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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: November 25, 1996
(Date of earliest event reported)
CONSOLIDATED FREIGHTWAYS CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 1-12149 77-0425334
(State of other jurisdiction (Commission File No.) (I.R.S. Employer
of incorporation or Identification No.)
organization)
175 Linfield Drive
Menlo Park, California 94025
(Address of principal executive offices)
(415) 326-1700
Registrant's telephone number, including area code
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Item 5 - Other Events
On December 2, 1996, the Registrant completed its
separation from Consolidated Freightways, Inc., a Delaware
corporation ("CFI") as its outstanding shares of common
stock were distributed by CFI to stockholders of CFI (the
"Spin-Off"). On November 25, 1996, in anticipation of the
Spin-Off, the Registrant entered into a Distribution
Agreement with CFI. In addition, the Registrant entered
into a Transition Services Agreement with CFI's wholly-owned
subsidiary, CNF Service Company, Inc., an Alternative
Dispute Resolution Agreement with CFI, an Employee Benefit
Matters Agreement with CFI, a Tax Sharing Agreement with
CFI, each dated as of December 2, 1996. Also on November
25, 1996, the Registrant's wholly-owned subsidiary
Consolidated Freightways Corporation of Delaware entered
into a Reimbursement and Indemnification Agreement with CFI,
dated as of October 1, 1996.
Item 7 - Financial Statements and Exhibits
(C) Exhibits The following documents are filed as Exhibits.
Exhibit No.
2.1 Distribution Agreement between Consolidated Freightways Corporation
and Consolidated Freightways, Inc., dated November 25, 1996.
10.1 Transition Services Agreement between Consolidated Freightways
Corporation and CNF Service Company, Inc., dated as of December 2, 1996.
10.2 Alternative Dispute Resolution Agreement between Consolidated
Freightways Corporation and Consolidated Freightways, Inc., dated as
of December 2, 1996.
10.3 Employee Benefit Matters Agreement between Consolidated Freightways
Corporation and Consolidated Freightways, Inc., dated as of
December 2, 1996.
10.4 Tax Sharing Agreement between Consolidated Freightways Corporation and
Consolidated Freightways, Inc., dated as of December 2, 1996.
10.5 Reimbursement and Indemnification Agreement between Consolidated
Freightways Corporation of Delaware and Consolidated Freightways,Inc.,
dated as of October 1, 1996.
99.1 Press Release dated December 3, 1996.
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SIGNATURE
Pursuant to the requirements of the Securities and
Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned
hereunto duly authorized.
CONSOLIDATED FREIGHTWAYS
CORPORATION
Dated: March 13, 1997
By: /s/ Stephen D. Richards
Name: Stephen D. Richards
Title: Senior Vice President and
General Counsel
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INDEX TO EXHIBITS
Exhibit No.
2.1 Distribution Agreement between Consolidated Freightways Corporation
and Consolidated Freightways, Inc., dated November 25, 1996.
10.1 Transition Services Agreement between Consolidated Freightways
Corporation and CNF Service Company, Inc., dated as of December 2, 1996.
10.2 Alternative Dispute Resolution Agreement between Consolidated
Freightways Corporation and Consolidated Freightways, Inc., dated as
of December 2, 1996.
10.3 Employee Benefit Matters Agreement between Consolidated Freightways
Corporation and Consolidated Freightways, Inc., dated as of
December 2, 1996.
10.4 Tax Sharing Agreement between Consolidated Freightways Corporation
and Consolidated Freightways, Inc., dated as of December 2, 1996.
10.5 Reimbursement and Indemnification Agreement between Consolidated
Freightways Corporation of Delaware and Consolidated Freightways,Inc.,
dated as of October 1, 1996.
99.1 Press Release dated December 3, 1996.
Exhibit 2.1
DISTRIBUTION AGREEMENT
between
CONSOLIDATED FREIGHTWAYS, INC.
and
CONSOLIDATED FREIGHTWAYS CORPORATION
TABLE OF CONTENTS
ARTICLE I DEFINITIONS
1.1 General 1
ARTICLE II THE DISTRIBUTION
2.1 Cooperation Prior to the Distribution 5
2.2 Conditions to Distribution 5
2.3 The Distribution 6
2.4 Sale of Fractional Shares 6
2.5 Odd-Lot Program 7
ARTICLE III TRANSACTIONS RELATING TO THE DISTRIBUTION
3.1 The Reorganization 7
3.2 Company Board 13
3.3 Company Charter and Bylaws 13
3.4 Other Agreements 13
3.5 Operation in the Ordinary Course of Business 13
3.6 Insurance 14
3.7 Collections and Payments after the
Distribution Date 14
3.8 Certain Post-Distribution Transactions 14
ARTICLE IV INDEMNIFICATION
4.1 Indemnification by CFI 15
4.2 Indemnification by the Company 15
4.3 Limitations on Indemnification Obligations 16
4.4 Procedures for Indemnification 17
4.5 Releases 19
4.6 Environmental Liabilities 20
ARTICLE V ACCESS TO INFORMATION; SERVICES
5.1 Access to Information 20
5.2 Production of Witnesses 21
5.3 Provision of Services 21
5.4 Reimbursement 21
5.5 Retention of Records 22
5.6 Confidentiality 22
5.7 Provision of Corporate Records 23
5.8 Privileged Matters 23
ARTICLE VI REPRESENTATIONS, WARRANTIES AND COVENANTS
6.1 Financial Statements 24
6.2 Form 10 and Information Statement 24
6.3 Marks 24
ARTICLE VII SHARED CLAIMS
7.1 Acknowledgment. 25
7.2 Notification. 25
7.3 Cooperation. 25
7.4 Liability. 26
7.5 Non-Shared Liabilities. 26
ARTICLE VIII MISCELLANEOUS
8.1 Complete Agreement; Construction 26
8.2 Expenses 26
8.3 Governing Law 27
8.4 Notices 27
8.5 Amendments and Waivers 27
8.6 Counterparts 28
8.7 Successors and Assigns 28
8.8 Termination 28
8.9 No Third-Party Beneficiaries 28
8.10 Titles and Headings 28
8.11 Legal Enforceability 28
8.12 Further Assurances 29
8.13 No Solicitation of Employees 29
8.14 Dispute Resolution 30
Schedule 3.1(b) LJSC Service Departments
Schedule 3.1(e) Real Property
Schedule 3.1(g) Licensed Materials
Schedule 3.1(h)(i) Marks
Schedule 3.1(h)(ii) Additional Marks
Schedule 3.1(h)(iii)Patents and Copyrights
Schedule 3.6(b) Insurance Policies
Schedule 4.1 CFI Indemnification
Schedule 4.2 Company Indemnification
Schedule 6.3 CFI marks
Schedule X Omitted Programs
ANNEX 1 Form of ADR Agreement
ANNEX 2 Form of Employee Benefit Matters Agreement
ANNEX 3 Form of Reimbursement Agreement
ANNEX 4 Form of Services Agreement
ANNEX 5 Form of Tax Sharing Agreement
ANNEX 6 Form of Restated Certificate of Incorporation
ANNEX 7 Form of Restated Bylaws
ANNEX 8 Form of Maintenance, License and Easement Agreement
DISTRIBUTION AGREEMENT
This DISTRIBUTION AGREEMENT (the "Agreement")
is made as of this 25th of November, 1996 by and between
CONSOLIDATED FREIGHTWAYS, INC., a Delaware corporation
("CFI"), and CONSOLIDATED FREIGHTWAYS CORPORATION, a Dela
ware corporation (the "Company").
RECITALS
WHEREAS, CFI is the holder of all of the issued
and outstanding shares of common stock, $.01 par value
per share, of the Company (the "Company Common Stock");
WHEREAS, the Board of Directors of CFI (the
"CFI Board") has determined that it is advisable to dis
tribute (the "Distribution") all of the shares of Company
Common Stock to the holders of the common stock, $.01 par
value per share, of CFI (the "CFI Common Stock");
WHEREAS, CFI and the Company have determined
that it is necessary and desirable to set forth the
principal corporate transactions required to effect the
Distribution and certain other agreements that will
govern certain matters relating to the Distribution and
the relationships thereafter between CFI and the Company;
NOW, THEREFORE, in consideration of the mutual
promises hereinafter set forth and other good and valu
able consideration, the parties hereto hereby agree as
follows:
I
DEFINITIONS
I.1 General. As used in this Agreement, the following
terms shall have the following meanings (such meanings to
be equally applicable to both the singular and plural
forms of the terms defined):
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Action: any action, suit, arbitration, inqui
ry, proceeding or investigation by or before any court,
any governmental or other regulatory or administrative
agency or commission or any arbitration tribunal.
ADR Agreement: the Alternative Dispute Resolu
tion Agreement to be entered into by CFI and the Company
as of the Distribution Date, the form of which is at
tached hereto as Annex 1.
Affiliate: as defined in Rule 12b-2 under the
Exchange Act.
CFI Group:At any time following the Distribu
tion, CFI and all entities which are Affiliates of CFI at
such time.
Code: the Internal Revenue Code of 1986, as
amended.
Commission: the Securities and Exchange Commis
sion.
Company Group: at any time following the Dis
tribution, the Company and all entities which are Affili
ates of the Company at such time.
Distribution Agent: The Bank of New York.
Distribution Date: the date as determined by
the CFI Board or a committee thereof on which the Distri
bution takes place by delivery of the shares of Company
Common Stock to the Distribution Agent.
Distribution Ratio: the ratio of CFI Common
Stock to Company Common Stock to be distributed in the
Distribution.
Employee Benefit Matters Agreement: the Em
ployee Benefit Matters Agreement to be entered into by
CFI and the Company as of the Distribution Date, the form
of which is attached hereto as Annex 2.
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Environmental Liabilities: means any Liabil
ities arising from, under or relating to any environmen
tal, health or safety law, rule, regulation, Action,
threatened Action, order or consent decree.
Exchange Act: the Securities Exchange Act of
1934, as amended, and the rules and regulations thereun
der.
Form 10: the registration statement on Form 10
filed by the Company with the Commission to effect the
registration of the Company Common Stock under the Ex
change Act.
Information Statement: the Information State
ment on Form 14C filed by the Company with the Commission
and included in the Form 10 at the time of its effective
ness.
Insurance Proceeds: those monies (i) received
by an insured from an insurance carrier on an insurance
claim or (ii) paid by an insurance carrier on behalf of
an insured on an insurance claim, in either case net of
any applicable deductibles, retentions, or costs paid by
such insured, but such term does not refer to proceeds re
ceived from an insurer on an employee benefits group
insurance policy.
IRS: the Internal Revenue Service.
Liabilities: any and all debts, liabilities,
obligations, absolute or contingent, asserted or
unasserted, matured or unmatured, liquidated or unliqui
dated, accrued or unaccrued, known or unknown, direct or
indirect, whenever arising, including all costs and
expenses relating thereto, and including, without limita
tion, those debts, liabilities and obligations arising
under any law, rule, regulation, Action, threatened
Action, order or consent decree of any governmental
entity or any award of any arbitrator of any kind, and
those arising under any contract, commitment or undertak
ing including those arising under this Agreement.
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LJSC: Leland James Service Corporation, a
Delaware Corporation.
Losses: any and all debts, losses, Liabil
ities, claims, damages, obligations, payments or costs
and expenses, absolute or contingent, matured or unma
tured, liquidated or unliquidated, accrued or unaccrued,
known or unknown, direct or indirect (including, without
limitation, the costs and expenses of any and all Ac
tions, threatened Actions, demands, assessments, judg
ments, settlements and compromises relating thereto and
attorneys' fees and any and all expenses whatsoever
reasonably incurred in investigating, preparing or de
fending against any such Actions or threatened Actions).
Other Agreements: the ADR Agreement, the
Employee Benefit Matters Agreement, the Reimbursement
Agreement, the Services Agreement, the Tax Sharing Agree
ment and the Maintenance, License and Easement Agreement
to be entered into by CFCD (as defined) and CF Properties
(as defined) as of the Distribution Date, the form of
which is attached hereto as Annex 8.
Record Date: the close of business on the date
to be determined by the CFI Board or a committee thereof
as the record date for the determination of stockholders
of record of CFI entitled to receive the Distribution.
Reimbursement Agreement: the Reimbursement and
Indemnification Agreement to be entered into between CFI
and Consolidated Freightways Corporation of Delaware
("CFCD") as of October 1, 1996, the form of which is at
tached hereto as Annex 3.
Securities Act: the Securities Act of 1933, as
amended.
Services Agreement: the Transition Services
Agreement to be entered into by CNF Service Company, Inc.
and the Company as of the Distribution Date, the form of
which is attached hereto as Annex 4.
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Subsidiaries: the term "Subsidiaries" as used
herein with respect to any entity shall, unless otherwise
indicated, be deemed to refer to both direct and indirect
subsidiaries of such entity.
Tax Sharing Agreement: the Tax Sharing Agree
ment to be entered into by CFI and the Company as of the
Distribution Date, the form of which is attached hereto
as Annex 5.
II
THE DISTRIBUTION
II.1 Cooperation Prior to the Distribution. Prior to
the Distribution:
(a) CFI and the Company shall prepare,
and the Company shall file with the Commission, the Form
10. CFI and the Company shall prepare, and CFI shall
mail, promptly after the effectiveness of the Form 10, to
the holders of CFI Common Stock, the Information State
ment, which shall set forth appropriate disclosure con
cerning the Company, the Distribution and other matters.
The Company shall use reasonable efforts to cause the
Form 10 to become effective under the Exchange Act.
a) CFI and the Company shall cooperate in preparing,
filing with the Commission and causing to become effec
tive any registration statements or amendments thereto
that are appropriate to reflect the establishment of or
amendments to any employee benefit and other plans contem
plated by the Employee Benefit Matters Agreement.
b) The Company shall prepare, file and pursue an
application to permit listing of the Company Common Stock
on the Nasdaq National Market (and/or such other exchange
as the Company deems appropriate), under the symbol
"CFWY" (or such other symbol as the Company deems
appropriate).
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II.2 Conditions to Distribution. The CFI Board shall
in its discretion establish the Record Date and the
Distribution Date and all appropriate procedures in
connection with the Distribution. The Distribution shall
be subject to satisfaction of each of the following
conditions, among other things: (i) the consummation of
certain internal corporate reorganizations; (ii) the
successful renegotiation of certain CFI credit facilities
and debt instruments, including the execution of certain
consents, waivers and amendments thereto by lenders, and
the maintenance of CFI's investment grade debt ratings;
(iii) the establishment of a separate credit facility for
CFCD; (iv) the receipt of certain third-party consents
relating to certain contracts, licenses and other agree
ments; (v) the receipt of rulings from the IRS or an opin
ion of special tax counsel to CFI to the effect that,
among other things, the Distribution will generally
qualify as a tax-free distribution under Section 355 of
the Internal Revenue Code of 1986, as amended; (vi) the
receipt of a letter from the staff of the Commission con
firming that it will take no action with respect to
certain matters relating to the Distribution; (vii) the
Form 10 having become effective and no stop order being
in effect; (viii) there not being in effect any statute,
rule, regulation or order of any court, governmental or
regulatory body that prohibits or makes illegal the
transactions contemplated by the Distribution; (ix) ap
proval for listing of the Company Common Stock on the
Nasdaq National Market; and (x) declaration of the spe
cial dividend by the CFI Board. The CFI Board reserves
the right in its discretion, other than with respect to
those set forth in clauses (i), (v), (vi), (vii) and (x),
to waive the satisfaction of any condition to the Distri
bution; provided, however, that the CFI Board may aban
don, defer or modify the Distribution and the related
transactions at any time prior to the Distribution Date.
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II.3 The Distribution. On the Distribution Date,
subject to the conditions set forth in this Agreement,
CFI shall deliver to the Distribution Agent a certificate
or certificates representing the number of then
outstanding shares of Company Common Stock to be dis
tributed in the Distribution, endorsed in blank, and
shall instruct the Distribution Agent to distribute to
each holder of record of CFI Common Stock on the Record
Date a certificate or certificates representing one share
of Company Common Stock for every two shares of CFI
Common Stock so held. The Company agrees to provide all
certificates for shares of Company Common Stock that the
Distribution Agent shall require in order to effect the
Distribution.
II.4 Sale of Fractional Shares. The Distribution Agent
shall not distribute any fractional shares of Company
Common Stock ("Fractional Shares") to any holder of CFI
Common Stock. The Distribution Agent shall be instructed
to aggregate all such Fractional Shares and sell them in
an orderly manner after the Distribution Date in the open
market at then-prevailing prices and, after completion of
all such sales, distribute a pro rata portion of the
proceeds from such sales to each holder of CFI Common
Stock who would otherwise have received a Fractional
Share. CFI will bear the cost of brokerage commissions
incurred in connection with such sales.
II.5 Odd-Lot Program. In connection with the Distribu
tion, the Company shall offer to holders of CFI Common
Stock who would otherwise receive fewer than 100 shares
of Company Common Stock in the Distribution a program by
which such holders may instruct the Distribution Agent to
sell such shares of Company Common Stock on their behalf.
The Company shall cause such program to be conducted in
accordance with the terms and conditions described in the
Information Statement.
III
TRANSACTIONS RELATING TO THE DISTRIBUTION
III.1 The Reorganization.
a) Prior to the Distribution Date, CFI shall take
all steps necessary to establish CFCD as a wholly owned
subsidiary of the Company.
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b) Prior to the Distribution Date, CFI shall take
all steps necessary to establish LJSC as a wholly owned
subsidiary of the Company; provided, however, that
immediately prior to the Distribution or simultaneously
therewith, the LJSC administrative service departments
identified on Schedule 3.1(b) shall be transferred to CNF
Service Company, Inc., a wholly owned subsidiary of CFI.
c) Prior to the Distribution Date, CFI shall take
all steps necessary to merge Vantage Parts into CFI.
d) Prior to the Distribution Date, CFI shall take
all steps necessary to establish Milne & Craighead as a
wholly owned, indirect subsidiary of CFCD.
e) Prior to the Distribution Date, CFI shall take
all steps necessary to effect the transfer of all real
property owned by CFCD and/or LJSC and set forth on
Schedule 3.1(e) to CF Properties, Inc., a wholly owned
subsidiary of CFI ("CF Properties"), and to effect the
transfer of CFI's Gresham terminal and land under CFI's
Santa Fe Springs and Hayward Terminals to CFCD. In
consideration of such transfers, the Company hereby
agrees to continue to use Con-Way rail services until
January 1, 1997.
f) The Company acknowledges that any and all rights
in the software programs (including without limitation
all source and object code and all documentation there
for, and all versions thereof) developed by, or on behalf
of, the Company, CFI or its Affiliates prior to the
Distribution Date, and all other intellectual property
rights, including without limitation all copyrights,
patent rights, know-how and trade secret rights, and in
cluding, without limitation, the right to sue for any
past, present or future infringement of any of the fore
going, are vested in CFI. The Company will execute and
deliver any instruments or take such other actions as CFI
may reasonably request in order to confirm such assign
ment and to otherwise effectuate the purposes and terms
of this Agreement.
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g) CFI hereby grants to the Company, effective as
of the termination of the Services Agreement, a royalty-
free, worldwide, perpetual and non-transferable, license
without right of sublicense, (except as to subsidiaries
who agree in writing to be bound by the terms of this
license), to use and create derivative works of the soft
ware programs (including without limitation all source
and object code and documentation therefor) owned by CFI
which pertain to the Company's administrative and busi
ness functions and activities, in the form they exist as
of the termination of the Services Agreement, which the
Company uses in its business as of the Distribution Date
as set forth on Schedule 3.1(g) hereto (collectively, the
"Licensed Materials"). CFI shall take such steps neces
sary to provide to the Company, at CFI's expense, and
with minimal interruption of the operations of CFI and
its Affiliates, copies of the Licensed Materials, togeth
er with copies of any related third-party licenses (sub
ject to the proviso set forth in the immediately follow
ing sentence), and reasonable instruction as to their in
stallation and use. In addition, CFI shall, as soon as
practicable after the Distribution Date, make reasonable
efforts to obtain on behalf of the Company, at CFI's ex
pense with respect to initial purchase, acquisition and
original installation fees only, all consents or separate
licenses for third-party software which the Company uses
in its business as of the Distribution Date, or which are
incorporated into the Licensed Materials, or which are
necessary for the Company to have the right to use the
Licensed Materials to the extent contemplated herein and
be able to receive the services contemplated under the
Services Agreement, and such third-party licenses shall
be at least as broad in scope and term as were similar
licenses for CFI prior to the Distribution Date; provid
ed, however, that if CFI determines that the terms upon
which any such license may be obtained are commercially
unreasonable, CFI shall have the right to obtain a li
cense for reasonably comparable software in full satis
faction of the above-mentioned obligation. Where use of
third-party software is limited to a specified number of
users or similarly restricted, an equitable division
shall be made as set forth on Schedule 3.1(g). Each of
CFI and the Company further acknowledges and agrees that:
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(i) The use of the Licensed Materials is
to be limited to the internal business use of the
Company, or its Affiliates and their authorized cus
tomers who in the ordinary course of business with
the Company request access to the Licensed Materials
in connection with products or services otherwise
provided by the Company.
(ii) The Company's, its Affiliates' and au
thorized customers' right to use the Licensed Mate
rials which require a third-party license is condi
tioned upon the Company's, its Affiliates and autho
rized customers observing the applicable terms and
conditions in any third party licenses relating to
the Licensed Materials and as to Affiliates and
authorized customers the obtaining of any necessary
consents or separate licenses from such third party
vendors. CFI shall make reasonable efforts to
obtain all consents or separate licenses from third
party licensors necessary for the Company to have
the right to use the Licensed Materials to the
extent contemplated herein and be able to receive
the services contemplated under the Services Agree
ment.
(iii) The Company shall assume all Liabili
ties relating to the Company's use, and use by any
of the Company's Affiliates or authorized customers,
of the Licensed Materials after the Distribution
Date (including, without limitation, as relates to
maintenance costs) and shall indemnify and hold harm
less CFI against all Liabilities and expenses (in
cluding reasonable attorneys' fees and costs of liti
gation) which CFI may incur, which arise out of the
use of the Licensed Materials by the Company, its
Affiliates or authorized customers after the
Distribution Date.
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(iv) CFI shall assume all Liabilities
relating to the Company's use of software requiring
a third-party license where CFI has taken a license
from such third party and (A) a license for the
Company is available at a commercially reasonable
cost but CFI has failed to provide the Company with
the applicable third-party license to the extent
required by this Agreement, or (B) in the event that
CFI is not able to obtain such a license at a commer
cially reasonable cost, CFI has failed to provide
the Company with reasonably comparable software and
shall indemnify and hold harmless the Company
against all Losses, Liabilities and expenses (includ
ing reasonable attorneys' fees and cost of litiga
tion) which the Company may incur, which arise out
of claims by owners of the third party software
arising out of such failure of CFI to obtain such
third-party licenses for the Company. The Company
shall assume all Liabilities relating to the use of
third- party software obtained on its behalf by CFI
including, without limitation, as relates to mainte
nance costs.
(v) The Licensed Materials constitute
confidential information and shall remain the prop
erty of CFI, subject to the license granted herein.
The Company agrees to hold the same in confidence
and not to disclose or distribute the same unless
such information subsequently becomes publicly
available through no fault of the Company.
(vi) CFI shall assume all Liabilities
relating to CFI's use, and use by CFI's Affiliates
or authorized customers, of the Licensed Materials
and any materials not licensed to the Company, and
shall indemnify and hold harmless the Company
against all Losses, Liabilities and expenses (includ
ing reasonable attorneys' fees and cost of litiga
tion) which the Company may incur, which arise out
of the use of the Licensed Materials or any of the
materials not licensed to the Company by CFI, its
Affiliates or authorized customers.
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(vii) The Company may request additional
worldwide, perpetual and non-transferable licenses
from CFI which are not currently used by it in its
business. CFI may grant such licenses in its sole
discretion. The licenses requested and granted as
of the date hereof are listed in Schedule 3.1(g) as
"Additional Licenses." The Company shall pay the
costs of copying such software and purchasing any
required third party licenses related thereto. The
Company shall assume all Liabilities relating to the
Company's use thereof (including, without limita
tion, as relates to maintenance costs) and shall
indemnify and hold harmless CFI against all Liabili
ties and expenses whatsoever (including reasonable
attorneys' fees and costs of litigation) which CFI
may incur, which arise out of, or are in any way
related to the use of such software by the Company,
its Affiliates or authorized customers.
(viii) The Company shall pay its propor
tional share of the development costs of the Li
censed Materials identified in Schedule 3.1(g) as
"Under Development" as incurred after the Distribu
tion Date. Any cost of "cloning" a second copy, if
any, shall be part of the development costs. The
Company shall not, however, pay a proportional share
of the development costs where such Licensed Materi
als are used in connection with the provision of
services to the Company under the Services Agree
ment, to the extent that the Company has already
paid such proportional share in accordance with the
Services Agreement.
(ix) Because of the extensive number of
software programs used by the parties, the parties
expect that some programs may inadvertently be
omitted from, or included on, Schedule 3.1(g). In
such event, the parties shall determine in good
faith whether such programs should be added or
deleted as Licensed Materials and related third-
party software used by the Company as of the date
hereof, "Additional Licenses" or "Under Develop
ment"; provided, however, that the parties acknowl
edge that the programs listed on Schedule X have
been intentionally omitted from Schedule 3.1(g).
