<PAGE>
Filed pursuant to Rule 424(b)(5)
Registration No. 333-26595
PROSPECTUS SUPPLEMENT
(To Prospectus dated May 30, 1997)
2,200,000 Securities
CNF TRUST I
$2.50 Term Convertible Securities, Series A ("TECONSSM")
(Liquidation amount $50 per security) guaranteed to the extent set forth herein
by, and convertible into Common Stock of,
[CNF TRANSPORTAION LOGO APPEARS HERE]
CNF TRANSPORTATION INC.
The $2.50 Term Convertible Securities, Series A (the "TECONS" or "Preferred
Securities"), liquidation amount $50 per security, offered hereby represent
preferred undivided beneficial interests in the assets of CNF Trust I, a
statutory business trust formed under the laws of the State of Delaware ("CNF
Trust" or the "Trust").
The TECONS have been approved for listing on the New York Stock Exchange (the
"NYSE") under the symbol "CNF PrT," subject to official notice of issuance. See
"Underwriting."
(continued on the following page)
SEE "RISK FACTORS" BEGINNING ON PAGE S-12 FOR CERTAIN INFORMATION THAT SHOULD
BE CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- ----------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC (1) COMPENSATION (2) CNF TRUST (3)(4)
- ----------------------------------------------------------
<S> <C> <C> <C>
Per TECONS $50.00 (3) $50.00
- ----------------------------------------------------------
Total (5) $110,000,000 (3) $110,000,000
- ----------------------------------------------------------
</TABLE>
(1) Plus accumulated Distributions (as defined herein), if any, from June 11,
1997.
(2) CNF Trust and CNF Transportation Inc. have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(3) The Underwriting Agreement provides that the Company will pay to the
Underwriters, as compensation for their services, $1.1875 per TECONS (or
$2,612,500 in the aggregate). See "Underwriting."
(4) The Company will pay expenses of the TECONS offering estimated at $600,000.
(5) CNF Trust and the Company have granted to the Underwriters an option,
exercisable within 30 days after the date of this Prospectus Supplement, to
purchase up to 300,000 additional TECONS on the same terms as set forth
above to cover over-allotments, if any. If such over-allotment option is
exercised in full, the total Price to Public, Underwriting Compensation and
Proceeds to CNF Trust will be $125,000,000, $2,968,750 and $125,000,000,
respectively. See "Underwriting."
The TECONS offered hereby are being offered severally by the Underwriters,
subject to prior sale, when, as and if delivered to and accepted by the
Underwriters and subject to various prior conditions, including their right to
reject orders in whole or in part, and subject to approval of certain legal
matters by Skadden, Arps, Slate, Meagher & Flom llp, counsel for the
Underwriters. It is expected that delivery of the TECONS will be made only in
book-entry form through the facilities of The Depository Trust Company, as
Depositary, on or about June 11, 1997, against payment therefor in immediately
available funds.
J.P. MORGAN & CO.
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
June 5, 1997
<PAGE>
CNF Transportation Inc. ("CNF" or the "Company") will directly or indirectly
own all the common securities (the "Trust Common Securities," and together with
the TECONS, the "Trust Securities"), representing undivided beneficial
interests in the assets of the Trust. The Trust exists for the sole purpose of
issuing the TECONS and Trust Common Securities and investing the proceeds
thereof in 5% Convertible Subordinated Debentures due June 1, 2012 (the
"Convertible Debentures") of the Company in an aggregate principal amount equal
to the aggregate liquidation amount of the Trust Securities. The Convertible
Debentures, when issued, will be unsecured obligations of the Company and will
be subordinate and junior in right of payment to all Senior Indebtedness (as
defined in the accompanying Prospectus) of the Company as described herein.
Upon a Declaration Event of Default (as defined herein), the holders of TECONS
will have a preference over the holders of the Trust Common Securities with
respect to payment in respect of Distributions (as defined herein) and payments
upon redemption, liquidation and otherwise.
Holders of the TECONS are entitled to receive cumulative cash Distributions at
an annual rate of $2.50 per TECONS, accumulating from the first date that any
TECONS are issued and payable quarterly in arrears on June 1, September 1,
December 1 and March 1 of each year, commencing September 1, 1997
("Distributions"). The payment of Distributions out of moneys held by the Trust
and payments on liquidation of the Trust or the redemption of TECONS, as set
forth below, are guaranteed by the Company (the "Guarantee") to the extent
described herein and under "Description of Trust Preferred Securities
Guarantee" in the accompanying Prospectus. The Guarantee covers payments of
Distributions and other payments on the TECONS only if and to the extent that
the Trust has funds available therefor, which will not be the case unless the
Company has made a payment of interest or principal or other payments on the
Convertible Debentures held by the Trust as its sole assets. The Guarantee,
when taken together with the obligations of the Company under the Convertible
Debentures, the Subordinated Indenture (as defined herein) and the Declaration
(as defined herein), including its obligation to pay costs, expenses, debts and
obligations of the Trust (other than with respect to the Trust Securities),
provides a full and unconditional guarantee, on a subordinated basis, of
amounts due on the TECONS. See "Risk Factors -- Risks Relating to an Investment
in the TECONS -- Rights Under the Guarantee."
The obligations of the Company under the Guarantee are subordinate and junior
in right of payment to all other liabilities of the Company (except any
liabilities that may rank pari passu expressly by their terms), and rank pari
passu with the most senior preferred stock, if any, issued from time to time by
the Company. The obligations of the Company under the Convertible Debentures
are subordinate and junior in right of payment to all present and future Senior
Indebtedness of the Company. The Convertible Debentures purchased by the Trust
may be subsequently distributed pro rata to holders of the TECONS and Trust
Common Securities in connection with the dissolution of the Trust upon the
occurrence of certain events.
Each TECONS is convertible in the manner described herein at the option of the
holder, at any time prior to the Conversion Expiration Date (as defined
herein), into shares of common stock, par value $0.625 per share, of the
Company ("CNF Common Stock") at the initial conversion price of $40.00 per
share of CNF Common Stock (equivalent to an initial conversion rate of 1.25
shares of CNF Common Stock for each TECONS), subject to adjustment in certain
circumstances. The CNF Common Stock is listed on the NYSE under the symbol
"CNF." On June 5, 1997, the last reported sale price of the CNF Common Stock on
the NYSE was $31.50 per share. See "Description of the TECONS -- Conversion
Rights."
The Distribution rate and the Distribution payment dates and other payment
dates for the TECONS will correspond to the interest rate and interest payment
dates and other payment dates for the Convertible Debentures, which will be the
sole assets of the Trust. As a result, if principal or interest is not paid on
the Convertible Debentures, no amounts will be paid on the TECONS. If the
Company does not make principal or interest payments on the Convertible
Debentures, the Trust will not have sufficient funds to make Distributions on
the TECONS, in which event, the Guarantee will not apply to such Distributions
until the Trust has sufficient funds available therefor.
So long as the Company shall not be in default in the payment of interest on
the Convertible Debentures, the Company has the right to defer payments of
interest on the Convertible Debentures from time to time for successive periods
(each, an "Extension Period") by extending the interest payment period on the
Convertible Debentures at any time for up to 20 consecutive quarters. If
interest payments are so deferred, Distributions to holders of the TECONS will
also be deferred. During an Extension Period, Distributions will continue to
accumulate with interest thereon (to the extent permitted by applicable law) at
the Distribution rate, compounded quarterly, and holders of TECONS will be
required to include deferred interest income in their gross income for U.S.
federal income tax purposes in advance of receipt of the cash Distributions
with respect to such deferred interest payments. (continued from previous page)
S-2
<PAGE>
(continued from previous page)
There could be multiple Extension Periods of varying lengths throughout the
term of the Convertible Debentures. See "Risk Factors -- Risks Relating to an
Investment in the TECONS -- Option to Extend Interest Payment Period,"
"Description of the TECONS -- Distributions," "Description of the Convertible
Debentures -- Option to Extend Interest Payment Period," "Certain Federal Tax
Consequences -- Accrual of Original Issue Discount" and "Certain Federal Tax
Consequences -- Potential Extension of Payment Period on the Convertible
Debentures."
The Convertible Debentures are redeemable by the Company, in whole or in part,
from time to time, on or after June 1, 2000 at the prices set forth herein,
plus accrued and unpaid interest thereon to but excluding the date fixed for
redemption. In addition, in certain circumstances upon the occurrence of a Tax
Event (as defined herein) the Convertible Debentures may be redeemed by the
Company at 100% of the principal amount thereof, plus accrued and unpaid
interest thereon. If the Company redeems the Convertible Debentures, the Trust
shall redeem Trust Securities having an aggregate liquidation amount equal to
the aggregate principal amount of the Convertible Debentures so redeemed. The
outstanding TECONS will be redeemed upon maturity of the Convertible
Debentures. The Convertible Debentures mature on June 1, 2012. See "Description
of the TECONS -- Mandatory Redemption."
Upon the occurrence of a Special Event (as defined herein) arising from a
change in law or a change in legal interpretation, unless the Convertible
Debentures are redeemed in the limited circumstances described herein, the
Trust may be dissolved (with the consent of the Company), with the result that
the Convertible Debentures would be distributed to the holders of the Trust
Securities, on a pro rata basis, in lieu of any cash Distribution. If the
Company declines to consent to such dissolution and distribution, the Company
may incur an obligation to pay Additional Interest (as defined herein). See
"Description of TECONS-- Special Event Distribution; Tax Event Redemption" and
"Description of the Convertible Debentures -- Additional Interest."
In the event of the involuntary or voluntary dissolution, winding-up or
termination of the Trust, the holders of the TECONS will be entitled to receive
for each TECONS a liquidation amount of $50 plus accumulated and unpaid
Distributions thereon (including, to the extent permitted by applicable law,
interest thereon, if any) to the date of payment, unless, in connection with
such dissolution in the case of a Special Event, the Convertible Debentures are
distributed to the holders of the TECONS. See "Description of the TECONS --
Liquidation Distribution Upon Dissolution."
S-3
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE TECONS OR CNF COMMON
STOCK. SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE
OFFERING, AND MAY BID FOR, AND PURCHASE, THE TECONS OR CNF COMMON STOCK IN THE
OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
No person is authorized to give any information or to make any representation
not contained or incorporated by reference in this Prospectus Supplement or the
accompanying Prospectus and, if given or made, such information or
representation must not be relied upon as having been authorized by CNF Trust,
the Company or any Underwriter. Neither this Prospectus Supplement nor the
accompanying Prospectus constitutes an offer to sell or a solicitation of an
offer to buy any securities in any jurisdiction in which such offer or
solicitation is not authorized or in which the person making such offer or
solicitation is not qualified to do so or to any person to whom it is unlawful
to make such offer or solicitation.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PROSPECTUS SUPPLEMENT Page PROSPECTUS Page
<S> <C> <C> <C>
Prospectus Supplement Summary............ S-5 Available Information.................... 3
Risk Factors............................. S-12 Incorporation of Certain Documents by
Recent Developments...................... S-21 Reference............................... 4
The Company.............................. S-23 The Company.............................. 5
Use of Proceeds.......................... S-28 The Trust................................ 5
Price Range of Common Stock and Use of Proceeds.......................... 6
Dividends............................... S-29 Consolidated Ratios of Earnings to Fixed
Capitalization........................... S-30 Charges................................. 6
Selected Consolidated Financial Data..... S-31 Description of Debt Securities........... 6
Management's Discussion and Analysis of Description of Preferred Stock........... 17
Financial Condition and Results of Description of Depositary Shares......... 21
Operations.............................. S-33 Description of Common Stock.............. 25
Management............................... S-38 Description of Common Stock Warrants..... 25
CNF Trust I.............................. S-38 Description of Capital Stock............. 27
Description of the TECONS................ S-39 Description of Trust Preferred
Description of the Guarantee............. S-53 Securities.............................. 30
Description of the Convertible Description of Trust Preferred Securities
Debentures.............................. S-53 Guarantee............................... 32
Effect of Obligations Under the Plan of Distribution..................... 34
Convertible Debentures and the Legal Matters............................ 35
Guarantee............................... S-59 Experts.................................. 35
Certain Federal Tax Consequences......... S-60
Underwriting............................. S-64
Legal Matters............................ S-65
Experts.................................. S-65
</TABLE>
S-4
<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
The following summary is qualified in its entirety by, and should be read in
connection with, the more detailed information and consolidated financial
statements and notes thereto included and incorporated by reference in this
Prospectus Supplement and the accompanying Prospectus. All information in the
Prospectus Supplement assumes the Underwriters' over-allotment option will not
be exercised, unless otherwise indicated. Unless otherwise indicated or unless
the context otherwise requires, all references herein to the "Company" or "CNF"
include CNF Transportation Inc. and its consolidated subsidiaries, and all
references herein to "Emery" and "Con-Way" refer to the Company's Emery
Worldwide and Con-Way Transportation Services business segments. The offering
of the TECONS made hereby is sometimes referred to as the "Offering."
THE COMPANY
CNF Transportation Inc. (the "Company") is a leading provider of heavy air
freight, regional less-than-truckload ("LTL") trucking and logistics services.
The Company has three principal business units: Emery Worldwide ("Emery"),
which provides domestic and international air freight services, Con-Way
Transportation ("Con-Way"), which provides regional LTL trucking services in
all 50 states, and Menlo Logistics, Inc. ("Menlo"), a contract logistics
company. Emery and Con-Way have established infrastructures which enable them
to provide time-definite and day-definite delivery services throughout the
United States and internationally. Emery also provides nightly air delivery
services to the United States Postal Service ("USPS"), and recently entered
into a new postal contract which will broaden these services to include
sortation and ground transportation of Priority Mail in the eastern United
States. Menlo, the Company's contract logistics subsidiary, specializes in
designing and managing complex supply and distribution networks for national
and multi-national companies. The Company also provides a number of other
transportation services, including full-service truckload services, ocean
forwarding and customs brokerage. The Company believes that its three principal
operating units are positioned to use their extensive resources and established
capabilities to capitalize on opportunities throughout the transportation
industry.
The Company's strategy is to develop and operate businesses which are
recognized as service, market share and profit leaders in their respective
major segments of the transportation industry. In furtherance of this strategy,
the Company seeks (i) to provide premium time-definite and day-definite freight
services on a global basis, (ii) to implement strategies designed to improve
operating efficiencies, (iii) to take advantage of favorable customer and
industry trends affecting the freight transportation industry, and (iv) as
appropriate, to integrate the Company's transportation and logistics services.
The Company believes that the breadth of transportation services it offers,
coupled with its domestic and international delivery capabilities, provides a
competitive advantage over less-diversified transportation companies. By
operating in U.S. and international markets, offering a variety of
transportation modes (air freight, trucking and ocean), and participating in
both asset-based businesses (such as trucking and air freight) and nonasset-
based businesses (such as contract logistics, freight forwarding and customs
brokerage), the Company also seeks to reduce the impact on its business of the
historical cyclicality in the freight industry.
RECENT DEVELOPMENTS
New Postal Contract
After a competitive bidding process, on April 23, 1997, the USPS awarded Emery
Worldwide Airlines, Inc. ("EWA"), a subsidiary of the Company, a new contract
for the sortation and transportation of Priority Mail (a second-day delivery
service) in portions of 13 states in the eastern United States. This contract,
referred to as "Phase I" by the USPS, has an initial term which ends in 2002
and may be renewed by the USPS for two successive three-year terms. In contrast
to EWA's current USPS contract, which is primarily for overnight air
transportation services, the new contract will involve transportation, handling
and sortation of Priority Mail. According to the USPS, nationwide Priority Mail
volume (based on number of pieces) increased by approximately 12.9% in 1995 and
10.4% in 1996 and, in 1996, Priority Mail totaled approximately 960 million
pieces, generating approximately $3.4 billion of revenues for the USPS. The
USPS has indicated that estimated Priority Mail volume for the Phase I
corridors is initially projected to be approximately 30% of nationwide Priority
Mail volume. The USPS has also indicated that the Company could receive
revenues of approximately $1.7 billion over the initial 58 month term of the
new contract. However, this amount is subject to a number of uncertainties and
assumptions and the revenues actually realized by the Company under the
contract may be more or less than this amount. See "Risk Factors -- Risks
Relating to New Postal Contract."
S-5
<PAGE>
The Company believes that its proposal to provide this Priority Mail service to
the USPS benefited from its ability to provide comprehensive, integrated
transportation services at competitive prices and its reputation for
reliability. The Company believes that its existing infrastructure and broad
resource and skill base provide a solid foundation for fulfilling its
obligations under the new postal contract. See "Recent Developments-- New
Postal Contract."
Spin-Off of CF MotorFreight
On December 2, 1996, the Company completed the spin-off (the "Spin-off") to its
shareholders of CF MotorFreight, a long-haul LTL motor carrier. The Spin-off
was intended, among other things, to separate the Company's long-haul and
regional trucking operations so that each could adopt strategies and pursue
objectives appropriate to its specific business. Prior to the Spin-off, the
long-haul and regional trucking operations increasingly competed for business
and the resources of the Company, although each had distinct financial,
investment and operating characteristics.
In connection with the Spin-off, the Company, formerly known as Consolidated
Freightways, Inc., changed its name to CNF Transportation Inc. The spun-off
businesses are currently operating under the name of Consolidated Freightways
Corporation ("CFC"). See "Recent Developments -- Spin-Off of CF MotorFreight."
S-6
<PAGE>
THE OFFERING
SECURITIES OFFERED............... 2,200,000 $2.50 Term Convertible Securities,
Series A ("TECONS" or "Preferred
Securities") (2,500,000 if the Underwriters'
over-allotment option is exercised in full).
ISSUER........................... CNF Trust I, a Delaware business trust. The
sole assets of the Trust will consist of the
5% Convertible Subordinated Debentures due
June 1, 2012 (the "Convertible Debentures")
of the Company.
GUARANTOR........................ CNF Transportation Inc., a Delaware
corporation.
DISTRIBUTIONS.................... Distributions on the TECONS will accumulate
from June 11, 1997 and will be payable at an
annual rate of $2.50 per TECONS. Subject to
the Distribution deferral provisions
described below, Distributions will be
payable quarterly in arrears on June 1,
September 1, December 1 and March 1 of each
year, commencing September 1, 1997. Because
Distributions on the TECONS constitute
interest for U.S. federal income tax
purposes, corporate holders thereof will not
be entitled to a dividends-received
deduction.
DISTRIBUTION DEFERRAL
PROVISIONS....................... The ability of the Trust to pay
Distributions on the TECONS is solely
dependent on the receipt of interest
payments from the Company on the Convertible
Debentures. So long as the Company shall not
be in default in the payment of interest on
the Convertible Debentures, the Company has
the right to defer payments of interest on
the Convertible Debentures from time to time
for successive Extension Periods not
exceeding 20 consecutive quarters for each
such period. Quarterly Distributions on the
TECONS would be deferred by the Trust (but
would continue to accumulate quarterly and,
to the extent permitted by applicable law,
accrue interest) until the end of any such
Extension Period. Upon the termination of an
Extension Period, payment is due on all
accrued and unpaid amounts on the
Convertible Debentures and upon such
payment, the Trust would be required to pay
all accumulated and unpaid Distributions. If
the deferral of an interest payment occurs,
the holders of the TECONS will continue to
accrue interest income for U.S. federal
income tax purposes in advance of any
corresponding cash Distribution. See "Risk
Factors -- Risks Relating to an Investment
in the TECONS -- Option to Extend Interest
Payment Period," "Description of the
TECONS --Distributions," "Description of the
Convertible Debentures --Option to Extend
Interest Payment Period," "Certain Federal
Tax Consequences -- Accrual of Original
Issue Discount" and "Certain Federal Tax
Consequences -- Potential Extension of
Payment Period on the Convertible
Debentures."
RIGHTS UPON DEFERRAL OF
DISTRIBUTIONS.................... During any period in which interest payments
on the Convertible Debentures are deferred,
interest will accrue on the Convertible
Debentures (compounded quarterly to the
extent permitted by applicable law) and
quarterly Distributions will continue to
accumulate with interest thereon (to the
extent permitted by applicable law) at the
Distribution rate, compounded quarterly. The
Company has agreed, among other things, not
to declare or pay any dividend on or
purchase any shares of the Company's capital
stock during an Extension Period, except for
dividends on and purchases
S-7
<PAGE>
of shares of the Company's Series B
Cumulative Convertible Preferred Stock (the
"Series B Preferred Stock") and subject to
certain other exceptions. All of the shares
of Series B Preferred Stock are held by the
Company's Thrift and Stock Plan, an employee
benefit plan (the "TASP"), and the Series B
Preferred Stock is convertible into CNF
Common Stock. Dividends paid on the Series B
Preferred Stock (which are deductible by the
Company for federal income tax purposes) are
applied by the TASP to pay interest on
borrowings that were made to acquire the
Series B Preferred Stock. Such borrowings
are guaranteed by the Company. See "Risk
Factors -- Risks Relating to an Investment
in the TECONS -- Option to Extend Interest
Payment Period," "Description of the
TECONS -- Distributions" and "Description of
the Convertible Debentures -- Option to
Extend Interest Payment Period" herein and
"Description of Capital Stock -- Preferred
Stock" in the accompanying Prospectus.
CONVERSION RIGHTS................ Each TECONS is convertible at any time prior
to the close of business on June 1, 2012
(or, in the case of TECONS called for
redemption, prior to the close of business
on the Business Day prior to the applicable
redemption date) at the option of the holder
into shares of CNF Common Stock, at an
initial conversion price of $40.00 per share
of CNF Common Stock (equivalent to an
initial conversion rate of 1.25 shares of
CNF Common Stock for each TECONS), subject
to adjustment in certain circumstances. The
last reported sale price of the CNF Common
Stock on the NYSE on June 5, 1997 was $31.50
per share. In connection with any conversion
of a TECONS, the Conversion Agent (as
defined herein) will exchange such TECONS
for the appropriate principal amount of the
Convertible Debentures held for the Trust
and immediately convert such Convertible
Debentures into CNF Common Stock. No
fractional shares of CNF Common Stock will
be issued as a result of conversion, but in
lieu thereof such fractional interest will
be paid by the Company in cash. See
"Description of the TECONS -- Conversion
Rights."
LIQUIDATION AMOUNT............... In the event of any liquidation of the
Trust, holders will be entitled to receive
$50 per TECONS plus an amount equal to any
accumulated and unpaid Distributions thereon
to the date of payment, unless Convertible
Debentures are distributed to such holders.
See "Description of the TECONS -- Liquida-
tion Distribution Upon Dissolution."
REDEMPTION....................... The Convertible Debentures will be
redeemable for cash, at the option of the
Company, in whole or in part, from time to
time on or after June 1, 2000, at the prices
specified herein. Upon any redemption of the
Convertible Debentures, TECONS having an
aggregate liquidation amount equal to the
aggregate principal amount of Convertible
Debentures being redeemed will be redeemed
at the applicable redemption price. The
TECONS will not have a stated maturity date,
although they will be subject to mandatory
redemption upon the repayment of the
Convertible Debentures at their stated
maturity June 1, 2012, upon acceleration,
earlier redemption or otherwise. See
"Description of the TECONS -- Mandatory
Redemption" and "Description of the
Convertible Debentures --Redemption at the
Option of the Company."
S-8
<PAGE>
GUARANTEE........................ The Company will irrevocably and
unconditionally guarantee, on a subordinated
basis and to the extent set forth herein,
the payment in full of (i) Distributions on
the TECONS to the extent the Trust has funds
available therefor, (ii) the amount payable
upon redemption of the TECONS to the extent
the Trust has funds available therefor and
(iii) generally, the liquidation preference
of the TECONS to the extent the Trust has
assets available for distribution to holders
of TECONS. The Guarantee will be unsecured
and will be subordinate and junior in right
of payment to all other liabilities of the
Company (except any liabilities that may
rank pari passu expressly by their terms),
and will rank pari passu in right of payment
with the most senior preferred stock, if
any, issued from time to time by the
Company. See "Description of the Guarantee"
herein and "Description of Trust Preferred
Securities Guarantee -- Status of the Trust
Preferred Securities Guarantee" and
"Description of Capital Stock --Preferred
Stock" in the accompanying Prospectus.
VOTING RIGHTS.................... Generally, holders of the TECONS will not
have any voting rights. However, if an
Indenture Event of Default (as defined
herein) occurs and is continuing, the
holders of 25% of the aggregate liquidation
amount of the outstanding TECONS may direct
the Property Trustee to declare the
principal and interest on the Convertible
Debentures immediately due and payable. If
(i) the Property Trustee fails to enforce
its rights under the Convertible Debentures
or (ii) the Guarantee Trustee fails to
enforce its rights under the Guarantee, a
record holder of the TECONS may institute a
legal proceeding directly against the
Company to enforce such rights without first
instituting any legal proceeding against any
other person or entity. See "Description of
the TECONS -- Voting Rights" and
"Description of the TECONS -- Declaration
Events of Default" and "Effect of
Obligations Under the Convertible Debentures
and the Guarantee."
SPECIAL EVENT DISTRIBUTION;
TAX EVENT REDEMPTION............. Upon the occurrence of a Special Event
(i.e., a Tax Event or an Investment Company
Act Event, in each case as defined herein),
except in certain limited circumstances, the
Company may cause the Trust to be dissolved
and cause the Convertible Debentures to be
distributed to the holders of the TECONS. In
the case of a Tax Event, the Company may
also elect to cause the TECONS to remain
outstanding and pay Additional Interest (as
defined herein), if any, on the Convertible
Debentures. In certain circumstances upon
the occurrence of a Tax Event, the
Convertible Debentures may be redeemed by
the Company at 100% of the principal amount
thereof plus accrued and unpaid interest
thereon. See "Description of the TECONS --
Special Event Distribution; Tax Event
Redemption."
CONVERTIBLE DEBENTURES OF CNF.... The Convertible Debentures will mature on
June 1, 2012, and will bear interest at the
rate of 5% per annum, payable quarterly in
arrears. So long as the Company shall not be
in default in the payment of interest on the
Convertible Debentures, the Company has the
right to defer payments of interest on the
Convertible Debentures from time to time for
successive periods not exceeding
S-9
<PAGE>
20 consecutive quarters for each such
period, provided, that no such period shall
extend beyond the maturity date of the
Convertible Debentures. Prior to the
termination of any Extension Period of less
than 20 consecutive quarters, the Company
may further defer interest payments provided
the Extension Period, as previously and
further extended, does not exceed 20
consecutive quarters and does not extend
beyond the maturity date of the Convertible
Debentures. During any Extension Period no
interest shall be due, but such interest
shall continue to accrue and, to the extent
permitted by applicable law, compound
quarterly. Upon the termination of an
Extension Period, payment shall be due on
all accrued and unpaid amounts. After the
payment of all amounts then due, the Company
may commence a new Extension Period, subject
to the conditions of this paragraph. During
any Extension Period, the Company will be
prohibited from, among other things, paying
dividends on and purchasing shares of the
Company's capital stock (except for
dividends on and purchases of Series B
Preferred Stock and subject to certain other
exceptions) until quarterly interest
payments are resumed and all amounts due on
the Convertible Debentures are made current.
See "Description of the Convertible
Debentures -- Option to Extend Interest
Payment Period."
The payment of principal and interest on the
Convertible Debentures will be subordinated
in right of payment to all present and
future Senior Indebtedness (as defined in
the accompanying Prospectus) of the Company.
In addition, because the Company is a
holding company, the Convertible Debentures
will be effectively subordinated to all
existing and future liabilities (including
indebtedness, trade payables, guarantees,
lease obligations and letter of credit
obligations) of the Company's subsidiaries.
As of March 31, 1997, the Company (excluding
its subsidiaries) had approximately
$506.5 million of Senior Indebtedness
outstanding (including approximately $143.8
million of notes issued by the Company's
Thrift and Stock Plan (the "TASP") which are
guaranteed by the Company and approximately
$147.0 million of outstanding letters of
credit) and, as of December 31, 1996, the
Company was subject to long-term non-
cancelable operating leases requiring future
minimum lease payments of approximately $4.4
million through the year 2005. In addition,
as of March 31, 1997, the Company's
consolidated subsidiaries had outstanding
liabilities (excluding intercompany
liabilities) aggregating approximately
$980.1 million and approximately $46.7
million of outstanding letters of credit
and, as of December 31, 1996, the Company's
subsidiaries were subject to long-term non-
cancelable operating leases requiring future
minimum lease payments of approximately
$390.3 million through the year 2014. In
addition, the Company's material
subsidiaries have guaranteed amounts due
under the Company's $350 million unsecured
credit facility (the "Credit Facility"); at
March 31, 1997, borrowings of approximately
$100.0 million and letters of credit of
approximately $124.1 million were
outstanding under the Credit Facility. The
Subordinated Indenture (as defined herein)
under which the Convertible Debentures will
be issued does not limit the aggregate
amount of Senior Indebtedness or other
liabilities that may be incurred by the
Company and its subsidiaries. See "Risk
Factors -- Holding Company Structure."
S-10
<PAGE>
The Convertible Debentures will have
provisions with respect to interest,
optional redemption and conversion into CNF
Common Stock and certain other terms
substantially similar or analogous to those
of the TECONS. See "Description of the
Convertible Debentures" and "Risk Factors --
Risks Relating to an Investment in the
TECONS -- Ranking of Subordinate Obligations
Under the Guarantee and Convertible
Debentures."
USE OF PROCEEDS.................. The proceeds from the sale of the TECONS
offered hereby will be invested by the Trust
in the Convertible Debentures. After paying
the Underwriters' compensation and other
expenses associated with this Offering, the
Company intends to use such net proceeds to
pay costs associated with the recently
signed contract with the USPS. These include
costs to acquire surface transportation
equipment and to lease or acquire, improve
and equip ten Priority Mail processing
centers. Any remaining net proceeds will be
applied by the Company for other general
corporate purposes, which may include
repayment of indebtedness. In that regard,
the Company is considering alternative
arrangements to finance certain of the costs
associated with the new postal contract.
Such financing, if obtained, would reduce
the amount of net Offering proceeds applied
to pay those costs. See "Recent
Developments" and "Use of Proceeds."
NEW YORK STOCK EXCHANGE SYMBOL... "CNF PrT"
S-11
<PAGE>
RISK FACTORS
Certain statements included or incorporated by reference herein and in the
accompanying Prospectus constitute "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and are subject to a number of risks and
uncertainties. Any such forward-looking statements contained or incorporated by
reference herein or in the accompanying Prospectus should not be relied upon as
predictions of future events. Certain such forward-looking statements can be
identified by the use of forward-looking terminology such as "believes,"
"expects," "may," "will," "should," "seeks," "approximately," "intends,"
"plans," "estimates" or "anticipates" or the negative thereof or other
variations thereof or comparable terminology, or by discussions of strategy,
plans or intentions. Such forward-looking statements are necessarily dependent
on assumptions, data or methods that may be incorrect or imprecise and they may
be incapable of being realized. In that regard, the following factors, among
others and in addition to the matters discussed below and elsewhere in this
Prospectus Supplement, the accompanying Prospectus and the documents
incorporated or deemed to be incorporated by reference therein, could cause
actual results and other matters to differ materially from those in such
forward-looking statements: changes in general business and economic
conditions; increasing domestic and international competition and pricing
pressure; changes in fuel prices; uncertainty regarding the Company's new
contract with the USPS; labor matters, including changes in labor costs,
renegotiation of labor contracts and the risk of work stoppages or strikes;
changes in governmental regulation; environmental and tax matters, including
the aviation excise tax and aircraft maintenance tax matters discussed herein;
and matters relating to the recently completed spin-off of CFC. As a result of
the foregoing, no assurance can be given as to future results of operations or
financial condition.
Prospective purchasers of the TECONS should carefully consider the following
factors, together with the other information included or incorporated by
reference in this Prospectus Supplement and the accompanying Prospectus.
RISKS RELATING TO NEW POSTAL CONTRACT
The Company is subject to a number of risks and uncertainties relating to the
new contract between EWA and the USPS. Among other things, the contract
requires that the Company lease or acquire, improve, equip and fully staff ten
new Priority Mail processing centers ("PMPCs"), and further requires that five
of the PMPCs be operational and performing in accordance with specified
standards by late October 1997, and that all ten PMPCs be operational and
performing in accordance with specified standards by late February 1998. The
contract provides for the Company to pay liquidated damages if it does not meet
these deadlines, but also provides for bonuses to be paid to the Company if the
PMPCs become operational by required dates. The contract also contains a number
of specific service standards that the Company is required to meet. In
particular, the contract specifies a benchmark of 96.5% on-time and accurate
handling by the Company and provides for financial disincentives, which could
be substantial, if the Company fails to meet that standard. Accordingly,
failure by the Company to meet the service standards under the contract could
have a material adverse effect on the Company. See "Recent Developments."
Establishing the new Priority Mail network will place considerable demands upon
the Company, particularly as regards the deadlines by which the PMPCs must be
operational and performing in accordance with specified standards. Among other
things, the Company will need to locate, lease or acquire, and improve
buildings to house the PMPCs; acquire, install and successfully operate mail
sortation and other equipment; hire and train approximately 1,400 additional
full-time employees; and integrate the operations of the new network with its
existing airline and trucking transportation networks. Although the Company
believes that it will be able to operate in accordance with the terms of the
new contract, there can be no assurance that it will be able to do so or that
capital expenditures and other costs associated with the contract will not
exceed anticipated amounts.
The USPS has indicated that the Company could receive revenues of approximately
$1.7 billion over the initial 58-month term of the contract. However, this
amount is an estimate and is subject to a number of assumptions and
uncertainties, and there can be no assurance that the revenues actually
realized by the Company under the contract will not be substantially less than
this amount. Among other things, this estimate is based on assumed volumes of
Priority Mail to be handled by the Company and a projected growth rate for that
volume over the life of the contract and also assumes that the Company meets
the performance standards established by the contract. There can be no
assurance that the Company will meet these performance standards or that those
volumes will actually be achieved. In that regard, the contract does not
specifically set forth a minimum volume of Priority Mail to be handled by the
Company.
The contract provides that EWA is to receive a fixed price per piece of
Priority Mail, subject to adjustments based on volume and percentage of on-time
and accurate handling and for increases in certain wage costs, and also
provides for EWA to be reimbursed for fuel costs. In light of this largely
fixed price arrangement, the effect of this contract on the Company's results
of operations will depend in part upon the Company's ability to manage and
control its costs of providing the services called for by the contract.
Although the Company believes that the contract provides opportunities to
realize certain operating efficiencies, failure by the Company to effectively
manage its cost of performing under the contract could have a material adverse
effect on the Company.
S-12
<PAGE>
In addition, the award and terms of the new contract with the USPS may be
subject to challenge by labor unions and competitors of the Company and the
USPS. Among other things, it is possible that labor unions could initiate legal
or other proceedings seeking to challenge, modify or void the contract. Such
proceedings, if successful, could require material adverse changes in the terms
of the contract or could lead the USPS, in certain circumstances, to terminate
the contract (or certain portions thereof) under the provisions described
below. In that regard, the USPS has informed the Company that the American
Postal Workers Union has filed a grievance seeking to rescind the new contract
and the National Postal Mail Handlers Union has filed a grievance challenging
the contract. In addition, competitors of the Company might initiate legal or
other proceedings seeking to invalidate the new contract on the grounds that,
among other things, it was improperly awarded. In that regard, a consulting
company has filed an agency level protest of the contract with the contracting
officer of the USPS. While the Company believes that, in the event of a
termination of the new postal contract, the Company has the right, in certain
cases, to recoup certain expenditures made in connection with the contract, to
the extent that any of the foregoing proceedings were successful, they could
have a material adverse effect on the Company.
The contract may be terminated by the USPS for failure by EWA to perform its
obligations thereunder and, as is common with government contracts generally,
it may also be terminated by the USPS "for convenience" (i.e., without cause),
although the USPS may be required, following termination for convenience, to
reimburse the Company for certain expenditures associated with the contract.
While the Company believes that, in certain such cases, the new contract
provides it with the right to recoup certain expenditures made in connection
with the contract, any termination of the contract could have a material
adverse effect on the Company.
RISKS RELATING TO SPIN-OFF OF CFC
The Company is or may be subject to substantial liabilities with respect to
certain matters relating to CFC's business and operations, including, without
limitation, guarantees of certain indebtedness of CFC and liabilities for
employment-related and environmental matters. Although CFC is, in general,
either the primary obligor or jointly and severally liable with the Company
with respect to these matters, a failure to pay or other default by CFC with
respect to the obligations as to which the Company is or may be, or may be
perceived to be, liable, whether because of CFC's bankruptcy or insolvency or
otherwise, could lead to substantial claims against the Company. As a result,
any failure to pay or other default by CFC with respect to those obligations
could have a material adverse effect on the Company. Moreover, the transfer of
certain assets from CFC to the Company in connection with the Spin-off may be
subject to review under applicable fraudulent transfer laws in the event of the
bankruptcy or other financial difficulty of CFC. Under those laws, a court
could, under certain circumstances, direct the return of the transferred assets
to CFC or a fund for the benefit of its creditors.
CERTAIN TAX MATTERS RELATING TO EMERY
The Internal Revenue Service (the "IRS") has proposed adjustments that would
require that Emery Air Freight Corporation ("EAFC"), a subsidiary of the
Company, pay substantial additional aviation excise taxes for the period from
January 1, 1990 through September 30, 1995. The Company has filed protests
contesting these proposed adjustments and is engaged in discussions with the
administrative conference division (Appeals Office) of the IRS.
The Company believes that there is legal authority to support the manner in
which it has calculated and paid the aviation excise taxes and, accordingly,
the Company intends to continue to vigorously challenge the proposed
adjustments. Nevertheless, the Company is unable to predict the ultimate
outcome of this matter. As a result, there can be no assurance that the Company
will not have to pay a substantial amount of additional aviation taxes for the
1990 through 1995 tax period. In addition, it is possible that the IRS may seek
to increase the amount of the airline excise tax payable by EAFC for periods
subsequent to September 30, 1995. As a result, there can be no assurance that
this matter will not have a material adverse effect on the Company.
The IRS has also proposed a substantial adjustment for tax years 1987 through
1990 based on the IRS' position that certain aircraft maintenance costs should
have been capitalized rather than expensed for federal income tax purposes. In
addition, the Company believes it likely that the IRS will propose an
additional adjustment, based on the same IRS position with respect to aircraft
maintenance costs, for subsequent tax years. The Company believes that its
practice of expensing these types of maintenance costs is consistent with
industry practice. However, if this issue is determined adversely to the
Company, there can be no assurance that the Company will not have to pay
substantial additional tax. The Company is unable to predict the ultimate
outcome of this matter and intends to vigorously contest the proposed
adjustment. There can be no assurance, however, that this matter will not have
a material adverse effect on the Company.
S-13
<PAGE>
COMPETITION
The trucking and air freight industries are intensely competitive and some of
Con-Way's and Emery's competitors may have greater financial and other
resources than the Company. Principal competitors of Con-Way include both
national LTL companies (some of which have continued to extend into regional
markets and to acquire and combine formerly independent regional carriers into
inter-regional groups) and regional companies. Principal competitors of Emery
include other integrated air freight carriers, air freight forwarders and
international airlines and, to a lesser extent, trucking companies, passenger
and cargo air carriers and others. Competition in the trucking and air freight
industries is based on, among other things, freight rates, quality of service,
reliability, transit times and scope of operations. Intense competition in the
trucking industry, coupled with industry over-capacity, has resulted in
aggressive price discounting, narrow margins and a significant number of
business failures. There can be no assurance that the Company will be
successful in meeting the competitive demands of the industry.
Menlo operates in a relatively new business area and has a limited number of
major competitors. Nonetheless, competition for the provision of logistics
services is intense.
LABOR MATTERS
As of March 31, 1997, less than 8% of the Company's employees were represented
by various labor unions. However, the pilots at Emery's leased air cargo
facility (the "Hub") at the Dayton International Airport in Ohio are currently
considering whether to unionize; the Company expects that they will vote on
this matter in the near future. In addition, labor unions have, from time to
time, sought to unionize employees at various Company locations. There can be
no assurance that efforts to unionize Company employees will not be successful,
that the Company will not become subject to additional work rules imposed by
agreements with labor unions, or that work stoppages or other labor
disturbances will not occur in the future, any of which could have a material
adverse effect on the Company. Similarly, there can be no assurance that union
opposition to the Company's new contract with the USPS will not have a material
adverse effect on the Company. See "-- Risks Relating to New Postal Contract."
