under any Financing Document is rescinded or must be otherwise restored or returned upon the insolvency, bankruptcy or reorganization of any Obligor or otherwise, each Subsidiary Guarantor’s obligations under this Article 2 with respect to such payment shall be reinstated at such time as though such payment had become due but had not been made at such time.

Section 2.05 Subrogation.

Each Subsidiary Guarantor that makes a payment hereunder with respect to a Guarantied Obligation shall be subrogated to the rights of the payee against the Borrower with respect to such payment, provided, that until the Commitments have terminated, all Guarantied Obligations have been paid in full and no Person or court or governmental authority shall have any right to request any return or reimbursement of funds from the Agent or any Bank in connection with monies received under the Credit Documents (i) such Subsidiary Guarantor shall not enforce any such right against the Borrower (or enforce any right of reimbursement or contribution relating to such payment against the Borrower or any other Subsidiary Guarantor) and (ii) the rights against the Borrower to which such Subsidiary Guarantor is subrogated and any rights of reimbursement or contribution that such Subsidiary Guarantor may have against the Borrower or any other Subsidiary Guarantor shall be subordinate and junior in right of payment to all other obligations of the Borrower or such other Subsidiary Guarantor, as the case may be, under the Financing Documents.

Section 2.06 Stay of Acceleration.

If acceleration of the time for payment of any amount payable by the Borrower under the Financing Documents is stayed upon the insolvency, bankruptcy or reorganization of the Borrower, all such amounts otherwise subject to acceleration under the terms of the Financing Documents shall, to the extent permitted by law, nonetheless be payable by each Subsidiary Guarantor hereunder forthwith on demand by the Agent made at the request of the Required Banks.

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Section 2.07 Taxes.

Without limiting the generality of any other provision hereof each Subsidiary Guarantor agrees that, if it makes a payment hereunder with respect to a Guaranteed Obligation, it will have the same obligations with respect to such payment and any related Taxes or Other Taxes as the Borrower would have had under Section 8.04 of the Credit Agreement if such payment had been made by the Borrower.

Section 2.08 Right of Contribution.

The Subsidiary Guarantors hereby agree, as among themselves, that if any Subsidiary Guarantor shall become an Excess Funding Guarantor (as defined below), each other Subsidiary Guarantor shall, on demand of such Excess Funding Guarantor (but subject to the succeeding provisions of this Section 2.08), pay to such Excess Funding Guarantor an amount equal to such Subsidiary Guarantor’s Pro Rata Share (as defined below and determined, for this purpose, without reference to the properties, assets, liabilities and debts of such Excess Funding Guarantor) of such Excess Payment (as defined below). The payment obligation of any Subsidiary Guarantor to any Excess Funding Guarantor under this Section 2.08 shall be subordinate and subject in right of payment to the prior payment in full of the obligations of such Subsidiary Guarantor under the other provisions of this Article 2, and such Excess Funding Guarantor shall not exercise any right or remedy with respect to such excess until payment and satisfaction in full of all of such obligations. For purposes hereof, (a) “Excess Funding Guarantor” shall mean, in respect of any obligations arising under the other provisions of this Article 2 (hereafter, the “Obligations”), a Subsidiary Guarantor that has paid an amount in excess of its Pro Rata Share of the Obligations; (b) “Excess Payment” shall mean, in respect of any Obligations, the amount paid by an Excess Funding Guarantor in excess of its Pro Rata Share of such Obligations; and (c) “Pro Rata Share”, for the purposes of this Section 2.08, shall mean, for any Subsidiary Guarantor, the ratio (expressed as a percentage) of (i) the amount by which the aggregate present fair saleable value of all of its assets and properties exceeds the amount of all debts and liabilities of such Subsidiary Guarantor (including contingent, subordinated, unmatured, and unliquidated liabilities, but excluding the obligations of such Subsidiary Guarantor hereunder) to (ii) the amount by which the aggregate present fair saleable value of all assets and other properties of the Borrower and all of the Subsidiary Guarantors exceeds the amount of all of the debts and liabilities (including contingent, subordinated, unmatured, and unliquidated liabilities, but excluding the obligations of the Borrower and the Subsidiary Guarantors hereunder) of the Borrower and all of the Subsidiary Guarantors, all as of the Closing Date (if any Subsidiary Guarantor becomes a party hereto subsequent to the Closing Date, then for the purposes of this Section 2.08 such subsequent Subsidiary Guarantor shall be deemed to have been a Subsidiary Guarantor as of the Closing Date and the information pertaining to, and only pertaining to, such Subsidiary Guarantor as of the date such Subsidiary Guarantor became a Subsidiary Guarantor shall be deemed true as of the Closing Date).

ARTICLE 3

ADDITIONAL SUBSIDIARY GUARANTORS

Section 3.01 Additional Subsidiary Guarantors.

(a) The Borrower agrees, at such time as a Subsidiary becomes a Material Subsidiary (as defined in subsection (b)), to cause such Material Subsidiary, if it is not at the time a Subsidiary Guarantor, to execute and deliver to the Agent a letter substantially in the form of Exhibit F-1 hereto, whereupon such Material Subsidiary shall become a party hereto and both a Subsidiary Guarantor and an Obligor for all purposes of the Financing Documents. Upon each such execution and delivery, the Borrower shall be deemed to make a representation and warranty as to the facts set forth in Sections 4.02, 4.03, and 4.09 of the Credit Agreement.

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(b) “Material Subsidiary” means each Subsidiary except (i) Vector SCM, LLC, (ii) Emery Insurance Company Limited and (iii) Subsidiaries which are listed on Schedule F-1 hereto.

(c) Within 30 days after delivery of its annual or quarterly financial statements to the Banks pursuant to Section 5.01 of the Credit Agreement, the Borrower shall, by notice to the Agent, delete Subsidiaries from Schedule F-1 if and to the extent required so that the Subsidiaries listed thereon, if aggregated and considered as a single Subsidiary, would not have total assets, shareholders’ equity or revenues in excess of 10% of the consolidated total assets, consolidated shareholders’ equity or consolidated revenues, respectively, of the Borrower and its Consolidated Subsidiaries, all calculated at the date of such financial statements or, in the case of revenues, for the twelve calendar months then ended. The Borrower may, by notice to the Agent, add Subsidiaries other than Subsidiary Guarantors to Schedule F-1 at any time.

ARTICLE 4

MISCELLANEOUS

Section 4.01 Notices.

Unless otherwise specified herein, all notices, requests and other communications to any party hereunder shall be in writing (including bank wire, telex, facsimile transmission or similar writing) and shall be given to such party at its address or telex or facsimile number set forth on the signature pages hereof or on its letter substantially in the form of Exhibit F-1 hereto, as applicable (or, in the case of any Subsidiary Guarantor as to which no such address or telex or facsimile number is so set forth, to it at the address or telex or facsimile number of the Borrower set forth on the signature pages hereof) or such other address or telex or facsimile number as such party may hereafter specify for the purpose by notice to the Agent. Each such notice, request or other communication shall be effective (i) if given by telex, when such telex is transmitted to the telex number specified in or pursuant to this Section 4.01 and the appropriate answerback is received, (ii) if given by facsimile transmission, when such facsimile is transmitted to the facsimile transmission number specified in or pursuant to this Section 4.01 and telephonic confirmation of receipt thereof is received, (iii) if given by mail, 72 hours after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid or (iv) if given by any other means, when delivered at the address specified in this Section 4.01.

Section 4.02 No Waiver.

No failure or delay by the Agent or any Bank in exercising any right, power or privilege under this Agreement or any other Financing Document shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein and therein provided shall be cumulative and not exclusive of any rights or remedies provided by law.

Section 4.03 Amendments and Waivers; Termination.

Any provision of this Agreement may be amended or waived if, and only if, such amendment or waiver is in writing and is signed by the Borrower, each Subsidiary Guarantor and the Agent with the prior written consent of the Required Banks; provided that (x) the Borrower may amend Schedule F-1 hereto in accordance with Section 3.01(c) by notice to the Agent without the need for consent by any other Person, (y) the consent of Banks having at least 75% of the aggregate amount of the Commitments (or, if the Commitments shall have been terminated, having at least 75% of the aggregate amount of the Outstanding Credit Exposures) shall be required to release one or more (but less than all or substantially

F-5

all) of the Subsidiary Guarantors from their obligations hereunder and (z) the consent of each Bank shall be required to release all or substantially all of the Subsidiary Guarantors from their obligations hereunder; provided further that the guaranty of Emery Worldwide Airlines, Inc. (“EWA”) under this Agreement shall automatically terminate (without the need for consent by any Person (including any Bank) and without further action on the part of any Person (including any Bank)) upon the sale of 75% or more of the capital stock of EWA or the sale, lease, or outsourcing, or other transfer of all or substantially all of EWA’s airline assets and operations and the Agent shall thereupon execute such releases and other agreements reasonably requested by EWA to evidence the termination of its guaranty hereunder.

Section 4.04 Governing Law; Submission to Jurisdiction; Waiver of a Jury Trial.

This Agreement shall be construed in accordance with and governed by the law of the State of New York. Each of the Subsidiary Guarantors hereby agrees to be bound by each provision of the Credit Agreement which purports to bind all Obligors, including Sections 9.08 and 9.10, to the same extent as if it were a party thereto.

Section 4.05 Successors and Assigns.

This Agreement is for the benefit of the Banks and the Agent and their respective successors and assigns and in the event of an assignment of the Loans, the Reimbursement Obligations, the Notes or other amounts payable under the Financing Documents, the rights hereunder, to the extent applicable to the indebtedness so assigned, shall be transferred with such indebtedness. All the provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.

Section 4.06 Counterparts; Effectiveness.

This Agreement may be signed in any number of counterparts, each of which shall be an original, and all of which taken together shall constitute a single instrument, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement shall become effective when the Agent shall have received a counterpart hereof signed by the Borrower and one or more of the Subsidiary Guarantors and when the Credit Agreement shall become effective in accordance with its terms. Thereafter, upon execution and delivery of a letter substantially in the form of Exhibit F-1 hereto on behalf of any other Subsidiary Guarantor, this Agreement shall become effective with respect to such Subsidiary Guarantor as of the date of such delivery.

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the date first above written.


BORROWER:		CNF INC., a Delaware corporation

		By:
		Name: Title:

		3240 Hillview Avenue Palo Alto, California 94304 Telex number: 910-373-2105 Facsimile number: 415-813-0160 Telephone number: 415-494-2900

SUBSIDIARY GUARANTORS:		CON-WAY TRANSPORTATIONSERVICES, INC.

		By:
		Name: Title:

		110 Parkland Plaza Ann Arbor, Michigan 48103 Facsimile number: 734-769-0203 Telephone number: 734-214-5650

		EMERY AIR FREIGHT CORPORATION

		By:
		Name: Title:

		One Lagoon Drive, Suite 400 Redwood City, California 94065 Facsimile number: 415-596-7904 Telephone number: 415-596-9600

		EMERY WORLDWIDE AIRLINES, INC.

		By:
		Name: Title:

		Dayton International Airport One Emery Plaza Vandalia, Ohio 45377 Facsimile number: 513-264-6072 Telephone number: 513-264-6500

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		MENLO LOGISTICS, INC.

		By:
		Name: Title:

		One Lagoon Drive, Suite 300 Redwood City, California 94065 Facsimile number: 415-596-4150 Telephone number: 415-596-4000

		CNF PROPERTIES, INC.

		By:
		Name: Title:

		3240 Hillview Avenue Palo Alto, California 94304 Telex number: 910-373-2105 Facsimile number: 415-813-0160 Telephone number: 415-494-2900

		BANK OF AMERICA, N.A., as Agent

		By:
		Name: Title:

		Attention: Facsimile number: Telephone number:

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SCHEDULE F-1

NONMATERIAL SUBSIDIARIES

Centrol Ltd.

CNF Advisors, LLC

CNF Financial Services Corporation

CNF International Holdings Corporation

Con-Way Intermodal Pty. Limited

Emery Worldwide (Holland) B.V.

Emery Worldwide (Hong Kong) Limited

CNF International Holdings, Ltd. (Bermuda)

Menlo Logistics UK Limited

CNF Investments, Inc.

CNF Service Company, Inc.

The CNF Transportation Company (formerly The CNF Company; name holding company only)

CNF Ventures, LLC

Con-Way Air Express, Inc.

Con-Way NOW, Inc.

Subsidiaries of Con-Way Transportation Services, Inc.:

Blue Transport, Inc.

Con-Way Canada Express, Inc.

Con-Way Mexico Express, S.A. de C.V.

Con-Way Truckload Services, LLC

eExpress, Inc.

Subsidiaries of Emery Air Freight Corporation:

Emery Agence en Douane

Emery Air Freight GmbH

Emery Air Freight Limited

Emery Air Freight S.r.l.

Emery Air Freight S.A.

Emery Aircraft Leasing Corporation

Emery Customs Brokerage, Ltd.

Emery Distribution Systems, Inc.

EDSI International, Inc.

Emery Ocean Services Pty Limited

Emery Global Logistics (Hong Kong) Limited

Emery Global Logistics, Inc.

Emery Transnational Air Cargo Corporation

Emery Worldwide (India) Private Limited

Emery Worldwide (Korea) Co., Ltd.

Emery Worldwide (Portugal) S.A. – Transitarios

Emery Worldwide (Saipan) Inc.

Emery Worldwide (South Africa) (Pty) Ltd.

Emery Worldwide (Thailand) Ltd.

Emery Worldwide Czech Republic s.r.o.

Emery Worldwide do Brasil Ltda.

Emery Worldwide Hungary Transport and Logistics Ltd.

Emery Worldwide International Transportation Co. Ltd.

Emery Worldwide Japan Corporation

Emery Worldwide Limited

Emery Worldwide Logistics (Shanghai) Co. Ltd.

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Emery Worldwide Poland Sp. z o.o.

Emery Worldwide Services (Thailand) Limited

Transportes EWW, S.A.

Wilton Aircraft Corporation

Emery Air Freight Educational Foundation Inc. (non-profit)

Emery Expedite!, Inc.

Logistics Service Provider, LLC

Subsidiaries of Menlo Logistics, Inc.:

Menlo Logistics B.V. (the Netherlands)

Menlo Logistics Global Transportation Services, Inc.

Road Systems, Inc.

WSCPI, Inc.

F-11

EXHIBIT F-1

[Date]

Bank of America, N.A., as Agent

under the Credit Agreement referred to below

[address]

Gentlemen:

Reference is made to the Credit Agreement (as amended, modified, supplemented and extended, the “Credit Agreement”) dated as of July 3, 2001 among CNF Inc., a Delaware corporation (the “Borrower”), the Banks party thereto and Bank of America, N.A., as Agent (the “Agent”), and to the Subsidiary Guaranty Agreement (as amended, modified, supplemented and extended, the “Subsidiary Guaranty”) dated as of July 3, 2001 among the Borrower, the Subsidiary Guarantors party thereto and the Agent, as amended, copies of each of which have been furnished to the undersigned.

The undersigned hereby agrees and confirms that effective as of the date hereof, the undersigned is a party to the Subsidiary Guaranty Agreement and both an “Obligor” and a “Subsidiary Guarantor” for all purposes of the Financing Documents (as defined in the Credit Agreement).

Very truly yours,

[NAME OF SUBSIDIARY GUARANTOR]

By:

Name:

Title:

Address:

Facsimile number:

Telephone number:

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EXHIBIT G

CALCULATION OF FUNDING LOSSES

The following formula shall be used to calculate compensation for a funding loss (a “Funding Loss”) due to a Bank under Section 2.14 in the event of a prepayment or a failure to borrow a Fixed Rate Loan of such Bank:

FL =		(CR-RR) x PA x DR ÷ AF 360
FL =		Funding Loss
CR =		Contract Rate
RR =		Reinvestment Rate
PA =		Principal Amount
DR =		Days Remaining
AF =		Administrative Fee

“Administrative Fee” means the administrative fee (not to exceed $250) usually charged by such Bank in calculating its funding losses.

“Contract Rate” means, with respect to any such Fixed Rate Loan, the London Interbank Offered Rate applicable thereto, expressed as a decimal.

“Days Remaining” means, with respect to any such Fixed Rate Loan. (i) if prepaid, the number of days in the period from and including the date of such prepayment to but excluding the last day of the applicable Interest Period and (ii) if not borrowed, the number of days in the applicable Interest Period.

“Principal Amount” means with respect to any such Fixed Rate Loan the principal amount thereof being prepaid or not borrowed, as applicable.

“Reinvestment Rate” means, with respect to any such Fixed Rate Loan a rate per annum (expressed as a decimal) reasonably determined by such Bank to be the rate at which an amount approximately equal to the Principal Amount thereof could be reinvested in the relevant interbank market on the date prepaid or not borrowed, as applicable, for a period of time comparable to the applicable Days Remaining.

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EXHIBIT H

LIST OF EXISTING LETTERS OF CREDIT

Issuing Bank

Beneficiary

Account Party

Face Amount

I.C Number

Expiry Date

Purpose

I-1

EXHIBIT I

FORM OF NEW COMMITMENT AGREEMENT

Reference is made to the Credit Agreement (as amended, modified, supplemented, increased and extended, the “Credit Agreement”) dated as of July 3, 2001 among CNF Inc., a Delaware corporation (the “Borrower”), the Banks identified therein and Bank of America, N.A., as Agent. Terms defined in the Credit Agreement are used herein with the same meanings.

1. The undersigned Bank hereby confirms its Commitment, effective as of the Effective Date set forth below, to make Committed Loans and to purchase participation interests in Letters of Credit and Swingline Loans under the Credit Agreement up to the principal amount of such Commitment as set forth below. If the undersigned Bank is already a Bank under the Credit Agreement, such Bank acknowledges and agrees that the amount of such Commitment is in excess of such Bank’s existing Commitment under the Credit Agreement. If the undersigned Bank is not already a Bank under the Credit Agreement, such Bank hereby acknowledges, agrees and confirms that, by its execution of this New Commitment Agreement, such Bank will, as of the Effective Date, be a party to the Credit Agreement and be bound by the provisions of the Credit Agreement and, to the extent of its Commitments, have the rights and obligations of a Bank thereunder.

2. This New Commitment Agreement shall be governed by and construed in accordance with the laws of the State of New York.