Page 12
h) CFI hereby grants to the Company and its
Subsidiaries a limited, non-exclusive, non-transferable,
royalty-free worldwide right and license, without right
of sublicense (except to subsidiaries who agree in
writing to be bound by the terms of this license) to use
the trademarks, trade names and service marks set forth
on Schedule 3.1(h)(i) (collectively, the "Marks") for the
nine-month period beginning on the Distribution Date. On
or prior to the Distribution Date, CFI and the Company
shall enter into a Trademark License Agreement, substan
tially in the form included on Schedule 3.1(h)(ii) in
order to effect the license from CFI to the Company (and
its Subsidiaries) of the marks (the "Additional Marks")
set forth on Schedule 3.1(h)(ii). The Company agrees to
comply and to cause its Subsidiaries to comply with rea
sonable quality standards set by CFI, and subject to
CFI's reasonable rights of inspection as to compliance
with such quality standards, as relates to the use of the
Marks and the Additional Marks, and CFI acknowledges that
the Company and its Subsidiaries currently meet all such
standards. On or prior to the Distribution Date, CFI
shall assign to the Company, pursuant to a Trademark
Assignment in the form included on Schedule 3.1(h)(i) (X)
the Marks, effective as of the end of the nine-month
period commencing on the Distribution Date, (Y) the
trademarks, trade names and service marks relating to "CF
Air" and "CF Air Freight" (and as stylized), effective as
of the third anniversary of the Distribution Date. On or
prior to the Distribution Date, CFI shall assign to the
Company, pursuant to the Copyright Assignment and the
Patent Assignment in the forms included on Schedule
3.1(h)(iii), the patents and copyrights set forth on
Schedule 3.1(h)(iii), effective as of the Distribution
Date.
i) Company shall indemnify and hold CFI, and its
subsidiaries, Affiliates, officers, directors and
subsidiaries, harmless from and against any and all
Liabilities arising out of the Company's activities under
the Marks and the Additional Marks.
j) Prior to the Distribution Date, CFI and the
Company shall take all steps necessary to increase the
outstanding shares of Company Common Stock so that,
immediately prior to the Distribution, CFI will hold a
number of shares of Company Common Stock sufficient to
enable it to complete the Distribution based on the
Distribution Ratio. Company Board. CFI and the Company
shall take all steps necessary to elect as directors of
the Company, on or prior to the Distribution Date, the
persons named in the Form 10 to constitute the board of
directors of the Company on the Distribution Date.
Page 13
III.3 Company Charter and Bylaws. On or prior to
the Distribution Date, (a) CFI shall approve and cause
the Amended and Restated Certificate of Incorporation of
the Company substantially in the form of Annex 6 hereto
to be filed with the Secretary of State of Delaware and
to be in effect on the Distribution Date and (b) CFI
shall adopt the Amended and Restated Bylaws of the Compa
ny substantially in the form of Annex 7 hereto to be in
effect on the Distribution Date.
III.4 Other Agreements. On or prior to the Distri
bution Date, CFI and the Company shall enter into, and/or
(where applicable) shall cause their respective Subsid
iaries to enter into, the Other Agreements and any other
agreements necessary or appropriate in connection with
the transactions contemplated hereby and thereby. In the
event of a conflict between the terms of this agreement
and the terms of any of the Other Agreements or any such
other agreements, (including without limitation Section
5.04 of the Tax Sharing Agreement) the terms of such
Other Agreement or other agreement shall govern.
III.5 Operation in the Ordinary Course of Business.
Prior to the Distribution Date, the Company shall, and
shall cause each of its Subsidiaries to, conduct its
business and operations in the ordinary course of busi
ness, consistent with past practice, and shall, and shall
cause each of its Subsidiaries to, continue to ship
products, pay accounts payable and invoices, deposit and
accept payments, and make capital expenditures in the
ordinary course of business, all consistent with past
practice. The Company shall not, and shall cause each of
its Subsidiaries not to, undertake any arrangement with
the intent to delay receipt of any funds by the Company
or its Subsidiaries until on or after the Distribution
Date or to accelerate any payment to be made by the
Company or its Subsidiaries prior to the Distribution
Date, except in each case in the ordinary course of
business consistent with past practice.
Page 14
III.6 Insurance. The Company and each other member
of the Company Group does hereby release CFI and each
other member of the CFI Group from all Liabilities
arising from or in connection with the insurance policies
described on Schedule 3.6(b), excluding occurrences which
commenced on or prior to October 1, 1996, except the
policies covering underground storage tank liability,
which shall be released as of the Distribution Date. The
Company and each other member of the Company Group does
hereby acknowledge that these policies are cancelled or
terminated as to CFCD and its Subsidiaries as of October
1, 1996, except to the extent of claims referred to in
the preceding sentence. The Company and each other
member of the Company Group expressly waives any and all
rights under section 1542 of the Civil Code of Califor
nia, which provides as follows:
"A General Release does not
extend to claims which the creditor
does not know or suspect to exist in
his favor at the time of executing
the Release, which if known by him
must have materially affected his
settlement with the debtor."
III.7 Collections and Payments after the Distri
bution Date. Except as may be explicitly provided in
this Agreement and the Other Agreements, any cash re
ceipts arising out of or relating to the assets, Liabili
ties or operations of the Company or its past or present
Subsidiaries received on or after the Distribution Date
shall be retained by the Company and such Subsidiaries
and any Liabilities or obligations, other than any Lia
bilities or obligations relating to LJSC and arising on
or prior to the Distribution Date, arising out of, relat
ing to or asserted on the basis of the assets, Liabil
ities or operations of the Company or its past or present
Subsidiaries due and unpaid on and after the Distribution
Date or incurred on and after the Distribution Date shall
be payable by the Company and such Subsidiaries. The
Company and CFI shall settle all payments received from
account debtors of either of them to the effect that
amounts properly owing to the Company are received by the
Company and amounts properly owing to CFI are received by
CFI, with such settlements to occur by wire transfer (a)
daily, for the three-month period beginning on the Dis
tribution Date and (b) weekly, thereafter.
Page 15
III.8 Certain Post-Distribution Transactions. The
Company. (i) The Company shall, and shall cause each of
its Subsidiaries to, comply with each representation and
statement made, or to be made, to the IRS in connection
with the IRS private letter ruling issued to CFI on
September 23, 1996 (the "Ruling") or any other ruling to
be obtained by the Company and CFI acting together from
any taxing authority with respect to any transaction
contemplated by this Agreement; and (ii) until the third
anniversary of the Distribution Date, neither the Company
nor any of its Subsidiaries shall (A) make a material
disposition, by means of a sale or exchange of assets or
capital stock, a distribution to stockholders or other
wise, of its assets, (B) repurchase or issue any Company
capital stock (other than stock issued pursuant to em
ployee plans), or (C) cease the active conduct of its
businesses independently, with its own employees and with
out material change, unless, in each of cases (A), (B)
and (C), in the opinion of counsel to the Company, which
opinion shall be reasonably satisfactory to CFI, or pursu
ant to a supplemental IRS private letter ruling reason
ably satisfactory to CFI, such act or omission would not
adversely affect the tax consequences of the Distribution
to CFI or the stockholders of CFI, as set forth in the
Ruling or any other ruling issued by any taxing authori
ty; and the Company has no present intention to take any
such actions.
Page 16
IV
INDEMNIFICATION
IV.1 Indemnification by CFI. Except as otherwise pro
vided by any of the Other Agreements or as contemplated
by Section 4.5 or Article VII hereof, effective as of the
Distribution Date, CFI and each other member of the CFI
Group agree to indemnify, defend and hold harmless the
Company, each other member of the Company Group, and
their present or former officers, directors, sharehold
ers, agents, employees, representatives, successors-in-
interest, parents, Affiliates, insurers, attorneys and
assigns (the "Company Indemnitees") from and against any
and all Losses of the Company Indemnitees arising out of
or related in any manner to any item set forth on Sched
ule 4.1.
IV.2 Indemnification by the Company. Except as other
wise provided by any of the Other Agreements or as con
templated by Section 4.5 or Article VII hereof, effective
as of the Distribution Date, the Company and each other
member of the Company Group agree to indemnify, defend
and hold harmless CFI, each other member of the CFI
Group, and their present or former officers, directors,
shareholders, agents, employees, representatives, succes
sors-in-interest, parents, Affiliates, insurers, attor
neys and assigns (the "CFI Indemnitees") from and against
any and all Losses of the CFI Indemnitees arising out of
or related in any manner to any item set forth on Sched
ule 4.2.
IV.3 Limitations on Indemnification Obligations. The
amount that either CFI or the Company (an "Indemnifying
Party") is or may be required to pay to an indemnified
party ("Indemnitee") pursuant to Section 4.1 or 4.2, or
any other Section of this Agreement providing for
indemnification, shall be reduced by any Insurance Pro
ceeds or other amounts actually recovered by or on behalf
of such Indemnitee, in reduction of the related Loss. If
an Indemnitee shall have received the payment required by
this Agreement from an Indemnifying Party in respect of
any Loss and shall subsequently actually receive Insur
ance Proceeds or other amounts in respect of such Loss,
then such Indemnitee shall pay to such Indemnifying Party
a sum equal to the amount of such Insurance Proceeds or
other amounts actually received (up to but not in excess
of the amount of any indemnity payment made hereunder).
No insurer or other third party shall: (a) be relieved
of the responsibility to pay any claims which it would
otherwise be obligated to pay in the absence of the
foregoing indemnification provisions; (b) solely by
virtue of the indemnification provisions hereof, have any
subrogation rights with respect to any claims which it
would otherwise be obligated to pay; or (c) be entitled
to a benefit it would not be entitled to receive in the
absence of the foregoing indemnification provisions. Any
Indemnifying Party shall succeed to the rights of any
Indemnitee with respect to any matter contemplated by
this Section 4.3.
Page 17
IV.4 Procedures for Indemnification. (a)(i) If an
Indemnitee shall receive notice or otherwise learn of the
assertion of any claim or commencement of any proceeding
(including any governmental investigation) by a person
who is not a party to this Agreement (or any Affiliate of
either party) (a "Third-Party Claim") with respect to
which an Indemnifying Party may be obligated to provide
indemnification pursuant to this Agreement, such
Indemnitee shall give such Indemnifying Party written
notice thereof promptly after becoming aware of such
Third-Party Claim setting forth the particulars as to
such claim or proceeding in reasonable detail; provided
that the failure of any Indemnitee to give notice as pro
vided in this Section 4.4(a) shall not relieve the relat
ed Indemnifying Party of its obligations under this Arti
cle IV, unless such Indemnifying Party is actually preju
diced by such failure to give notice and then only to the
extent of such actual prejudice.
Page 18
(ii) An Indemnifying Party may, to the
extent it wishes within thirty days of receipt of notice
of a Third Party claim and at its cost and expense, elect
to defend or to seek to settle or compromise any Third-
Party Claim; provided that the Indemnitee may participate
in such settlement or defense through its chosen counsel
at its sole cost and expense. After notice from an Indem
nifying Party to an Indemnitee of its election to assume
the defense of a Third-Party Claim, such Indemnifying
Party shall not be liable to such Indemnitee under this
Article IV for any legal or other expenses (except ex
penses approved in advance by the Indemnifying Party)
subsequently incurred by such Indemnitee in connection
with the defense thereof; provided that if the defendants
in any such Third-Party Claim include both the Indemnify
ing Party and one or more Indemnitees and in any
Indemnitee's reasonable judgment a conflict of interest
between one or more of such Indemnitees and such Indemni
fying Party exists in respect of such claim, such Indem
nitees shall have the right to employ separate counsel to
represent such Indemnitees and in that event the reason
able fees and expenses of such separate counsel (but not
more than one separate counsel reasonably satisfactory to
the Indemnifying Party) shall be paid by such Indemnify
ing Party; provided further if and to the extent that
there is a conflict of defenses or positions among the
Indemnitees, the Indemnitees shall have the right to re
tain such number of additional separate counsel, reason
ably satisfactory to the Indemnifying Party, as is rea
sonably necessary to avoid such conflicts, and the Indem
nifying Party shall be responsible for the reasonable
fees and expenses of such additional separate counsel;
provided further that the Indemnitee may participate in
the settlement or defense of a Third-Party Claim through
counsel chosen by such Indemnitee if the fees and expens
es of such counsel shall be borne by such Indemnitee. If
an Indemnifying Party elects not to assume responsibility
for defending a Third-Party Claim, such Indemnitee may
defend or seek to compromise or settle such Third-Party
Claim but shall not thereby waive any right to indemnity
therefor pursuant to this Agreement. Notwithstanding the
foregoing, the Indemnifying Party shall not be liable for
any settlement of any Third-Party Claim effected without
its written consent. The Indemnifying Party shall not,
except with the consent of the Indemnitee, (i) enter into
any such settlement that does not include as an uncondi
tional term thereof the giving by the person or persons
asserting such Third-Party Claim to all Indemnitees an
unconditional release from all Liability with respect to
such Third-Party Claim, or (ii) consent to entry of any
judgment.
Page 19
a) Any claim on account of a Loss that does not
result from a Third-Party Claim shall be asserted by
written notice given by the Indemnitee to the Indemnify
ing Party. Such Indemnifying Party shall have a period
of thirty (30) days after the receipt of such notice
within which to respond thereto. If such Indemnifying
Party does not respond within such thirty-day period,
such Indemnifying Party shall be deemed to have refused
to accept responsibility to make payment. If such
Indemnifying Party does not respond within such thirty-
day period or rejects such claim in whole or in part,
such Indemnitee shall be free to pursue such remedies as
may be available to such party under this Agreement or
under applicable law (except as provided in the ADR Agree
ment).
b) In addition to any adjustments required pursuant
to Section 4.3, if the amount of any Loss shall, at any
time subsequent to the payment required by this Agree
ment, be reduced by recovery, settlement or otherwise,
the amount of such reduction that has been received by
the Indemnitee, less any expenses properly incurred in
connection therewith, shall promptly be repaid by the
Indemnitee to the Indemnifying Party.
c) In the event of payment by an Indemnifying Party
to any Indemnitee in connection with any Third-Party
Claim, such Indemnifying Party shall have all rights of
subrogation and shall stand in the place of such Indemni
tee as to any events or circumstances in respect of which
such Indemnitee may have any right or claim relating to
such Third-Party Claim or against any other person. Such
Indemnitee shall cooperate with such Indemnifying Party
in a reasonable manner, and at the cost and expense of
such Indemnifying Party, in prosecuting any subrogated
right or claim.
d) Notwithstanding anything to the contrary herein
or in the Other Agreements, the foregoing indemnification
provisions and procedures shall apply to any other
indemnification agreements herein or in the Other
Agreements.
Page 20
IV.5 Releases.
(a) Subject to Article VII and effective
on the Distribution Date, the Company and each other mem
ber of the Company Group releases and forever discharges
CFI, each other member of the CFI Group, and their pres
ent or former officers, directors, shareholders, agents,
employees, representatives, successors-in-interest, par
ents, Affiliates, insurers, attorneys and assigns of and
from any and all Liabilities (other than those for which
indemnification is available under (i) this Article IV or
(ii) any Other Agreement (subject to the provisions of
Section 4.3)).
a) Subject to Article VII and effective on the Dis
tribution Date, CFI and each other member of the CFI
Group releases and forever discharges the Company, each
other member of the Company Group and their present or
former officers, directors, shareholders, agents, employ
ees, representatives, successors-in-interest, parents,
Affiliates, insurers, attorneys and assigns of and from
any and all Liabilities (other than those for which indem
nification is available under this Article IV and any
Other Agreement (subject to the provisions of Section
4.3)).
b) The Company and each other member of the Company
Group, and CFI and each other member of the CFI Group,
expressly waive any and all rights under section 1542 of
the Civil Code of California, which provides as follows:
"A General Release does not
extend to claims which the creditor
does not know or suspect to exist in
his favor at the time of executing
the Release, which if known by him
must have materially affected his
settlement with the debtor."
Environmental Liabilities. Notwithstanding anything
contained herein or in any Other Agreement to the
contrary, neither party shall have any obligation to
indemnify the other party with respect to any Environ
mental Liabilities.
Page 21
V
ACCESS TO INFORMATION; SERVICES
V.1 Access to Information. From and after the Distri
bution Date, CFI shall, and shall cause its Subsidiaries
to, afford to the Company and its authorized accountants,
counsel and other designated representatives (collective
ly, "Representatives") reasonable access (including using
reasonable efforts to give access to the person or firms
possessing information) and duplicating rights during
normal business hours to all administrative records,
books, contracts and instruments, and all Company-owned
computer software and computer data and other Company-
owned data and information (collectively, but excluding
all software not owned by the Company, "Information")
within CFI's or any such Subsidiary's possession or
control relating to the Company or any Company Subsidiary
and to any property owned by CFI that was leased or
operated by the Company or any Company Subsidiary, inso
far as such access is reasonably required by the Company
or any Company Subsidiary. Similarly, the Company shall,
and shall cause its Subsidiaries to, afford to CFI and
its Representatives reasonable access (including using
reasonable efforts to give access to persons or firms pos
sessing Information) and duplicating rights during normal
business hours to Information within the Company's or any
such Subsidiary's possession or control relating to CFI
or any CFI Subsidiary or relating to the Company prior to
the Distribution Date and to any property owned by the
Company that was leased or operated by CFI or any CFI Sub
sidiary (other than the Company and its Subsidiaries),
insofar as such access is reasonably required by CFI or
any CFI Subsidiary. Information may be requested under
this Article V for, without limitation, audit, account
ing, claim, litigation and tax purposes, as well as for
purposes of fulfilling disclosure and reporting obliga
tions and for performing this Agreement and the transac
tions contemplated hereby.
Page 22
V.2 Production of Witnesses. After the Distribution
Date, each of CFI and the Company shall, and shall cause
its respective Subsidiaries to, use reasonable efforts to
make available to the other party and its Subsidiaries,
upon written request, its directors, officers, employees
and agents as witnesses to the extent that any such
person may reasonably be required in connection with any
legal, administrative or other proceedings in which the
requesting party may from time to time be involved.
V.3 Provision of Services. In addition to any servic
es contemplated to be provided following the Distribution
Date by any Other Agreement, each party, upon written
request, shall make available to the other party, during
normal business hours and in a manner that will not inter
fere unreasonably with such party's business, its
financial, tax, accounting, legal, employee benefits and
similar staff services (collectively, "Services") whenev
er and to the extent that they may be reasonably required
in connection with the preparation of tax returns, au
dits, claims, litigation or administration of employee
benefit plans, and otherwise to assist in effecting an
orderly transition following the Distribution.
V.4 Reimbursement. Except to the extent otherwise pro
vided in any Other Agreement, each party providing Infor
mation, witnesses or Services under Section 5.1, 5.2 or
5.3 to the other party shall be entitled to receive from
the recipient, upon the presentation of invoices there
for, payment for all out-of-pocket costs and expenses as
may be reasonably incurred in providing such Information,
witnesses or Services. For purposes of this Section 5.4,
salaries and other compensation payable to employees of
either party shall be deemed to be an out-of-pocket cost
or expense reimbursable hereunder.
Page 23
V.5 Retention of Records. Except as otherwise re
quired by law or agreed to in writing, each of CFI and
the Company shall retain, and shall cause its respective
Subsidiaries to retain following the Distribution Date,
all significant information ("Information") relating to
the business of the other and the other's subsidiaries,
for a period (a "Retention Period") consistent with the
document retention policies in effect at CFI and the
Company, respectively. In addition, such Information
shall not be destroyed or otherwise disposed of if during
such period a party shall request in writing that any of
the Information be retained for additional specific and
reasonable periods of time at the expense of the party so
requesting. After the applicable Retention Period, any
party may destroy or otherwise dispose of any Information
at any time, provided that, prior to such destruction or
disposal, (a) such party shall provide no less than
ninety (90) days' prior written notice to the other
party, identifying the Information proposed to be de
stroyed or disposed of, and (b) if the recipient of such
notice shall request in writing prior to the scheduled
date for such destruction or disposal that any of the
Information proposed to be destroyed or disposed of be
delivered to such requesting party, the party proposing
the destruction or disposal shall promptly arrange for
the delivery of such of the Information as was requested
at the expense of the requesting party.
V.6 Confidentiality. CFI and each other member of the
CFI Group on the one hand, and the Company and each other
member of the Company Group on the other hand, shall use
commercially reasonable efforts to hold, and cause their
Representatives to hold, in strict confidence, all Infor
mation concerning the other in their possession or fur
nished by the other or the other's Representatives pursu
ant to this Agreement or any of the Other Agreements
(except to the extent that such Information is (a) in the
public domain through no fault of such party or (b) later
lawfully acquired on a non-confidential basis from other
sources which are not subject to any confidentiality
litigation with the subject party by such party or subse
quently developed by such party), and neither party shall
release or disclose such Information to any other person,
except to its auditors, attorneys, financial advisors,
bankers and other consultants and advisors, and on terms
and conditions substantially the same as the terms and
conditions on which such party releases its own Informa
tion, unless compelled to disclose by judicial or admin
istrative process or, as advised by its counsel, by other
requirements of law.
Page 24
V.7 Provision of Corporate Records.
(a) Except as may otherwise be provided in
any Other Agreement, CFI shall arrange as soon as practi
cable following the Distribution Date, to the extent not
previously delivered, for the transportation (at the
Company's cost) to the Company of the Company's, books
and records in its possession, except to the extent such
items are already in the possession of the Company. Such
books and records shall be the property of the Company,
but shall be available to CFI for review and duplication
until CFI shall notify the Company in writing that such
records are no longer of use to CFI.
a) Except as otherwise provided in any Other Agree
ment, the Company shall arrange as soon as practicable
following the Distribution Date, to the extent not previ
ously delivered, for the transportation (at CFI's cost)
to CFI of CFI's and its Subsidiaries' books and records
in its possession, except to the extent such items are al
ready in the possession of CFI or a Subsidiary of CFI.
Such books and records shall be the property of CFI, but
shall be available to the Company for review and duplica
tion until the Company shall notify CFI in writing that
such records are no longer of use to the Company.
V.8 Privileged Matters. The Company and CFI recognize
that legal and other professional services that have been
and will be provided prior to the Distribution Date have
been and will be rendered for the benefit of both CFI and
the Company and that both CFI and the Company should be
deemed to be the client for the purposes of asserting all
privileges related thereto. No party may waive any privi
lege which could be asserted under any applicable law,
and in connection with which the other party has a mate
rial interest, without the consent of the other party,
except to the extent reasonably required in connection
with any litigation with third parties.
Page 25
VI REPRESENTATIONS, WARRANTIES AND COVENANTS
The Company and each other member of the Compa
ny Group make the following representations and warran
ties to, and covenants with, CFI, for its benefit and for
the benefit of each other member of the CFI Group, each
and all of which shall survive the execution and delivery
of this Agreement and the Distribution Date.
VI.1 Financial Statements. The consolidated balance
sheets of the Company and its Subsidiaries and the
consolidated statements of earnings and consolidated
statement of cash flows for the Company and its Subsid
iaries, each in the form included in the Information
Statement, have been prepared in accordance with general
ly accepted accounting principles applied on a consistent
basis during the periods involved (except as may be
indicated in the notes thereto) and fairly present the
consolidated financial position of the Company and its
Subsidiaries as of the dates indicated therein and the re
sults of operations and cash flows for the periods indi
cated therein.
VI.2 Form 10 and Information Statement. The Form 10
and the Information Statement each do not misstate any
material fact or omit to state a material fact required
to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which
they were made, not misleading; provided, however, there
shall be excluded therefrom any information provided by
CFI to the extent that such information relates solely to
CFI and not to the Company ("CFI Information").
VI.3 Marks. None of CFI's existing trademarks, trade
names and service marks that are not also Marks or
Additional Marks ("CFI marks" as set forth in Schedule
6.3) infringe in any manner any of the Marks or Addition
al Marks or otherwise interfere with the Company's ex
pected use of the Marks or Additional Marks, and none of
the Company nor any other member of the Company Group
shall, at any time, bring or join in any suit, claim or
other proceeding or action adverse to CFI or any other
member of the CFI Group relating to the use of the CFI
marks.
Page 26
VII SHARED CLAIMS
VII.1 Acknowledgment. Each party acknowledges
that, from and after the Distribution Date, there may be
claims and proceedings against such party and its Subsid
iaries (other than workers' compensation claims which
pertain to any persons who remain employed by LJSC on the
day after the Distribution Date ("Excluded Claims") which
shall remain the sole responsibility of LJSC) that relate
(in whole or in part) to activities alleged to have tran
spired prior to the Distribution Date and with respect to
which it would be fair and appropriate to apportion
Liability therefor between the parties ("Shared Claims").
VII.2 Notification. If any party shall receive
notice or otherwise learn of the assertion of any claim
or the commencement of any proceeding which such party
believes may constitute a Shared Claim (including, with
out limitation, any such claim or proceeding that names
or identifies the other party or any of its Subsidiaries
as a responsible party), such party shall (i) immediately
assume the defense thereof and shall in all respects
respond thereto in a timely manner and (ii) promptly pro
vide written notice thereof to the other party, setting
forth the particulars as to such claim or proceeding in
reasonable detail; provided that the failure of such
party to give such notice shall not relieve the other
party of any obligation to accept Liability unless it is
actually prejudiced by such failure and then only to the
extent of such actual prejudice.
VII.3 Cooperation. The parties shall cooperate
with each other in the defense or settlement of Shared
Claims to the effect that (i) subject to the provisions
of Section 7.2, the party bearing the greater Liability
shall be responsible for the control and administration
of any Shared Claim and (ii) the other party shall coop
erate with such party with respect to such control and
administration.
Page 27
VII.4 Liability. The parties shall seek to appor
tion Liability between them with respect to any Shared
Claim, and in so doing shall take cognizance of all
relevant factors, including but not limited to, the time
and duration of any alleged activity giving rise thereto.
If the parties are unable to agree on an apportionment of
Liability within thirty days of receipt of notification
is provided in Section 7.2, they shall submit the matter
for resolution as provided in the ADR Agreement.
VII.5 Non-Shared Liabilities. Anything to the con
trary contained in this Article VII notwithstanding,
claims or proceedings arising out of or relating to LJSC,
its employees and operations on or prior to the Distribu
tion Date (other than Excluded Claims) shall be allocated
as described below. The Company shall assume and indem
nify CFI against all Losses and Liabilities arising out
of or related to personnel matters that are caused by
employees who are employed by LJSC immediately following
the Distribution Date. CFI shall assume and indemnify
the Company against all other Losses and Liabilities
arising out of or related to LJSC on or prior to the
Distribution Date, including all other personnel matters.
If employees of both the Company and CFI cause any such
Losses or Liabilities relating to LJSC, then they shall
be Shared Claims and dealt with as provided in this
Article VII.
VIII MISCELLANEOUS
VIII.1 Complete Agreement; Construction. This
Agreement and the Other Agreements, including any sched
ules and exhibits hereto or thereto, shall constitute the
entire agreement between the parties with respect to the
subject matter hereof and shall supersede all previous
negotiations, commitments and writings with respect to
such subject matter.
Page 28
VIII.2 Expenses. Except as otherwise set forth in
this Agreement and the Other Agreements, (i) CFI will pay
all out-of-pocket costs and expenses that are necessary
to effect the Distribution and incurred prior to the
Distribution and (ii) each party shall bear its costs and
expenses arising after the Distribution in connection
with the Distribution; provided, however, CFI shall pay
the reasonable moving and relocation costs of separating
employees of CFI and CFC in Portland into two buildings,
including design and architectural fees, phone and data
connections infrastructure and labor associated with the
move, excluding any other capital improvements, except
that CFI shall pay for the costs of wheelchair ramp ac
cess, ADA required upgrades and lobby expansion.