EFFECT OF ECONOMIC AND MARKET CONDITIONS
Interest rate fluctuations, increases in fuel prices, fuel shortages, economic
recession, changes in currency exchange rates, and changes in customers'
business cycles and business practices are among the factors over which the
Company has no control, but which may adversely affect its financial condition
or results of operations. For instance, prices for both diesel and jet fuel
increased significantly during 1996. The Company has been able to recoup a
portion of these increased costs through fuel surcharges and fuel index fees to
its customers, but there can be no assurance that the Company will be able to
do so in the future. The operations of the Company are primarily conducted in
the United States but, to an increasing extent, are conducted in major foreign
countries. As a result, the Company is subject to the foregoing factors both
domestically and, to an increasing extent, internationally. See "Business" in
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1996 (the "1996 10-K").
CYCLICALITY AND SEASONALITY
The trucking and air freight industries are affected directly by general
economic conditions and seasonal fluctuations, both of which affect the amount
of freight to be transported. Freight shipments, operating costs and other
results of operations can also be affected adversely by inclement weather
conditions. The months of September and October of each year usually have the
highest business levels while the months of January and February of each year
usually have the lowest business levels.
GOVERNMENT REGULATIONS
The Company's business is subject to extensive regulation by various federal,
state and foreign governmental entities, and there can be no assurance that
changes in applicable laws and regulations, or costs of complying with current
or future laws and regulations, will not have a material adverse effect on the
Company. For example, deregulation of the trucking industry allows easier
access to the industry by new trucking companies, and has removed many
restrictions on expansion of services by existing carriers and increased price
competition. These and other factors have contributed to a consolidation in the
trucking industry, as a number of trucking companies have either merged or gone
out of business. Likewise, airlines such as EWA are subject to, among other
things, maintenance, operating and other safety-related regulations by the
Federal Aviation Administration (the "FAA"), including Airworthiness Directives
promulgated by the FAA which require airlines such as EWA to make modifications
to aircraft. In that regard, EWA expects that it will be required to make
expenditures to reinforce the floors and modify the doors of up to 17 of its
Boeing 727 aircraft to comply with Airworthiness Directives. Likewise, the
relative age of EWA's aircraft fleet may increase the likelihood that the
Company will be required to make expenditures in order for its aircraft to
comply with future government regulations. See "Business" in the 1996 10-K.
S-14
<PAGE>
During recent years, operations at several airports have been subject to
restrictions or curfews on arrivals or departures during certain night-time
hours designed to reduce or eliminate noise for surrounding residential areas.
None of these restrictions has materially affected Emery's operations. However,
if such restrictions were to be imposed with respect to the airports at which
Emery's activities are centered (particularly Emery's major Hub at the Dayton
International Airport), and no alternative airports were available to serve the
affected areas, there could be a material adverse effect on the Company. Under
applicable law, the FAA is authorized to establish aircraft noise standards and
the administrator of the Environmental Protection Agency is authorized to issue
regulations setting forth standards for aircraft emissions. The Company
believes that its present fleet of owned, leased and chartered aircraft is
operating in substantial compliance with currently applicable noise and
emission laws.
The Aviation Noise and Capacity Act of 1990 established a national aviation
noise policy. The FAA has promulgated regulations under this Act regarding the
phase-in requirements for compliance. This legislation and the related
regulations will require all of the Company's owned and leased aircraft
eligible for operation in the contiguous United States to either undergo
modifications or otherwise comply with Stage 3 noise restrictions in phases
ending at year-end 1999. Although the ultimate cost of complying with these
requirements cannot be predicted with certainty, the Company will be required
to make expenditures, which could be substantial, to modify owned or leased
aircraft in order to comply with these requirements.
ENVIRONMENTAL MATTERS
The Company is subject to stringent laws and regulations that (i) govern
activities or operations that may have adverse environmental effects, such as
discharges to air and water, as well as handling and disposal practices for
solid and hazardous wastes, and (ii) impose liability for the costs of cleaning
up, and certain damages resulting from, sites of past spills, disposals or
other releases of hazardous materials. In particular, under applicable
environmental laws, the Company may be responsible for remediation of
environmental conditions and may be subject to associated liabilities
(including liabilities resulting from lawsuits brought by private litigants)
relating to its operations and properties. Environmental liabilities relating
to the Company's properties may be imposed regardless of whether the Company
leases or owns the properties in question and regardless of whether such
environmental conditions were created by the Company or by a prior owner or
tenant, and also may be imposed with respect to properties which the Company
may have owned or leased in the past.
The Company's operations involve the storage, handling and use of diesel and
jet fuel and other hazardous substances. In particular, the Company is subject
to stringent environmental laws and regulations dealing with underground fuel
storage tanks and the transportation of hazardous materials. The Company has
been designated as a potentially responsible party by the Environmental
Protection Agency with respect to the disposal of hazardous substances at
various sites, although the Company expects that its share of the clean-up
costs will not have a material adverse effect on the Company. In addition, the
Company expects that the costs of complying with existing and future
environmental laws and regulations will continue to increase. There can be no
assurance that matters relating to environmental conditions or compliance with
environmental laws will not have a material adverse effect on the Company.
CERTAIN ANTITAKEOVER PROVISIONS
The Company's Amended Certificate of Incorporation and Bylaws contain certain
provisions which may have the effect of delaying, deferring or preventing a
change of control of the Company. In addition, the Company is subject to
Section 203 of the Delaware General Corporation Law, which limits the ability
of a publicly held Delaware corporation such as the Company from engaging in a
"business combination" with an "interested stockholder" for a certain period of
time. Moreover, the approval of holders of at least two-thirds of the
outstanding shares of the Series B Preferred Stock is required, under certain
circumstances, for a consolidation or merger of the Company or the sale or
other transfer of certain assets of the Company. The foregoing provisions may
deter any potential unfriendly offers or other efforts to obtain control of the
Company and could deprive shareholders of opportunities to realize a premium on
their CNF Common Stock or the TECONS. See "Description of Capital Stock" in the
accompanying Prospectus.
PROVISIONS OF CERTAIN INDEBTEDNESS
Neither the TECONS nor the Convertible Debentures contain provisions which
would give the holders thereof the right to require the Trust or the Company to
repurchase or repay such securities in the event of a takeover,
recapitalization or similar event, a decline in the credit rating of the
Trust's or Company's preferred or debt securities, or otherwise. However,
holders of the Company's outstanding 9 1/8% Notes due 1999 and certain
restructured notes issued by the Company's TASP which are guaranteed by the
Company have the right to require the Company to repurchase such notes upon the
occurrence of certain changes in control of the Company or similar events
coupled with certain declines in the credit rating on the Company's long-
S-15
<PAGE>
term senior debt; the aggregate principal amount of the 9 1/8% notes due 1999
and the restructured TASP notes outstanding at March 31, 1997 was $117.7
million and $30.7 million, respectively. Holders of non-restructured notes
issued by the TASP with an outstanding principal amount of $113.1 million at
March 31, 1997 have the right to require that the Company repurchase such notes
if, among other things, both Moody's and Standard & Poor's have publicly rated
the Company's long-term senior debt at less than investment grade, unless,
within 45 days, the Company shall have obtained, through a guarantee, letter of
credit, other permitted credit enhancement or otherwise, a credit rating for
such notes of at least "A" from Moody's or Standard & Poor's (or another
nationally recognized rating agency selected by the holders of such notes) and
shall maintain a rating on such notes of "A" or better thereafter. The
Company's long-term senior debt is currently rated Baa3 by Moody's and BBB by
Standard & Poor's; Baa3 is the lowest investment grade rating from Moody's and
BBB is the next to lowest investment grade rating from Standard & Poor's.
Holders of both the restructured and non-restructured TASP notes also have the
right to require the Company to repurchase the notes, in whole or in part, on
July 1, 1999. In addition, the Company's $350 million Credit Facility, which is
guaranteed by the Company's material subsidiaries, permits the lenders to
require immediate repayment of all borrowings thereunder upon a change of
control or similar event with respect to the Company. The occurrence of any
event or condition requiring the Company to repurchase or repay any such notes
or borrowings could have a material adverse effect on the Company. Moreover,
there can be no assurance that the Company would have sufficient funds to
repurchase or repay such notes or borrowings in the event that it were required
to do so or that it would be able to arrange financing for that purpose. See
"Capitalization."
Certain of the Company's debt instruments contain restrictive covenants that
could limit the amount of dividends payable by the Company. In particular,
under the terms of the restructured notes issued by the TASP, the Company is
restricted from paying dividends in an aggregate amount in excess of $10
million plus one-half of its cumulative adjusted consolidated net income from
November 3, 1992. As of March 31, 1997, the Company would have been permitted
to pay approximately $112.2 million of dividends on the CNF Common Stock under
the terms of the restructured TASP Notes.
POSSIBLE VOLATILITY OF STOCK PRICE
The trading price of the CNF Common Stock is subject to fluctuations in
response to a variety of factors, including quarterly variations in operating
results, conditions in the trucking and air freight industries generally,
comments or recommendations issued by analysts who follow the Company, its
competitors or the industry segments in which it operates, and general economic
and market conditions. In addition, the stock market has from time to time
experienced extreme price and volume volatility. These fluctuations may be
unrelated to the operating performance of particular companies whose shares are
traded. Market fluctuations may adversely affect the market price of the CNF
Common Stock and the TECONS. Accordingly, there can be no assurance that the
market price of the TECONS will not decline below the public offering price, or
that the market price of the CNF Common Stock and the TECONS will not be
subject to substantial fluctuations in the future.
HOLDING COMPANY STRUCTURE
The Convertible Debentures and the Guarantee are obligations exclusively of the
Company. The Company is a holding company, substantially all of whose
consolidated assets are held by its subsidiaries. Accordingly, the cash flow of
the Company and the consequent ability to service its debt (including the
Convertible Debentures) and to pay amounts due in respect of its other
obligations (including the Guarantee), and, therefore, the ability of the Trust
to make Distributions and other payments on the TECONS, is dependent upon the
results of operations of the Company's subsidiaries and the distribution of
funds by such subsidiaries to the Company. The ability of such subsidiaries to
provide funds to the Company is contingent upon the results of operation and
financial condition of such subsidiaries, may be limited by restrictive
covenants in various instruments and agreements and is subject to various other
business considerations. See "-- Provisions of Certain Indebtedness."
Because the Company is a holding company, its obligations under the Convertible
Debentures and the Guarantee will be effectively subordinated to all existing
and future liabilities (including indebtedness, trade payables, guarantees,
lease obligations and letter of credit obligations) of the Company's
subsidiaries. Therefore, the Company's rights and the rights of its creditors
to participate in the assets of any subsidiary upon the latter's liquidation or
reorganization will be subject to the prior claims of such subsidiary's
creditors, except to the extent that the Company may itself be a creditor with
recognized claims against the subsidiary, in which case the claims of the
Company will still be effectively subordinated to any security interest in, or
mortgages or other liens on, the assets of such subsidiary and would be
subordinate to any indebtedness of such subsidiary senior to that held by the
Company. Although certain debt instruments to which the Company and its
subsidiaries are parties impose limitations on the incurrence of additional
indebtedness, both the Company and its subsidiaries retain the ability to incur
substantial additional indebtedness and other financial obligations.
S-16
<PAGE>
At March 31, 1997, the Company's consolidated subsidiaries had outstanding
liabilities (excluding intercompany liabilities) aggregating approximately
$980.1 million and approximately $46.7 million of outstanding letters of credit
and, at December 31, 1996, these subsidiaries were subject to long-term non-
cancelable operating leases requiring future minimum lease payments of
approximately $390.3 million through the year 2014. In addition, the Company's
material subsidiaries have guaranteed amounts due under the Credit Facility; at
March 31, 1997, borrowings of approximately $100.0 million and letters of
credit of approximately $124.1 million were outstanding under the Credit
Facility.
RISKS RELATING TO AN INVESTMENT IN THE TECONS
Ranking of Subordinate Obligations Under the Guarantee and Convertible
Debentures
The obligations of the Company under the Guarantee are subordinate and junior
in right of payment to all liabilities of the Company (except any liabilities
that may rank pari passu expressly by their terms), and pari passu in right of
payment with the most senior preferred stock issued, from time to time, if any,
by the Company. The obligations of the Company under the Convertible Debentures
are subordinate and junior in right of payment to all present and future Senior
Indebtedness of the Company. In addition, payments of principal and interest on
the Convertible Debentures are structurally subordinated to the liabilities of
the Company's subsidiaries. No payment by the Company on account of principal
of or premium, if any, or interest on the Convertible Debentures may be made if
there shall have occurred and be continuing (i) a default in the payment when
due of principal of, or premium, if any, sinking funds, if any, or interest, if
any, on any Senior Indebtedness of the Company and any applicable grace period
with respect to such default shall have ended without such default having been
cured or waived or ceasing to exist or (ii) an event of default with respect to
any Senior Indebtedness of the Company resulting in the acceleration of the
maturity thereof without such acceleration having been rescinded or annulled.
As of March 31, 1997, the Company (excluding its subsidiaries) had
approximately $506.5 million of Senior Indebtedness outstanding (including
approximately $143.8 million of notes issued by the TASP which are guaranteed
by the Company and approximately $147.0 million of outstanding letters of
credit) and, as of December 31, 1996, the Company was subject to long-term non-
cancelable operating leases requiring future minimum lease payments of
approximately $4.4 million through the year 2005. There are no terms in the
TECONS, the Convertible Debentures or the Guarantee that limit the ability of
the Company to incur additional indebtedness, including indebtedness that ranks
senior to the Convertible Debentures or the Guarantee, or to grant security
interests to secure outstanding or new indebtedness. In that regard, the
Convertible Debentures do not prohibit the Company from incurring Senior
Indebtedness which is senior to the Convertible Debentures but subordinate to
certain other indebtedness of the Company. See "Description of Trust Preferred
Securities Guarantee -- Status of the Trust Preferred Securities Guarantee" and
"Description of Debt Securities" in the accompanying Prospectus and "-- Holding
Company Structure" and "Description of the Convertible Debentures --
Subordination" herein.
Rights Under the Guarantee
The Guarantee will be qualified as an indenture under the Trust Indenture Act
of 1939, as amended (the "Trust Indenture Act"). The Property Trustee will act
as indenture trustee under the Guarantee for the purposes of compliance with
the provisions of the Trust Indenture Act (the "Guarantee Trustee"). The
Guarantee Trustee will hold the Guarantee for the benefit of the holders of the
TECONS.
Under the Guarantee, the Company guarantees the holders of the TECONS the
payment of: (i) any accumulated and unpaid Distributions that are required to
be paid on the TECONS, to the extent the Trust has funds available therefor;
(ii) the applicable redemption price, including all accumulated and unpaid
Distributions with respect to TECONS called for redemption by the Trust, to the
extent the Trust has funds available therefor; and (iii) upon a voluntary or
involuntary dissolution, winding-up or termination of the Trust (other than in
connection with certain permitted consolidations, mergers, asset sales and
other transactions involving the Trust, the distribution of Convertible
Debentures to the holders of TECONS or a conversion or redemption of all the
TECONS), the lesser of (a) the aggregate of the liquidation amount and all
accumulated and unpaid Distributions on the TECONS to the date of the payment
to the extent the Trust has funds available therefor or (b) the amount of
assets of the Trust remaining available for distribution to holders of the
TECONS in liquidation of the Trust. The holders of a majority in liquidation
amount of the outstanding TECONS have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Guarantee
Trustee or exercising any trust power conferred upon the Guarantee Trustee
under the Guarantee. In addition, any record holder of TECONS may institute a
legal proceeding directly against the Company to enforce the Guarantee without
first instituting a legal proceeding against the Trust, the Guarantee Trustee
or any other person or entity if the Guarantee Trustee fails to enforce its
rights under the Guarantee. If the Company were to default on its obligation to
pay amounts payable on the Convertible Debentures, the Trust would lack
available funds for the payment of Distributions or amounts payable on
redemption of the TECONS or otherwise, and, in such event, holders of the
TECONS would
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not be able to rely upon the Guarantee for payment of such amounts. Instead,
holders of the TECONS would rely on the enforcement (i) by the Property Trustee
of its rights as registered holder of the Convertible Debentures against the
Company pursuant to the terms of the Convertible Debentures or (ii) by a holder
of its rights of direct action against the Company to enforce payments on the
Convertible Debentures. See "Description of Trust Preferred Securities
Guarantee" and "Description of Debt Securities" in the accompanying Prospectus
and "-- Enforcement of Certain Rights by Holders of TECONS" herein. The
Declaration (as defined herein) provides that each holder of TECONS, by
acceptance thereof, agrees to the provisions of the Guarantee, including the
subordination provisions thereof, and the Subordinated Indenture. See
"Description of Trust Preferred Securities Guarantee -- Status of the Trust
Preferred Securities Guarantee" and "Description of Debt Securities" in the
accompanying Prospectus and "-- Holding Company Structure" and "Description of
the Convertible Debentures -- Subordination" herein.
Enforcement of Certain Rights by Holders of TECONS
If (i) the Trust fails to pay Distributions in full on the TECONS (other than
pursuant to a deferral) or (ii) any other Declaration Event of Default (as
defined herein) occurs and is continuing, then the holders of TECONS would rely
on the enforcement by the Property Trustee of its rights as a holder of the
Convertible Debentures against the Company. In addition, the holders of a
majority in liquidation amount of the TECONS will have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Property Trustee or exercising any trust power conferred upon the Property
Trustee under the Declaration, including the right to direct the Property
Trustee to exercise the remedies available to it as a holder of the Convertible
Debentures. If the Property Trustee fails to enforce its rights under the
Convertible Debentures, a holder of TECONS, to the extent permitted by law, may
institute a legal proceeding directly against the Company to enforce the
Property Trustee's rights under the Convertible Debentures without first
instituting any legal proceeding against the Property Trustee or any other
person or entity. Notwithstanding the foregoing, if a Declaration Event of
Default has occurred and is continuing and such event is attributable to the
failure of the Company to pay interest or principal on the Convertible
Debentures on the date such interest or principal is otherwise payable (or in
the case of redemption, on the redemption date), then a holder of TECONS may
directly institute a proceeding for enforcement of payment to such holder of
the principal of or interest on the Convertible Debentures having a principal
amount equal to the aggregate liquidation amount of the TECONS of such holder
(a "Direct Action") on or after the respective due date specified in the
Convertible Debentures. In connection with such Direct Action, the Company will
remain obligated to pay the principal or interest on such Convertible
Debentures and will be subrogated to the rights of such holder of TECONS under
the Declaration to the extent of any payment made by the Company to such holder
of TECONS in such Direct Action. The holders of TECONS will not be able to
exercise any other remedy available to the holders of the Convertible
Debentures. See "Description of the TECONS -- Declaration Events of Default."
Option to Extend Interest Payment Period
So long as the Company shall not be in default in the payment of interest on
the Convertible Debentures, the Company has the right under the Subordinated
Indenture to defer payments of interest on the Convertible Debentures from time
to time for successive periods not exceeding 20 consecutive quarters for each
such period; provided that no such period shall extend beyond the maturity date
of the Convertible Debentures or end on other than a Distribution payment date.
As a consequence of such an extension, quarterly Distributions on the TECONS
would be deferred (but despite such deferral would continue to accumulate with
interest thereon (to the extent permitted by applicable law) at the
Distribution rate, compounded quarterly) by the Trust during any such Extension
Period. During any Extension Period and until quarterly interest payments are
resumed and all amounts due on the Convertible Debentures are made current, (a)
the Company shall not declare or pay dividends on, or make a distribution with
respect to, or redeem, purchase or acquire, or make a liquidation payment with
respect to, any of its capital stock (other than (A) (i) purchases or
acquisitions of shares of the Company's capital stock (or capital stock
equivalents) in connection with the satisfaction by the Company of its
obligations under any officers, directors or employee benefit plans (or any
options or other instruments issued thereunder) or the satisfaction by the
Company of its obligations pursuant to any contract or security requiring the
Company to purchase shares of the Company's capital stock (or capital stock
equivalents), (ii) purchases of shares of the Company's capital stock (or
capital stock equivalents) from officers, directors or employees of the Company
or its subsidiaries pursuant to employment agreements or upon termination of
employment or retirement, (iii) as a result of a reclassification, combination
or subdivision of the Company's capital stock or the exchange or conversion of
one class or series of the Company's capital stock for another class or series
of the Company's capital stock, (iv) dividends or distributions of shares of
common stock on common stock, (v) the purchase of fractional interests in
shares of the Company's capital stock pursuant to the conversion or exchange
provisions of such capital stock or any security being converted or exchanged,
(vi) dividends or distributions on, or redemptions, purchases or acquisitions
of, or liquidation payments with respect to, the Company's Series B Preferred
Stock (the Series B Preferred Stock is held by the TASP, an employee benefit
plan, and dividends on such shares
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(which are deductible by the Company for federal income tax purposes) are
applied by the TASP to pay interest on borrowings made to acquire the Series B
Preferred Stock), (vii) purchases or other acquisitions of common stock in
connection with a dividend reinvestment or other similar plan or (viii) any
dividend or distribution of capital stock (or capital stock equivalents) in
connection with the implementation of a stockholders' rights plan, or the
issuance of stock under any such plan in the future, or the redemption or
repurchase of any such rights pursuant thereto, or (B) guarantee payments made
with respect to any of the foregoing), (b) the Company shall not make any
payment of interest, principal or premium, if any, on or repay, repurchase or
redeem any debt securities issued by the Company that rank pari passu with or
junior to the Convertible Debentures and (c) the Company shall not make any
guarantee payments with respect to the foregoing (other than pursuant to the
Guarantee or the Company's guarantee of the Trust Common Securities). Prior to
the termination of any Extension Period of less than 20 consecutive quarters,
the Company may further defer interest payments; provided, the Extension
Period, as previously and further extended, does not exceed 20 consecutive
quarters and does not extend beyond the maturity date of the Convertible
Debentures or end on other than a Distribution payment date. During any
Extension Period no interest shall be due, but such interest shall continue to
accrue and (to the extent permitted by applicable law) shall compound
quarterly. Upon the termination of an Extension Period, payment is due on all
accrued and unpaid amounts on the Convertible Debentures. After the payment of
all amounts then due on the Convertible Debentures, the Company may commence a
new Extension Period, subject to the conditions of this paragraph. See
"Description of the TECONS -- Distributions" and "Description of the
Convertible Debentures -- Option to Extend Interest Payment Period."
Should the Company exercise its right to defer payments of interest by
extending the interest payment period, each holder of TECONS will continue to
accrue interest income (as original issue discount ("OID")) in respect of the
deferred stated interest allocable to its TECONS for U.S. federal income tax
purposes. As a result, each such holder of TECONS will include such income in
gross income for U.S. federal income tax purposes in advance of the receipt of
cash and will not receive the cash from the Trust related to such income if
such holder disposes of its TECONS prior to the record date for the date on
which Distributions of such amounts are made. The Company has no current
intention of exercising its right to defer payments of interest by extending
the interest payment period of the Convertible Debentures. However, should the
Company determine to exercise such right in the future, the market price of the
TECONS is likely to be adversely affected. A holder that disposes of its TECONS
during an Extension Period, therefore, might not receive the same return on its
investment as a holder that continues to hold its TECONS. See "-- Potential
Market Volatility During an Extension Period" and "Certain Federal Tax
Consequences -- Accrual of Original Issue Discount" and "Certain Federal Income
Tax Consequences -- Potential Extension of Payment Period on Convertible
Debentures."
Proposed Tax Legislation
On February 6, 1997, as part of the Clinton Administration's Fiscal 1998 Budget
Proposal, the Treasury Department proposed legislation (the "Proposed
Legislation") which would, among other things, generally deny corporate issuers
a deduction for interest in respect of certain debt obligations, such as the
Convertible Debentures, if such debt obligations have a maximum term in excess
of 15 years and are not shown as indebtedness on the issuer's consolidated
balance sheet. In that regard, the Convertible Debentures have a maturity of
less than fifteen years. The Proposed Legislation would also generally prevent
corporations from deducting interest (including original issue discount) on
convertible debt instruments until the taxable year in which such interest is
paid in cash or other property (other than equity of the issuer or a related
party or cash or other property the amount of which is determined by reference
to the value of the equity of the issuer or a related party). The Proposed
Legislation applies to debt obligations issued on or after the date of "first
committee action." As of the date of this Prospectus Supplement, the Proposed
Legislation has not yet been introduced by any member of the 105th Congress. If
the Proposed Legislation or other legislation is enacted by Congress and if it
gives rise to a Tax Event, the Trust would be permitted to cause a redemption
of the TECONS by causing a distribution of the Convertible Debentures or, in
certain circumstances, by electing to redeem the Convertible Debentures. See
"-- Special Event Distribution; Tax Event Redemption" and "Description of the
TECONS -- Special Event Distribution; Tax Event Redemption."
Special Event Distribution; Tax Event Redemption
Upon the occurrence of a Special Event, the Trust could be dissolved (with the
consent of the Company), except in the limited circumstances described below,
with the result that the Convertible Debentures would be distributed to the
holders of the Trust Securities in connection with the liquidation of the
Trust. In certain circumstances, the Company would have the right to redeem the
Convertible Debentures, in whole or in part, in lieu of a distribution of the
Convertible Debentures by the Trust, in which event the Trust would redeem the
Trust Securities on a pro rata basis to the same extent as the Convertible
Debentures are redeemed by the Company. See "Description of the TECONS --
Special Event Distribution; Tax Event Redemption."
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Under current U.S. federal income tax law, a distribution of Convertible
Debentures upon the dissolution of the Trust would not be a taxable event to
holders of the TECONS. Upon occurrence of a Special Event, however, a
dissolution of the Trust in which holders of the TECONS receive cash would be a
taxable event to such holders. See "Certain Federal Tax Consequences --
Distribution of Convertible Debentures to Holders of TECONS" and "Certain
Federal Tax Consequences -- Disposition of the TECONS."
There can be no assurance as to the market prices for the TECONS or the
Convertible Debentures that may be distributed in exchange for TECONS if a
dissolution or liquidation of the Trust were to occur. Accordingly, the TECONS
that an investor may purchase, whether pursuant to the offer made hereby or in
the secondary market, or the Convertible Debentures that a holder of TECONS may
receive on dissolution and liquidation of the Trust, may trade at a discount to
the price that the investor paid to purchase the TECONS offered hereby. Because
holders of TECONS may receive Convertible Debentures upon the occurrence of a
Special Event, prospective purchasers of TECONS are also making an investment
decision with regard to the Convertible Debentures and should carefully review
all the information regarding the Convertible Debentures contained herein and
in the accompanying Prospectus. See "Description of the TECONS -- Special Event
Distribution; Tax Event Redemption" and "Description of the Convertible
Debentures" herein and "Description of Debt Securities" in the accompanying
Prospectus.
Limited Voting Rights
Holders of TECONS will have limited voting rights and will not be entitled to
vote to appoint, remove or replace, or to increase or decrease the number of,
CNF Trustees (as defined herein), which voting rights are vested exclusively in
the holder of the Trust Common Securities. See "Description of the TECONS --
Voting Rights."
Trading Price
The TECONS may trade at a price that does not fully reflect the value of
accrued but unpaid interest with respect to the underlying Convertible
Debentures. A holder who disposes of TECONS between record dates for payments
of Distributions thereon will be required to include accrued but unpaid
interest on the Convertible Debentures through the date of disposition in
income as ordinary income (i.e., OID), and to add such amount to the adjusted
tax basis in the holder's pro rata share of the underlying Convertible
Debentures deemed disposed of. To the extent the selling price is less than the
holder's adjusted tax basis (which will include, in the form of OID, all
accrued but unpaid interest), a holder will recognize a capital loss. Subject
to certain limited exceptions, capital losses cannot be applied to offset
ordinary income for U.S. federal income tax purposes. See "Certain Federal Tax
Consequences -- Accrual of Original Issue Discount" and "-- Disposition of the
TECONS."
Potential Market Volatility During Extension Period
As described herein, the Company has the right to extend an interest payment
period on the Convertible Debentures from time to time for a period not
exceeding 20 consecutive quarterly interest periods. If the Company determines
to extend an interest payment period, or if the Company thereafter extends an
Extension Period or prepays interest accrued during an Extension Period as
described herein, the market price of the TECONS is likely to be affected. In
addition, as a result of such rights, the market price of the TECONS (which
represent an undivided interest in Convertible Debentures) may be more volatile
than other securities on which original issue discount accrues that do not have
such rights. A holder that disposes of its TECONS during an Extension Period,
therefore, may not receive the same return on its investment as a holder that
continues to hold its TECONS.
No Prior Public Market; Possible Price Volatility of TECONS
Prior to this offering, there has been no public market for the TECONS. There
can be no assurance that an active trading market for the TECONS will develop
or be sustained. If such a market were to develop, the TECONS could trade at
prices that may be higher or lower than their initial offering price depending
upon many factors including prevailing interest rates, the Company's operating
results, the price of the CNF Common Stock, the markets for similar securities
and the factors described above under "-- Possible Volatility of Stock Price"
and "-- Risks Relating to an Investment in the TECONS -- Potential Market
Volatility During an Extension Period."
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RECENT DEVELOPMENTS
NEW POSTAL CONTRACT
The USPS is a long-standing customer of the Company. EWA, a subsidiary of the
Company, currently provides nightly air delivery services for Express Mail (a
next-day delivery service) under a ten year contract with the USPS. The
original contract for this operation was awarded to EWA in 1989, and the
current contract was awarded to EWA in 1993. At December 31, 1996, EWA used 24
dedicated aircraft in providing services to the USPS under this contract. In
addition, EWA has also received separate contracts to carry peak-season
Christmas and other mail for the USPS. The Company recognized approximately
$131 million, $126 million and $140 million of revenue in 1994, 1995 and 1996,
respectively from contracts to carry mail, including Express Mail, for the
USPS.
After a competitive bidding process, on April 23, 1997, the USPS awarded EWA a
new contract for the sortation and transportation of Priority Mail (a second-
day delivery service) in portions of 13 states in the eastern United States.
This contract, referred to as "Phase I" by the USPS, has an initial term which
ends in 2002 and may be renewed by the USPS for two successive three-year
terms. In contrast to EWA's current USPS contract, which is primarily for
overnight air transportation services, the new contract will involve
transportation, handling and sortation of Priority Mail. According to the USPS,
nationwide Priority Mail volume (based on number of pieces) increased by
approximately 12.9% in 1995 and 10.4% in 1996 and, in 1996, Priority Mail
totaled approximately 960 million pieces, generating approximately $3.4 billion
of revenues for the USPS. The USPS has indicated that estimated Priority Mail
volume for the Phase I corridors is initially projected to be approximately 30%
of nationwide Priority Mail volume. The USPS has indicated that the Company
could receive revenues of approximately $1.7 billion over the initial 58 month
term of the new contract. However, this amount is subject to a number of
uncertainties and assumptions and the revenues actually realized by the Company
under the contract may be more or less than this amount. See "Risk Factors --
Risks Relating to New Postal Contract."
The new contract calls for EWA, either directly or through other subsidiaries
of the Company, to lease or acquire, improve, equip, fully staff and operate
ten Priority Mail processing centers ("PMPCs") in major metropolitan areas,
primarily along the eastern seaboard. These new PMPCs will serve as the
backbone of a new delivery network for the Priority Mail product which is
entirely separate from the channels through which the USPS transports and sorts
other classes of mail. The contract requires that five of the new PMPCs be
fully operational by late October 1997, and that all ten be fully operational
by late February 1998. The new contract does not call for any pick-up or
delivery of Priority Mail to or from individual customers, as the USPS will
continue to handle such end-customer pick-up and deliveries.
The Company believes that its proposal to provide this Priority Mail service to
the USPS benefited from its ability to provide comprehensive, integrated
transportation services at competitive prices and its reputation for
reliability. The Company believes that its existing infrastructure and broad
resource and skill base provide a solid foundation for fulfilling its
obligations under the new postal contract.
The Company expects that EWA will provide air transportation under the new USPS
contract, Menlo, the Company's logistics subsidiary, will manage the ten PMPCs
and provide ground transportation between the PMPCs and local post offices, and
Con-Way Truckload Services ("CWT"), a Company subsidiary which provides full-
service, multi-modal truckload services, will provide highway transportation
between PMPCs. However, certain of these services may be provided by other
business units of the Company or by subcontractors.
The Company expects that a fleet of more than 400 new Company-acquired trucks
with the USPS logo will be utilized to transport Priority Mail between post
offices and the regional PMPCs. Also, in connection with the new contract, CWT
intends to acquire additional tractors and trailers for transportation of
Priority Mail between PMPCs. EWA expects to provide a designated fleet of at
least 18 of its existing aircraft to transport Priority Mail. Commercial air
carriers will be used to supplement EWA's fleet as necessary. Road Systems,
Inc. ("Road Systems"), the Company's equipment manufacturing subsidiary, will
build and provide the Company with trailers required in connection with the new
contract. The Company estimates that implementation of the new USPS Priority
Mail network will require, in 1997, initial capital expenditures of
approximately $102 million and approximately $17 million for other associated
costs that consist substantially of contract costs that the Company expects to
capitalize. The Company estimates that the total network, when fully
operational, will employ approximately 1,400 full-time employees (of which the
substantial majority will be newly hired) and up to 1,000 additional employees
during high-volume Christmas seasons.
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The new USPS contract provides that EWA is to receive a fixed price per piece
of Priority Mail, subject to adjustments based on volume and percentage of on-
time handling and increases in certain wage costs, and also provides for EWA to
be reimbursed for fuel costs. In particular, the contract provides for
increases in the price per piece if Priority Mail volumes fall below projected
levels, but also provides for price reductions if volumes are higher than
projected levels. In light of this largely fixed price arrangement, the effect
of the contract on the Company's results of operations will depend in part upon
the Company's ability to manage and control its operating costs. In this
regard, the Company believes that the contract provides opportunities to
realize operating efficiencies through, for example, "daylight turns" of
aircraft which are currently used primarily at night in EWA's commercial (i.e.,
non-USPS) freight operations. The Company does not anticipate acquiring
additional aircraft in connection with the new contract, due primarily to these
anticipated "daylight turns" of existing aircraft. In providing services under
the new contract, EWA intends to co-load some of its aircraft with commercial
freight in addition to Priority Mail. The Company expects that co-loading will
reduce the amount of transportation services which EWA would otherwise have to
purchase from other air carriers. The Company will seek to use lower cost
highway transportation within Phase I corridors where on-time requirements can
be met without air delivery. Due in part to these projected operating
efficiencies, the Company was able to provide favorable pricing to the USPS
under the new contract. See "Risk Factors -- Risks Relating to New Postal
Contract."
SPIN-OFF OF CF MOTORFREIGHT
On December 2, 1996, the Company completed the Spin-off to its shareholders of
CF MotorFreight, a long-haul, LTL motor carrier. The Spin-off was intended,
among other things, to separate the Company's long-haul and regional trucking
operations so that each could adopt strategies and pursue objectives
appropriate to its specific business. Prior to the Spin-off, the long-haul and
regional trucking operations increasingly competed for business (a situation
which has continued after the Spin-off) and the resources of the Company,
although each had distinct financial, investment and operating characteristics.
The Spin-off reduced the number of Company employees represented by labor
unions from approximately 53% of the Company's total employees at December 31,
1995 to less than 8% of its total number of employees at March 31, 1997. The
Company believes that the percentage of its employees now represented by labor
unions is significantly lower than for many of its major competitors in the
domestic trucking businesses.
In connection with the Spin-off, the Company, formerly known as Consolidated
Freightways, Inc., changed its name to CNF Transportation Inc. The spun-off
businesses are currently operating under the name of Consolidated Freightways
Corporation. The Spin-off was effected by distributing to the Company's
shareholders one share of CFC common stock for every two shares of CNF Common
Stock.
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THE COMPANY
GENERAL
CNF Transportation Inc. is a leading provider of heavy air freight, regional
LTL trucking and logistics services. The Company has three principal business
units: Emery, which provides domestic and international air freight services,
Con-Way, which provides regional LTL trucking services in all 50 states, and
Menlo, a contract logistics company. Emery and Con-Way have established
infrastructures which enable them to provide time-definite and day-definite
delivery services throughout the United States and internationally. Emery also
provides nightly air transportation services to the USPS, and recently entered
into a new postal contract which will broaden these services to include
sortation and ground transportation of Priority Mail in the eastern United
States. Menlo, the Company's contract logistics subsidiary, specializes in
designing and managing complex supply and distribution networks for national
and multi-national companies. The Company also provides a number of other
transportation services, including full-service truckload services, ocean
forwarding and customs brokerage. The Company believes that its three principal
operating units are positioned to use their extensive resources and established
capabilities to capitalize on opportunities throughout the transportation
industry.
In December 1996, the Company completed the Spin-off of CF MotorFreight, a long
haul, LTL motor carrier, in order to better focus on its core business
segments. The business segments which now comprise the Company grew at an
average compound rate from 1993 to 1996 of approximately 19.2% per annum in
revenues and 28.4% per annum in operating income. However, there can be no
assurance that historical growth rates will continue. For 1996, those business
segments had a combined operating margin of approximately 5.2% on $3.7 billion
in revenues.
STRATEGY AND OUTLOOK
The Company's strategy is to develop and operate businesses which are
recognized as service, market share and profit leaders in their respective
major segments of the transportation industry. In furtherance of this strategy,
the Company seeks (i) to provide premium time-definite and day-definite freight
services on a global basis, (ii) to implement strategies designed to improve
operating efficiencies, (iii) to take advantage of favorable customer and
industry trends affecting the freight transportation industry, and (iv) as
appropriate, to integrate the Company's transportation and logistics services.
The Company believes that the breadth of transportation services it offers,
coupled with its domestic and international delivery capabilities, provides a
competitive advantage over less-diversified transportation companies. By
operating in both U.S. and international markets, offering a variety of
transportation modes (air freight, trucking and ocean), and participating in
both asset-based (i.e., capital intensive) businesses such as trucking and air
freight and non-asset-based businesses such as contract logistics, freight
forwarding and customs brokerage, the Company also seeks to reduce the impact
on its business of the historical cyclicality in the freight industry.
Provide Time-Definite and Day-Definite Transportation Services
The Company believes that a number of its customers are increasingly focused on
"just-in-time" inventory management and that this has created a need for
reliable time-definite and day-definite freight service. As a result, the
Company believes that distribution patterns in the U.S. have become more
regionalized as certain businesses have required more frequent shipments and
more specific delivery times from their suppliers. The Company believes that
Con-Way, which is comprised of three regional motor carriers, Emery, which
provides time-definite and day-definite air freight services, and Menlo, which
specializes in managing supply and distribution logistics, are generally well
positioned to take advantage of this inventory management trend.
For example, although Con-Way is known as a premium-priced motor carrier, the
Company believes that a number of Con-Way's customers are willing to pay
premium rates for the reliable and consistent delivery services which are
necessary to reduce costs of carrying excess inventory through just-in-time
inventory management. In the case of next-day deliveries (which accounted for
approximately two-thirds of Con-Way's total 1996 shipments), the Company
believes that Con-Way delivers freight over a greater number of regular
overnight transit lanes than many other major domestic LTL motor carriers. In
addition, Con-Way has extended its regular overnight service to distances up to
625 miles in certain designated market lanes, which compares favorably with
what the Company believes is conventional practice in the domestic LTL trucking
industry of two-day service for points generally beyond 450 to 500 miles. Emery
also provides reliable time-definite and day-definite services to its
customers, sometimes in instances requiring same-day delivery.
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Improve Operating Efficiencies
The Company believes that Emery's customers are typically concerned with timely
deliveries rather than the mode of transportation used in making the
deliveries. Because the average cost of ground transportation is considerably
less than air transportation, Emery seeks to manage its costs by using trucks,
rather than aircraft, to deliver freight whenever possible, typically in
connection with second-day deliveries. In 1997, Emery began to implement zone,
or distance, based pricing instead of flat fee pricing. Zone-based pricing is
intended to improve operating margins by allowing Emery to more accurately
match freight rates with the cost of its service. The implementation of zone-
based pricing has enabled Emery to adopt incentive compensation programs which
reward employees for improvements in operating margins, rather than growth in
revenue. Having largely completed its geographic expansion in North America,
Con-Way will continue to emphasize operating margin improvements, particularly
through efforts to increase the utilization of its freight system in the
Pacific northwest and northeastern U.S. (areas into which it has recently
expanded its operations) and through general market penetration.
Take Advantage of Customer and Industry Trends
The Company believes that, in addition to just-in-time inventory management, a
number of its customers are increasingly focused on outsourcing certain non-
core functions. The Company believes that Menlo, which specializes in managing
supply and distribution networks, should continue to benefit from this trend,
which allows customers to focus on core competencies rather than non-core
functions such as warehouse and inventory management, light assembly, shipping,
receiving and billing. The Company also believes that some of its customers are
reducing the number of carriers they utilize. For example, Nortel (Northern
Telecom) has indicated that it has reduced the number of air freight companies
it uses between North America and Asia and in Asia from approximately 25 in
1995 to two currently, one of which is Emery. The Company believes that this
trend towards core carrier relationships favors transportation companies which,
like the Company, are able to offer a broad range of domestic and international
transportation services and to manage supply and distribution chains from start
to finish. The Company believes that this trend should help to reduce
competition from less well diversified carriers and create opportunities to
capture new business.