3. This New Commitment Agreement may be executed in any number of counterparts, each of which where so executed and delivered shall be an original, but all of which shall constitute one and the same instrument. It shall not be necessary in making proof of this New Commitment Agreement to produce or account for more than one such counterpart.

4. The Commitment of the undersigned Bank as of the Effective Date is $ .

5. The Effective Date of the Commitment of the undersigned Bank is , 20

The terms set forth above are hereby agreed to:

[Bank]

By:

Name:

Title:

CONSENTED TO:

BANK OF AMERICA, N.A., as Agent

By:

Name:

Title:

CNF INC., a Delaware corporation

By:

Name:

Title:

I-1

EX-4.12 6 dex412.htm SECURITY AGREEMENT Security Agreement

EXHIBIT 4.12

SECURITY AGREEMENT

THIS SECURITY AGREEMENT (as amended, modified, extended, renewed or replaced from time to time, this “Security Agreement”) is entered into as of December 21, 2001 among the parties identified as “Obligors” on the signature pages hereto and such other parties as may become Obligors after the date hereof (individually an “Obligor”, and collectively the “Obligors”) and BANK OF AMERICA, N.A., in its capacity as agent (in such capacity, the “Agent”) for the banks from time to time party to the Credit Agreement described below (the “Banks”).

RECITALS

WHEREAS, pursuant to that certain Credit Agreement (as amended, modified, extended, renewed or replaced from time to time, the “Credit Agreement”) dated as of July 3, 2001 among CNF Inc., a Delaware corporation (the “Borrower”), the Banks identified therein and Bank of America, N.A., as Agent, the Banks have agreed to make Loans and issue Letters of Credit to the Borrower upon the terms and subject to the conditions set forth therein;

WHEREAS, pursuant to that Subsidiary Guaranty Agreement (as amended, modified, extended, renewed or replaced from time to time, the “Subsidiary Guaranty Agreement”) dated as of July 3, 2001 among the Borrower, the Subsidiaries of the Borrower identified therein (the “Subsidiary Guarantors”) and the Agent, the Subsidiary Guarantors guarantied the obligations of the Borrower under the Financing Documents upon the terms and subject to the conditions set forth therein;

WHEREAS, pursuant to the First Amendment to Credit Agreement (the “Amendment”) dated as of December 21, 2001, the Required Banks have agreed to certain modifications to the Credit Agreement requested by the Borrower; and

WHEREAS, it is a condition precedent to the effectiveness of the Amendment that the Obligors shall have executed and delivered this Security Agreement to the Agent for the ratable benefit of the Banks.

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

1. Definitions.

(a) Unless otherwise defined herein, capitalized terms used herein shall have the meanings ascribed to such terms in the Credit Agreement.

(b) The following terms which are defined in the Uniform Commercial Code (the “UCC”) in effect in the State of New York on the date hereof are used herein as so defined: Accessions, Accounts, As-Extracted Collateral, Consumer Goods, Farm Products, Manufactured Home, Proceeds and Standing Timber.

“Secured Obligations” means the collective reference to all of the obligations of the Obligors under the Financing Documents, whether now existing or hereafter arising, owing to any Bank or the Agent, howsoever evidenced, created, incurred or acquired, whether primary,

secondary, direct, contingent, or joint and several, including, without limitation, all obligations and liabilities incurred in connection with collecting and enforcing the foregoing.

2. Grant of Security Interest in the Collateral. Subject to Section 3 and Section 4 hereof, to secure the prompt payment and performance in full when due, whether by lapse of time, acceleration, mandatory prepayment or otherwise, of the Secured Obligations, each Obligor hereby grants to the Agent, for the benefit of the Banks, a continuing security interest in, and a right to set off against, any and all right, title and interest of such Obligor in and to all Accounts and all Accessions and Proceeds thereof, in each case whether now owned or existing or owned, acquired, or arising hereafter (collectively, the “Collateral”). The Obligors and the Agent, on behalf of the Banks, hereby acknowledge and agree that the security interest created hereby in the Collateral constitutes continuing collateral security for all of the Secured Obligations, whether now existing or hereafter arising.

3. Limitation on Secured Obligations. Notwithstanding anything herein or in any other Financing Document to the contrary, the maximum amount of Secured Obligations secured by the Collateral under this Security Agreement shall at all times be an amount equal to Consolidated Net Tangible Assets. The foregoing limitation and does not in anyway affect the obligations of the Borrower or any Subsidiary Guarantor under the other Financing Documents.

4. Effective Date. Notwithstanding anything in this Security Agreement to the contrary, (a) neither the grants of security interests pursuant to Section 2 hereof, nor any of the covenants, representations and warranties and other agreements contained herein, shall become effective other than during the initial Collateral Period; provided that on the initial Collateral Effective Date such grants of security interests, covenants, representations and warranties and other agreements shall become effective immediately and without any further action on the part of any of the parties hereto and shall remain effective during the initial Collateral Period, and (b) none of the schedules referred to herein shall be required to be completed or delivered to the Agent until the initial Collateral Effective Date; provided that within five (5) Business Days of the initial Collateral Effective Date, such schedules shall delivered to the Agent and thereafter such schedules shall constitute a part of this Security Agreement.

5. Provisions Relating to Accounts.

(a) Anything herein to the contrary notwithstanding, each of the Obligors shall remain liable under each of the Accounts to observe and perform all the conditions and obligations to be observed and performed by it thereunder, all in accordance with the terms of any agreement giving rise to each such Account. Neither the Agent nor any Bank shall have any obligation or liability under any Account (or any agreement giving rise thereto) by reason of or arising out of this Security Agreement or the receipt by the Agent or any Bank of any payment relating to such Account pursuant hereto, nor shall the Agent or any Bank be obligated in any manner to perform any of the obligations of an Obligor under or pursuant to any Account (or any agreement giving rise thereto), to make any payment, to make any inquiry as to the nature or the sufficiency of any payment received by it or as to the sufficiency of any performance by any party under any Account (or any agreement giving rise thereto), to present or file any claim, to take any action to enforce any performance or to collect the payment of any amounts which may have been assigned to it or to which it may be entitled at any time or times.

(b) After the occurrence and during the continuation of an Event of Default, (i) the Agent shall have the right, but not the obligation, to make test verifications of the Accounts in any manner and through any medium that it reasonably considers advisable, and the Obligors shall furnish all such assistance and information as the Agent may require in connection with such test verifications, (ii) upon the Agent’s request and at the expense of the Obligors, the Obligors shall cause independent public accountants or

others satisfactory to the Agent to furnish to the Agent reports showing reconciliations, aging and test verifications of, and trial balances for, the Accounts and (iii) the Agent in its own name or in the name of others may communicate with account debtors on the Accounts to verify with them to the Agent’s satisfaction the existence, amount and terms of any Accounts.

6. Representations and Warranties. Each Obligor hereby represents and warrants to the Agent, for the benefit of the Banks, that so long as this Security Agreement is in effect:

(a) Legal Name and Location of Obligor; Location of Chief Executive Office.

(i) Such Obligor’s exact legal name and state of formation is (and for the past four months has been) as set forth on Schedule 6(a) attached hereto (except for any change permitted by Section 7(b)).

(ii) Such Obligor has not in the past four months changed its name, been party to a merger or consolidation or used any tradename other than (i) as set forth on Schedule 6(a) attached hereto and (ii) as permitted by Section 7(b).

(iii) On each Collateral Effective Date, such Obligor’s chief executive office location is (and for the past four months has been) as set forth on Schedule 6(a) (as supplemented from time to time so long as no prior UCC filings exist in any such jurisdiction).

(c) Ownership. Such Obligor is the legal and beneficial owner of the Collateral that it purports to own and such Obligor has the right to pledge, sell, assign or transfer the Collateral.

(d) Security Interest/Priority. This Security Agreement creates a valid security interest in favor of the Agent, for the benefit of the Banks, in the Collateral of such Obligor and, when properly perfected by filing or otherwise, shall constitute a valid first priority, perfected security interest in such Collateral, to the extent such security interest can be perfected by filing or otherwise under the UCC, free and clear of all Liens except for Liens permitted under Section 5.09 of the Credit Agreement.

(e) Types of Collateral. None of the Collateral consists of, or is the Proceeds of, (i) As-Extracted Collateral, (ii) Consumer Goods, (iii) Farm Products, (iv) Manufactured Homes, or (v) Standing Timber.

(f) Restrictions on Security Interest. None of the Obligors is party to any material license or any material lease that contains legally enforceable restrictions on the granting of the security interests herein in accordance with the provisions hereof.

(g) Binding Agreement. This Security Agreement has been duly authorized, executed and delivered by the Obligors and constitutes a legal, valid and binding obligation of the Obligors enforceable in accordance with its terms, except as such enforcement may be limited by applicable bankruptcy or insolvency laws or by general principles of equity.

7. Covenants. Each Obligor covenants that, so long as this Security Agreement is in effect:

(a) Other Liens. Defend the Collateral against the claims and demands of all other parties claiming an interest therein and keep the Collateral free from all Liens, except for Liens permitted under Section 5.09 of the Credit Agreement.

(b) Changes in Corporate Structure or Location. Not, without providing 10 days prior written notice to the Agent, (a) alter its corporate existence or, in one transaction or a series of transactions, merge into or consolidate with any other entity, or sell all or substantially all of its assets, (b) change its state of incorporation or formation, (c) change it registered corporate name or (d) use any tradename.

(c) Filing of Financing Statements, Notices, etc. Each Obligor hereby authorizes the Agent, during any Collateral Period, to prepare and file such financing statements (including renewal statements) or amendments thereof or supplements thereto or other instruments as the Agent may from time to time deem necessary or appropriate in order to perfect and maintain the security interests granted hereunder in accordance with the UCC. Each Obligor shall also execute and deliver to the Agent such agreements, assignments or instruments (including affidavits, notices, reaffirmations and amendments and restatements of existing documents) as the Agent may reasonably request and do all such other things as the Agent may reasonably deem necessary or appropriate (i) to assure to the Agent its security interests hereunder, (ii) to consummate the transactions contemplated hereby and (iii) to otherwise protect and assure the Agent of its rights and interests hereunder. To that end, each Obligor hereby irrevocably makes, constitutes and appoints the Agent, its nominee or any other person whom the Agent may designate, as such Obligor’s attorney-in-fact with full power and for the limited purpose, during any Collateral Period, to sign in the name of such Obligor any such notices or similar documents which in the Agent’s reasonable discretion would be necessary, appropriate or convenient in order to perfect and maintain perfection of the security interests granted hereunder, such power, being coupled with an interest, being and remaining irrevocable so long as this Security Agreement is in effect. Each Obligor hereby agrees that a carbon, photographic or other reproduction of this Security Agreement or any such financing statement is sufficient for filing as a financing statement by the Agent without notice thereof to such Obligor wherever the Agent may in its sole discretion desire to file the same. In the event for any reason the law of any jurisdiction other than New York becomes or is applicable to the Collateral of any Obligor or any part thereof, or to any of the Secured Obligations, such Obligor agrees to execute and deliver all such instruments and to do all such other things as the Agent in its sole discretion reasonably deems necessary or appropriate to preserve, protect and enforce the security interests of the Agent under the law of such other jurisdiction (and, if an Obligor shall fail to do so promptly upon the request of the Agent, then the Agent may execute any and all such requested documents on behalf of such Obligor pursuant to the power of attorney granted hereinabove).

(d) Treatment of Accounts. During any Collateral Period, not grant or extend the time for payment of any material amount of Accounts, or compromise or settle any material amount of Accounts for less than the full amount thereof, or release any person or property, in whole or in part, from payment thereof, or allow any credit or discount thereon, other than as normal and customary in the ordinary course of an Obligor’s business.

(e) Delivery of Instruments and Chattel Paper. Promptly upon the occurrence of an Event of Default, each Obligor shall deliver to the Agent all Instruments and Chattel Paper evidencing any Account of such Obligor, duly endorsed in a manner satisfactory to the Collateral Agent.

8. Advances by Banks. After the occurrence and during the continuance of an Event of Default, on failure of any Obligor to perform any of the covenants or agreements contained herein, the Agent may, at its sole option and in its reasonable discretion, perform the same and in so doing may expend such sums as the Agent may reasonably deem advisable in the performance thereof, including, without limitation, the payment of any insurance premiums, the payment of any taxes, a payment to obtain a release of a Lien or potential Lien, expenditures made in defending against any adverse claim and all other expenditures which the Agent or the Banks may make for the protection of the security interest hereof or may be compelled to make by operation of law. All such sums and amounts so expended shall be repayable by the Obligors on a joint and several basis promptly upon timely notice thereof and demand therefor, shall

constitute additional Secured Obligations and shall bear interest from the date said amounts are expended at the default rate specified in Section 2.07(a) of the Credit Agreement for Base Rate Loans. No such performance of any covenant or agreement by the Agent or the Banks on behalf of any Obligor, and no such advance or expenditure therefor, shall relieve the Obligors of any default under the terms of this Security Agreement, the other Financing Documents.

9. Events of Default. The occurrence of an event which under the Credit Agreement would constitute an Event of Default shall be an Event of Default hereunder (an “Event of Default”).

10. Remedies.

(a) General Remedies. Upon the occurrence of an Event of Default and during the continuation thereof, the Banks shall have, in addition to the rights and remedies provided herein, in the Financing Documents or by law (including, but not limited to, levy of attachment, garnishment and the rights and remedies set forth in the UCC of the jurisdiction applicable to the affected Collateral), the rights and remedies of a secured party under the UCC (regardless of whether the UCC is the law of the jurisdiction where the rights and remedies are asserted and regardless of whether the UCC applies to the affected Collateral), and further, the Agent may, with or without judicial process or the aid and assistance of others, without demand and without advertisement, notice, hearing or process of law, all of which each of the Obligors hereby waives to the fullest extent permitted by law, at any place and time or times, sell and deliver any or all Collateral held by or for it at public or private sale, by one or more contracts, in one or more parcels, for cash, upon credit or otherwise, at such prices and upon such terms as the Agent deems advisable, in its sole discretion (subject to any and all mandatory legal requirements). Neither the Agent’s compliance with any applicable state or federal law in the conduct of such sale, nor its disclaimer of any warranties relating to the Collateral, shall be considered to adversely affect the commercial reasonableness of such sale. In addition to all other sums due the Agent and the Banks with respect to the Secured Obligations, the Obligors shall pay the Agent and each of the Banks all reasonable costs and expenses incurred by the Agent or any such Bank, including, but not limited to, reasonable attorneys’ fees and court costs, in obtaining or liquidating the Collateral, in enforcing its rights under this Security Agreement, or in the prosecution or defense of any action or proceeding by or against the Agent or the Banks or the Obligors concerning any matter arising out of or connected with this Security Agreement or any Collateral, including, without limitation, any of the foregoing arising in or under or related to a case under the Bankruptcy Code. To the extent the rights of notice cannot be legally waived hereunder, each Obligor agrees that any requirement of reasonable notice shall be met if such notice is personally served on or mailed postage prepaid to the Borrower in accordance with the notice provisions of Section 9.01 of the Credit Agreement at least 10 days before the time of sale or other event giving rise to the requirement of such notice. The Agent and the Banks shall not be obligated to make any sale or other disposition of the Collateral regardless of notice having been given. To the extent permitted by applicable law, any Bank may be a purchaser at any such sale. To the extent permitted by applicable law, each of the Obligors hereby waives all of its rights of redemption with respect to any such sale. Subject to the provisions of applicable law, the Agent and the Banks may postpone or cause the postponement of the sale of all or any portion of the Collateral by announcement at the time and place of such sale, and such sale may, without further notice, to the extent permitted by law, be made at the time and place to which such sale was postponed, or the Agent and the Banks may further postpone such sale by announcement made at such time and place.

(b) Remedies relating to Accounts. Upon the occurrence of an Event of Default and during the continuation thereof, whether or not the Agent has exercised any or all of its rights and remedies hereunder, (i) each Obligor will promptly upon request of the Agent instruct all account debtors to remit all payments in respect of Accounts to a mailing location selected by the Agent, (ii) the Agent or its designee may notify any Obligor’s customers and account debtors that the Accounts of such Obligor have been assigned to the

Agent or of the Agent’s security interest therein, and may (either in its own name or in the name of an Obligor or both) demand, collect (including without limitation by way of a lockbox arrangement), receive, take receipt for, sell, sue for, compound, settle, compromise and give acquittance for any and all amounts due or to become due on any Account, and, in the Agent’s discretion, file any claim or take any other action or proceeding to protect and realize upon the security interest of the Banks in the Accounts and (iii) the Agent shall have the right to enforce any Obligor’s rights against any account debtors and obligors on such Obligor’s Accounts. The Agent and the Banks shall have no liability or responsibility to any Obligor for acceptance of a check, draft or other order for payment of money bearing the legend “payment in full” or words of similar import or any other restrictive legend or endorsement or be responsible for determining the correctness of any remittance. Each Obligor hereby agrees to indemnify the Agent and the Banks from and against all liabilities, damages, losses, actions, claims, judgments, costs, expenses, charges and reasonable attorneys’ fees suffered or incurred by the Agent or the Banks (each, an “Indemnified Party”) because of the maintenance of the foregoing arrangements except as relating to or arising out of the gross negligence or willful misconduct of an Indemnified Party or its officers, directors, employees, counsel or agents. In the case of any investigation, litigation or other proceeding, the foregoing indemnity shall be effective whether or not such investigation, litigation or proceeding is brought by an Obligor, its directors, shareholders or creditors or an Indemnified Party or any other Person or any other Indemnified Party is otherwise a party thereto.

(c) Access. In addition to the rights and remedies hereunder, upon the occurrence of an Event of Default and during the continuation thereof, the Agent shall have the right to enter and remain upon the various premises of the Obligors without cost or charge to the Agent, and use the same, together with materials, supplies, books and records of the Obligors, for the purpose of collecting and liquidating the Collateral, or for preparing for sale and conducting the sale of the Collateral, whether by foreclosure, auction or otherwise.