VIII.3 Governing Law. This Agreement shall be gov
erned by and construed in accordance with the laws of the
State of California without regard to the principles of
conflicts of laws thereof.
VIII.4 Notices. All notices, requests, claims, de
mands and other communications hereunder shall be in writ
ing and shall be delivered by hand, mailed by registered
or certified mail (return receipt requested), or sent by
cable, telegram, telecopy (confirmed by regular, first-
class mail), to the parties at the following addresses
(or at such other addresses for a party as shall be
specified by like notice) and shall be deemed given on
the date on which such notice is received:
if to CFI:
Consolidated Freightways, Inc.
3240 Hillview Avenue
Palo Alto, California 94304
Attn: General Counsel
if to the Company:
Consolidated Freightways Corporation
175 Linfield Drive
Menlo Park, California 94025
Attn: General Counsel
Page 29
VIII.5 Amendments and Waivers. This Agreement may
not be altered or amended, nor may rights hereunder be
waived, except by an instrument in writing executed by
the party or parties to be charged with such amendment or
waiver. No waiver of any term, provision or condition of
or failure to exercise or delay in exercising any rights
or remedies under this Agreement, in any one or more in
stances, shall be deemed to be, or construed as, a fur
ther or continuing waiver of any such term, provision,
condition, right or remedy or as a waiver of any other
term, provision or condition of this Agreement.
VIII.6 Counterparts. This Agreement may be executed
in one or more counterparts each of which shall be deemed
an original instrument, but all of which together shall
constitute but one and the same Agreement.
VIII.7 Successors and Assigns. This Agreement and
all of the provisions hereof shall be binding upon and
inure to the benefit of the parties and their respective
successors and permitted assigns.
VIII.8 Termination. This Agreement may be termi
nated and the Distribution abandoned at any time prior to
the Distribution Date by and in the sole discretion of
the CFI Board without the approval of the Company or the
shareholders of CFI. In the event of such termination,
no party shall have any Liability of any kind to any
other party on account of such termination except that
expenses incurred in connection with the transactions
contemplated hereby shall be paid as provided in Section
8.2.
VIII.9 No Third-Party Beneficiaries. Except for the
provisions of Article IV relating to Indemnitees, this
Agreement is solely for the benefit of the parties hereto
and their respective Affiliates and should not be deemed
to confer upon third parties (including any employee of
the CFI Group or the Company Group) any remedy, claim,
reimbursement, cause of action or other right other than
those existing without reference to this Agreement.
Page 30
VIII.10 Titles and Headings. Titles and headings to
sections herein are inserted for the convenience of refer
ence only and are not intended to be part of or to affect
the meaning or interpretation of this Agreement.
VIII.11 Legal Enforceability. Any provision of this
Agreement which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffec
tive to the extent of such prohibition or unenforce
ability without invalidating the remaining provisions
hereof. Any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable
such provision in any other jurisdiction. Without preju
dice to any rights or remedies otherwise available to any
party hereto, each party hereto acknowledges that damages
would be an inadequate remedy for any breach of the provi
sions of this Agreement and agrees that the obligations
of the parties hereunder shall be specifically
enforceable.
VIII.12 Further Assurances. In addition to the
actions specifically provided for elsewhere in this Agree
ment, each of the parties hereto will use its reasonable
efforts to (i) execute and deliver such further documents
and take such other actions as any other party may rea
sonably request in order to effectuate the purposes of
this Agreement and to carry out the terms hereof, and
(ii) take, or cause to be taken, all actions, and to do,
or cause to be done, all things, reasonably necessary,
proper or advisable under applicable laws, regulations
and agreements or otherwise to consummate and make effec
tive the transactions contemplated by this Agreement,
including, without limitation, using its reasonable
efforts to obtain any consents and approvals and make any
filings and applications necessary or desirable in order
to consummate the transactions contemplated by this Agree
ment. The parties hereto further agree to cooperate with
respect to the facilities in Portland, Oregon to be used
by the parties or their respective Subsidiaries in accor
dance with the Services Agreement to the effect of mini
mizing any disruptions that a party (or its Subsidiaries)
may experience as a result of the technical and logisti
cal interdependencies of such facilities.
Page 31
VIII.13 No Solicitation of Employees. For a period
of three years after the Distribution Date, neither CFI
nor the Company, nor any of their Subsidiaries, will
directly solicit the employment of any employee of the
other company, or any of its Subsidiaries, without the
prior written consent of such other company; provided,
however, that if the Company shall cease to receive ser
vices provided by CNF Service Company, Inc. pursuant to
the Services Agreement after the Distribution Date, it
may solicit employees (employed either at the time of
notification by the Company of the termination of servic
es, or in the preceding six months) from the groups that
had been providing such services.
VIII.14 Dispute Resolution. Any dispute between the
parties concerning the performance of this Agreement
shall be resolved in accordance with the provisions of
the ADR Agreement.
Page 32
VIII.15
IN WITNESS WHEREOF, the parties have caused
this Agreement to be duly executed as of the day and year
first above written.
CONSOLIDATED FREIGHTWAYS, INC.
By:/s/ D. E. Moffitt
Its: President and Chief
Executive Officer
CONSOLIDATED FREIGHTWAYS CORPORATION
By:/s/ S. D. Richards
Its: Senior Vice President and
General Counsel
Acknowledged and Agreed by
the following entities with
respect to the indicated
Sections of this Agreement:
EMERY AIR FREIGHT CORPORATION
(with respect to Sections 4.1, 4.5 and 5.6)
By: /s/ W.F. McDonald
Its: Vice President
CON-WAY TRANSPORTATION SERVICES, INC.
(with respect to Sections 4.1, 4.5 and 5.6)
By: /s/ R. R. Magnan
Its: Vice President
Page 33
MENLO LOGISTICS, INC.
(with respect to Sections 4.1, 4.5 and 5.6)
By: /s/ John Williford
Its: President
CONSOLIDATED FREIGHTWAYS CORPORATION
OF DELAWARE
(with respect to Sections 3.6, 4.2, 4.5,
5.6, 6.1, 6.2 and 6.3)
By: /s/ S. D. Richards
Its: Vice President and General
Counsel
CANADIAN FREIGHTWAYS LIMITED
(with respect to Sections 3.6, 4.2, 4.5,
5.6, 6.1, 6.2 and 6.3)
By: /s/ K.A. Johnson
Its: Secretary and Treasurer
Page 34
Exhibit 10.1
TRANSITION SERVICES AGREEMENT
between
CNF SERVICE COMPANY, INC.
and
CONSOLIDATED FREIGHTWAYS CORPORATION
TABLE OF CONTENTS
ARTICLE 1 SERVICES TO BE PROVIDED
Section 1.1 General Description; Provision of
Services; Volume Discounts 2
Section 1.2 Performance Levels 2
Section 1.3 Instructions 3
Section 1.4 Consents; Indemnification; Assets 3
Section 1.5 Systems Availability and Data
Integrity 5
Section 1.6 Systems Users 5
ARTICLE 2 PAYMENT FOR SERVICES
Section 2.1 Costs 6
Section 2.2 Invoices; Payment Procedures 6
Section 2.3 Disputed Fees 7
ARTICLE 3 TERM; TERMINATION OF SERVICES
Section 3.1 Term 7
Section 3.2 Termination of Services 8
ARTICLE 4 COOPERATION
Section 4.1 Cooperation 8
Section 4.2 Provider Administrative Records 9
Section 4.3 Periodic Review of Services 9
ARTICLE 5 FORCE MAJEURE
Section 5.1 Force Majeure 9
ARTICLE 6 CONFIDENTIALITY
Section 6.1 Confidentiality 10
ARTICLE 7 MISCELLANEOUS
Section 7.1 Notices 12
Section 7.2 Severability 13
Section 7.3 Binding Effect; Assignment 13
Section 7.4 No Third Party Beneficiaries 13
Section 7.5 Interpretation 13
Section 7.6 Jurisdiction and Consent to
Service 13
Section 7.7 Entire Agreement 14
Section 7.8 Governing Law 14
Section 7.9 Counterparts 14
Section 7.10 Relationship of the Parties 14
Section 7.11 Waiver 15
Section 7.12 Sole Remedy; No Damages 15
Section 7.13 Indemnification 15
TRANSITION SERVICES AGREEMENT
TRANSITION SERVICES AGREEMENT ("Agreement")
dated as of December 2, 1996, by and between CNF Service
Company, Inc., a corporation organized under the laws of
the State of Delaware (together with its wholly owned
subsidiaries, "Provider"), and Consolidated Freightways
Corporation, a corporation organized under the laws of
the State of Delaware (together with its wholly owned
subsidiaries, "Recipient").
W I T N E S S E T H
WHEREAS, Provider is a wholly owned subsidiary
of Consolidated Freightways, Inc., a Delaware corporation
("CFI");
WHEREAS, pursuant to that certain Distribution
Agreement dated as of the date hereof (the "Distribution
Agreement"), all of the shares of common stock of Recipi
ent are being distributed (the "Distribution") to the
stockholders of CFI;
WHEREAS, prior to the Distribution, Leland
James Service Corporation, a Delaware corporation
("LJSC") provided services to Consolidated Freightways
Corporation of Delaware ("CFCD"), the principal operating
subsidiary of Recipient;
WHEREAS, in connection with the Distribution,
certain service capabilities of LJSC are being trans
ferred to Provider;
WHEREAS, in order for Recipient to operate CFCD
effectively in a transition period following the consumma
tion of the Distribution, Recipient desires to enter into
certain arrangements with Provider with respect to the
performance of certain transition services;
WHEREAS, Provider is willing to enter into such
transition arrangements on the terms and conditions set
forth herein.
Page 1
NOW, THEREFORE, the parties hereto agree as
follows:
Page 2
2 SERVICES TO BE PROVIDED
2.1 General Description; Provision of Services; Volume
Discounts. (a) The purpose of this Agreement is to set
forth the terms upon which Recipient is to receive cer
tain services from Provider on an interim basis after the
Distribution on the terms and subject to the conditions
herein (the "Services").
a) Pursuant to the terms and conditions of this
Agreement, Provider shall provide, and Recipient shall
purchase, the Services as described in Exhibit A hereto;
provided, however, that each of the parties hereto
acknowledges and agrees that Services may be added to, or
deleted from, Exhibit A by mutual consent of the parties
at any time (and the Service Fees (as defined) adjusted
appropriately).
2.2 Performance Levels. In providing the Services,
Provider shall perform according to the performance
levels maintained by LJSC in the past; or, should any in
stance arise in which none of such performance levels ap
plies, Provider shall act to substantially the same
extent, in substantially the same manner and with sub
stantially the same degree of care and diligence as LJSC
would have acted, prior to the Distribution, if it had
provided such Services to CFCD. Each Service shall be
provided priority no less favorably than in the past, con
sistent with past practices and without discrimination
against Recipient.
Page 3
2.3 Instructions. The parties agree that the Services
provided by Provider shall be essentially ministerial in
nature so that Provider shall, in all matters requiring
the exercise of discretion, follow Recipient's instruc
tions, which shall be promptly provided to Provider by
Recipient to the extent requested by Provider and which
must be provided in writing if so requested. With re
spect to post-Distribution occurrences for which Provider
is to perform Services as set forth in numbers 25, 26,
27, 28, 31 and 32 on Exhibit A, the parties agree that
Provider shall be under no obligation to perform any (or
any part of) such Services without clear, written in
structions from Recipient. Notwithstanding the fore
going, Provider shall not be required to follow any such
instructions that, in Provider's reasonable judgment, are
inconsistent with the proper performance of its responsi
bilities, or that require the exercise of discretion,
including without limitation the making of decisions
regarding the hiring or firing of employees. The parties
agree that it is their intent that Provider not be deemed
a fiduciary with respect to plans subject to the Employee
Retirement Income Securities Act of 1974, as amended.
2.4 Consents; Indemnification; Assets. (a) If the
provision of any of the Services by Provider to Recipient
would place CFI, Provider or any other subsidiary of CFI
in violation or breach of any contract or license (other
than software licenses, which are addressed in Section
3.1(g) of the Distribution Agreement) between any such
entity and any third party, then Recipient and Provider
shall use their respective commercially reasonable ef
forts, with all costs thereof to be borne by Recipient to
obtain forthwith any consent required for Provider to
provide such Services to Recipient, and Recipient shall
indemnify and hold harmless Provider against all Losses
and Liabilities relating to any claims arising from any
such alleged violation or breach, such indemnification to
be provided in a like manner to the provision of indemni
fication under the Distribution Agreement. If, after the
exercise of such efforts, such consent cannot be ob
tained, Provider shall use commercially reasonable ef
forts to provide Recipient with functionally equivalent
Services with any additional costs required in providing
such Services to be borne by Recipient. Recipient shall
indemnify and hold harmless Provider against all Losses
and Liabilities (including, without limitation, as
relates to software maintenance costs to the extent not
otherwise paid by Recipient as contemplated by Section
2.1) which arise from or in any way relate to (i) the use
of any software or hardware provided by Recipient or (ii)
the use of any software or hardware in connection with
the performance of the Services hereunder provided to
Recipient, such indemnification to be provided in a like
manner to the provision of indemnification under the
Distribution Agreement. The provisions of this Section
1.4(a) shall not alter the agreement of Recipient and
Provider's parent company as provided in Section 3.1(g)
of the Distribution Agreement.
Page 4
a) The Service Fees (as defined) to be paid by
Recipient hereunder shall subsume all costs incurred by
Provider in connection with the performance of its
obligations hereunder and in respect of which separate
payment or indemnification by Recipient is not otherwise
contemplated hereby, including, but not limited to, per
sonnel (including fringe benefits and management fees
relating thereto), computer hardware, computer time,
printers, voice and data telecommunications equipment,
file cabinets, paper files, administrative records, photo
copies, incidentals and all other assets owned by
Provider after the Distribution which are needed in
connection with the provision of such Services on a
routine and non-routine basis and during peak and non-
peak periods; and any such equipment may be replaced from
time to time by Provider with functionally equivalent or
upgraded equipment.
b) (i) All data, software or other property or
assets owned or created by Recipient (other than the
intellectual property rights which Recipient has acknowl
edged to be vested in CFI pursuant to Section 3.1(f) of
the Distribution Agreement) shall remain the sole and
exclusive property and responsibility (including, without
limitation, with respect to maintenance, modification and
upgrade) of Recipient. Provider shall not acquire any
rights in any such data, software or other property or
assets, including any derivative works of Recipient-owned
software or data created by Provider, pursuant to this
Agreement or Provider's performance hereunder.
(ii) All data, software or other prop
erty or assets which are owned by Provider, including
without limitation derivative works thereof and new data
or software created by Provider at Provider's sole ex
pense pursuant to the provision of Services ("Provider
Software") shall be the sole and exclusive property and
responsibility (including, without limitation, with
respect to maintenance, modification and upgrade) of Pro
vider and any interest of Recipient therein shall be
limited to the Licensed Materials (as defined in the Dis
tribution Agreement) and the Additional Licenses (as
defined in the Distribution Agreement), if any. Recipi
ent shall not acquire any other rights in any such data,
software or other property or assets pursuant to this
Agreement or Recipient's performance hereunder.
Page 5
c) If as a result of unanticipated events or condi
tions, Recipient reasonably determines that it requires
modification of any of the Services or software used in
connection therewith upon Recipient's request, Provider
shall so modify the Services or software used in connec
tion therewith upon Recipient's request (i) to the extent
commercially reasonable, (ii) to the extent such modifi
cations do not adversely affect Provider's ability to
maintain its computer systems in connection with its
continuing business, and (iii) at Recipient's sole cost
and expense subject to Recipient's approval of Provider's
estimate. Moreover, Provider may suggest modification of
software and may, in its sole discretion, offer to share
in the cost thereof if it determines that any such
modifications may be beneficial to Provider. Recipient
shall have exclusive ownership rights to any software
modifications it pays for solely, and shared rights to
such modifications with respect to which, and only to the
extent that, it shares in the payment therefor.
d) Provider shall provide all support and assistance
reasonably requested by Recipient, at an arm's-length,
negotiated price, in connection with the transfer of any
and all Services from Provider to Recipient or any of its
affiliates or an alternative third-party service provider
selected by Recipient. Specifically, upon the request of
Recipient, during the term of this Agreement, Provider
shall deliver to Recipient (or as directed by Recipient),
at the Recipient's request and with minimal interruption
to the operations of Provider or its affiliates, all data
and programs owned by Recipient or licensed by Recipient
from third party vendors, and all backup or archival
copies thereof (or any part thereof as specified by Recip
ient), in hard copy, electronic, magnetic or any other
form which is then in Provider's possession or control,
as requested by Recipient, and (in the event that this
Agreement is terminated) copies of all material licensed
pursuant to Section 3.1(g) of the Distribution Agreement
by Recipient from Provider (with reasonable instructions
for the installation and use thereof).
Page 6
2.5 Systems Availability and Data
Integrity. Provider shall maintain, consistent with past
practices, operational recovery procedures to insure the
availability of systems and the integrity of data relat
ing to the Services at all times. In the event of the
unavailability of any such systems or the loss or de
struction of any such data, Provider shall use commer
cially reasonable efforts consistent with past practices
to restore such systems and recover or replace such data
as quickly and completely as possible.
2.6 Systems Users. In each case as it relates to
Recipient's employees, consultants, affiliates or autho
rized customers during the term of this Agreement the
addition or deletion of authorized users ("Users"),
including persons authorized at the application-level or
system-level, in regard to any computer system, the modi
fication of computer system authority or access granted
to any person, and the control generally of access to and
use of computer systems, is to be at the direction of
Recipient, and Provider shall permit no changes in such
access or use without prior written notice to and consent
from Recipient. No User will be allowed system authority
or access greater than at the application level without
the prior written consent of Provider. Each party shall
indemnify and hold harmless the other against all degrada
tions in performance levels caused by users authorized
for system level access on behalf of, or at the request
of, such first party, such indemnification to be provided
in a like manner to the provision of indemnification
under the Distribution Agreement.
Page 7
3 PAYMENT FOR SERVICES
3.1 Costs. The prices charged for the Services shall
initially be those set forth in Exhibit A, which have
been negotiated on an arm's-length basis (the "Service
Fees"). The Service Fees shall be adjusted on an arm's-
length basis every 3 months, except that the Service Fees
for the period from the Distribution Date through March
31, 1997 shall be as indicated on Exhibit A and Provider
shall, not less than 3 months before any proposed
adjustment to Service Fees, provide Recipient with de
tails of any proposed adjustment and justification there
for. The Parties shall negotiate in good faith to reach
an agreement within 30 days. Recipient shall not be
charged a fee for any improvements or upgrades to facili
ties or equipment without its prior written consent;
provided, however, that Recipient acknowledges and agrees
that its failure to timely provide any such consent may
adversely affect its abilities to receive Services here
under, and Provider shall not be liable for any harm to
Recipient resulting therefrom. Notwithstanding the
immediately preceding sentence, all maintenance fees
relating to software used in connection with the provi
sion of Services hereunder, and a proportionate share of
all consultants' fees relating to the Year 2000 software
conversion project, shall be billed separately from the
Service Fees and shall be paid by Recipient together
therewith.
3.2 Invoices; Payment Procedures. (a) Not later than
30 days after the end of each calendar month Provider
shall send Recipient an invoice that includes a detailed
breakdown of all Service Fees for such month. All in
voices shall be sent to: Consolidated Freightways Corpo
ration, attention: Controller, mailing address: 175
Linfield Drive, Menlo Park, CA 94025. All payments of
such invoices shall be made by wire transfer or interbank
transfer in immediately available funds to Provider's
account at such banks as Provider shall designate to
Recipient in writing and shall be made within 15 days
after the date of any invoice.
Page 8
(b) Recipient shall establish and main
tain an account ("Payroll Account") from which Provider
shall be authorized to draw in order to meet Recipient's
gross payroll obligations, and Recipient shall ensure
that such Payroll Account is sufficiently funded at all
times. Notwithstanding any other provision hereof, (i)
Recipient shall reimburse Provider for each payroll paid
by Provider to the employees of the Recipient for the
period contemplated above, to the extent that Provider
elects to provide funds despite a deficiency in the
Payroll Account, and (ii) Recipient shall provide each
such reimbursement by wire transfer of immediately avail
able funds on the day of the issuance of that payroll to
such employees.
3.3 Disputed Fees. In the event that Recipient and
Provider have a good faith dispute with respect to the
amount of payment for Services actually rendered (other
than with respect to the underlying schedule of fees for
Services generally), Recipient shall withhold payment
only of any unpaid amount in dispute, and shall deliver
to Provider promptly (and within 15 days following re
ceipt of any invoice from Provider that is the basis of
such dispute) a written statement describing the dispute,
which statement shall provide a reasonably detailed
breakdown of the disputed payment amounts. The parties
agree to use their best efforts to resolve any such
dispute hereunder within 15 days following Provider's
receipt of Recipient's statement describing the dispute.
In the event the parties cannot resolve the dispute
within such time period, each discrepancy or disagreement
which cannot be so resolved shall be submitted to a firm
of nationally recognized independent certified public ac
countants (agreed upon by Provider and Recipient), who
shall promptly deliver a report setting forth their
calculation of each item that was the subject of discrep
ancy or disagreement, which report shall be final and
binding on the parties. The fees and expenses of such
firm shall be borne one-half by Provider and one-half by
Recipient and each party shall bear its own other expens
es in connection therewith.
Page 9
4 TERM; TERMINATION OF SERVICES
4.1 Term. (a) The term of this Agreement shall com
mence on the date hereof and shall continue in effect
until the close of business on the third anniversary of
the date hereof.
a) Notwithstanding anything to the contrary in this
Agreement, the provisions of Articles 5 and 6 and Sec
tions 1.1(c) (solely as relates to indemnification),
1.4(a) (solely as relates to indemnification), 1.6
(solely as relates to indemnification), 4.2, 7.6, 7.7,
7.8, 7.11, 7.12 and 7.13 shall survive any termination of
this Agreement or the provision of Services hereunder.
4.2 Termination of Services. Recipient may at any
time, upon six months' irrevocable written notice to Pro
vider, terminate all the Services or any Service (or any
portion thereof) on a Service by Service basis. Provider
may, at any time after the first anniversary of the date
hereof, terminate any or all of the Services on six
months' irrevocable written notice to Recipient; provid
ed, however, Recipient shall be entitled to continue
receiving the telecommunication and data processing ser
vices through the third anniversary date in its sole
discretion. The provision of all Services pursuant
hereto shall in any event terminate on or prior to the
third anniversary of the date hereof. Upon termination
of any Service, all administrative records (which term is
not to be construed to include Provider Software) relat
ing to that Service as such records relate solely to
Recipient which have not already been transferred to the
sole possession of Recipient shall be so transferred, it
being understood that Provider may retain copies of such
records.
Page 10
5 COOPERATION
5.1 Cooperation. Each of the parties shall cooperate
with and provide assistance to the other consistent with
the terms and conditions hereof (including, without
limitation, any limitations relating to software) to
enable (i) the full performance of all obligations here
under, (ii) the review and audit of books and
administrative records as they relate to the provision of
Services, and (iii) Recipient, or any of its affiliates
or third party service provider, to assume the perfor
mance of any and all Services upon termination or prior
thereto; such cooperation and assistance to include
without limitation providing the other party, its repre
sentatives and its agents (including, without limitation,
its outside auditors) with reasonable access, during
normal business hours and upon reasonable advance notice,
to its employees, representatives and agents and its
books, administrative records, offices and properties
relating to the Services. Nothing in this section 4.1
shall operate to grant any right to Recipient of Provider-
owned software, data or other intellectual property.
5.2 Provider Administrative Records. Provider shall
keep administrative records regarding the provision of
Services as LJSC has kept records for itself regarding
such Services prior to the Distribution, and for each
Service shall retain such records for a period of twelve
months following the cessation of Provider's provision of
that Service to Recipient. Recipient, its agents and
representatives shall have reasonable access during
normal business hours and upon reasonable advance notice
to such records (which term is not to be construed to
include Provider Software) from the date hereof through
the end of the period for retaining such records pursuant
to this Section 4.2.
5.3 Periodic Review of Services. From time to time
during the term of this Agreement, but not less
frequently than once each month, the parties shall meet
and discuss the nature, quality, and level of Services
covered by this Agreement, any concerns either party may
have in regard to such matters, and any amendments either
party may wish to make to the Services specified in
Exhibit A.
Page 11
6 FORCE MAJEURE
6.1 Force Majeure. Each party shall be relieved of
its obligations hereunder if and to the extent that any
of the following events or conditions directly or indi
rectly hinder, limit or make impracticable the perfor
mance by that party of any of its obligations hereunder:
Act of God, war, riot, fire, earthquake, explosion,
flood, sabotage, national defense requirement, strike,
lockout, job action, injunction, act or order of a govern
mental agency or instrumentality thereof (whether of fact
or law), act of a public enemy, embargo or other concert
ed act of workers, telecommunications failures or elec
trical failures; provided, that Provider shall continue
to have in place at all times disaster recovery proce
dures consistent with past practices of LJSC regarding
CFCD to enable rapid recovery from any such event or
condition. Such procedures may be subject to revision by
Provider from time to time as may be required in the
ordinary course of business, provided, that such revi
sions do not adversely affect the levels of protection
afforded by such procedures. Prior to being relieved of
any obligations hereunder Provider shall have used com
mercially reasonable efforts (consistent with past prac
tices) to remove or otherwise address the effects of any
such event or condition as soon as practicable. Recip
ient shall be liable for all costs incurred by Provider
in connection with any Service that Provider fails to com
plete and provide as a result of any such event or condi
tion.
Page 12
7 CONFIDENTIALITY
7.1 Confidentiality. The parties acknowledge that in
connection with the provision of Services hereunder, each
may gain access to confidential and proprietary informa
tion regarding the other's financial and business affairs
(hereinafter "Confidential Information" or "Informa
tion"). Each party hereby agrees to use commercially rea
sonable efforts to:
a) confine its access to and examination of Confiden
tial Information to the minimum Information necessary to
enable Provider to provide the Services hereunder and
Recipient to operate its business;
b) limit access to such Information only to those
individuals who reasonably need to receive such access to
enable Provider to provide the Services hereunder and
Recipient to operate its business;
c) inform such individuals of the confidential
nature of such Information and take all reasonable steps
to secure the compliance of such individuals with the
terms of this Article 6;
d) use such Information solely to enable Provider to
provide the Services hereunder and Recipient to operate
its business;
e) keep such Information confidential and not
disclose it to any third party in any manner except as
may be required by law or court order; and
Page 13
f) provide the other party with reasonable access to
that party's employees, representatives and agents and
its books and administrative records relating to the
relevant business (including, without limitation, any and
all computer access reports and security access reports)
in order for the other party to monitor compliance with
this Article 6.