Integrate Operations
The Company's strategy is to broaden the range of services provided by each of
its primary operating units and, where appropriate, to further integrate its
air freight, trucking and logistics businesses to provide customers with a
single source solution to their domestic and international transportation
requirements. In addition to providing customers with a broad range of
transportation and logistics services, the Company seeks to take advantage of
cross-enterprise synergies to reduce operating costs and enhance customer
service. The new Priority Mail contract with the USPS is an example of the
Company's strategy of providing comprehensive, integrated transportation
services. The Company expects that EWA will provide air transportation under
the new USPS contract, that Menlo will manage ten planned PMPCs and provide
local ground transportation, and that Con-Way will provide highway
transportation between PMPCs. However, certain of these services may be
provided by other business units of the Company or by subcontractors. In
bidding for this contract, the Company used its logistics expertise to design a
transportation system for Priority Mail which is expected to allow EWA to
realize operating efficiencies through "daylight turns" of aircraft that are
currently used primarily at night and "co-loading" certain of its aircraft with
commercial freight in addition to Priority Mail.
EMERY WORLDWIDE
In North America, Emery relies principally on its dedicated aircraft and ground
fleet to provide commercial door-to-door delivery for same-day, next-day,
second-day and deferred shipments and to provide overnight air transportation
services to the USPS. Internationally, Emery acts principally as a freight
forwarder in providing door-to-door and airport-to-airport commercial services
in approximately 200 countries. International business is defined by Emery as
shipments that either originate or terminate outside of North America.
Commercial business is defined by Emery as all operations except those services
it provides domestically to the USPS.
While Emery's freight system is designed to handle parcels, packages and
shipments of a variety of sizes and weights, its commercial operations are
focused primarily on heavy air freight (defined as shipments of 70 pounds or
more). In 1996, Emery's commercial shipments weighed an average of
approximately 227 pounds and generated average revenue of approximately $209
per shipment.
Based on external market research, the Company believes that, based on 1996
revenues, Emery has the leading market share in domestic heavy air freight and,
reflecting the growth in its international business, ranks first in heavy air
freight and second in all air freight shipped from North America to
destinations abroad.
S-24
<PAGE>
The Company believes that Emery's customers are typically concerned with time-
definite deliveries rather than mode of shipment. Because the average cost of
transporting freight by truck is considerably less than transporting freight by
air, Emery seeks to deliver freight using over-the-road trucks and tractor-
trailers where it can do so without jeopardizing on-time deliveries, typically
for at least one leg of second-day deliveries. Consequently, increased
utilization of highway transportation is a critical element in Emery's strategy
to improve operating margins and grow its second-day delivery business without
adversely affecting operating margins.
In 1997, Emery's management instituted programs which are intended to improve
results of operations and asset utilization. For example, zone-based "distance"
price and cost models have begun to replace "average" price and cost models,
allowing Emery more accurately to match rates with the costs of its services.
In addition, these new zone-based models have allowed management to implement
incentive compensation programs which are designed to reward employees for
improvements in operating margins, rather than overall revenue growth.
The Company believes that Emery's competitive position versus air freight
forwarders in the domestic air freight industry has improved over the last
several years as the availability of cargo capacity on domestic passenger
airlines has decreased. Several major domestic airlines have reduced the number
of wide-body aircraft they use for domestic passenger service in favor of
narrow-body aircraft. Narrow-body aircraft have substantially less cargo space
than do wide-body aircraft. The Company believes that this trend toward the use
of passenger aircraft with lower cargo capacities has reduced the availability
of airlift for freight forwarders (which do not operate their own aircraft) and
benefitted EWA and other asset-based air freight companies.
Emery provides services in North America through a system of sales offices and
service centers, and overseas through foreign subsidiaries, branch sales
offices, service centers and agents. Emery's door-to-door service within North
America relies on Emery's own airlift system, supplemented with commercial
airlines. Internationally, Emery operates as an air freight forwarder primarily
using commercial airlines, while utilizing controlled lift only on a limited
basis. Due in part to the Company's heightened focus on opportunities in the
expanding worldwide economy, Emery's total international revenues increased
107% from 1993 through 1996, compared with a 44% increase for its total North
American commercial revenues for the same period. For 1996 and the first
quarter of 1997, international revenues of approximately $760 million and $205
million comprised nearly 40% and 41% of Emery's total commercial revenues,
respectively. In addition, 23.6% of Emery's 1996 international revenues were
derived from business not involving North American origins or destinations.
Emery's fastest-growing regions internationally are Latin America and Asia.
Emery uses third party agents to provide pick-up and delivery services in
foreign countries where limited freight volumes or, in some cases, limits on
foreign ownership make those arrangements appropriate. In the past two years,
Emery has converted eight international agent operations to wholly-owned
operations in an effort to improve customer service and increase retained
revenues. The cost of these eight conversions is expected to be less than $10
million, including future payments which are contingent upon operating results
of the acquired businesses. Management expects to continue with additional
conversions of international agent locations where business levels suggest that
such action is appropriate.
As of December 31, 1996, Emery utilized a fleet of 71 dedicated aircraft for
its commercial operations. Of these aircraft, 48 were leased on a long-term
basis, 9 were owned and 14 were contracted for on a short-term basis to
supplement nightly volumes and to provide feeder services. At December 31,
1996, the nightly lift capacity of this aircraft fleet, excluding charters, was
over 4 million pounds. At December 31, 1996, Emery also operated approximately
2,000 trucks, vans and tractor-trailers, as well as equipment provided by its
agents.
Emery's hub-and-spoke system is based at the Dayton International Airport
("DAY"), where its leased air cargo facility (the "Hub") and related support
facilities are located. DAY has a relatively high capacity and, since April
1989, there have been only four days on which weather-related closures have
prevented Emery from conducting night-time operations at DAY. The Hub handles a
wide variety of shipments, ranging from small packages to heavyweight cargo,
with a total effective sort capacity of approximately 1.2 million pounds per
hour. The operation of the Hub in conjunction with Emery's airlift system
enables Emery to maintain a high level of service reliability. In addition to
the Hub, Emery operates nine regional hubs, strategically located around the
United States near Sacramento and Los Angeles, California; Dallas, Texas;
Chicago, Illinois; Poughkeepsie, New York; Charlotte, North Carolina; Atlanta,
Georgia; Nashville, Tennessee; and Orlando, Florida.
To enhance the range of services it can offer to its customers and to provide
further avenues for growth, Emery has established several non-asset based
strategic business units. (The Company defines a non-asset-based business as
one requiring substantially less capital investment than its principal domestic
air freight and trucking businesses.) These include Emery Expedite!, a rapid
S-25
<PAGE>
response freight handling subsidiary providing global door-to-door delivery of
shipments, Emery Global Logistics, a logistics subsidiary which operates
warehouse and distribution centers for customers in six countries, and Emery
Customs Brokerage, which provides full service customs clearance regardless of
mode of transport or carrier. Another Emery business unit, Emery Ocean
Services, is a global freight forwarder and non-vessel operating common carrier
that provides full and less-than-container load services.
CON-WAY TRANSPORTATION SERVICES
Con-Way provides time-definite and day-definite ground transportation to all 50
states through its three regional LTL motor carriers. Due in part to its
emphasis on customer service and reliability, the Company believes that Con-Way
has positioned itself as a leading provider of premium LTL transportation
services, and that Con-Way's 1996 operating margins of approximately 7.8% were
among the highest of major domestic LTL carriers. In addition to time-definite
and day-definite regional and inter-regional LTL freight transportation, Con-
Way provides full-service nationwide truckload freight service and ground
expedited delivery.
Having largely completed its geographic expansion in North America, Con-Way has
the infrastructure in place to serve all 50 states of the United States and
certain major population centers in Canada, as well as Puerto Rico and parts of
Mexico. Con-Way's strategy will continue to emphasize operating margin
improvements, particularly through efforts to increase the utilization of its
freight system in the Pacific northwest and northeastern U.S. (areas in which
it has recently expanded its operations) and through general market
penetration.
The Company believes that Con-Way has benefited from the consolidation which
has taken place in the trucking industry over the last several years, as a
number of its competitors have ceased operations. In addition to reducing
overcapacity in the industry, this consolidation has allowed Con-Way to obtain
business from customers previously served by former competitors and selectively
acquire certain real estate, facilities and equipment from competitors that
have gone out of business. Such opportunities have continued into 1997.
Con-Way's three primary business units are regional LTL motor carriers, each of
which operates a dedicated regional trucking network principally serving core
geographic territories with next-day and second-day service. For 1996,
approximately two-thirds of the shipments made by these three regional carriers
were next-day service. The regional carriers serve manufacturing, industrial,
commercial and retail business-to-business customers with a fleet of
approximately 23,500 trucks, tractors and trailers at December 31, 1996. The
three regional carriers are:
Con-Way Central Express ("CCX")
CCX serves 25 states of the central and northeast U.S., Ontario and Quebec,
Canada and Puerto Rico. CCX expanded into the New England states in 1994 and,
in February 1995, expanded into New Jersey and began providing service to the
metropolitan New York City area. At December 31, 1996, CCX operated 205 service
centers.
Con-Way Southern Express ("CSE")
CSE serves a 12-state southern market from Texas to the Carolinas and Florida,
and also serves Puerto Rico and parts of Mexico. CSE operated 100 service
centers at December 31, 1996.
Con-Way Western Express ("CWX")
CWX operates in 13 western states and also serves parts of Canada and Mexico.
CWX completed major territorial expansions in 1995 in the Pacific northwest and
British Columbia. At December 31, 1996, CWX operated 63 service centers.
The expansion of the territories served by Con-Way's three regional carriers
allows them to provide full regional service throughout the U.S. and to certain
major population centers in Canada. By selectively offering joint services, the
three regional carriers can now provide next-day and second-day freight
delivery between their respective core territories utilizing existing
infrastructure. The joint service program is intended to generate additional
business by allowing each carrier to provide coverage of regional market lanes
not serviced as part of its core territory. Due, in large part, to
implementation of the joint service program, the average length of haul for
shipments handled by the regional carriers grew from approximately 308 miles in
1993 to approximately 470 miles in 1996, while average revenue per shipment
grew from approximately $100 in 1993 to approximately $121 in 1996. The average
weight per shipment was approximately 1,105 pounds in 1996.
S-26
<PAGE>
Con-Way's operations also include CWT, a full-service, multi-modal truckload
company, and Con-Way NOW, which serves the expedited surface shipment market.
CWT provides door-to-door delivery of truckload shipments by highway and rail
container stack train, as well as rail forwarding with domestic intermodal
marketing services, and assembly and distribution services. Con-Way NOW
specializes in delivering items, such as replacement parts, medical equipment
and other urgent shipments, where speed of delivery is critical. Con-Way NOW
began operations in 1996 in the midwest, expanded to parts of the southeastern
U.S. in April 1997, and plans additional expansions in the future.
MENLO LOGISTICS
Menlo, founded in 1990, specializes in developing and managing complex national
and global supply and distribution networks, including transportation
management, dedicated contract warehousing, dedicated contract carriage and
just-in-time delivery programs. In serving its customers, Menlo uses and
develops transportation optimization and carrier tracking software, and also
provides real time warehouse and transportation management systems. Menlo has
developed the ability to link these systems both with each other and with its
customers' internal systems. The Company believes that Menlo's software skills,
operations processes and design expertise with respect to sophisticated
logistics systems have established it as a leader in the emerging field of
contract logistics. Complex projects which call upon Menlo's skills in managing
carrier networks, dedicated vehicle fleets and automated warehouses as an
integrated system recently have been the fastest growing segment of Menlo's
business.
The Company believes that three industry trends have driven Menlo's recent
growth. First, the Company believes that a number of businesses are
increasingly evaluating their overall logistics costs, including
transportation, warehousing and inventory carrying costs. In addition, the
Company believes that outsourcing of non-core services, such as distribution,
has become more commonplace with many businesses. Finally, the Company believes
that the ability to access information through computer networks has increased
the value of capturing real time logistics information to track inventories,
shipments and deliveries.
One of Menlo's primary strategies is to build upon existing relationships by
increasing the services which it provides to current customers. In 1996, Menlo
expanded the services it provides to existing clients such as Hewlett-Packard,
Sears, Coca-Cola and IBM. Menlo was also awarded projects in 1996 by new
clients such as Imation, Nike, Frigidaire, Delphi and Bell Atlantic.
Compensation from Menlo's customers takes different forms, including cost-plus,
gain-sharing, per-piece, fixed dollar and consulting fees. In some cases,
start-up and development costs are reimbursed by customers.
At December 31, 1996, Menlo managed approximately three million square feet of
warehouse and cross-dock facilities, and had a fleet of approximately 250
tractors, trailers and straight trucks for its exclusive use. Menlo has sought
to limit the financial commitments it undertakes by typically providing that
any facility or major equipment lease which it enters into on behalf of a
customer must be assumed by the customer upon termination of the contract with
Menlo. However, to date relatively few customer relationships have been ended
by either Menlo or its customers.
While the Company seeks to take advantage of cross-business synergies whenever
possible, Menlo is operated as an independent business segment within the
Company and not merely as a conduit through which business can be referred to
Con-Way or Emery. The Company estimates that, for the first quarter of 1997,
less than 10% of Menlo's operating expenses were attributable to operations
which resulted in revenues to other business units of the Company. The relative
independence of Menlo from the Company's other primary business units is viewed
as essential to maintaining Menlo's creditability with its customers.
ROAD SYSTEMS AND VANTAGEPARTS
The Company combines the results of its two non-carrier operations, Road
Systems and VantageParts, with the operations of Menlo for financial reporting
purposes. Road Systems primarily manufactures and rebuilds trailers, converter
dollies and other transportation equipment. VantageParts serves as a
distributor and remanufacturer of vehicle component parts and accessories to
the heavy-duty truck and trailer industry, as well as the maritime,
construction, aviation and other industries.
S-27
<PAGE>
USE OF PROCEEDS
The proceeds from the sale of the TECONS offered hereby will be invested by the
Trust in Convertible Debentures of the Company. The net proceeds to the Company
from the sale of the Convertible Debentures are estimated to be approximately
$106,787,500 ($121,431,250 if the Underwriters' over-allotment option is
exercised in full), after paying the Underwriters' compensation and other
estimated expenses associated with the TECONS Offering. The Company intends to
use such net proceeds to pay costs associated with the recently signed contract
with the USPS. These include costs to acquire surface transportation equipment
and to lease, acquire, improve and equip ten Priority Mail processing centers.
For 1997, the Company has budgeted approximately $102 million for capital
expenditures associated with the new contract plus approximately $17 million
for other associated costs that consist substantially of contract costs that
the Company expects to capitalize. Any remaining net proceeds will be applied
by the Company for other general corporate purposes, which may include
repayment of indebtedness. In that regard, the Company is considering
alternative arrangements to finance certain of the costs associated with the
new postal contract. Such financing, if obtained, would reduce the amount of
net Offering proceeds applied to pay those costs. Pending application for such
purposes, such net proceeds may be invested in short-term investments and
marketable securities or used to repay indebtedness under credit facilities.
See "Recent Developments" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Three Months Ended March 31,
1997 and 1996."
S-28
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The CNF Common Stock is traded on the New York Stock Exchange (the "NYSE") and
the Pacific Exchange under the symbol "CNF." The following table sets forth,
for the periods indicated, (i) the high and low sale prices per share of CNF
Common Stock as reported on the NYSE Composite Tape and (ii) such prices as
adjusted to give effect to the Spin-off of CFC which occurred on December 2,
1996. The prices as adjusted for the Spin-off have been calculated by
multiplying the actual high and low sale prices for the respective periods set
forth below by an adjustment factor of approximately 0.842. This adjustment
factor was calculated by dividing (i) an amount equal to (A) the last reported
sale price of the CNF Common Stock on the NYSE Composite Tape on December 2,
1996 ($24.50 per share) minus (B) one-half of the last reported price of CFC's
common stock on the Nasdaq National Market on a when issued basis ($3.875 per
share) on that date (reflecting the fact that one-half of a share of CFC's
common stock was distributed in the Spin-off for each outstanding share of CNF
Common Stock) by (ii) the last reported sale price of the CNF Common Stock on
the NYSE Composite Tape on that date ($24.50 per share). The prices as adjusted
for the Spin-off are provided for information only and do not purport to
represent what the trading prices of the CNF Common Stock would have been had
the Spin-off occurred prior to December 2, 1996. In addition, the quotation
from the Nasdaq National Market reflects an inter-dealer price, without retail
mark-up, mark-down or commission, and may not necessarily reflect actual
transactions. The quarterly dividend paid on the CNF Common Stock for each of
the periods presented below was $.10 per share. See "Recent Developments."
<TABLE>
<CAPTION>
---------------------------
ACTUAL AS ADJUSTED
------------- -------------
HIGH LOW HIGH LOW
------ ------ ------ ------
<S> <C> <C> <C> <C>
1995:
First Quarter...................................... $27.00 $20.25 $22.73 $17.05
Second Quarter..................................... 27.00 20.63 22.73 17.36
Third Quarter...................................... 26.75 21.75 22.52 18.31
Fourth Quarter..................................... 28.75 22.63 24.20 19.05
1996:
First Quarter...................................... $29.38 $21.00 $24.73 $17.67
Second Quarter..................................... 26.25 21.13 22.09 17.78
Third Quarter...................................... 24.75 16.25 20.83 13.69
Fourth Quarter (through December 2, 1996).......... 26.00 22.75 21.89 19.16
<CAPTION>
ACTUAL(1)
-------------
HIGH LOW
------ ------
<S> <C> <C>
Fourth Quarter (from December 3, 1996)............. $23.38 $21.50
1997:
First Quarter...................................... $28.13 $20.25
Second Quarter (through June 5, 1997).............. 32.75 26.38
</TABLE>
- -------
(1) The Spin-off occurred on December 2, 1996. All prices after that date are
actual.
As of March 31, 1997, there were approximately 15,946 holders of record of the
CNF Common Stock. On June 5, 1997, the last reported sale price of the CNF
Common Stock on the NYSE was $31.50 per share.
The declaration and payment of dividends on the CNF Common Stock is at the
discretion of the Company's Board of Directors and depends on the Company's
results of operations, financial condition and capital requirements,
limitations on dividends arising under Delaware law, and such other factors as
the Board of Directors deems relevant. In June 1990, the Board of Directors
suspended the payment of quarterly dividends on the CNF Common Stock in order
to conserve cash; the payment of dividends on the CNF Common Stock was
subsequently resumed, commencing with the dividend for the fourth quarter of
1994 (which was paid in the first quarter of 1995). In addition, certain of the
Company's debt instruments contain restrictive covenants that could limit the
amount of dividends payable by the Company. See "Risk Factors -- Provisions of
Certain Indebtedness."
S-29
<PAGE>
CAPITALIZATION
The following table sets forth (i) the consolidated cash and cash equivalents
of the Company as of March 31, 1997 and as adjusted to reflect the sale of the
TECONS offered hereby and the receipt of the estimated net proceeds therefrom,
(ii) the consolidated current maturities of long-term debt, capital leases and
short-term borrowings of the Company as of March 31, 1997, and (iii) the
consolidated capitalization of the Company as of March 31, 1997, and as
adjusted to reflect the sale of the TECONS offered hereby.
<TABLE>
<CAPTION>
-----------------------
AT MARCH 31, 1997
-----------------------
ACTUAL AS ADJUSTED
Dollars in thousands ---------- -----------
<S> <C> <C>
CASH AND CASH EQUIVALENTS $ 78,277 $ 185,065
========== ==========
SHORT-TERM DEBT
Current maturities of long-term debt and capital
leases............................................. $ 4,947 $ 4,947
Short-term borrowings (1)........................... 145,000 145,000
---------- ----------
Total Short-Term Debt............................. $ 149,947 $ 149,947
========== ==========
LONG-TERM DEBT AND CAPITAL LEASES
9 1/8% Notes due 1999............................... $ 117,705 $ 117,705
7.35% Notes due 2005................................ 100,000 100,000
6.14% Industrial Revenue Bonds due through 2014..... 4,800 4,800
Guaranteed TASP Notes, 8.42% to 9.04%, due through
2009(2)............................................ 139,600 139,600
Obligations under capital leases.................... 110,871 110,871
Other debt.......................................... 666 666
---------- ----------
Total Long-Term Debt (3).......................... 473,642 473,642
COMPANY-OBLIGATED MANDATORILY REDEEMABLE CONVERTIBLE
PREFERRED SECURITIES OF CNF TRUST I HOLDING SOLELY
CONVERTIBLE DEBENTURES(4)............................ -- 110,000
SHAREHOLDERS' EQUITY
Preferred stock, no par value; authorized 5,000,000
shares:
Series B, 8.5% cumulative, convertible, $0.01
stated value; designated 1,100,000 shares; issued
and outstanding 872,394 shares..................... 9 9
Additional paid-in capital, preferred stock......... 132,682 132,682
Deferred Thrift and Stock Plan compensation......... (107,093) (107,093)
---------- ----------
Total Preferred Shareholders' Equity.............. 25,598 25,598
Common Stock, $0.625 par value; authorized
100,000,000 shares; issued 52,657,597 shares(5).... 32,911 32,911
Additional paid-in capital, common stock............ 258,145 258,145
Cumulative translation adjustment................... (534) (534)
Retained earnings................................... 389,650 389,650
Cost of repurchased common stock (7,011,589
shares)............................................ (172,880) (172,880)
---------- ----------
Total Common Shareholders' Equity................. 507,292 507,292
---------- ----------
Total Shareholders' Equity........................ 532,890 532,890
---------- ----------
Total Capitalization............................ $1,006,532 $1,116,532
========== ==========
</TABLE>
- -------
(1) Short-term borrowings consist of borrowings outstanding under the Credit
Facility and other credit facilities.
(2) These notes (the "TASP Notes") were issued by the TASP and are guaranteed
by the Company. The holders of the TASP Notes have the right to require the
Company to repurchase such notes on July 1, 1999 or, under certain
circumstances, at any time. See "Risk Factors -- Provisions of Certain
Indebtedness."
(3) In addition to the amounts reflected in the above table, at March 31, 1997,
the Company had $124.1 million of letters of credit outstanding under the
Credit Facility and $69.8 million of letters of credit outstanding under
several unsecured letter of credit facilities. At that date, no drawings
were outstanding under these letters of credit.
(4) As described herein, the sole assets of the Trust will be the Convertible
Debentures of the Company with a principal amount of approximately
$113,402,100 ($128,866,000 if the Underwriters' over-allotment option is
exercised in full), and upon redemption of such debt, the TECONS will be
mandatorily redeemable.
(5) Includes 7,011,589 repurchased shares of CNF Common Stock at March 31,
1997. Does not include 2,750,000 shares (3,125,000 shares if the
Underwriters' over-allotment option is exercised in full) of CNF Common
Stock initially issuable upon conversion of the TECONS. Also does not
include 2,417,743 shares of CNF Common Stock issuable under benefit plans,
3,741,848 shares of CNF Common Stock issuable under outstanding stock
options, and approximately 4,258,592 shares of CNF Common Stock issuable
upon conversion of the Series B Preferred Stock at March 31, 1997.
S-30
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data for the
Company and its subsidiaries as of and for the three months ended March 31,
1997 and 1996, and as of and for the five years ended December 31, 1996. On
December 2, 1996, the Company completed the Spin-off of CFC. As a result, the
Company's consolidated financial statements have been restated to report the
discontinued operations of CFC separately from continuing operations of the
Company. The selected consolidated financial data (other than the ratios set
forth below) for the five years ended December 31, 1996 has been derived from
the Company's audited consolidated financial statements, after giving effect to
restatement for the discontinued operations of CFC resulting from the Spin-off.
The selected consolidated financial data (other than the ratios set forth
below) as of and for the three months ended March 31, 1997 and 1996, has been
derived from the Company's unaudited consolidated financial statements, after
giving effect to restatement for the discontinued operations of CFC resulting
from the Spin-off. In the opinion of management, such unaudited consolidated
financial statements include all normal recurring adjustments necessary to
present fairly the information required to be set forth therein. Operating
results for the three months ended March 31, 1997 are not necessarily
indicative of the results to be expected for the year ending December 31, 1997.
The following data should be read in conjunction with the other information
included and incorporated by reference in this Prospectus Supplement and the
accompanying Prospectus, including Management's Discussion and Analysis of
Financial Condition and Results of Operations included herein and the Company's
consolidated financial statements and notes thereto incorporated by reference
in the accompanying Prospectus. See "Available Information" in the accompanying
Prospectus.
<TABLE>
<CAPTION>
===================================================================================
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
--------------------- ------------------------------------------------------------
Dollars in thousands, except 1997 1996 1996 1995 1994 1993 1992
per share amounts ---------- ---------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA
Revenues:
Emery Worldwide................... $ 508,552 $ 446,599 $1,968,058 $1,766,301 $1,567,854 $1,261,273 $1,147,204
Con-Way Transportation Services... 334,458 301,841 1,292,082 1,152,164 1,018,544 818,301 724,195
Other............................. 99,618 99,433 402,043 371,612 213,537 84,057 49,980
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total........................... $ 942,628 $ 847,873 $3,662,183 $3,290,077 $2,799,935 $2,163,631 $1,921,379
========== ========== ========== ========== ========== ========== ==========
Operating Income (Loss):
Emery Worldwide................... $ 18,507 $ 11,500 $ 78,415 $ 81,734 $ 77,616 $ 16,591 $ (32,651)
Con-Way Transportation Services... 28,477 20,384 101,049 96,573 111,220 71,854 53,747
Other............................. 3,383 3,330 12,684 8,380 1,141 2,309 3,820
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total........................... $ 50,367 $ 35,214 $ 192,148 $ 186,687 $ 189,977 $ 90,754 $ 24,916
========== ========== ========== ========== ========== ========== ==========
Income (loss) from continuing
operations before extraordinary
charges and cumulative effect
of accounting changes............. $ 21,944 $ 13,663 $ 80,181 $ 86,219 $ 95,825 $ 37,466 $ (20,725)
Income (loss) from discontinued
operations, net of income taxes
(benefits)(1)..................... -- (13,383) (36,386) (28,854) (37,442) 13,108 (17,817)
Loss from discontinuance, net of
income tax benefits............... -- -- (16,247) -- -- -- --
Extraordinary charges.............. -- -- -- -- (3,610)(2) -- (2,759)(3)
Cumulative effect of change in
accounting principle.............. -- -- -- -- -- -- (39,774)(4)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss).................. 21,944 280 27,548 57,365 54,773 50,574 (81,075)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Preferred stock dividends.......... 1,939 2,134 8,592 10,799 19,063 18,967 16,653
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss) applicable to
common shareholders............... $ 20,005 $ (1,854) $ 18,956 $ 46,566 $ 35,710 $ 31,607 $ (97,728)
========== ========== ========== ========== ========== ========== ==========
PER SHARE DATA
Income (loss) from continuing
operations before extraordinary
charges and cumulative effect
of accounting changes(5).......... $ 0.43 $ 0.26 $ 1.59 $ 1.75 $ 1.98 $ 0.51 $ (1.06)
Income (loss) from discontinued
operations, net of income taxes
(benefits)(1)..................... -- (0.29) (0.81) (0.65) (0.85) 0.36 (0.51)
Loss from discontinuance, net of
income tax benefits............... -- -- (0.36) -- -- -- --
Extraordinary charges.............. -- -- -- -- (0.08)(2) -- (0.08)(3)
Cumulative effect of change in
accounting principle.............. -- -- -- -- -- -- (1.13)(4)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss) applicable to
common shareholders............... $ 0.43 $ (0.03) $ 0.42 $ 1.10 $ 1.05 $ 0.87 $ (2.78)
========== ========== ========== ========== ========== ========== ==========
Primary average shares............. 46,465,385 44,925,741 45,062,576 44,362,485 44,116,044 36,187,682 35,195,743
</TABLE>
S-31
<PAGE>
<TABLE>
<CAPTION>
==================================================================================
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
---------------------- ----------------------------------------------------------
Dollars in thousands, except 1997 1996 1996 1995 1994 1993 1992
per share amounts ---------- ---------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER OPERATING DATA
Depreciation....................... $ 25,009 $ 19,433 $ 87,423 $ 69,952 $ 63,557 $ 54,071 $ 56,919
Investment income.................. -- -- 52 85 1,708 5,127 3,726
Interest expense................... 10,805 9,664 39,766 33,407 27,065 29,890 33,023
Ratio of earnings to fixed
charges(6)........................ 2.3x 1.9x 2.3x 2.6x 2.9x 1.7x 0.5x(7)
Ratio of earnings to combined
fixed charges and preferred stock
dividends(8)...................... 2.3x 1.9x 2.3x 2.5x 2.5x 1.5x 0.4x(9)
BALANCE SHEET AND OTHER DATA
(END OF PERIOD)
Net working capital................ $ 13,424 $ 87,366 $ 809 $ 178,319 $ 128,049 $ 45,107 $ 134,895
Costs in excess of net assets of
businesses acquired, net.......... 283,328 304,581 285,566 306,795 320,653 350,320 369,672
Property, plant and equipment,
net............................... 762,476 606,041 752,649 574,674 491,714 409,578 343,589
Total assets....................... 2,103,137 2,138,286 2,081,866 2,084,958 1,833,792 1,728,874 1,703,174
Long-term debt(10)................. 473,642 477,273 366,305 369,445 382,757 393,309 490,220
Shareholders' equity............... 532,890 715,514 508,279 722,360 673,629 623,375 579,161
Employees.......................... 24,900 21,600 25,100 21,400 18,500 17,000 14,700
</TABLE>
- -------
(1) Reflects the results of CFC which was spun-off on December 2, 1996. The
year ended December 31, 1994 includes an extraordinary charge of $1.9
million ($0.04 per share), net of related tax benefits, for the write-off
of intrastate operating rights. The year ended December 31, 1992 includes
$30.2 million ($0.86 per share) cumulative effect for change in accounting
principle and $4.5 million ($0.13 per share) extraordinary charge from
early retirement of debt, both net of related tax benefits.
(2) Represents extraordinary charge from write-off of intrastate operating
rights, net of related tax benefits.
(3) Represents extraordinary charge from early retirement of debt, net of
related tax benefits.
(4) Represents cumulative effect of change in method of accounting for post-
retirement benefits, net of related tax benefits.
(5) Calculated after preferred stock dividends.
(6) The ratio of earnings to fixed charges is unaudited for all periods
presented. The ratio of earnings to fixed charges was derived by dividing
earnings before fixed charges and income taxes by fixed charges. For this
purpose, "earnings" represents income (loss) from continuing operations
before consolidated income taxes and fixed charges (excluding capitalized
interest and dividends on all of the Company's preferred stock). "Fixed
charges" represents interest on capital leases and short-term and long-term
debt, capitalized interest, dividends on shares of the Series B Preferred
Stock used to pay debt service on notes issued by the TASP (see
"Capitalization"), and the applicable portion of the consolidated rent
expense which approximates the interest portion of lease payments. All of
the outstanding shares of such Series B Preferred Stock are held by the
TASP.
(7) Earnings were inadequate to cover fixed charges for the period shown; the
deficiency was $39.4 million for the year ended December 31, 1992.
(8) The ratio of earnings to combined fixed charges and preferred stock
dividends is unaudited for all periods presented. The ratio of earnings to
combined fixed charges and preferred stock dividends was derived by
dividing earnings before fixed charges and income taxes by combined fixed
charges and dividends on the Company's Series C Conversion Preferred Stock
(the "Series C Preferred Stock"). For this purpose, earnings and fixed
charges are computed as described in note (6) above. The Series C Preferred
Stock was issued in March 1992 and all of the outstanding shares thereof
were converted into CNF Common Stock in March 1995.
(9) Earnings were inadequate to cover combined fixed charges and preferred
stock dividends for the period shown; the deficiency was $47.8 million for
the year ended December 31, 1992.
(10) Long-term debt includes capital lease obligations and notes issued by the
TASP which are guaranteed by the Company. See "Capitalization."
S-32
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
On December 2, 1996, the Company completed the Spin-off of CFC, which had
historically been reported as the Company's former CF MotorFreight business
segment. Accordingly, the accounts and operations of CFC through the date of
the Spin-off are reported as discontinued operations in the consolidated
financial statements of the Company which are incorporated by reference in the
accompanying Prospectus and upon which the following discussion is based.
For financial reporting purposes, the Company's operations are organized into
three business segments: domestic and international air freight and ocean
forwarding (Emery); regional LTL trucking and full-service truckload services
(Con-Way); and a third segment ("Other") which is comprised of a third-party
contract logistics company (Menlo), Road Systems, a trailer manufacturer, and
VantageParts, a wholesale truck parts distributor. Each of these business
segments is discussed below. For purposes of the following discussion,
references to Emery's "commercial" revenues means Emery's revenues other than
those attributable to business with the USPS.
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
General
Total revenues of the Company for the first quarter of 1997 increased 11.2%
over the first quarter of 1996. The increase was the result of higher revenues
at all three of the Company's operating segments. Contributing to the higher
revenue levels were improved global economic conditions, a more stable pricing
environment, and successful marketing strategies.
The Company's total operating income for the first quarter increased 43.0% over
the first quarter of 1996. This improvement was driven by significantly higher
operating income at Emery and Con-Way, as well as at Menlo, whose operating
income provides the majority of the operating income of the Other segment. The
improvement in first quarter 1997 operating income was also attributable to the
effects of severe winter storms during the first quarter of 1996, which
adversely affected results of Con-Way and Emery during the corresponding 1996
period.
Other expenses for the first quarter 1997 increased 7.0% over the first quarter
last year due primarily to higher interest expense. Increased borrowings under
the Company's unsecured credit facility drove up first quarter 1997 interest
expense by 11.8% compared with the first quarter of 1996.
The effective income tax rate of 45.4% for the first quarter of 1997 was lower
than the rate of 46.8% for the first quarter of 1996, primarily because non-
deductible expenses for the two periods were approximately equal while pretax
earnings were higher in the first quarter of 1997 than in the first quarter of
1996.
Net income applicable to common shareholders for the first quarter of 1997 was
$21.9 million above the first quarter of 1996 due primarily to the higher
operating income described above and the loss from discontinued operations of
$13.4 million reported in the first quarter of 1996.
Significant variations in segment revenues and operating income were as
follows:
Emery Worldwide
Emery's revenues for the first quarter of 1997 were up 13.9% compared to first
quarter 1996 due to strong tonnage growth from both its domestic and
international business. Domestic tonnage in the first quarter of 1997 was 9.2%
higher than the first quarter of 1996 and international tonnage was up 11.0%
for the same period. Improved domestic and international economic conditions
and increased emphasis on improving freight rates contributed to the revenue
increase.
Emery's operating income for the first quarter of 1997 was 60.9% above the
first quarter of 1996. The improvement in operating income was attributable in
part to increased revenues, a fuel index fee intended to recover a portion of
higher fuel costs from customers, and improved pricing. In addition, operating
income for the first quarter of 1996 was adversely affected by the effects of
severe winter storms and slightly higher fuel costs. Partially offsetting the
improvement in the first quarter of 1997 was the renewal of the U.S. air cargo
excise tax in mid-March 1997, as the excise tax was not in effect during the
first quarter of 1996.
S-33
<PAGE>
Emery has converted eight international agent operations in the past two years
to wholly-owned operations in an effort to improve customer service and
increase international revenues. Management intends to continue with additional
conversions of international agent locations in an effort to improve and expand
the level of customer service. In 1997, management revised Emery's employee
incentive plans to focus on improving operating margins, rather than on revenue
growth.
On April 23, 1997, EWA was awarded a new contract with the USPS to provide
Priority Mail sortation and transportation. The USPS has indicated that the
Company could receive revenues of approximately $1.7 billion over the initial
58 month term of the contract. However, this amount is subject to a number of
uncertainties and assumptions (including assumptions regarding Priority Mail
volumes to be handled under the contract), and there can be no assurance that
the revenues realized by the Company will not be less than this amount. The
initial term of the contract ends in February 2002, although the contract may
be renewed by the USPS for two successive three-year terms. The contract
establishes fixed prices per piece, subject to adjustments based on volume and
percentage of on-time performance and for increases in certain wage costs, and
provides for EWA to be reimbursed for fuel costs. As a result, the effect of
the contract on the Company's results of operations will depend in part on its
ability to control costs of performance under the contract. The contract calls
for the Company to obtain, equip and fully staff ten Priority Mail processing
centers in major metropolitan areas along the eastern seaboard. The contract
calls for five of the processing centers to be fully operational by late
October 1997, and for the remaining five to be fully operational by late
February 1998. The contract also provides for the Company to pay liquidated
damages if the centers are not operational on time, and provides for the
Company to receive incentive bonuses if completed by required dates. For 1997,
the Company has budgeted approximately $102 million for capital expenditures
associated with the new contract plus approximately $17 million for other
associated costs that consist substantially of contract costs that the Company
expects to capitalize. The contract may be terminated by the USPS for failure
by the Company to perform its obligations thereunder and, as is common in
government contracts, may be terminated by the USPS "for convenience" (i.e.,
without cause), although the USPS may be required, following termination for
convenience, to reimburse the Company for certain expenditures associated with
the contract. See "Risk Factors -- Risk Relating to New Postal Contract" and
"Recent Developments."
Con-Way Transportation Services
Con-Way's revenues for the first quarter of 1997 were 10.8% above the same
quarter of 1996. Total tonnage for the first quarter of 1997 increased 3.4%
over the first quarter of 1996, with LTL tonnage, which typically has higher
rates than truckload tonnage, up 6.2% over the first quarter of 1996. The
increased revenues reflect both the tonnage gains as well as improved pricing
conditions in the industry compared with the first quarter of 1996.
Operating income for Con-Way in the first quarter of 1997 increased 39.7% over
the first quarter of last year. The higher operating income was attributable in
part to increased revenues, improved load factors and freight system
utilization in newer geographic regions served by Con-Way, recovery of a
portion of the higher fuel costs through surcharges to customers, improved
operating efficiencies, and improved pricing conditions in the industry. The
improvement in first quarter 1997 operating income was also attributable to the
fact that first quarter 1996 results were adversely affected by severe winter
weather and by slightly higher fuel costs.
Con-Way management's strategies will continue to emphasize operating margin
improvements. The strategies include efforts to increase the utilization of the
freight system in the Pacific northwest and northeastern United States,
continued emphasis on market penetration in light of the withdrawal of a major
competitor from several key regional markets, and efforts to reprice or replace
low margin business.
Other Operations
The Other segment, which consists of Menlo, Road Systems and VantageParts,
reported a marginal increase in revenues for the first quarter of 1997 over the
first quarter of 1996. Menlo's revenues, which made up most of the segment's
revenues for the 1997 quarter, were up 9.6% over the first quarter of 1996, but
were offset by significantly lower revenues from Road Systems due to a reduced
number of trailer sales.
Operating income for the segment increased only 1.6% over the first quarter of
1996, again largely due to the lower trailer sales. Menlo's operating income
increased 53.4% over the first quarter of 1996 as its revenue mix shifted to
generally higher margin dedicated logistics management services from the
generally lower margin, but generally higher revenue generating, transportation
management services.
S-34
<PAGE>
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994.
General
The Company's 1996 operating income from continuing operations was $192.1
million, representing a 2.9% increase over the same group of companies in 1995.
The increase came primarily from higher operating income at Con-Way and in the
Other segment, which consists primarily of Menlo. The improvement in operating
income for 1996 was achieved despite additional costs caused by severe weather
conditions at the start of the year and increased fuel prices. Operating income
from continuing operations in 1995 was 1.7% below 1994 primarily as a result of
competitive rate discounting and costs associated with Con-Way's continued
expansion into new geographic markets, as well as the absence of benefits
received in 1994 during a strike of unionized, long-haul LTL carriers.
The Company's revenues from continuing operations in 1996 of $3.7 billion
increased 11.3% over 1995, reflecting increased revenues at all three of the
Company's segments. Con-Way and Emery overcame a difficult start for the year
caused in part by the severe winter weather conditions. Menlo also contributed
revenue growth of more than 25% over 1995. Total Company revenues from
continuing operations in 1995 increased 17.5% over 1994 as Con-Way, Emery and
Other experienced strong revenue growth from domestic and international markets
as well as new logistics contracts.