(d) Nonexclusive Nature of Remedies. Failure by the Agent or the Banks to exercise any right, remedy or option under this Security Agreement, any other Financing Document or as provided by law, or any delay by the Agent or the Banks in exercising the same, shall not operate as a waiver of any such right, remedy or option. No waiver hereunder shall be effective unless it is in writing, signed by the party against whom such waiver is sought to be enforced and then only to the extent specifically stated therein, which in the case of the Agent or the Banks shall only be granted as provided herein. To the extent permitted by law, neither the Agent, the Banks, nor any party acting as attorney for the Agent or the Banks, shall be liable hereunder for any acts or omissions or for any error of judgment or mistake of fact or law other than their gross negligence or willful misconduct hereunder. The rights and remedies of the Agents and the Banks under this Security Agreement shall be cumulative and not exclusive of any other right or remedy which the Agent or the Banks may have.

(e) Retention of Collateral. The Agent may, after providing the notices required by Sections 9-620 and 9-621 of the UCC or otherwise complying with the requirements of the applicable law of the relevant jurisdiction, accept or retain the Collateral in satisfaction of the Secured Obligations. Unless and until the Agent shall have provided such notices, however, the Agent shall not be deemed to have retained any Collateral in satisfaction of any Secured Obligations for any reason.

(f) Deficiency. In the event that the proceeds of any sale, collection or realization are insufficient to pay all amounts to which the Agent or the Banks are legally entitled, the Obligors shall be jointly and severally liable for the deficiency, together with interest thereon at the default rate specified in Section 2.07(a) of the Credit Agreement for Base Rate Loans, together with attorneys’ fees and other costs with respect to collecting such deficiency. Any surplus remaining after the full payment and satisfaction of

the Secured Obligations shall be returned to the Obligors or to whomsoever a court of competent jurisdiction shall determine to be entitled thereto.

11. Rights of the Agent.

(a) Power of Attorney. In addition to other powers of attorney contained herein, each Obligor hereby designates and appoints the Agent, on behalf of the Banks, and each of its designees or agents, as attorney-in-fact of such Obligor, irrevocably and with power of substitution, with authority to take any or all of the following actions upon the occurrence and during the continuation of an Event of Default:

(i) to demand, collect, settle, compromise, adjust, and give discharges and releases concerning the Collateral of such Obligor, all as the Agent may reasonably determine;

(ii) to commence and prosecute any actions at any court for the purposes of collecting any Collateral and enforcing any other right in respect thereof;

(iii) to defend, settle or compromise any action brought and, in connection therewith, give such discharge or release as the Agent may deem reasonably appropriate;

(iv) receive, open and dispose of mail addressed to an Obligor and endorse checks, notes, drafts, acceptances, money orders or other instruments or documents evidencing payment securing or relating to such Collateral, on behalf of and in the name of such Obligor;

(v) sell, assign, transfer, make any agreement in respect of, or otherwise deal with or exercise rights in respect of, any Collateral or the goods or services which have given rise thereto, as fully and completely as though the Agent were the absolute owner thereof for all purposes;

(vi) adjust and settle claims under any insurance policy relating to the Collateral;

(vii) execute and deliver all assignments, conveyances, statements, financing statements, renewal financing statements, security agreements, affidavits, notices and other agreements, instruments and documents that the Agent may determine necessary in order to perfect and maintain the security interests and liens granted in this Security Agreement and in order to fully consummate all of the transactions contemplated therein;

(viii) institute any foreclosure proceedings that the Agent may deem appropriate; and

(ix) do and perform all such other acts and things as the Agent may reasonably deem to be necessary, proper or convenient in connection with the Collateral.

This power of attorney is a power coupled with an interest and shall be irrevocable for so long as this Security Agreement is in effect. The Agent shall be under no duty to exercise or withhold the exercise of any of the rights, powers, privileges and options expressly or implicitly granted to the Agent in this Security Agreement, and shall not be liable for any failure to do so or any delay in doing so. The Agent shall not be liable for any act or omission or for any error of judgment or any mistake of fact or law in its individual

capacity or its capacity as attorney-in-fact except acts or omissions resulting from its gross negligence or willful misconduct. This power of attorney is conferred on the Agent solely to protect, preserve and realize upon its security interest in the Collateral.

(b) Assignment by the Agent. The Agent may from time to time, subject to the provisions of the Credit Agreement, assign the Secured Obligations or any portion thereof and/or the Collateral or any portion thereof to a successor Agent appointed under the provisions of the Credit Agreement, and the assignee shall be entitled to all of the rights and remedies of the Agent under this Security Agreement in relation thereto.

(c) The Agent’s Duty of Care. Other than the exercise of reasonable care to ensure the safe custody of the Collateral while being held by the Agent hereunder, the Agent shall have no duty or liability to preserve rights pertaining thereto, it being understood and agreed that the Obligors shall be responsible for preservation of all rights in the Collateral, and the Agent shall be relieved of all responsibility for the Collateral upon surrendering it or tendering the surrender of it to the Obligors. The Agent shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral in its possession if the Collateral is accorded treatment substantially equal to that which the Agent accords its own property, which shall be no less than the treatment employed by a reasonable and prudent agent in the industry, it being understood that the Agent shall not have responsibility for taking any necessary steps to preserve rights against any parties with respect to any of the Collateral. In the event of a public or private sale of Collateral pursuant to Section 10 hereof, the Agent shall have no obligation to clean-up, repair or otherwise prepare the Collateral for sale.

12. Application of Proceeds. Upon the occurrence and during the continuation of an Event of Default, any payments in respect of the Secured Obligations and any proceeds of the Collateral, when received by the Agent or any of the Banks in cash or its equivalent, will be applied in reduction of the Secured Obligations in the order set forth in the Credit Agreement, and each Obligor irrevocably waives the right to direct the application of such payments and proceeds and acknowledges and agrees that the Agent shall have the continuing and exclusive right to apply and reapply any and all such payments and proceeds in the Agent’s sole discretion, notwithstanding any entry to the contrary upon any of its books and records.

13. Attorneys’ Fees. If at any time hereafter, whether upon the occurrence of an Event of Default or not, the Agent employs counsel to prepare or consider amendments, waivers or consents with respect to this Security Agreement, or to take action or make a response in or with respect to any legal or arbitral proceeding relating to this Security Agreement or relating to the Collateral, or to protect the Collateral or exercise any rights or remedies under this Security Agreement or with respect to the Collateral, then the Obligors agree to promptly pay upon demand any and all reasonable attorneys’ fees of the Agent or the Banks, all of which attorneys’ fees shall constitute Secured Obligations hereunder.

14. Continuing Agreement.

(a) This Security Agreement shall be a continuing agreement in every respect and shall remain in full force and effect during the initial Collateral Period so long as any of the Secured Obligations remain outstanding (other than any such obligations which by the terms thereof are stated to survive termination of the Financing Documents) or any Financing Document is in effect or any Letter of Credit shall remain outstanding (other than any Letter of Credit that has been collateralized in a manner reasonably acceptable to the Agent) and until all of the Commitments thereunder shall have terminated or until the amount of Secured Obligations secured by the Collateral under this Security Agreement has been satisfied with the proceeds of the Collateral. Upon the initial Collateral Termination Date or upon such payment and termination, this Security Agreement shall cease to be effective and the Agent and the Banks shall, upon the

request and at the expense of the Obligors, forthwith release all of their liens and security interests hereunder and shall execute and deliver all UCC termination statements and/or other documents reasonably requested by the Obligors evidencing such termination. Notwithstanding the foregoing all releases and indemnities provided hereunder shall survive termination of this Security Agreement.

(b) During each Collateral Period, this Security Agreement shall continue to be effective or be automatically reinstated, as the case may be, if at any time payment, in whole or in part, of any of the Secured Obligations is rescinded or must otherwise be restored or returned by the Agent or any Bank as a preference, fraudulent conveyance or otherwise under any bankruptcy, insolvency or similar law, all as though such payment had not been made; provided that in the event payment of all or any part of the Secured Obligations is rescinded or must be restored or returned, all reasonable costs and expenses (including, without limitation, any reasonable legal fees and disbursements) incurred by the Agent or any Bank in defending and enforcing such reinstatement shall be deemed to be included as a part of the Secured Obligations.

15. Amendments and Waivers. Any provision of this Security Agreement may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Borrower and the Required Banks or the Agent on behalf of the Required Banks (and, if the rights or duties of the Agent are affected thereby, by the Agent); provided that no such amendment or waiver shall, unless signed by all the Banks directly affected thereby, release all or substantially all of the Collateral (a sharing of the Collateral with the holders of other Debt of the Borrower and its Subsidiaries in the event the Agent requires additional collateral pursuant to Section 5.19(b) of the Credit Agreement shall not be deemed a release of Collateral for purposes of this Section 15).

16. Successors in Interest; Liability of Agent. This Security Agreement shall create a continuing security interest in the Collateral and shall be binding upon each Obligor, its successors and assigns and shall inure, together with the rights and remedies of the Agent and the Banks hereunder, to the benefit of the Agent and the Banks and their successors and permitted assigns; provided, however, that none of the Obligors may assign its rights or delegate its duties hereunder without the prior written consent of each Bank or the Required Banks, as required by the Credit Agreement. Neither the Agent nor any of its affiliates nor any of their respective directors, officers, agents or employees shall be liable for any action taken or not taken by it in connection herewith in the absence of its own gross negligence or willful misconduct.

17. Notices. All notices required or permitted to be given under this Security Agreement shall be in conformity with Section 9.01 of the Credit Agreement.

18. Counterparts/Telecopy. This Security Agreement may be executed in any number of counterparts, each of which where so executed and delivered shall be an original, but all of which shall constitute one and the same instrument. It shall not be necessary in making proof of this Security Agreement to produce or account for more than one such counterpart. Delivery of executed counterparts of this Security Agreement by telecopy shall be effective as an original and shall constitute a representation that an original shall be delivered.

19. Headings. The headings of the sections and subsections hereof are provided for convenience only and shall not in any way affect the meaning or construction of any provision of this Security Agreement.

20. Governing Law; Submission to Jurisdiction. This Security Agreement shall be governed by and construed in accordance with the laws of the State of New York. Each Obligor hereby submits to

the nonexclusive jurisdiction of the United States District Court for the Southern District of New York and of any New York State court sitting in New York City for purposes of all legal proceedings arising out of or relating to this Security Agreement or the transactions contemplated thereby. Each Obligor irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum.

21. Waiver of Jury Trial. EACH PARTY TO THIS SECURITY AGREEMENT HEREBY EXPRESSLY AND IRREVOCABLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER THIS SECURITY AGREEMENT OR IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO THIS SECURITY AGREEMENT OR THE TRANSACTIONS RELATED THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER FOUNDED IN CONTRACT OR TORT OR OTHERWISE; AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE SIGNATORIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.

22. Severability. If any provision of this Security Agreement is determined to be illegal, invalid or unenforceable, such provision shall be fully severable and the remaining provisions shall remain in full force and effect and shall be construed without giving effect to the illegal, invalid or unenforceable provisions.

23. Entirety. This Security Agreement and the other Financing Documents represent the entire agreement of the parties hereto and thereto, and supersede all prior agreements and understandings, oral or written, if any, including any commitment letters or correspondence relating to the Financing Documents or the transactions contemplated herein and therein.

24. Survival. All representations and warranties of the Obligors hereunder shall survive the execution and delivery of this Security Agreement, the other Financing Documents, the delivery of the Notes, the making of the Loans and the issuance of the Letters of Credit under the Credit Agreement.

25. Other Security. To the extent that any of the Secured Obligations are now or hereafter secured by property other than the Collateral (including, without limitation, real property and securities owned by an Obligor), or by a guarantee, endorsement or property of any other Person, then the Agent and the Banks shall have the right to proceed against such other property, guarantee or endorsement upon the occurrence of any Event of Default, and the Agent and the Banks have the right, in their sole discretion, to determine which rights, security, liens, security interests or remedies the Agent and the Banks shall at any time pursue, relinquish, subordinate, modify or take with respect thereto, without in any way modifying or affecting any of them or any of the Agent’s and the Banks’ rights or the Secured Obligations under this Security Agreement or under any other of the Financing Documents.

26. Joint and Several Obligations of Obligors.

(a) Each of the Obligors is accepting joint and several liability hereunder in consideration of the financial accommodation to be provided by the Banks under the Credit Agreement, for the mutual benefit, directly and indirectly, of each of the Obligors and in consideration of the undertakings of each of the Obligors to accept joint and several liability for the obligations of each of them.

(b) Each of the Obligors jointly and severally hereby irrevocably and unconditionally accepts, not merely as a surety but also as a co-debtor, joint and several liability with the other Obligors with respect to the payment and performance of all of the Secured Obligations arising under this Security Agreement and the other Financing Documents, it being the intention of the parties hereto that all the Obligations shall be the joint and several obligations of each of the Obligors without preferences or distinction among them.

(c) Notwithstanding any provision to the contrary contained herein or in any other of the Financing Documents, to the extent the obligations of an Obligor shall be adjudicated to be invalid or unenforceable for any reason (including, without limitation, because of any applicable state or federal law relating to fraudulent conveyances or transfers) then the obligations of each Obligor hereunder shall be limited to the maximum amount that is permissible under applicable law (whether federal or state and including, without limitation, the Bankruptcy Code).

27. Rights of Required Banks. All rights of the Agent hereunder, if not exercised by the Agent, may be exercised by the Required Banks.

Each of the parties hereto has caused a counterpart of this Security Agreement to be duly executed and delivered as of the date first above written.

OBLIGORS:	CNF INC., a Delaware corporation

	By:	/s/ MARK C. THICKPENNY
	Name:	Mark C. Thickpenny
	Title:	Vice President – Treasurer

	CON-WAY TRANSPORTATION SERVICES,INC., a Delaware corporation

	By:	/s/ MARK C. THICKPENNY
	Name:	Mark C. Thickpenny
	Title:	Assistant Treasurer

	EMERY AIR FREIGHT CORPORATION, a Delaware corporation

	By:	/s/ MARK C. THICKPENNY
	Name:	Mark C. Thickpenny
	Title:	Assistant Treasurer

	MENLO LOGISTICS, INC., a Delaware corporation

	By:	/s/ MARK C. THICKPENNY
	Name:	Mark C. Thickpenny
	Title:	Assistant Treasurer

AGENT:	BANK OF AMERICA, N.A., as Agent

	By:	/s/ CHAS A. MCDONELL
	Name:	Chas A. McDonell
	Title:	Managing Director

Schedule 6(a)

Legal Name, State of Formation, Chief Executive Office Location,

Mergers and Consolidations and Tradenames

[to be completed and attached upon the occurrence of a Collateral Effective Date]

EX-4.13 7 dex413.htm FIRST AMENDMENT TO CREDIT AGREEMENT First Amendment to Credit Agreement

EXHIBIT 4.13

FIRST AMENDMENT

THIS FIRST AMENDMENT (this “Amendment”) dated as of December 21, 2001, to the Credit Agreement referenced below, is by and among CNF Inc., a Delaware corporation (the “Borrower”), the Banks identified on the signature pages hereto and Bank of America, N.A., as Agent. Capitalized terms used herein but not otherwise defined herein shall have the meanings provided to such terms in the Credit Agreement.

W I T N E S S E T H

WHEREAS, a $350 million credit facility has been extended to the Borrower pursuant to the terms of that Credit Agreement (as amended, modified and supplemented from time to time, the “Credit Agreement”) dated as of July 3, 2001 among the Borrower, the Banks party thereto, The Chase Manhattan Bank, as Syndication Agent, PNC Bank, ABN-AMRO Bank, N.V. and Citibank, N.A., as Documentation Agents, and Bank of America, N.A., as Agent;

WHEREAS, pursuant to that Subsidiary Guaranty Agreement (as amended, modified and supplemented from time to time, the “Subsidiary Guaranty Agreement”) dated as of July 3, 2001 among the Borrower, the Subsidiaries of the Borrower identified therein (the “Subsidiary Guarantors”) and the Agent, the Subsidiary Guarantors guarantied the obligations of the Borrower under the Financing Documents;

WHEREAS, the Borrower has requested certain modifications to the Credit Agreement; and

WHEREAS, the Required Banks have agreed to the modifications requested by the Borrower on the terms and conditions set forth herein.

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

1. Amendments.

1.1 The definition of “Financing Documents” in Section 1.01 of the Credit Agreement is amended to read as follows:

“Financing Documents” means this Agreement, the Subsidiary Guaranty Agreement, the Notes, if any, and, after the Collateral Effective Date, the Security Agreement.

1.2 The following definitions are added to Section 1.01 of the Credit Agreement to read as follows:

“Acquisition” means the acquisition (in a single transaction or in a series of related transactions) of a majority of the capital stock (or other equity interest) of another Person (in each case, ordinarily, in the absence of contingencies, entitled to vote in an election of directors) or all or substantially all of the Property of another Person, in each case whether or not involving a merger or consolidation with such other Person; provided, however, that “Acquisition” shall not include the acquisition of aircraft leased by Emery Worldwide Airlines, Inc.

“Additional Collateral Event” shall have the meaning set forth in Section 5.19(b).

“Capital Expenditures” means, with respect to the Borrower and its Subsidiaries on a consolidated basis, all capital expenditures, as determined in accordance with GAAP; provided, however, that Capital Expenditures shall not include (i) Acquisitions, (ii) the acquisition of aircraft leased by Emery Worldwide Airlines, Inc., (iii) expenditures of proceeds of insurance, condemnation awards and other payments in respect of lost, destroyed, damaged or condemned assets to the extent such expenditures are for assets that are the same as or similar to the assets lost, destroyed, damaged or condemned, and (iv) expenditures made with proceeds of equity issued by the Borrower.

“Collateral Effective Date” means any date that the senior unsecured long term debt securities of the Borrower without third party credit enhancement is rated Ba1 or worse by Moody’s and BB+ or worse by S&P.

“Collateral Period” means the period from and after a Collateral Effective Date until a subsequent Collateral Termination Date.

“Collateral Termination Date” means any date after a Collateral Effective Date that the senior unsecured long term debt securities of the Borrower without third party credit enhancement is rated BBB- or better by S&P and Baa3 or better by Moody’s.

“Consolidated Net Tangible Assets” means the lesser of (a) fifteen percent (15%) of the lower of (i) Consolidated Net Tangible Assets (as defined in the 7.35% Notes Indenture) on any Collateral Effective Date and (ii) Consolidated Net Tangible Assets (as defined in the 7.35% Notes Indenture) at any time thereafter and (b) fifteen percent (15%) of Consolidated Net Tangible Assets (as defined in the 6.00% Notes Agreement) as of the last day of the fiscal quarter of the Borrower immediately preceding the date of determination.