Notwithstanding the foregoing, disclosures of
Information may be made to third parties: (i) with the
prior written consent of the party whose Information it
is, (ii) if the Information is in the public domain and
has entered the public domain through no fault of the
party seeking to make such disclosure or its affiliates
or representatives, (iii) if the Information is lawfully
acquired by the party seeking to make such disclosure or
its affiliates or representatives from sources other than
the party whose Information it is or its affiliates or
representatives and none of the party seeking to make
such disclosure, its affiliates or its representatives is
aware that such source was under any obligation (whether
contractual, legal or fiduciary) to the party whose
Information it is or any of its affiliates or representa
tives to keep such Information confidential or (iv) to
the extent disclosure is compelled by law or court order.
Each party shall be responsible for any breach of this
Article 6 caused by itself or any of its employees,
agents or representatives. Anything contained herein to
the contrary notwithstanding, the parties acknowledge and
agree that irreparable damage would occur in the event
that any provision of this Article 6 was not performed in
accordance with its terms, and that the parties shall be
entitled to specific performance as the sole remedy.
Page 14
8 MISCELLANEOUS
8.1 Notices. All notices, requests, demands, con
sents, waivers and other communications required or
permitted to be given under this Agreement (excluding
invoices as described in Section 2.2 above) shall be in
writing and may be given by any of the following methods:
(a) personal delivery; (b) facsimile transmission; (c)
registered or certified mail, postage prepaid, return
receipt requested; or (d) overnight delivery service.
Notices shall be sent to the appropriate party at its
address or facsimile number given below (or at such other
address or facsimile number for such party or other
person as shall be specified by notice given hereunder):
If to Provider to:
CNF Service Company, Inc.
1717 N.W. 21st Avenue
Portland, OR 97209
Attention: Controller
Fax No.:
with a copy to:
Consolidated Freightways, Inc.
3240 Hillview Avenue
Palo Alto, CA 94304
Attention: General Counsel
Fax No.: (415) 494-8372
If to Recipient to:
Consolidated Freightways Corporation
175 Linfield Drive
Menlo Park, CA 94025
Attention: General Counsel
Fax No.:
All such notices, requests, demands, waivers
and communications shall be deemed received upon (i)
actual receipt thereof by the addressee or (ii) actual
delivery thereof to the appropriate address.
Page 15
8.2 Severability. Should any provision of this Agree
ment for any reason be declared invalid or unenforceable,
such declaration shall not affect the validity or en
forceability of any of the other provisions of this Agree
ment, which other provisions shall remain in full force
and effect and the application of such invalid or
unenforceable provision to persons or circumstances other
than those as to which it has been held invalid or unen
forceable shall be valid and enforced to the fullest
extent permitted by law.
8.3 Binding Effect; Assignment. This Agreement and
all of the provisions hereof shall be binding upon and
shall inure to the benefit of the parties hereto and
their respective successors and permitted assigns. Nei
ther this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned, directly or
indirectly, including, without limitation, by operation
of law, by any party hereto without the prior written con
sent of the other party hereto; provided, (i) that either
of the parties hereto may without such prior written
consent transfer or assign its rights hereunder to one or
more of its affiliates, but no such transfer arrangement
shall release the transferring party of its obligations
hereunder and (ii) that Provider may subcontract to any
party so long as Provider remains liable for the
performance of Services provided by any such subcon
tractor.
8.4 No Third Party Beneficiaries. This Agreement is
solely for the benefit of the parties and their respec
tive successors and permitted assigns, and shall not be
deemed to confer upon or give to any other party any
remedy, claim, liability, reimbursement, cause of action
or other right.
8.5 Interpretation. The section headings contained in
this Agreement are solely for the purpose of reference,
are not part of the agreement of the parties and shall
not in any way affect the meaning or interpretation of
this Agreement.
Page 16
8.6 Jurisdiction and Consent to Service. In accor
dance with the laws of the State of Oregon, and without
limiting the jurisdiction or venue of any other court,
the parties (a) agree that any suit, action or proceeding
arising out of or relating to this Agreement (other than
proceedings arising under Section 2.3 above with respect
to the amount of payment for Services) shall be brought
solely in the state or federal courts of Oregon; (b) con
sent to the exclusive jurisdiction of each such court in
any suit, action or proceeding relating to or arising out
of this Agreement; (c) waive any objection which any of
them may have to the laying of venue in any such suit,
action or proceeding in any such court; and (d) agree
that service of any court paper may be made in any manner
as may be provided under the applicable laws or court
rules governing service of process in such court.
8.7 Entire Agreement. This Agreement constitutes the
entire agreement among the parties with respect to the
subject matter hereof, and supersedes all other prior
agreements and understandings, both written and oral,
between the parties with respect to the subject matter
hereof. Any conflicts between the language herein and
the language used in the Distribution Agreement shall be
resolved in favor of the language used herein.
8.8 Governing Law. THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF OREGON (REGARDLESS OF THE LAWS THAT MIGHT OTHERWISE
GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICTS OF LAWS
THEREOF) AS TO ALL MATTERS, INCLUDING BUT NOT LIMITED TO
MATTERS OF VALIDITY, CONSTRUCTION, EFFECT, PERFORMANCE
AND REMEDIES.
8.9 Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed to be an
original, but all of which shall constitute one and the
same agreement.
Page 17
8.10 Relationship of the Parties. Provider and
Recipient each acknowledge that they are separate enti
ties, each of which has entered into this Agreement for
independent business reasons. Except as provided below
in this Section 7.10, the relationship of Provider to
Recipient hereunder is that of an independent contractor
and nothing herein shall be deemed or construed to create
a relationship of partnership, employment, agency, joint
venture, or any other relationship. Except as provided
below in this Section 7.10, neither party shall transact
any business in the name of the other party or obligate
or commit the other party in any manner. In recognition
of the fact that some of the Services to be provided by
Provider pursuant to this Agreement will require that
personnel employed by Provider engage in business deal
ings with customers, vendors, or others with whom Recipi
ent does business and that it is to Recipient's advantage
for such business dealings to be conducted on behalf of
and in the name of Recipient, Recipient may authorize
Provider to use any of its names, whenever (a) necessary
or appropriate in providing Services or other assistance
hereunder and (b) Recipient explicitly so instructs
Provider, in writing. Recipient shall indemnify and hold
harmless Provider against all Losses and Liabilities
incurred by Provider and arising from this Section 7.10,
such indemnification to be provided in a like manner to
the provision of indemnification under the Distribution
Agreement.
8.11 Waiver. Any failure by either party to comply
with any obligation, covenant or agreement herein or to
fulfill any condition herein may be waived only by a
written notice from the party entitled to the benefits
thereof. No failure by either party hereto to exercise,
and no delay in exercising, any right hereunder shall
operate as a waiver thereof, nor shall any single or
partial exercise of any right hereunder preclude any
other or future exercise of that right or any other right
hereunder by that party.
Page 18
8.12 Sole Remedy; No Damages. If Recipient becomes
dissatisfied with the quality or level of Services
provided hereunder, claims any breach of this Agreement
by Provider or otherwise becomes dissatisfied with any
matter relating hereto or arising herefrom, its sole
remedy shall be termination of all or a part of the
Services without right to seek actual, compensatory or
consequential damages. RECIPIENT HEREBY ACKNOWLEDGES AND
AGREES THAT IT IS HEREBY WAIVING CERTAIN LEGAL RIGHTS AND
REMEDIES, AND THAT THIS WAIVER IS A FUNDAMENTAL ELEMENT
OF THE BARGAIN BETWEEN THE PARTIES HERETO, WITHOUT WHICH
PROVIDER WOULD NOT HAVE ENTERED INTO THIS AGREEMENT.
RECIPIENT HEREBY ACKNOWLEDGES AND AGREES FURTHER THAT,
NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED HERE
IN, PROVIDER MAY, BUT SHALL IN NO EVENT BE OBLIGATED TO,
ADVANCE FUNDS OR INCUR COSTS IN CONNECTION WITH ITS
PERFORMANCE HEREUNDER.
Indemnification. Recipient, at its own expense, shall
indemnify, defend and hold Provider, its subsidiaries and
their present or former officers, directors,
shareholders, agents, employees, representatives,
successors-in-interest, parents, affiliates, insurers,
attorneys and assigns (collectively, the "Indemnified
Parties") harmless from and against any claims,
judgments, losses, deficiencies, damages, punitive or
exemplary damages, fines or penalties, liabilities, costs
and expenses (including reasonable attorneys' fees,
charges and disbursements) whether required to be paid to
a third party or otherwise incurred in connection with or
arising from any claim, suit, action or proceeding
("Claim") against the Indemnified Party to the extent the
basis of such Claim is that: (i) Recipient has failed to
pay any amounts owed to third parties in connection with
the Services provided by Provider under this Agreement;
(ii) a third party has been or may be injured or damaged
in any way by any breach of Recipient of any of its
duties, representations or warranties under this Agree
ment; (iii) Recipient or any of its employees, agents, or
services acted improperly in connection with the notifi
cation, investigation, adjustment or settlement of claims
and losses arising out of the Services described in
Exhibit A, and (iv) there is any other liability or
obligation arising out of Provider's administration or
operation of the Services or functions described in
Exhibit A, except to the extent that same arises from the
gross negligence or willful misconduct of Provider. The
provision of indemnification under this Section 7.13
shall be in a like manner to the provision of indemnifi
cation under the Distribution Agreement.
Page 19
IN WITNESS WHEREOF, the parties have each
caused this Agreement to be executed by its duly autho
rized representative as of the day and year first above
written.
CNF SERVICE COMPANY, INC.,
on behalf of itself and its
wholly owned subsidiaries
By:/s/ D. E. Moffitt
Name: Donald E. Moffitt
Title: President and Chief
Executive Officer
CONSOLIDATED FREIGHTWAYS
CORPORATION,
on behalf of itself and its
wholly owned subsidiaries
By:/s/ S. D. Richards
Name: Stephen D. Richards
Title: Senior Vice Presi-
dent and General Counsel
Page 20
Exhibit 10.2
ALTERNATIVE DISPUTE RESOLUTION AGREEMENT
ALTERNATIVE DISPUTE RESOLUTION AGREEMENT (the "Agree
ment") dated as of December 2, 1996, by and between
Consolidated Freightways Corporation, a Delaware corporation (the
"Company"), and Consolidated Freightways, Inc., a Delaware corpo
ration ("CFI").
Recitals
This Agreement is made pursuant to the Distribution
Agreement ("Distribution Agreement") dated as of November 25,
1996 between the Company and CFI. Each term used herein which is
defined in the Distribution Agreement shall have the same meaning
when used herein as it is given in the Distribution Agreement.
The Company and CFI have determined that it is neces
sary and desirable to agree on the procedures described in this
Agreement as the sole and exclusive method for them to resolve
any and all disputes which have arisen prior to the distribution
(the "Distribution") to the shareholders of CFI of the shares of
the Company or which may from time to time arise under the
Transaction Documents (as herein defined), and claims which
either party may have from time to time against the other as a
result of the Transaction Documents or in any way related to the
Distribution whether such disputes or claims are based on a
breach of one party or its obligations under the Transaction Docu
ments or disagreement between the parties as to the meaning or
application of the Transaction Documents or in any manner related
to or arising out of the Distribution (any such dispute or claim,
a "Dispute").
NOW, THEREFORE, in consideration of the mutual agree
ments, provisions and covenants contained in this Agreement, the
parties hereby agree as follows:
I
As used in this Agreement, the following terms shall
have the following meaning (such meanings to be equally applica
ble to both the singular and plural forms of the terms defined):
Amount in Controversy: the monetary value of any
Dispute plus the monetary value of any future Dispute which could
reasonably arise under the provision at issue.
CPR: the Center for Public Resources, Inc.
Page 1
CPR Regional Office: the office of the CPR located
closest to Palo Alto, California, or such other office of the CPR
as the parties hereto may agree.
Demand: a written demand for arbitration under Article
IV of this Agreement which shall contain a statement setting
forth the nature of the Dispute, the Amount in Controversy and
such other information as may be required under the CPR Rules for
Non-Administered Arbitration of Business Disputes as in effect
from time to time (the "Arbitration Rules").
Dispute: as defined in the recitals to this Agreement.
Request: a written request for mediation under Article
III of this Agreement which shall contain a brief statement of
the nature of the Dispute and such other information as may be
required under the then current CPR Model Procedure for Mediation
of Business Disputes (the "Mediation Rules").
Transaction Documents: the Distribution Agreement, the
Other Agreements and the other agreements referred to in Section
3.4 of the Distribution Agreement.
II
RESOLUTION OF DISPUTES
All Disputes which cannot be resolved by the parties
through good faith negotiation and consultation within sixty (60)
days after either party shall have notified the other of such
Dispute shall first be submitted to mediation pursuant to Article
III hereof and the Mediation Rules and such other rules of
procedure as the parties may agree; provided that, in the event
of a conflict between Article III and the Mediation Rules,
Article III shall govern. If a Dispute cannot be resolved
through mediation, then such Dispute shall be submitted to
binding arbitration pursuant to Article IV hereof and the Arbi
tration Rules and such other rules of procedure as the parties
may agree; provided that, in the event of a conflict between
Article IV and the Arbitration Rules, Article IV shall govern.
Page 2
III
MEDIATION
III. Request for Mediation. Either part to a Dispute may
initiate mediation by filing a Request (along with any copies
thereof that may be required under the Mediation Rules) and a
copy of this Agreement with the CPR Regional Office and by
delivering a copy of the Request to the other party.
III.2 Appointment of Mediator. Unless the parties
otherwise agree in writing, the CPR shall appoint a single
Appointment of Mediator. Unless the parties
otherwise agree in writing, the CPR shall appoint a single
mediator from the CPR Panel of Neutrals.
III.3 Date, Time and Place. Unless the parties otherwise
agree in writing, all mediation proceedings shall take place in
Palo Alto, California. The date, time and place of each media
tion session shall be determined by agreement of the parties or,
if the parties cannot agree within a reasonable period of time,
by the mediator; provided that the first such session shall be
held within fifteen (15) days of the date on which the mediator
is appointed.
III.4 Termination. The mediation proceedings shall be
terminated upon the happening of any of the following: (i) by
execution of a settlement agreement by the parties; (ii) by
written declaration of the mediator that further efforts at
mediation are no longer worthwhile; or (iii) by written declara
tion of one or both parties that the mediation proceedings are
terminated. A written declaration hereunder shall not terminate
the mediation proceedings until notice thereof has been given to
the parties, or to the other party, as appropriate, in accordance
with Section 5.4 hereof.
IV
ARBITRATION
IV.1 Initiating Arbitration. Either party to a Dispute that
has not been settled or resolved through mediation may initiate
arbitration by filing a Demand and a copy of this Agreement
(along with any copies thereof that may be required under the
Arbitration Rules) with the CPR Regional Office within sixty (60)
business days following the termination of the mediation
proceedings and by delivering a copy of the Demand to the other
party. Failure to file a Demand within such period shall
constitute an absolute bar to the institution of any proceedings
with respect to such Dispute and a waiver of all claims related
thereto.
Page 3
IV.2 Appointment of Arbitrators. Unless the parties otherwise
agree in writing, a Dispute subject to this Article IV shall be
heard by a panel of three (3) arbitrators who shall be appointed
according to the procedure contemplated by Rule 6 of the
Arbitration Rules.
IV.3 Absence of Conflicts. No person shall serve as an
arbitrator in any Dispute in which the person has any financial
or personal interest, except by the written consent of both
parties.
IV.4 Date, Time and Place. Unless the parties otherwise agree
in writing, all arbitration proceedings shall take place in Palo
Alto, California. The date, time and place of each hearing shall
be determined by agreement of the parties or, if the parties
cannot agree within a reasonable period of time, by the arbitra
tion panel or sole arbitrator (each an "Arbitrator"), as appro
priate. The first such hearing shall be held as soon as practi
cable following appointment of the Arbitrator(s), but in no event
more than one (1) year after such appointment. Each arbitration
shall be governed by the United States Arbitration Act, 9 U.S.C.
1-16, and judgment upon the award rendered by the Arbitrator(s)
may be entered by any court having jurisdiction thereof.
IV.5 Award. The Arbitrator(s) may grant any remedy or relief
that the Arbitrator(s) deem just and equitable including, but not
limited to, injunctive relief, judgment interest, attorneys' fees
and specific performance; provided, however, that the
Arbitrator(s) shall not be authorized to award punitive damages.
V
MISCELLANEOUS
V.1 Complete Agreement; Construction. This Agreement and the
Transaction Documents and other agreements and documents referred
to therein shall constitute the entire agreement between the
parties with respect to the subject matter hereof and shall
supersede all previous negotiations, commitments and writings
with respect to such subject matter.
V.2 Survival of Agreements. All covenants and agreements of
the parties contained in this Agreement shall survive the
Distribution Date.
V.3 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California
without regard to the principles of conflicts of law thereof.
Page 4
V.4 Notice. All notices and other communications required or
permitted to be given or made under this Agreement shall, unless
otherwise provided herein or in the applicable CPR rules, be in
writing and shall be deemed to have been given (i) on the date of
personal delivery, or (ii) provided such notice or communication
is actually received by the party to which it is addressed in the
ordinary course of delivery, on the date of (A) deposit in the
United States mail, postage prepaid, by registered or certified
mail, return receipt requested, (B) transmission by telegram,
cable, telex or facsimile transmission, or (C) delivery to a
nationally recognized overnight courier service, in each case
addressed as set forth below, or to such other person, entity or
address as either party shall designate by notice to the other in
accordance herewith:
To the Company: Consolidated Freightways Corporation
175 Linfield Drive
Menlo Park, California 94025
Attention: General Counsel
To CFI: Consolidated Freightways,Inc.
3240 Hillview Avenue
Palo Alto, CA 94204
Attention: General Counsel
V.5 Waiver. No waiver by any party of any of the provisions
of this Agreement will be deemed, or will constitute, a waiver of
any other provision, whether similar, nor will any waiver
constitute a continuing waiver. No waiver will be binding unless
executed in writing by the party making the waiver.
V.6 Assignment. Neither party may assign, by operation of
law, merger or otherwise, license, sublicense or otherwise
transfer any or all of its rights or obligations under this
Agreement to any other person or entity without obtaining the
prior written consent of the other party.
V.7 Amendments. This Agreement may not be modified or amended
except by an agreement in writing signed by the parties.
V.8 Successors and Assigns. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit
of the parties and their respective successors and permitted
assigns.
Page 5
V.9 Subsidiaries. Each of the parties hereto shall cause to
be performed, and hereby guarantees the performance of, all
actions, agreements, and obligations set forth herein or arising
hereunder to be performed by any Subsidiary of such party on and
after the Distribution Date.
V.10 No Third Party Beneficiaries. This Agreement is solely
for the benefit of the parties hereto and their respective
Subsidiaries and Affiliates and should not be deemed to confer
upon third parties any remedy, claim, right or reimbursement or
other right.
V.11 Titles and Headings. Titles and headings to articles and
sections herein are inserted for the convenience of reference
only and are not intended to be a part of or to affect the
meaning or interpretation of this Agreement.
V.12 Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions
hereof. Any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such
provision in any other jurisdiction. Without prejudice to any
rights or remedies otherwise available to any party hereto, each
party acknowledges that damages would be an inadequate remedy for
any breach of the provisions of this Agreement and agrees that
the obligations of the parties hereunder shall be specifically
enforceable.
THIS CONTRACT CONTAINS A BINDING ARBITRATION PROVISION
WHICH MAY BE ENFORCED BY THE PARTIES.
Page 6
IN WITNESS WHEREOF, the parties have caused this
Agreement to be duly executed as of the day and year first above
written.
CONSOLIDATED FREIGHTWAYS CORPORATION
By:/s/ S. D. Richards
Title: Senior Vice Presdient and
General Counsel
CONSOLIDATED FREIGHTWAYS, INC.
By:/s/ D. E. Moffitt
Title: President and Chief
Executive Officer
Page 7
Exhibit 10.3
EMPLOYEE BENEFIT MATTERS AGREEMENT
This EMPLOYEE BENEFIT MATTERS AGREEMENT (the
"Agreement") is made as of this 2nd of December, 1996 by
and between CONSOLIDATED FREIGHTWAYS, INC., a Delaware
corporation ("CFI") and CONSOLIDATED FREIGHTWAYS
CORPORATION, a Delaware corporation (the "Company").
RECITALS
WHEREAS, CFI is the holder of all of the issued
and outstanding shares of common stock of the Company;
WHEREAS, the employees of the Company and its
Subsidiaries are covered by various employee benefit
plans sponsored by CFI which are limited to employees of
CFI and its Subsidiaries; and
WHEREAS, CFI has determined that it will
distribute all of the shares of the Company's common
stock to the holders of the common stock of CFI, which
will cause the Company and its Subsidiaries to no longer
be Subsidiaries of CFI;
NOW, THEREFORE, CFI and the Company agree as
follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms
shall have the following meanings, such meanings to be
equally applicable to both the singular and plural forms
of the terms defined:
ADR Agreement. The Alternative Dispute
Resolution Agreement entered into between CFI and the
Company dated the same date as this Agreement, the form
of which is attached as Annex 1 to the Distribution
Agreement.
Company Employee. A person described in 2.3.
Distribution. The distribution of Company
common stock pursuant to the Distribution Agreement.
Distribution Agreement. The Distribution
Agreement entered into between CFI and the Company dated
November 25, 1996 and governing the distribution of
Company common stock to the holders of CFI common stock.
Page 1
Distribution Date. The date on which all the
shares of Company common stock are delivered to the
distribution agent pursuant to the Distribution
Agreement.
Subsidiary. A corporation that is a member of
a controlled group of corporations, within the meaning of
Internal Revenue Code Section 1563, with CFI or with the
Company, except that the Company and its Subsidiaries
shall not be treated as Subsidiaries of CFI.
ARTICLE II
SEPARATION OF BENEFIT PLANS
2.1 Adoption of Company Plans. The Company and its
Subsidiaries shall, as of the Distribution Date, cease
participating in the employee benefit plans sponsored by
CFI. As of the Distribution Date, the Company shall
adopt employee benefit plans covering Company Employees
that are substantially the same as the employee benefit
plans sponsored by CFI covering Company Employees prior
to the Distribution Date except as follows. The Company
shall not be obligated to duplicate or replace the CFI
employee benefit plans that are limited to executive
employees and may adopt such new executive employee
benefit plans as it shall decide in its absolute
discretion.
2.2 Separate Responsibilities. CFI and the Company
agree that CFI shall have sole responsibility for its
employee benefit plans, arrangements and policies for
employees of CFI and its Subsidiaries and that the
Company shall have sole responsibility for its employee
benefit plans, arrangements and policies for Company
Employees. CFI and the Company intend that, to the
extent possible, Company Employees shall look solely to
the Company and its plans, arrangements and policies for
the provision of employee benefits, except certain
executive benefits discussed in this Agreement, and that
employees of CFI and its Subsidiaries shall look solely
to CFI and its plans, arrangements and policies for the
provision of employee benefits.
2.3 Identification of Company Employees. "Company
Employees" shall be determined as follows:
(a) All persons actively employed by the
Company or a Subsidiary of the Company on the
Distribution Date shall be Company Employees,
unless described in (b).
(b) Persons who accept employment with
CNF Service Company, Inc. as of the
Distribution Date shall not be Company
Employees.
Page 2
(c) The persons formerly employed by the
Company or a Subsidiary of the Company who are
listed on a schedule attached hereto shall be
Company Employees.
ARTICLE III
TAX QUALIFIED RETIREMENT PLANS
3.1 Adoption of Company SASP. The Company shall
adopt a Stock and Savings Plan (the "Company SASP") as
follows:
(a) The Company SASP shall be
effective as of the Distribution Date.
(b) Subject to Section 2.1, and to
(c), (d) and (e) below, the Company SASP
shall be in a form satisfactory to the Company
in its sole discretion.
(c) The Company SASP shall be
qualified under Sections 401(a) and 401(k) of
the Code and shall have a related trust
qualified under Section 501(a) of the Code.
The Company shall file, or cause the
administrator of the Company SASP to file, with
the Internal Revenue Service an Application for
Determination with respect to the Company SASP
within the remedial amendment period prescribed
by applicable law and regulations. The Company
shall amend the Company SASP as may be required
by the Internal Revenue Service as a condition
for receipt of a favorable determination letter
within the time required by the Internal
Revenue Service for adoption of such amendment.
(d) The Company SASP shall credit
service performed before the Distribution Date
for CFI and its Subsidiaries under applicable
service crediting rules as if such service were
performed for the Company.
(e) The Company SASP shall provide
for matching contributions invested in Company
common stock, but need not include an employee
stock ownership plan with Company stock
purchased by borrowing.
Page 3
3.2 TASP Spinoff. The Consolidated Freightways,
Inc. Thrift and Stock Plan (the "TASP" consists of two
plans: a 401(k) plan (the "TASP 401(k)") and an employee
stock ownership plan (the "TASP ESOP"). Accounts under
the TASP 401(k) are invested at the direction of
participants in several funds, including a fund for
common stock of CFI (the "CFI Stock Fund"). The TASP
ESOP is invested primarily in a special class of
convertible preferred stock of CFI (the "Preferred
Stock") and in common stock of CFI. The TASP ESOP holds
shares of Preferred Stock in a suspense account that
secures loans to the TASP ESOP. Preferred Stock is
converted to common stock of CFI before distribution to
participants or upon transfer to a person other than the
trustee of the TASP. On the Distribution Date, the TASP
will receive common stock of the Company with respect to
its shares of CFI common stock. As soon as practicable
after the Distribution Date, and in any event within 180
days after such date, CFI and the Company shall cause the
portion of the TASP that covers Company Employees to be
spun off from the TASP and to be merged into the Company
SASP. In connection with the spinoff and merger, the
following shall apply:
(a) CFI shall direct the trustee of
the TASP to transfer assets held for the
benefit of Company Employees under the TASP to
the trustee of the Company SASP. The trustee
of the TASP shall make such transfer even
though the Company SASP has not yet received a
favorable determination letter from the
Internal Revenue Service with respect to the
qualification of the Company SASP under Section
401(a) of the Code if the Company demonstrates
to CFI's reasonable satisfaction that the
Company has preserved its right to make
remedial amendments required by the Internal
Revenue Service as a condition of a favorable
determination.