Emery Worldwide
Emery's 1996 revenues increased 11.4% over 1995, brought about by both domestic
and international revenue growth. Domestic tonnage increased 14.7% from the
prior year and international tonnage was up 10.0%. International revenues in
1996 comprised approximately 40% of Emery's commercial revenues. Revenues in
1995 increased 12.7% from 1994, driven by 37.2% growth in international
tonnage.
Operating income was 4.1% lower in 1996 compared with 1995 due primarily to
higher fuel costs and higher costs of developing information systems. Beginning
November 1996, Emery began to recoup a portion of these fuel cost increases
with a fuel index fee. Operating income in 1995 increased 5.3% from 1994, but
the 1995 operating margin of 4.6% represented a decline from 5.0% in 1994.
Con-Way Transportation Services
Con-Way's revenues for 1996 increased 12.1% over 1995 on a tonnage increase of
7.8%, with LTL tonnage up 5.9%. Revenues for the first quarter of the year were
adversely affected by severe winter weather. Steady improvements from both the
LTL and truckload businesses, and increased lane density in newer geographic
regions, contributed to a stronger second half in 1996. Revenues for 1995
increased 13.1% over 1994 with LTL and total tonnage increases of 6.7% and
6.4%, respectively. The higher revenue reflected Con-Way's continued expansion
into new geographic markets and growth in traditional markets of overnight
service and inter-regional business.
Operating income at Con-Way in 1996 increased 4.6% over 1995. While the first
half of the year was adversely affected by winter storms and higher fuel costs,
results improved steadily in the third and fourth quarters. Although fuel costs
remained high, these increased expenses were offset in part by a fuel surcharge
passed on to customers. Concentrated efforts to re-price or replace low-margin
freight also improved operating profits. Operating income in 1995 declined
13.2% from 1994 due to start-up costs and lower system utilization associated
with expansion into new geographic areas and markets, as well as the absence of
benefits received in 1994 during a strike of unionized, long-haul LTL carriers.
Other Operations
The results of operations of the Other segment consist primarily of Menlo and
to a lesser extent Road Systems and VantageParts. These operating results were
previously included as part of the CF MotorFreight segment which was
discontinued with the Spin-off.
Revenues in 1996 increased 8.2% compared to 1995 with higher revenues from
logistics operations, which were partially offset by lower trailer sales to the
discontinued operations. The 1995 revenues of $371.6 million increased 74.0%
from 1994.
Operating income in 1996 of $12.7 million was a 51.4% increase over 1995, with
most of the increase coming from the logistics operations. The 1995 operating
income increased $7.2 million over 1994, again coming primarily from the
logistics business.
S-35
<PAGE>
Other Income (Expense)
Other expense increased 33.4% in 1996 from 1995 as a result of interest expense
on increased short-term borrowings (incurred in large part to fund discontinued
operations) and losses from write-offs and sales of non-operating assets. Other
expense in 1995 was 35.8% higher than 1994 due primarily to interest expense on
new short-term borrowings and a full year's interest on 10-year 7.35% Notes
issued in 1995.
Income Taxes
The increased effective tax rate of 45.5% in 1996, compared to a tax rate of
43.6% in 1995, was attributable to a higher proportion of foreign taxes and
nondeductible items. The 1995 effective income tax rate exceeded the 1994 rate
due to a higher foreign tax rate applied to increased foreign income.
Net Income
Income from continuing operations for 1996 decreased 7.0% from 1995 as a result
of the increase in other expense and the higher effective tax rate. The 1995
income from continuing operations was 10.0% below 1994 due primarily to higher
interest expense and lower operating income. Net income available to common
shareholders for 1996 was down 59.3% as it included both a comparatively higher
loss of $36.4 million, net of income tax benefits, from operations of CFC
through the Spin-off date, and $16.2 million of costs, net of income tax
benefits, associated with the Spin-off. Preferred dividends in 1996 decreased
20.4% from 1995 due to the absence of dividends on the Series C Preferred Stock
that converted to CNF Common Stock in March 1995. The preferred dividends were
lower in 1995 compared to 1994 due to a full year of dividends from the Series
C Preferred Stock in 1994. Net income available to common shareholders in 1995
was $46.6 million compared to $35.7 million in 1994. The 1994 amount included a
$5.5 million charge ($1.9 million related to discontinued operations) for the
write-off of intrastate operating rights.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997, the Company had $78.3 million in cash and cash equivalents.
Net cash flow from operations during the first quarter of 1997 was $33.7
million, the primary components of which were net income and depreciation and
amortization. Cash flow from operations in the first quarter of 1996 was $64.3
million and was attributable primarily to a significant reduction of accounts
receivable and to income from continuing operations and depreciation.
At December 31, 1996, the Company had $82.1 million of cash and cash
equivalents. Net cash flow from operations in 1996 was $205.8 million compared
to $91.1 million in 1995 and was primarily the result of income from continuing
operations, depreciation and amortization and a lesser increase in accounts
receivable compared with 1995. In 1996, changes in working capital contributed
an additional $38.1 million.
Capital expenditures for the first quarter of 1997 were $35.2 million, which
was $14.4 million lower than the same quarter in 1996. The Company expects to
fund 1997 capital expenditure requirements for its existing businesses with
cash from operations and, if necessary, borrowings under credit facilities. The
Company expects to finance start-up expenses and operating equipment needed to
service the new USPS contract described above primarily with external
financing, including the net proceeds from the sale of the TECONS. For 1997,
the Company has budgeted approximately $102 million for capital expenditures
associated with the new contract plus approximately $17 million for other
associated costs that consist substantially of contract costs that the Company
expects to capitalize. See "Use of Proceeds."
Capital expenditures for continuing operations were $200.8 million in 1996, an
increase of $33.6 million over 1995. The 1995 capital expenditure level was
$17.4 million over that of 1994. Capital expenditures in 1996, which consisted
primarily of revenue and other equipment, were financed by cash from operations
supplemented by short-term borrowings.
Net debt repayments for the first quarter of 1997 totaled $11.8 million
compared to a $37.7 million net increase in debt in the first quarter of 1996.
Proceeds from the exercise of stock options, which the Company believes
increased due to the Spin-off of CFC, provided $16.0 million of cash compared
with less than $1.0 million in the first quarter of 1996. At March 31, 1997,
the Company had outstanding short-term borrowings of $100.0 million and
outstanding letters of credit of $124.1 million under the $350 million
unsecured Credit Facility. Under several other unsecured credit facilities, at
March 31, 1997, the Company had outstanding short-term borrowings of $45.0
million and outstanding letters of credit of $69.8 million. At March 31, 1997,
the Company had $125.9 million available for additional short-term borrowings
and letters of credit under the Credit Facility, while $5.5 million was
available under other uncommitted credit facilities. Additionally, payments of
preferred and common stock dividends were $7.4 million in the first quarter of
both 1997 and 1996.
S-36
<PAGE>
The Company's borrowings under the Credit Facility were $100 million at year-
end 1996, with an additional $55 million borrowed against other open lines of
credit. These total borrowings of $155 million outstanding at year-end 1996
compared to total outstanding borrowings under all credit facilities of $50
million at year-end 1995. The net proceeds from these sources were used for
general corporate purposes and capital expenditures. At December 31, 1996,
$121.2 million of letters of credit were outstanding under the Credit Facility.
In addition, at that date $45.7 million of letters of credit were outstanding
under several unsecured letter of credit facilities.
The Company paid $29.9 million of common and preferred stock dividends in 1996
compared with $31.3 million in 1995 and $23.1 million of preferred dividends in
1994. The variations in dividends are the result of the reinstatement of
quarterly common stock dividends (which were suspended in June 1990) of $0.10
per common share and conversion of Series C Preferred Stock, both in the first
quarter of 1995. The Company also used $64.9 million of cash to fund
discontinued operations in 1996 compared with $67.1 million in 1995 and $5.8
million in 1994.
At December 31, 1996, the Company's ratio of long-term debt obligations
(including guarantees) to total capital (including long-term obligations) was
48.4% compared with 39.9% at year-end 1995. The ratio increase is primarily
attributable to the reduction of equity caused by the Spin-off. The current
ratio was 1.0 to 1 at December 31, 1996 and 1.2 to 1 at December 31, 1995,
excluding the net assets of discontinued operations.
The Company has an effective shelf registration statement with the Securities
and Exchange Commission that covers $150 million of securities for future
issuance with terms to be decided at the time of issuance. The Offering made
hereby is being made under such shelf registration statement.
OTHER ITEMS
The Company's operations necessitate the storage of fuel in underground storage
tanks as well as the disposal of substances regulated by various federal and
state laws. The Company adheres to a stringent site-by-site tank testing and
maintenance program performed by qualified independent parties to protect the
environment and comply with applicable regulations. Where clean-up is
necessary, the Company takes appropriate action. See "Risk Factors --
Environmental Matters."
In April 1997, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued a proposed statement of
position (an "SOP") on the accounting for costs of "start-up activities" (as
defined by the SOP). The SOP, as proposed, requires companies to expense, as
incurred, the costs of start-up activities. Although the SOP may change, if the
SOP were adopted in its current form, it would be effective for the Company's
year ending December 31, 1998 and would require the write-off of any existing
capitalized start-up costs. As such, there can be no assurance that some or all
of the contract costs which may be capitalized in connection with the USPS
contract would not be classified as start-up costs, and be required to be
written-off in 1998. See "-- Liquidity and Capital Resources."
S-37
<PAGE>
MANAGEMENT
The directors and principal operating management of the Company are set forth
below:
<TABLE>
<CAPTION>
===============================================================================
NAME AGE TITLE
- -------------------------------------------------------------------------------
<C> <C> <S>
Donald E. Moffitt 65 Director, Chairman of the Board, President and
Chief Executive Officer
Robert Alpert 65 Director
Earl F. Cheit 70 Director
Richard A. Clarke 67 Director
Margaret G. Gill 57 Director
Robert Jaunich II 57 Director
W. Keith Kennedy, Jr. 53 Director
Richard B. Madden 68 Director
Michael J. Murray 52 Director
Robert D. Rogers 60 Director
William J. Schroeder 52 Director
Robert P. Wayman 51 Director
Gregory L. Quesnel 49 Executive Vice President and Chief Financial
Officer
David I. Beatson 49 Senior Vice President of the Company, President
and Chief Executive Officer of Emery Air Freight
Corporation
Robert T. Robertson 55 Senior Vice President of the Company, President
and Chief Executive Officer of Con-Way
Transportation Services, Inc.
Eberhard G. H. Schmoller 53 Senior Vice President, General Counsel and
Secretary
John H. Williford 40 President and Chief Executive Officer of Menlo
Logistics, Inc.
</TABLE>
Donald E. Moffitt, Chairman of the Board, President and Chief Executive Officer
of the Company, has advised the Company's Board of Directors that, consistent
with prior discussions, he intends to relinquish the office of President during
1997 and to retire as Chief Executive Officer in 1998. The Board of Directors
has begun the process of selecting a successor to Mr. Moffitt. It is
anticipated that the successor to Mr. Moffitt will be named President and,
initially, Chief Operating Officer.
CNF TRUST I
The Trust is a statutory business trust formed under the Delaware Business
Trust Act (the "Business Trust Act") pursuant to a trust agreement executed by
the Company, as sponsor for the Trust (the "Sponsor"), and certain of the CNF
Trustees (as defined herein), and the filing of a certificate of trust with the
Secretary of State of the State of Delaware. Such declaration will be amended
and restated in its entirety (as so amended and restated, the "Declaration") as
of the date the TECONS are initially issued. The Declaration is qualified under
the Trust Indenture Act. Upon issuance of the TECONS, the holders thereof will
own all of the issued and outstanding TECONS. The Company will acquire Trust
Common Securities in an amount equal to at least 3% of the total capital of the
Trust and will own, directly or indirectly, all of the issued and outstanding
Trust Common Securities. The Trust exists for the purpose of (a) issuing its
Trust Securities for cash and investing the proceeds thereof in an equivalent
amount of Convertible Debentures and (b) engaging in such other activities as
are necessary, convenient or incidental thereto. The rights of the holders of
the Trust Securities are as set forth in the Declaration, the Business Trust
Act and the Trust Indenture Act. The Declaration does not permit the incurrence
by the Trust of any indebtedness for borrowed money or the making of any
investment other than in the Convertible Debentures. In the Subordinated
Indenture, the Company has agreed to pay for all debts and obligations (other
than with respect to the Trust Securities) and all costs and expenses of the
Trust, including the fees and expenses of the CNF Trustees and any income
taxes, duties and other governmental charges, and all costs and expenses with
respect thereto, to which the Trust may become subject, except for United
States withholding taxes.
Pursuant to the Declaration, the number of trustees of the Trust (the "CNF
Trustees") will initially be five. Three of the CNF Trustees (the "Regular
Trustees") will be persons who are employees or officers of or who are
affiliated with the Company. The fourth trustee will be an institution that
maintains its principal place of business in the State of Delaware (the
"Delaware Trustee"). Initially, First Chicago Delaware Inc. will act as
Delaware Trustee. The fifth trustee will be a financial institution that is
unaffiliated with the Company and will serve as institutional trustee under the
Declaration and as indenture trustee for the purposes of compliance with the
provisions of the Trust Indenture Act (the "Property Trustee"). Initially, The
First National Bank of Chicago, an affiliate of the Delaware Trustee, will be
the Property Trustee until removed or replaced by the holder of the Trust
S-38
<PAGE>
Common Securities. For the purpose of compliance with the provisions of the
Trust Indenture Act, The First National Bank of Chicago will act as trustee
(the "Guarantee Trustee") under the Guarantee and as Debt Trustee (as defined
herein) under the Subordinated Indenture. See "Description of the Guarantee"
and "Description of the TECONS -- Voting Rights." The Trust has a term of
approximately 20 years but may terminate earlier as provided in the
Declaration.
The Property Trustee will hold the Convertible Debentures for the benefit of
the Trust and the holders of the Trust Securities and the Property Trustee will
have the power to exercise all rights, powers and privileges under the
Subordinated Indenture as the holder of the Convertible Debentures. In
addition, the Property Trustee will maintain exclusive control of a segregated
non-interest bearing account (the "Property Account") to hold all payments made
in respect of the Convertible Debentures for the benefit of the holders of the
Trust Securities. The Property Trustee will make payments of Distributions and
payments on liquidation, redemption and otherwise to the holders of the Trust
Securities out of funds from the Property Account. The Guarantee Trustee will
hold the Guarantee for the benefit of the holders of the TECONS. The Company,
as the direct or indirect holder of all of the Trust Common Securities, will
have the right to appoint, remove or replace any CNF Trustee and to increase or
decrease the number of CNF Trustees.
DESCRIPTION OF THE TECONS
The TECONS will be issued pursuant to the terms of the Declaration. The
Declaration is qualified as an indenture under the Trust Indenture Act. The
Property Trustee will act as indenture trustee for the TECONS under the
Declaration for purposes of compliance with the provisions of the Trust
Indenture Act. The terms of the TECONS will include those stated in the
Declaration and those made part of the Declaration by the Trust Indenture Act.
The following summary of certain provisions of the TECONS and the Declaration
does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, all of the provisions of the Declaration and the
TECONS (which provisions, including defined terms, are incorporated herein by
reference), the Business Trust Act and the Trust Indenture Act. A copy of the
form of Declaration (including the form of certificate evidencing the TECONS)
has been or will be filed or incorporated by reference as an exhibit to the
Registration Statement of which the accompanying Prospectus is a part. See
"Available Information" in the accompanying Prospectus.
General
The Declaration authorizes the Regular Trustees to issue on behalf of the Trust
the Trust Securities, which represent undivided beneficial interests in the
assets of the Trust. All of the Trust Common Securities will be owned, directly
or indirectly, by the Company. The Trust Common Securities rank pari passu, and
payments will be made thereon on a pro rata basis, with the TECONS, except that
upon the occurrence and during the continuance of a Declaration Event of
Default, the rights of the holders of the Trust Common Securities to receive
payment of periodic Distributions and payments upon liquidation, redemption and
otherwise will be subordinated to the rights of the holders of the TECONS. The
Declaration does not permit the issuance by the Trust of any securities other
than the Trust Securities or the incurrence of any indebtedness by the Trust.
Pursuant to the Declaration, the Property Trustee will hold the Convertible
Debentures purchased by the Trust for the benefit of the holders of the Trust
Securities. The payment of Distributions out of money held by the Trust, and
payments upon redemption of the TECONS or liquidation of the Trust, are
guaranteed by the Company to the extent described under "Description of Trust
Preferred Securities Guarantee" in the accompanying Prospectus. The Guarantee
will be held by the Guarantee Trustee for the benefit of the holders of the
TECONS. The Guarantee does not cover payment of Distributions when the Trust
does not have sufficient available funds to pay such Distributions. In such
event, the remedy of a holder of TECONS is to vote to direct the Property
Trustee to enforce the Property Trustee's rights under the Convertible
Debentures except in the limited circumstances in which the holder may take
Direct Action. See "-- Declaration Events of Default" and "-- Voting Rights."
Distributions
Distributions on the TECONS will be fixed at an annual rate of $2.50 per
TECONS. To the extent permitted by applicable law, Distributions in arrears for
more than one quarter will accrue interest thereon at the Distribution rate,
compounded quarterly. The term "Distribution" as used herein includes any such
interest payable unless otherwise stated. The amount of Distributions payable
for any period will be computed on the basis of a 360-day year of twelve 30-day
months and, for any period of less than a full calendar month, the actual
number of days elapsed in such a 30-day month.
Distributions on the TECONS will be cumulative, will accumulate from June 11,
1997, and will be payable quarterly in arrears on June 1, September 1, December
1 and March 1 of each year, commencing September 1, 1997, when, as and if
available for payment. Distributions will be made by the Property Trustee,
except as otherwise described below.
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So long as the Company shall not be in default in the payment of interest on
the Convertible Debentures, the Company has the right under the Subordinated
Indenture to defer payments of interest on the Convertible Debentures by
extending the interest payment period from time to time on the Convertible
Debentures, which, if exercised, would defer quarterly Distributions on the
TECONS (though such Distributions would continue to accumulate with interest
thereon (to the extent permitted by applicable law) at the Distribution rate,
compounded quarterly, since interest would continue to accrue on the
Convertible Debentures) during any such Extension Period. Such right to extend
the interest payment period for the Convertible Debentures is limited to a
period not exceeding 20 consecutive quarters and such period may not extend
beyond the maturity of the Convertible Debentures or end on other than a
Distribution payment date. In the event that the Company exercises this right,
then (a) the Company shall not declare or pay dividends on, make distributions
with respect to, or redeem, purchase or acquire, or make a liquidation payment
with respect to, any of its capital stock (other than (x) (i) purchases or
acquisitions of shares of the Company's capital stock (or capital stock
equivalents) in connection with the satisfaction by the Company of its
obligations under any officers, directors or employee benefit plans (or any
options or other instruments issued thereunder) or the satisfaction by the
Company of its obligations pursuant to any contract or security requiring the
Company to purchase shares of the Company's capital stock (or capital stock
equivalents), (ii) purchases of shares of the Company's capital stock (or
capital stock equivalents) from officers, directors or employees of the Company
or its subsidiaries pursuant to employment agreements or upon termination of
employment or retirement, (iii) as a result of a reclassification, combination
or subdivision of the Company's capital stock or the exchange or conversion of
one class or series of the Company's capital stock for another class or series
of the Company's capital stock, (iv) dividends or distributions of shares of
common stock on common stock, (v) the purchase of fractional interests in
shares of the Company's capital stock pursuant to the conversion or exchange
provisions of such capital stock or any security being converted or exchanged,
(vi) dividends or distributions on, or redemptions, purchases or acquisitions
of, or liquidation payments with respect to, the Series B Preferred Stock (the
Series B Preferred Stock is held by the TASP, an employee benefit plan, and
dividends on such shares (which are deductible by the Company for federal
income tax purposes) are applied by the TASP to pay interest on borrowings made
to acquire the Series B Preferred Stock), (vii) purchases or other acquisitions
of common stock in connection with a dividend reinvestment or other similar
plan, or (viii) any dividend or distribution of capital stock (or capital stock
equivalents) in connection with the implementation of a stockholders' rights
plan, or the issuance of stock under any such plan in the future, or the
redemption or repurchase of any such rights pursuant thereto, or (y) guarantee
payments made with respect to any of the foregoing), (b) the Company shall not
make any payment of interest, principal or premium, if any, on or repay,
repurchase or redeem any debt securities issued by the Company that rank pari
passu with or junior to the Convertible Debentures and (c) the Company shall
not make any guarantee payments with respect to the foregoing (other than
pursuant to the Guarantee or the Company's guarantee of the Trust Common
Securities). Prior to the termination of any such Extension Period of less than
20 consecutive quarters, the Company may further extend the interest payment
period; provided, that such Extension Period, together with all such previous
and further extensions, may not exceed 20 consecutive quarters or extend beyond
the maturity of the Convertible Debentures or end on other than a Distribution
payment date. Upon the termination of any Extension Period and the payment of
all amounts then due on the Convertible Debentures, the Company may commence a
new Extension Period, subject to the above requirements. If Distributions are
deferred, the deferred Distributions and, to the extent permitted by law,
accrued interest thereon shall be paid to holders of record of the TECONS as
they appear on the books and records of the Trust at the close of business on
the record date for the Distribution payment date upon which such Extension
Period terminates. See "Risk Factors -- Option to Extend Interest Payment
Period; Tax Impact to Extension" and "Description of the Convertible Debentures
- -- Option to Extend Interest Payment Period."
Distributions on the TECONS must be paid on the dates payable to the extent
that the Trust has funds available for the payment of such Distributions. The
Trust's funds available for Distribution to the holders of TECONS will be
limited to payments received from the Company on the Convertible Debentures.
The payment of Distributions out of moneys held by the Trust is guaranteed by
the Company to the extent set forth under "Description of Trust Preferred
Securities Guarantee" in the accompanying Prospectus. See "Description of the
Convertible Debentures."
Distributions on the TECONS will be payable to the holders thereof as they
appear on the books and records of the Trust at the close of business on the
relevant record dates, which, as long as the TECONS remain in book-entry only
form, will be one Business Day (as defined below) prior to the relevant payment
dates. Such Distributions will be paid through the Property Trustee, who will
hold amounts received in respect of the Convertible Debentures for the benefit
of the holders of the Trust Securities. Subject to any applicable laws and
regulations and the provisions of the Declaration, each such payment will be
made as described under "-- Book-Entry Only Issuance -- The Depository Trust
Company" below. In the event that the TECONS do not continue to remain in book-
entry only form, the Regular Trustees shall select the relevant record dates
for the TECONS, which shall be at least one Business Day prior to the relevant
payment dates (provided that such record dates must conform to
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the rules of any securities exchange on which the TECONS are listed) and
Distributions payable on TECONS which are not in book-entry form may be made at
the option of the Trust by check mailed to the address of the holder entitled
thereto or by wire transfer to an account in the United States appropriately
designated by the holder entitled thereto prior to the record date for the
corresponding Distribution payment date. In the event that any date on which
Distributions are to be made on the TECONS is not a Business Day, then payment
of the Distributions payable on such date will be made on the next succeeding
day which is a Business Day (and without any interest or other payment in
respect of any such delay), except that, if such Business Day is in the next
succeeding calendar year, such payment shall be made on the immediately
preceding Business Day, in each case with the same force and effect as if made
on such date. A "Business Day" means any day other than Saturday, Sunday or any
other day on which banking institutions in New York City are permitted or
required by any applicable law to close.
CONVERSION RIGHTS
General
The TECONS will be convertible at any time prior to the close of business on
June 1, 2012 (or in the case of TECONS called for redemption, prior to the
close of business on the Business Day prior to the Redemption Date) (the
"Conversion Expiration Date"), at the option of the holders thereof and in the
manner described below, into shares of CNF Common Stock at an initial
conversion price of $40.00 per share of CNF Common Stock (the "Initial
Conversion Price") (equivalent to an initial conversion rate of 1.25 shares of
CNF Common Stock for each TECONS), subject to adjustment as described under "--
Conversion Price Adjustments -- General" and "-- Conversion Price Adjustments
- -- Fundamental Change" below. Neither the Company nor the Trust will be
required to make any payment, allowance or adjustment upon any conversion on
account of accumulated and unpaid Distributions on converted TECONS or on
account of accumulated and unpaid dividends on shares of CNF Common Stock
issued upon conversion, except that, if a TECONS is surrendered for conversion
after the close of business on any record date for payment of a Distribution
and before the opening of business on the corresponding Distribution payment
date (other than a TECONS or a portion of a TECONS called for redemption on a
redemption date occurring after such record date and prior to such payment
date), then, notwithstanding such conversion, the Distribution payable on such
Distribution payment date will be paid in cash to the person in whose name the
TECONS is registered at the close of business on such record date, and (other
than a TECONS or a portion of a TECONS called for redemption on a redemption
date occurring after such record date and on or prior to such Distribution
payment date) when so surrendered for conversion, such TECONS must be
accompanied by payment of an amount equal to the Distribution payable on such
Distribution payment date.
The terms of the TECONS provide that a holder of a TECONS wishing to exercise
its conversion right shall surrender such TECONS, together with an irrevocable
conversion notice, to the Property Trustee, as conversion agent (the
"Conversion Agent"), which shall, on behalf of such holder, exchange such
TECONS for a portion of the Convertible Debentures and immediately convert an
equivalent amount of Convertible Debentures into CNF Common Stock. Holders may
obtain copies of the required form of the conversion notice from the Conversion
Agent. So long as a book-entry system for the TECONS is in effect, however,
procedures for converting the TECONS into shares of CNF Common Stock will
differ, as described under "-- Book-Entry Only Issuance -- The Depository Trust
Company."
No fractional shares of CNF Common Stock will be issued as a result of
conversion, but in lieu thereof such fractional interest will be paid by the
Company in cash based on the current market price of CNF Common Stock on the
date such TECONS are surrendered for conversion or, if not a trading day, on
the next trading day.
Conversion Price Adjustments -- General
The Initial Conversion Price is subject to adjustment (under formulae set forth
in the Subordinated Indenture) in certain events, including:
(i) the issuance of CNF Common Stock as a dividend or distribution on CNF
Common Stock:
(ii) subdivisions and combinations of CNF Common Stock;
(iii) the issuance to all holders of CNF Common Stock of certain rights or
warrants to subscribe for or purchase CNF Common Stock at less than the
then current market price;
(iv) the distribution to all holders of CNF Common Stock of (A) capital
stock of the Company (other than CNF Common Stock), (B) evidences of
indebtedness of the Company and/or (C) other assets (including securities,
but excluding (1) any rights or warrants referred to in clause (iii) above,
(2) any rights or warrants to acquire any capital stock of any entity other
than the Company or any subsidiary of the Company, (3) any dividends or
distributions in connection with the liquidation, dissolution or winding-up
of the Company, (4) any dividends or distributions payable solely in cash
that may from time to time be fixed by the Board of Directors of the
Company and (5) any dividends or distributions referred to in clause (i) or
(ii) above);
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(v) dividends or distributions to all holders of CNF Common Stock
consisting of cash, excluding (a) any cash dividends on CNF Common Stock to
the extent that the aggregate cash dividends per share of CNF Common Stock
in any consecutive 12-month period do not exceed the greater of (x) the
amount per share of CNF Common Stock of the cash dividends paid on CNF
Common Stock in the immediately preceding 12-month period, to the extent
that such dividends for the immediately preceding 12-month period did not
require an adjustment of the conversion price pursuant to this clause (v)
(as adjusted to reflect subdivisions or combinations of CNF Common Stock),
and (y) 15% of the average of the daily Closing Price (as defined in the
Subordinated Indenture) of CNF Common Stock for the ten consecutive Trading
Days (as defined in the Subordinated Indenture) immediately prior to the
date of declaration of such dividend, and (b) any dividend or distribution
in connection with the liquidation, dissolution or winding up of the
Company or a redemption of any rights issued under a rights agreement;
provided, however, that no adjustment shall be made pursuant to this clause
(v) if such distribution would otherwise constitute a Fundamental Change
(as defined below) and be reflected in a resulting adjustment described
below; and
(vi) payment to holders of CNF Common Stock in respect of a tender or
exchange offer by the Company or any subsidiary of the Company for CNF
Common Stock to the extent that the cash and value of any other
consideration included in such payment per share of CNF Common Stock exceed
(by more than 10%, with any smaller excess being disregarded in computing
the adjustment provided hereby) the first reported sale price per share of
CNF Common Stock on the Trading Day next succeeding the Expiration Time (as
defined in the Subordinated Indenture) for such tender or exchange offer.
If any adjustment is required to be made as set forth in clause (v) above as a
result of a distribution which is a dividend described in subclause (a) of
clause (v) above, such adjustment would be based upon the amount by which such
distribution exceeds the amount of the dividend permitted to be excluded
pursuant to such subclause (a) of clause (v). If an adjustment is required to
be made as set forth in clause (v) above as a result of a distribution which
is not such a dividend, such adjustment would be based upon the full amount of
such distribution. If an adjustment is required to be made as set forth in
clause (vi) above, such adjustment would be calculated based upon the amount
by which the aggregate consideration paid for the CNF Common Stock acquired in
the tender or exchange offer exceeds 110% of the value of such shares based on
the first reported sale price of CNF Common Stock on the Trading Day next
succeeding the Expiration Time. In lieu of making such a conversion price
adjustment in the case of certain dividends or distributions, the Company may
provide that upon the conversion of the TECONS the holder converting such
TECONS will receive, in addition to the CNF Common Stock (if any) to which
such holder is entitled, the cash, securities or other property which such
holder would have received if such holder had, immediately prior to the record
date for such dividend or distribution, converted its TECONS into CNF Common
Stock.
No adjustment in the conversion price will be required unless the adjustment
would require a change of at least 1% in the conversion price then in effect;
provided, however, that any adjustment that would otherwise be required to be
made shall be carried forward and taken into account in any subsequent
adjustment. In addition, no adjustment to the conversion price will be
required in connection with the issuance of rights pursuant to a shareholder
rights plan or similar plan or the repurchase or redemption of those rights or
the issuance of common stock, options or other securities under any officer,
director, or employee benefit plan. If any action would require adjustments of
the conversion price pursuant to more than one of the provisions described
above, then, subject to limited exceptions, only one adjustment shall be made
and such adjustment shall be the amount of adjustment that has the highest
absolute value to the holders of the TECONS.
The Company from time to time may, to the extent permitted by law, reduce the
conversion price by any amount for any period of at least 20 Business Days (as
defined in the Subordinated Indenture), in which case the Company shall give
at least 15 days' notice of such reduction. In particular, the Company may, at
its option, make such reduction in the conversion price, in addition to those
set forth above, as the Company deems advisable to avoid or diminish any
income tax to holders of CNF Common Stock resulting from any dividend or
distribution of stock (or rights to acquire stock) or from any event treated
as such for tax purposes or for any other reasons. See "Certain Federal Tax
Consequences -- Adjustment of Conversion Price."
Except as stated above, the conversion price will not be adjusted for the
issuance of CNF Common Stock or any securities convertible into or
exchangeable for CNF Common Stock or carrying the right to purchase any of the
foregoing.
Conversion Price Adjustments -- Fundamental Change
In the event that the Company shall be a party to any transaction or series of
transactions constituting a Fundamental Change (including, without limitation,
(i) any recapitalization or reclassification of CNF Common Stock (other than a
change in par value or a change from par value to no par value or from no par
value to par value, or as a result of a subdivision or combination of CNF
Common Stock); (ii) any consolidation or merger of the Company with or into
another corporation as a result of which holders of CNF Common Stock shall be
entitled to receive securities or other property or assets (including cash)
with respect to or in exchange for CNF Common Stock (other than a merger which
does not result in a reclassification, conversion, exchange or
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cancellation of the outstanding CNF Common Stock); (iii) any sale or transfer
of all or substantially all of the assets of the Company; or (iv) any
compulsory share exchange) pursuant to which holders of CNF Common Stock shall
be entitled to receive other securities, cash or other property, then
appropriate provision shall be made so that the holder of each TECONS then
outstanding shall have the right thereafter to convert such TECONS only into
(x) if any such transaction does not constitute a Common Stock Fundamental
Change (as defined below), the kind and amount of the securities, cash or other
property that would have been receivable upon such recapitalization,
reclassification, consolidation, merger, sale, transfer or share exchange by a
holder of the number of shares of CNF Common Stock issuable upon conversion of
such TECONS immediately prior to such recapitalization, reclassification,
consolidation, merger, sale, transfer or share exchange, after, in the case of
a Non-Stock Fundamental Change (as defined below), giving effect to any
adjustment in the conversion price in accordance with clause (i) of the
following paragraph, and (y) if any such transaction constitutes a Common Stock
Fundamental Change, shares of common stock of the kind received by holders of
CNF Common Stock as a result of such Common Stock Fundamental Change in an
amount determined in accordance with clause (ii) of the following paragraph.
The company formed by such consolidation or resulting from such merger or which
acquires such assets or which acquires the CNF Common Stock, as the case may
be, shall enter into a supplemental indenture with the Debt Trustee, reasonably
satisfactory in form to the Debt Trustee, the provisions of which shall
establish such right. Such supplemental indenture shall provide for adjustments
which, for events subsequent to the effective date of such supplemental
indenture, shall be as nearly equivalent as practicable to the relevant
adjustments provided for in the preceding paragraphs and in this paragraph.
Notwithstanding any other provision in the preceding paragraphs, if any
Fundamental Change occurs, the conversion price in effect will be adjusted
immediately after that Fundamental Change as follows:
(i) in the case of a Non-Stock Fundamental Change, the conversion price per
share of CNF Common Stock immediately following such Non-Stock Fundamental
Change will be the lower of (a) the conversion price in effect immediately
prior to such Non-Stock Fundamental Change, but after giving effect to any
other adjustments effected pursuant to the preceding paragraphs, and (b)
the result obtained by multiplying the greater of the Applicable Price (as
defined below) or the then applicable Reference Market Price (as defined
below) by a fraction of which the numerator will be 100 and the denominator
of which will be an amount based on the date such Non-Stock Fundamental
Change occurs. For the 12-month period beginning June 1, 1997, the
denominator will be 105.00, and the denominator will decrease by 0.625
during each successive 12-month period; provided, that the denominator
shall in no event be less than 100.0;
(ii) in the case of a Common Stock Fundamental Change, the conversion price
per share of CNF Common Stock immediately following the Common Stock
Fundamental Change will be the conversion price in effect immediately prior
to the Common Stock Fundamental Change, but after giving effect to any
other adjustments effected pursuant to the preceding paragraphs, multiplied
by a fraction, the numerator of which is the Purchaser Stock Price (as
defined below) and the denominator of which is the Applicable Price;
provided, however, that in the event of a Common Stock Fundamental Change
in which (a) 100% of the value of the consideration received by a holder of
CNF Common Stock is shares of common stock of the successor, acquiror or
other third party (and cash, if any, paid with respect to any fractional
interests in the shares of common stock resulting from the Common Stock
Fundamental Change) and (b) all of the CNF Common Stock shall have been
exchanged for, converted into, or acquired for, shares of common stock (and
cash, if any, with respect to fractional interests) of the successor,
acquiror or other third party, the conversion price per share of CNF Common
Stock immediately following the Common Stock Fundamental Change shall be
the conversion price in effect immediately prior to the Common Stock
Fundamental Change divided by the number of shares of common stock of the
successor, acquiror, or other third party received by a holder of one share
of CNF Common Stock as a result of the Common Stock Fundamental Change.
Depending upon whether a Fundamental Change is a Non-Stock Fundamental Change
or a Common Stock Fundamental Change, a holder may receive significantly
different consideration upon conversion of the TECONS. In the event of a Non-
Stock Fundamental Change, the holder has the right to convert TECONS into the
kind and amount of the securities, cash or other property as is determined by
the number of shares of CNF Common Stock as would have been receivable upon
conversion of TECONS at the conversion price as adjusted in accordance with
clause (i) of the preceding paragraph. However, in the event of a Common Stock
Fundamental Change in which less than 100% of the value of the consideration
received by a holder of CNF Common Stock is common stock of the successor,
acquiror or other third party, a holder of TECONS who converts such TECONS
following the Common Stock Fundamental Change will receive consideration in the
form of such common stock only, whereas a holder who converted such TECONS
prior to the Common Stock Fundamental Change would have received consideration
in the form of such common stock as well as any other securities or assets
(which may include cash) received by holders of CNF Common Stock in such
transaction.
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The foregoing conversion price adjustments may, under certain circumstances in
"Fundamental Change" transactions where all or substantially all of the CNF
Common Stock is converted into securities, cash, or property and not more than
50% of the value received by the holders of CNF Common Stock consists of stock
listed or admitted for listing subject to notice of issuance on a national
securities exchange or quoted on the Nasdaq National Market of the Nasdaq Stock
Market, Inc. (a "Non-Stock Fundamental Change," as defined herein), increase
the securities, cash or property into which each TECONS is convertible.
However, the maximum amount of any such increase will be limited in cases where
the relevant Applicable Price is lower than the applicable Reference Market
Price.
In a Fundamental Change transaction where all or substantially all the CNF
Common Stock is converted into securities, cash, or property and more than 50%
of the value received by the holders of CNF Common Stock (subject to certain
limited exceptions) consists of listed or Nasdaq National Market traded common
stock (a "Common Stock Fundamental Change," as defined herein), the foregoing
adjustments are designed to provide in effect that (a) where CNF Common Stock
is converted partly into such common stock and partly into other securities,
cash, or property, each TECONS will be convertible solely into a number of
shares of such common stock determined so that the initial value of such shares
(measured as described in the definition of Purchaser Stock Price below) equals
the value of the shares of CNF Common Stock into which such TECONS was
convertible immediately before the transaction (measured as aforesaid) and (b)
where CNF Common Stock is converted solely into such common stock, each TECONS
will be convertible into the same number of shares of such common stock
receivable by a holder of the number of shares of CNF Common Stock into which
such TECONS was convertible immediately before such transaction.
In determining the amount and type of consideration received by a holder of CNF
Common Stock in the event of a Fundamental Change, consideration received by a
holder of CNF Common Stock pursuant to a statutory right of appraisal will be
disregarded.
"Applicable Price" means: (i) in the event of a Non-Stock Fundamental Change in
which the holders of CNF Common Stock receive only cash, the amount of cash
receivable by a holder of one share of CNF Common Stock; and (ii) in the event
of any other Fundamental Change, the average of the Closing Prices (as defined
in the Subordinated Indenture) for one share of CNF Common Stock during the ten
Trading Days immediately prior to the record date for the determination of the
holders of CNF Common Stock entitled to receive cash, securities, property or
other assets in connection with such Fundamental Change or, if there is no such
record date, prior to the date on which the holders of the CNF Common Stock
will have the right to receive such cash, securities, property or other assets.
"Common Stock Fundamental Change" means any Fundamental Change in which more
than 50% of the value (as determined in good faith by the Company's Board of
Directors) of the consideration received by holders of CNF Common Stock
pursuant to such transaction consists of shares of common stock that, for the
ten consecutive Trading Days immediately prior to such Fundamental Change, has
been admitted for listing or admitted for listing subject to notice of issuance
on a national securities exchange or quoted on the Nasdaq National Market,
provided however, that a Fundamental Change will not be a Common Stock
Fundamental Change unless either (i) the Company continues to exist after the
occurrence of such Fundamental Change and the outstanding TECONS continue to
exist as outstanding TECONS, or (ii) the outstanding TECONS continue to exist
as TECONS and are convertible into shares of common stock of the successor to
the Company.
"Fundamental Change" means the occurrence of any transaction or event or series
of transactions or events pursuant to which all or substantially all of the CNF
Common Stock is exchanged for, converted into, acquired for or constitutes
solely the right to receive cash, securities, property or other assets (whether
by means of an exchange offer, liquidation, tender offer, consolidation,
merger, combination, reclassification, recapitalization or otherwise);
provided, however, in the case of any such series of transactions or events,
for purposes of adjustment of the conversion price, such Fundamental Change
will be deemed to have occurred when substantially all of the CNF Common Stock
has been exchanged for, converted into, or acquired for or constitutes solely
the right to receive cash, securities, property or other assets but the
adjustment shall be based upon the consideration that the holders of CNF Common
Stock received in the transaction or event as a result of which more than 50%
of the CNF Common Stock shall have been exchanged for, converted into, or
acquired for, or shall constitute solely the right to receive such cash,
securities, properties or other assets.
"Non-Stock Fundamental Change" means any Fundamental Change other than a Common
Stock Fundamental Change.
"Purchaser Stock Price" means, with respect to any Common Stock Fundamental
Change, the average of the Closing Prices for one share of common stock
received by holders of CNF Common Stock in such Common Stock Fundamental Change
during the ten Trading Days immediately prior to the record date for the
determination of the holders of CNF Common Stock entitled to receive such
shares of common stock or, if there is no such record date, prior to the date
upon which the holders of CNF Common Stock shall have the right to receive such
shares of common stock.