“Covenant Release Date” means the first date that the senior unsecured long term debt securities of the Borrower without third party credit enhancement is rated either (a) Baa3 or better by Moody’s and BBB or better by S&P or (b) Baa2 or better by Moody’s and BBB- or better by S&P.

“Domestic Subsidiary” means any Subsidiary that is incorporated or organized under the laws of any state of the United States or the District of Columbia.

“Emery Charge” means the charge taken by the Borrower in its fiscal quarter ending December 31, 2001 related to shutting down the airline operations of Emery Worldwide Airlines, Inc.

“Existing Negative Pledge Debt” means the Debt described on Schedule 5.09 attached to the First Amendment (and any refinancings, renewals or extensions of such Debt provided that (i) the outstanding principal amount of such Debt on the date of such refinancing, renewal or extension is not increased and (ii) the provisions in the indenture or other agreement governing such Debt (or such refinancing, renewal or extension thereof) regarding the granting of Liens to the Agent and the Banks and the sharing of such Liens by the holders of such Debt are no more restrictive than those in effect on December 21, 2001).

“First Amendment” means the First Amendment to this Credit Agreement dated as of December 21, 2001.

“First Amendment Date” means December 21, 2001 (being the date of the First Amendment to Credit Agreement).

“Foreign Subsidiary” means any Subsidiary that is not a Domestic Subsidiary.

“Restricted Action” means (i) any payment of cash consideration for any Acquisition, (ii) any cash dividend or distribution, direct or indirect, on account of any shares of any class of capital stock (or other equity interest) of the Borrower or any Subsidiary, now or hereafter outstanding (including without limitation any payment in connection with any dissolution, merger, consolidation or disposition involving any Subsidiary) other than (A) cash dividends or distributions payable (directly or indirectly through Subsidiaries) to any Obligor and (B) cash dividends or distributions payable to any third party owner of capital stock of (or other equity interest in) a Subsidiary to the extent such dividends or distributions are made on a pro rata basis to all holders, (iii) any cash payment made to redeem, retire, make a sinking fund or similar payment, purchase or otherwise acquire for value, directly or indirectly, any shares of any class of capital stock (or other equity interest) of the Borrower or any Subsidiary, now or hereafter outstanding, (iv) any cash payment made to retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire shares of any class of capital stock (or other equity interest) of the Borrower or any Subsidiary, now or hereafter outstanding and (v) any cash payment to prepay, redeem, defease or acquire for value (including, without limitation, by way of depositing money or securities with the trustee with respect thereto before due for the purpose of paying when due) any Debt (other than (A) Debt under the Financing Documents, (B) Debt owing by one Obligor to another Obligor, (C) Debt relating to the airline operations of Emery Worldwide Airlines, Inc. and facilities used in connection therewith (including the Dayton Hub facility) to the extent such facilities are sold, leased, subleased or otherwise transferred in whole or in part to a third party, and (D) with the proceeds of refinancing Debt) other than regularly scheduled payments of principal and interest on such Debt.

“Security Agreement” means the Security Agreement dated as of December 21, 2001 given by the Obligors (other than Emery Worldwide Airlines, Inc. and CNF Properties, Inc.) to the Agent or, with respect to any Collateral Period other than the initial Collateral Period, as subsequently re-executed by the Obligors in substantially the form of such previously executed Security Agreement, in each case as amended, modified, restated and supplemented from time to time.

“6.00% Notes Agreement” means the Note and Guarantee Agreement dated as of July 1, 1999, as in effect on the First Amendment Date, among the Borrower and CNF Transportation Inc. Thrift and Stock Trust and the purchasers of the 6.00% Senior CNF Plan Guaranteed Notes of the Borrower due January 1, 2006.

“7.35% Notes Indenture” means the Indenture dated as of August 1, 1989, as in effect on the First Amendment Date, between the Borrower and Bank One, NA, as successor Trustee, governing the 7.35% Senior Notes of the Borrower due 2005.

1.3 Article IV of the Credit Agreement is amended as follows:

(a) Clause (c) of Section 4.04 of the Credit Agreement is amended to read as follows:

(c) Other than the Restructuring Charge, the Emery Charge and/or the sale, lease, outsourcing or other transfer of all or a portion of the operations of Emery Worldwide Airlines, Inc., there has been no material adverse change since December 31, 2000 in the business, financial position, results of operations or prospects of the Borrower and its Consolidated Subsidiaries, considered as a whole.

(b) The first sentence of Section 4.09 of the Credit Agreement is amended to read as follows:

Each of the Borrower’s Subsidiaries is a corporation or limited liability company duly incorporated or formed, validly existing and in good standing under the laws of its jurisdiction of incorporation or formation, and has all corporate or limited liability company, as the case may be, powers and (other than Emery Worldwide Airlines, Inc. with respect to its airline operations) all material governmental licenses, authorizations, consents and approvals required to carry, on its business as now conducted.

4.12 Representations and Warranties in the Security Agreement.

During each Collateral Period, each of the representations and warranties contained in Section 6 of the Security Agreement is true and correct in all material respects.

1.4 Section 5.08 of the Credit Agreement is amended to read as follows:

Section 5.08 Minimum Consolidated Net Worth.

Consolidated Net Worth shall not at any time be less than $585,000,000; provided that such amount shall be increased as of the last day of each fiscal year, commencing with the fiscal year ending December 31, 2002, by an amount equal to 50% of the consolidated net income of the Borrower and its Consolidated Subsidiaries for such fiscal year, if such consolidated net income is positive.

1.5 Clause (i) of Section 5.09 of the Credit Agreement is amended to read as follows:

(i) Liens in favor of the Agent (or another collateral agent acceptable to the Agent in its sole discretion) securing:

(a) the obligations of the Obligors under the Financing Documents on terms and conditions reasonably satisfactory to the Agent; and

(b) obligations in respect of other Debt to the extent the grant of the Liens to secure such Debt is required under the indenture or other agreement governing such Debt in connection with the grant of the Liens in favor of the Agent.

1.6 Section 5.12 of the Credit Agreement is amended to read as follows:

Section 5.12 Minimum EBITDAR; Fixed Charge Coverage.

(a) As of the end of the fiscal quarter of the Borrower ending December 31, 2001, the sum of (i) Consolidated EBITDAR for such fiscal quarter plus (ii) the Emery Charge will not be less than $70,000,000.

(b) As of the end of the fiscal quarter of the Borrower ending March 31, 2002, the ratio of (i) Consolidated EBITDAR for such fiscal quarter to (ii) Consolidated Fixed Charges for such fiscal quarter will not be less than 1.750 to 1.0.

(c) As of the end of the fiscal quarter of the Borrower ending June 30, 2002, the ratio of (i) Consolidated EBITDAR for the period of two consecutive fiscal quarters ending as of the last day of such quarter to (ii) Consolidated Fixed Charges for the period of two consecutive fiscal quarters ending as of the last day of such quarter will not be less than 1.875 to 1.0.

(d) As of the end of the fiscal quarter of the Borrower ending September 30, 2002, the ratio of (i) Consolidated EBITDAR for the period of three consecutive fiscal quarters ending as of the last day of such quarter to (ii) Consolidated Fixed Charges for the period of three consecutive fiscal quarters ending as of the last day of such quarter will not be less than 1.875 to 1.0.

(e) As of the end of the fiscal quarter of the Borrower ending December 31, 2002 and as of the end of each fiscal quarter ending thereafter, the ratio of Consolidated EBITDAR for the period of four consecutive fiscal quarters ending as of the last day of such quarter to Consolidated Fixed Charges for the period of four consecutive fiscal quarters ending as of the last day of such quarter will not be less than 1.875 to 1.0.

1.7 Article V of the Credit Agreement is amended by the addition of new Sections 5.15, 5.16, 5.17, 5.18 and 5.19 thereto to read as follows:

Section 5.15 Emery Charge.

The pre-tax amount of the Emery Charge shall not exceed in the aggregate $330,000,000.

Section 5.16 Capital Expenditures.

At any time prior to the Covenant Release Date, the Borrower will not permit Capital Expenditures for any fiscal year set forth below to exceed the amounts set forth below opposite such fiscal year:

Fiscal Year Ending		Maximum Capital Expenditures
December 31, 2002		$150,000,000
December 31, 2003		$200,000,000
December 31, 2004 and thereafter		$225,000,000

plus the unused amount available for Capital Expenditures under this Section 5.16 for the immediately preceding fiscal year (excluding any carry forward available from any prior fiscal year); provided, however, that with respect to any fiscal year, Capital Expenditures

made during such fiscal year shall be deemed to be made first with respect to the applicable limitation for such fiscal year and then with respect to any carry-forward from the immediately preceding fiscal year.

Section 5.17 Restricted Actions.

At any time prior to the Covenant Release Date, the Borrower will not, and will not permit any Subsidiary to make, any Restricted Action, unless (a) the aggregate amount thereof shall not exceed $25,000,000 in any fiscal year of the Borrower and (b) no Default or Event of Default shall exist immediately prior thereto or after giving effect thereto on a pro forma basis; provided that this Section 5.17 will not apply to (i) cash dividends paid with respect to the Borrower’s common stock in any fiscal year in an amount per share equal to the cash dividends per share paid in the Borrower’s fiscal year ending December 31, 2001, (ii) cash dividends paid on the Borrower’s Series B Cumulative Convertible Preferred Stock and conversion of the Borrower’s Series B Cumulative Convertible Preferred Stock into common stock, (iii) purchases of equity by the CNF Thrift and Stock Ownership Trust funded by the Borrower or employee contributions, (iv) purchases of Series B notes issued by CNF Thrift and Stock Ownership Trust to the extent required under Section 2 of the Guarantee and Agreement dated as of July 17, 1989 by CNF and (v) cash dividends paid by CNF Trust I on its convertible securities, conversion of such convertible securities into the Borrower’s common stock or reductions in or repayment of the debentures issued to CNF Trust I in connection with such conversion.

Section 5.18 Joinder of Additional Guarantors to Security Agreement

The Borrower agrees to cause each Subsidiary Guarantor (including each Subsidiary that becomes a Subsidiary Guarantor after the Closing Date (whether before or after a Collateral Effective Date) but excluding Emery Worldwide Airlines, Inc. and CNF Properties, Inc.) to (a) execute and deliver to the Agent a counterpart to the Security Agreement pursuant to which such Subsidiary Guarantor shall become a party to the Security Agreement and an “Obligor” for all purposes thereof and (b) deliver such letter such supporting resolutions, incumbency certificates, corporate formation and organizational documentation and opinions of counsel as the Agent may reasonably request.

Section 5.19 Legal Opinion; Collateral; No Negative Pledges; Subsequent Collateral Period.

(a) Delivery of Legal Opinion After Collateral Effective Date. Within ten (10) Business Days after each Collateral Effective Date, the Borrower shall deliver to the Agent an opinion of counsel to the Obligors relating to the Security Agreement in substantially the form of Exhibit B hereto.

(b) Additional Collateral. If at any time during any Collateral Period Aggregate Usage exceeds Consolidated Net Tangible Assets (the “Additional Collateral Event”), then (a) the Borrower shall promptly notify the Agent thereof, (b) if requested by the Agent in its sole discretion, the Borrower shall, and shall cause its Subsidiaries to, grant a lien in such property (real and personal, tangible and intangible, including, without limitation, capital stock of Subsidiaries) as the Agent may reasonably request (subject to applicable legal and contractual restrictions) pursuant to one or more security agreements, pledge

agreements, mortgages, deeds of trust and other documents, agreement or instruments in form and substance reasonably satisfactory to the Agent and (c) deliver such other documents, agreements and instruments as the Agent may reasonably request in connection with the foregoing, including, without limitation, real estate title insurance policies, surveys, environmental reports, landlord’s waivers, stock certificates and related undated stock powers executed in blank, certified resolutions and other organizational and authorizing documents, favorable opinions of counsel, all in form and substance reasonably satisfactory to the Agent. The Agent and the Banks agree that upon the occurrence of an Additional Collateral Event, the Agent and the Banks (i) will require the Borrower and its Subsidiaries to grant a lien in such property only as is, in the Agent’s reasonable judgment, necessary to cause the Aggregate Usage to be sufficiently collateralized (after taking into account any other Debt that shares in the collateral) as reasonably determined by the Agent, (ii) will not require the Borrower and its Subsidiaries to grant a lien in any property other than accounts receivable if the accounts receivable of the Borrower and its Subsidiaries can sufficiently collaterize the Aggregate Usage (after taking into account any other Debt that shares in the collateral) as reasonably determined by the Agent and (iii) will not require the Borrower and its Subsidiaries to grant a lien on the assets of any Foreign Subsidiary or to pledge more than sixty-five percent (65%) of the stock of any Foreign Subsidiary.

(c) No Further Negative Pledges. The Borrower will not, and will not permit any Domestic Subsidiary that is a Wholly-Owned Subsidiary to, to enter into, assume or become subject to any agreement prohibiting or otherwise restricting the creation or assumption of any Lien in favor of the Agent and the Banks to secure the Debt under the Financing Documents upon its properties or assets, whether now owned or hereafter acquired, or requiring the grant of any security for any obligation if security is given in favor of the Agent and the Banks to secure the Debt under the Financing Documents (including, without limitation, any agreement governing Debt that requires that such Debt share in any Liens granted to the Agent, for the benefit of the Banks, to secure the Debt under the Financing Documents), except for any such prohibitions or restrictions contained in:

(i) the Financing Documents;

(ii) the agreement or instrument governing any purchase money Debt but only to the extent such prohibitions or restrictions relate only to the property that is the subject of such purchase money financing;

(iii) any intellectual property license in which the Borrower or any Subsidiary is the licensee but only to the extent such limitations relate only to the property that is the subject of such license;

(iv) any operating lease in which the Borrower or any Subsidiary is the lessee but only to the extent such limitations relate only to the property that is the subject of such lease;

(v) any asset sale agreement (or other agreements governing the sale, lease or other disposition of assets (including stock)) but only to the extent such limitations relate only to the property that is the subject of such transaction;

(vi) the indentures or other agreements governing the Existing Negative Pledge Debt, so long as such prohibitions or restrictions are no more restrictive than those in effect on December 21, 2001;

(vii) the indentures or other agreements governing any other Debt of the Borrower and its Subsidiaries (the “Additional Negative Pledge Debt”), provided that (A) the aggregate amount of the Additional Negative Pledge Debt shall not exceed $100,000,000 at any time outstanding, (B) during any Collateral Period, the Borrower shall not incur any Additional Negative Pledge Debt if, after giving effect to such incurrence, the aggregate amount of all Additional Negative Pledge Debt outstanding would exceed seven and one-half percent (7.5%) of Consolidated Net Worth as of the date of the incurrence, and (C) such prohibitions or restrictions shall not be more restrictive than such prohibitions and restrictions contained in the 7.35% Notes Indenture.

(d) Subsequent Collateral Period. Upon the commencement of any Collateral Period (other than the initial Collateral Period), the Borrower and each Subsidiary Guarantor (other than Emery Worldwide Airlines, Inc. and CNF Properties, Inc.) shall execute and deliver a security agreement in substantially the form of Exhibit B hereto to be effective as of the commencement of such Collateral Period.

1.11 Section 6.01 of the Credit Agreement is amended by the addition of a new clause (n) immediately following clause (m) thereof to read as follows:

(n) during any Collateral Period, the Security Agreement shall fail to be in full force and effect or shall fail to give the Agent the security interests and liens purported to be created thereby;

2. Conditions Precedent. This Amendment shall be effective as of the date hereof upon satisfaction of the following conditions precedent:

(a) receipt by the Agent of multiple counterparts of this Amendment executed by the Borrower and the Required Banks;

(b) receipt by the Agent of a security agreement, in substantially the form of Exhibit A hereto, executed by the Obligors (other than Emery Worldwide Airlines, Inc. and CNF Properties, Inc.) and the Agent;

(c) receipt by the Agent of an opinion or opinions of counsel to the Obligors relating to this Amendment in form and substance reasonably satisfactory to the Agent;

(d) receipt by the Agent, for the ratable benefit of the Banks that execute and deliver signature pages to this Amendment prior to December 28, 2001 (the “Approving Banks”), of an amendment fee equal to fifteen basis points (0.15%) on the aggregate Commitments of the Approving Banks; and

(e) receipt by the Agent of all other fees and expenses due in connection with this Amendment.

3. Reaffirmation of Representations and Warranties. The Borrower hereby affirms that the representations and warranties set forth in the Credit Agreement are true and correct in all material

respects as of the date hereof after giving effect to this Amendment (except those that expressly relate to an earlier date in which case such representations and warranties were true and correct as of such earlier date).

4. Authority/Enforceability. The Borrower represents and warrants as follows:

(a) The Borrower has taken all necessary action to authorize the execution, delivery and performance of this Amendment.

(b) This Amendment has been duly executed and delivered by the Borrower and constitutes the Borrower’s legal, valid and binding obligations, enforceable in accordance with its terms, except as such enforceability may be subject to (i) bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer, moratorium or similar laws affecting creditors’ rights generally and (ii) general principles of equity (regardless of whether such enforceability is considered in a proceeding at law or in equity).

(c) No consent, approval, authorization or order of, or filing, registration or qualification with, any court or Governmental Authority or third party is required in connection with the execution, delivery or performance by the Borrower of this Amendment.

5. Instrument Pursuant to Credit Agreement. This Amendment is a Financing Document executed pursuant to the Credit Agreement and shall (unless otherwise expressly indicated therein) be construed, administered and applied in accordance with the terms and provisions of the Credit Agreement.

6. No Other Changes. Except as expressly modified hereby, all of the terms and provisions of the Credit Agreement and the other Financing Documents (including schedules and exhibits thereto) shall remain in full force and effect.

7. Counterparts/Telecopy. This Amendment may be executed in any number of separate counterparts, each of which, when so executed, shall be deemed an original and it shall not be necessary in making proof of this Amendment to produce or account for more than one such counterpart. Delivery of executed counterparts of this Amendment by telecopy shall be effective as an original and shall constitute a representation that an original shall be delivered.

8. No Waiver. The execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of the Banks or the Agent under the Financing Documents or constitute a waiver of any provision of the Credit Agreement or any of the other Financing Documents.