(b) CFI shall cause the fiduciaries
of the TASP to provide an accounting to the
fiduciaries of the Company SASP with respect
to all assets and accounts transferred to the
Company SASP. The accounting shall be
reasonably satisfactory to the Company for
purposes of proper allocation of assets,
earnings, gains and losses to the accounts of
participants under the Company SASP.
(c) CFI shall cause IRS Form 5310A
to be filed with the Internal Revenue Service,
giving notice of the spinoff and merger, at
least 30 days before the date of the spinoff
and merger.
Page 4
(d) The Company SASP shall include a
CFI Stock Fund and an investment fund for
common stock of the Company (the "Company Stock
Fund") for participant-directed investment of
accounts. Common stock of CFI held in accounts
of Company Employees in the TASP 401(k) and the
TASP ESOP shall be transferred in kind in the
spinoff and merger and shall be placed
initially in the CFI Stock Fund of the Company
SASP, credited to the participant-directed
accounts of such Company Employees. Common
stock of the Company held in accounts of
Company Employees in the TASP 401(k) as a
result of the Distribution shall be transferred
in kind in the spinoff and merger and shall be
placed initially in the Company Stock Fund of
the Company SASP, credited to the participant-
directed accounts of such Company Employees.
Common stock of the Company held in accounts of
Company Employees in the TASP ESOP as a result
of the Distribution shall be transferred in
kind in the spinoff and merger and shall be
placed in the matching accounts of such Company
Employees in the Company SASP and shall not be
subject to participant-directed investment. The
Company SASP shall provide that participants
may direct the sale of shares out of the CFI
Stock Fund but may not direct investment of any
additional amounts into it. As of the next
calendar quarter end following the third
anniversary of the Distribution Date, the CFI
Stock Fund shall be closed and its assets moved
into another investment fund selected by each
participant or, for participants who fail to
make a selection, by the Administrative
Committee for the Company SASP.
(e) The TASP 401(k) shall include a
Company Stock Fund, in addition to the existing
CFI Stock Fund, for participant-directed
investment of accounts. The Company common
stock distributed on shares of CFI common stock
held for TASP participants who are not Company
Employees in the CFI Stock Fund and in the TASP
ESOP shall become the assets of the Company
Stock Fund. The TASP shall provide that
participants may direct the sale of shares out
of the Company Stock Fund but may not direct
investment of any additional amounts into it.
As of the next calendar quarter end following
the third anniversary of the Distribution Date,
the Company Stock Fund shall be closed and its
remaining assets moved into another investment
fund selected by each participant or, for
participants who fail to make a selection, by
the Administrative Committee for the TASP.
Page 5
(f) The accounts to be
transferred from the TASP ESOP to the Company
SASP will include accounts holding Preferred
Stock. Such Preferred Stock will be
automatically converted to Common Stock of CFI
upon transfer to the trustee of the Company
SASP and shall be placed in the CFI Stock Fund
of the Company SASP as provided in (d).
(g) After the spinoff and
merger, the TASP will allocate to Company
Employees dividends and distributions on CFI
capital stock that are paid after the spinoff
to holders as of a date before the spinoff and
matching contributions on their elective
deferrals for the partial quarter before the
Distribution. For purposes of determining the
right to such matching contributions, Company
Employees shall be credited with service for
CFC and its Subsidiaries after the Distribution
as though it were performed for CFI and its
Subsidiaries. Post-spinoff allocations of such
dividends, distributions and matching
contributions shall be transferred to the
trustee of the Company SASP as soon as
practicable after they are made.
3.3 Adoption of Company Pension Plan. The Company
shall adopt a defined benefit pension plan (the "Company
Pension Plan") to cover Company Employees as follows:
(a) The Company Pension Plan shall
be effective as of the Distribution Date.
Company Employees shall start to accrue
benefits under the Company Pension Plan and
shall cease to accrue benefits under the
Consolidated Freightways, Inc. Retirement Plan
(the "CFI Retirement Plan") as of the
Distribution Date.
(b) Subject to Section 2.1, and to
(c), (d) and (e) below, the Company Pension
Plan shall be in a form satisfactory to the
Company in its sole discretion.
(c) The Company Pension Plan shall
be qualified under Section 401(a) of the Code
and have a related trust qualified under
Section 501(a) of the Code. The Company shall
file, or cause the administrator of the Company
Pension Plan to file with the Internal Revenue
Service an Application for Determination with
respect to the Company Pension Plan within the
remedial amendment period prescribed by
applicable law and regulations. The Company
shall amend the Company Pension Plan as may be
required by the Internal Revenue Service as a
condition for receipt of a favorable
determination letter within the time required
by the Internal Revenue Service for adoption of
any such amendment.
Page 6
(d) Benefits with respect to the
transfer described in Section 3.4 below shall
be preserved in accordance with applicable law,
including but not limited to the requirements
of Section 411(d)(6) of the Internal Revenue
Code.
(e) Subject to the transfer of
assets and liabilities provided for under
Section 3.4, the Company Pension Plan shall
credit service performed before the
Distribution Date for CFI and its Subsidiaries
under applicable service crediting rules as if
such service were performed for the Company.
(f) After the transfer described in
Section 3.4, the CFI Retirement Plan shall have
no obligation to Company Employees. The
Company Pension Plan shall be a continuation
of the CFI Retirement Plan with respect to
benefits accrued by Company Employees under the
CFI Retirement Plan. The transfer described in
Section 3.4 shall not be a plan termination.
3.4 Retirement Plan Spinoff. On the Distribution
Date, CFI and the Company shall cause the portion of the
CFI Retirement Plan consisting of the liability for
benefits of Company Employees accrued through the
Distribution Date to be spun off from the CFI Retirement
Plan along with related assets, to become the initial
liabilities and assets of the Company Pension Plan. In
connection with the spinoff and merger, the following
shall apply:
(a) The assets of the CFI Retirement
Plan to be transferred to the Company Pension
Plan will be equal to the lump sum present
value of such liability as of the date of the
spinoff and merger. Present value shall be
based on the accumulated benefit obligation for
benefits already accrued and on an interest
rate selected by CFI with the approval of the
actuary who performed the most recent annual
valuation of the CFI Retirement Plan. CFI
shall direct the trustee of the CFI Retirement
Plan to transfer such assets to the trustee of
the Company Pension Plan.
Page 7
(b) If the Pension Benefit Guaranty
Corporation ("PBGC") asserts that the interest
rate selected pursuant to (a) is not acceptable
for calculating the amount of assets to be
transferred from the CFI Retirement Plan to the
Company Pension Plan, the parties shall make
commercially reasonable efforts to reach an
agreement with the PBGC on the interest rate to
be used. In the event that a lower interest
rate than the rate selected pursuant to (a) is
used in response to such an agreement or to
other actions of the PBGC, the Company shall
pay CFI an amount equal to the increase in the
amount of assets transferred resulting from use
of such lower interest rate. The Company shall
pay such amount in cash in five equal annual
installments including interest at the
prevailing commercial prime lending rate of the
bank with which CFI has its principal banking
relationship on the date of the transfer of CFI
Retirement Plan assets. Such installments
shall commence with the first anniversary of
the date of such transfer.
(c) CFI shall file IRS Form 5310A
with the Internal Revenue Service, giving
notice of the spinoff and merger, at least 30
days before the date of the spinoff and merger.
(d) The trustee of the CFI
Retirement Plan shall make the transfer of
assets under (a) even though the Company
Pension Plan has not yet received a favorable
determination letter with respect to
qualification under Section 401(a) of the
Internal Revenue Code if the Company
demonstrates to CFI's reasonable satisfaction
that the Company has preserved its right to
make remedial amendments required by the
Internal Revenue Service as a condition of a
favorable determination.
(e) The trustee of the CFI
Retirement Plan and any other fiduciary under
the CFI Retirement Plan with applicable
responsibility shall determine and identify the
assets of the CFI Retirement Plan that shall be
transferred to the Company Pension Plan. After
the transfer, the fiduciaries of the Company
Pension Plan shall be responsible for the
custody and investment of Company Pension Plan
assets.
Page 8
(f) If any employees of CNF Service
Company, Inc. (or an affiliate) become employed
by Leland James Service Corporation within
three years after the Distribution Date immedi
ately following termination of employment with
CNF Service Company, Inc. (or such affiliate),
with no intervening period, as a result of
termination of any services under the
Transition Services Agreement between CNF
Service Company, Inc. and the Company dated the
same date as this Agreement, an additional
transfer of assets and liabilities shall be
made from the CFI Retirement Plan to the
Company Retirement Plan. Such transfer shall
consist of the liability for benefits accrued
for such employees under the CFI Retirement
Plan through the date of the employment
termination together with assets equal to the
present value of such liability determined on
the basis described in (a) above. Such
transfer of assets and liabilities shall be
completed within 90 days after the end of such
three year period.
(g) On the date of the transfer of
assets and liabilities, the trustee of the CFI
Retirement Plan shall transfer to the trustee
of the CFC Pension Plan assets equal to a
conservative estimate by the actuary for the
CFI Retirement Plan of the amount provided in
(a) above. When a final determination of the
amount of the transfer is made, the amount
necessary to adjust from the estimate to the
final amount shall be transferred between the
trustees of the plans. The investment risk
with respect to the estimated assets shall pass
from the CFI Retirement Plan to the CFC Pension
Plan on the date they are transferred. The
amount to be transferred in an adjustment to
the final amount shall be credited with
interest for the period from the date of the
transfer of assets and liabilities to the date
of the adjustment transfer at the rate of inter
est selected under (a) above.
3.5 Adoption of Company Common Stock Fund. The
Company shall adopt a frozen defined contribution plan
(the "Company Common Stock Fund") as follows:
(a) The Company Common Stock Fund
shall be effective as of the Distribution Date.
(b) Subject to Section 2.1, and to
(c) below, the Company Common Stock Fund shall
be in a form satisfactory to the Company in its
sole discretion.
Page 9
(c) The Company Common Stock Fund
shall be qualified under Section 401(a) of the
Code and have a related trust qualified under
section 501(a) of the Code. The Company shall
file, or cause the administrator of the Company
Common Stock Fund to file, with the Internal
Revenue Service an Application for
Determination with respect to the Company
Common Stock Fund within the remedial amendment
period prescribed by applicable law and
regulations. The Company shall amend the
Company Common Stock Fund as may be required by
the Internal Revenue Service as a condition for
receipt of a favorable determination letter
within the time required by the Internal
Service for the adoption of any such amendment.
(d) Assets of the Company Common Stock
Fund shall be invested in accordance with provisions
of the plan document and the related trust.
3.6 Common Stock Fund Spinoff. On the
Distribution Date, CFI and the Company shall cause the
accounts in the Consolidated Freightways, Inc. Common
Stock Fund (the "CFI Common Stock Fund") to be spun off
from the CFI Common Stock Fund, to become the accounts of
the Company Common Stock Fund. In connection with the
spinoff and merger, the following shall apply:
(a) CFI shall direct the trustee of
the CFI Common Stock Fund to transfer assets
equal in value on the transfer date to the
balance of the accounts for the Company
Employees to the trustee for the Company Common
Stock Fund. The trustee shall transfer a
combination of CFI common stock and the Company
common stock received on the plan's shares of
CFI common stock on the Distribution Date. The
CFI Common Stock Fund shall sell the stock of
the Company held after the spinoff and merger
at a time selected by the appropriate fiduciary
for such plan in its absolute discretion and
use the proceeds of sale to acquire stock of
CFI.
(b) CFI shall cause the fiduciaries
of the CFI Common Stock Fund to provide an
accounting to the fiduciaries of the Company
Common Stock Fund with respect to all assets
and accounts transferred to the Company Common
Stock Fund. The accounting shall be reasonably
satisfactory to the Company for purposes of
proper allocation of assets, earnings, gains
and losses to the accounts of participants
under the Company Common Stock Fund.
Page 10
(c) CFI shall file IRS Form 5310A
with the Internal Revenue Service, giving
notice of the spinoff and merger, at least 30
days before the date of the spinoff and merger.
ARTICLE IV
EXECUTIVE BENEFIT PLANS
4.1 Top-Hat Plans. CFI shall retain the obligation
to pay Company Employees the accounts in the Consolidated
Freightways, Inc. Executive Deferred Compensation Plan
(the "CFI Deferral Plan") accumulated from compensation
deferred up to the Distribution Date. CFI shall retain
the obligation to pay Company Employees benefits accrued
under the Consolidated Freightways, Inc. Supplemental
Retirement and Excess Benefit Plan (the "CFI SERP") as of
the Distribution Date based on service and compensation
up to that date and the offsetting CFI Retirement Plan
benefits accrued as of that date. Assets in the trust
related to the CFI Deferral Plan and the CFI SERP shall
remain in such trust. CFI shall amend the CFI Deferral
Plan and the CFI SERP to provide that events, such as
termination of employment or retirement, triggering
distribution of benefits from the CFI Deferral Plan and
the CFI SERP shall be determined for Company Employees on
the basis of employment with and retirement from the
Company and its Subsidiaries. The Company shall provide
CFI with information about such events after the
Distribution Date to assist CFI in the administration of
the CFI Deferral Plan and the CFI SERP.
4.2 Stock Option Plans. The existing stock
options on CFI common stock shall be handled as follows:
(a) Each outstanding option ("CFI
Option") as of the Distribution Date shall be
adjusted with respect to both the number of shares
subject to such option and the exercise price per
share so that (i) the ratio of exercise price to
stock price remains constant and (ii) the aggregate
"spread" (i.e., the excess of the fair market value
of a share of CFI common stock subject to such
option and the per share exercise price) inherent in
such option after giving effect to the Distribution,
is equal to the aggregate "spread" inherent in such
option prior to giving effect to the Distribution
("CFI Spread").
Page 11
(b) Each outstanding option held by
Company Employees ("CFI-CFC Option") provides
generally that following a termination of employment
from CFI or any of its affiliates, an optionee will
have 90 days to exercise his or her options before
they expire. Prior to the Distribution Date, the
stock option agreements under the Consolidated
Freightways, Inc. Stock Option Plan of 1988 (the
"CFI Stock Plan") that are held by Company Employees
shall be amended to provide that all options shall
become fully vested and exercisable 30 days prior to
the Distribution. Accordingly, effective as of the
Distribution Date, each Company Employee who will be
considered a terminated employee under the CFI Stock
Plan shall have 90 days after such termination of
employment (the "90 Day Period") to exercise his or
her CFI-CFC Options to purchase CFI stock. After
the 90 Day Period such options shall expire.
(c) For purposes of determining the CFI
Spread: (1) the fair market value of a share of CFI
common stock prior to the Distribution (the "CFI Pre-
Distribution Value") shall be deemed to be equal to
the average of the daily closing prices for a share
of CFI common stock on the NYSE for the five trading
days immediately preceding (and including) the
Distribution Date; (2) the fair market value of a
share of CFI common stock following the Distribution
shall be equal to (A) the CFI Pre-Distribution
Value minus (B) the fair market value of a share of
Company common stock; and (3) the fair market value
of a share of Company common stock shall be deemed
to be equal to the average of the daily closing
prices for a share of Company common stock in "when
issued" trading on NASDAQ for the five trading days
immediately preceding (and including) the
Distribution Date.
ARTICLE V
Welfare Benefit Plans
5.1 Medical and Dependant Care Account Benefits.
As of the Distribution Date, the Company shall establish
a Welfare Benefits Plan (the "Company Welfare Plan")
qualified under Section 125 of the Code to provide
medical and dependent care account benefits to Company
Employees covered under the Consolidated Freightways,
Inc. Welfare Benefits Plan (the "CFI Welfare Plan") in
1996 before the Distribution Date, and the following
shall apply:
(a) Subject to 2.1, and to (b) and
(c) below, the Company Welfare Plan shall be in
a form satisfactory to the Company in its sole
discretion.
Page 12
(b) The Company Welfare Plan shall
have a first plan year that is a short plan
year beginning on the Distribution Date and
ending December 31, 1996. Compensation
reduction elections by participants under the
CFI Welfare Plan for the 1996 plan year shall
continue in effect as to the Company Welfare
Plan.
(c) For 1996, the Company Welfare
Plan shall provide for medical spending
accounts and dependent care spending accounts
under substantially the same terms as the CFI
Welfare Plan. CFI shall transfer to the
Company the unused account balances of Company
Employees under the CFI Welfare Plan. The
Company shall credit the amounts transferred
with respect to each participant and each
account to corresponding accounts under the
Company Welfare Plan. Claims for reimbursement
from medical and dependent care spending
accounts under the CFI Welfare Plan by Company
Employees that have not been paid as of the
Distribution Date shall be paid by the Company
under the Company Welfare Plan. The fiduciary
of the Company Welfare Plan shall have the
authority to determine whether or not claims
under the Company Welfare Plan are properly
submitted or are payable. Upon request, CFI or
the administrator of the CFI Welfare Plan
shall deliver or make available to the Company
and the administrator of the Company Welfare
Plan all records of participants that are
relevant to administration of the Company
Welfare Plan.
5.2 Health Plan Deductibles and Coverage Limits,
COBRA Coverage. The Company shall adopt health plans to
cover Company Employees effective as of the Distribution
Date and the following shall apply:
(a) On and after the Distribution
Date neither CFI nor any of the welfare benefit
plans sponsored by CFI shall provide coverage
to Company Employees.
Page 13
(b) For the period from the
Distribution Date to December 31, 1996, Company
Employees who were participants under the
Consolidated Freightways, Inc. Health Plan (the
"CFI Health Plan") as of the Distribution Date
shall be credited with amounts paid under the
CFI Health Plan for plan deductibles against
any corresponding deductibles under a Company
plan health or medical plan. Benefits provided
under the CFI Health Plan to a Company Employee
with respect to 1996 claims will be counted
toward any coverage limits applicable to a
Company Employee under any Company health or
medical plan for the coverage period ending
December 31, 1996. For purposes of this
paragraph (b), deductibles and benefits paid
for eligible dependants of Company Employees
shall be taken into account.
(c) The Company shall provide group
health plan continuation coverage as required
under Sections 601 through 607 of ERISA ("COBRA
coverage") for Company Employees and related
"qualified beneficiaries" for "qualifying
events" that occur before or after the
Distribution Date.
5.3 Retiree Health Benefits. The Company and its
Subsidiaries shall be obligated to provide health
benefits to retired Company Employees, with the
obligation applying to the entity that employed the
retiree at the time of retirement. To the extent
permitted by the Company's Health Plan and applicable
law, the Company may eliminate or change retiree health
benefits.
5.4 Long-Term Disability Benefits. The Company and
its Subsidiaries shall be obligated to provide long-term
disability benefits to disabled Company Employees, with
the obligation applying to the entity the disabled
individual was employed by at the time of disability.
5.5 Severance Benefits. A termination of
employment with the Company, CFI, or any subsidiary of
the Company or CFI immediately followed by employment
with any other such entity shall not be deemed a
severance of employment for purposes of any policy, plan,
program or agreement that provides for the payment of
severance, salary continuation or similar benefits. If
any person employed by Leland James Service Corporation
immediately prior to the Distribution Date loses such
employment simultaneously with the Distribution Date as a
direct result of the transaction provided for by the
Distribution Agreement and for no other reason and is not
employed by CNF Service Company, Inc. or another CFI
Subsidiary, CFI shall be responsible for any severance,
salary continuation or similar benefits payable upon such
loss of employment.
5.6 Other Welfare Benefits. Except as otherwise
provided in 2.1 and this Article V, welfare benefits
provided by CFI and its Subsidiaries and by the Company
and its Subsidiaries for their respective employees after
the Distribution Date shall not be affected by each other
and each company may provide or elect not to provide
benefits in its sole discretion.
Page 14
ARTICLE VI
Miscellaneous
6.1 Rights of Employees. This Agreement is not
intended to give any individual employee or former
employee of CFI or the Company or any of their
Subsidiaries any personal right or interest. No
employee, shall have any right under this Agreement to
maintain employment with CFI, the Company or any
Subsidiary, become employed by CFI, the Company or any
Subsidiary or accrue any benefit with respect to
employment. No employee, former employee, beneficiary or
dependent shall have any right to be designated as a
Company Employee or to be retained as the responsibility
of CFI.
6.2 Entire Agreement. This Agreement, together
with the Distribution Agreement, embodies the entire
Agreement and understanding of the parties with respect
to the matters provided for herein and shall supersede
any and all prior agreements, arrangements and
understanding relating to such matters. No amendment,
waiver of compliance with any provision or condition
hereof or consent pursuant to this Agreement shall be
effective unless evidenced by an instrument in writing
signed by the parties.
6.3 Governing Law. The interpretation and
performance of the Agreement shall be governed by the
laws of the state of California without regard to the
choice of law provisions thereof.
6.4 Notices. All notices, requests, claims,
demands and other communications hereunder shall be in
writing and shall be delivered by hand, mailed by
registered or certified mail (return receipt requested),
or sent by cable, telegram, telecopy (confirmed by
regular, first-class mail), to the parties at the
following addresses (or at such other addresses for a
party as shall be specified by like notice) and shall be
deemed given on the date on which such notice is
received:
if to CFI:
Consolidated Freightways, Inc.
3240 Hillview Avenue
Palo Alto, California 94304
Attn: General Counsel
Page 15
if to the Company:
Consolidated Freightways Corporation
175 Linfield Drive
Menlo Park, California 94025
Attn: General Counsel
6.5 Counterparts. This Agreement may be executed
in one or more counterparts, each of which will be deemed
an original but all of which together will constitute one
and the same instrument.
6.6 Termination. This Agreement shall be
terminated if the Distribution Agreement is terminated or
if the distribution of Company stock fails to occur. If
the Agreement terminates under this Section 6.6, no party
shall have any liability to any person under the
Agreement.
6.7 Successors and Assigns. This Agreement and all
of the provisions hereof shall be binding upon and inure
to the benefit of the parties and their respective
successors and permitted assigns.
6.8 Titles and Headings. Titles and headings to
sections herein are inserted for the convenience of
reference only and are not intended to be part of or to
affect the meaning or interpretation of this Agreement.
6.9 Legal Enforceability. Any provision of this
Agreement which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining
provisions hereof. Any such prohibition or
unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other
jurisdiction. Without prejudice to any rights or
remedies otherwise available to any party hereto, each
party hereto acknowledges that damages would be an
inadequate remedy for any breach of the provisions of
this Agreement and agrees that the obligations of the
parties hereunder shall be specifically enforceable.
6.10 Further Assurances. In addition to the actions
specifically provided for elsewhere in this Agreement,
each of the parties hereto will use its reasonable
efforts to:
Page 16
(a) Execute and deliver
such further documents and take such
other actions as any other party may
reasonably request in order to
effectuate the purposes of this
Agreement and to carry out the terms
hereof, and
(b) Take, or cause to be
taken, all actions, and to do, or
cause to be done, all things,
reasonably necessary, proper or
advisable under applicable laws,
regulations and agreements or
otherwise to consummate and make
effective the transactions
contemplated by this Agreement,
including, without limitation, using
its reasonable efforts to obtain any
consents and approvals and make any
filings and applications necessary or
desirable in order to consummate the
transactions contemplated by this
Agreement.
6.11 Dispute Resolution. Any dispute between the
parties concerning the performance of this Agreement
shall be resolved in accordance with the provisions of
the ADR Agreement.
CFI CONSOLIDATED FREIGHTWAYS, INC.
By /s/D.E. MOFFITT
President and CEO
Executed: November 25, 1996
Company CONSOLIDATED FREIGHTWAYS CORPORATION
By /s/S.D. RICHARDS
Senior Vice President and
General Counsel
Executed: December 2, 1996
Page 17
Exhibit 10.4
This Tax Sharing Agreement (the "Agreement"), dated as of
this 2nd day of December, 1996, by and between Consolidated
Freightways, Inc., a Delaware corporation ("CFI"), and
Consolidated Freightways Corporation, a Delaware corporation
("Holdings").
WHEREAS, CFI and Holdings have entered into a Distribution
Agreement dated as of November 25, 1996 (the "Distribution
Agreement"), providing for the distribution by CFI of the
common stock of Holdings to the holders of CFI common stock
as of the close of the day on the Distribution Date, and
setting forth the terms and conditions which will govern
certain relationships between the parties; and
WHEREAS, CFI and Holdings desire to set forth their
agreement on the proper allocation among CFI, Holdings and
their subsidiaries of federal, state, local and foreign
taxes and to provide for future cooperation with respect to
tax matters;
NOW, THEREFORE, in consideration of their mutual promises,
the parties agree as follows:
Page 1
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have
the following meanings (such meanings to be equally
applicable to both the singular and the plural forms of the
terms defined):
"Affiliate" means any corporation which is a member of the
Consolidated Group.
"CFI Affiliate" means any corporation, partnership or
other entity directly or indirectly controlled by CFI, other
than Holdings or any Holdings Affiliate.
"CFI Businesses" means the present and future
subsidiaries, divisions and business of any member of the
CFI Group, other than the present and future subsidiaries,
divisions and business of any member of the Holdings Group.
CFI Businesses shall include all former subsidiaries,
divisions and businesses other than the Holdings Businesses.
"CFI Group" means the group of corporations that
immediately after the Distribution Date are members of the
affiliated group of which CFI is the common parent (within
the meaning of section 1504 of the Code).
"Code" means the Internal Revenue Code of 1986 (or, if
relevant, the Internal Revenue Code of 1954), as amended, or
any successor thereto, as in effect for the taxable period
in question.
"Combined Jurisdiction" means, for any taxable period, any
jurisdiction in which Holdings or a Holdings Affiliate could
be or is included in a consolidated or combined return with
CFI or a CFI Affiliate for Other Tax purposes for such
period.
Page 2
"Consolidated Group" means the affiliated group of
corporations (within the meaning of section 1504 of the
Code) of which CFI is the common parent.
"Distribution" means the transfer by CFI of its ownership
of Holdings and the Holdings Affiliates from CFI by means of
a distribution of the stock of Holdings to CFI shareholders.
"Distribution Date" means the date determined by the CFI
Board of Directors as of which the Distribution shall be
effected.