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"Reference Market Price" will initially mean $21.00 (which is equal to
approximately 66 2/3% of the last reported sale price per share of CNF Common
Stock on the New York Stock Exchange on June 5, 1997) and, in the event of any
adjustment to the conversion price other than as a result of a Fundamental
Change, the Reference Market Price will also be adjusted so that the ratio of
the Reference Market Price to the conversion price after giving effect to any
adjustment will always be the same as the ratio of the initial Reference Market
Price to the Initial Conversion Price of the TECONS.
Conversions of the TECONS may be effected by delivering them to the office or
agency of the Company maintained for such purpose.
Conversion price adjustments may, in certain circumstances, result in
constructive distributions that could be taxable as dividends under the
Internal Revenue Code of 1986, as amended (the "Code"), to holders of TECONS
or, in the case of a failure to make such adjustments, to holders of CNF Common
Stock issued upon conversion thereof. See "Certain Federal Tax Consequences --
Adjustment of Conversion Price."
MANDATORY REDEMPTION
The Convertible Debentures will mature on June 1, 2012, and may be redeemed, in
whole or in part, at any time on or after June 1, 2000, or at any time in
certain circumstances upon the occurrence of a Tax Event. Upon the repayment of
the Convertible Debentures, whether at stated maturity or upon redemption, the
proceeds from such repayment or payment shall simultaneously be applied to
redeem Trust Securities having an aggregate liquidation amount equal to the
aggregate principal amount of the Convertible Debentures so repaid or redeemed
at the applicable redemption price, together with accumulated and unpaid
Distributions thereon; provided, that, except in the case of redemption upon
maturity of the Convertible Debentures, holders of Trust Securities shall be
given not less than 30 nor more than 60 days notice of such redemption. The
applicable redemption price per TECONS shall be equal to the redemption price
per $50 principal amount of Convertible Debentures. See "Description of the
Convertible Debentures -- Redemption at the Option of the Company." In the
event that fewer than all of the outstanding Trust Securities are to be
redeemed, the TECONS and the Trust Common Securities will be redeemed on a pro
rata basis and, in such case, the redemption of TECONS will be made as
described under "Book-Entry Only Issuance -- The Depository Trust Company"
below.
SPECIAL EVENT DISTRIBUTION; TAX EVENT REDEMPTION
"Tax Event" means that the Regular Trustees shall have received an opinion of
nationally recognized independent tax counsel experienced in such matters (a
"Dissolution Tax Opinion") to the effect that, as a result of (a) any amendment
to, or change (including any announced prospective change) in, the laws or any
regulations thereunder of the United States or any political subdivision or
taxing authority thereof or therein, (b) any amendment to, or change in, an
interpretation or application of any such laws or regulations by any
legislative body, court or governmental or regulatory agency or authority
(including the enactment of any legislation and the publication of any judicial
decision or regulatory determination) or (c) any official interpretation or
pronouncement by any legislative body, court or governmental or regulatory
agency or authority that provides for a position with respect to such laws or
regulations that differs from the theretofore generally accepted position,
which amendment or change is enacted, promulgated, issued or announced or which
interpretation or pronouncement is issued or announced, in each case, on or
after the date of this Prospectus Supplement (collectively, a "Change in Tax
Law"), there is more than an insubstantial risk that (i) the Trust is, or will
be within 90 days of the date thereof, subject to federal income tax with
respect to interest accrued or received on the Convertible Debentures, (ii) the
Trust is, or will be within 90 days of the date thereof, subject to more than a
de minimis amount of other taxes, duties or other governmental charges or (iii)
interest (including original issue discount) payable by the Company to the
Trust on the Convertible Debentures is not, or within 90 days of the date
thereof will not be, deductible by the Company for United States Federal income
tax purposes on a current accrual basis (by reason of deferral, disallowance or
otherwise).
"Investment Company Event" means that each of the Regular Trustees shall have
received an opinion of a nationally recognized independent counsel experienced
in such matters to the effect that, as a result of the occurrence of a change
in law or regulation or a change in interpretation or application of law or
regulation by any legislative body, court, governmental agency or regulatory
authority which change is enacted, promulgated, issued or becomes effective on
or after the date of this Prospectus Supplement (a "Change in 1940 Act Law"),
there is more than an insubstantial risk that the Trust is or will be
considered an "investment company" which is required to be registered under the
Investment Company Act of 1940, as amended (the "1940 Act").
If, at any time, a Tax Event or an Investment Company Event (each, a "Special
Event") shall occur and be continuing, the Trust may with the prior written
consent of the Company, unless the Convertible Debentures are redeemed in the
limited circumstances described below, be dissolved with the result that
Convertible Debentures with an aggregate principal amount equal to the
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aggregate stated liquidation amount of, with an interest rate identical to the
Distribution rate of, and accrued and unpaid interest equal to accumulated and
unpaid Distributions on, the Trust Securities outstanding at such time would be
distributed to the holders of the Trust Securities in liquidation of such
holders' interests in the Trust on a pro rata basis within 90 days following
the occurrence of the Special Event; provided, however, that in the case of the
occurrence of a Tax Event, as a condition of such dissolution and distribution,
the Regular Trustees shall have received an opinion of nationally recognized
independent tax counsel experienced in such matters (a "No Recognition
Opinion"), which opinion may rely on published revenue rulings of the Internal
Revenue Service, to the effect that the holders of the TECONS will not
recognize any gain or loss for federal income tax purposes as a result of such
dissolution and distribution of Convertible Debentures; and, provided, further,
that if at the time there is available to the Trust the opportunity to
eliminate, within such 90-day period, the Special Event by taking some
ministerial action, such as filing a form or making an election, or pursuing
some other similar reasonable measure which in the sole judgment of the Company
has or will cause no adverse effect on the Trust, the Company or the holders of
the Trust Securities and will involve no material cost, the Trust will pursue
such measure in lieu of dissolution. Furthermore, if in the case of the
occurrence of a Tax Event, (i) the Regular Trustees have received an opinion (a
"Redemption Tax Opinion") of nationally recognized independent tax counsel
experienced in such matters that, as a result of a Tax Event, there is more
than an insubstantial risk that the Company would be precluded from deducting
the interest on the Convertible Debentures for federal income tax purposes on a
current accrual basis (by reason of deferral, disallowance or otherwise) even
if the Convertible Debentures were distributed to the holders of the Trust
Securities in liquidation of such holders' interests in the Trust as described
above or (ii) the Regular Trustees shall have been informed by such tax counsel
that a No Recognition Opinion cannot be delivered to the Trust, the Company
shall have the right, upon not less than 30 nor more than 60 days' notice, to
redeem the Convertible Debentures, in whole or in part for cash, at a
redemption price equal to 100% of the principal amount thereof plus accrued and
unpaid interest thereon to the redemption date, within 90 days following the
occurrence of such Tax Event, and promptly following such redemption, the Trust
Securities will be redeemed by the Trust at a redemption price equal to the
liquidation amount of such TECONS plus accumulated and unpaid Distributions
thereon; provided, however, that if at the time there is available to the
Company or the Trust the opportunity to eliminate, within such 90-day period,
the Tax Event by taking some ministerial action, such as filing a form or
making an election, or pursuing some other similar reasonable measure which in
the sole judgment of the Company has or will cause no adverse effect on the
Trust, the Company or the holders of the Trust Securities and will involve no
material costs, the Company or the Trust will pursue such measure in lieu of
redemption. If the Company declines to consent to such a dissolution of the
Trust and distribution of the Convertible Debentures or declines to redeem to
Convertible Debentures as described above, the TECONS will remain outstanding
and the Company may incur an obligation to pay Additional Interest. See
"Description of the Convertible Debentures -- Additional Interest."
After the date fixed for any distribution of Convertible Debentures upon
dissolution of the Trust, (i) the TECONS will no longer be deemed to be
outstanding, (ii) the Depositary (as defined herein) or its nominee, as the
record holder of the TECONS, will receive a registered global certificate or
certificates representing the Convertible Debentures to be delivered upon such
distribution, and (iii) any certificates representing TECONS not held by the
Depositary or its nominee will be deemed to represent Convertible Debentures
having an aggregate principal amount equal to the aggregate stated liquidation
amount of, with an interest rate identical to the Distribution rate of, and
accrued and unpaid interest equal to accumulated and unpaid Distributions on,
such TECONS until such certificates are presented to the Company or its agent
for transfer, exchange or reissuance.
There can be no assurance as to the market price for the Convertible Debentures
which may be distributed in exchange for TECONS if a dissolution and
liquidation of the Trust were to occur. Accordingly, the Convertible Debentures
which an investor may subsequently receive on dissolution and liquidation of
the Trust may trade at a discount to the price of the TECONS exchanged. If the
Convertible Debentures are distributed to the holders of TECONS upon the
dissolution of the Trust, the Company will use its reasonable best efforts to
list the Convertible Debentures on the NYSE or on such other national
securities exchange or similar organization on which the TECONS are then listed
or quoted.
REDEMPTION PROCEDURES FOR REDEMPTION BY THE TRUST
The Trust may not redeem fewer than all of the outstanding TECONS unless all
accumulated and unpaid Distributions have been or contemporaneously are paid
(or such payment duly provided for) on all TECONS for all quarterly
Distribution periods terminating on or prior to the date of redemption.
If the Trust gives notice of redemption in respect of TECONS (which notice will
be irrevocable), then, on the redemption date, provided, that the Company has
paid to the Property Trustee a sufficient amount of cash in connection with the
related redemption of the Convertible Debentures, the Trust will irrevocably
deposit with the Depositary funds sufficient to pay the applicable redemption
price and will give the Depositary irrevocable instructions and authority to
pay the redemption price to the holders of the TECONS. See "-- Book-Entry Only
Issuance -- The Depository Trust Company." If notice of redemption shall
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have been given and funds deposited as required, then, on the date fixed for
such redemption, Distributions will cease to accumulate and all rights of
holders of such TECONS so called for redemption will cease, except the right of
the holders of such TECONS to receive the redemption price but without interest
on such redemption price. In the event that any date generally fixed for
redemption of TECONS is not a Business Day, then payment of the redemption
price payable on such date will be made on the next succeeding day that is a
Business Day (without any interest or other payment in respect of any such
delay), except that, if such Business Day falls in the next calendar year, such
payment will be made on the immediately preceding Business Day. In the event
that payment of the redemption price in respect of TECONS is improperly
withheld or refused and not paid either by the Trust or by the Company pursuant
to the Guarantee, Distributions on such TECONS will continue to accumulate at
the then applicable rate from the original redemption date to the date of
payment, in which case the actual payment date will be considered the date
fixed for redemption for purposes of calculating the redemption price.
In the event that fewer than all of the outstanding Trust Securities are to be
redeemed, the TECONS and the Trust Common Securities will be redeemed on a pro
rata basis and, in such case, the redemption of TECONS will be made as
described below under "-- Book-Entry Only Issuance -- The Depository Trust
Company."
Subject to the foregoing and applicable law (including, without limitation,
U.S. federal securities laws), the Company or its subsidiaries may at any time,
and from time to time, purchase outstanding TECONS by tender, in the open
market or by private agreement.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
In the event of any voluntary or involuntary liquidation, dissolution, winding-
up or termination of the Trust (each a "Liquidation"), the then holders of the
TECONS will be entitled to receive out of the assets of the Trust, after
satisfaction of liabilities to creditors, distributions in an amount equal to
the aggregate of the stated liquidation amount of $50 per TECONS plus
accumulated and unpaid Distributions thereon to the date of payment (the
"Liquidation Distribution"), unless, in connection with such Liquidation,
Convertible Debentures in an aggregate stated principal amount equal to the
aggregate stated liquidation amount of, with an interest rate identical to the
Distribution rate of, and accrued and unpaid interest equal to accumulated and
unpaid Distributions on, the TECONS have been distributed on a pro rata basis
to the holders of the TECONS.
If, upon any such Liquidation, the Liquidation Distribution can be paid only in
part because the Trust has insufficient assets available to pay in full the
aggregate Liquidation Distribution, then the amounts payable directly by the
Trust on the TECONS shall be paid on a pro rata basis. The holders of the Trust
Common Securities will be entitled to receive distributions upon any such
dissolution pro rata with the holders of the TECONS, except that if a
Declaration Event of Default has occurred and is continuing, the TECONS shall
have a preference over the Trust Common Securities with regard to such
distributions.
Pursuant to the Declaration, the Trust shall dissolve (i) on June 1, 2017, the
expiration of the term of the Trust, (ii) upon the bankruptcy of the Company,
(iii) upon the filing of a certificate of dissolution or its equivalent with
respect to the Company, the filing of a certificate of cancellation with
respect to the Trust after obtaining the consent of the holders of at least a
majority in liquidation amount of the Trust Securities voting together as a
single class to file such certificate of cancellation, or the revocation of the
charter of the Company and the expiration of 90 days after the date of
revocation without a reinstatement thereof, (iv) upon the distribution of
Convertible Debentures upon the occurrence of a Special Event, (v) upon the
entry of a decree of a judicial dissolution of the Company or the Trust, (vi)
upon the redemption of all the Trust Securities or (vii) upon the conversion of
all outstanding TECONS pursuant to the Declaration.
DECLARATION EVENTS OF DEFAULT
The "events of default" under the Subordinated Indenture, insofar as they apply
to the Convertible Debentures, have been modified, pursuant to the First
Supplemental Indenture (as hereinafter defined), from those described in the
accompanying Prospectus. The events of default, as so modified, applicable to
the Convertible Debentures (the "Indenture Events of Default") are described in
this Prospectus Supplement under "Description of the Convertible Debentures --
Indenture Events of Default." Any Indenture Event of Default under the
Subordinated Indenture with respect to the Convertible Debentures constitutes
an event of default under the Declaration with respect to the Trust Securities
(a "Declaration Event of Default"); provided, that pursuant to the Declaration,
the holder of the Trust Common Securities will be deemed to have waived any
Declaration Event of Default with respect to the Trust Common Securities until
all Declaration Events of Default with respect to the TECONS have been cured,
waived or otherwise eliminated. Until such Declaration Events of Default with
respect to the TECONS have been so cured, waived, or otherwise eliminated, the
Property Trustee will be deemed to be acting solely on behalf of the holders of
the TECONS and only the holders of the TECONS will have the right to direct the
Property Trustee with respect to certain matters
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under the Declaration, and therefore the Subordinated Indenture. If the
Property Trustee fails to enforce its rights under the Convertible Debentures,
holders of TECONS, to the fullest extent permitted by law, may institute a
legal proceeding against the Company to enforce the Property Trustee's rights
under the Convertible Debentures. Notwithstanding the foregoing, if a
Declaration Event of Default has occurred and is continuing and such event is
attributable to the failure of the Company to pay interest or principal on the
Convertible Debentures on the date such interest or principal is otherwise
payable (or in the case of redemption, the redemption date), the Company
acknowledges in the Subordinated Indenture that a holder of TECONS may
institute a Direct Action for enforcement of payment to such holder directly of
the principal of or interest on Convertible Debentures having an aggregate
principal amount equal to the aggregate liquidation amount of the TECONS of
such holder on or after the respective due date specified in the Convertible
Debentures. In connection with such Direct Action, the Company will remain
obligated to pay the principal or interest on such Convertible Debentures and
will be subrogated to the rights of such holders of TECONS under the
Declaration to the extent of any payment made by the Company to such holder of
TECONS in such Direct Action. The holders of TECONS will not be able to
exercise directly any other remedy available to the holders of the Convertible
Debentures.
Upon the occurrence of a Declaration Event of Default, the Property Trustee as
the sole holder of the Convertible Debentures will have the right under the
Indenture to declare the principal of and interest on the Convertible
Debentures to be immediately due and payable. The Company and the Trust are
each required to file annually with the Property Trustee an officer's
certificate as to its compliance with all conditions and covenants under the
Declaration.
VOTING RIGHTS
Except as described herein, under the Trust Act, Trust Indenture Act and under
"Description of Trust Preferred Securities Guarantee -- Modification of the
Trust Preferred Securities Guarantee; Assignment" in the accompanying
Prospectus, and as otherwise required by law and the Declaration, the holders
of the TECONS will have no voting rights.
Subject to the requirement of each of the CNF Trustees' obtaining a tax opinion
in certain circumstances set forth in the last sentence of the next paragraph,
the holders of a majority in aggregate liquidation amount of the TECONS have
the right to direct the time, method and place of conducting any proceeding for
any remedy available to the Property Trustee, or exercising any trust or power
conferred upon the Property Trustee under the Declaration including the right
to direct the Property Trustee, as holder of the Convertible Debentures, to (i)
exercise the remedies available under the Subordinated Indenture with respect
to the Convertible Debentures, (ii) waive any past Indenture Event of Default
and its consequences that is waivable under the Subordinated Indenture, or
(iii) exercise any right to rescind or annul a declaration that the principal
of all the Convertible Debentures shall be due and payable; provided, however,
that if an Indenture Event of Default has occurred and is continuing, the
holders of 25% of the aggregate liquidation amount of the TECONS then
outstanding may direct the Property Trustee to declare the principal and
interest of the Convertible Debentures immediately due and payable; and
provided, further, that where a consent under the Subordinated Indenture would
require the consent of (a) holders of Convertible Debentures representing a
specified percentage greater than a majority in principal amount of the
Convertible Debentures (a "Super-Majority") or (b) each holder of Convertible
Debentures affected thereby, no such consent shall be given by the Property
Trustee without the prior consent of, in the case of clause (a) above, holders
of TECONS representing at least such specified percentage of the aggregate
liquidation amount of the TECONS or, in the case of clause (b) above, each
holder of TECONS affected thereby.
The Property Trustee shall notify all holders of the TECONS of any notice of
default received from the Debt Trustee with respect to the Convertible
Debentures. Except with respect to directing the time, method and place of
conducting a proceeding for a remedy, the Property Trustee shall not take any
of the actions described in clause (i), (ii) or (iii) above unless each of the
CNF Trustees has obtained an opinion of nationally recognized tax counsel
experienced in such matters to the effect that, as a result of such action, the
Trust will not be classified as other than a grantor trust for U.S. federal
income tax purposes and each holder will be treated as owning an undivided
beneficial interest in the Convertible Debentures.
In the event the consent of the Property Trustee, as the holder of the
Convertible Debentures, is required under the Subordinated Indenture with
respect to any amendment, modification or termination of the Subordinated
Indenture, the Property Trustee shall request the direction of the holders of
the Trust Securities with respect to such amendment, modification or
termination and shall vote with respect to such amendment, modification or
termination as directed by a majority in liquidation amount of the Trust
Securities voting together as a single class; provided, however, that where a
consent under the Subordinated Indenture would require the consent of a Super-
Majority, the Property Trustee may only give such consent at the direction of
the holders of at least the proportion in liquidation amount of the Trust
Securities which the relevant Super-Majority represents of the aggregate
principal amount of the Convertible Debentures outstanding. The Property
Trustee shall be under no obligation to take any such
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action in accordance with the directions of the holders of the Trust Securities
unless each of the CNF Trustees has obtained an opinion of nationally
recognized tax counsel experienced in such matters to the effect that for the
purposes of United States federal income tax the Trust will not be classified
as other than a grantor trust.
A waiver of an Indenture Event of Default will constitute a waiver of the
corresponding Declaration Event of Default.
Any required approval or direction of holders of TECONS may be given at a
separate meeting of holders of TECONS convened for such purpose, at a meeting
of all of the holders of Trust Securities or pursuant to written consent. The
Regular Trustees will cause a notice of any meeting at which holders of TECONS
are entitled to vote, or of any matter upon which action by written consent of
such holders is to be taken, to be mailed to each holder of record of TECONS.
Each such notice will include a statement setting forth the following
information: (i) the date of such meeting or the date by which such action is
to be taken; (ii) a description of any resolution proposed for adoption at such
meeting on which such holders are entitled to vote or of such matter upon which
written consent is sought; and (iii) instructions for the delivery of proxies
or consents. No vote or consent of the holders of TECONS will be required for
the Trust to redeem and cancel TECONS or distribute Convertible Debentures in
accordance with the Declaration.
Notwithstanding that holders of TECONS are entitled to vote or consent under
any of the circumstances described above, any of the TECONS that are owned at
such time by the Company or any entity directly or indirectly controlling or
controlled by, or under common control with, the Company, shall not be entitled
to vote or consent and shall, for purposes of such vote or consent, be treated
as if such TECONS were not outstanding.
The procedures by which holders of TECONS in book-entry form may exercise their
voting rights are described below. See "-- Book-Entry Only Issuance -- The
Depository Trust Company" below.
Holders of the TECONS will have no rights to appoint or remove the CNF
Trustees, who may be appointed, removed or replaced solely by the Company as
the indirect or direct holder of all of the Trust Common Securities.
MODIFICATION OF THE DECLARATION
The Declaration may be modified and amended if approved by the Regular Trustees
(and in certain circumstances the Property Trustee or the Delaware Trustee),
provided that, if any proposed amendment provides for, or the Regular Trustees
otherwise propose to effect, (i) any action that would adversely affect the
powers, preferences or special rights of the Trust Securities, whether by way
of amendment to the Declaration or otherwise or (ii) the dissolution, winding-
up or termination of the Trust other than pursuant to the terms of the
Declaration, then the holders of the Trust Securities voting together as a
single class will be entitled to vote on such amendment or proposal and such
amendment or proposal shall not be effective except with the approval of at
least a majority in liquidation amount of the Trust Securities affected
thereby, voting together as a single class; provided, that, if any amendment or
proposal referred to in clause (i) above would adversely affect only the TECONS
or the Trust Common Securities, then only the affected class will be entitled
to vote on such amendment or proposal and such amendment or proposal shall not
be effective except with the approval of a majority in liquidation amount of
such class of Trust Securities.
Notwithstanding the foregoing, no amendment or modification may be made to the
Declaration if such amendment or modification would (i) cause the Trust to be
classified for purposes of U.S. federal income taxation as other than a grantor
trust, (ii) reduce or otherwise adversely affect the powers of the Property
Trustee in contravention of the Trust Indenture Act or (iii) cause the Trust to
be deemed an "investment company" which is required to be registered under the
1940 Act.
PROPOSED TAX LEGISLATION
On February 6, 1997, as part of the Clinton Administration's Fiscal 1998 Budget
Proposal, the Treasury Department proposed legislation (the "Proposed
Legislation") which would, among other things, generally deny corporate issuers
a deduction for interest in respect of certain debt obligations, such as the
Convertible Debentures, if such debt obligations have a maximum term in excess
of 15 years and are not shown as indebtedness on the issuer's consolidated
balance sheet. In that regard, the Convertible Debentures have a maturity of
less than fifteen years. The Proposed Legislation would also generally prevent
corporations from deducting interest (including original issue discount) on
convertible debt instruments until the taxable year in which such interest is
paid in cash or other property (other than equity of the issuer or a related
party or cash or other property the amount of which is determined by reference
to the value of the equity of the issuer or a related party). The Proposed
Legislation applies to debt obligations issued on or after the date of "first
committee action." As of the date of this Prospectus
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Supplement, the Proposed Legislation has not yet been introduced by any member
of the 105th Congress. If the Proposed Legislation or other legislation is
enacted by Congress and if it gives rise to a Tax Event, the Trust would be
permitted to cause a redemption of the TECONS by causing a distribution of the
Convertible Debentures or, in certain circumstances, by electing to redeem the
Convertible Debentures. See "-- Special Event Distribution; Tax Event
Redemption."
MERGERS, CONSOLIDATIONS OR AMALGAMATIONS
The Trust may not consolidate, amalgamate, merge with or into, or be replaced
by, or convey, transfer or lease its properties and assets substantially as an
entirety to, any corporation or other body, except as described below or as
otherwise provided in the Declaration. The Trust may, with the consent of a
majority of the Regular Trustees and without the consent of the holders of the
Trust Securities, the Property Trustee or the Delaware Trustee, consolidate,
amalgamate, merge with or into, or be replaced by a trust organized as such
under the laws of any State of the United States; provided, that (i) if the
Trust is not the survivor, such successor entity either (x) expressly assumes
all of the obligations of the Trust under the Trust Securities or (y)
substitutes for the TECONS other securities having substantially the same terms
as the TECONS (the "Successor Securities"), so long as the Successor Securities
rank the same as the TECONS rank with respect to Distributions and payments
upon liquidation, redemption and otherwise, (ii) if the Trust is not the
survivor, the Company expressly acknowledges or appoints a trustee of such
successor entity possessing the same powers and duties as the Property Trustee
as the holder of the Convertible Debentures, (iii) the TECONS or any Successor
Securities are listed, or any Successor Securities will be listed upon
notification of issuance, on any national securities exchange or with another
organization on which the TECONS are then listed or quoted, (iv) such merger,
consolidation, amalgamation or replacement does not cause the TECONS (including
any Successor Securities) to be downgraded by any nationally recognized
statistical rating organizations, (v) such merger, consolidation, amalgamation
or replacement does not adversely affect the rights, preferences and privileges
of the holders of the Trust Securities (including any Successor Securities) in
any material respect (other than with respect to any dilution of the holders'
interest in the new entity, if any), (vi) such successor entity has a purpose
substantially identical to that of the Trust, (vii) prior to such merger,
consolidation, amalgamation or replacement, the Company has received an opinion
of a nationally recognized independent counsel to the Trust experienced in such
matters to the effect that, (a) such merger, consolidation, amalgamation or
replacement does not adversely affect the rights, preferences and privileges of
the holders of the Trust Securities (including any Successor Securities) in any
material respect (other than with respect to any dilution of the holders'
interest in the new entity), (b) following such merger, consolidation,
amalgamation or replacement, neither the Trust nor such successor entity, if
any, will be required to register as an investment company under the 1940 Act,
and (c) following such merger, consolidation, amalgamation or replacement, the
Trust (or such successor entity) will be treated as a grantor trust for United
States federal income tax purposes and (viii) if the Trust is not the survivor,
the Company guarantees the obligations of such successor entity under the
Successor Securities at least to the extent provided by the Guarantee and
Company's guarantee of the Trust Common Securities. Notwithstanding the
foregoing, the Trust shall not, except with the consent of holders of 100% in
liquidation amount of the Trust Securities, consolidate, amalgamate, merge with
or into, or be replaced by any other entity or permit any other entity to
consolidate, amalgamate, merge with or into, or replace it, if such
consolidation, amalgamation, merger or replacement would cause the Trust or
such successor entity to be classified as other than a grantor trust for U.S.
federal income tax purposes.
BOOK-ENTRY ONLY ISSUANCE -- THE DEPOSITORY TRUST COMPANY
The Depository Trust Company ("DTC") will act as securities depositary (the
"Depository") for the TECONS. The TECONS will be issued only as fully
registered securities registered in the name of Cede & Co. (DTC's nominee). One
or more fully registered global TECONS certificates, representing the total
aggregate number of TECONS, will be issued and will be deposited with DTC.
The laws of some jurisdictions require that certain purchasers of securities
take physical delivery of securities in definitive form. Such laws may impair
the ability to transfer or pledge beneficial interests in such global TECONS.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). DTC holds securities that its
participants ("Participants") deposit with DTC. DTC also facilitates the
settlement among Participants of securities transactions, such as transfers and
pledges, in deposited securities through electronic computerized book-entry
changes in Participants' accounts, thereby eliminating the need for physical
movement of securities certificates. Direct Participants include securities
brokers and dealers, banks, trust companies, clearing corporations and certain
other organizations ("Direct Participants"). DTC is owned by a number of its
Direct Participants and by the New York Stock Exchange, Inc., the American
Stock Exchange, Inc. and the National
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Association of Securities Dealers, Inc. Access to the DTC system is also
available to others, such as securities brokers and dealers, banks and trust
companies that clear transactions through or maintain a direct or indirect
custodial relationship with a Direct Participant either directly or indirectly
("Indirect Participants"). The rules applicable to DTC and its Participants are
on file with the Securities and Exchange Commission. Purchases of TECONS within
the DTC system must be made by or through Direct Participants, which will
receive a credit for the TECONS on DTC's records. The ownership interest of
each actual purchaser of each TECONS ("Beneficial Owner") is in turn to be
recorded on the Direct and Indirect Participants' records. Beneficial Owners
will not receive written confirmation from DTC of their purchases, but
Beneficial Owners are expected to receive written confirmations providing
details of the transactions, as well as periodic statements of their holdings,
from the Direct or Indirect Participants through which the Beneficial Owners
purchased TECONS. Transfers of ownership interests in the TECONS are to be
accomplished by entries made on the books of Participants acting on behalf of
Beneficial Owners. Beneficial Owners will not receive certificates representing
their ownership interests in the TECONS, except in the event that use of the
book-entry system for the TECONS is discontinued or in certain other limited
circumstances.
To facilitate subsequent transfers, all the TECONS deposited by Participants
with DTC are registered in the name of DTC's nominee, Cede & Co. The deposit of
TECONS with DTC and their registration in the name of Cede & Co. effect no
change in beneficial ownership. DTC has no knowledge of the actual Beneficial
Owners of the TECONS. DTC's records reflect only the identity of the Direct
Participants to whose accounts such TECONS are credited, which may or may not
be the Beneficial Owners. The Participants will remain responsible for keeping
account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct Participants,
by Direct Participants to Indirect Participants and by Direct Participants and
Indirect Participants to Beneficial Owners will be governed by arrangements
among them, subject to any statutory or regulatory requirements that may be in
effect from time to time.
Redemption notices shall be sent to Cede & Co. If less than all of the TECONS
are being redeemed, DTC will reduce the amount of the interest of each Direct
Participant in such TECONS in accordance with its procedures.
Although voting with respect to the TECONS is limited, in those cases where a
vote is required, neither DTC nor Cede & Co. will itself consent or vote with
respect to TECONS. Under its usual procedures, DTC would mail an Omnibus Proxy
to the Trust as soon as possible after the record date. The Omnibus Proxy
assigns the consenting or voting rights of Cede & Co. to those Direct
Participants to whose accounts the TECONS are credited on the record date
(identified in a listing attached to the Omnibus Proxy). The Company and the
Trust believe that the arrangements among DTC, Direct and Indirect
Participants, and Beneficial Owners will enable the Beneficial Owners to
exercise rights equivalent in substance to the rights that can be directly
exercised by a holder of a beneficial interest in the Trust.
Distribution payments on the TECONS will be made to DTC. DTC's practice is to
credit Direct Participants' accounts on the relevant payment date in accordance
with their respective holdings shown on DTC's records unless DTC has reason to
believe that it will not receive payments on such payment date. Payments by
Participants to Beneficial Owners will be governed by standing instructions and
customary practices, as is the case with securities held for the account of
customers in bearer form or registered in "street name," and such payments will
be the responsibility of such Participant and not of DTC, the Trust or the
Company, subject to any statutory or regulatory requirements to the contrary
that may be in effect from time to time. Payment of distributions to DTC is the
responsibility of the Trust, disbursement of such payments to Direct
Participants is the responsibility of DTC, and disbursement of such payments to
the Beneficial Owners is the responsibility of Direct and Indirect
Participants.
Except as described herein, a Beneficial Owner in a global TECONS certificate
will not be entitled to receive physical delivery of TECONS. Accordingly, each
Beneficial Owner must rely on the procedures of DTC to exercise any rights
under the TECONS.
DTC is under no obligation to provide services as Depository for the TECONS and
may discontinue providing such services at any time. Neither the Company, the
Trust, the Debt Trustee nor the CNF Trustees will have any responsibility for
the performance by DTC or its Participants or Indirect Participants under the
rules and procedures governing DTC. In the event that (i) DTC notifies the
Trust that it is unwilling or unable to continue as a Depository for the global
TECONS or if at any time DTC ceases to be a clearing agency registered as such
under the Exchange Act and no successor Depository shall have been appointed
within 90 days of such notification or of the Trust becoming aware of DTC's
ceasing to be so registered, as the case may be, (ii) the Regular Trustees, in
their sole discretion, execute and deliver to the Property Trustee an order to
the effect that such global TECONS shall be so exchangeable, or (iii) a
Declaration Event of Default has occurred and is continuing, certificates for
the TECONS will be prepared and delivered in exchange for beneficial interests
in the global TECONS. Any beneficial interest in global TECONS that is
exchangeable pursuant to the preceding sentence shall be exchangeable for
TECONS in
S-51
<PAGE>
definitive certificated form registered in such names as the Depository shall
direct. It is expected that such instructions will be based upon directions
received by the Depository from its Participants with respect to ownership of
beneficial interests in such global TECONS.
The information in this section and elsewhere in this Prospectus Supplement
concerning DTC and DTC's book-entry system has been obtained from sources that
the Company and the Trust believe to be reliable, but neither the Company nor
the Trust takes responsibility for the accuracy thereof.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, prior to the occurrence of a default with respect to the
Trust Securities and after the curing of any defaults that may have occurred,
undertakes to perform only such duties as are specifically set forth in the
Declaration and, after default, shall exercise the same degree of care as a
prudent individual would exercise in the conduct of his or her own affairs.
Subject to such provisions, the Property Trustee is under no obligation to
exercise any of the powers vested in it by the Declaration at the request of
any holder of TECONS, unless offered reasonable indemnity by such holder
against the costs, expenses and liabilities which might be incurred thereby.
The holders of TECONS will not be required to offer such indemnity in the event
such holders, by exercising their voting rights, direct the Property Trustee to
take any action it is empowered to take under the Declaration following a
Declaration Event of Default. The Property Trustee also serves as trustee under
the Guarantee and the Subordinated Indenture.
The Company may maintain banking and other commercial relationships with the
Property Trustee and its affiliates in the ordinary course of business, and the
Property Trustee may own Securities (as defined in the accompanying
Prospectus).
CONVERSION AGENT AND PAYING AGENT
The Property Trustee will act as Conversion Agent. In addition, in the event
that the TECONS do not remain in book-entry only form, the following provisions
would apply:
The Property Trustee will act as initial paying agent and transfer agent and
may designate additional or substitute paying agents and transfer agents at any
time. Registration of transfers of TECONS will be effected without charge by or
on behalf of the Trust, but upon payment (with the giving of such indemnity as
the Regular Trustees, the Property Trustee or the Company may require) in
respect of any tax or other government charges that may be imposed in relation
thereto. The Trust will not be required to register the transfer of or exchange
TECONS during the period beginning at the opening of business 15 days before
any selection of TECONS to be redeemed and ending at the close of business on
the day of that selection or register the transfer of or exchange any TECONS,
or portion thereof, called for redemption, except the unredeemed portion of any
TECONS being redeemed in part. In addition, with respect to TECONS not held in
book-entry form, holders will be required to surrender certificates evidencing
the TECONS in order to receive payment due upon redemption or at maturity and
in order to convert the TECONS.
GOVERNING LAW
The Declaration and the TECONS will be governed by, and construed in accordance
with, the internal laws of the State of Delaware.
MISCELLANEOUS
The Regular Trustees are authorized and directed to conduct the affairs of and
to operate the Trust in such a way so that the Trust will not be required to
register as an "investment company" under the 1940 Act or characterized as
other than a grantor trust for U.S. federal income tax purposes and so that the
Convertible Debentures will be treated as indebtedness of the Company for U.S.
federal income tax purposes. In this connection, the Company and the Regular
Trustees are authorized to take any action, not inconsistent with applicable
law or the Declaration, that each of the Company and the Regular Trustees
determine in their discretion to be necessary or desirable to achieve such end,
as long as such action does not adversely affect the interests of the holders
of TECONS.
Holders of the TECONS, as such, have no preemptive or similar rights.
S-52
<PAGE>
DESCRIPTION OF THE GUARANTEE
Pursuant to the Guarantee, the Company will irrevocably and unconditionally
agree, to the extent set forth therein, to pay in full, to the holders of the
TECONS issued by the Trust, the Guarantee Payments as defined in the
accompanying Prospectus (except to the extent paid by the Trust), as and when
due, regardless of any defense, right of set-off or counterclaim which the
Trust may have or assert. The Company's obligation to make a Guarantee Payment
may be satisfied by direct payment of the required amounts by the Company to
the holders of TECONS or by causing the Trust to pay such amounts to such
holders. The Guarantee will be qualified as an indenture under the Trust
Indenture Act. The Property Trustee will act as indenture trustee under the
Guarantee (the "Guarantee Trustee"). The terms of the Guarantee will be those
set forth in such Guarantee and those made part of such Guarantee by the Trust
Indenture Act. The Guarantee will be held by the Guarantee Trustee for the
benefit of the holders of the TECONS. A more detailed summary of the Guarantee
appears in the accompanying Prospectus under the caption "Description of Trust
Preferred Securities Guarantee."
In the Guarantee, the Company will covenant that, so long as any TECONS remains
outstanding, if there shall have occurred and be continuing any event of
default under the Guarantee or any Declaration Event of Default, then (a) the
Company shall not declare or pay dividends on, or make distributions with
respect to, or redeem, purchase or acquire, or make a liquidation payment with
respect to, any of its capital stock (other than (A) (i) purchases or
acquisitions of shares of the Company's capital stock (or capital stock
equivalents) in connection with the satisfaction by the Company of its
obligations under any officers, directors or employee benefit plans (or any
options or other instruments issued thereunder) or the satisfaction by the
Company of its obligations pursuant to any contract or security requiring the
Company to purchase shares of the Company's capital stock (or capital stock
equivalents), (ii) purchases of shares of the Company's capital stock (or
capital stock equivalents) from officers, directors or employees of the Company
or its subsidiaries pursuant to employment agreements or upon termination of
employment or retirement, (iii) as a result of a reclassification, combination
or subdivision of the Company's capital stock or the exchange or conversion of
one class or series of the Company's capital stock for another class or series
of the Company's capital stock, (iv) dividends or distributions of shares of
common stock on common stock, (v) the purchase of fractional interests in
shares of the Company's capital stock pursuant to the conversion or exchange
provisions of such capital stock or any security being converted or exchanged
into such capital stock, (vi) dividends or distributions on, or redemptions,
purchases or acquisitions of, or liquidation payments with respect to, the
Series B Preferred Stock (the Series B Preferred Stock is held by the TASP, an
employee benefit plan, and dividends on such shares (which are deductible by
the Company for federal income tax purposes) are applied by the TASP to pay
interest on borrowings made to acquire the Series B Preferred Stock), (vii)
purchases or other acquisitions of common stock in connection with a dividend
reinvestment or other similar plan, or (viii) any dividend or distribution of
capital stock (or capital stock equivalents) in connection with the
implementation of a stockholders rights plan, or the issuance of stock under
any such plan in the future, or the redemption or repurchase of any such rights
pursuant thereto, or (B) guarantee payments made with respect to any of the
foregoing), (b) the Company shall not make any payment of interest, principal
or premium, if any, on or repay, repurchase or redeem any debt securities
issued by the Company which rank pari passu with or junior to the Convertible
Debentures and (c) the Company shall not make any guarantee payments with
respect to the foregoing (other than pursuant to the Guarantee or the Company's
guarantee of the Trust Common Securities).
DESCRIPTION OF THE CONVERTIBLE DEBENTURES
Set forth below is a description of the specific terms of the Convertible
Debentures in which the Trust will invest the proceeds from the issuance and
sale of the Trust Securities. This description supplements and, to the extent
inconsistent therewith, replaces the description of the general terms and
provisions of the Convertible Debentures set forth in the accompanying
Prospectus under the caption "Description of Debt Securities." In particular,
the Indenture Events of Default applicable to the Convertible Debentures set
forth herein supersede and replace, insofar as is applicable to the Convertible
Debentures, the Events of Default set forth in the accompanying Prospectus. The
following summary of certain provisions of the subordinated indenture (the
"Base Indenture"), between the Company and The First National Bank of Chicago,
as Trustee (the "Debt Trustee"), as supplemented by the first supplemental
indenture thereto (the "First Supplemental Indenture" and, together with the
Base Indenture, the "Subordinated Indenture"), and the Convertible Debentures
does not purport to be complete and is subject to, and qualified in its
entirety by reference to, all of the provisions of the Subordinated Indenture
and the Debt Securities (which provisions, including defined terms, are
incorporated herein by reference) and the Trust Indenture Act. A copy of the
form of Subordinated Indenture and the form of Convertible Debenture has been
or will be filed or incorporated by reference as an exhibit to the Registration
Statement of which the accompanying Prospectus is a part. See "Available
Information" in the accompanying Prospectus. Certain capitalized terms used
herein are defined in the Subordinated Indenture.
S-53
<PAGE>
Under certain circumstances involving the dissolution of the Trust following
the occurrence of a Special Event, Convertible Debentures may be distributed to
the holders of the Trust Securities in liquidation of the Trust. See
"Description of the TECONS-- Special Event Distribution; Tax Event Redemption."