9. General Release. In consideration of the Required Banks entering into this Amendment, the Borrower hereby releases the Agent, the Banks and the Agent’s and the Banks’ respective officers, employees, representatives, agents, counsel and directors from any and all actions, causes of action, claims, demands, damages and liabilities of whatever kind or nature, in law or in equity, not known or unknown, suspected or unsuspected, to the extent that any of the foregoing arises from any action or failure to act under the Credit Agreement or any other Financing Document on or prior to the date hereof.

10. Governing Law. This Amendment shall be deemed to be a contract made under, and for all purposes shall be construed in accordance with, the laws of the State of New York.

[Remainder of Page Intentionally Left Blank]

IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this First Amendment to be duly executed and delivered as of the date first above written.

BORROWER:	CNF INC., a Delaware corporation

	By:	/s/ MARK C. THICKPENNY
	Name:	Mark C. Thickpenny
	Title:	Vice President – Treasurer

ADMINISTRATIVE AGENT	BANK OF AMERICA, N.A., corporation in its capacity as Agent

	By:	/s/ CHAS A. MCDONELL
	Name:	Chas A. McDonell
	Title:	Managing Director

BANKS	BANK OF AMERICA, N.A.,

	By:	/s/ CHAS A. MCDONELL
	Name:	Chas A. McDonell
	Title:	Managing Director

						PNC BANK

						By:		/s/ BRUCE G. SHEARER
						Name:		Bruce G. Shearer
						Title:		Vice President

						U.S. BANK NATIONAL ASSOCIATION

						By:		/S/ AARON J. GORDAN
						Name:		Aaron J. Gordan
						Title:		Vice President

						MELLON BANK, N.A.

						By:		/s/ J. CATE
						Name:		J. Cate
						Title:		Vice President

						ABN AMRO BANK N.V.

						By:		/s/ JOHN L. CHURCH
						Name:		John L. Church
						Title:		Senior Vice President

[Signature Pages Continue]

THE CHASE MANHATTAN BANK

By:		/s/ KAREN MAY SHARF
Name:		Karen May Sharf
Title:		Vice President

THE BANK OF NEW YORK

By:		/s/ ELIZABETH YING
Name:		Elizabeth Ying
Title:		Vice President

PB CAPITAL CORPORATION

By:		/s/ TYLER J. MCCARTHY
Name:		Tyler J. McCarthy
Title:		Associate


By:		/s/ JEFFREY FROST
Name:		Jeffrey Frost
Title:		Managing Director

CITICORP USA, INC.

By:		/s/ GEORGE E. MOYER JR.
Name:		George E. Moyer Jr.
Title:		Vice President

[Signature Pages Continue]

Each of the undersigned Subsidiary Guarantors, by executing this Amendment below, (a) acknowledges and consents to all of the terms and conditions of this Amendment, (b) affirms all of its obligations under the Financing Documents and (c) agrees that this Amendment and all documents executed in connection herewith do not operate to reduce or discharge such Subsidiary Guarantor’s obligations under the Financing Documents.

SUBSIDIARY GUARANTORS:	CON-WAY TRANSPORTATION SERVICES, INC.

	By:	/s/ MARK C. THICKPENNY
	Name:	Mark C. Thickpenny
	Title:	Assistant Treasurer

						EMERY AIR FREIGHT CORPORATION

						By:		/s/ MARK C. THICKPENNY
						Name:		Mark C. Thickpenny
						Title:		Assistant Treasurer

						EMERY WORLDWIDE AIRLINES, INC.

						By:		/s/ MARK C. THICKPENNY
						Name:		Mark C. Thickpenny
						Title:		Assistant Treasurer

						MENLO LOGISTICS, INC.

						By:		/s/ MARK C. THICKPENNY
						Name:		Mark C. Thickpenny
						Title:		Assistant Treasurer

						CNF PROPERTIES, INC.

						By:		/s/ MARK C. THICKPENNY
						Name:		Mark C. Thickpenny
						Title:		Treasurer

EX-4.14 8 dex414.htm SECOND AMENDMENT TO CREDIT AGREEMENT Second Amendment to Credit Agreement

EXHIBIT 4.14

SECOND AMENDMENT

THIS SECOND AMENDMENT (this “Amendment”) dated as of February 22, 2002, to the Credit Agreement referenced below, is by and among CNF Inc., a Delaware corporation (the “Borrower”), the Banks identified on the signature pages hereto and Bank of America, N.A., as Agent. Capitalized terms used herein but not otherwise defined herein shall have the meanings provided to such terms in the Credit Agreement.

W I T N E S S E T H

WHEREAS, the Borrower proposes to increase the aggregate amount of Commitments to $385,000,000 by the addition of a new Lender with a Commitment of $35,000,000 (the “New Commitment”);

WHEREAS, Section 2.01(b) of the Credit Agreement permitted the Borrower to increase the aggregate amount of Commitments by $50,000,000 within 90 days of the Closing Date;

WHEREAS, the Borrower has requested that the Required Banks agree to extend the 90 day period set forth in Section 2.01(b) to 270 days in order to allow the Borrower to obtain the New Commitment; and

WHEREAS, the Required Banks have agreed to the modifications requested by the Borrower on the terms and conditions set forth herein.

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

1. Amendment. In Section 2.01(b), the reference to “90 days” is amended to read “270 days”.

2. Conditions Precedent. This Amendment shall be effective as of the date hereof upon receipt by the Agent of multiple counterparts of this Amendment executed by the Borrower and the Required Banks.

3. Authority/Enforceability. The Borrower represents and warrants as follows:

(a) The Borrower and each Subsidiary Guarantor has taken all necessary action to authorize the execution, delivery and performance of this Amendment.

(b) This Amendment has been duly executed and delivered by the Borrower and each Subsidiary Guarantor and the Credit Agreement, as amended by this Amendment, constitutes the legal, valid and binding obligation of the Borrower, enforceable in accordance with its terms, except as such enforceability may be subject to (i) bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer, moratorium or similar laws affecting creditors’ rights generally and (ii) general principles of equity (regardless of whether such enforceability is considered in a proceeding at law or in equity).

4. Reaffirmation of Representations and Warranties. The Borrower hereby affirms that the representations and warranties set forth in the Credit Agreement are true and correct in all material respects as of the date hereof after giving effect to this Amendment (except those that expressly relate to an earlier date in which case such representations and warranties were true and correct as of such earlier date).

9. Governing Law. This Amendment shall be deemed to be a contract made under, and for all purposes shall be construed in accordance with, the laws of the State of New York.

[Remainder of Page Intentionally Left Blank]

IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Amendment to be duly executed and delivered as of the date first above written.

BORROWER:	CNF INC., a Delaware corporation

	By:	/s/ MARK C. THICKPENNY
	Name:	Mark C. Thickpenny
	Title:	Vice President – Treasurer

ADMINISTRATIVE AGENT	BANK OF AMERICA, N.A., corporation in its capacity as Agent

	By:	/s/ CHAS A. MCDONELL
	Name:	Chas A. McDonell
	Title:	Managing Director

BANKS						BANK OF AMERICA, N.A.,

						By:
						Name:
						Title:

						PNC BANK

						By:
						Name:
						Title:

						U.S. BANK NATIONAL ASSOCIATION

						By:
						Name:
						Title:

						MELLON BANK, N.A.

						By:
						Name:
						Title:

						ABN AMRO BANK N.V.

						By:		/s/ MARY L. HONDA
						Name:		Mary L. Honda
						Title:		Group Vice President

[Signature Pages Continue]

THE CHASE MANHATTAN BANK

By:		/s/ KAREN MAY SHARF
Name:		Karen May Sharf
Title:		Vice President

THE BANK OF NEW YORK

By:		/s/ ELIZABETH T. YING
Name:		Elizabeth T. Ying
Title:		Vice President

PB CAPITAL CORPORATION

By:
Name:
Title:


By:
Name:
Title:

CITICORP USA, INC.

By:		/s/ WALT LARSEN
Name:		Walt Larsen
Title:		Managing Director

[Signature Pages Continue]

SUBSIDIARY GUARANTORS:	CON-WAY TRANSPORTATION SERVICES, INC.

	By:	/S/ MARK C. THICKPENNY
	Name:	Mark C. Thickpenny
	Title:	Assistant Treasurer

						EMERY AIR FREIGHT CORPORATION

						By:		/s/ MARK C. THICKPENNY
						Name:		Mark C. Thickpenny
						Title:		Assistant Treasurer

						EMERY WORLDWIDE AIRLINES, INC.

						By:		/s/ MARK C. THICKPENNY
						Name:		Mark C. Thickpenny
						Title:		Assistant Treasurer

						MENLO LOGISTICS, INC.

						By:		/s/ MARK C. THICKPENNY
						Name:		Mark C. Thickpenny
						Title:		Assistant Treasurer

						CNF PROPERTIES, INC.

						By:		/s/ MARK C. THICKPENNY
						Name:		Mark C. Thickpenny
						Title:		Vice President – Treasurer

EX-10.30 9 dex1030.htm AMENDMENT NO. 1 DATED JUNE 28, 1999 Amendment No. 1 dated June 28, 1999

Exhibit 10.30

AMENDMENT NO. 1

CNF TRANSPORTATION INC.

DEFERRED COMPENSATION PLAN

1998 RESTATEMENT

CNF Transportation Inc. (the “Company”) maintains the Deferred Compensation Plan for Executives (the “Plan”) to allow executives of the Company and its affiliates to defer payment of short-term and long-term compensation. The Company has adopted a new Value Management Plan that provides for certain long-term incentive compensation awards to be made to specified executives of the Company and its affiliates, and wishes to amend the Deferred Compensation Plan for Executives to permit the deferral of such awards.

The Company adopted this Plan effective October 1, 1993 as a successor to the Prior Plan, which operated for the nine month period ending September 30, 1993. The Plan was restated with a general effective date of January 1, 1996. The Company’s name changed in connection with a corporate reorganization involving the distribution on December 2, 1996 of CFC stock to the Company’s shareholders. In order to reflect the new Company name and to make various administrative and clarifying changes, the Company adopted the 1998 Restatement of the Plan effective January 1, 1998.

The Company hereby amends the 1998 Restatement of the Plan as follows (capitalized terms used herein without definition have the meanings given to those terms in the 1998 Restatement), and the Plan as amended hereby shall be restated in a new 1999 Restatement.

1. Change in Definition of “Account Balance.” The definition of the term “Account Balance” set forth in Section 1.1 of the Plan is amended by deleting the first sentence thereof in its entirety and substituting therefor the following:

“Account Balance” means the sum of (i) the total of a Participant’s Annual Deferral Amounts, plus (ii) the total of a Participant’s deferred ROE Awards and deferred Value Management Awards, in each case credited as of the date immediately following the end of the applicable award cycle, plus (iii) the return credited in accordance with the Plan, reduced by (iv) all distributions made pursuant to the terms and conditions of this Plan.”

2. Change in Definition of “Annual Bonus.” The definition of the term “Annual Bonus” set forth in Section 1.2 of the Plan is amended in its entirety so as to read as follows:

“Annual Bonus” means any bonus or incentive compensation, other than an ROE Award or a Value Management Award, earned by a Participant in each Plan Year under all cash bonus and incentive plans of the Company, and any subsidiary, whether or not paid in such Plan Year.”

3. Change in Definition of “Change in Control.” The definition of the term “Change in Control” set forth in Section 1.9 of the Plan is amended in its entirety so as to read as follows:

“Change in Control” means a change in control of the Company, which will be deemed to have occurred if:

(a)

any “person,” as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended from time to time (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;

(b)

the following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on June 28, 1999, 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 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 June 28, 1999 or whose appointment, election or nomination for election was previously so approved or recommended;

(c)

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

(d)

4. New Definition of “Value Management Award.” Article 1 of the Plan is amended by adding the following new definition of “Value Management Award”:

“Value Management Award” means the Participant’s Award for an award cycle under the CNF Transportation Inc. Value Management Plan, as amended from time to time.”

5. Amendment to Section 3.1. Section 3.1 of the Plan is amended in its entirety so as to read as follows:

“3.1

Minimum Deferral.

(a)

Minimum. A Participant may not elect to defer less than

$2,000 of Base Annual Salary for any Plan Year, less than $2,000 of Annual Bonus for any Plan Year, less than $2,000 of any ROE Award for an award cycle, nor less than $2,000 of any Value Management Award for any award cycle.

(b)

Short Participation Year. If a Participant’s Plan Entry Date is July 1 of any Plan Year, he must defer a minimum of $1,000 of Base Annual Salary, a minimum of $1,000 of Annual Bonus, a minimum of $1,000 of any ROE Award, or a minimum of $1,000 of any Value Management Award for such Plan Year.”

6. Amendment to Section 3.2. Section 3.2 is amended by adding a new subsection (c) to read as follows:

“(c)

Value Management Awards. For each award cycle under the CNF Transportation Inc. Value Management Plan (as amended from time to time), a Participant who also participates in that plan may defer up to 100 percent of the Participant’s Value Management Award for that award cycle stated as a dollar or percentage amount.”

7. Amendment to Section 3.3. Section 3.3 is amended by deleting the last sentence thereof and substituting therefor the following:

“If the Election Form is not delivered prior to the Plan Entry Date for a Plan Year, no Annual Deferral Amount shall be deferred for that Plan Year and no ROE Award or Value Management Award shall be deferred for the award cycle beginning with that Plan Year.”

8. Amendment to Section 3.4. Section 3.4 is amended by deleting the last sentence thereof and substituting therefor the following:

“The deferred portion of an ROE Award, and the deferred portion of a Value Management Award, shall be withheld at the time such ROE Award or Value Management Award otherwise would be paid to the Participant.”

9. Amendment to Section 3.5. Section 3.5 is amended in its entirety so as to read as follows:

“3.5

FICA Tax. Any applicable FICA and other payroll taxes on amounts deferred under this Article, including ROE Awards and Value Management Awards, may be withheld from that portion of the Participant’s Base Salary, Annual Bonus, ROE Award

and/or Value Management Award that is not being deferred. If necessary, the Committee may reduce the amount of Base Annual Salary, Annual Bonus, ROE Award and/or Value Management Award deferred, in order to enable the Company to withhold all applicable FICA and other payroll taxes on amounts deferred under this Article.”

10. Amendment to Section 3.6. Section 3.6 is amended by deleting the first three sentences thereof in their entirety and substituting therefor the following:

“Prior to any distribution of benefits under Articles 4, 5, 6 or 7, returns shall be credited to a Participant’s Account Balance as though the Annual Deferral Amount for that Plan Year was withheld on the Participant’s Plan Entry Date for that Plan Year. Returns shall be credited on a deferral from an ROE Award or a Value Management Award as though the deferral amount was withheld on the day immediately following the last day the applicable award cycle. Each Participant’s Account Balance shall be compounded annually, using the Moody’s Seasoned Corporate Bond Rate, or such other rate as the Committee may determine in its sole discretion prior to the beginning of a Plan Year.”

11. Amendment to Section 4.1(a). Section 4.1(a) is hereby amended in its entirety so as to read as follows:

“(a)

In the event that a Participant elects to defer an Annual Deferral Amount, an ROE Award and/or a Value Management Award in a Plan Year, such Participant may, subject to subsection (b), elect to receive all, but not less than all, of the amounts so deferred as a lump sum distribution (“Pre-Retirement Distribution”) on a specified date prior to such Participant’s Retirement. The Pre-Retirement Distribution shall be in an amount equal to the amounts so deferred, plus returns credited in accordance with Section 3.6, and shall be paid within 60 days following the first day of the Plan Year chosen by the Participant on the Election Form for such distribution. The earliest date that a Participant may receive a Pre-Retirement Distribution is 5 years after the first day of the Plan Year in which such deferral occurs.”

12. Amendment to Section 5.2. Section 5.2 is hereby amended be deleting the last paragraph thereof in its entirety and substituting therefor the following:

“Notwithstanding the foregoing, if a Participant’s Account Balance is

under $25,000 on the date of Retirement, such Account Balance shall be paid to the Participant in a lump sum as soon as practicable following the date of such Retirement.”

13. Amendment to Section 7.2(b). Section 7.2(b) is hereby amended in its entirety so as to read as follows:

“(b)

If a Participant’s Termination Benefit is under $25,000 on the date of such Participant’s Termination of Employment, such Termination Benefit shall be paid to the Participant in a lump sum as soon as practicable following the date of such Termination of Employment.”

14. Effective Date; No Other Amendments. The effective date of this Amendment shall be June 28, 1999. Except as expressly amended hereby, the 1998 Restatement remains in full force and effect.

CNF TRANSPORTATION INC.

By:
		Eberhard G.H. Schmoller Senior Vice President, General Counsel and Secretary
Executed: June 28, 1999

EX-10.31 10 dex1031.htm AMENDMENT NO. 2 DATED AUGUST 21, 2000 Amendment No. 2 dated August 21, 2000

Exhibit 10.31

AMENDMENT NO. 2

CNF TRANSPORTATION INC.

DEFERRED COMPENSATION PLAN

1998 RESTATEMENT

CNF Transportation Inc. (the “Company”) maintains the Deferred Compensation Plan for Executives Plan (the “Plan”) to allow executives of the Company and its affiliates to defer payment of short-term and long-term executive compensation. The Company hereby amends the Plan as follows (capitalized terms used herein without definition have the meanings given to those terms in the Plan).

1. Change in Definition of “Change in Control.” The definition of the term “Change in Control” appearing in Section 1.9 of the Plan is amended by adding the following new clauses (e) and (f):

“(e)

there is consummated the sale by the Company of at least two of the three primary business units of the Company, whether in a single transaction or in a series of transactions occurring within an 18-month period; provided, however, that this clause (e) shall apply only to Participants who are employed by the Company and shall not apply to Participants who are employed by the Company’s business units; and provided further, that the Board of Directors of the Company may, upon notice to the affected Participants given at any time, terminate this clause (e) without the consent of such Participants, except that any such notice shall not be effective to terminate this clause (e) if a Change in Control occurs pursuant to this clause (e) within ninety (90) days after such notice is given; or

(f)

there is consummated the sale of one of the primary business units of the Company, or the sale of the Emery Worldwide Airlines, Inc. business unit; provided, however, that this clause (f) shall apply only to Participants (i) who, immediately prior to such sale, were employed by the primary business unit that is sold and (ii) who are not employed by the Company or any of its Subsidiaries immediately following such sale or other disposition.