"Final Determination" means the final resolution of
liability for any Tax for a taxable period (i) by the
appropriate IRS form which binds the taxpayer on the date of
acceptance by or on behalf of the IRS, or by a comparable
form under the laws of other jurisdictions; except that any
such form that reserves (whether by its terms or by
operation of law) the right of the taxpayer to file a claim
for refund and/or the right of the Taxing Authority to
assert a further deficiency shall not constitute a Final
Determination; (ii) by a decision, judgment, decree, or
other order by a court of competent jurisdiction, which has
become final and unappealable; (iii) by a closing agreement
or accepted offer in compromise under section 7121 or
section 7122 of the Code, or comparable agreements under the
laws of other jurisdictions; (iv) by any allowance of a
refund or credit in respect of an overpayment of Tax, but
only after the expiration of all periods during which such
refund may be recovered (including by way of offset) by the
Tax imposing jurisdiction; or (v) by any other final
disposition, including by reason of the expiration of the
applicable statute of limitations.
Page 3
"Holdings Affiliate" means any former or current
corporation, partnership or other entity directly or
indirectly controlled by Holdings.
"Holdings Businesses" means the present and future
subsidiaries, divisions and business of any member of the
Holdings Group. Holdings Businesses shall include all former
subsidiaries, divisions and businesses.
"Holdings Group" means the group of corporations that
immediately after the Distribution Date are members of the
affiliated group of corporations of which Holdings is the
common parent (within the meaning of section 1504(a) of the
Code).
"IRS" means the Internal Revenue Service.
"Other Taxes" is defined in Section 3.05.
"Representative" means with respect to any person or
entity, any of such person's or entity's directors,
officers, employees, agents, consultants, advisors,
accountants, attorneys and representatives.
"Restructuring Taxes" means all Taxes resulting from the
disposition of Holdings stock undertaken to effect the
Holdings Distribution.
"Ruling Request" means the private letter ruling request
filed by CFI with the IRS dated February 22, 1996, as
supplemented from time to time, with respect to certain tax
aspects of the Distribution.
Page 4
"Tax" means any of the Taxes.
"Tax Controversy" is defined in Section 4.02.
"Tax Return" means any return, filing, questionnaire or
other document required to be filed, including requests for
extensions of time, filings made with estimated Tax
payments, claims for refund and amended returns that may be
filed, for any taxable period with any Taxing Authority
(whether domestic or foreign) in connection with any Tax
(whether or not a payment is required to be made with
respect to such filing) or any information reporting
requirement.
"Taxes" means any and all forms of taxation, whether
created or imposed by a national, municipal, state, federal,
or other governmental body (a "Taxing Authority") and,
without limiting the generality of the foregoing, shall
include net income, alternative or add-on minimum, any
special estimated tax payments required pursuant to section
847 of the Code, gross income, sales, use, ad valorem, gross
receipts, value added, franchise, profits, license,
transfer, recording, withholding, payroll, employment,
excise, severance, stamp, occupation, premium, property,
windfall profit, custom duty, or other tax, governmental fee
or other like assessment or charge of any kind whatsoever,
together with any related interest, penalties or other
additions to tax, or additional amounts imposed by any such
Taxing Authority on the Consolidated Group or any member
thereof.
"Taxing Authority" is defined under the term "Taxes."
Page 5
ARTICLE II
PREPARATION AND FILING OF TAX RETURNS
Section 2.01. Manner of Filing. All Tax Returns
(relating to pre-Distribution and post-Distribution taxable
periods) filed by CFI and CFI Affiliates and Holdings and
Holdings Affiliates after the Distribution Date shall be
prepared on a basis which is consistent with the rulings of
Taxing Authorities or opinions of tax counsel retained or
approved by CFI and which are issued in connection or relate
directly to the Distribution and shall be filed on a timely
basis (including extensions) by the party responsible for
such filing under this Agreement.
Section 2.02. Pre-Distribution Federal Tax Returns
(a) Holdings will join, and will cause each Holdings
Affiliate to join, in all pre-Distribution federal Tax
Returns for the Consolidated Group to the extent they are
eligible to join in such returns under the provisions of the
Code and the regulations thereunder. Holdings will neither
elect to file separate returns for such periods nor will it
cause or permit any of the Holdings Affiliates to so elect.
(b) Holdings hereby irrevocably designates, and Holdings
agrees to cause each of the Holdings Affiliates to so
designate, CFI as its agent to take any and all actions
necessary or incidental to the filing of Form 1122 (or any
amendment thereto) with respect to any taxable period in
which Holdings or any of the Holdings Affiliates is a member
of the Consolidated Group, and Holdings agrees to deliver,
and to cause each Holdings Affiliate to deliver, executed
copies of Form 1122 (or any amendment thereto) to CFI, if
required, with respect to any such year.
Page 6
(c) CFI shall timely prepare and file, or cause to be
timely prepared and filed, all pre-Distribution federal Tax
Returns for the Consolidated Group. This shall include all
tax items required to be reported by the Holdings Group for
taxable periods ending before or including the Distribution
Date. Holdings shall provide CFI, with respect to Holdings
and Holdings Affiliates, its federal Tax Returns and
supporting schedules and additional information requested by
CFI for the 1996 taxable period ending on the Distribution
Date on a timely basis, as reasonably determined by CFI, in
order for CFI to timely file the Tax Returns for the
Consolidated Group. Upon request, CFI shall deliver to
Holdings copies of the relevant portions of the Consolidated
Group Tax Return for 1996, as determined by CFI, within 30
days after the day that it is filed.
(d) All Tax Returns relating to taxable periods ending
before or including the Distribution Date and submitted
after the date of this Agreement by Holdings shall be
prepared, and all items of such Tax Returns shall be
reported (in the absence of a controlling change in law or
circumstances, except with the consent of CFI, which consent
shall not be unreasonably withheld), in a manner that is
consistent with past practices, elections, accounting
methods, conventions, and principles of taxation
(collectively, "Tax Practices") used for the most recent
taxable periods for which Tax Returns involving similar
items have been filed prior to the Distribution Date. All
decisions relating to the preparation of Tax Returns under
Section 2.02 (including whether items are reported
consistent with past Tax Practices) shall be made in the
reasonable discretion of CFI. However, any decisions
regarding intercompany transactions, as defined under Treas.
Reg. 1.1502-13, shall be made as mutually agreed upon by
the parties or by CFI if mutual agreement is not reached,
with CFI's decision being subject to arbitration under
Section 5.04.
Page 7
Section 2.03. Post-Distribution Federal Tax Returns.
Holdings shall prepare and file, or cause to be filed, all
post-Distribution federal Tax Returns for the Holdings Group
for taxable periods beginning after the Distribution Date.
CFI shall prepare and file, or cause to be prepared and
filed, all post-Distribution federal Tax Returns for the CFI
Group for taxable periods beginning after the Distribution
Date. CFI and Holdings agree to notify each other within 60
days after such post-Distribution federal Tax Returns are
filed regarding any utilization by either party of minimum
tax credits generated in pre-Distribution taxable periods.
In addition CFI agrees to provide to Holdings periodic
estimates of the amount of minimum tax credits generated in
pre-Distribution years which are expected to be utilized in
post-Distribution returns of the CFI Group. CFI agrees to
provide such estimates within 60 days after each quarterly
federal estimated tax payment and within 60 days after an
application for automatic extension of time (Form 7004) is
filed. Holdings acknowledges that such estimates are subject
to change and CFI shall have no liability for any changes or
inaccuracies in such estimates.
ARTICLE III
PAYMENT OF TAXES
Section 3.01. Allocation of Tax Liability.
(a) For purposes of this Agreement, the Consolidated
Group's federal regular income tax liability for all periods
ending before or including the Distribution Date shall be
allocated in accordance with section 1552(a)(2) of the Code
and Treasury Regulations sections 1.1552-1(a)(2) and 1.1502-
33(d)(3). Accordingly, the consolidated federal regular
income tax liability to be allocated to each Affiliate
included in the federal Tax Return of the Consolidated Group
in the following manner:
Page 8
(1) Step 1. Each Affiliate shall first be allocated
that percentage of the consolidated federal regular income
tax liability which is equal to the percentage that the
total federal regular income tax liability of such
Affiliate, if computed on a separate return basis, (with the
adjustments provided by Treasury Regulation section 1.1552-
1(a)(2)) would be to the total amount of the federal regular
income tax of all Affiliates so computed.
(2) Step 2. An additional amount shall be allocated to
each Affiliate equal to one hundred percent (100%) of the
excess, if any, of (A) the "separate return tax liability"
of such Affiliate for the taxable year (as computed pursuant
to Treasury Regulation section 1.1552-1(a)(2)), over (B) the
tax liability of such Affiliate in accordance with Step 1 of
this Section 3.01(a).
(3) Step 3. The total of any additional amounts
allocated to Affiliates pursuant to Step 2 of this Section
3.01(a) (including amounts allocated as a result of a
carryback) shall be paid by such Affiliates to those other
Affiliates which had such losses, deductions, or credits in
proportion to the tax benefit derived by the Consolidated
Group from the losses, credits and deductions of all
Affiliates, as determined by CFI.
(4) For the purposes of this Agreement, Holdings'
allocable share of the consolidated federal regular income
tax liability, as determined under this Section, is the
aggregate amount of liability allocated to Holdings and any
Holdings Affiliate. CFI's allocable share of the
consolidated federal income tax liability, as determined
under this Section, is the aggregate amount of liability
allocated to CFI and any CFI Affiliate.
Page 9
(b) For purposes of this Agreement, the Consolidated
Group's federal minimum tax liability and environmental tax
liability for all periods ending before or including the
Distribution Date shall be allocated in accordance with the
allocation method set out in Proposed Regulations 1.1502-
55 and 1.1552-1(g) issued on December 30, 1992 (the
"Proposed Regulations"). If temporary or final regulations
are issued which differ from the Proposed Regulations, this
Agreement will be amended to reflect such changes to the
extent and for an effective date deemed necessary or
desirable by CFI.
Section 3.02. Alternative Minimum Tax Credits. A portion
of any consolidated minimum tax credit of the Consolidated
Group will be allocated to a Holdings Affiliate which ceases
to be a member of the Consolidated Group on the Distribution
Date in accordance with the allocation method set forth in
the Proposed Regulations. To the extent such Holdings
Affiliate was not allocated a corresponding amount of
alternative minimum tax in an earlier or the same tax year,
Holdings shall pay to CFI an amount equal to the amount of
any such credit utilized by the Holdings Affiliate on an
estimated basis on or before June 30 following the taxable
year in which the credit is utilized by such Holdings
Affiliate. Subsequent thereto, a final settlement payment,
if necessary, will be made within 10 days of filing the Tax
Return for such taxable year or, if later, 10 days after
receipt of notice of the amount of the settlement payment
required. Any payment required under this Section shall be
accompanied by a calculation setting forth the basis for the
amount paid. In calculating minimum tax credit utilization
and payment responsibility under this Section, minimum tax
credits allocated to Holdings Affiliates under this Section
shall be deemed used first. If temporary or final
regulations are issued which differ from the Proposed
Regulations, this Agreement will be amended to reflect such
changes to the extent and for an effective date deemed
necessary or desirable by CFI.
Page 10
Section 3.03. Payment of Consolidated Federal Income Tax.
(a) CFI shall pay all Taxes due with respect to the
consolidated federal income tax liability (including any
minimum tax or environmental tax liability) of the
Consolidated Group for all taxable periods ending before or
including the Distribution Date. Holdings shall pay to CFI
an amount equal to Holdings' and Holdings Affiliates' share
of such Taxes as determined in the manner provided in
Section 3.01. Furthermore, Holdings shall make estimated tax
payments to CFI or receive refunds on or before the
statutory payment dates under a method generally consistent
with past practices as reasonably determined by CFI. CFI
hereby acknowledges that, upon resolution of the
intercompany accounts as of the Distribution Date, all
federal Taxes have been paid by Holdings and Holdings
Affiliates with respect to federal consolidated Tax Returns
that have been filed for any period up to and including the
year ended December 31, 1994, and Holdings and Holdings
Affiliates shall have no further liability in respect
thereof except as otherwise provided in this Agreement.
(b) Except as otherwise provided in this Agreement,
Holdings shall pay all Taxes due with respect to the federal
income tax liability (including any minimum tax or
environmental tax liability) of the Holdings Group for
periods beginning after the Distribution Date.
Section 3.04. Tax Deficiencies and Refunds as to CFI
Filed Returns.
Page 11
(a) If as a result of any audit, amendment or other
change in a federal income Tax Return as filed by CFI or any
CFI Affiliate with respect to any taxable period ending
before or including the Distribution Date, there is an
additional amount of federal income Taxes (including minimum
tax and environmental tax) due and payable, or a refund of
federal income Taxes previously paid (whether by payment,
credit, offset against other federal income Taxes due or
otherwise), any such deficiency shall be paid by, and any
such refund shall be payable to, CFI.
(b) Holdings shall pay to CFI any federal income Taxes
paid by CFI as a result of any audit, amendment or other
change in a Consolidated Group Tax Return allocable to the
Holdings' Businesses (as determined under Section 3.01) with
respect to any taxable periods ending before or including
the Distribution Date. In determining the amount due under
this Section 3.04(b), the amount of federal income Taxes
paid by CFI shall include any additional tax payments or
deposits made by CFI for a taxable year subsequent to the
filing of the federal income tax return for the taxable
year, it being expressly recognized by Holdings that no
portion of such payments were charged to Holdings or a
Holdings Affiliate through the intercompany accounts.
(c) CFI shall pay to Holdings, reduced by reasonable
administrative costs (including legal and accounting
expenses) incurred by CFI or a CFI Affiliate, the amount of
any refund of federal income Taxes received (including by
offset against other federal Taxes due) as a result of any
audit, amendment or other change in a Consolidated Group Tax
Return allocable to the Holdings Businesses (as determined
under Section 3.01) with respect to any taxable period
ending before or including the Distribution Date.
(d) For purposes of both (b) and (c) of this Section, the
amount of any federal Taxes paid or federal Taxes received
(including by way of offset) as a result of any audit,
amendment or other change to a Consolidated Group Tax Return
shall be taken into account in the year to which they relate
and the Tax liability (including Other Taxes) for such year
shall be recomputed and allocated accordingly.
Page 12
Section 3.05 Penalties and Interest
(a) Any interest incurred by the Consolidated Group shall
be paid by the Affiliate to whom it is attributable. The
total amount of interest incurred by the Consolidated Group
will be apportioned to and paid by each Affiliate according
to (1) the ratio of the interest incurred by each Affiliate
so computed, plus (2) the additional interest, if any, that
such Affiliate would have paid on a separate return basis
over the allocated interest determined under (1) above.
Interest computed by an Affiliate on a separate return basis
shall be calculated using the interest rate or rates
applicable to the consolidated deficiency. Any additional
amount allocated to an Affiliate determined under (2) above
shall be paid to the Affiliate whose income or deduction
would have given rise to a refund on a separate return
basis, but in no case shall an Affiliate which incurs
interest under (2) above be required to pay more interest to
such receiving Affiliate than such receiving Affiliate would
have received on a separate return basis. In calculating
the allocable share of any interest payable by a Holdings
Affiliate with respect to any federal audit adjustments,
only interest actually payable to the IRS, and not interest
abated as a result of tax deposits, shall be taken into
account. CFI shall have sole discretion to determine how
tax deposits are allocated among taxable periods and audit
items. CFI shall act in good faith in making such
determination, with an intention to minimize the overall out-
of-pocket costs and financial reporting impacts on CFI and
Holdings.
Page 13
(b) Any interest received by the Consolidated Group as a
result of any refund of Tax shall be allocated to the
Affiliate whose income or deductions gave rise to the
refund. The amount of interest received by the Consolidated
Group will be apportioned to and received by each Affiliate
according to (1) the ratio of the interest to be received by
each Affiliate computed on a separate return basis to the
total of all the interest received by Affiliates so
computed, plus (2) the additional interest, if any, that
such Affiliate would have received on a separate return
basis over the allocated interest determined under (1)
above. Any additional amount allocated to an Affiliate
determined under (2) above shall be received from the
Affiliate whose income or deductions caused such interest
not to be received by the Consolidated Group, but in no case
shall an Affiliate which receives such interest receive more
interest than such Affiliate would have received on a
separate return basis.
(c) Any penalties incurred by the Consolidated Group
shall be paid by the Affiliate whose actions, income or
deductions caused such penalties. If a penalty was caused by
more than one Affiliate, such penalty shall be allocated
proportionately to those Affiliates that would have incurred
a penalty on a separate return basis. Any excess penalty
will be allocated in proportion to the actions, income or
deductions of each Affiliate which caused or contributed to
the penalty regardless of whether such Affiliate's actions,
income or deductions exceeded the minimum threshold required
for the penalty to be imposed.
(d) For purposes of this Agreement, Holdings' allocable
share of any interest or penalties, as determined under this
Section, is the aggregate amount of liability allocated to
Holdings and any Holdings Affiliate. CFI's allocable share
of any interest or penalties, as determined under this
Section, is the aggregate amount of liability allocated to
CFI and any CFI Affiliate.
Page 14
Section 3.06. Other Tax Returns of Holdings.
(a) Holdings shall prepare and file, or cause to be
prepared and filed, all appropriate Tax Returns or other
filings relating to Taxes other than federal income taxes
("Other Taxes") imposed on any member of the Holdings Group
or the Holdings Businesses except for returns and filings
with respect to Combined Jurisdictions.
(b) For any Combined Jurisdictions, CFI or a CFI
Affiliate, as appropriate, shall be responsible for the
preparation and filing of all returns and filings relating
to any Other Taxes imposed upon any member of the Holdings
Group for the same taxable periods with respect to which CFI
is responsible for filing federal income tax returns under
Section 2.02. For this purpose, Holdings (or the appropriate
Holdings Affiliate) shall provide CFI (or the appropriate
CFI Affiliate) such schedules and additional information
requested by CFI for any period for which such Tax Return
has not been filed as of the date hereof by the later of (i)
15 days after such request or (ii) 60 days prior to the date
on which such Tax Return shall be due. Unless required by
law, as reasonably determined by CFI, CFI shall file such
Tax Return consistent with such schedules and additional
information provided by Holdings or Holdings Affiliates. CFI
shall deliver to Holdings copies of relevant portions of
each Tax Return no later than 60 days after the day that
such Tax Return is filed. Unless required by law, as
reasonably determined by CFI, CFI shall not amend any such
Tax Return to reflect any change in information provided by
Holdings Businesses without the written consent of Holdings.
(c) CFI hereby acknowledges that all Other Taxes have
been paid with respect to Tax Returns that have been filed
(in any Combined Jurisdiction in which unitary or nexus
consolidation principles have been agreed upon by CFI and
Holdings or a Holdings Affiliate) on or before the
Distribution Date. Liability for payment of all Other Taxes
imposed by any Combined Jurisdiction shall be allocated
between the CFI Group and the Holdings Group. The allocation
shall be made in such manner as CFI shall reasonably deem
appropriate; provided, however, that the liability of the
Holdings Group shall not exceed the greater of (i) the total
amount that the Holdings Group would have paid if the
members of the Holdings Group filed their own return for
Other Taxes not combined with any other member of the CFI
Group, or (ii) a pro rata share of the combined liability of
the members of the Holdings Group and the CFI Group. CFI
shall be liable for the Other Taxes remaining after payment
of the Holdings Group's allocable share of the Other Taxes.
Page 15
(d) To the extent there is an Other Tax liability, but
the Holdings Group has a net aggregate loss in a Combined
Jurisdiction, the Holdings Group shall be entitled to the
benefit of the net aggregate loss, to the extent reasonably
determined by CFI, except limited (i) to the extent of its
nexus within the state, and (ii) to the extent such benefit
is eliminated or reduced by the fact that Holding Group's
inclusion in the Combined Jurisdiction increases the
liability of the combined group.
(e) To the extent that a refund is obtained by CFI
Businesses or Holdings Businesses and such refund relates to
Other Taxes in Combined Jurisdictions, Holdings or a
Holdings Affiliate shall be entitled to receive its
proportionate share of such refunds as determined by CFI (or
a member of the CFI Group, as appropriate), in accordance
with the principles of Section 3.06(c) or (d).
(f) CFI and Holdings shall be responsible for the filing
of their respective Tax Returns for (i) non-Combined
Jurisdictions, and (ii) jurisdictions outside the United
States that are due with respect to all taxable periods and
for the payment of all Taxes due or payable in connection
therewith.
Page 16
(g) If as a result of any audit, amendment or other
change in a Combined Jurisdiction Tax Return as filed by CFI
or a CFI Affiliate with respect to any taxable period ending
before or including the Distribution Date, there is an
additional amount of Taxes due and payable, or a refund of
Taxes previously paid (whether by payment, credit, offset
against other Taxes due or otherwise), any such deficiency
shall be paid by, and any such refund shall be payable to,
CFI or the CFI Affiliate. Holdings shall pay to CFI any
Taxes incurred as a result of any audit, amendment or other
change in a Combined Jurisdiction Tax Return with respect to
any taxable period ending before or including the
Distribution Date in a manner consistent with the provisions
outlined in Section 3.06(c) and (d). CFI or a CFI Affiliate
shall pay to Holdings the amount of any refund of Other
Taxes received (including by offset against Other Taxes due)
as a result of any audit, amendment or other change to a Tax
Return attributable to the Holdings Businesses with respect
to any taxable period ending before or including the
Distribution Date in a manner consistent with the provisions
outlined in Section 3.06(e).
(h) Notwithstanding the provisions of Section 3.06(g), if
Holdings or a Holdings Affiliate wishes to make advance
payment of, or enter into a cash bond with respect to, any
Taxes for which it would bear the burden under this
Agreement prior to the date that payment of such Taxes is
required by the relevant Taxing Authority, CFI shall permit
Holdings to make such advance payment or enter into such
cash bond and shall take such reasonable actions as may be
necessary to effectuate the same.
Page 17
Section 3.07. Restructuring Taxes.
(a) Notwithstanding any other provision of this Agreement
to the contrary, Holdings shall pay and shall indemnify and
hold harmless CFI from and against any and all Restructuring
Taxes and from and against any costs whatsoever connected
with such taxes, including, but not limited to, fees,
interest, penalties and reasonable attorney's fees to the
extent any portion of such Restructuring Taxes would not
have resulted: (i) but for a Ruling Misrepresentation or
Omission (as defined in Section 3.07(b)); or (ii) but for
the fact that, within three (3) years after the Distribution
Date, either Holdings or any member of the Holdings Group
has (A) made a material disposition outside the Holdings
Group by means of a sale or exchange of assets or capital
stock (except (x) the issuance by Holdings of its own stock
in an amount which does not exceed 10% of Holding's issued
and outstanding stock immediately following the Distribution
Date and (y) dispositions, if any, disclosed in the Ruling
Request), (B) made a distribution to its stockholders or
otherwise of any assets of the Holdings Group (other than
dividends paid in the ordinary course of business), (C) made
any repurchase of any Holdings Group capital stock
(excluding repurchases in connection with employee benefit
plans which comply with Revenue Procedure 91-63), (D) has
voluntary ceased to engage in the active conduct of a trade
or business within the meaning of section 355(b)(2) of the
Code, or (E) Holdings has liquidated or merged with any
other corporation (including a member of the Holdings Group)
unless, prior to each of cases (A), (B), (C), (D) and (E),
Holdings has received an opinion of counsel to the Holdings
Group (which opinion shall be reasonably satisfactory to
CFI) or a favorable supplemental ruling letter satisfactory
to CFI, that such act would not adversely affect the tax
consequences of the Distribution to CFI or the shareholders
of CFI, as set forth in any ruling issued by the IRS or in
any opinion of counsel to CFI obtained in lieu of such a
ruling.
Page 18
(b) For purposes of paragraph (a), a "Ruling
Misrepresentation or Omission" means with respect to
Holdings or a Holdings Affiliate (i) the failure of Holdings
or a member of the Holdings Group to comply in all material
respects with each written representation and statement
regarding Holdings or a Holdings Affiliate made to the IRS
in the Ruling Request or in a certificate provided to
counsel to the CFI Group for use in preparing its tax
opinion with respect to the Distribution, or (ii) any untrue
statement or alleged untrue statement of a material fact
contained in the Ruling Request (or certificate provided to
counsel) or the omission to state in the Ruling Request (or
certificate provided to counsel) a material fact required to
be stated therein or necessary to make the statements
therein not misleading, but only, in the case of both clause
(i) and (ii), insofar as any such statement or omission was
made in reliance upon, and in conformity with, written
information furnished by Holdings a Holdings Affiliate, or a
Representative of either specifically for use in the
preparation of the Ruling Request (or certificate provided
to counsel).
Section 3.08. Manner of Payment.
(a) Any payment required to be made pursuant to Sections
3.04, 3.05, 3.06, 3.07 or Section 3.10 with respect to any
Tax Return shall be made by wire transfer by the party
obligated to make such payment (i) in the case of a refund
of Tax, within 10 days after receipt (whether by way of
payment, credit, or offset against any payments due or
otherwise) of such refund or (ii) in the case of the payment
of Tax with respect to any such Tax Return, within 10 days
after the later of (x) such payment of Tax or (y) the
delivery of written demand for the payment hereunder to the
party obligated to make such payment hereunder. Any payment
described in clause (i) and any demand for payment described
in clause (ii) shall be accompanied by a calculation
consistent with past Tax Practices setting forth the basis
for the amount paid or demanded. Any payment not made within
the prescribed time period shall thereafter bear interest at
the federal underpayment rate established pursuant to
section 6621(a)(2) (substituting "5 percentage points" for
"3 percentage points" in the case any demand for payment
described in clause (ii) in an amount exceeding $100,000).
Page 19
(b) Notwithstanding the foregoing, in the case of
payments due from Holdings as a result of any IRS audit
adjustments which result in a deferred tax asset for
Holdings for taxable years following the Distribution Date,
at Holdings' request CFI shall enter into a note agreement
on reasonable commercial terms permitting Holdings to make
installment payments of the amounts due hereunder over a
period not longer than the lesser of (i) ___ years, or (ii)
the period over which such deferred tax asset is amortized
by Holdings.
Section 3.09. Liability for Taxes with Respect to Post-
Distribution Taxable Periods. Unless otherwise provided in
this Agreement, the CFI Group and the Holdings Group
severally shall pay all Taxes and shall be entitled to
receive and retain all refunds of Taxes with respect to
taxable periods beginning after the Distribution Date which
are attributable to the CFI Businesses and the Holdings
Businesses, respectively.
Section 3.10. Carrybacks and Carryforwards.