If the Convertible Debentures are distributed to the holders of the TECONS, the
Company will use its reasonable best efforts to have the Convertible Debentures
listed on the New York Stock Exchange or on such other national securities
exchange or similar organization on which the TECONS are then listed or quoted.
GENERAL
The Convertible Debentures will be issued as unsecured debt under the
Subordinated Indenture. The Convertible Debentures will be limited in aggregate
principal amount to approximately $113,402,100 (or $128,866,000 if the
Underwriters' over-allotment option is exercised in full) such amount being the
sum of the aggregate stated liquidation of the TECONS and the capital
contributed by the Company in exchange for the Trust Common Securities (the
"Company Payment").
The Convertible Debentures are not subject to a sinking fund provision or to
defeasance or covenant defeasance. The entire principal amount of the
Convertible Debentures will mature and become due and payable, together with
any accrued and unpaid interest thereon including, to the extent permitted by
law, Compound Interest (as defined herein) and Additional Interest (as defined
herein), if any, on June 1, 2012.
If Convertible Debentures are distributed to holders of TECONS in liquidation
of such holders' interests in the Trust, such Convertible Debentures will
initially be issued as a Global Security (as defined herein). As described
herein, under certain limited circumstances, Convertible Debentures may be
issued in certificated form in exchange for a Global Security. See "-- Book-
Entry and Settlement" below. In the event that Convertible Debentures are
issued in certificated form, such Convertible Debentures will be in
denominations of $50 and integral multiples thereof and may be transferred or
exchanged at the offices described below. Payments on Convertible Debentures
issued as a Global Security will be made to DTC, a successor Depository or, in
the event that no depositary is used, to a paying agent for the Convertible
Debentures. In the event Convertible Debentures are issued in certificated
form, principal and interest will be payable, the transfer of the Convertible
Debentures will be registrable and Convertible Debentures will be exchangeable
for Convertible Debentures of other denominations of a like aggregate principal
amount at the office or agency maintained by the Company for that purpose from
time to time in New York, New York; provided, that payment of interest may be
made at the option of the Company by check mailed to the address of the holder
entitled thereto or by wire transfer to an account in the United States
appropriately designated by the holder entitled thereto prior to the record
date for the corresponding interest payment date. Notwithstanding the
foregoing, so long as the holder of any Convertible Debentures is the Property
Trustee, the payment of principal and interest on the Convertible Debentures
held by the Property Trustee will be made at such place and to such account in
the United States as may be designated by the Property Trustee.
SUBORDINATION
The Subordinated Indenture provides that the Convertible Debentures are
subordinated in right of payment to all present and future Senior Indebtedness
(as defined in the accompanying Prospectus under "Description of Debt
Securities -- Subordination of Subordinated Debt Securities") of the Company.
No payment of principal of, or premium, if any, or interest on the Convertible
Debentures may be made if there shall have occurred and be continuing (i) a
default in the payment when due of principal of, premium, if any, sinking
funds, if any, or interest, if any, on any Senior Indebtedness of the Company
and any applicable grace period with respect to such default shall have ended
without such default having been cured or waived or ceasing to exist or (ii) an
event of default with respect to any Senior Indebtedness of the Company
resulting in the acceleration of the maturity thereof without such acceleration
having been rescinded or annulled. See "Risk Factors -- Risk Relating to an
Investment in the TECONS -- Ranking of Subordinate Obligations Under the
Guarantee and Convertible Debentures" for information as to the amount of
Senior Indebtedness outstanding as of a recent date. Upon any distribution of
assets of the Company upon any dissolution, winding-up, liquidation or
reorganization of the Company, all Senior Indebtedness shall first be paid in
full, or such payment shall be provided for, before any payment on account of
the principal of, or premium, if any, or interest on the Convertible Debentures
is made. See "Description of Debt Securities -- Subordination of Subordinated
Debt Securities" in the accompanying Prospectus for further information
regarding the subordination provisions applicable to the Convertible
Debentures.
The Subordinated Indenture does not limit the aggregate amount of Senior
Indebtedness that may be issued by the Company or the aggregate amount of
liabilities that may be incurred by the Company's subsidiaries. In that regard,
Senior Indebtedness may include debt securities, indebtedness and other
obligations that constitute "Senior Indebtedness" for purposes of (and which
are therefore senior in right of payment to) the Convertible Debentures but
which are subordinate in right of payment to certain other indebtedness and
obligations of the Company. See "Description of Debt Securities --
Subordination of Subordinated Debt Securities" in the accompanying Prospectus.
S-54
<PAGE>
REDEMPTION AT THE OPTION OF THE COMPANY
The Company shall have the right to redeem the Convertible Debentures, in whole
or in part, from time to time, on or after June 1, 2000, upon not less than 30
nor more than 60 days notice, at the following prices (expressed as percentages
of the principal amount of the Convertible Debentures) together (except as
provided below) with accrued and unpaid interest, including, to the extent
permitted by applicable law, Compound Interest (as defined herein) to, but
excluding, the redemption date, if redeemed during the 12-month period
beginning June 1:
<TABLE>
<CAPTION>
===========================================================================
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2000............................................................ 103.125%
2001............................................................ 102.500
2002............................................................ 101.875
2003............................................................ 101.250
2004............................................................ 100.625
</TABLE>
and 100% if redeemed on or after June 1, 2005.
If Convertible Debentures are redeemed on any June 1, September 1, December 1,
or March 1, accrued and unpaid interest shall be payable to holders of record
on the relevant record date.
The Company shall also have the right to redeem the Convertible Debentures in
certain circumstances upon the occurrence of a Tax Event as described under
"Description of the TECONS -- Special Event Distribution; Tax Event
Redemption," and any such redemption shall be at 100% of the principal amount
thereof together with accrued and unpaid interest (including, to the extent
permitted by law, Compound Interest) to the redemption date.
So long as the corresponding TECONS are outstanding, the proceeds from the
redemption of any of the Convertible Debentures will be used to redeem Trust
Securities.
The Company may not redeem any Convertible Debentures unless all accrued and
unpaid interest thereon, including (to the extent permitted by applicable law)
Compound Interest, has been or is contemporaneously paid (or duly provided for)
for all quarterly interest payment periods terminating on or prior to the date
of notice of redemption.
If a partial redemption of the TECONS resulting from a partial redemption of
the Convertible Debentures would result in the delisting of the TECONS from any
national securities exchange on which the TECONS are then listed, the Company
may only redeem the Convertible Debentures in whole.
INTEREST
Each Convertible Debenture shall bear interest at the rate of 5% per annum from
the first date of issuance, payable quarterly in arrears on June 1, September
1, December 1 and March 1 of each year (each an "Interest Payment Date"),
commencing September 1, 1997, to the person in whose name such Convertible
Debenture is registered, subject to certain exceptions, at the close of
business on the Business Day next preceding such Interest Payment Date. In the
event the Convertible Debentures or the TECONS shall not continue to remain in
book-entry only form, the Company shall have the right to select record dates,
which shall be at least one Business Day prior to the Interest Payment Date.
The amount of interest payable for any period will be computed on the basis of
a 360-day year of twelve 30-day months and, for any period of less than a full
calendar month, the actual number of days elapsed in such 30-day month. In the
event that any date on which interest is payable on the Convertible Debentures
is not a Business Day, then payment of the interest payable on such date will
be made on the next succeeding day that is a Business Day (and without any
interest or other payment in respect of any such delay), except that, if such
Business Day is in the next succeeding calendar year, then such payment shall
be made on the immediately preceding Business Day, in each case with the same
force and effect as if made on such date.
PROPOSED TAX LEGISLATION
Please refer to discussion above under the heading "Description of the TECONS
- -- Proposed Tax Legislation."
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<PAGE>
OPTION TO EXTEND INTEREST PAYMENT PERIOD
So long as the Company shall not be in default in the payment of interest on
the Convertible Debentures, the Company has the right at any time and from time
to time, during the term of the Convertible Debentures, to defer payments of
interest for successive periods not exceeding 20 consecutive quarters for each
Extension Period. At the end of each Extension Period, the Company shall pay
all interest then accrued and unpaid (including, to the extent permitted by
applicable law, any Additional Interest, as herein defined), together with
interest thereon compounded quarterly at the rate specified for the Convertible
Debentures to the extent permitted by applicable law ("Compound Interest");
provided, that during any Extension Period, (a) the Company shall not declare
or pay dividends on, make any distribution with respect to, or redeem,
purchase, acquire or make a liquidation payment with respect to, any of its
capital stock (other than (A)(i) purchases or acquisitions of shares of the
Company's capital stock (or capital stock equivalents) in connection with the
satisfaction by the Company of its obligations under any officers, directors or
employee benefit plans (or any options or other instruments issued thereunder)
or the satisfaction by the Company of its obligations pursuant to any contract
or security requiring the Company to purchase shares of the Company's capital
stock (or capital stock equivalents), (ii) purchases of shares of the Company's
capital stock (or capital stock equivalents) from officers, directors or
employees of the Company or its subsidiaries pursuant to employment agreements
or upon termination of employment or retirement, (iii) as a result of a
reclassification, combination or subdivision of the Company's capital stock or
the exchange or conversion of one class or series of the Company's capital
stock for another class or series of the Company's capital stock, (iv)
dividends or distributions of shares of common stock on common stock, (v) the
purchase of fractional interests in shares of the Company's capital stock
pursuant to the conversion or exchange provisions of such capital stock or any
security being converted or exchanged into such capital stock, (vi) dividends
or distributions on, or redemptions, purchases or acquisitions of, or
liquidation payments with respect to, the Series B Preferred Stock (the Series
B Preferred Stock is held by the TASP, an employee benefit plan, and dividends
on such shares (which are deductible by the Company for federal income tax
purposes) are applied by the TASP to pay interest on borrowings made to acquire
the Series B Preferred Stock), (vii) purchases or other acquisitions of common
stock in connection with a dividend reinvestment or other similar plan, or
(viii) any dividend or distribution of capital stock (or capital stock
equivalents) in connection with the implementation of a stockholders' rights
plan, or the issuance of stock under any such plan in the future, or the
redemption or repurchase of any such rights pursuant thereto, or (B) guarantee
payments made with respect to any of the foregoing), (b) the Company shall not
make any payment of interest, principal or premium, if any, on or repay,
repurchase or redeem any debt securities issued by the Company that rank pari
passu with or junior to the Convertible Debentures and (c) the Company shall
not make any guarantee payments with respect to the foregoing (other than
pursuant to the Guarantee or the Company's guarantee of the Trust Common
Securities). Prior to the termination of any such Extension Period of less than
20 consecutive quarters, the Company may further defer payments of interest by
extending the interest payment period; provided, however, that, such Extension
Period, including all such previous and further extensions, may not exceed 20
consecutive quarters or extend beyond the maturity of the Convertible
Debentures or end other than on an interest payment date. Upon the termination
of any Extension Period and the payment of all amounts then due on the
Convertible Debentures, the Company may commence a new Extension Period,
subject to the terms set forth in this section. No interest shall be due or
payable on the Convertible Debentures during an Extension Period, except at the
end thereof. The Company has no present intention of exercising its right to
defer payments of interest by extending the interest payment period on the
Convertible Debentures. If the Property Trustee shall be the sole holder of the
Convertible Debentures, the Company shall give the Regular Trustees and the
Property Trustee notice of its selection of such Extension Period one Business
Day prior to the earlier of (i) the next succeeding date Distributions on the
TECONS are payable and (ii) the date the Regular Trustees are required to give
notice to the New York Stock Exchange (or other applicable self-regulatory
organization) or to holders of the TECONS of the record date or the date such
Distribution is payable. The Regular Trustees shall give notice of the
Company's selection of such Extension Period to the holders of the TECONS. If
the Property Trustee shall not be the sole holder of the Convertible
Debentures, the Company shall give the holders of the Convertible Debentures
notice of its selection of such Extension Period ten Business Days prior to the
earlier of (i) the next succeeding Interest Payment Date or (ii) the date upon
which the Company is required to give notice to the New York Stock Exchange (or
other applicable self-regulatory organization) or to holders of the Convertible
Debentures of the record or payment date of such related interest payment. See
"Risk Factors -- Option to Extend Interest Payment Period."
CONVERSION OF THE CONVERTIBLE DEBENTURES
The Convertible Debentures are convertible into CNF Common Stock at the option
of the holders of the Convertible Debentures at any time prior to the close of
business on June 1, 2012 (or, in the case of Convertible Debentures called for
redemption, the close of business on the Business Day prior to the Redemption
Date) at the Initial Conversion Price subject to the conversion price
adjustments described under "Description of the TECONS -- Conversion Rights."
The Trust has agreed not to convert
S-56
<PAGE>
Convertible Debentures held by it except pursuant to a notice of conversion
delivered to the Conversion Agent by a holder of TECONS or Trust Common
Securities. Upon surrender of a TECONS to the Conversion Agent for conversion,
the Trust will distribute Convertible Debentures to the Conversion Agent on
behalf of the holder of the TECONS so converted, whereupon the Conversion Agent
will convert such Convertible Debentures to CNF Common Stock on behalf of such
holder. The Company's delivery to the holders of the Convertible Debentures
(through the Conversion Agent) of the fixed number of shares of CNF Common
Stock into which the Convertible Debentures are convertible (together with the
cash payment, if any, in lieu of fractional shares) will be deemed to satisfy
the obligation of the Company to pay the principal amount of the Convertible
Debentures so converted, and the accrued and unpaid interest thereon
attributable to the period from the last date to which interest has been paid
or duly provided for; provided, however, that if any Convertible Debenture is
surrendered for conversion after the close of business on a record date for
payment of interest and before the opening of business on the corresponding
interest payment date (other than a Convertible Debenture or portion thereof
called for redemption on a redemption date occurring after such record date and
prior to such interest payment date), the interest payable on such interest
payment date with respect to such Convertible Debenture shall be paid to the
Trust (which will distribute such interest to the holder of the applicable
Trust Securities at the close of business on such record date) or other person
in whose name such Convertible Debentures are registered at the close of
business on such record date, as the case may be, despite such conversion, and
(other than a Convertible Debenture or a portion thereof called for redemption
on a redemption date occurring after such record date and on or prior to such
interest payment date) when so surrendered for conversion, the Convertible
Debenture must be accompanied by payment of an amount equal to the interest
payable on such interest payment date.
ADDITIONAL INTEREST
If at any time when the Property Trustee is the sole holder of the Convertible
Debentures, the Trust shall be required to pay any taxes, duties, assessments
or governmental charges of whatever nature (other than withholding taxes)
imposed by the U.S., or any other taxing authority, then, in any such case, the
Company will pay as additional interest ("Additional Interest") on the
Convertible Debentures, to the extent permitted by applicable law, such
additional amounts as shall be required so that the net amounts received and
retained by the Trust after paying any such taxes, duties, assessments or other
governmental charges will not be less than the amounts the Trust would have
received had no such taxes, duties, assessments or other governmental charges
been imposed.
INDENTURE EVENTS OF DEFAULT
If any Indenture Event of Default shall occur and be continuing, the Property
Trustee, as the holder of the Convertible Debentures, will have the right to
declare the principal of and the interest on the Convertible Debentures
(including, to the extent permitted by law, any Compound Interest and
Additional Interest, if any) to be forthwith due and payable. The Subordinated
Indenture provides that any of the following described events (each, an
"Indenture Event of Default"), which has occurred and is continuing,
constitutes an "event of default" with respect to the Convertible Debentures:
(i) default for 30 days in payment of any interest on any Convertible
Debentures, including any Additional Interest and Compound Interest, if any, in
respect thereof, provided that a valid extension of an interest payment period
will not constitute a default in the payment of interest (including any
Additional Interest and Compound Interest, if any) for this purpose; or (ii)
default in payment of principal of or premium, if any, on any Convertible
Debenture when due upon maturity, redemption or otherwise; or (iii) default by
the Company in the performance, or breach, of any other covenant or warranty in
the Subordinated Indenture (other than a covenant or warranty included therein
solely for the benefit of a series of Subordinated Debt Securities other than
the Convertible Debentures) which shall not have been remedied for a period
after 90 days after written notice to the Company by the Debt Trustee or the
holders of not less than 25% in aggregate principal amount of the Convertible
Debentures then outstanding; or (iv) failure by the Company to deliver shares
of CNF Common Stock upon an election by a holder of Convertible Debentures to
convert such Convertible Debentures; or (v) the dissolution, winding up or
termination of the Trust, except in connection with the distribution of
Convertible Debentures to the holders of Trust Securities in liquidation of the
Trust upon the occurrence of a Special Event, upon the redemption of all
outstanding TECONS, upon the conversion of all outstanding TECONS or in
connection with certain mergers, consolidations or amalgamations permitted by
the Declaration; or (vi) certain events of bankruptcy, insolvency or
reorganization of the Company. The only Indenture Events of Default applicable
to the Convertible Debenture are those set forth above, which supersede and
replace, insofar as is applicable to the Convertible Debentures, the Events of
Default set forth in the accompanying Prospectus under "Description of Debt
Securities -- Events of Default." An Indenture Event of Default also
constitutes a Declaration Event of Default. The holders of TECONS in certain
circumstances have the right to direct the Property Trustee to exercise its
rights as the holder of the Convertible Debentures. See "Description of the
TECONS-- Declaration Events of Default" and "-- Voting Rights." Notwithstanding
the foregoing, if a Declaration Event of
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Default has occurred and is continuing and such event is attributable to the
failure of the Company to pay interest or principal on the Convertible
Debentures on the date such interest or principal is otherwise payable (or in
the case of redemption, the redemption date), a holder of TECONS may institute
a Direct Action for payment on or after the respective due date specified in
the Convertible Debentures. Notwithstanding any payments made to such holder of
TECONS by the Company in connection with a Direct Action, the Company shall
remain obligated to pay the principal of or interest on the Convertible
Debentures held by the Trust or the Property Trustee of the Trust, and the
Company shall be subrogated to the rights of the holder of such TECONS with
respect to payments on the TECONS to the extent of any payments made by the
Company to such holder in any Direct Action. The holders of TECONS will not be
able to exercise directly any other remedy available to the holders of the
Convertible Debentures.
BOOK-ENTRY AND SETTLEMENT
If distributed to holders of TECONS in connection with the involuntary or
voluntary dissolution, winding-up or liquidation of the Trust as a result of
the occurrence of a Special Event, the Convertible Debentures will (except
under the limited circumstances described below) be issued in the form of one
or more global certificates (each, a "Global Security") registered in the name
of the Depository or its nominee. Except under the limited circumstances
described below, Convertible Debentures represented by the Global Security will
not be exchangeable for, and will not otherwise be issuable as, Convertible
Debentures in definitive form. The Global Securities may not be transferred
except by the Depository to a nominee of the Depository or by a nominee of the
Depository to the Depository or another nominee of the Depository or to a
successor Depository or its nominee.
The laws of some jurisdictions may require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
laws may impair the ability to transfer or pledge beneficial interests in such
a Global Security.
Except as provided below, owners of beneficial interests in such a Global
Security will not be entitled to receive physical delivery of Convertible
Debentures in definitive form and will not be considered the holders (as
defined in the Subordinated Indenture) thereof for any purpose under the
Subordinated Indenture and no Global Security representing Convertible
Debentures shall be exchangeable, except for another Global Security of like
denomination and tenor to be registered in the name of the Depository or its
nominee or a successor Depository or its nominee. Accordingly, each Beneficial
Owner must rely on the procedures of the Depository or if such person is not a
Participant, on the procedures of the Participant or Indirect Participant
through which such person owns its interest to exercise any rights of a holder
under the Subordinated Indenture.
THE DEPOSITORY
If Convertible Debentures are distributed to holders of TECONS in liquidation
of such holders' interests in the Trust, DTC will act as Depository for the
Convertible Debentures. For a description of DTC and the specific terms of the
depository arrangements, see "Description of the TECONS -- Book-Entry Only
Issuance -- The Depository Trust Company." As of the date of this Prospectus
Supplement, the description therein of DTC's book-entry system and DTC's
practices as they relate to purchases, transfers, notices and payments with
respect to the TECONS apply in all material respects to any debt obligations
represented by one or more Global Securities. The Company may appoint a
successor to DTC or any successor Depository in the event DTC or such successor
Depository is unable or unwilling to continue as a Depository for the Global
Securities.
None of the Company, the Trust, the Property Trustee, the Debt Trustee, any
paying agent, any transfer agent or any other agent of the Company or the Debt
Trustee will have any responsibility or liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests in a
Global Security for such Convertible Debentures or for maintaining, supervising
or reviewing any records relating to such beneficial ownership interests.
DISCONTINUANCE OF THE DEPOSITORY'S SERVICES
DTC is under no obligation to provide services as Depository for the Global
Security and may discontinue providing such services at any time. Neither the
Company, the Trust, the Debt Trustee nor the CNF Trustees will have any
responsibility for the performance by DTC or its Participants or Indirect
Participants under the rules and procedures governing DTC. In the event that
(i) DTC notifies the Company that it is unwilling or unable to continue as a
Depository for the Global Security or if at any time DTC ceases to be a
clearing agency registered as such under the Exchange Act, and no successor
Depository shall have been appointed within 90 days of such notification or of
the Company becoming aware of DTC's ceasing to be so registered, as the case
may be, (ii) the Company, in its sole discretion, executes and delivers to the
Debt Trustee a Company order to the effect that such Global Security shall be
so exchangeable, or (iii) an Indenture Event of Default has occurred and is
continuing with respect to the Convertible Debentures, certificates for the
Convertible Debentures will be prepared and delivered in exchange for
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beneficial interests in the Global Security. Any Global Security that is
exchangeable pursuant to the preceding sentence shall be exchangeable for
Convertible Debentures registered in such names as the Depositary shall direct.
It is expected that such instructions will be based upon directions received by
the Depositary from its Participants with respect to ownership of beneficial
interests in such Global Security.
GOVERNING LAW
The Subordinated Indenture and the Convertible Debentures will be governed by,
and construed in accordance with, the internal laws of the State of New York.
MISCELLANEOUS
The Subordinated Indenture will provide that the Company will pay all fees and
expenses related to (i) the offering of the Trust Securities and the
Convertible Debentures, (ii) the organization, maintenance and dissolution of
the Trust, (iii) the retention of the Company Trustees and (iv) the enforcement
by the Property Trustee of the rights of the holders of the TECONS.
EFFECT OF OBLIGATIONS UNDER THE CONVERTIBLE
DEBENTURES AND THE GUARANTEE
As set forth in the Declaration, the sole purpose of the Trust is to issue the
Trust Securities evidencing undivided beneficial interests in the assets of the
Trust, and to invest the proceeds from such issuance and sale in the
Convertible Debentures and to engage in such other activities as are necessary,
convenient or incidental thereto.
As long as payments of interest and other payments are made when due on the
Convertible Debentures, such payments will be sufficient to cover Distributions
and other payments due on the Trust Securities because of the following
factors: (i) the aggregate principal amount of Convertible Debentures will be
equal to the aggregate stated liquidation amount of the Trust Securities;
(ii) the interest rate and the interest and other payment dates on the
Convertible Debentures will match the Distribution rate and Distribution and
other payment dates for the TECONS; (iii) the Subordinated Indenture provides
that the Company shall pay, and the Trust shall not be obligated to pay,
directly or indirectly, any costs, expenses, debt, and obligations of the Trust
(other than with respect to the Trust Securities); and (iv) the Declaration
provides that the CNF Trustees shall not cause or permit the Trust to, among
other things, engage in any activity that is not consistent with the purposes
of the Trust.
Payments of Distributions (to the extent funds therefor are available) and
other payments due on the TECONS (to the extent funds therefor are available)
are guaranteed by the Company as and to the extent set forth under "Description
of Trust Preferred Securities Guarantee" in the accompanying Prospectus. If the
Company does not make interest payments on the Convertible Debentures purchased
by the Trust, it is expected that the Trust will not have sufficient funds to
pay Distributions on the TECONS. The Guarantee is a guarantee on a subordinated
basis with respect to the TECONS issued by the Trust from the time of its
issuance but does not apply to any payment of Distributions unless and until
the Trust has sufficient funds for the payment of such Distributions. The
Guarantee covers the payment of Distribution and other payments on the TECONS
only if and to the extent that the Company has made a payment of interest or
principal on the Convertible Debentures held by the Trust as its sole asset.
The Guarantee, when taken together with the Company's obligations under the
Convertible Debentures, the Subordinated Indenture and the Declaration,
including its obligations to pay costs, expenses, debts and liabilities of the
Trust (other than with respect to the Trust Securities), provides a full and
unconditional guarantee, on a subordinated basis, of amounts due on the TECONS.
If the Company fails to make interest or other payments on the Convertible
Debentures when due (taking account of any Extension Period), the Declaration
provides a mechanism whereby a holder of the TECONS, using the procedures
described in "Description of the TECONS -- Voting Rights" and "-- Book-Entry
Only Issuance -- The Depository Trust Company" may direct the Property Trustee
to enforce its rights under the Convertible Debentures. Notwithstanding the
foregoing, in such circumstances, a holder of TECONS may institute a Direct
Action for payment on or after the respective due dates specified in the
Convertible Debentures. In connection with such Direct Action, the Company will
remain obligated to pay the principal or interest on the Convertible Debentures
and will be subrogated to the rights of such holder of TECONS under the
Declaration to the extent of any payment made by the Company to such holder of
TECONS in such Direct Action. The Company, under the Guarantee, acknowledges
that the Guarantee Trustee shall enforce the Guarantee on behalf of the holders
of the TECONS. If the Company fails to make payments under the Guarantee, the
Guarantee provides a mechanism whereby the holders of the TECONS may direct the
Guarantee Trustee to enforce its rights thereunder. If the Guarantee Trustee
fails to enforce the Guarantee, any holder of TECONS may institute a legal
proceeding directly against the Company to enforce the Guarantee Trustee's
rights under the Guarantee without first instituting a legal proceeding against
the Trust, the Guarantee Trustee, or any other person or entity.
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<PAGE>
CERTAIN FEDERAL TAX CONSEQUENCES
In the opinion of Brown & Wood llp, special counsel to the Company and the
Trust, the following are the material United States federal income tax
consequences of the ownership and disposition of TECONS. Unless otherwise
stated, this summary deals only with TECONS held as capital assets by holders
who acquire the TECONS upon original issuance at the price indicated on the
cover of this Prospectus Supplement. It does not deal with special classes of
holders, such as dealers in securities or currencies, life insurance companies,
persons holding TECONS as part of a straddle or as part of a hedging or
conversion transaction, or persons whose functional currency is not the United
States dollar. This summary is based on the Internal Revenue Code of 1986, as
amended (the "Code"), Treasury Regulations thereunder and administrative and
judicial interpretations thereof as of the date hereof, all of which are
subject to change (possibly on a retroactive basis).
INVESTORS ARE ADVISED TO CONSULT THEIR TAX ADVISORS AS TO THE UNITED STATES
FEDERAL INCOME TAX CONSEQUENCES OF THE OWNERSHIP AND DISPOSITION OF TECONS IN
LIGHT OF THEIR PARTICULAR CIRCUMSTANCES, AS WELL AS THE EFFECT OF ANY STATE,
LOCAL OR OTHER TAX LAWS.
CLASSIFICATION OF THE CONVERTIBLE DEBENTURES
The Company intends to take the position that the Convertible Debentures will
be classified for United States federal income tax purposes as indebtedness
under current law. The Company, the Trust and the holders of the TECONS (by
acceptance of a beneficial interest in a TECONS) will agree to treat the
Convertible Debentures as indebtedness of the Company and the TECONS as
evidences of a beneficial ownership interest in the Convertible Debentures for
all United States federal income tax purposes. No assurance can be given,
however, that such position of the Company will not be challenged by the
Internal Revenue Service ("IRS") or, if challenged, that such challenge will
not be successful. The remainder of this discussion assumes that the
Convertible Debentures will be classified for United States federal income tax
purposes as indebtedness of the Company. No portion of the amounts received on
the TECONS will be eligible for the dividends-received deduction.
CLASSIFICATION OF THE TRUST
In connection with the issuance of the TECONS, Brown & Wood llp, special
counsel to the Company and the Trust, will render its opinion generally to the
effect that, assuming full compliance with the terms of the Declaration and the
Subordinated Indenture (and certain other documents), and based on certain
facts and assumptions contained in such opinion, the Trust will be classified
for United States federal income tax purposes as a grantor trust and not as an
association taxable as a corporation. Accordingly, each holder of TECONS will
be considered the owner of a pro rata portion of the Convertible Debentures
held by the Trust and will be required to include in gross income its pro rata
share of income accrued on the Convertible Debentures.
ACCRUAL OF ORIGINAL ISSUE DISCOUNT
Because the Company has the right to extend the interest payment period of the
Convertible Debentures, the Convertible Debentures will be considered to have
been issued with "original issue discount" ("OID") in an amount equal to the
difference between the issue price of the Convertible Debentures and their
stated redemption price at maturity. Accordingly, each holder of TECONS,
including a taxpayer who otherwise uses the cash method of accounting, will be
required to include its pro rata share of original issue discount on the
Convertible Debentures in income as it accrues, in accordance with a constant
yield method based on a compounding of interest, before the receipt of cash
distributions on the TECONS. Generally, all of a holder's taxable interest
income with respect to the Convertible Debentures will be accounted for as
"original issue discount" and actual distributions of stated interest will not
be separately reported as taxable income. So long as the interest payment
period is not extended, cash distributions received by a holder for any
quarterly interest period (assuming no disposition prior to the record date for
such distribution) will generally equal the sum of the daily accruals of income
for such quarterly interest period.
A holder's initial tax basis for its pro rata share of the Convertible
Debentures will be equal to its pro rata share of their purchase price, and
will be increased by original issue discount accrued with respect to its pro
rata share of the Convertible Debentures, and reduced by the amount of cash
distributions with respect thereto.
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<PAGE>
POTENTIAL EXTENSION OF PAYMENT PERIOD ON THE CONVERTIBLE DEBENTURES
Holders of TECONS will continue to accrue original issue discount with respect
to their pro rata share of the Convertible Debentures during an extended
interest payment period. A holder who disposes of the TECONS during an extended
interest period may suffer a loss because the market price will likely fall if
the Company exercises its option to defer payments of interest on the
Convertible Debentures. See "-- Disposition of the TECONS" below. Furthermore,
the market value of the TECONS may not reflect the accumulated distributions
that will be paid at the end of the extended interest period, and a holder who
sells the TECONS during the extended interest period will not receive from the
Company any cash related to the interest income the holder accrued and included
in its taxable income under the OID rule (because that cash will be paid to the
holder of record at the end of the extended interest period).
DISTRIBUTION OF CONVERTIBLE DEBENTURES TO HOLDERS OF TECONS
Under current law, a distribution by the Trust of the Convertible Debentures as
described under the caption "Description of the TECONS -- Special Event
Distribution; Tax Event Redemption" will be non-taxable and will result in the
holder receiving directly its pro rata share of the Convertible Debentures
previously held indirectly through the Trust, with a holding period and tax
basis equal to the holding period and adjusted tax basis such holder was
considered to have had in his pro rata share of the underlying Convertible
Debentures prior to such distribution. If, however, the Trust were
characterized for United States federal income tax purposes as an association
taxable as a corporation at the time of its dissolution, the distribution of
the Convertible Debentures may constitute a taxable event to holders of TECONS
and a holder's holding period for the Convertible Debentures would begin on the
date such Convertible Debentures were received.
DISPOSITION OF THE TECONS
Upon a sale, exchange or other disposition of the TECONS (including a
distribution of cash in redemption of a holder's TECONS upon redemption or
repayment of the underlying Convertible Debentures, but excluding the
distribution of Convertible Debentures), a holder will be considered to have
disposed of all or part of its pro rata share of the Convertible Debentures,
and will recognize gain or loss equal to the difference between the amount
realized and the holder's adjusted tax basis in its pro rata share of the
underlying Convertible Debentures deemed disposed of. Such gain or loss will be
long-term capital gain or loss if the TECONS have been held by the holder for
more than one year.
The TECONS may trade at a price that does not fully reflect the value of
accrued but unpaid interest with respect to the underlying Convertible
Debentures. A holder who disposes of its TECONS between record dates for
payments of distributions thereon will nevertheless be required to include
accrued but unpaid interest on the Convertible Debentures through the date of
disposition in income as OID, and to add such amount to its adjusted tax basis
in its pro rata share of the underlying Convertible Debentures deemed disposed
of. Accordingly, such a holder will recognize a capital loss to the extent the
selling price (which may not fully reflect the value of accrued but unpaid
interest) is less than the holder's adjusted tax basis (which will include
accrued but unpaid interest). Subject to certain limited exceptions, capital
losses cannot be applied to offset ordinary income for United States federal
income tax purposes.
CONVERSION OF TECONS TO CNF COMMON STOCK
A holder of TECONS will not recognize income, gain or loss upon the conversion
through the Conversion Agent, of Convertible Debentures into CNF Common Stock.
A holder of TECONS will, however, recognize gain upon the receipt of cash in
lieu of a fractional share of CNF Common Stock equal to the amount of cash
received less such holder's tax basis in such fractional share. Such holder's
tax basis in the CNF Common Stock received upon conversion will generally be
equal to such holder's tax basis in the TECONS delivered to the Conversion
Agent for exchange, less the basis allocated to any fractional share for which
cash is received. Such holder's holding period in the CNF Common Stock received
upon conversion will generally include the holder's holding period of the
TECONS delivered to the Conversion Agent for exchange, except possibly with
respect to CNF Common Stock received in respect of any accrued but unpaid OID.
ADJUSTMENT OF CONVERSION PRICE
Treasury Regulations promulgated under section 305 of the Code would treat
holders of TECONS as having received a constructive distribution from the
Company in certain events pursuant to which the conversion rate of the
Convertible Debentures were adjusted. Thus, under certain circumstances, a
reduction in the conversion price for the Convertible Debentures may result
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in deemed dividend income to holders of TECONS to the extent of the current or
accumulated earnings and profits of the Company. Holders of TECONS are advised
to consult their tax advisors as to the income tax consequences of adjustments
in the conversion rate of TECONS.
INFORMATION REPORTING TO HOLDERS
The Trust will report the original issue discount that accrued during the year
with respect to the Convertible Debentures, and any gross proceeds received by
the Trust from the retirement or redemption of the Convertible Debentures,
annually to the holders of record of the TECONS and the IRS. Generally, such
reports should be mailed to holders of record by January 31 following each
calendar year. It is anticipated that persons who hold TECONS as nominees for
beneficial holders will report the required tax information to beneficial
holders on Form 1099.
BACKUP WITHHOLDING
Payments made on, and proceeds from the sale of TECONS may be subject to a
"backup" withholding tax of 31% unless the holder complies with certain
identification requirements. Any withheld amounts will generally be allowed as
a credit against the holder's federal income tax, provided the required
information is timely filed with the Internal Revenue Service.
UNITED STATES ALIEN HOLDERS
For purposes of this discussion, a "United States Alien Holder" is any
corporation, individual, partnership, estate or trust that is, for U.S. federal
income tax purposes, a foreign corporation, a nonresident alien individual, a
foreign partnership, or a non-resident fiduciary of a foreign estate or trust.
Payments on TECONS
As discussed above, the Company intends to take the position that the
Convertible Debentures will be classified for U.S. federal income tax purposes
as indebtedness of the Company under current law. No assurance can be given,
however, that such position of the Company will not be challenged by the
Internal Revenue Service.
Assuming that the Convertible Debentures are classified for U.S. federal income
tax purposes as indebtedness of the Company, under present U.S. federal income
tax law, payments by the Trust or any of its paying agents to any holder of a
TECONS who or which is a United States Alien Holder would not be subject to
U.S. federal withholding tax; provided, that, (a) the beneficial owner of the
TECONS does not actually or constructively own 10% or more of the total
combined voting power of all classes of stock of the Company entitled to vote,
(b) the beneficial owner of the TECONS is not a controlled foreign corporation
that is related to the Company through stock ownership, and (c) either (A) the
beneficial owner of the TECONS certifies to the Trust or its agent, under
penalties of perjury, that it is not a U.S. person and provides its name and
address or (B) a securities clearing organization, bank or other financial
Institution that holds customers' securities in the ordinary course of its
trade or business (a "Financial Institution"), and holds the TECONS in such
capacity, certifies to the Trust or its agent, under penalties of perjury, that
such statement has been received from the beneficial owner by it or by a
Financial Institution between it and the beneficial owner and furnishes the
Trust or its agent with a copy thereof.
If the Convertible Debentures were not classified for U.S. federal income tax
purposes as indebtedness of the Company, payments by the Trust or any of its
paying agents to any holder of a TECONS who or which is a United States Alien
Holder would be subject to U.S. withholding tax at a 30% rate (or a lower rate
prescribed by an applicable tax treaty). Prospective investors that would be
United States Alien Holders should consult their tax advisors concerning the
possible application of these rules.
Dividends on CNF Common Stock
Subject to the discussion below, dividends paid to a United States Alien Holder
of CNF Common Stock generally will be subject to withholding tax at a 30% rate
or such lower rate as may be specified by an applicable income tax treaty. For
purposes of determining whether tax is to be withheld at a 30% rate or at a
reduced rate as specified by an income tax treaty, the Company ordinarily will
presume that dividends paid to an address in a foreign country are paid to a
resident of such country, absent knowledge that such presumption is not
warranted.
To obtain a reduced rate of withholding under a treaty, a United States Alien
Holder would generally be required to provide an IRS form W-8 certifying such
United States Alien Holder's entitlement to benefits under a treaty.
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Generally, the Company must report to the IRS the amount of dividends paid, the
name and address of the recipient, and the amount, if any, of tax withheld. A
similar report is sent to the holder. Pursuant to tax treaties or certain other
agreements, the IRS may make its reports available to tax authorities in the
recipient's country of residence.
Sale or Exchange of TECONS or CNF Common Stock
A United States Alien Holder (other than certain U.S. expatriates) would not be
subject to U.S. federal income tax on gain realized on the sale, exchange or
other disposition of the TECONS or CNF Common Stock unless (i) the United
States Alien Holder is an individual who is present in the U.S. for 183 days or
more in the taxable year of disposition, and certain other conditions are
satisfied; or (ii) the Company is or has been a "United States real property
holding corporation" within the meaning of section 897(c)(2) of the Code during
the shorter of the United States Alien Holder's holding period or the five year
period ending on the date of the sale, exchange or other disposition and
certain other conditions are satisfied.
The Company believes that it is unlikely that it is or will be treated as a
"United States real property holding corporation" within the meaning of Section
897(c)(2) of the Code. Even if the Company is treated as a United States real
property holding corporation, gain realized by a United States Alien Holder on
a disposition of TECONS or CNF Common Stock will not be subject to U.S. federal
income tax so long as (i) the United States Alien Holder is deemed to have
beneficially owned, in the case of a disposition of CNF Common Stock, less than
or equal to 5% of the CNF Common Stock or, in the case of a disposition of
TECONS, less than or equal to 5% of the TECONS, and (ii) the CNF Common Stock
and the TECONS are currently and will be, at the time of disposition,
"regularly traded" on an established securities market (within the meaning of
Section 897(c)(3) of the Code and the temporary Treasury Regulations). There
can be no assurance that CNF Common Stock or the TECONS qualify or will
continue to qualify as "regularly traded" on an established securities market.
Effectively Connected Income
If a United States Alien Holder of a TECONS or CNF Common Stock is engaged in a
trade or business in the United States, and if original issue discount accrued
on the TECONS or dividends on such CNF Common Stock is effectively connected
with the conduct of such trade or business, the United States Alien Holder,
although exempt from the withholding tax on distributions on TECONS and
dividends on CNF Common Stock, will generally be subject to regular United
States income tax on the original issue discount and dividends and on any gain
realized on the sale, exchange or other disposition of a TECONS or CNF Common
Stock in the same manner as if it were a United States person. Such a holder
will be required to provide to the Company properly executed Internal Revenue
Service Form 4224 in order to claim an exemption from withholding tax. In
addition, if such United States Alien Holder is a foreign corporation, it may
be subject to a branch profits tax equal to 30% (or a lower rate prescribed by
an applicable treaty) of its effectively connected earnings and profits for the
taxable year.