As used in clauses (e) and (f) above:

(i)

“primary business units” means Con-Way Transportation Services, Inc., Emery Air Freight Corporation and Menlo Logistics, Inc., and

(ii)

a “sale” of a business unit means:

(A)

a sale by the Company of the then outstanding shares of capital stock of the business unit having more than 50% of the then existing voting power of all outstanding securities of the business unit, whether by merger, consolidation or otherwise;

(B)

the sale of all or substantially all of the assets of the business unit; or

(C)

any other transaction or course of action engaged in, directly or indirectly, by the Company or the business unit that has a substantially similar effect as the transactions of the type referred to in clause (A) or (B) above;

The foregoing notwithstanding, a sale of a business unit shall not be deemed to have occurred for purposes of clauses (e) and (f) above (x) except in the case of a transaction described in clause (B) above, so long as the Company or any of its Affiliates (as such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended), individually or collectively, own the then outstanding shares of capital stock of the business unit having 50% or more of the then existing voting power of all outstanding securities of the business unit, (y) in the event of the sale of shares of capital stock of the business unit to any trustee or other fiduciary holding securities under an employee benefit plan of the Company, the business unit or any other Affiliate of the Company, or (z) in the event of the sale or distribution of shares of capital stock of the business unit to shareholders of the Company, or the sale of assets of the business unit to any corporation or other entity owned, directly or indirectly, by the shareholders of the Company, in either case in substantially the same proportions as their ownership of stock in the Company.

2. Effective Date; No Other Amendments. The effective date of this Amendment shall be August 21, 2000. Except as expressly amended hereby, the Plan remains in full force and effect.

CNF TRANSPORTATION INC.

By:
Name: Eberhard G.H. Schmoller Title: Senior Vice President, General Counsel and Secretary
Executed: August 21, 2000

EX-10.32 11 dex1032.htm AMENDMENT NO. 3 DATED JANUARY 1, 2001 Amendment No. 3 dated January 1, 2001

Exhibit 10.32

AMENDMENT No. 3

CNF TRANSPORTATION INC.

DEFERRED COMPENSATION PLAN FOR EXECUTIVES

1998 RESTATEMENT

(INCORPORATING AMENDMENTS 1 AND 2 THERETO)

WHEREAS, CNF Transportation Inc. (the “Company”) has previously adopted the Deferred Compensation Plan for Executives, as amended and restated (the “Plan”);

WHEREAS, pursuant to Section 11.2 of the Plan, the Board of Directors of the Company (the “Board”) may amend or modify the Plan in whole or in part;

WHEREAS, the Board has delegated to the Compensation Committee such authority to amend or modify the Plan; and

WHEREAS, the Committee has determined that it is in the best interests of the Company and its stockholders to amend the Plan to provide its participants with an opportunity to allocate all or a portion of their existing Plan account balance to a phantom stock account;

NOW, THEREFORE, the Plan is hereby amended as follows, effective (a) with respect to those Participants (as defined in the Plan) who are currently subject to the Company’s stock ownership guidelines, as of January 1, 2001 and (b) with respect to all other Participants, as of January 1, 2002 :

1. The first sentence of Section 1.1 of the Plan is amended in its entirety as follows:

“Account Balance” means the sum of (i) amounts credited to a Participant’s Cash Account, plus (ii) Phantom Stock Units credited to a Participant’s Phantom Stock Account, reduced by (iii) all distributions made pursuant to the terms and conditions of this Plan. Amounts credited to a Participant’s Cash Account shall derive from Annual Deferral Amounts, the Participant’s deferred ROE Awards and deferred Value Management Awards, in the latter two cases to be credited as of the date immediately following the end of the applicable award cycle.

2. Article 1 of the Plan is amended by inserting a new Section 1.8 as follows, and renumbering the remainder of such Article 1 accordingly:

1.8

“Cash Account” shall mean that portion of a Participant’s Account Balance that is not credited to such Participant’s Phantom Stock Account.

3. Article 1 of the Plan (as amended by paragraph 2 above) is amended by inserting a new Section 1.14 as follows, and renumbering the remainder of Article 1 accordingly:

1.14

“Common Stock” means the common stock, par value $0.625 per share, of the Company.

4. Article 1 of the Plan (as amended by paragraphs 2 and 3 above) is amended by inserting a new Section 1.17 as follows, and renumbering the remainder of Article 1 accordingly:

1.17

“Dividend Equivalent” means an amount representing the dividend paid on that number of shares of Common Stock equal to the number of Phantom Stock Units credited to a Participant’s Phantom Stock Account as of the record date for such dividend.

5. Article 1 of the Plan (as amended by paragraphs 2-4 above) is amended by inserting a new Section 1.20 as follows, and renumbering the remainder of such Article 1 accordingly:

1.20

“Fair Market Value” of a share of Common Stock as of a particular date shall mean the closing price per share of Common Stock on the New York Stock Exchange on the last trading day immediately preceding such date; provided, however, that, with respect calculations made pursuant to Section 3.6(b), relating to the crediting of an Investment Change (as defined in Section 3.3(b), the Fair Market Value of a share of Common Stock shall mean the closing price per share of Common Stock on the New York Stock Exchange on February 1 of the relevant year (or, if February 1 falls on a non-trading day, the immediately preceding trading day).

6. Article 1 of the Plan (as amended by paragraphs 2-5 above) is amended by inserting a new Section 1.23 as follows, and renumbering the remainder of such Article 1 accordingly:

1.23

“Phantom Stock Account” shall mean that portion of a Participant’s Account Balance which is credited with Phantom Stock Units as set forth in Section 3.6(b).

7. Article 1 of the Plan (as amended by paragraphs 2-6 above) is amended by inserting a new Section 1.24 as follows, and renumbering the remainder of such Article 1 accordingly:

1.24

“Phantom Stock Unit” shall mean a unit which shall at all times be equal in value to one whole share of Common Stock.

8. Section 3.3 of the Plan is amended by inserting prior to the first sentence thereof the phrase “(a) Annual Deferrals”, and by inserting a new Section 3.3(b), as set forth below:

(b)

Annual Election of Phantom Stock Units. During January of each Plan Year, each Participant shall have the opportunity to elect (an “Investment Change”) to transfer all or a portion of such Participant’s Cash Account to such Participant’s Phantom Stock Account; provided, however, that an Investment Change may not be elected with respect to any portion of a Participant’s Cash Account that has been designated for a Pre-Retirement Distribution, as defined in Section 4.1 (the “Excluded

Portion”). The amount to be subject to an Investment Change may be determined as a dollar amount or a percentage of the Participant’s Cash Account (excluding the Excluded Portion); provided, however, that no less than five thousand dollars ($5,000) may be made subject to an Investment Change. The amount subject to an Investment Change shall be transferred, first, from such Participant’s earliest deferral under the Plan, and thereafter from subsequent deferrals under the Plan in the order in which they were elected until the entire amount subject to the Investment Change shall have been transferred. Each Investment Change made pursuant to this Section 3.3(b) shall be irrevocable. An Investment Change shall be effective as of February 1 of the Plan Year in which the election is made. The number of Phantom Stock Units to be credited to a Participant’s Phantom Stock Account pursuant to an Investment Change shall be determined in accordance with Section 3.6(b).

9. Section 3.6 of the Plan is amended in its entirety as follows:

3.6.

Returns and Crediting of Phantom Stock Units and Dividend Equivalents During Deferral Period. Prior to any distribution of benefits under Articles 4, 5, 6 or 7, returns in respect of a Participant’s Cash Account and Phantom Stock Units in respect of a Participants’ Phantom Stock Account shall be credited as follows:

(a)

Cash Account. With respect to the portion of an Annual Deferral Amount for a Plan Year which a Participant has elected to have credited to his or her Cash Account, returns shall be credited to such Participant’s Cash Account as though such Annual Deferral Amount was withheld on the Participant’s Plan Entry Date for that Plan Year. With respect to the portion of a deferred ROE Award or a deferred Value Management Award which a Participant has elected to have credited to his or her Cash Account, returns shall be credited to such Participant’s Cash Account as though the deferral amount was withheld on the day immediately following the last day of the applicable award cycle. The balance in each Participant’s Cash Account shall be compounded annually, using the Moody’s Seasoned Corporate Bond Rate, or such other rate as the Committee may determine in its sole discretion prior to the beginning of a Plan Year. For this purpose, (i) amounts that are transferred to a Participant’s Phantom Stock Account in a Plan Year pursuant to an Investment Change shall be credited with a return in respect of such Plan Year equal to one-twelfth (1/12) of the return for the full Plan Year and (ii) in the event of Retirement, death or a Termination of Employment prior to the end of a Plan Year, that Plan Year’s return will be calculated using a fraction of a full Plan Year’s return, based on the number of days the Participant was employed with the Employer during the Plan Year prior to the occurrence of such event.

(b)

Phantom Stock Account. A Participant’s Phantom Stock Account shall consist of that number of Phantom Stock Units credited with respect to (i) amounts transferred pursuant to an Investment Change in accordance with Section 3.3(b) and (ii) Dividend Equivalents credited in respect of Phantom Stock Units previously credited to the Participant’s Phantom Stock Account, in each case as set forth below:

(i)

The number of Phantom Stock Units to be credited to a Participant’s Phantom Stock Account pursuant to an Investment Change shall be determined by dividing (A) the dollar amount subject to the Investment Change by (B) the Fair Market Value per share of Common Stock as of February 1 of the Plan Year to which the Investment Change relates; and

(ii)

The number of Phantom Stock Units to be credited to a Participant’s Phantom Stock Account in respect of Dividend Equivalents shall be equal to (A) the per share dividend paid on a share of Common Stock, multiplied by (B) the number of Phantom Stock Units credited to the Participant’s Phantom Stock Account as of the record date for such dividend, divided by (C) the Fair Market Value per share of Common Stock as of the payment date for such dividend, such crediting to be made as of such payment date.

10. Section 3.7 of the Plan is amended by (i) deleting the reference to “Account Balances” in the first sentence thereof and inserting in lieu thereof the phrase “A Participant’s Cash Account”, and (ii) deleting the term “Account Balance” in the second sentence thereof and inserting in lieu thereof the phrase “a Participant’s Cash Account”.

11. Section 3.8 of the Plan is amended by (i) deleting the heading of such Section and replacing it with “Cash Account Returns and Installment Distributions,” (ii) deleting all references to “Account Balance” and inserting in lieu thereof the term “Cash Account”, and (iii) adding the following sentence at the end of paragraph (b) thereof:

The Committee shall have the authority to adjust the amount of any future installment payments to reflect any Investment Changes made since the most recent installment payment.

12. The Plan is amended to (i) insert a new Section 3.9 as follows, and (ii) renumber Section 3.9 to Section 3.10:

3.9

Phantom Stock Account Distributions. Distributions from a Participant’s Phantom Stock Account shall be made only in the form of whole shares of Common Stock in a number equal to the number of Phantom Stock Units credited to such account. In the event there is a fraction of a Phantom

Stock Unit credited to such Participant’s Phantom Stock Account (or, in the event of installment payments, if there is a fraction of a Phantom Stock Unit to be paid in any such installment), such fractional Unit shall be paid in cash, based on the Fair Market Value of a share of Common Stock as of the date of payment. In the event that distribution from a Phantom Stock Account is to be made in installments, the number of shares of Common Stock to be delivered in a particular installment shall be determined by dividing the number of Phantom Stock Units credited to such Participant’s Phantom Stock Account immediately prior to distribution of such installment by the remaining number of distributions over the installment period. In the event that a Participant is receiving installment payments from such Participant’s Phantom Stock Account, Dividend Equivalents shall continue to accrue and be credited to such Participant’s Phantom Stock Account in accordance with Section 3.6(b)(ii) during the installment period in respect of the number of Phantom Stock Units remaining credited to such Phantom Stock Account.

13. The third sentence of Section 5.2 of the Plan is amended by the words “Section 3.8 and inserting in lieu thereof the words “Sections 3.8 and 3.9”.

14. The final sentence of Section 5.2 of the Plan is amended by deleting the phrase “if the Participant’s Account Balance is under $25,000” and inserting in lieu thereof the phrase “if the balance in a Participant’s Cash Account plus the Fair Market Value of the shares of Common Stock underlying the Phantom Stock Units credited to such Participant’s Phantom Stock Account is less than $25,000”.

15. Section 7.2(b) of the Plan is amended to delete the phrase “If a Participant’s Termination Benefit is under $25,000” and insert in lieu thereof the phrase “If the balance in a Participant’s Cash Account plus the Fair Market Value of the shares of Common Stock underlying the Phantom Stock Units credited to such Participant’s Phantom Stock Account is less than $25,000”.

16. Article 12 of the Plan is amended by inserting the following as new Sections 12.5 and 12.6:

12.5

Stock Subject to the Plan. Unless otherwise determined by the Board, shares of Common Stock utilized for purposes of distributions pursuant to Section 3.9 shall consist of shares held in the Company’s treasury.

12.6

Equitable Adjustment. In the event that the Committee shall determine that any dividend or other distribution (whether in the form of cash or Common Stock or other property), or recapitalization, Common Stock split, reverse split, reorganization, merger, consolidation, spin-off, combination, repurchase, or share exchange, or other similar corporate transaction or event affects the Common Stock such that an adjustment is appropriate in order to prevent dilution or enlargement of the rights of Participants under the Plan, then the Committee shall make such equitable changes or adjustments as it deems necessary to any or all of the number of Phantom Stock Units credited to Participants’ Phantom Stock Accounts and/or the number and kind of shares of stock to which

such Phantom Stock Units relate or that may be thereafter be distributed in respect of amounts credited to a Participant’s Phantom Stock Account.

IN WITNESS WHEREOF, the Company has caused this Amendment No. 3 to be executed by its duly authorized officer on the 29th day of January, 2001, to be effective (a) with respect to those Participants who are currently subject to the Company’s stock ownership guidelines, as of January 1, 2001 and (b) with respect to all other Participants, as of January 1, 2002. Except as herein modified, the Plan shall remain in full force and effect.

CNF TRANSPORTATION INC.

By:
Name: Eberhard G.H. Schmoller Title: Senior Vice President, General Counsel and Secretary

EX-10.33 12 dex1033.htm AMENDMENT NO. 4 DATED MAY 14, 2001 Amendment No. 4 dated May 14, 2001

Exhibit 10.33

AMENDMENT NO. 4

CNF INC.

DEFERRED COMPENSATION PLAN

1998 RESTATEMENT

CNF Inc. (formerly CNF Transportation Inc.) (the “Company”) maintains the Deferred Compensation Plan for Executives (as heretofore amended, the “Plan”) to allow executives of the Company and its affiliates to defer payment of short-term and long-term compensation.

The Company hereby amends the Plan as follows (capitalized terms used herein without definition have the meanings given to those terms in the Plan).

1. Change in Definition of “Change in Control.” The definition of the term “Change in Control” set forth in Section 1.10 of the Plan is amended in its entirety so as to read as follows:

“Change in Control” means the occurrence of an event described in any one of the following clauses (a) through (f):

(a)

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;

(b)

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 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;

(c)

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);

(d)

(e)

there is consummated the sale or other disposition by the Company, however effected, of at least two of the three primary business units of the Company, whether in a single transaction or in a series of transactions occurring within an 18-month period; provided, however, that this clause (e) shall apply only to Participants who are employed by the Company and shall not apply to Participants who are employed by the Company’s business units; and provided further, that the Board of Directors of the Company may, upon notice to the affected Participants given at any time, terminate this clause (e) without the consent of such Participants, except that any such notice shall not be effective to terminate this

clause (e) if a Change in Control occurs pursuant to this clause (e) within ninety (90) days after such notice is given; or

(f)

there is consummated the sale or other disposition, however effected, of one of the primary business units of the Company, or the sale or other disposition by the Company, however effected, of the Emery Worldwide Airlines, Inc. business unit; provided, however, that this clause (f) shall apply only to Participants (i) who, immediately prior to such sale or other disposition, were employed by the business unit that is sold or otherwise disposed of and (ii) who are not employed by the Company or any of its Subsidiaries immediately following such sale or other disposition.

As used in clauses (e) and (f) above:

(i)

“primary business units” means Con-Way Transportation Services, Inc., Emery Air Freight Corporation and Menlo Logistics, Inc., and

(ii)

a “sale or other disposition” of a business unit includes:

(A)

(B)

the sale of all or substantially all of the assets of the business unit; and

(C)

any other transaction or course of action (including, without limitation, a spin-off or other distribution) engaged in, directly or indirectly, by the Company or the business unit that has a substantially similar effect as the transactions of the type referred to in clause (A) or (B) above;

business unit having 50% or more of the then existing voting power of all outstanding securities of the business unit, or (y) in the event of the sale of shares of capital stock of the business unit to any trustee or other fiduciary holding securities under an employee benefit plan of the Company, the business unit or any other Affiliate of the Company, and (2) a sale or other disposition of a business unit shall not be deemed to have occurred for purposes of clause (f) above in the event of the sale or distribution of shares of capital stock (including, without limitation, a spin-off) of the business unit to shareholders of the Company, or the sale of assets of the business unit to any corporation or other entity owned, directly or indirectly, by the shareholders of the Company, in either case in substantially the same proportions as their ownership of stock in the Company.

2. Name Change. The name of the Plan is hereby changed to the “CNF Inc. Deferred Compensation Plan” and all references in the Plan to “CNF Transportation Inc.” and to “Consolidated Freightways, Inc.” are hereby changed so as to be references to “CNF Inc.”

3. Effective Date; No Other Amendments. The effective date of this Amendment shall be April 30, 2001. Except as expressly amended hereby, the Plan remains in full force and effect.

CNF INC.

By:
		Eberhard G.H. Schmoller Senior Vice President, General Counsel and Secretary

Executed: May 14, 2001

EX-10.34 13 dex1034.htm AMENDMENT NO. 5 DATED DECEMBER 4, 2001 Amendment No. 5 dated December 4, 2001

Exhibit 10.34

AMENDMENT NO. 5

CNF INC.

DEFERRED COMPENSATION PLAN

1998 RESTATEMENT

The Company hereby amends the Plan as follows (capitalized terms used herein without definition have the meanings given to those terms in the Plan).