(a) In the event that Holdings, any Holdings Affiliate or
the Holdings Group incurs a loss or realizes a tax credit
in a Tax Return filed for periods after the Distribution
Date, loss or tax credit will not be carried back to any
Consolidated Group Tax Return without the specific consent
of CFI. CFI need consent only if the carryback of such loss
or credit to the Consolidated Group return will cause no
detriment to CFI's tax position. In determining whether a
carryback is likely to cause a detriment to its tax
position, CFI may take into account audit risks resulting
from claiming a carryback. If CFI agrees to carryback such
loss or credit, or is required by law to carryback such loss
Page 20
or credit, Holdings shall be entitled to its allocable
share of any refund of Tax obtained by the Consolidated
Group (or any member of the Consolidated Group in a Combined
Jurisdiction) as a result of the carryback of losses or
credits of any member of the Holdings Group from any taxable
period beginning after the Distribution Date to any taxable
period ending before or including the Distribution Date.
Such refund is limited to the net amount received by CFI (by
refund, offset against other Taxes or otherwise), net of any
net Tax cost incurred by CFI or a CFI Affiliate, which would
include the reduction of minimum tax credits previously
utilized by CFI, resulting from such refund, and shall be
paid in the manner and at the time specified in Section
3.08. In determining the net amount received by CFI as a
result of a carryback of losses or tax credits by Holdings
or a Holdings Affiliate, amounts carried back by Holdings or
a Holdings Affiliate shall be considered to reduce the
Consolidated Group's tax burden only to the extent that such
carrybacks reduce the Consolidated Group's tax burden after
first taking into account all other tax credits and
carrybacks available to the Consolidated Group. Holdings
shall indemnify CFI for any interest, fines and penalties
resulting from the carryback of any item under this
paragraph. Notwithstanding this Section 3.10, Holdings and
any member of the Holdings Group shall have the right, in
its sole discretion, to make the election under section
172(b)(3) of the Code, which would eliminate or limit the
carryback of any loss or credit of the Holdings Group to any
taxable period ending before or including the Distribution
Date.
(b) If CFI has a carryback of losses or credits from any
member of the CFI Group from any taxable period beginning
after the Distribution Date to any taxable period ending
before or including the Distribution, CFI shall be entitled
to any refund received from the Taxing Authority
attributable to the carryback. To the extent such refund is
reduced as a result of the inclusion of the Holdings Group
in the Tax Return to which the item is carried back and
results in additional minimum tax credits or other credits
being made available to the Holdings Group, Holdings shall
pay to CFI the amount of any tax savings when and if the
additional benefits are realized by Holdings.
Page 21
(c) Within 180 days following the close of the CFI tax
year in which the Distribution Date occurs, CFI shall
provide a schedule of the relevant carryforward items
allocable to Holdings for tax years following the
Distribution Date. CFI shall indemnify Holdings for any
interest, fines or penalties resulting from the
overstatement of the carryforward items or CFI shall
reimburse Holdings for any Tax benefits (including interest
at the rate specified in Section 3.08) foregone by Holdings
as a result of the understatement of the carryforward items.
Notwithstanding the foregoing, CFI shall not be required to
so indemnify or reimburse Holdings (i) with respect to any
overstated allocation of alternative minimum tax credits
made by CFI on a good faith basis, or (ii) to the extent the
overstatement or understatement of any carryforward items
other than alternative minimum tax credits results (x) from
a change in law or regulation (including the retroactive
effectiveness of any such law or regulation), (y) from an
audit or other adjustments to the Tax Returns as filed, or
(z) from incorrect information supplied by Holdings.
ARTICLE IV
COOPERATION AND EXCHANGE OF INFORMATION
Section 4.01. Cooperation.
(a) CFI and Holdings shall cooperate (and shall cause any
member of their group to cooperate) fully at such time and
to the extent reasonably requested by the other party in
connection with the preparation and filing of any return or
the conduct of any audit, dispute, proceeding suit or action
concerning any issues or any other matter contemplated
Page 22
hereunder. Such cooperation shall include, without
limitation, (i) the retention and provision on demand of
books, records, documentation or other information relating
to any Tax Return until the later of (x) the expiration of
the applicable federal or state statute of limitation
(giving effect to any extension, waiver, or mitigation
thereof) and (y) in the event any claim has been made under
this Agreement for which such information is relevant, until
a Final Determination with respect to such claim; (ii) the
provision of additional information with respect to and
explanation of Tax Practices and material provided under
clause (i) of this section; (iii) the execution of any
document that may be necessary or reasonably helpful in
connection with the filing of any Tax Return by any member
of the CFI Group or the Holdings Group, or in connection
with any audit, proceeding, suit or action addressed in the
preceding sentence; and (iv) the use of the parties'
reasonable best efforts to obtain any documentation from a
governmental authority or third party that may be necessary
or helpful in connection with the foregoing. Each party
shall make its employees and facilities available on a
mutually convenient basis to facilitate such cooperation.
(b) CFI and Holdings shall use reasonable efforts to keep
each other advised as to the status of Tax audits and
litigation involving any items reportable on a consolidated
federal income Tax Return or a combined Tax Return with
respect to the Holdings Businesses for pre-Distribution
periods and which (i) give rise to a Tax which could be
assessed against Holdings (or any Affiliate thereof) or (ii)
could give rise to a liability of Holdings (or any Affiliate
thereof) under this Agreement (either of which constitutes a
"Liability Issue"). The primary person for dealing with the
Holdings Liability Issues in Tax audits shall be a Holdings
Representative. CFI and Holdings shall promptly furnish each
other copies of any inquiries or requests for information
from any Taxing Authority or any other administrative,
judicial or other governmental authority concerning any
Liability Issue.
Page 23
CFI shall notify Holdings as to which
inquiries or information requests it desires to monitor and,
with respect to such matters, Holdings will submit for CFI
approval (which shall not be unreasonably withheld) the
information to be provided to a Taxing Authority or any
governmental authority in response to the inquiries or
requests. Holdings agrees to timely notify CFI regarding any
proposed written communication (i.e., communications not
related to inquiries or requests for information) by
Holdings or a Holdings Affiliate to any such Taxing
Authority or other governmental authority with respect to
such Liability Issue and CFI shall subsequently notify
Holdings as to which Liability Issues CFI desires to
monitor. Upon request by CFI, Holdings shall provide copies
of such written communications and documents to be submitted
therewith and receive approval from CFI to submit such
communications (which approval shall not be unreasonably
withheld and shall be given on a timely basis) prior to
submission to the Taxing Authority or other governmental
authority. CFI shall have the right to consult with Holdings
regarding any responses attributable to such requests. CFI
shall indemnify Holdings for any costs which would not have
been incurred, but for CFI's failure to grant approval to
Holdings to submit information for which CFI's approval is
required by this section; provided, however, this
indemnification shall not apply to CFI actions or decisions
made pursuant to Section 2.02(b). Furthermore, CFI and
Holdings, as the case may be, shall each promptly furnish to
the other upon receipt a copy of information document
requests, a notice of proposed adjustment, revenue agent's
report or similar report or notice of deficiency together
with all relevant documents and memos related to the
foregoing documents, notices or reports, received by any
member of the CFI Group or any member of the Holdings Group,
as the case may be, relating to any Liability Issue.
Page 24
(c) CFI shall advise Holdings with respect to items
reported in a revenue agent's report and provide periodic
updates, as necessary, as to the resolution of any such
items relating to the Consolidated Group that may affect any
member of the Holdings Group after the Distribution Date.
(d) Holdings shall promptly notify CFI of any inquiries
by any Taxing Authority or other administrative, judicial or
other governmental authority that relates to any Other Taxes
that may be imposed on CFI or a CFI Affiliate.
Section 4.02. Contest Provisions.
(a) Subject to the cooperation provisions of Section
4.01, CFI shall have full responsibility for and discretion
in handling any Tax controversy, including, without
limitation, an audit, technical advice request, arbitration
or dispute resolution procedure, protest to the Appeals
Division of the IRS, and litigation in Tax Court or any
other court of competent jurisdiction (a "Tax Controversy"),
involving a Tax Return of the Consolidated Group or a Tax
Return for a Combined Jurisdiction. However, upon request by
Holdings, and subject to CFI approval (which may not be
unreasonably withheld) and the cooperation provisions of
Section 4.01, Holdings shall have full responsibility and
discretion in the handling, at Holdings' expense of any Tax
Controversy with respect to any item reported on a Holdings
or Holdings Affiliate Tax Return that would give rise to a
payment of Tax for which Holdings would be liable, or a
refund of Tax for which Holdings would be entitled to
receive payment, under Article III hereof. If CFI approval
is not granted to Holdings for the handling of a Tax
Controversy item, CFI shall provide Holdings with a timely
written response which sets out the reasons for not granting
the approval. Furthermore, CFI shall be subject to the
cooperation provisions of Section 4.01 and shall allow
Holdings, at Holdings' expense, the right to consult with
CFI with respect to such Tax Controversy.
Page 25
(b) In addition to the cooperation and contest provisions
of Section 4.01 and Section 4.02(a), in the event that a
notice of deficiency is received by CFI from any Taxing
Authority and such notice relates in whole or in part to
Restructuring Taxes for which Holdings would be liable to
CFI pursuant to Section 3.06 hereof (the "Holdings
Restructuring Issue") then --
(1) CFI, upon receiving written request from
Holdings, which shall be given no later than a date
reasonably necessary to permit preparation and
timely filing of a petition in the Tax Court for
redetermination of the deficiency, shall timely file
such petition at Holdings' expense; provided,
however, that upon the request of Holdings, CFI
shall, at Holdings' expense: (A) pay the amount of
the deficiency (provided that Holdings has loaned to
CFI no later than three (3) business days before CFI
pays such deficiency, without interest and until a
Final Determination of the Holdings Restructuring
Issue, 100 percent of the amount of the portion of
the deficiency relating to the Holdings
Restructuring Issue; (B) file a claim for refund of
such Tax; and (C) if the claim is denied, bring an
action in a court of competent jurisdiction seeking
the refund of such Tax; and (2) In the event that a
judgment of the Tax Court or other court of
competent jurisdiction results in an adverse
determination with respect to the Holdings
Restructuring Issue and CFI notifies Holdings that
it does not intend to appeal such Holdings
Restructuring Issue, then Holdings shall have the
right to cause CFI to appeal such adverse
determination at Holdings' expense.
Page 26
(3) Holdings and its Representatives, at Holding's
expense, shall be entitled to participate in all
conferences, meetings, or proceedings with any Tax
Authority, the subject matter of which is or
includes the Holdings Restructuring Issue. Holdings
and its Representatives, at Holding's expense, shall
be entitled to participate in all appearances before
any court, the subject matter of which includes the
Holdings Restructuring Issue.(4)All actions taken
under this Section 4.02(b) at Holding's request or
direction shall be at Holdings' expense.(5) The
right to participate referred to in Section
4.02(b)(3) hereof shall include the submission and
content of documentation, protests, memoranda of
fact and law and briefs, the conduct of oral
arguments or presentations, the selection of
witnesses, and the negotiations of stipulations of
fact with respect to the Holdings Restructuring
Issue.(6)Within five (5) business days of the
receipt by CFI of a refund of any amounts loaned to
it by Holdings under paragraph (b)(1) above
(including any interest received by CFI), CFI shall
pay such refunded amount and interest, if any to
Holdings net of any net Tax detriment (as determined
by CFI) incurred by CFI or a CFI Affiliate resulting
from such refund.
Section 4.03. Information for Shareholders. CFI shall
provide each shareholder which receives Holdings stock
pursuant to the Distribution with the information necessary
for each such shareholder to comply with the requirements of
section 355 of the Code and the Treasury Regulations with
respect to statements that such shareholders must file with
their federal income tax returns demonstrating the
applicability of section 355 to the Distribution.
Page 27
ARTICLE V
MISCELLANEOUS
Section 5.01. Tax Indemnification.
(a) Holdings shall indemnify and hold harmless CFI and each
CFI Affiliate from and against any liability, cost or expense,
including, without limitation, any fine, penalty, interest,
charge, attorney's fee or accountant's fee arising out of
fraudulent or negligent information, workpapers, documents and
other items prepared by Holdings or a Holdings Affiliate used
in the preparation of any Tax Return filed by CFI and/or the
Consolidated Group for any period during which Holdings or a
Holdings Affiliate was or has been a member of the
Consolidated Group.
(b) Except as set forth in Section 5.01(a), CFI shall
indemnify and hold harmless Holdings and each Holdings
Affiliate from and against any liability, cost or expense,
including, without limitation, any fine, penalty, interest,
charge, attorney's fee or accountant's fee arising out of
fraudulent or negligent preparation of any Tax Return filed by
CFI and/or the Consolidated Group for any period during which
Holdings or a Holdings Affiliate was or has been a member of
the Consolidated Group.
Section 5.02. Breach. CFI shall indemnify and hold harmless
each member of the Holdings Group and Holdings shall indemnify
and hold harmless each member of the CFI Group from and
against any payment required to be made under this Agreement
as a result of the breach by a member of the CFI Group or the
Holdings Group, as the case may be, of any obligation under
this Agreement.
Section 5.03. Disclaimers.
(a) CFI disclaims all knowledge of or responsibility for the
content or accuracy of any separate returns or filings made by
Holdings or Holdings Affiliates except to the extent such
returns include information provided by CFI pursuant to
Section 3.10(c).
Page 28
(b) Holdings disclaims all knowledge of or responsibility for
the content or accuracy of any (i) separate returns or filings
made by CFI or CFI Affiliates, (ii) Tax Returns or filings
made by or on behalf of the Consolidated Group or any member
thereof for any period except to the extent such federal Tax
Returns or filings reflect items of the Holdings Businesses,
and (iii) Tax Returns or filings in Combined Jurisdictions,
except to the extent such Tax Returns or filings reflect items
of the Holdings Businesses.
Section 5.04. Resolution of Certain Disputes.
(a) Disagreements between CFI and Holdings with respect to
amounts that either claims is owed by the other (or by an
Affiliate of the other) under this Agreement or other matters
under this Agreement that are not resolved by mutual agreement
shall be resolved by arbitration pursuant to this Section
5.04. Until the time of a final resolution by the arbitrator
selected pursuant to Section 5.04(b), the time period for any
payments described in Section 3.08 (other than loans required
by Section 4.02(c)) shall be tolled. Such tolling, however,
shall not affect the accrual of interest.
(b) Selection of the Arbitrator. Any arbitrator selected
pursuant to this Section 5.04(b) shall have at least ten years
of experience in the field of corporate taxation, shall be an
attorney licensed to practice law in any state of the United
States or a certified public accountant licensed to practice
in any state of the United States and shall not be or have
been routinely employed by, retained or affiliated with either
party. The parties shall first attempt to agree on a mutually
satisfactory arbitrator. If the parties are unable to agree on
a mutually satisfactory arbitrator within 30 days after either
party notifies the other in writing of a disagreement
requiring arbitration pursuant to this Section 5.04 (15 days
in the case of a disagreement with respect to Section 4.01 or
Section 4.02), each party shall select an arbitrator. The two
arbitrators thus selected shall agree on and select a third
arbitrator. If the two arbitrators cannot agree on such third
arbitrator within 30 days (15 days in the case of a
disagreement with respect to Section 4.01 or Section 4.02),
the parties shall each select a different arbitrator and renew
the foregoing procedure. If the position of arbitrator is
vacated by virtue of events outside the control of the
parties, the person or persons who originally selected the
arbitrator to fill such position shall select a new arbitrator
to fill the position, unless the parties agree to continue the
arbitration with the remaining arbitrators. When used
hereafter, the term "arbitrator" may refer to the three
arbitrators so selected when appropriate and a decision of a
majority of such arbitrators shall constitute a decision by
the arbitrator in the appropriate context.
Page 29
(c) Arbitration Procedures.
(1) The arbitration shall be conducted in accordance
with the rules set forth in Exhibit A. The arbitration
shall not be conducted under the auspices of the American
Arbitration Association.
(2) Each party within 30 days after engagement of the
arbitrator shall submit to the arbitrator a written
statement of the party's position (including, where
relevant, the total net amount it asserts is owed by it
or is due to it) regarding the total amount in dispute,
together with a copy of such calculation.(3)The
arbitrator shall base his or her decision on the
following standards. In the case of a factual dispute
between the parties, the arbitrator shall make a
determination of the facts. In the case of a dispute
regarding a legal issue, including the proper application
of the Tax laws or the proper interpretation of this
Agreement, the arbitrator shall make a determination in
accordance with his or her best legal judgment. Upon
making determinations with respect to all factual and
legal issues in dispute, the arbitrator shall determine
the amount due by one party to the other or such other
matter with respect to the matter subject to the
arbitration. Where relevant, as to each matter in
dispute, the arbitrator shall find in favor of the party
whose statement submitted pursuant to paragraph (2) above
proposed the amount closest to the amount so determined.
(4) The arbitrator shall render a written decision
stating only the result of such decision as soon as
practicable. The arbitrator shall also orally explain the
bases of such decision to both parties as soon as
practicable. If and only if both parties request, the
arbitrator shall state the basis of such decision in
writing. As to each matter in dispute, the arbitrator's
decision shall be in an amount equal to one of the total
amounts asserted by one of the parties in the written
statements submitted pursuant to paragraph (2) above. The
arbitrator shall not, and is not authorized, to render a
decision in any other amount. (5) The arbitrator's
decision shall be final and binding on the parties. No
appeal to any court is contemplated by this Agreement and
each party, to the maximum extent permissible by law,
waives and relinquishes all rights and entitlements to
appeal such decision.
Page 30
Section 5.05. Notices. Any notice, demand, claim or other
communication under this Agreement shall be in writing and
shall be deemed given upon delivery if delivered personally or
by courier, upon mailing if sent by certified mail, return
receipt requested, postage prepaid, or upon completion of
transmission if sent by telecopy or facsimile, to the parties
at the following address:
CFI at: 3240 Hillview Avenue
Palo Alto, CA 94304
Attn: General Counsel
Page 31
Holdings at: 175 Linfield Drive
Menlo Park, CA 94025
Attn: General Counsel
Section 5.06. Complete Agreement. This Agreement and the
Exhibit thereto constitute the entire agreement of the parties
concerning the subject matter hereof, supersede all other
agreements, whether or not written, in respect of any Tax
between or among CFI and CFI Affiliates, on the one hand, and
Holdings and Holdings Affiliates, on the other hand. This
Agreement may not be amended except by an agreement in
writing, signed by the parties hereto.
Section 5.07. Governing Law. This Agreement shall be
governed by and construed in accordance with the laws of the
State of California, without regard to the principles of
conflict of laws of the State of California.
Section 5.08. Successors and Assigns. A party's rights and
obligations under this Agreement may not be assigned without
the prior written consent of the other party. All of the
provisions of this Agreement shall be binding upon and inure
to the benefit of the parties and their respective successors
and permitted assigns.
Section 5.09. No Third-Party Beneficiaries. This Agreement
is solely for the benefit of the parties to this Agreement and
their respective Affiliates and should not be deemed to confer
upon third parties any remedy, claim, liability,
reimbursement, claim of action or other right in excess of
those existing without the Agreement.
Page 32
Section 5.10. Legal Enforceability. Any provision of this
Agreement which is prohibited or unenforceable in any
jurisdiction shall, as to that jurisdiction, be ineffective to
the extent of the prohibition or unenforceability without
invalidating the remaining provisions. Any prohibition or
unenforceability of any provision of this Agreement in any
jurisdiction shall not invalidate or render unenforceable the
provision in any other jurisdiction.
Section 5.11. Expenses. Unless otherwise provided in this
Agreement, each party shall bear any and all expenses that
arise from their respective obligations under this Agreement
(including Arbitration). In the event either party to this
Agreement brings an action or proceeding for breach or
enforcement of this Agreement, the prevailing party in such
action or proceeding, whether or not such action or proceeding
proceeds to final judgment, shall be entitled to recover as an
element of its costs, and not as damages, such reasonable
attorneys' fees as may be awarded in the action or proceeding
in addition to whatever other relief to which the prevailing
party may be entitled.
Section 5.12. Counterparts. This Agreement may be signed in
any number of counterparts, each of which shall be an
original, with the same effect as if the signature thereto and
hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties have executed and delivered
this Agreement as of the date first above written.
CONSOLIDATED FREIGHTWAYS, INC.
By:/s/ D. E. Moffitt
Its: President and CEO
CONSOLIDATED FREIGHTWAYS CORPORATION
By:/s/ S. D. Richards
Its: Senior Vice President and General
Counsel
Page 33
TAX SHARING AGREEMENT
Exhibit A
MEMORANDUM OF UNDERSTANDING
This Memorandum of Understanding (the
"Memorandum"), dated as of this day of December 2, 1996 by
and between Consolidated Freightways, Inc., a Delaware
corporation ("CFT"), and Consolidated Freightways
Corporation, a Delaware corporation ("Holding").
RECITALS
A. CFI and Holdings have entered into a Tax
Sharing Agreement dated as of December 2, 1996 (the "Tax
Sharing Agreement"). Capitalized terms in this Memorandum
and not otherwise defined have the meanings ascribed to them
in the Tax Sharing Agreement.
B. The Tax Sharing Agreement provides
generally for the allocation of tax liability and the timing
of payments with respect to tax liability arising out of the
audit of Tax Returns filed with respect to taxable periods
ending before or including the Distribution Date ("Pre-
Distribution Years"). CFI and Holdings believe it to be in
the best interest of each to provide more specifically with
respect to the timing and responsibility for federal income
tax payments, and the application of existing advance
payments and tax and interest reserves to the obligations of
CFI and Holdings under the Tax Sharing Agreement with
respect to the Pre-Distribution Years. This Memorandum is
intended to reflect the parties intentions with respect to
the application of the advance payments and tax and interest
reserves. It assumes that the audits of such Pre-
Distribution Years will be resolved in whole or in part, in
chronological order (earliest first). In the event that the
audits are resolved in some other sequence, the parties
will use their best efforts to adjust the payment provisions
provided herein in manner consistent with this Memorandum.
C. CFI and Holdings agree and recognize that
the Tax Sharing Agreement provides that the parties will
mutually cooperate and consult to properly determine their
respective liabilities and will share the necessary
information. The parties recognize that it is necessary to
protect such information as confidential.
Page 1
NOW THEREFORE, in consideration of their
mutual promises, the parties agree as follows:
1. No Transfer of Advance Payments or
Reserves
No transfer of existing consolidated Tax and
Interest Reserves or Advance Payments of Taxes will be made
by CFI to Holdings. However, it is the intention of the
parties to allocate the Tax and Interest Reserves to Items
attributable to both CFI and Holdings in the manner
described in Section 3. See attachment A for a disclosure
of the CFI General Ledger account balances for Tax and
Interest Reserves and Advanced Payments.
2. Application of Advance Payments in
Resolution of Federal Tax Audits. In resolving
federal tax audits for Pre-Distribution Years, CFI shall use
its reasonable best efforts to apply advance payments of
Taxes so as to minimized the federal consolidated
tax liability (including liability for interest, penalties,
and additions to tax) of the Consolidated Group, taken as a
whole.
3. Applications of Advance Payments and Tax
Reserves in Determining Liability Under the Tax Sharing
Agreement.
(a) Upon a Final Determination (or a
Partial Final Determination, as herein defined) of federal
tax liability for a Pre-Distribution Year, CFI will
determine the portion of the liability allocable to; (i) tax
attributable to timing items measured using the Federal tax
rate in effect at the Distribution Date which will be
available to Holdings or CFI as a deferred tax benefit in
tax years beginning on or after the Distribution Date
("Timing Items"); (ii) tax (including additions to tax)
attributable to items (including any tax rate differential)
which do not make available to Holdings or CFI a
deferred tax benefit in tax years beginning on or after the
Distribution Date ("Permanent Items"); and (iii) interest on
the tax Liability ("Interest").
(b) For purposes of determining tax and
interest liability to be allocated in paragraph 3(a) not
allocable to Timing Items, CFI and Holdings agree to use a
First In First Out (FIFO) method in applying Advance
Payments and in utilizing Tax and Interest Reserves so that
amounts are applied to earliest years and issues first, and
each subsequent year will sequentially use this same
FIFO method. CFI shall then allocate the tax and interest
liabilities between the CFI Business and the Holdings
Business.
(c) With respect to any portion of
federal tax liability allocated to Holdings Timing Items,
for Items arising from Pre 1991 years, Holdings shall pay
such amount to CFI within 30 days, or shall deliver to CFI
its promissory note for such amount, with a maturity date of
four [4] years from the date of issue, providing for annual
payments of interest at a rate equal to the "applicable
federal rate" under section 1274(d) of the Code as of the
issue date of the note. With respect to any portion of
federal tax liability allocated to Holdings Timing Items,
for Items arising from Post 1990 years, Holdings shall pay
such amount to CFI within 90 days with interest at a rate
equal to the "applicable federal rate" under section 1274(d)
of the code, unless the parties mutually agree to
alternative payment terms.
Page 2
(d) With respect to any portion of the federal
tax liability allocated to Holdings Permanent Items or
Interest, to the extent that such allocable portion is not
covered by available Tax and Interest Reserves (as
determined by CFI pursuant to Section 3(b) hereof), Holdings
shall pay such amount to CFI within 90 days with interest at
a rate equal to the "applicable federal rate" under section
1274(d) of the code, unless the parties mutually
agree to alternative payment terms.
(e) In the event that there has been a Partial
Final Determination for a Pre 1991 year and that there is an
item which arose in one of those years that has been
deferred for future resolution with the IRS (a "Contested
Item") and the Contested Item has not been resolved prior to
the Final Determination (or a Partial Final Determination)
with respect to a Post 1990 year then for purposes of the
allocation of tax and interest reserves in the Post
1990 years, CFI shall make a reasonable estimate of the
impact that the Contested Items(s) would have on the tax and
interest reserves. The purpose of this is to determine if
there are amounts payable under 3(d) from Holdings to CFI
due to Post 1990 Holdings items not expected to be covered
by this reasonableestimation of allocable tax and interest
reserves.
4. Additional Provisions
(a) The term "Partial Final
Determination" shall mean the final resolution of liability
or any tax for a taxable period by the appropriate IRS form
which binds the taxpayer as to the agreed items on
the date of acceptance by or on behalf of the IRS, but
reserves to the taxpayer the right to contest an identified
unagreed item.
(b) "Tax and Interest Reserves" means the
financial or book reserve as have been incorporated in the
balance sheet of CFI and which are limited to the amounts
disclosed in attachment A to this Memorandum.
"Advanced Payments" means those cash
payments made or credits of tax refunds applied to the IRS
in respect of potential audit settlement and which are
limited to the amounts disclosed in attachment A to this
Memorandum.
(d) Any disputes under this Memorandum
shall be subject to the dispute resolution procedures of
Section 5.04 of the Tax Sharing Agreement.
(e) The provisions of Sections 5.05,
5.06, 5.07, 5.08, 5.09, 5.10, 5.11 and 5.12 of the Tax
Sharing Agreement, as in effect as of the date hereof are
incorporated herein by this reference.