PROPOSED TAX LEGISLATION
On February 6, 1997, as part of the Clinton Administration's Fiscal 1998 Budget
Proposal, the Treasury Department proposed legislation (the "Proposed
Legislation") which would, among other things, generally deny corporate issuers
a deduction for interest in respect of certain debt obligations, such as the
Convertible Debentures, if such debt obligations have a maximum term in excess
of 15 years and are not shown as indebtedness on the issuer's consolidated
balance sheet. In that regard, the Convertible Debentures have a maturity of
less than fifteen years. The Proposed Legislation would also generally prevent
corporations from deducting interest (including original issue discount) on
convertible debt instruments until the taxable year in which such interest is
paid in cash or other property (other than equity of the issuer or a related
party or cash or other property the amount of which is determined by reference
to the value of the equity of the issuer or a related party). The Proposed
Legislation applies to debt obligations issued on or after the date of "first
committee action." As of the date of this Prospectus Supplement, the Proposed
Legislation has not yet been introduced by any member of the 105th Congress. If
the Proposed Legislation or other legislation is enacted by Congress and if it
gives rise to a Tax Event, the Trust would be permitted to cause a redemption
of the TECONS by causing a distribution of the Convertible Debentures or, in
certain circumstances, by electing to redeem the Convertible Debentures. See
"Risk Factors -- Special Event Distribution; Tax Event Redemption" and
"Description of the TECONS -- Special Event Distribution; Tax Event
Redemption."
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UNDERWRITING
Under the terms and subject to the conditions set forth in the Underwriting
Agreement dated June 5, 1997 (the "Underwriting Agreement"), the underwriters
named below (the "Underwriters") have severally agreed to purchase, and the
Company has agreed to sell to them, the respective number of TECONS set forth
opposite their names below.
<TABLE>
<CAPTION>
=========
NUMBER OF
TECONS
UNDERWRITERS ---------
<S> <C>
J.P. Morgan Securities Inc............................................ 733,334
Goldman, Sachs & Co................................................... 733,333
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................................... 733,333
---------
Total............................................................. 2,200,000
---------
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the TECONS offered hereby are
subject to the approval of certain legal matters by their counsel and to
certain other conditions. The Underwriters are obligated to take and pay for
all of the TECONS offered hereby if any are taken. Under certain circumstances,
the commitments of nondefaulting Underwriters may be increased as set forth in
the Underwriting Agreement.
The Company has been advised by the Underwriters that the Underwriters propose
to offer the TECONS at the public offering price set forth on the cover page of
this Prospectus Supplement and to certain securities dealers at such prices
less a concession of not in excess of $0.7125 per TECONS. After the TECONS are
released for sale to the public, the offering price and other selling terms may
from time to time be varied by the Underwriters.
In view of the fact that the proceeds of the sale of the TECONS will be used by
the Trust to purchase Convertible Debentures from the Company, the Underwriting
Agreement provides that the Company will pay to the Underwriters the
underwriters' compensation set forth on the cover page of this Prospectus
Supplement and will pay all expenses of the offering made hereby.
The Trust, the Company and the Company's directors and executive officers have
agreed not to (i) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any option
to purchase or otherwise transfer or dispose of any TECONS, any equity
securities of the Company, the Trust or any similar trust or any securities
convertible into or exchangeable or exercisable for any equity securities of
the Company, the Trust or any similar trust or (ii) enter into any swap or
other agreement that transfers, in whole or in part, any of the economic
consequences of ownership of any equity securities of the Company, the Trust or
any similar trust, whether any such transaction described in clause (i) or (ii)
above is to be settled by delivery of equity securities of the Company, the
Trust or any similar trust, other securities, cash or otherwise, for a period
of 90 days after the date of this Prospectus Supplement, without the prior
written consent of J.P. Morgan Securities Inc.; provided that, notwithstanding
the foregoing, such executive officers and directors may transfer, pledge or
otherwise dispose of shares of CNF Common Stock to certain permitted
transferees who agree to be similarly bound. In addition, the restriction on
the Company and the Trust is subject to exceptions for (i) sales, issuances or
other dispositions made pursuant to existing officer, director or employee
benefit plans and other incentive plans or upon the exercise of options issued
thereunder, (ii) conversion of the Series B Preferred Stock, the TECONS, the
Trust Common Securities and the Convertible Debentures and (iii) shares of
capital stock or other rights to acquire capital stock issued as consideration
for acquired businesses, provided any such shares or rights referred to in this
clause (iii) are subject to resale restrictions equivalent to those held by
directors of the Company.
The Trust has granted the Underwriters an option, expiring at the close of
business on the 30th day after the date of this Prospectus Supplement, to
purchase up to 300,000 TECONS at the initial public offering price. The
Underwriters may exercise such option solely for the purpose of covering over-
allotments, if any. If the Underwriters exercise their option, each Underwriter
will have a firm commitment, subject to certain conditions, to purchase
approximately the same number of option TECONS as the number of TECONS to be
purchased by the Underwriters shown in the foregoing table bears to the total
number of TECONS initially offered by the Underwriters hereby.
Prior to the offering made hereby, there has been no market for the TECONS. The
TECONS have been approved for listing on the NYSE under the symbol "CNF PrT,"
subject to official notice of issuance. There can be no assurance that an
active trading market for the TECONS will develop or be sustained. See "Risk
Factors--Risks Relating to an Investment in the TECONS--No Prior Public Market;
Possible Price Volatility of TECONS." To meet one of the requirements for
listing the TECONS on the NYSE, the Underwriters will undertake to sell lots of
100 or more TECONS to a minimum of 400 beneficial holders.
S-64
<PAGE>
The Underwriters have performed investment banking services for the Company for
which they received customary compensation. From time to time, in the ordinary
course of their respective businesses, the Underwriters and their respective
affiliates have engaged and may in the future engage in commercial and
investment banking transactions with the Company and its affiliates.
The Trust and the Company have agreed to indemnify the several Underwriters
against certain liabilities, including liabilities under the Securities Act of
1933, as amended.
In connection with the Offering, the Underwriters may engage in transactions
that stabilize, maintain or otherwise affect the price of the TECONS or the CNF
Common Stock. Specifically, the Underwriters may overallot the Offering,
creating a syndicate short position. In addition, the Underwriters may bid for,
and purchase, TECONS or shares of CNF Common Stock in the open market to cover
syndicate shorts or to stabilize the price of the TECONS or the CNF Common
Stock. Finally, the underwriting syndicate may reclaim selling concessions
allowed for distributing the TECONS in the Offering, if the syndicate
repurchases previously distributed TECONS in syndicate covering transactions,
in stabilization transactions or otherwise. Any of these activities may
stabilize or maintain the market price of the TECONS or the CNF Common Stock
above independent market levels. The Underwriters are not required to engage in
these activities, and may end any of these activities at any time.
LEGAL MATTERS
Certain legal matters in connection with the Offering made hereby will be
passed upon for the Company by Eberhard G. H. Schmoller, Senior Vice President,
General Counsel and Secretary of the Company. See "Legal Matters" in the
accompanying Prospectus. The validity of the Convertible Debentures, the CNF
Common Stock issuable upon conversion of the TECONS and the Guarantee and
certain U.S. federal income taxation matters will be passed upon for the
Company and the Trust by Brown & Wood llp, San Francisco, California, special
counsel to the Company and the Trust. The validity of the TECONS will be passed
upon for the Company and the Trust by Richards, Layton & Finger, Wilmington,
Delaware, special Delaware counsel to the Company and the Trust. Certain legal
matters will be passed upon for the Underwriters by Skadden, Arps, Slate,
Meagher & Flom llp.
EXPERTS
The audited consolidated financial statements and schedule incorporated by
reference in the accompanying Prospectus and elsewhere in the Registration
Statement referred to therein have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are incorporated therein by reference in reliance upon the
authority of said firm as experts in giving said reports.
S-65
<PAGE>
PROSPECTUS
CNF TRANSPORTATION INC.
Debt Securities, Preferred Stock, Depositary Shares,
Common Stock and Common Stock Warrants
CNF TRUST I
Preferred Trust Securities guaranteed to the extent set forth herein by CNF
Transportation Inc.
CNF Transportation Inc. (the "Company") may from time to time offer and sell
(i) its unsecured debt securities, which may be either senior (the "Senior Debt
Securities") or subordinated (the "Subordinated Debt Securities" and, together
with the Senior Debt Securities, the "Debt Securities"), (ii) shares of its
preferred stock, no par value (the "Preferred Stock"), in one or more series;
(iii) depositary shares (the "Depositary Shares") evidenced by depositary
receipts; (iv) shares of its common stock, par value $.625 per share (the
"Common Stock"); and (v) warrants to purchase shares of Common Stock (the
"Common Stock Warrants"), for an aggregate initial public offering price of up
to $150,000,000 (or the equivalent in foreign currencies, currency units or
composite currencies (each, a "Currency")), less the aggregate initial public
offering price of any Trust Preferred Securities (as defined below).
CNF Trust I (the "Trust"), a statutory business trust created under the laws of
the State of Delaware, may offer preferred securities representing undivided
beneficial interests in the assets of the Trust ("Trust Preferred Securities")
for an aggregate initial public offering price of up to $150,000,000, less the
aggregate initial public offering price of any Securities (as defined below)
sold by the Company hereunder. The payment of periodic cash distributions
("distributions") with respect to Trust Preferred Securities out of moneys held
by the Trust, and payment on liquidation, redemption or otherwise with respect
to such Trust Preferred Securities, will be guaranteed by the Company to the
extent described herein (the "Trust Preferred Securities Guarantee"). See
"Description of Trust Preferred Securities Guarantee." The Company's
obligations under the Trust Preferred Securities Guarantee will be subordinate
and junior in right of payment to all other liabilities of the Company (except
any liabilities that may rank pari passu expressly by their terms), and will
rank pari passu in right of payment with the most senior preferred stock, if
any, issued from time to time by the Company. A series of Subordinated Debt
Securities may be issued and sold to the Trust, or a trustee of the Trust, in
connection with the investment of the proceeds from the offering of Trust
Preferred Securities and Trust Common Securities (as defined herein, together
the "Trust Securities") of the Trust. The Subordinated Debt Securities
purchased by the Trust may be subsequently distributed pro rata to holders of
Trust Preferred Securities and Trust Common Securities in connection with the
dissolution of the Trust upon the occurrence of certain events as may be
described in an accompanying supplement to this Prospectus (a "Prospectus
Supplement"). The Trust Preferred Securities Guarantee, when taken together
with the Company's other obligations under the Subordinated Debt Securities,
the Subordinated Indenture (as defined herein) and the Declaration (as defined
herein), including its obligations to pay certain costs, expenses, debts and
liabilities of the Trust (other than with respect to the Trust Securities),
will provide a full and unconditional guarantee on a subordinated basis by the
Company of payments due on the Trust Preferred Securities.
The Debt Securities, Preferred Stock, Depositary Shares, Common Stock, Common
Stock Warrants and Preferred Securities (collectively, the "Securities") may be
offered independently or together in any combination for sale directly to
purchasers or through dealers, underwriters or agents to be designated. The
Debt Securities, Preferred Stock and Preferred Securities may be convertible
into or exchangeable for other Securities. The Securities will be offered to
the public at prices and on terms determined at the time of offering. The
Securities may be sold for U.S. dollars or other Currencies and any amounts
payable by the Company or the Trust, as the case may be, in respect of the
Securities may likewise be payable in U.S. dollars or other Currencies.
The Senior Debt Securities will rank on a parity in right of payment with all
other unsecured and unsubordinated indebtedness of the Company. The
Subordinated Debt Securities will be subordinated to all existing and future
Senior Indebtedness (as defined herein) of the Company. See "Description of
Debt Securities."
(continued on following page)
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
The date of this Prospectus is May 30, 1997.
<PAGE>
(continued from cover page)
The Prospectus Supplement to this Prospectus sets forth (where applicable),
with respect to the series or issue of Securities (the "Offered Securities")
for which such Prospectus Supplement is being delivered: (i) the terms of any
Debt Securities offered, including, where applicable, their title, ranking,
aggregate principal amount, maturity, rate of interest (or method of
calculation) and time of payment thereof, any redemption or repayment terms,
the Currency or Currencies in which such Debt Securities will be denominated or
payable, any index, formula or other method pursuant to which principal,
premium, if any, or interest, if any, may be determined, any conversion or
exchange provisions, the right of the Company, if any, to defer payment of
interest on such Debt Securities and the maximum length of any such deferral
period, and other specific terms not described in this Prospectus; (ii) the
terms of any Preferred Stock offered, including, where applicable, the specific
designation, number of shares, dividend rate (or method of calculation) and
time of payment thereof, liquidation preference, any redemption or repayment
terms, any conversion or exchange provisions, any voting rights, and other
specific terms not described in this Prospectus; (iii) the terms of any
Depositary Shares offered which are not described in this Prospectus, including
the fraction of a share of Preferred Stock represented by each such Depositary
Share; (iv) the terms of any Common Stock Warrants offered, including where
applicable, the exercise price, detachability, duration and other specific
terms not described in this Prospectus; (v) the initial public offering price
and the net proceeds to the Company and other specific terms related to the
Offered Securities; and (vi) the terms of any Trust Preferred Securities
offered, including, where applicable, the specific designation, number of Trust
Preferred Securities, distribution rate (or method of calculation) and time of
payment thereof, liquidation amount, any redemption or repayment terms, any
conversion or exchange provisions, any voting rights, the right of the Trust,
if any, to defer payment of distributions on the Trust Preferred Securities and
the maximum length of any such deferral period, and other specific terms not
described in this Prospectus.
This Prospectus may not be used to consummate sales of Securities unless
accompanied or, to the extent permitted by applicable law, preceded by a
Prospectus Supplement.
The Securities may be offered through dealers, underwriters or agents
designated from time to time, as set forth in the accompanying Prospectus
Supplement. Net proceeds from the sale of Securities will be equal to the
purchase price in the case of a dealer, the public offering price less discount
in the case of an underwriter or the purchase price less commission in the case
of an agent in each case, less other expenses attributable to the issuance and
distribution of the Securities. The Company may also sell Securities directly
to investors on its own behalf. In the case of sales made directly by the
Company, no commission will be payable. See "Plan of Distribution" for possible
indemnification arrangements for dealers, underwriters and agents.
2
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and at the Commission's
Regional Offices in New York (Seven World Trade Center, 13th Floor, New York,
New York 10048), and Chicago (Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661). Copies of these materials may be obtained from
the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. Such material may also be accessed
electronically by means of the Commission's home page on the Internet at
http://www.sec.gov. Reports, proxy statements and other information concerning
the Company may also be inspected at the offices of the New York Stock
Exchange, 20 Broad Street, New York, New York 10005 and at the offices of the
Pacific Stock Exchange, 301 Pine Street, San Francisco, California 94104.
This Prospectus constitutes a part of a registration statement on Form S-3 (the
"Registration Statement") filed by the Company and the Trust with the
Commission under the Securities Act of 1933, as amended (the "Securities Act").
This Prospectus omits certain of the information contained in the Registration
Statement in accordance with the rules and regulations of the Commission.
Reference is hereby made to the Registration Statement and related exhibits for
further information with respect to the Company, the Trust and the Securities.
Statements contained herein concerning the provisions of any document are not
necessarily complete and, in each instance, reference is made to the copy of
such document filed or incorporated by reference as an exhibit to the
Registration Statement or otherwise filed with the Commission. Each such
statement is qualified in its entirety by such reference.
No separate financial statements of the Trust have been included herein. The
Company does not consider that such financial statements would be material to
holders of the Trust Preferred Securities because (i) all of the voting
securities of the Trust will be owned, directly or indirectly, by the Company,
a reporting company under the Exchange Act, (ii) the Trust has no independent
operations but exists for the sole purpose of issuing securities representing
undivided beneficial interests in the assets of the Trust and investing the
proceeds thereof in Subordinated Debt Securities issued by the Company, and
(iii) the Company's obligations described herein and in any accompanying
Prospectus Supplement under the Declaration, the Trust Preferred Securities
Guarantee, the Subordinated Debt Securities purchased by the Trust and the
Subordinated Indenture, taken together, constitute a full and unconditional
guarantee of payments due on the Trust Preferred Securities. See "Description
Of Debt Securities" and "Description Of Trust Preferred Securities Guarantee."
The Trust is not currently subject to the information reporting requirements of
the Exchange Act. The Trust will become subject to such requirements upon the
effectiveness of the Registration Statement, although it intends to seek and
expects to receive exemptions therefrom.
3
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents have been filed by the Company with the Commission and
are incorporated herein by reference: the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996, Quarterly Report on Form 10-Q for
the fiscal quarter ended March 31, 1997 and Current Report on Form 8-K dated
May 27, 1997.
All documents filed by the Company with the Commission pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date hereof and prior
to the termination of the offering of the Securities shall be deemed to be
incorporated by reference into this Prospectus and to be a part hereof from the
respective dates of filing of such documents. Any statement contained herein or
in a document incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Prospectus to
the extent that a statement contained herein, in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein or
in the applicable Prospectus Supplement modifies or supersedes such statement.
Any statement or document so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute part of this Prospectus.
The Company will furnish without charge to each person to whom this Prospectus
is delivered, upon request, a copy of any and all of the documents described
above that are incorporated by reference herein other than exhibits to such
documents which are not specifically incorporated by reference in such
documents. Written or telephone requests should be directed to: CNF
Transportation Inc., Office of the Corporate Secretary, at 3240 Hillview
Avenue, Palo Alto, California 94304 (telephone (415) 494-2900).
No person has been authorized to give any information or to make any
representations other than those contained or incorporated by reference in this
Prospectus and, if given or made, such information or representations must not
be relied upon as having been authorized. This Prospectus does not constitute
an offer to sell or the solicitation of an offer to buy any securities other
than the securities described in this Prospectus or an offer to sell or the
solicitation of an offer to buy such securities in any jurisdiction where or to
any person to whom it is unlawful to make such an offer or solicitation.
Neither the delivery of this Prospectus or any Prospectus Supplement nor any
sale made hereunder or thereunder shall, under any circumstances, create any
implication that there has been no change in the affairs of the Company or the
Trust since the date hereof or thereof or that the information contained or
incorporated by reference herein or therein is correct as of any time
subsequent to its date.
4
<PAGE>
THE COMPANY
CNF Transportation Inc. (the "Company") is a holding company which participates
through subsidiaries in domestic and international air cargo delivery services,
regional less-than-truckload highway trucking services, truckload and
intermodal rail services, ocean forwarding, contract logistics and related
transportation activities. These operations are organized into three primary
business segments: air freight and ocean forwarding (Emery Worldwide); regional
trucking and full-service truckload services (Con-Way Transportation Services);
and a third segment which is comprised of a third-party contract logistics
company (Menlo Logistics), Road Systems, a trailer manufacturer, and
VantageParts, a wholesale truck parts distributor.
The Company was incorporated in Delaware in 1958 as a successor to a business
originally established in 1929. The Company's principal executive offices are
located at 3240 Hillview Avenue, Palo Alto, California 94304 (telephone (415)
494-2900). Unless otherwise indicated or unless the context otherwise requires,
all references in this Prospectus to the Company include CNF Transportation
Inc. and its subsidiaries.
THE TRUST
CNF Trust I (the "Trust") is a statutory business trust created under Delaware
law pursuant to (i) a trust agreement (as the same may be amended, supplemented
or restated from time to time, the "Declaration") executed by the Company, as
sponsor for the trust (the "Sponsor"), and certain of the CNF Trustees (as
defined herein) for the trust and (ii) the filing of a certificate of trust
with the Delaware Secretary of State on May 6, 1997. The Trust exists for the
exclusive purposes of (i) issuing the Trust Preferred Securities and common
securities representing undivided beneficial interests in the assets of the
Trust (the "Trust Common Securities" and, together with the Trust Preferred
Securities, the "Trust Securities"), (ii) investing the gross proceeds of the
Trust Securities in a specific series of Subordinated Debt Securities and (iii)
engaging in only those other activities necessary, convenient or incidental
thereto. All of the Trust Common Securities will be directly or indirectly
owned by the Company. The Trust Common Securities will rank pari passu, and
payments will be made thereon pro rata, with the Trust Preferred Securities
except that upon an event of default under the Declaration, the rights of the
holders of the Trust Common Securities to payment in respect of distributions
and payments upon liquidation, redemption and otherwise will be subordinated to
the rights of the holders of the Trust Preferred Securities. The Company will,
directly or indirectly, acquire Trust Common Securities in an aggregate
liquidation amount equal to approximately 3% of the total capital of the Trust.
The Trust's business and affairs will be conducted by the trustees (the "CNF
Trustees") appointed by the Company, as the direct or indirect holder of all
the Trust Common Securities. Except in certain limited circumstances, the
holder of the Trust Common Securities will be entitled to appoint, remove or
replace any of, and to increase or reduce the number of, the CNF Trustees. The
duties and obligations of the CNF Trustees shall be governed by the
Declaration. A majority of the CNF Trustees (the "Regular Trustees") will be
persons who are employees or officers of or affiliated with the Company. One
CNF Trustee will be a financial institution which will be unaffiliated with the
Company and which shall act as property trustee and as indenture trustee (the
"Property Trustee") for purposes of the Trust Indenture Act of 1939, as amended
(the "Trust Indenture Act"). In addition, unless the Property Trustee maintains
a principal place of business in the State of Delaware, and otherwise meets the
requirements of applicable law, one CNF Trustee will have its principal place
of business or reside in the State of Delaware (the "Delaware Trustee"). The
Company will pay all fees and expenses related to the Trust and the offering of
Trust Securities. The payment of periodic distributions with respect to the
Trust Preferred Securities out of moneys held by the Trust, and payment on
liquidation, redemption or otherwise with respect to the Trust Preferred
Securities, will be guaranteed by the Company to the extent described herein.
See "Description of Trust Preferred Securities Guarantee." The Company's
obligations under the Trust Preferred Securities Guarantee will be subordinate
and junior in right of payment to all other liabilities of the Company and rank
pari passu in right of payment with the most senior preferred stock, if any,
issued from time to time by the Company. The principal place of business of the
Trust shall be c/o CNF Transportation Inc., 3240 Hillview Avenue, Palo Alto,
California 94304 (telephone (415) 494-2900).
5
<PAGE>
USE OF PROCEEDS
Unless otherwise described in the applicable Prospectus Supplement, the Company
intends to use the net proceeds from the sale of the Securities offered hereby
for general corporate purposes, which may include the repayment of
indebtedness, capital expenditures and working capital. Pending such
application, such proceeds may be invested in short-term investments and
marketable securities or used to temporarily repay indebtedness under credit
facilities. The proceeds from the sale of Trust Securities will be invested by
the Trust in Subordinated Debt Securities.
CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES
The Company's consolidated ratios of earnings to fixed charges and of earnings
to combined fixed charges and preferred stock dividends for each of the periods
indicated are as follows:
<TABLE>
<CAPTION>
----------------------------------------
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
--------------- ------------------------
1997 1996 1996 1995 1994 1993 1992
------- ------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed
Charges(1)...................... 2.3x 1.9x 2.3x 2.6x 2.9x 1.7x 0.5x(2)
Ratio of Earnings to Combined
Fixed Charges
and Preferred Stock
Dividends(3).................... 2.3x 1.9x 2.3x 2.5x 2.5x 1.5x 0.4x(4)
</TABLE>
- -------
(1) The ratio of earnings to fixed charges is unaudited for all periods
presented. The ratio of earnings to fixed charges was derived by dividing
earnings before fixed charges and income taxes by fixed charges. For this
purpose, "earnings" represents income from continuing operations before
consolidated income taxes and fixed charges (excluding capitalized interest
and dividends on all of the Company's preferred stock). "Fixed charges"
represents interest on capital leases and short-term and long-term debt,
capitalized interest, dividends on shares of the Company's Series B
Cumulative Convertible Preferred Stock used to pay debt service on notes
issued by the Company's Thrift and Stock Plan (the "TASP"), and the
applicable portion of the consolidated rent expense which approximates the
interest portion of lease payments. All of the outstanding shares of such
Series B Cumulative Convertible Preferred Stock are held by the TASP.
(2) Earnings were inadequate to cover fixed charges for the period shown; the
deficiency was $39.4 million for the year ended December 31, 1992.
(3) The ratio of earnings to combined fixed charges and preferred stock
dividends is unaudited for all periods presented. The ratio of earnings to
combined fixed charges and preferred stock dividends was derived by
dividing earnings before fixed charges and income taxes by combined fixed
charges and dividends on the Company's Series C Conversion Preferred Stock.
For this purpose, earnings and fixed charges are computed as described in
note (1) above. The Series C Conversion Preferred Stock was issued in March
1992 and all of the outstanding shares thereof were converted into Common
Stock in March 1995.
(4) Earnings were inadequate to cover combined fixed charges and preferred
stock dividends for the period shown; the deficiency was $47.8 million for
the year ended December 31, 1992.
DESCRIPTION OF DEBT SECURITIES
The Company may issue Debt Securities either separately, or together with, or
upon the conversion of or in exchange for, other Securities. The Debt
Securities are to be either senior unsecured obligations (the "Senior Debt
Securities") of the Company issued in one or more series under an Indenture
(the "Senior Indenture") to be entered into between the Company and a trustee
(the "Senior Trustee") whose name will be set forth in the applicable
Prospectus Supplement, or subordinated unsecured obligations (the "Subordinated
Debt Securities") of the Company issued in one or more series under an
Indenture (the "Subordinated Indenture" and, together with the Senior
Indenture, the "Indentures") to be entered into between the Company and a
trustee (the "Subordinated Trustee" and, together with the Senior Trustee, the
"Trustees") whose name will be set forth in the applicable Prospectus
Supplement. The forms of the Indentures have been filed as exhibits to the
Registration Statement. The terms of any series of Debt Securities will be
those set forth in the applicable Indenture and such Debt Securities and those
made part of such Indenture by the Trust Indenture Act. The summary of certain
provisions of the Indentures and the Debt Securities set forth below and the
summary of certain terms of a particular series of Debt Securities set forth in
the applicable Prospectus Supplement do not purport to be complete and are
subject to and are qualified in their entirety by reference to all of
6
<PAGE>
the provisions of the Indentures, which provisions of the Indentures (including
defined terms) are incorporated herein by reference. Certain capitalized terms
used herein and not defined are defined in the Indentures. As used in this
"Description of Debt Securities," all references to the "Company" shall mean
CNF Transportation Inc., excluding, unless the context shall otherwise require,
its subsidiaries.
In the event that Subordinated Debt Securities are issued to the Trust or a
trustee of the Trust in connection with the issuance of Trust Securities, such
Subordinated Debt Securities will be issued pursuant to the Subordinated
Indenture and subsequently may be distributed pro rata to the holders of such
Trust Securities in connection with the dissolution of the Trust upon the
occurrence of certain events described in the Prospectus Supplement relating to
such Trust Securities. Only one series of Subordinated Debt Securities will be
issued to the Trust or a trustee of the Trust in connection with the issuance
of Trust Securities by the Trust.
The following description of Debt Securities sets forth certain general terms
and provisions of the series of Debt Securities to which any Prospectus
Supplement may relate. Certain other specific terms of any particular series of
Debt Securities will be described in the applicable Prospectus Supplement. To
the extent that any particular terms of the Debt Securities described in a
Prospectus Supplement differ from any of the terms described herein, then such
terms described herein shall be deemed to have been superseded by such
Prospectus Supplement.
GENERAL
The Debt Securities may be issued from time to time in one or more series of
Senior Debt Securities and one or more series of Subordinated Debt Securities.
The Indentures do not limit the aggregate principal amount of Debt Securities
which may be issued thereunder and provide that Debt Securities of any series
may be issued thereunder up to an aggregate principal amount which may be
authorized from time to time by the Company. Reference is made to the
applicable Prospectus Supplement relating to the series of Debt Securities
offered thereby for specific terms, including (where applicable): (1) the title
or designation of such Debt Securities; (2) any limit on the aggregate
principal amount of such Debt Securities; (3) the price or prices (expressed as
a percentage of the principal amount thereof) at which such Debt Securities
will be issued; (4) the date or dates on which the principal of such Debt
Securities will be payable, or the method or methods, if any, by which such
date or dates will be determined; (5) the rate or rates (which may be fixed or
variable) at which such Debt Securities will bear interest, if any, or the
method or methods, if any, by which such rate or rates are to be determined,
the date or dates, if any, from which such interest will accrue, or the method
or methods, if any, by which such date or dates are to be determined, and
whether and under what circumstances Additional Amounts on such Debt Securities
will be payable, and the basis upon which interest will be calculated if other
than that of a 360-day year of twelve 30-day months; (6) the dates on which
such interest, if any, will be payable and the record dates, if any, therefor;
(7) the place or places where the principal of, premium, if any, and interest,
if any, on such Debt Securities will be payable and the place or places where
such Debt Securities may be surrendered for registration of transfer and
exchange, if other than The City of New York; (8) if applicable, the date or
dates on which, the period or periods within which, the price or prices at
which and the other terms and conditions upon which such Debt Securities may be
redeemed at the option of the Company or are subject to repurchase at the
option of the holders; (9) the terms of any sinking fund or analogous
provision; (10) if other than U.S. dollars, the Currency for which the Debt
Securities may be purchased and the Currency in which the payment of principal
thereof and premium, if any, and interest, if any, thereon may be made, and the
ability, if any, of the Company or the holders of Debt Securities to have
payments made in any Currency other than those in which the Debt Securities are
stated to be payable; (11) any addition to, or modification or deletion of, any
covenant or Event of Default with respect to such Debt Securities; (12) whether
any such Debt Securities are to be issuable in registered or bearer form or
both and, if in bearer form, the terms and conditions relating thereto and any
limitations on issuance of such Bearer Securities (including in exchange for
Registered Securities of the same series); (13) whether any such Debt
Securities will be issued in temporary or permanent global form and, if so, the
identity of the depositary for such global Debt Security; (14) whether and
under what circumstances the Company will pay Additional Amounts (as
contemplated by the relevant Indenture) on such Debt Securities to any holder
who is a United States Alien (as defined in the relevant Indenture, as such
definition may be modified) in respect of any tax, assessment or other
governmental charge and, if so, whether the Company will have the option to
redeem such Debt Securities rather than pay such Additional Amounts; (15) the
person to whom any interest on any Registered Securities of the series shall be
payable, if other than the person in whose name the Registered Security (or one
or more Predecessor Securities) is registered at the close of business on the
Regular Record Date for such interest, the manner in which, or the person to
whom, any interest on any Bearer Security of the series shall be payable, if
other than upon presentation and surrender of the coupons appertaining thereto
as they severally mature, and the extent to which, or the manner in which, any
interest payable on a temporary global Debt Security will be paid if other than
in the manner provided in the relevant Indenture; (16) the portion of the
principal amount of such Debt Securities which shall be payable upon
acceleration thereof if other than the full principal amount
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thereof; (17) the authorized denominations in which such Debt Securities will
be issuable, if other than denominations of $1,000 and any integral multiple
thereof (in the case of Registered Securities) or $5,000 (in the case of Bearer
Securities); (18) the terms, if any, upon which such Debt Securities may be
convertible into or exchangeable for other Securities; (19) whether such Debt
Securities will be Senior Debt Securities or Subordinated Debt Securities; (20)
whether the amount of payments of principal of, premium, if any, and interest,
if any, on such Debt Securities may be determined with reference to an index,
formula or other method or methods (any such Debt Securities being hereinafter
called "Indexed Securities") and the manner in which such amounts will be
determined; and (21) any other terms of such Debt Securities.
As used in this Prospectus and any Prospectus Supplement relating to the
offering of any Debt Securities, references to the principal of and premium, if
any, and interest, if any, on such Debt Securities will be deemed to include
mention of the payment of Additional Amounts, if any, required by the terms of
such Debt Securities in such context.
Debt Securities may be issued as Original Issue Discount Securities (as defined
in the Indentures) to be sold at a substantial discount below their principal
amount. In the event of an acceleration of the maturity of any Original Issue
Discount Security, the amount payable to the holder thereof upon such
acceleration will be determined in the manner described in the applicable
Prospectus Supplement. Material federal income tax and other considerations
applicable to Original Issue Discount Securities will be described in the
applicable Prospectus Supplement.
If the purchase price of any Debt Securities is payable in a Currency other
than U.S. dollars or if principal of, or premium, if any, or interest, if any,
on any of the Debt Securities is payable in any Currency other than U.S.
dollars, the specific terms and other information with respect to such Debt
Securities and such foreign Currency will be specified in the Prospectus
Supplement relating thereto.
Under the Indenture, the terms of the Debt Securities of any series may differ
and the Company, without the consent of the holders of the Debt Securities of
any series, may reopen a previous series of Debt Securities and issue
additional Debt Securities of such series or establish additional terms of such
series.
REGISTRATION, TRANSFER, PAYMENT AND PAYING AGENT
Unless otherwise indicated in the applicable Prospectus Supplement, each series
of Debt Securities will be issued in registered form only, without coupons. The
Indentures, however, provide that the Company may also issue Debt Securities in
bearer form only, or in both registered and bearer form. Bearer Securities
shall not be offered, sold, resold or delivered in connection with their
original issuance in the United States or to any United States person (as
defined below) other than offices located outside the United States of certain
United States financial institutions. As used herein, "United States person"
means any citizen or resident of the United States, any corporation,
partnership or other entity created or organized in or under the laws of the
United States, any estate the income of which is subject to United States
federal income taxation regardless of its source, or any trust whose
administration is subject to the primary supervision of a United States court
and which has one or more United States fiduciaries who have the authority to
control all substantial decisions of the trust, and "United States" means,
except for purposes of the definition of "Restricted Subsidiary" set forth
below under "-- Certain Covenants of the Company -- Definition of Certain
Terms," the United States of America (including the states thereof and the
District of Columbia), its territories, its possessions and other areas subject
to its jurisdiction. Purchasers of Bearer Securities will be subject to
certification procedures and may be affected by certain limitations under
United States tax laws. Such procedures and limitations will be described in
the Prospectus Supplement relating to the offering of the Bearer Securities.
Unless otherwise indicated in the applicable Prospectus Supplement, Registered
Securities will be issued in denominations of $1,000 or any integral multiple
thereof, and Bearer Securities will be issued in denominations of $5,000.
Unless otherwise indicated in the applicable Prospectus Supplement, the
principal, premium, if any, and interest, if any, of or on the Debt Securities
will be payable, and Debt Securities may be surrendered for registration of
transfer or exchange, at an office or agency to be maintained by the Company in
the Borough of Manhattan, The City of New York, provided that payments of
interest with respect to any Registered Security may be made at the option of
the Company by check mailed to the address of the person entitled thereto or by
transfer to an account maintained by the payee with a bank located in the
United States. No service charge shall be made for any registration of transfer
or exchange of Debt Securities, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge and any other expenses
that may be imposed in connection therewith.
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Unless otherwise indicated in the applicable Prospectus Supplement, payment of
principal of, premium, if any, and interest, if any, on Bearer Securities will
be made, subject to any applicable laws and regulations, at such office or
agency outside the United States as specified in the Prospectus Supplement and
as the Company may designate from time to time. Unless otherwise indicated in
the applicable Prospectus Supplement, payment of interest due on Bearer
Securities on any Interest Payment Date will be made only against surrender of
the coupon relating to such Interest Payment Date. Unless otherwise indicated
in the applicable Prospectus Supplement, no payment of principal, premium or
interest with respect to any Bearer Security will be made at any office or
agency in the United States or by check mailed to any address in the United
States or by transfer to an account maintained with a bank located in the
United States; provided, however, that if amounts owing with respect to any
Bearer Securities shall be payable in U.S. dollars, payment with respect to any
such Bearer Securities may be made at the Corporate Trust Office of the
applicable Trustee or at any office or agency designated by the Company in the
Borough of Manhattan, The City of New York, if (but only if) payment of the
full amount of such principal, premium or interest at all offices outside of
the United States maintained for such purpose by the Company is illegal or
effectively precluded by exchange controls or similar restrictions.
Unless otherwise indicated in the applicable Prospectus Supplement, the Company
will not be required to (i) issue, register the transfer of or exchange Debt
Securities of any series during a period beginning at the opening of business
15 days before any selection of Debt Securities of that series of like tenor to
be redeemed and ending at the close of business on the day of that selection;
(ii) register the transfer of or exchange any Registered Security, or portion
thereof, called for redemption, except the unredeemed portion of any Registered
Security being redeemed in part; (iii) exchange any Bearer Security called for
redemption, except to exchange such Bearer Security for a Registered Security
of that series and like tenor that is simultaneously surrendered for
redemption; or (iv) issue, register the transfer of or exchange any Debt
Security which has been surrendered for repayment at the option of the holder,
except the portion, if any, of such Debt Security not to be so repaid.
RANKING OF DEBT SECURITIES; HOLDING COMPANY STRUCTURE
The Senior Debt Securities will be unsecured unsubordinated obligations of the
Company and will rank on a parity in right of payment with all other unsecured
and unsubordinated indebtedness of the Company. The Subordinated Debt
Securities will be unsecured obligations of the Company and will be
subordinated in right of payment to all existing and future Senior Indebtedness
(as defined below) of the Company. See "-- Subordination of Subordinated Debt
Securities."
The Debt Securities are obligations exclusively of the Company. The Company is
a holding company, substantially all of whose consolidated assets are held by
its subsidiaries. Accordingly, the cash flow of the Company and the consequent
ability to service its debt, including the Debt Securities, are largely
dependent upon the results of operations of such subsidiaries.
Because the Company is a holding company, the Debt Securities will be
effectively subordinated to all existing and future indebtedness, trade
payables, guarantees, lease obligations and letter of credit obligations of the
Company's subsidiaries. Therefore, the Company's rights and the rights of its
creditors, including the holders of the Debt Securities, to participate in the
assets of any subsidiary upon the latter's liquidation or reorganization will
be subject to the prior claims of such subsidiary's creditors, except to the
extent that the Company may itself be a creditor with recognized claims against
the subsidiary, in which case the claims of the Company would still be
effectively subordinate to any security interest in, or mortgages or other
liens on, the assets of such subsidiary and would be subordinate to any
indebtedness of such subsidiary senior to that held by the Company. Although
certain debt instruments to which the Company and its subsidiaries are parties
impose limitations on the incurrence of additional indebtedness, both the
Company and its subsidiaries retain the ability to incur substantial additional
indebtedness and lease and letter of credit obligations.
GLOBAL SECURITIES
The Debt Securities of a series may be issued in whole or in part in the form
of one or more global securities that will be deposited with, or on behalf of,
a depositary (the "Depositary") identified in the Prospectus Supplement
relating to such series. Global Debt Securities may be issued in either
registered or bearer form and in either temporary or permanent form. Unless and
until it is exchanged in whole or in part for individual certificates
evidencing Debt Securities in definitive form represented thereby, a global
Debt Security may not be transferred except as a whole by the Depositary for
such global Debt Security to a nominee of such Depositary or by a nominee of
such Depositary to such Depositary or another nominee of such Depositary or by
such Depositary or any such nominee to a successor of such Depositary or a
nominee of such successor.
The specific terms of the depositary arrangement with respect to a series of
global Debt Securities and certain limitations and restrictions relating to a
series of global Bearer Securities will be described in the Prospectus
Supplement relating to such series.
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OUTSTANDING DEBT SECURITIES
In determining whether the holders of the requisite principal amount of
outstanding Debt Securities have given any request, demand, authorization,
direction, notice, consent or waiver under the relevant Indenture, (i) the
portion of the principal amount of an Original Issue Discount Security that
shall be deemed to be outstanding for such purposes shall be that portion of
the principal amount thereof that could be declared to be due and payable upon
a declaration of acceleration thereof pursuant to the terms of such Original
Issue Discount Security as of the date of such determination, (ii) the
principal amount of any Indexed Security that shall be deemed to be outstanding
for such purpose shall be the principal face amount of such Indexed Security
determined on the date of its original issuance, (iii) the principal amount of
a Debt Security denominated in a Currency other than U.S. dollars shall be the
U.S. dollar equivalent, determined on the date of original issue of such Debt
Security, of the principal amount of such Debt Security and (iv) any Debt
Security owned by the Company or any obligor on such Debt Security or any
Affiliate (other than the Trust) of the Company or such other obligor shall be
deemed not to be outstanding.
REDEMPTION AND REPURCHASE
The Debt Securities of any series may be redeemable at the option of the
Company, may be subject to mandatory redemption pursuant to a sinking fund or
otherwise, or may be subject to repurchase by the Company at the option of the
holders, in each case upon the terms, at the times and at the prices set forth
in the applicable Prospectus Supplement.
CONVERSION AND EXCHANGE
The terms, if any, on which Debt Securities of any series are convertible into
or exchangeable for Common Stock, Preferred Stock, Depositary Shares or other
Debt Securities will be set forth in the applicable Prospectus Supplement. Such
terms may include provisions for conversion or exchange, either mandatory, at
the option of the holders or at the option of the Company.