1. Change in Definition of “Change in Control.” The definition of the term “Change in Control” set forth in Section 1.10 of the Plan is amended in its entirety so as to read as follows:

“Change in Control” means the occurrence of an event described in any one of the following clauses (a) through (f):

(a)

(b)

Effective Date or whose appointment, election or nomination for election was previously so approved or recommended;

(c)

(d)

(e)

there is consummated the sale or other disposition by the Company, however effected, of at least two of the three primary business units of the Company, whether in a single transaction or in a series of transactions occurring within an 18-month period, and whether or not one or both of such business units constitute part of a larger enterprise at the time of the sale or other disposition; provided, however, that this clause (e) shall apply only to Grantees who are employed by the Company and shall not apply to Grantees who are employed by the Company’s business units; and provided further, that the Board of Directors of the Company may, upon notice to the affected Grantees given at any time, terminate this

clause (e) without the consent of such Grantees, except that any such notice shall not be effective to terminate this clause (e) if a Change in Control occurs pursuant to this clause (e) within ninety (90) days after such notice is given; or

(f)

there is consummated the sale or other disposition, however effected, of one of the primary business units of the Company, or the sale or other disposition by the Company, however effected, of the Emery Worldwide Airlines, Inc. business unit, whether or not such business unit constitutes part of a larger enterprise at the time of the sale or other disposition; provided, however, that this clause (f) shall apply only to Grantees (i) who, immediately prior to such sale or other disposition, were employed by the business unit that is sold or otherwise disposed of and (ii) who are not employed by the Company or any of its Subsidiaries immediately following such sale or other disposition.

As used in clauses (e) and (f) above:

(i)

“primary business units” means Con-Way Transportation Services, Inc., Emery Air Freight Corporation and Menlo Logistics, Inc., and

(ii)

a “sale or other disposition” of a business unit includes:

(A)

(B)

the sale of all or substantially all of the assets of the business unit; and

(C)

it being the intent that a sale or other disposition of a business unit occurs even if (x) such business unit constitutes part of a larger enterprise at the

time of the relevant sale or disposition transaction and (y) such sale or disposition transaction involves such larger enterprise (such as, by way of example and without limitation, when one or more business units are subsidiaries of a common parent and either (A) the common parent is spun-off or (B) there is consummated a sale of the stock or other equity interests in the common parent having more than 50% of the then existing voting power of all outstanding securities of the common parent).

The foregoing notwithstanding, (1) a sale or other disposition of a business unit shall not be deemed to have occurred for purposes of clauses (e) and (f) above (x) except in the case of a transaction described in clause (B) above, so long as the Company or any of its Affiliates (as such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended), individually or collectively, own the then outstanding shares of capital stock of the business unit having 50% or more of the then existing voting power of all outstanding securities of the business unit, or (y) in the event of the sale of shares of capital stock of the business unit (or the sale of shares or other equity interests in any parent company of such business unit) to any trustee or other fiduciary holding securities under an employee benefit plan of the Company, the business unit or any other Affiliate of the Company, and (2) a sale or other disposition of a business unit shall not be deemed to have occurred for purposes of clause (f) above in the event of the sale or distribution of shares of capital stock (including, without limitation, a spin-off) of the business unit to shareholders of the Company, or the sale of assets of the business unit to any corporation or other entity owned, directly or indirectly, by the shareholders of the Company, in either case in substantially the same proportions as their ownership of stock in the Company.

2. Effective Date; No Other Amendments. The effective date of this Amendment shall be December 4, 2001. Except as expressly amended hereby, the Plan remains in full force and effect.

CNF INC.

By:
		Eberhard G.H. Schmoller Senior Vice President, General Counsel and Secretary
Executed: December 4, 2001

EX-10.35 14 dex1035.htm AMENDMENT NO. 1 DATED APRIL 30, 1999 Amendment No. 1 dated April 30, 1999

Exhibit 10.35

AMENDMENT NO. 1

AMENDED AND RESTATED

RETIREMENT PLAN

FOR DIRECTORS OF

CNF TRANSPORTATION INC.

The Amended and Restated Retirement Plan for Directors of CNF Transportation Inc., as amended through the 1994 Restatement (the “Retirement Plan”), is further amended as follows:

1. Death Benefits

In order to provide more flexibility to Directors in planning their estates, Article IV, subsection (e), is amended in its entirety so as to read as follows:

“(e)

Beneficiary Designation; Death Benefits.

A director may designate a beneficiary for his or her retirement benefits by completing and signing a beneficiary designation form and returning it to the Committee. A director shall have the right to change a beneficiary at any time without the consent of the beneficiary, by completing, signing and otherwise complying with the Committee’s rules and procedures as in effect from time to time. Upon the receipt by the Committee of a new beneficiary designation form, all beneficiary designations previously filed shall be canceled. The Committee shall be entitled to rely on the last beneficiary designation form filed by the director with the Committee prior to death.

In the case of a married director, if the director names someone other than his or her spouse as a primary beneficiary, a spousal consent, in the form designated by the Committee, must be signed by that director’s spouse and returned to the Committee. No consent is required if it is established to the satisfaction of the Committee that consent cannot be obtained because the spouse cannot be located.

If a director dies after having vested in a benefit under this Plan, but before all payments due to that director have been made, a lump sum present value of the remaining benefits shall be payable (i) to the beneficiary designated in accordance with the terms of the preceding paragraph, or (ii) if no such beneficiary has been so designated, to the director’s estate. Present value shall be determined as of the date of death using the published prime rate of Bank of America N.T. & S.A. then in effect.”

2. Termination of Plan.

The plan shall terminate as of the effective date set forth in Section 3 hereof; provided, however, the Company’s obligation to make payments of accrued unpaid retirement benefits, in accordance with the terms of the plan, to directors who retired prior to January 1, 1999 shall survive the termination of the plan. The obligation of the Company to pay the accrued unpaid retirement benefits of all other directors under the plan shall not survive the termination of the plan, given that other forms of compensation shall have been given to such directors in lieu of their accrued retirement benefits under the plan.

3. Effective Dates.

The changes made pursuant to Section 1 hereof shall be effective as of January 1, 1999. The termination of the Plan pursuant to Section 2 hereof shall be effective December 31, 1999.

CNF TRANSPORTATION INC.

By:
Executed : April 30, 1999

EX-10.36 15 dex1036.htm AMENDMENT NO. 2 DATED JUNE 28, 1999 Amendment No. 2 dated June 28, 1999

Exhibit 10.36

AMENDMENT NO. 2

CNF TRANSPORTATION INC.

RETURN ON EQUITY PLAN

1997 RESTATEMENT DATED 12/8/1997

CNF Transportation Inc. (the “Company”) has maintained since 1996 its Return on Equity Plan (the “Plan”) in order to provide for long-term incentive compensation awards to be made to specified executives of the Company and its affiliates. The Company has recently adopted a new Value Management Plan that will provide for similar types of long-term incentive compensation awards to be made to executives, and consequently wishes to provide for the termination of the Plan, but at the same time to provide for the payment of awards under the Plan to be made at the end of each of the Award Cycles currently in progress. The Company also wishes to amend certain provisions of the Plan relating to changes in control of the Company.

The Plan was originally adopted in 1996 and was amended and restated in the 1998 Restatement. The Company hereby amends the 1998 Restatement of the Plan as follows (capitalized terms used herein without definition have the meanings given to those terms in the 1998 Restatement), and the Plan as amended hereby shall be restated in a new 1999 Restatement.

1. Change in Definition of “Change in Control.” The definition of the term “Change in Control” set forth in Section 2.07 of the Plan is amended in its entirety so as to read as follows:

“Change in Control” means a change in control of the Company, which will be deemed to have occurred if:

(a)

any “person,” as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended from time to time (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;

(b)

the following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on June 28, 1999, constitute the Board of Directors of the Company 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 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 June 28, 1999 or whose appointment, election or nomination for election was previously so approved or recommended;

(c)

(d)

ownership of the Company immediately prior to such sale or disposition.

2. Amendment to Section 4.02. Section 4.02 of the Plan is amended in its entirety so as to read as follows:

“4.02

Termination.

The Committee may terminate the Plan at any time; provided however, that unless terminated earlier, the Plan shall automatically terminate on December 1, 1999. Notwithstanding the termination of the Plan, all awards for all Award Cycles then in progress shall be calculated, and be payable, following the completion of each such Award Cycle, in accordance with the provisions of Article 3.”

3. Effective Date; No Other Amendments. The effective date of this Amendment shall be June 28, 1999. Except as expressly amended hereby, the 1998 Restatement remains in full force and effect.

CNF TRANSPORTATION INC.

By:
		Eberhard G.H. Schmoller Senior Vice President, General Counsel and Secretary
Executed: June 28, 1999

EX-10.37 16 dex1037.htm AMENDMENT NO. 3 DATED AUGUST 21, 2000 Amendment No. 3 dated August 21, 2000

Exhibit 10.37

AMENDMENT NO. 3

CNF TRANSPORTATION INC.

RETURN ON EQUITY PLAN

1997 RESTATEMENT DATED 12/8/1997

CNF Transportation Inc. (the “Company”) established the Return on Equity Plan (the “Plan”) to provide for certain long-term incentive compensation awards to be made to eligible employees. The Plan was originally adopted in 1996 and was amended by the 1997 Restatement, and by subsequent amendments to the 1997 Restatement. The Plan was terminated effective December 1, 1999, but the terms of the Plan remain in effect for purposes of determining the timing and amount of payment for Award Cycles which were in progress on December 1, 1999. The Company hereby amends the 1997 Restatement of the Plan, as heretofore amended, as follows (capitalized terms used herein without definition have the meanings given to those terms in the 1997 Restatement).

1. Change in Definition of “End Value.” In order to conform the manner in which awards are valued under the Plan to the manner in which awards are valued under the Company’s Value Management Plan, in each case in the event of a Change in Control, the definition of the term “End Value” appearing in Section 2.05 is amended in its entirety so as to read as follows:

“2.05

End Value

“End Value” means the book value per common share of the Company on December 31 at the end of the Award Cycle, as reported in the Company’s Monthly Financial Review. However, if a Participant becomes vested earlier than the last day of the Award Cycle because of one of the several events described below, the End Value shall be (i) in the case of early vesting as a result of a Change in Control, the book value per common share as of the end of the month immediately preceding such Change in Control and (ii) in all other cases, the book value per common share on December 31 of the calendar year in which the Participant becomes vested, as such book value is reported in the Company’s Monthly Financial Review.”

2. Change to Vesting Provisions. In order to conform the vesting provisions for awards made under the Plan to the vesting provisions for awards made under the Company’s Value Management Plan, in each case in the event of a Change in Control, Section 2.06 of the Plan is amended in its entirety so as to read as follows:

“2.06

Vesting

A Participant shall become vested in a ROE Plan Award Cycle (i) if the

Participant is continuously employed by the Company or one of its subsidiaries or affiliates through the entire Award Cycle or (ii) upon the occurrence of one of the events described below prior to the end of the three year Award Cycle:

(a)

The Participant’s death.

(b)

The Participant’s disability as defined in the Company’s Long Term Disability Plan or a successor to that Plan.

(c)

The Participant’s (i) early retirement under the Company’s tax qualified Retirement Plan if the Participant elects within 60 days from the last day of regular employment to receive monthly pension benefits under such Retirement Plan starting on the first day of the month following the last day of employment, or (ii) normal or deferred retirement under such Retirement Plan.

(d)

A Change in Control of the Company.

A Participant who terminates from the Company before the last day of an Award Cycle shall forfeit all rights related to the ROE Units granted for that Award Cycle unless the Participant becomes vested upon the occurrence of one of the events described in clauses (a) through (d) above.”

3. Change in Definition of “Change in Control.” The definition of the term “Change in Control” appearing in Section 2.07 is amended by adding the following new clauses (e) and (f):

“(e)

(f)

there is consummated the sale of one of the primary business units of the Company, or the sale of the Emery Worldwide Airlines, Inc. business unit; provided, however, that this clause

(f) shall apply only to Participants (i) who, immediately prior to such sale, were employed by the primary business unit that is sold and (ii) who are not employed by the Company or any of its subsidiaries immediately following such sale or other disposition.

As used in clauses (e) and (f) above:

(i)

“primary business units” means Con-Way Transportation Services, Inc., Emery Air Freight Corporation and Menlo Logistics, Inc., and

(ii)

a “sale” of a business unit means:

(A)

(B)

the sale of all or substantially all of the assets of the business unit; or

(C)

Company, in either case in substantially the same proportions as their ownership of stock in the Company.”

4. Change in Definition of “Dividend.” The definition of the term “Dividend” appearing in Section 2.08 is amended in its entirety so as to read as follows:

“2.08

Dividends

“Dividend” means, for any Award Cycle, the total of all cash dividends for each share of the Company’s common stock during that Award Cycle. However, if a Participant becomes vested earlier than the last day of the Award Cycle because of one of the several events described above, the term “Dividend” shall mean (i) in the case of early vesting as a result of a Change in Control, the total of all cash dividends for each share of the Company’s common stock made during the period commencing on the first day of the Award Cycle and ending on the last day of the calendar month immediately preceding such Change in Control and (ii) in all other cases, the total of all cash dividends for each share of the Company’s common stock made during the period commencing on the first day of the Award Cycle and ending on December 31 of the calendar year in which the Participant becomes vested.”

5. Effective Date; No Other Amendments. The effective date of this Amendment shall be August 21, 2000. Except as heretofore amended and as expressly amended hereby, the 1997 Restatement dated December 8, 1997 remains in full force and effect for purposes of determining the timing and amount of payment for Award Cycles which were in progress on December 1, 1999.

CNF TRANSPORTATION INC.

By:
Name: Eberhard G.H. Schmoller Title: Senior Vice President, General Counsel and Secretary
Executed: August 21, 2000

EX-10.38 17 dex1038.htm AMENDMENT NO. 4 DATED MAY 14, 2001 Amendment No. 4 dated May 14, 2001

Exhibit 10.38

AMENDMENT NO. 4

CNF INC.

RETURN ON EQUITY PLAN

1997 RESTATEMENT

CNF Inc. (formerly CNF Transportation Inc.) (the “Company”) established the Return on Equity Plan (as heretofore amended, the “Plan”) to provide for certain long-term incentive compensation awards to be made to eligible employees. The Plan was terminated effective December 1, 1999, but the terms of the Plan remain in effect for purposes of determining the timing and amount of payment for Award Cycles which were in progress on December 1, 1999. The Company hereby amends the Plan as follows (capitalized terms used herein without definition have the meanings given to those terms in the Plan).

1. Change in Definition of “Change in Control.” The definition of the term “Change in Control” appearing in Section 2.07 is amended in its entirety so as to read as follows:

“Change in Control” means the occurrence of an event described in any one of the following clauses (a) through (f):

(a)

(b)

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;

(c)

(d)

(e)

Participants who are employed by the Company and shall not apply to Participants who are employed by the Company’s business units; and provided further, that the Board of Directors of the Company may, upon notice to the affected Participants given at any time, terminate this clause (e) without the consent of such Participants, except that any such notice shall not be effective to terminate this clause (e) if a Change in Control occurs pursuant to this clause (e) within ninety (90) days after such notice is given; or

(f)

As used in clauses (e) and (f) above:

(i)

“primary business units” means Con-Way Transportation Services, Inc., Emery Air Freight Corporation and Menlo Logistics, Inc., and

(ii)

a “sale or other disposition” of a business unit includes:

(A)

(B)

the sale of all or substantially all of the assets of the business unit; and

(C)

The foregoing notwithstanding, (1) a sale or other disposition of a business unit shall not be deemed to have occurred for purposes of clauses (e) and (f) above (x) except in the case of a transaction described in clause (B) above, so long as the Company or any of its Affiliates (as such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended), individually or collectively, own the then outstanding shares of capital stock of the business unit having 50% or more of the then existing voting power of all outstanding securities of the business unit, or (y) in the event of the sale of shares of capital stock of the business unit to any trustee or other fiduciary holding securities under an employee benefit plan of the Company, the business unit or any other Affiliate of the Company, and (2) a sale or other disposition of a business unit shall not be deemed to have occurred for purposes of clause (f) above in the event of the sale or distribution of shares of capital stock (including, without limitation, a spin-off) of the business unit to shareholders of the Company, or the sale of assets of the business unit to any corporation or other entity owned, directly or indirectly, by the shareholders of the Company, in either case in substantially the same proportions as their ownership of stock in the Company.

2. Name Change. The name of the Plan is hereby changed to the “CNF Inc. Return on Equity Plan” and all references in the Plan to “CNF Transportation Inc.” and to “Consolidated Freightways, Inc.” are hereby changed so as to be references to “CNF Inc.”

3. Effective Date; No Other Amendments. The effective date of this Amendment shall be April 30, 2001. Except as heretofore amended and as expressly amended hereby, the Plan remains in full force and effect for purposes of determining the timing and amount of payment for Award Cycles which were in progress on December 1, 1999.

CNF INC.

By:
Name: Eberhard G.H. Schmoller Title: Senior Vice President, General Counsel and Secretary
Executed: May 14, 2001

EX-10.39 18 dex1039.htm AMENDMENT NO. 1 DATED DECEMBER 13, 2000 Amendment No. 1 dated December 13, 2000

Exhibit 10.39

AMENDMENT NO. 1

CNF TRANSPORTATION INC.

AMENDED AND RESTATED

EXECUTIVE SEVERANCE PLAN

CNF Transportation Inc. (the “Company”) maintains the Amended and Restated Executive Severance Plan (the “Plan”) for the benefit of certain eligible executives of the Company and its subsidiaries. The Company wishes to amend the Plan to more clearly identify the executives of the Company who are eligible to participate in the Plan;

11. Amendments to Sections 1.9 and 1.10.

Sections 1.9 and 1.10 of the Plan are amended in their entirety so as to read as follows:

1.9

“Eligible Employee” means an individual who, immediately prior to a Change in Control, (a) is an employee of the Company or of an Eligible Subsidiary, (b) is not a party to an individual employment or severance agreement with the Company, and (c) occupies a position that has been classified within the CNF Transportation Inc. executive level salary grade structure. An Eligible Employee becomes a “Severed Employee” once he or she incurs a Severance. As used herein, “Eligible Subsidiary” means any of the following: CNF Service Company, Inc., Con-Way Air Express, Inc., Con-Way NOW, Inc., Con-Way Transportation Services, Inc., Emery Air Freight Corporation, Emery Expedite!, Inc., Emery Worldwide Airlines, Inc. and Menlo Logistics, Inc.