Page 3
IN WITNESS WHEREOF, the parties have
executed and delivered this Memorandum as of the date first
above written.
CONSOLIDATED FREIGHTWAYS CORPORATION
BY: /s/S. D. Richards
Its: Senior Vice President and General
Counsel
CONSOLIDATED FREIGHTWAYS, INC.
By:/s/D. E. Moffitt
Its: President and Chief Executive Officer
Page 4
Exhibit 10.5
REIMBURSEMENT AND INDEMNIFICATION AGREEMENT
between
CONSOLIDATED FREIGHTWAYS, INC.
and
CONSOLIDATED FREIGHTWAYS CORPORATION OF DELAWARE
TABLE OF CONTENTS
Page
1. Certain Definitions 2
2. Existing and Future Claims 3
3. CFCD Reimbursement 4
4. CFCD Indemnification 4
5. Exculpation 4
6. Letter of Credit 5
7. Mortgages 5
8. Release of Security 6
9. Change in Collateral 7
10. Covenants 8
11. Duration of Agreement 10
12. Notices 10
13. Execution in Counterparts 11
14. Assignability 11
15. Gender and Number 11
16. Captions 11
17. Severability 11
18. Integration 11
19. Amendments 11
20. Governing Law 11
21. Duty to Cooperate 11
EXHIBIT A - Form of Mortgage
EXHIBIT B - Real Properties
EXHIBIT C - Non-Renewal, Release and Indemnification Agreement
REIMBURSEMENT AND INDEMNIFICATION AGREEMENT
THIS REIMBURSEMENT AND INDEMNIFICATION AGREEMENT
("Agreement") is entered into as of October 1, 1996, by
and between Consolidated Freightways, Inc., a Delaware
corporation (together with its wholly owned subsidiaries
other than CFCD and its wholly owned subsidiaries,
"CFI"), and Consolidated Freightways Corporation of Dela
ware, a Delaware corporation (together with its wholly
owned subsidiaries, "CFCD").
RECITALS
B. CFCD is and will remain, until the
distribution of the common stock of Consolidated
Freightways Corporation to the stockholders of CFI (the
date of such distribution being referred to herein as
the "Distribution Date"), a wholly owned subsidiary of
CFI.
C. CFI administers, at the direction of certain
of its subsidiaries (as applicable), either through a
subsidiary or with a third-party administrator, an insur
ance program (the "Insurance Program") for certain of
its subsidiaries (and provides certain oversight
services for) claims under (i) the workers' compensation
statutory, regulatory and common law systems in each of
the states in which the relevant subsidiary does
business and, (ii) certain public liability and property
damage statutory, regulatory and common law systems in
each of the states in which the relevant subsidiary does
business. Where required by law or by contract, CFI pro
vides the necessary insurance, guarantees or collateral
for the performance of the subsidiary's obligations in
each such state.
D. Under the Insurance Program, CFI administers
(i) Workers' Compensation Claims, as defined herein, and
(ii) Public Liability and Property Damage Claims, as
defined herein. Where required by law or by contract,
CFI provides the necessary insurance, guarantees or
collateral for the performance of the CFCD Obligations,
as defined herein, in each such state.
E. Obligations that arise with respect to CFCD
under the Insurance Program are the responsibility of
CFCD. However, in the past these amounts have been
advanced by CFI, including payments under policies
issued by CF Financial Services, and CFCD has reimbursed
CFI for such payments.
Page 1
F. CFCD and CFI desire to memorialize in writing
the reimbursement and indemnification arrangements which
have existed between CFI and CFCD with respect to
amounts owed and advanced under the Insurance Program.
NOW THEREFORE, in consideration of the agreement of
CFI to continue administering the Insurance Program as
contemplated in Section 2 below and for other good and
valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties agree as
follows:
1. Certain Definitions. As used in this
Agreement, the following terms shall have the following
meanings (such meanings to be equally applicable to both
the singular and plural forms of the terms defined):
CFCD Obligations: means obligations and other
liabilities arising under or in connection with Relevant
Claims.
Claim: means any claim, judgment, Loss,
deficiency, damages, punitive or exemplary damages, fine
or penalty, liability, costs and expenses (including
reasonable attorneys' fees, charges and disbursements)
whether required to be paid to a third party or
otherwise incurred in connection with or arising from
any claim, suit, action or proceeding.
Commencement Date: means October 1, 1996.
Continuing LJSC Employee Claims: means Claims made
against CFCD or LJSC which arise or are incurred prior
to the Commencement Date which relate to LJSC employees
who remain actively employed by LJSC following the
Distribution Date.
Indemnified Parties: means CFI, its agents and
their present or former officers, directors,
shareholders, agents, employees, representatives,
successors-in-interest, parents, affiliates, insurers
(including, without limitation, insurers for CFI and
CFCD), attorneys and assigns.
Page 2
Letter of Credit: means an irrevocable,
unconditional letter of credit with an original face
amount equal to $30,000,000 in the form identical to the
letter of credit issued pursuant hereto on the date
hereof or in such other form acceptable to CFI, subject
to reduction as provided in Section 8, issued by a bank
approved by CFI.
Loss: shall have the meaning assigned thereto in
the Distribution Agreement.
Mortgage Property: shall have the meaning
specified in Section 7.
Mortgages: shall have the meaning specified in
Section 7.
Permitted Exceptions: shall have the meaning
specified in Section 10(d).
Property Value: means the fair market value of
each Mortgage Property.
Public Liability and Property Damage Claims: means
Claims made against CFCD under certain public liability
and property damage statutory, regulatory and common law
systems and which CFCD directs CFI to administer under
the Insurance Program.
Relevant Claim: means (i) a Public Liability and
Property Damage Claim, (ii) a Workers' Compensation
Claim or (iii) any other Claim against CFCD or LJSC
arising out of an actual or alleged occurrence under any
CF Financial Services Corporation insurance policies.
Security Schedule: shall have the meaning
specified in Section 8(a).
Title Company: means any title company
satisfactory to CFI.
Workers' Compensation Claims: means Claims made
against CFCD or LJSC (including Continuing LJSC Employee
Claims but excluding any other Claims relating to LJSC
employees) under the workers' compensation statutory,
regulatory and common law systems and which CFCD directs
CFI to administer under the Insurance Program.
Page 3
2. Existing and Future Claims. Effective as of
the Commencement Date, CFCD will obtain its own insur
ance for the CFCD Obligations arising from and after the
Commencement Date. CFI will not administer (but shall
provide certain oversight services for the period begin
ning the Commencement Date and ending the Distribution
Date with respect to) claims against CFCD which are
insured under that separate insurance or result from
occurrences on or after the Commencement Date. As of
the Commencement Date, the only claims which CFI will
administer will be claims of the type it has ordinarily
and customarily administered and that arise out of occur
rences prior to the Commencement Date. CFI will admin
ister these claims either itself or through a third-
party administrator. CFI will not provide the necessary
insurance, guarantees or collateral for the performance
of the CFCD Obligations for any claim occurring after
the Commencement Date. CFI will maintain the necessary
collateral and security already in place on claims
occurring prior to the Commencement Date.
3. CFCD Reimbursement. CFCD shall reimburse CFI,
immediately upon demand by CFI, for all amounts advanced
and costs reasonably incurred by CFI in connection with
the CFCD Obligations, together with interest thereon at
the prime rate (as announced by Bank of America) plus 2%
until reimbursed; provided, however, that CFCD does
hereby acknowledge and agree that CFI may, but shall
have no obligation to, advance any such amounts or incur
any such costs.
4. CFCD Indemnification. CFCD, at its own
expense, shall indemnify, defend and hold the Indemni
fied Parties harmless from and against any Claim against
the Indemnified Parties to the extent the basis of such
Claim is that: (i) CFCD has failed to pay any amounts
owed which constitute CFCD Obligations, (ii) a third
party has been or may be injured or damaged in any way
by any breach by CFCD of any of its duties, representa
tions or warranties under this Agreement, (iii) CFCD or
any of its employees, agents, or servants acted
improperly in connection with the notification, investi
gation, adjustment, and settlement of claims and losses
arising under the Insurance Program, or (iv) there is
any other liability or obligation arising either out of
CFI's (or its agents') provision of certain oversight
services for the period beginning the Commencement Date
and ending the Distribution Date or out of CFI's (or its
agents') administration or operation of the Insurance
Program, except to the extent that same arises from the
gross negligence or willful misconduct of CFI (or its
agents). The provision of indemnification under this
Section 4 shall be in a like manner to the provision of
indemnification under the Distribution Agreement (as
defined herein).
Page 4
5. Exculpation. CFI and its agents shall not be
liable to CFCD for any Losses which arise in any manner
from the operation or administration of the Insurance
Program (including but not limited to the handling of
insurance claims or any failure to obtain insurance)
except to the extent that same arises from the gross
negligence or willful misconduct of CFI. CFCD hereby
waives all claims against CFI and its agents for such
Losses and the cost and expense of defending against
claims relating to such Losses, except to the extent
that same arises from the gross negligence or willful
misconduct of CFI. CFCD expressly waives any and all
rights under section 1542 of the Civil Code of
California, which provides as follows:
"A General Release does not extend to claims
which the creditor does not know or suspect to
exist in his favor at the time of executing
the Release, which if known by him must have
materially affected his settlement with the
debtor."
6. Letter of Credit. On or prior to the
Distribution Date, CFCD shall deliver to CFI a Letter of
Credit, and shall maintain such Letter of Credit in
place at all times during the term of this Agreement in
accordance with the terms of this Agreement. CFI shall
have the right to draw upon the Letter of Credit in San
Francisco, California, in accordance with the terms of
this Agreement by presentation to the issuer thereof of
(i) CFI's sight draft and (ii) a certificate stating
that CFI has the right to draw upon the Letter of Credit
in accordance with the terms hereof. In the event that
at any time while this Agreement remains in effect, CFCD
fails to comply with its reimbursement obligations in
accordance with Section 3 hereof, then CFI shall have
the right to draw upon the Letter of Credit in an amount
equal to the amount CFCD was required to reimburse in
accordance with Section 3 hereof. On or before the
fifth (5th) business day following any such draw, CFCD
shall deliver to CFI an additional Letter of Credit so
that the aggregate face amount of all Letters of Credit
held by CFI shall equal $30,000,000 (or such lesser
amount as provided in Section 8 below). So long as this
Agreement remains in effect, CFCD shall cause each
Letter of Credit to be extended for at least one year
after the then-current expiration date not later than
sixty (60) days prior to the then-current expiration
date of each Letter of Credit and no notice of
Page 5
termination of any Letter of Credit shall be delivered
with respect to any such letter of Credit within the
period specified in any such Letter of Credit. If any
such Letter of Credit is not so extended or any such
notice of termination is delivered, CFI shall be
entitled to draw the full amount of each such Letter of
Credit and such funds drawn under each such Letter of
Credit shall be property of CFI and will be applied by
CFI toward payment of the CFCD Obligations and all other
obligations from time to time owing by CFCD hereunder.
CFI shall pay to CFCD the excess, if any, of the amount
of such funds so drawn under any such Letter of Credit
remaining after the indefeasible payment in full of all
CFCD Obligations and the termination of this Agreement
in accordance with the terms hereof.
7. Mortgages. On or before the Distribution
Date, CFCD shall execute and acknowledge four (4)
copies of the mortgage in the form of Exhibit A attached
hereto (collectively, the "Mortgages") with respect to
each of the real properties identified on Exhibit B
attached hereto (the "Mortgage Properties"). The Mort
gages shall constitute valid first priority liens
against the fee title interest in the Mortgage Proper
ties (subject only to such defects, liens, encumbrances,
assessments, security interests, restrictions, easements
and other title exceptions as shall be approved by CFI),
which Mortgages shall secure the timely payment and
performance of CFCD's obligations hereunder. Concur
rently with the execution and delivery of the Mortgages,
CFCD shall deliver the following to CFI:
(a) UCC Financing Statements. UCC-1 financing
statements (in form and substance reasonably acceptable
to CFI) covering fixtures owned by CFCD and affixed to,
or used in connection with, each Mortgage Property, in
each case appropriately completed and duly executed,
acknowledged and filed in the appropriate land offices.
(b) General Assignment. A first priority assign
ment to CFI (in form and substance reasonably acceptable
to CFI) of CFCD's interest in and to all leases relating
to each Mortgage Property, material service contracts
concerning or affecting such Mortgage Property and all
permits, approvals and licenses issued with respect to
such Mortgage Property.
Page 6
8. Release of Security.
(a) Annual Release of Mortgages. On the first anni
versary of the Commencement Date and on each anniversary
of the Commencement Date thereafter, CFI shall cause one
or more Mortgage Properties to be released from the
lien(s) of the Mortgages so that the aggregate Property
Value of the Mortgage Properties which shall continue to
be encumbered by Mortgages immediately following such
release shall be as close as possible to (but not less
than) the Property Value set forth for the corresponding
year on the schedule set forth in Section 8(d) below
(the "Security Schedule"). For the purposes of this
Section 8(a), CFI and CFCD agree that the Property Value
of each Mortgage Property equals the value identified on
Exhibit B attached hereto and such value shall be the
Property Value used by CFI in determining which Mortgage
Properties shall be released from the lien of the
Mortgages in accordance with this Agreement; provided,
however, that in the event either party reasonably
believes that the aggregate value of the Mortgage
Properties has increased or decreased by 20% or more,
then the parties shall agree on an independent MAI
appraiser to determine the Property Value of the
Mortgage Properties, which determination shall be
binding on the parties for the purposes of this Section
8(a) and Section 9(b) hereof. Subject to the foregoing,
CFCD shall have the sole and absolute right to determine
which Mortgage Properties are to be released from the
lien of the Mortgages in accordance with this Section
8(a).
(b) Deliveries. In connection with any proposed
release of a Mortgage Property, CFCD shall (not later
than ten (10) Business Days prior to the proposed date
of release) deliver or cause to be delivered to CFI:
(i) An officer's certificate setting forth
that, to the best knowledge of the certifying Per
son, no default has occurred and is continuing
hereunder or under the Mortgages.
(ii) A copy of the instruments necessary to
effect the release of the Mortgages.
In connection with any release pursuant to this Section
8(b), and after CFCD has delivered the items required
pursuant to the subparagraphs (i) and (ii) above, CFI
shall promptly execute and deliver any instrument rea
sonably necessary or appropriate to release the Mortgage
Property to be released pursuant to this Section 8(b).
Page 7
(c) Annual Reduction of Letter of Credit Face
Amount. On the first anniversary of the Commencement
Date and on each anniversary of the Commencement Date
thereafter, CFI shall permit the aggregate face amount
of the Letter(s) of Credit to be reduced to the face
amount set forth for the corresponding year on the
Security Schedule.
(d) Security Schedule.
Commencement
Date Face Amount of Property Value of
Anniversary Letter(s) of Credit Mortgage
Properties
1997 $30,000,000 $50,000,000
1998 $20,000,000 $30,000,000
1999 $20,000,000 $10,000,000
2000 $10,000,000 $0
2001 - termination $1 $0
9. Change in Collateral.
(a) Notwithstanding anything to the contrary
herein, in the event that, at any time prior to the
fourth (4th) anniversary of the Commencement Date, CFI
(i) becomes aware of an adverse physical condition or
defect affecting any Mortgage Property which diminishes
the Property Value of such Mortgage Property by 20% or
more from the corresponding value set forth on Exhibit B
hereto and (ii) delivers written notice to CFCD of such
condition or defect together with a written report,
opinion, or appraisal prepared by an independent third
party expert (who is licensed to prepare such a report,
opinion or appraisal and is an employee or member of a
nationally recognized firm), which report, opinion or
appraisal confirms unequivocally that the Property Value
of the impacted Mortgage Property has diminished by 20%
or more as a result of such condition or defect, then
CFCD shall either (i) increase the face amount of the
Letter of Credit by the amount of such diminution or
(ii) execute, acknowledge and deliver to CFI a Mortgage
together with the documents identified in Sections 7(a)
through 7(b), which encumbers real property (other than
the existing Mortgage Properties) owned by CFCD, which
(1) has been approved by CFI, which approval shall not
be unreasonably withheld, and (2) CFCD can demonstrate
to CFI's reasonable satisfaction that the new Mortgage
Property has a Property Value equal to or in excess of
the amount of such diminution.
Page 8
(b) Notwithstanding anything to the contrary
herein, CFCD may, at any time prior to the fourth (4th)
anniversary of the Commencement Date, substitute one or
more parcels of real property for any Mortgage Property
for another, provided that CFCD (i) delivers written
notice to CFI of its intention to substitute a Mortgage
Property together with a general description of the
substitute property and (ii) executes, acknowledges and
delivers to CFI a Mortgage together with the documents
identified in Sections 7(a) through 7(b), which
encumbers the substitute property owned by CFCD and
provided further that (1) the substitute has been ap
proved by CFI, which approval shall not be unreasonably
withheld, and (2) CFCD can demonstrate to CFI's reason
able satisfaction that the substitute property has a
Property Value equal to or in excess of the Property
Value of the substituted Mortgage Property.
10. Covenants.
(a) Notice to Additional Insureds. CFCD shall
promptly provide written notice to all third parties for
whom CFCD has agreed to provide insurance or evidence of
insurance (i.e. the additional insureds and recipients
of certificates of insurance) that such insurance will,
as of the Commencement Date, no longer be provided by
CFI or CF Financial Services, and will take all steps to
ensure that alternative insurance arrangements are made
in a timely manner, but no later than six months
following the Distribution Date, and shall certify to
CFI that such actions have been taken.
Page 9
(b) Deductibles and Premiums. CFCD shall promptly
pay all deductibles, retentions and premiums applicable
under the Insurance Program.
(c) Insurance. CFCD will keep insured by finan
cially sound and reputable insurers all property of a
character usually insured by parties engaged in the same
or similar business similarly situated against loss or
damage of the kinds and in the amounts customarily
insured against by such parties and carry such other
insurance as is usually carried by such parties and as
required in accordance with the terms of the Mortgages.
(d) Limitation on Liens. CFCD will not create,
incur, assume or suffer to exist any lien or encumbrance
upon any of the Mortgage Property, except the following
liens (referred to herein as "Permitted Exceptions"):
(2) liens imposed by any governmental authority
for taxes, assessments or charges not yet delinquent;
(3) deposits to secure the performance of bids,
trade contracts (other than for borrowed money), leases,
statutory obligations, surety and appeal bonds, perfor
mance bonds and other obligations of a like nature
incurred in the ordinary course of business;
(4) easements, rights-of-way, restrictions and
other similar encumbrances incurred in the ordinary
course of business and encumbrances consisting of zoning
restrictions, easements, licenses, restrictions on the
use of property or minor imperfections in title thereto
which, in the aggregate, are not material in amount, and
which do not in any case materially detract from the
value of the Mortgage Property subject thereto or inter
fere with the ordinary conduct of the business of CFCD;
(5) liens arising under the Mortgages and related
documents;
(6) any other liens approved by CFI in writing
(which approval may be withheld in the CFI's sole
discretion); and
(7) any extensions, renewals or replacements of
the foregoing.
Page 10
(e) Non-Renewal. CFCD shall enter into the
Non-Renewal, Release and Indemnification Agreement, in
the form attached hereto as Exhibit C, on or prior to
the Distribution Date.
(f) Disbursement Account. CFCD shall
maintain, for the duration of this Agreement, a
controlled disbursement account, to be funded by its
concentration account, and shall take all steps
necessary to ensure that CNF Service Company may draw on
such disbursement account in order to make required
payments relating to Relevant Claims for the duration of
this Agreement; provided, however, that CFCD does hereby
acknowledge and agree that CNF Service Company shall be
under no obligation to make any such payments if there
are insufficient funds in such account, and if CNF
Service Company does make voluntary payments despite any
such insufficiency, such payments shall be subject to
reimbursement by CFCD in accordance with the terms of
this Agreement..
(g) Real Property Reserve. CFCD shall, at
all times during the term of this Agreement, reserve
real properties not subject to negative pledge pursuant
to CFCD's revolving credit facility, with an aggregate
value of not less than $10,000,000, shall not pledge or
dispose of same, in order to ensure its ability to
comply with its obligations under Section 9(a), and
shall not amend such revolving credit facility in a
manner that would impair its ability to comply with its
obligations under Section 9(a).
11. Duration of Agreement. The parties agree that
this Agreement shall continue in full force and effect
as long as there are any CFCD Obligations outstanding.
The parties agree that this Agreement shall continue in
full force and effect for the purpose of determining the
rights and obligations of the parties in the event such
termination has occurred and subsequent thereto either
of the following occurs:
(a) A Relevant Claim arising under or in connection
with the Insurance Program which had been closed prior
to the termination of this Agreement is reopened; or
Page 11
(b) A Relevant Claim arises under or in connection with
the Insurance Program based on an occurrence allegedly
within the Insurance Program, or the administration of a
claim within the Insurance Program, but which has not
been reported prior to the termination of this Agreement
until such claims have been closed.
12. Notices. Except as otherwise provided herein,
any notice or other communication to be given hereunder
shall be in writing and shall be (as elected by the
party giving such notice): (i) personally delivered;
(ii) transmitted by postage-prepaid registered or
certified airmail, return receipt requested; (iii)
transmitted by facsimile (with a copy of such transmis
sion by postage prepaid registered or certified airmail,
return receipt requested); or (iv) deposited prepaid
with a nationally recognized overnight courier service.
Unless otherwise provided herein, all notices shall be
deemed to have been duly given on: (a) the date of
receipt (or if delivery is refused, the date of such
refusal) if delivered personally, by facsimile or by
courier, or (b) three (3) days after the date of posting
if transmitted by mail. Either party may change its
address for notice purposes hereof on not less than
three (3) days' prior notice to the other party. Notice
hereunder shall be directed to a party at the address
for such party which is set forth below:
Consolidated Freightways, Inc.
3240 Hillview Avenue
Palo Alto, California 94304
Attention: General Counsel
Consolidated Freightways Corporation of
Delaware
175 Linfield Drive
Menlo Park, California 94025
Attention: General Counsel
13. Execution in Counterparts. This Agreement may
be executed in any number of counterparts with the same
effect as if all the parties hereto had signed the same
document. All counterparts shall be construed together
and shall constitute one agreement.
14. Assignability. Without limiting the
restrictions upon assignment and transfer set forth
herein, each and all of the covenants, terms, provisions
and agreements herein contained shall be binding upon
and inure to the benefit of the successors and assigns
of the respective parties hereto.
Page 12
15. Gender and Number. Whenever required by the
context hereof, the singular shall include the plural
and the plural shall include the singular. The
masculine gender shall include the feminine and neuter
genders, and the neuter shall include the masculine and
feminine.
16. Captions. Sections, titles or captions in no
way define, limit, extend or describe the scope of this
Agreement nor the intent of any of its provisions.
17. Severability. Any provision of this Agreement
that is prohibited or unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective to the
extent of such prohibition or unenforceability without
invalidating the remaining portions hereof or affecting
the validity or enforceability of such provision in any
other jurisdiction.
18. Integration. This Agreement and that certain
Distribution Agreement entered into between CFI and
Consolidated Freightways Corporation as of November 25,
1996, including any schedules, exhibits or other docu
ments ancillary thereto, contain the entire agreement of
the parties with respect to the subject matter hereof,
and supersede all other agreements or understandings of
any kind.
19. Amendments. This Agreement may not be
amended, modified or supplemented by the parties in any
manner, except by an instrument in writing signed on
behalf of each of the parties by a duly authorized
officer or representative.
20. Governing Law. This Agreement shall be
governed by and construed in accordance with the laws of
the State of California without regard to the principles
of conflicts of laws thereof.
21. Duty to Cooperate. CFCD agrees to cooperate
with CFI in the investigation of any Relevant Claim, to
provide prompt notice of any Claim and to provide any
information CFI shall reasonably request for the purpose
of investigating a CFCD obligation. Neither party shall
do anything to impair the other party's equitable or
contractual rights of subrogation against third parties.
Page 13
IN WITNESS WHEREOF, the undersigned have executed
this Agreement effective as of the date first written
above.
CONSOLIDATED FREIGHTWAYS, INC.,
a Delaware corporation,
on behalf
of itself and its wholly owned
subsidiaries (other than
Consolidated
Freightways Corporation of
Delaware and its wholly owned
subsidiaries)
By:/s/ D. E. Moffitt
Name: Donald E. Moffitt
Title: President and Chief
Executive Officer
CONSOLIDATED FREIGHTWAYS CORPORATION
OF DELAWARE, a Delaware corporation,
on behalf of itself and its wholly
owned subsidiaries
By:/s/ S. D. Richards
Name: Stephen D. Richards
Title: Vice President and
General Counsel
1 The lesser of $10,000,000 or 100% of the reserve for
Relevant Claims.
Page 14
Exhibit 99
Consolidated Freightways Becomes
Independent, Public Company
Menlo Park, Ca. - December 3, 1996 -- Shares in the newly
independent Consolidated Freightways Corporation (NASDAQ:
CFWY) began trading today. This marks the completion of
the spin-off of CF MotorFreight, Canadian Freightways Ltd.,
Milne & Craighead, Canadian Sufferance Warehouses and Epic
Express from their former parent company, Consolidated
Freightways, Inc.
The new company, formerly CF MotorFreight, will
be known within the industry as Consolidated Freightways
(CF). Its former parent company will be known as CNF
Transportation, Inc. CF has annualized combined revenues
of approximately $2.1 billion, operates widely across North
America and offers freight transportation services
throughout the world. The company's primary business is
less-than-truckload (LTL) transportation of freight from
300 to 15,000 pounds covering distances of 500 to 3,000
miles.
President and chief executive officer W. Roger
Curry said, "The new independent Consolidated Freightways
is perfectly poised to lead the LTL industry into the 21st
century. We begin virtually debt-free and better capi
talized than most of our competition. Most importantly,
we're a 67-year-old company with the best franchise and the
best name in the business, a loyal, diverse customer base
and an employee team second to none."
Consolidated Freightways was founded in 1929 in
Portland, Oregon as Consolidated Truck Lines. 1936 saw the
beginning of CF's transcontinental service from its new
office in Chicago. By 1960 CF was the largest trucking
company in the U.S. and by 1979 provided service to 47
states and five Canadian provinces.
Today Consolidated Freightways operates a network
of service centers in all 50 states, eight Canadian
provinces, Mexico and Puerto Rico, and offers freight
transportation services throughout Europe, Asia, the
Caribbean, Latin America and the Middle East.