1.10

“Employer” means the Company or any Eligible Subsidiary.

12. Effective Date; No Other Amendments.

This Amendment shall be effective as of December 13, 2000. Except as expressly amended hereby, the Plan remains unchanged and in full force and effect.

CNF TRANSPORTATION INC.

By:
		Eberhard G. H. Schmoller Senior Vice President, General Counsel and Secretary

EX-10.40 19 dex1040.htm AMENDMENT NO. 2 DATED APRIL 30, 2000 Amendment No. 2 dated April 30, 2000

Exhibit 10.40

AMENDMENT NO. 2

CNF INC.

AMENDED AND RESTATED

EXECUTIVE SEVERANCE PLAN

WHEREAS, CNF Inc. (formerly CNF Transportation Inc.) (the “Company”) has previously adopted the CNF Transportation Inc. Amended and Restated Executive Severance Plan (the “Plan”);

WHEREAS, the Board of Directors of the Company has determined that it is in the best interests of the Company and its stockholders to amend the Plan in certain respects;

NOW, THEREFORE, the Company hereby amends the Plan as follows (capitalized terms used herein without definition have the meanings given to those terms in the Plan).

1. Change in Definition of “Change in Control.” The definition of the term “Change in Control” appearing in Section 1.4 is amended in its entirety so as to read as follows:

“Change in Control” means the occurrence of an event described in any one of the following clauses (1) through (5):

(1)

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 stockholders of the Company in substantially the same proportions as their ownership of the Common Stock), 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;

(2)

proved 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;

(3)

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 afer 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 hereinabove defined), 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);

(4)

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; provided, however, that a Change in Control shall be deemed not to have occurred under this clause (4) if, immediately prior to the consummation of any sale or disposition of a business unit that is taken into account in determining whether a Change in Control has occurred, the Executive is employed by, and is party to a severance agreement with, such business unit; or

(5)

vided, however, that this clause (5) shall apply only to Eligible Employees who are employed by the Company and shall not apply to Eligible Employees who are employed by the Company’s business units; and provided further, that the Board of Directors of the Company may, upon notice to the Eligible Employees given at any time, terminate this clause (5) without the consent of the Eligible Employees, except that any such notice shall not be effective to terminate this clause (5) if a Change in Control occurs pursuant to this clause (5) within ninety (90) days after such notice is given.

As used in clause (5) above:

(A)

“primary business units” means Con-Way Transportation Services, Inc., Emery Air Freight Corporation and Menlo Logistics, Inc., and

(B)

a “sale” or other disposition of a business unit includes:

(i)

(ii)

the sale of all or substantially all of the assets of the business unit; and

(iii)

The foregoing notwithstanding, a sale or other disposition of a business unit shall not be deemed to have occurred for purposes of clause (5) above (x) except in the case of a transaction described in clause (ii) above, so long as the Company or any of its Affiliates (as such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended), individually or collectively, own the then outstanding shares of capital stock of the business unit having 50% or more of the then existing voting power of all outstanding securities of the business unit, or (y) in the event of the sale of shares of

capital stock of the business unit to any trustee or other fiduciary holding securities under an employee benefit plan of the Company, the business unit or any other Affiliate of the Company.

2. Name Change. The name of the Plan is hereby changed to the “CNF Inc. Amended and Restated Executive Severance Plan” and all references in the Plan to “CNF Transportation Inc.” are hereby changed so as to be references to “CNF Inc.”

3. Effective Date; No Other Amendments. The effective date of this Amendment shall be April 30, 2001. Except as expressly amended hereby, the Plan remains in full force and effect.

CNF TRANSPORTATION INC.

By:
		Eberhard G.H. Schmoller Senior Vice President, General Counsel and Secretary
Executed: April 30, 2001

EX-10.41 20 dex1041.htm AMENDMENT NO. 3 DATED DECEMBER 4, 2001 Amendment No. 3 dated December 4, 2001

Exhibit 10.41

AMENDMENT NO. 3

CNF INC.

AMENDED AND RESTATED

EXECUTIVE SEVERANCE PLAN

WHEREAS, CNF Inc. (formerly CNF Transportation Inc.) (the “Company”) has previously adopted the CNF Transportation Inc. Amended and Restated Executive Severance Plan (the “Plan”);

WHEREAS, the Board of Directors of the Company has determined that it is in the best interests of the Company and its stockholders to amend the Plan in certain respects;

NOW, THEREFORE, the Company hereby amends the Plan as follows (capitalized terms used herein without definition have the meanings given to those terms in the Plan).

1. Change in Definition of “Change in Control.” The definition of the term “Change in Control” appearing in Section 1.4 is amended in its entirety so as to read as follows:

“Change in Control” means the occurrence of an event described in any one of the following clauses (1) through (5):

(1)

(2)

fective Date or whose appointment, election or nomination for election was previously so approved or recommended;

(3)

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 afer 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 hereinabove defined), 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);

(4)

(5)

there is consummated the sale or other disposition by the Company, however effected, of at least two of the three primary business units of the Company, whether in a single transaction or in a series of transactions occurring within an 18-month period, and whether or not one or both of such business units constitute part of a larger enterprise at the time of the sale or other disposition; provided, however, that this clause (5) shall apply only to Eligible Employees who are employed by the Company and shall not apply to Eligible Employees who are employed by the Company’s business units; and provided further, that the Board of Directors of the Company may, upon notice to the Executive given at any time, terminate this clause (5) without the consent of the Executive, except that any such

notice shall not be effective to terminate this clause (5) if a Change in Control occurs pursuant to this clause (5) within ninety (90) days after such notice is given.

As used in clause (5) above:

(A)

“primary business units” means Con-Way Transportation Services, Inc., Emery Air Freight Corporation and Menlo Logistics, Inc., and

(B)

a “sale” or other disposition of a business unit includes:

(i)

(ii)

the sale of all or substantially all of the assets of the business unit; and

(iii)

it being the intent that a sale or other disposition of a business unit occurs even if (x) such business unit constitutes part of a larger enterprise at the time of the relevant sale or disposition transaction and (y) such sale or disposition transaction involves such larger enterprise (such as, by way of example and without limitation, when one or more business units are subsidiaries of a common parent and either (I) the common parent is spun-off or (II) there is consummated a sale of the stock or other equity interests in the common parent having more than 50% of the then existing voting power of all outstanding securities of the common parent).

capital stock of the business unit having 50% or more of the then existing voting power of all outstanding securities of the business unit, or (y) in the event of the sale of shares of capital stock of the business unit (or the sale of shares or other equity interests in any parent company of such business unit) to any trustee or other fiduciary holding securities under an employee benefit plan of the Company, the business unit or any other Affiliate of the Company.

2. Change in Definition of “Eligible Employee.” The definition of the term “Eligible Employee” appearing in Section 1.9 is amended in its entirety so as to read as follows:

“Eligible Employee” means an individual who, immediately prior to a Change in Control, (a) is an employee of the Company or of an Eligible Subsidiary, (b) is not a party to an individual employment or severance agreement with the Company, and (c) occupies a position that has been classified within the CNF Inc. executive level salary grade structure. An Eligible Employee becomes a “Severed Employee” once he or she incurs a Severance. As used herein, “Eligible Subsidiary” means any of the following: CNF Service Company, Inc., Con-Way Air Express, Inc., Con-Way NOW, Inc., Con-Way Transportation Services, Inc., Emery Air Freight Corporation, Emery Expedite!, Inc., Menlo Worldwide, LLC and Menlo Logistics, Inc.

3. Effective Date; No Other Amendments. The effective date of this Amendment shall be December 4, 2001. Except as expressly amended hereby, the Plan remains in full force and effect.

CNF INC.

By:
		Eberhard G.H. Schmoller Senior Vice President, General Counsel and Secretary
Executed: December 4, 2001

EX-10.42 21 dex1042.htm AMENDMENT NO. 4 DATED DECEMBER 4, 2001 Amendment No. 4 dated December 4, 2001

Exhibit 10.42

AMENDMENT NO. 4

CNF INC.

VALUE MANAGEMENT PLAN

CNF Inc. (formerly CNF Transportation Inc.) (the “Company”) maintains the Value Management Plan (as heretofore amended, the “Plan”) to provide for certain long-term incentive compensation awards to be made to eligible employees. The Company hereby amends the Plan as follows (capitalized terms used herein without definition have the meanings given to those terms in the Plan).

1. Change in Definition of “Change in Control.” The definition of the term “Change in Control” appearing in Section 2.05 is amended in its entirety so as to read as follows:

“Change in Control” means the occurrence of an event described in any one of the following clauses (a) through (f):

(a)

(b)

(c)

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);

(d)

(e)

there is consummated the sale or other disposition by the Company, however effected, of at least two of the three primary business units of the Company, whether in a single transaction or in a series of transactions occurring within an 18-month period, and whether or not one or both of such business units constitute part of a larger enterprise at the time of the sale or other disposition; provided, however, that this clause (e) shall apply only to Grantees who are employed by the Company and shall not apply to Grantees who are employed by the Company’s business units; and provided further, that the Board of Directors of the Company may, upon notice to the affected Grantees given at any time, terminate this clause (e) without the consent of such Grantees, except that any such notice shall not be effective to terminate this clause (e) if a Change in Control occurs pursuant to this clause (e) within ninety (90) days after such notice is given; or

(f)

there is consummated the sale or other disposition, however effected, of one of the primary business units of the Company, or the sale or other disposition by the Company, however effected, of the Emery Worldwide Airlines, Inc. business unit, whether or not such business unit constitutes part of a larger enterprise at the time of the sale or other disposition; provided, however, that this clause (f) shall apply only to Grantees (i) who, immediately prior to such sale or other disposition, were employed by the business unit that is sold or otherwise disposed of and (ii) who are not employed by the Company or any of its Subsidiaries immediately following such sale or other disposition.

As used in clauses (e) and (f) above:

(i)

“primary business units” means Con-Way Transportation Services, Inc., Emery Air Freight Corporation and Menlo Logistics, Inc., and

(ii)

a “sale or other disposition” of a business unit includes:

(A)

(B)

the sale of all or substantially all of the assets of the business unit; and

(C)

it being the intent that a sale or other disposition of a business unit occurs even if (x) such business unit constitutes part of a larger enterprise at the time of the relevant sale or disposition transaction and (y) such sale or disposition transaction involves such larger enterprise (such as, by way of example and without limitation, when one or more business units are subsidiaries of a common parent and either (A) the common parent is spun-off or (B) there is consummated a sale of the stock or other equity interests in the common parent having more than 50% of the then existing voting power of all outstanding securities of the common parent).

business unit to shareholders of the Company, or the sale of assets of the business unit to any corporation or other entity owned, directly or indirectly, by the shareholders of the Company, in either case in substantially the same proportions as their ownership of stock in the Company.

2. Effective Date; No Other Amendments. The effective date of this Amendment shall be December 4, 2001. Except as expressly amended hereby, the Plan remains in full force and effect.

CNF TRANSPORTATION INC.

By:
Name:		Eberhard G.H. Schmoller
Title:		Senior Vice President, General
		Counsel and Secretary

Executed: December 4, 2001

EX-12.(A) 22 dex12a.htm COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES Computation of ratios of earnings to fixed charges

Exhibit 12.a

CNF INC.

COMPUTATION OF RATIOS OF EARNINGS (LOSS) TO FIXED CHARGES

Year Ended December 31,

(Dollars in thousands)	2002			2001			2000			1999			1998
Fixed Charges:
Interest expense	$	23,558		$	27,992		$	29,972		$	25,972		$	32,627
Capitalized interest		455			864			4,636			5,864			2,342
Amortization of debt expense		1,321			1,064			1,044			908			822
Dividend requirement on Series B Preferred Stock (1)		10,331			10,606			10,808			10,992			12,133
Interest component of rental expense (2)		19,564			25,033			38,161			41,363			40,750

Fixed Charges	$	55,229		$	65,559		$	84,621		$	85,099		$	88,674

Earnings (Loss):
Income (Loss) from continuing operations before taxes (3)	$	146,244		$	(695,933	)	$	261,196		$	332,260		$	253,812
Fixed charges		55,229			65,559			84,621			85,099			88,674
Capitalized interest		(455	)		(864	)		(4,636	)		(5,864	)		(2,342	)
Preferred dividend requirements (4)		(10,331	)		(10,606	)		(10,808	)		(10,992	)		(12,377	)

	$	190,687		$	(641,844	)	$	330,373		$	400,503		$	327,767

Ratio		3.5	x		(9.8	)x		3.9	x		4.7	x		3.7	x
Deficiency in the coverage of fixed charges by earnings (loss) before fixed charges		—			(707,403	)		—			—			—

(1)

Dividends on shares of the Series B cumulative convertible preferred stock are used to pay debt service on notes issued by CNF’s Thrift and Stock Plan.

(2)

Estimate of the interest portion of lease payments.

(3)

For the year ended December 31, 2001, results included a $652.2 million loss from restructuring charges at Emery and Menlo Worldwide Logistics’ $47.5 million loss from the business failure of a customer.

(4)

Preferred stock dividend requirements included in Fixed Charges but not deducted in the determination of Income (Loss) from Continuing Operations Before Income Taxes.

EX-12.(B) 23 dex12b.htm COMPUTATION OF RATIOS OF EARNINGS TO COMBINED FIXED CHARGES Computation of ratios of earnings to combined fixed charges

Exhibit 12.b

CNF INC.

COMPUTATION OF RATIOS OF EARNINGS (LOSS) TO COMBINED

FIXED CHARGES AND PREFERRED STOCK DIVIDENDS

Year Ended December 31,

(Dollars in thousands)	2002			2001			2000			1999			1998
Combined Fixed Charges and Preferred Stock Dividends:
Interest expense	$	23,558		$	27,992		$	29,972		$	25,972		$	32,627
Capitalized interest		455			864			4,636			5,864			2,342
Amortization of debt expense		1,321			1,064			1,044			908			822
Dividend requirement on Series B Preferred Stock (1)		10,331			10,606			10,808			10,992			12,133
Dividend requirement on preferred securities of subsidiary trust		6,250			6,250			6,250			6,250			6,250
Interest component of rental expense (2)		19,564			25,033			38,161			41,363			40,750

Fixed Charges	$	61,479		$	71,809		$	90,871		$	91,349		$	94,924

Earnings (Loss):
Income (Loss) from continuing operations before taxes (3)	$	146,244		$	(695,933	)	$	261,196		$	332,260		$	253,812
Fixed charges:		61,479			71,809			90,871			91,349			94,924
Capitalized interest		(455	)		(864	)		(4,636	)		(5,864	)		(2,342	)
Preferred dividend requirements (4)		(10,331	)		(10,606	)		(10,808	)		(10,992	)		(12,133	)

	$	196,937		$	(635,594	)	$	336,623		$	406,753		$	334,261

Ratio		3.2	x		(8.9	)x		3.7	x		4.5	x		3.5	x
Deficiency in the coverage of fixed charges by earnings (loss) before fixed charges		—			(707,403	)		—			—			—

(1)

Dividends on shares of the Series B cumulative convertible preferred stock are used to pay debt service on notes issued by CNF’s Thrift and Stock Plan.

(2)

Estimate of the interest portion of lease payments.

(3)

(4)

Preferred stock dividend requirements included in Combined Fixed Charges but not deducted in the determination of Income (Loss) from Continuing Operations Before Income Taxes.

EX-21 24 dex21.htm SIGNIFICANT SUBSIDIARIES OF CNF Significant Subsidiaries of CNF

Exhibit 21

CNF INC.

SIGNIFICANT SUBSIDIARIES OF THE COMPANY

December 31, 2002

CNF Inc. and its significant subsidiaries were:

Parent and Significant Subsidiaries	Percent of Stock Owned by Company	State or Province or Country of Incorporation
CNF Inc.		Delaware
Significant Subsidiaries of CNF Inc.:
Con-Way Transportation Services, Inc.	100	Delaware
Menlo Worldwide, LLC	100	Delaware
Road Systems, Inc.	100	California

EX-23.1 25 dex231.htm CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS Consent of Independent Public Accountants

Exhibit 23

CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in the registration statements (Nos. 333-48733, 333-92399, 333-36180, 333-54588, and 333-102749 on Form S-8 and 333-56667 on Form S-3) of CNF Inc. and subsidiaries of our reports dated January 24, 2003 (except with respect to the negotiated return of leased aircraft as discussed in Note 3, as to which the date is February 3, 2003), with respect to the consolidated balance sheet of CNF Inc. as of December 31, 2002, and the related consolidated statements of operations, shareholders’ equity, and cash flows for the year then ended, and the related financial statement schedule, which reports appear in the December 31, 2002 annual report on Form 10-K of CNF Inc.

Our reports refer to the revisions to the 2001 and 2000 consolidated financial statements to include the transitional disclosures required by Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, which was adopted by CNF Inc. as of January 1, 2002, as described in Note 1 to the consolidated financial statements, as well as the adjustments that were applied to restate the disclosures of reportable segments reflected in the 2001 and 2000 consolidated financial statements to conform to the 2002 composition of reportable segments, as discussed in Note 15 to the consolidated financial statements. However, we were not engaged to audit, review, or apply any procedures to the 2001 and 2000 consolidated financial statements other than with respect to such revisions and adjustments.

/s/ KPMG LLP
KPMG LLP

San Francisco, California

March 20, 2003

EX-99.5 26 dex995.htm CERTIFICATION OF CEO PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Certification of CEO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Exhibit 99.5

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 10-K of CNF Inc. (the “Company”) for the fiscal year ended December 31, 2002 as filed with the Securities and Exchange Commission on the date therein specified (the “Report”), I, Gregory L. Quesnel, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

(1)

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

/s/ Gregory L. Quesnel

Name: Gregory L. Quesnel

Title: Chief Executive Officer

Date: March 21, 2003

EX-99.6 27 dex996.htm CERTIFICATION OF CFO PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Certification of CFO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Exhibit 99.6

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 10-K of CNF Inc. (the “Company”) for the fiscal year ended December 31, 2002 as filed with the Securities and Exchange Commission on the date therein specified (the “Report”), I, Chutta Ratnathicam, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

(1)

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ CHUTTA RATNATHICAM

Name: Chutta Ratnathicam

Title: Chief Financial Officer

Date: March 21, 2003

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