CERTAIN COVENANTS OF THE COMPANY
The Indentures do not limit the amount of indebtedness, guarantees or lease
obligations that may be incurred by the Company and its subsidiaries. The
Indentures do not contain provisions which would give holders of the Debt
Securities the right to require the Company to repurchase their Debt Securities
in the event of a decline in the credit rating of the Company's debt securities
resulting from a takeover, recapitalization or similar restructuring. Holders
of certain of the Company's outstanding indebtedness (including its 9 1/8%
Notes due 1999, notes issued by the Company's Thrift and Stock Plan which are
guaranteed by the Company, and indebtedness under the Company's $350 million
bank credit facility, which is guaranteed by certain subsidiaries of the
Company), have the right to require the Company to repurchase or repay such
indebtedness upon the occurrence of certain changes in control of the Company
or similar events and/or declines in the credit rating on such indebtedness.
Covenant in the Senior Indenture -- Limitation on Liens
The following covenant will be applicable to Senior Debt Securities but not to
Subordinated Debt Securities. In the Senior Indenture, the Company covenants
that, so long as any of the Senior Debt Securities remains outstanding, it will
not, nor will it permit any Restricted Subsidiary (as defined below) to,
create, assume or guarantee any Indebtedness (as defined below) that is secured
by a mortgage, pledge, lien, security interest or other encumbrance (a "Lien")
on any property or shares of capital stock or Indebtedness of the Company or
any Restricted Subsidiary without in any such case effectively providing,
concurrently with the creation, assumption or guarantee of any such
Indebtedness, that the Senior Debt Securities shall, so long as such other
Indebtedness is so secured (and, if the Company shall so determine, any other
existing Indebtedness (or Indebtedness thereafter in existence) created,
assumed or guaranteed by the Company or any Restricted Subsidiary), be secured
by any such Lien equally and ratably with or prior to the Indebtedness thereby
secured; provided that Indebtedness secured by such Liens may be created,
assumed or guaranteed if immediately after giving effect thereto the aggregate
amount of all such Indebtedness of the Company and its Restricted Subsidiaries
(not including Indebtedness described in (i) through (vii) below) does not
exceed 15% of Consolidated Net Tangible Assets (as defined below).
The foregoing restrictions shall not apply to Indebtedness secured by (i) Liens
on property of the Company or any Restricted Subsidiary existing on the date of
the Senior Indenture; (ii) certain Liens on property existing at the time of
acquisition thereof; (iii) Liens in favor of the Company or a Restricted
Subsidiary securing Indebtedness of the Company or a Restricted Subsidiary;
(iv) Liens created in connection with tax assessments or legal proceedings and
mechanics' and materialmens' liens and other similar liens created in the
ordinary course of business; (v) Liens on property of the Company or any
Restricted Subsidiary (except Liens on the capital stock or Indebtedness of the
Company or any Restricted Subsidiary) in favor of the United States of
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America or any state thereof, or any agency or political subdivision of either,
or in favor of any other country or agency or political subdivision thereof, in
each case to secure payments pursuant to contract or statute or to secure
Indebtedness created, incurred or guaranteed for the purpose of financing all
or any part of the purchase price or the cost of construction or improvement of
the property subject to such Liens, including Liens incurred in connection with
pollution control, industrial revenue bond or other similar financings;
(vi) certain purchase money Liens on property of the Company or any Restricted
Subsidiary that constitutes a fixed asset or a surface or air transportation
vehicle used in the freight business securing or providing for the payment of
all or any part of the purchase price thereof, or any Indebtedness incurred to
finance the purchase or the cost of construction or improvement thereof for
which a written commitment was executed within 180 days after acquisition or
the completion of construction or improvement, as the case may be; or (vii)
certain permitted extensions, renewals or replacements (or successive
extensions, renewals or replacements), in whole or in part, of any Lien
referred to in the foregoing clauses (i) through (vi), inclusive.
Covenant in Both Indentures -- Consolidation, Merger and Sale of Assets
The following covenant will be applicable to both Senior Debt Securities and
Subordinated Debt Securities. Each Indenture provides that the Company shall
not consolidate with or merge into any Person or convey, transfer or lease its
properties and assets substantially as an entirety to any Person unless (a)
such Person (if other than the Company) shall be a corporation organized and
existing under the laws of the United States of America, any state thereof or
the District of Columbia and shall expressly assume the due and punctual
payment of the principal of, premium, if any, and interest, if any, on all the
Debt Securities outstanding under such Indenture and the performance of the
Company's other obligations under such Indenture and the Debt Securities
outstanding thereunder; (b) immediately after giving effect to such
transaction, no Event of Default under such Indenture, and no event which,
after notice or lapse of time or both would become an Event of Default under
such Indenture, shall have happened and be continuing; and (c) certain other
conditions are met.
Definition of Certain Terms
The term "Consolidated Net Tangible Assets" as used in the Senior Indenture
means, as of any particular time, the aggregate amount of the Consolidated
Assets (less depreciation, amortization and other applicable reserves and other
properly deductible items) after deducting therefrom (i) all current
liabilities, and (ii) all goodwill, tradenames, trademarks, patents, debt
discount and expense and other intangibles, in each case net of applicable
amortization, all as shown on the Company's most recent consolidated financial
statements prepared in accordance with generally accepted accounting
principles. The term "Consolidated Assets" as used in the Senior Indenture
means all amounts that would be shown as assets on a consolidated balance sheet
of the Company and its consolidated Subsidiaries (as defined) prepared in
accordance with generally accepted accounting principles. The term "Restricted
Subsidiary" as used in the Senior Indenture means any Subsidiary of the Company
(i) that is majority owned or controlled by the Company or any of its
Subsidiaries; (ii) substantially all of the operating assets of which are
located or the principal business of which is carried on within the United
States, Puerto Rico, the U.S. Virgin Islands or Canada; (iii) which was in
existence on the date of the Senior Indenture or thereafter becomes a
Subsidiary of the Company, unless any such Subsidiary is determined by the
Board of Directors not to be a Restricted Subsidiary because in the opinion of
the Board of Directors it is not of material importance to the total business
conducted by the Company and its Subsidiaries taken as a whole; and (iv) the
assets of which have a gross book value (without deducting any depreciation,
amortization or other applicable reserves) which exceeds 1% of Consolidated
Assets. The term "Indebtedness" as used in the Indentures means, with respect
to any Person, (a) any liability of such Person (1) for borrowed money, or
under any reimbursement obligation relating to a letter of credit, or
(2) evidenced by a bond, note, debenture or similar instrument, or (3) for
payment obligations arising under any conditional sale or other title retention
arrangement (including a purchase money obligation) given in connection with
the acquisition of any businesses, properties or assets of any kind, or (4) for
the payment of money relating to a capitalized lease obligation; (b) any
liability of others described in the preceding clause (a) that such Person has
guaranteed or that is otherwise its legal liability; and (c) any amendment,
supplement, modification, deferral, renewal, extension or refunding of any
liability of the types referred to in clauses (a) and (b) above.
EVENTS OF DEFAULT
Unless otherwise specified in the applicable Prospectus Supplement, an Event of
Default with respect to the Debt Securities of any series is defined in the
relevant Indenture as being: (i) default for 30 days in payment of any interest
with respect to any Debt Security of such series; (ii) default in payment of
principal or any premium with respect to any Debt Security of such series when
due upon maturity, redemption or otherwise; (iii) default in the deposit of any
sinking fund payment when due with respect to any Debt Security of such series;
(iv) default by the Company in the performance, or breach, of any other
covenant or warranty
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in the relevant Indenture (other than a covenant or warranty included therein
solely for the benefit of series of Debt Securities other than that series) or
any Debt Security of such series which shall not have been remedied for a
period of 90 days after notice to the Company by the relevant Trustee or the
holders of not less than 25% in aggregate principal amount of the Debt
Securities of such series then outstanding; (v) acceleration of the maturity of
any single outstanding issue of Indebtedness of the Company with an outstanding
aggregate principal amount in excess of $35,000,000 (including an acceleration
under the relevant Indenture with respect to Debt Securities of any other
series), as a result of an event of default thereunder, which acceleration is
not annulled or which Indebtedness is not discharged within 30 days thereafter
or such longer period during which the Company is contesting in good faith such
acceleration; (vi) certain events of bankruptcy, insolvency or reorganization
of the Company; or (vii) any other Event of Default established for the Debt
Securities of such series. No Event of Default with respect to any particular
series of Debt Securities necessarily constitutes an Event of Default with
respect to any other series of Debt Securities. Each Indenture provides that
the Trustee thereunder may withhold notice to the holders of the Debt
Securities of any series of the occurrence of a default with respect to the
Debt Securities of such series (except a default in payment of principal,
premium, if any, interest, if any, or sinking fund payments, if any) if the
Trustee considers it in the interest of the holders to do so.
Each Indenture provides that if an Event of Default with respect to any series
of Debt Securities issued thereunder shall have occurred and be continuing,
either the relevant Trustee or the holders of at least 25% in principal amount
of the Debt Securities of such series then outstanding may declare the
principal amount (or if any Debt Securities of such series are Original Issue
Discount Securities, such lesser amount as may be specified in the terms
thereof) of all the Debt Securities of such series to be due and payable
immediately, but upon certain conditions such declaration and its consequences
may be rescinded and annulled by the holders of a majority in principal amount
of the Debt Securities of such series then outstanding.
Subject to the provisions of Trust Indenture Act requiring each Trustee, during
the continuance of an Event of Default under the relevant Indenture, to act
with the requisite standard of care, a Trustee is under no obligation to
exercise any of its rights or powers under the relevant Indenture at the
request or direction of any of the holders of Debt Securities of any series
unless such holders have offered such Trustee reasonable indemnity. Subject to
the foregoing, holders of a majority in principal amount of the then
outstanding Debt Securities of any series issued under an Indenture shall have
the right, subject to certain limitations, to direct the time, method and place
of conducting any proceeding for any remedy available to the Trustee under such
Indenture with respect to such series. Each Indenture requires the annual
filing by the Company with the relevant Trustee of a certificate as to whether
or not the Company is in default under the terms of such Indenture.
Notwithstanding any other provision of the Indentures, the holder of any Debt
Security shall have the right, which is absolute and unconditional, to receive
payment of the principal of and premium, if any, and interest, if any, on such
Debt Security on the respective due dates therefor (as the same may be extended
in accordance with the terms of such Debt Security) and to institute suit for
enforcement of any such payment, and such right shall not be impaired without
the consent of such holder. In addition, in the case of a Subordinated Debt
Security issued to the Trust, if an Event of Default has occurred and is
continuing and such Event of Default is attributable to the failure by the
Company to pay the principal of or premium, if any, or interest, if any, on
such Subordinated Debt Security, then a holder of Trust Preferred Securities
may directly institute a proceeding against the Company for payment.
MODIFICATION, WAIVERS AND MEETINGS
Each Indenture contains provisions permitting the Company and the Trustee
thereunder, with the consent of the holders of a majority in principal amount
of the outstanding Debt Securities of each series issued under such Indenture
and affected by a modification or amendment, to modify or amend any of the
provisions of such Indenture or of the Debt Securities of such series or the
rights of the holders of the Debt Securities of such series under such
Indenture, provided that no such modification or amendment shall, among other
things, (i) change the stated maturity of the principal of, or premium, if any,
or any installment of interest, if any, on any Debt Securities issued under
such Indenture or reduce the principal amount thereof or any redemption premium
thereon, or reduce the rate of interest thereon, or reduce the amount of
principal of any Original Issue Discount Securities that would be due and
payable upon an acceleration of the maturity thereof, or change any place
where, or the Currency in which, any Debt Securities issued under such
Indenture are payable, or impair the holder's right to institute suit to
enforce the payment of any such Debt Securities on or after the stated maturity
thereof (as the same may be extended in accordance with the terms of such Debt
Securities), or make any change that adversely affects the right, if any, to
convert or exchange such Debt Securities for other securities in accordance
with their terms, or (ii) reduce the aforesaid percentage of Debt Securities of
any series issued under such Indenture, the consent of the holders of which is
required for any such modification or amendment or the consent of whose holders
is required for any waiver (of compliance with certain provisions of such
Indenture or
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certain defaults thereunder and their consequences) or reduce the requirements
for a quorum or voting at a meeting of holders of such Debt Securities or (iii)
solely in the case of the Subordinated Indenture, modify any of the provisions
of Article Sixteen thereof (relating to subordination of the Subordinated Debt
Securities) or the definition of Senior Indebtedness in a manner adverse to the
holders of the Subordinated Debt Securities, without in each such case
obtaining the consent of the holder of each outstanding Debt Security issued
under such Indenture so affected.
If the Trust or the Property Trustee holds a series of Subordinated Debt Secu-
rities, no such amendment, modification or waiver which requires approval of
holders of a certain percentage in principal amount of the outstanding Subordi-
nated Debt Securities of such series shall be effective as to such series of
Subordinated Debt Securities, without the approval of the holders of at least
the same percentage of aggregate liquidation amount of outstanding Trust Secu-
rities.
Each Indenture also contains provisions permitting the Company and the relevant
Trustee, without the consent of the holders of any Debt Securities issued
thereunder, to modify or amend such Indenture in order to, among other things,
(a) add to the Events of Default or the covenants of the Company for the
benefit of the holders of all or any series of Debt Securities issued under
such Indenture; (b) to add or change any provisions of such Indenture to
facilitate the issuance of Bearer Securities; (c) to establish the form or
terms of Debt Securities of any series and any related coupons; (d) to cure any
ambiguity or correct or supplement any provision therein which may be defective
or inconsistent with other provisions therein, or to make any other provisions
with respect to matters or questions arising under such Indenture which shall
not adversely affect the interests of the holders of any series of Debt
Securities issued thereunder in any material respect; or (e) to amend or
supplement any provision contained in such Indenture, provided that such
amendment or supplement does not apply to any outstanding Debt Securities
issued prior to the date of such amendment or supplement and entitled to the
benefits of such provision.
The holders of a majority in aggregate principal amount of the outstanding Debt
Securities of any series may waive compliance by the Company with certain
restrictive provisions of the relevant Indenture, including the covenant
described above under "Certain Covenants of the Company -- Covenant in the
Senior Indenture -- Limitation on Liens" (which covenant is included only in
the Senior Indenture). The Holders of a majority in aggregate principal amount
of the outstanding Debt Securities of any series may, on behalf of all holders
of Debt Securities of that series, waive any past default under the applicable
Indenture with respect to Debt Securities of that series and its consequences,
except a default in the payment of the principal of, or premium, if any, or
interest, if any, on any Debt Securities of such series or in respect of a
covenant or provision which cannot be modified or amended without the consent
of the holder of each outstanding Debt Securities of such series affected.
Each Indenture contains provisions for convening meetings of the holders of
Debt Securities of a series issued thereunder. A meeting may be called at any
time by the relevant Trustee, and also, upon request, by the Company or the
holders of at least 10% in principal amount of the outstanding Debt Securities
of such series, in any such case upon notice given in accordance with the
provisions of such Indenture. Except for any consent which must be given by the
holder of each outstanding Debt Security affected thereby, as described above,
any resolution presented at a meeting or adjourned meeting duly reconvened at
which a quorum (as described below) is present may be adopted by the
affirmative vote of the holders of a majority in principal amount of the
outstanding Debt Securities of that series; provided, however, that any
resolution with respect to any request, demand, authorization, direction,
notice, consent, waiver or other action which may be made, given or taken by
the holders of a specified percentage, which is less than a majority, in
principal amount of the outstanding Debt Securities of a series may be adopted
at a meeting or adjourned meeting duly reconvened at which a quorum is present
by the affirmative vote of the holders of such specified percentage in
principal amount of the outstanding Debt Securities of that series. Any
resolution passed or decision taken at any meeting of holders of Debt
Securities of any series duly held in accordance with the relevant Indenture
will be binding on all holders of Debt Securities of that series and the
related coupons. The quorum at any meeting called to adopt a resolution, and at
any reconvened meeting, will be persons holding or representing a majority in
principal amount of the outstanding Debt Securities of a series, subject to
certain exceptions.
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
Upon the direction of the Company, either Indenture shall cease to be of
further effect with respect to any series of Debt Securities issued thereunder
specified by the Company (subject to the survival of certain provisions
thereof, including the obligation to pay Additional Amounts to the extent
described below) when (i) either (A) all outstanding Debt Securities of such
series and, in the case of Bearer Securities, all coupons appertaining thereto,
have been delivered to the relevant Trustee for cancellation (subject to
certain exceptions) or (B) all Debt Securities of such series and, if
applicable, any coupons appertaining thereto, have become due and payable or
will become due and payable at their stated maturity within one year or are to
be called for redemption within one year and the Company has deposited with the
Trustee, in trust, funds in U.S. dollars or in such Foreign Currency in which
such Debt Securities are payable in an amount sufficient to pay the entire
indebtedness on such Debt
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Securities in respect of principal (and premium, if any) and interest, if any,
(and, to the extent that (x) the Debt Securities of such series provide for the
payment of Additional Amounts upon the occurrence of certain events of
taxation, assessment or governmental charge with respect to payments on such
Debt Securities and (y) the amount of any such Additional Amounts is at the
time of deposit reasonably determinable by the Company (in the exercise of its
sole discretion), any such Additional Amounts) to the date of such deposit (if
such Debt Securities have become due and payable) or to the Maturity thereof,
as the case may be, (ii) the Company has paid all other sums payable under the
Indenture with respect to the Debt Securities of such series, and (iii) certain
other conditions are met. If the Debt Securities of any such series provide for
the payment of Additional Amounts, the Company will remain obligated, following
such deposit, to pay Additional Amounts on such Debt Securities to the extent
that the amount thereof exceeds the amount deposited in respect of such
Additional Amounts as aforesaid.
Unless otherwise provided in the applicable Prospectus Supplement, the Company
may elect with respect to any series of Debt Securities either (a) to defease
and be discharged from any and all obligations with respect to such Debt
Securities (except for, among other things, the obligation to pay Additional
Amounts, if any, upon the occurrence of certain events of taxation, assessment
or governmental charge with respect to payments on such Debt Securities to the
extent that the amount thereof exceeds the amount deposited in respect of such
Additional Amounts as provided below, and the obligations to register the
transfer or exchange of such Debt Securities, to replace temporary or
mutilated, destroyed, lost or stolen Debt Securities, to maintain an office or
agency in respect of such Debt Securities, to hold moneys for payment in trust,
and, if applicable, to exchange or convert such Debt Securities into other
securities in accordance with their terms) ("defeasance"), or (b) to be
released from its obligations with respect to such Debt Securities described
above under "-- Certain Covenants of the Company -- Covenants in the Senior
Indenture -- Limitation on Liens" (which covenant appears only in the Senior
Indenture) and certain other restrictive covenants, if any, in the relevant
Indenture and, if indicated in the applicable Prospectus Supplement, its
obligations with respect to any other covenant applicable to the Debt
Securities of such series, and any omission to comply with such obligations
shall not constitute a default or an Event of Default with respect to the Debt
Securities of such series ("covenant defeasance"), in either case upon the
irrevocable deposit with the relevant Trustee (or other qualifying trustee), in
trust for such purpose, of an amount, in U.S. dollars or in such Foreign
Currency in which such Debt Securities are payable at Stated Maturity, and/or
Government Obligations (as defined in the relevant Indenture) which through the
payment of principal and interest in accordance with their terms will provide
money, in an amount sufficient to pay the principal of and any premium and any
interest on (and, to the extent that (x) the Debt Securities of such series
provide for the payment of Additional Amounts and (y) the amount of any such
Additional Amounts is at the time of deposit reasonably determinable by the
Company (in the exercise of its sole discretion), any such Additional Amounts
with respect to) such Debt Securities, and any mandatory sinking fund or
analogous payments thereon, on the scheduled due dates therefor or the
applicable redemption date, as the case may be.
Such defeasance or covenant defeasance shall only be effective if, among other
things, (i) it shall not result in a breach or violation of, or constitute a
default under, the relevant Indenture or any other material agreement relating
to indebtedness for borrowed money to which the Company is a party or is bound,
(ii) the Company has delivered to the relevant Trustee an opinion of counsel
(as specified in the relevant Indenture) to the effect that the holders of such
Debt Securities will not recognize income, gain or loss for federal income tax
purposes as a result of such defeasance or covenant defeasance, as the case may
be, and will be subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such defeasance or
covenant defeasance had not occurred and (iii) if the cash and Government
Obligations deposited are sufficient to pay the outstanding Debt Securities of
such series provided such Debt Securities are redeemed on a particular
redemption date, the Company shall have given the applicable Trustee
irrevocable instructions to redeem such Debt Securities on such date. It shall
also be a condition to the effectiveness of such defeasance or covenant
defeasance that no Event of Default or event which with notice or lapse of time
or both would become an Event of Default with respect to Debt Securities of
such series shall have occurred and been continuing on the date of such deposit
into trust and, solely in the case of defeasance, no Event of Default described
in clause (vi) of the first paragraph under "--Events of Default" above shall
have occurred and be continuing during the period ending on the 91st day after
the date of, such deposit into trust.
Unless otherwise provided in the applicable Prospectus Supplement, if after the
Company has deposited funds and/or Government Obligations to effect defeasance
or covenant defeasance with respect to Debt Securities of any series, (a) the
holder of a Debt Security of such series is entitled to, and does, elect
pursuant to the applicable Indenture or the terms of such Debt Security to
receive payment in a Currency other than that in which such deposit has been
made in respect of such Debt Security, or (b) a Conversion Event (as defined
below) occurs in respect of the Foreign Currency in which such deposit has been
made, the indebtedness represented by such Debt Security shall be deemed to
have been, and will be, fully discharged and satisfied through the payment of
the principal of (and premium, if any) and interest, if any, on such Debt
Security as such Debt Security becomes due out of the proceeds yielded by
converting the amount so deposited in respect of such Debt Security into the
Currency in which such Debt Security becomes payable as a result of such
election or such Conversion Event based on (x) in the
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case of payments made pursuant to clause (a) above, the applicable market
exchange rate for such Foreign Currency in effect on the second business day
prior to such payment date, or (y) with respect to a Conversion Event, the
applicable market exchange rate for such Foreign Currency in effect (as nearly
as feasible) at the time of the Conversion Event.
"Conversion Event" means the cessation of use of (i) a Foreign Currency both by
the government of the country or the confederation which issued such Foreign
Currency and for the settlement of transactions by a central bank or other
public institutions of or within the international banking community, (ii) the
ECU both within the European Monetary System and for the settlement of
transactions by public institutions of or within the European Union or (iii)
any currency unit or composite currency other than the ECU for the purposes for
which it was established.
In the event the Company effects covenant defeasance with respect to any Debt
Securities and such Debt Securities are declared due and payable because of the
occurrence of any Event of Default other than an Event of Default with respect
to the covenant described above under "-- Certain Covenants of the Company --
Covenant in the Senior Indenture -- Limitation on Liens" (which covenant
appears only in the Senior Indenture and which would no longer be applicable to
such Debt Securities after such covenant defeasance) or with respect to any
other covenant as to which there has been covenant defeasance, the amount of
monies and/or Government Obligations deposited with the applicable Trustee to
effect such covenant defeasance may not be sufficient to pay amounts due on
such Debt Securities at the time of any acceleration resulting from such Event
of Default. However, the Company would remain liable to make payment of such
amounts due at the time of acceleration.
The applicable Prospectus Supplement may further describe the provisions, if
any, permitting or restricting such defeasance or covenant defeasance with
respect to the Debt Securities of a particular series.
GOVERNING LAW
The Indentures and the Debt Securities will be governed by, and construed in
accordance with, the laws of the State of New York.
REGARDING THE TRUSTEES
The Trust Indenture Act of 1939 contains limitations on the rights of a
trustee, should it become a creditor of the Company, to obtain payment of
claims in certain cases or to realize on certain property received by it in
respect of any such claims, as security or otherwise. Each Trustee is permitted
to engage in other transactions with the Company and its subsidiaries from time
to time, provided that if such Trustee acquires any conflicting interest it
must eliminate such conflict upon the occurrence of an Event of Default under
the relevant Indenture, or else resign.
SUBORDINATION OF SUBORDINATED DEBT SECURITIES
The payment of the principal of, premium, if any, and interest, if any, on the
Subordinated Debt Securities will be subordinated, to the extent and in the
manner set forth in the Subordinated Indenture, in right of payment to the
prior payment in full of all Senior Indebtedness which may at any time and from
time to time be outstanding. Unless otherwise provided in the applicable
Prospectus Supplement with respect to an issue of Subordinated Debt Securities,
in the event of any distribution of assets of the Company upon any dissolution,
winding up, liquidation or reorganization of the Company, (i) all Senior
Indebtedness shall first be paid in full, or such payment shall be provided
for, before any payment on account of the principal of, or premium, if any, or
interest, if any, on the Subordinated Debt Securities is made, (ii) any payment
or distribution of assets of the Company to which the holders of the
Subordinated Debt Securities would be entitled except for the subordination
provisions of the Subordinated Indenture shall be paid by the liquidating
trustee or other person making such distribution directly to the holders of
Senior Indebtedness or on their behalf, to the extent necessary to make payment
in full of all Senior Indebtedness remaining unpaid, after giving effect to any
concurrent payment or distribution to the holders of such Senior Indebtedness,
and (iii) in the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Company is received by the Subordinated Trustee
or the holders of any of the Subordinated Debt Securities before all Senior
Indebtedness is paid in full, or such payment is duly provided for, such
payment or distribution will be paid over to the holders of such Senior
Indebtedness or on their behalf for application to the payment of all such
Senior Indebtedness remaining unpaid until all such Senior Indebtedness has
been paid in full or such payment provided for, after giving effect to any
concurrent payment or distribution to the holders of such Senior Indebtedness.
Subject to the payment in full of all Senior Indebtedness upon any such
distribution of assets of the Company, or such payment having been duly
provided for, the holders of the Subordinated Debt Securities will be
subrogated to the rights of the holders of the Senior Indebtedness to receive
payments or distributions of cash, property or securities of the Company
applicable to Senior Indebtedness until the principal of (and premium, if any)
and interest, if any, on the Subordinated Debt Securities shall be paid in
full.
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By reason of such subordination, in the event of any distribution of assets of
the Company upon dissolution, winding up, liquidation, reorganization or other
similar proceedings of the Company, (i) holders of Senior Indebtedness will be
entitled to be paid in full before payments may be made on the Subordinated
Debt Securities and the holders of Subordinated Debt Securities will be
required to pay over their share of such distribution, to the extent made in
respect of such Subordinated Debt Securities, to the holders of Senior
Indebtedness until such Senior Indebtedness is paid in full and (ii) creditors
of the Company who are neither holders of Subordinated Debt Securities nor
holders of Senior Indebtedness may recover less, ratably, than holders of
Senior Indebtedness and may recover more, ratably, than the holders of the
Subordinated Debt Securities. Furthermore, such subordination may result in a
reduction or elimination of payments to the holders of Subordinated Debt
Securities. The Subordinated Indenture provides that the subordination
provisions thereof will not apply to any money and securities held in trust
pursuant to the discharge, defeasance and covenant defeasance provisions of the
Subordinated Indenture (see "--Discharge, Defeasance and Covenant Defeasance"
above).
The Subordinated Indenture also provides that no payment on account of the
principal of, or premium, if any, sinking funds, if any, or interest, if any,
on the Subordinated Debt Securities shall be made if there shall have occurred
and be continuing (i) a default in the payment when due of principal of, or
premium, if any, sinking funds, if any, or interest, if any on any Senior
Indebtedness of the Company and any applicable grace period with respect to
such default shall have ended without such default having been cured or waived
or ceasing to exist or (ii) an event of default with respect to any Senior
Indebtedness of the Company resulting in the acceleration of the maturity
thereof without such acceleration having been rescinded or annulled.
The Subordinated Indenture defines "Senior Indebtedness" as (a) any liability
of the Company (1) for borrowed money or under any reimbursement obligation
relating to a letter of credit, surety bond or similar instrument, or (2)
evidenced by a bond, note, debenture or similar instrument, or (3) for
obligations to pay the deferred purchase price of property or services, except
trade accounts payable arising in the ordinary course of business, or (4) for
the payment of money relating to a capitalized lease obligation, or (5) for the
payment of money under any Swap Agreement; (b) any liability of others
described in the preceding clause (a) that the Company has guaranteed or that
is otherwise its legal liability; and (c) any deferral, renewal, extension or
refunding of any liability of the types referred to in clauses (a) and (b)
above, unless, in the instrument creating or evidencing any such liability
referred to in clause (a) or (b) above or any such deferral, renewal, extension
or refunding referred to in clause (c) above or pursuant to which the same is
outstanding, it is expressly provided that such liability, deferral, renewal,
extension or refunding is subordinate in right of payment to all other
Indebtedness of the Company or is not senior or prior in right of payment to
the Subordinated Debt Securities or ranks pari passu with or subordinate to the
Subordinated Debt Securities in right of payment; and provided that the
Subordinated Debt Securities shall not constitute Senior Indebtedness; and
provided, further, that Senior Indebtedness shall not include any indebtedness
or guarantees between or among the Company or its affiliates, including all
debt securities or guarantees in respect of those debt securities issued to any
trust (including CNF Trust I), trustee of a trust (including CNF Trust I),
partnership, limited liability company or other person affiliated with the
Company that is a financing vehicle of the Company (a "financing entity") in
connection with the issuance by such financing entity of preferred securities
unless otherwise expressly provided in the instrument creating or evidencing
such indebtedness, debt securities or guarantees, as the case may be, or
pursuant to which the same is outstanding. The Subordinated Indenture defines
"Swap Agreement" as any financial agreement designed to manage the Company's
exposure to fluctuations in interest rates, currency exchange rates or
commodity prices, including without limitation swap agreements, option
agreements, cap agreements, floor agreements, collar agreements and forward
purchase agreements. The Subordinated Indenture does not limit or prohibit the
incurrence of Senior Indebtedness by the Company. Senior Indebtedness may
include debt securities, indebtedness and other obligations that constitute
"Senior Indebtedness" for purposes of (and which are therefore senior in right
of payment to) the Subordinated Debt Securities but which are subordinate in
right of payment to certain other indebtedness and obligations of the Company.
In that regard, the Company may issue other debt securities or incur other
indebtedness or obligations which are referred to or designated as
"subordinated" securities, indebtedness or obligations but which may constitute
Senior Indebtedness for purposes of the Subordinated Indenture.
If this Prospectus is being delivered in connection with the offering of a
series of Subordinated Debt Securities, the accompanying Prospectus Supplement
or the information incorporated by reference herein will set forth the
approximate amount of Senior Indebtedness outstanding as of a recent date.
There are no limitations in the Subordinated Indenture on the issuance or
incurrence of Senior Indebtedness of the Company.
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DESCRIPTION OF PREFERRED STOCK
The Company may issue shares of its Preferred Stock, in one or more series,
either separately, or together with, or upon the conversion of or in exchange
for, other Securities. The summary of certain provisions of the Preferred Stock
set forth below and the summary of certain terms of a particular series of
Preferred Stock set forth in the applicable Prospectus Supplement do not
purport to be complete and are subject to and qualified in their entirety by
reference to all of the provisions of the Company's certificate of
incorporation, as amended (the "Amended Certificate of Incorporation"), and the
Company's By-laws, which have been filed or incorporated by reference as
exhibits to the Registration Statement, and the form of certificate of
designations relating to such series of Preferred Stock which will be filed as
an exhibit to or incorporated by reference in the Registration Statement, all
of which are incorporated herein by reference.
The following description of Preferred Stock sets forth certain general terms
and provisions of the series of Preferred Stock to which any Prospectus
Supplement may relate. Certain other terms of any particular series of
Preferred Stock, including Preferred Stock to be represented by Depositary
Shares, will be described in the applicable Prospectus Supplement. To the
extent that any particular terms of any Preferred Stock described in a
Prospectus Supplement differ from any of the terms described herein, then such
terms described herein shall be deemed to have been superseded by such
Prospectus Supplement.
GENERAL
Under the Amended Certificate of Incorporation, the Company is authorized to
issue up to 5,000,000 shares of Preferred Stock, without par value, which may
be issued from time to time in one or more series. Subject to limitations
prescribed by Delaware law and the Amended Certificate of Incorporation, the
Board of Directors is authorized to fix the number of shares constituting each
series of Preferred Stock and the designations, preferences and relative,
participating, optional or other special rights, and the qualifications,
limitations or restrictions thereof, including the dividend rights, dividend
rates, conversion rights, exchange rights, voting rights, rights and terms of
redemption (including sinking fund and purchase fund provisions), redemption
prices and dissolution preferences.
The Company has issued and outstanding shares of its Series B Cumulative
Convertible Preferred Stock, no par value (the "Series B Preferred Stock").
Unless otherwise provided in the applicable Prospectus Supplement, any Offered
Preferred Stock will rank, as to the payment of dividends and the distribution
of assets on liquidation, dissolution or winding up of the Company, junior to
the Series B Preferred Stock. See "-- Ranking" and "-- Dividend, Repurchase and
Redemption Restrictions" below and "Description of Capital Stock."
Reference is made to the applicable Prospectus Supplement relating to the
series of Preferred Stock offered thereby (the "Offered Preferred Stock") for
specific terms, including (where applicable): (1) the title of such Offered
Preferred Stock; (2) the number of shares of such Offered Preferred Stock
offered, the liquidation preference per share and the initial public offering
price of such Offered Preferred Stock; (3) the dividend rate or method of
calculation thereof and the dividend payment dates or periods; (4) the date
from which dividends on such Offered Preferred Stock shall accrue and whether
dividends on such Offered Preferred Stock will be cumulative; (5) the
procedures for any auction or remarketing, if any, of such Offered Preferred
Stock; (6) the provisions for a sinking fund, if any, for such Offered
Preferred Stock; (7) the provisions for redemption or repurchase, if
applicable, of such Offered Preferred Stock; (8) any listing of such Offered
Preferred Stock on any securities exchange; (9) the terms and conditions, if
any, upon which such Offered Preferred Stock will be convertible into or
exchangeable for other Securities; (10) whether interests in such Offered
Preferred Stock will be represented by Depositary Shares; (11) the preferences
of such Offered Preferred Stock as to dividends and upon liquidation,
dissolution or winding up of the Company; and (12) any other specific terms of
such Offered Preferred Stock.
RANKING
Unless otherwise specified in the applicable Prospectus Supplement, any series
of Offered Preferred Stock offered thereby will rank, with respect to both the
payment of dividends and the distribution of assets upon liquidation,
dissolution or winding up of the Company, (i) junior to the Series B Preferred
Stock, (ii) senior to the Common Stock, and (iii) on a parity with shares of
any other outstanding series of Offered Preferred Stock.
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DIVIDEND, REPURCHASE AND REDEMPTION RESTRICTIONS
As described under "Description of Capital Stock -- Authorized and Outstanding
Preferred Stock--Series B Preferred Stock," and unless otherwise described in
the applicable Prospectus Supplement, the Company will be prohibited (subject
to certain limited exceptions) from paying dividends on, and from redeeming or
otherwise purchasing, any shares of Offered Preferred Stock if the Company has
not paid full cumulative dividends on the Series B Preferred Stock. In
addition, certain agreements to which the Company is a party contain covenants
which have the effect of restricting the payment of dividends and the
redemption or repurchase of capital stock by the Company. In the event of a
deterioration in the financial condition or results of operations of the
Company, such covenants could limit or prohibit the payment of dividends on, or
the repurchase or redemption of, Offered Preferred Stock. In addition, the
Company is a holding company substantially all of whose consolidated assets are
held by its subsidiaries, and the cash flow of the Company and the consequent
ability to pay dividends on and to redeem or repurchase its securities,
including, Offered Preferred Stock, are largely dependent upon the results of
operations of such subsidiaries. See "Description of Debt Securities -- Ranking
of Debt Securities; Holding Company Structure."
DIVIDENDS
Subject to the preferential rights of holders of the Series B Preferred Stock
and any other capital stock of the Company ranking prior to any series of the
Offered Preferred Stock as to dividends, holders of shares of such Offered
Preferred Stock shall be entitled to receive, when, as and if declared by the
Board of Directors of the Company, out of assets of the Company legally
available therefor, dividends at such rates and on such dates as will be set
forth in, or as are determined by the method described in, the applicable
Prospectus Supplement. Such rates may be fixed or variable or both. If
variable, the formula used for determining the dividend rate for each dividend
period will be specified in the applicable Prospectus Supplement. Each such
dividend shall be payable to holders of record as they appear on the stock
transfer books of the Company on such record dates as shall be fixed by the
Board of Directors of the Company. Dividends may be paid in the form of cash,
Preferred Stock (of the same or a different series), or other securities or
property, in each case as specified in the applicable Prospectus Supplement.
Dividends on any series of the Offered Preferred Stock may be cumulative or
non-cumulative, as provided in the applicable Prospectus Supplement. Dividends,
if cumulative, will be cumulative from and after the date set forth in the
applicable Prospectus Supplement. If the Board of Directors of the Company
fails to declare a dividend payable on a dividend payment date on any series of
the Offered Preferred Stock for which dividends are non-cumulative, then the
holders of such series of the Offered Preferred Stock will have no right to
receive a dividend in respect of the dividend period ending on such dividend
payment date, and the Company will have no obligation to pay the dividend
accrued for such period, whether or not dividends on such series are declared
payable on any future dividend payment date.
No full dividends will be declared or paid or set aside for payment on any
Preferred Stock of the Company ranking, as to dividends, on a parity with or
junior to any outstanding series of Offered Preferred Stock for any period
unless full dividends on such series of Offered Preferred Stock (including
accumulated dividends on any such series of Offered Preferred Stock on which
dividends are cumulative) have been or contemporaneously are declared and paid
or declared and a sum sufficient for the payment thereof set aside for payment.
When dividends are not paid in full on any series of Offered Preferred Stock
and any other Preferred Stock ranking on a parity as to dividends with such
series of Offered Preferred Stock, all dividends declared or paid upon shares
of Offered Preferred Stock of such series and any other Preferred Stock ranking
on a parity as to dividends with the Offered Preferred Stock of such series
shall be declared and paid pro rata so that the amount of dividends declared
and paid per share on the Offered Preferred Stock of such series and such other
Preferred Stock shall in all cases bear to each other the same ratio that
accrued dividends per share (which in the case of non-cumulative Preferred
Stock shall not include any accumulation in respect of unpaid dividends for
prior dividend periods) on shares of such series of Offered Preferred stock and
such other Preferred Stock bear to each other. Except as provided in the
preceding sentence, unless full dividends on all outstanding shares of any
series of Offered Preferred Stock (including accumulated dividends on any such
series on which dividends are cumulative) have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment thereof set
aside for payment, no dividends (other than dividends or distributions paid in
shares of, or options, warrants or rights to subscribe for or purchase shares
of, Common Stock or any other stock of the Company ranking junior to the
Offered Preferred Stock of such series as to dividends and as to distribution
of assets upon liquidation, dissolution or winding up of the Company) shall be
declared or paid or set aside for payment or any other distribution declared or
made upon the Common Stock or any other stock of the Company ranking junior to
or on a parity with the Offered Preferred Stock of such series as to dividends
or distribution of assets upon liquidation, dissolution or winding up of the
Company, nor may any Common Stock or any other stock of the Company ranking
junior to or on a parity with the Preferred Stock of such series as to
dividends or distribution of assets upon liquidation, dissolution or winding up
of the Company be redeemed, purchased or otherwise acquired for any
consideration (and no moneys shall be paid to or made available for a sinking
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fund for the redemption of any shares of any such junior of parity stock) by
the Company (except by conversion into or exchange for stock of the Company
ranking junior to the Offered Preferred Stock of such series as to dividends
and as to distribution of assets upon liquidation, dissolution or winding up of
the Company).
Holders of shares of any series of Offered Preferred Stock shall not be
entitled to any dividends, whether payable in cash, securities or other
property, in excess of full cumulative (if applicable) dividends on such
series. No interest, or sum of money in lieu of interest, shall be payable in
respect of any dividend or payments which may be in arrears.
The Company will be prohibited from paying dividends on Offered Preferred Stock
of any series in the event of a dividend arrearage on the Series B Preferred
Stock and may be prohibited from paying dividends on Offered Preferred Stock of
any series as a result of certain other dividend restrictions. See "--
Dividend, Repurchase and Redemption Restrictions" above and "Description of
Capital Stock -- Authorized and Outstanding Preferred Stock -- Series B
Preferred Stock" below.
REDEMPTION AND REPURCHASE
The shares of Offered Preferred Stock of any series may be redeemable at the
option of the Company, may be subject to mandatory redemption pursuant to a
sinking fund or otherwise, or may be subject to repurchase by the Company at
the option of the holders, in each case upon the terms, at the times and at the
prices set forth in the applicable Prospectus Supplement. Offered Preferred
Stock redeemed by the Company will be restored to the status of authorized but
unissued shares of Preferred Stock.
The Prospectus Supplement relating to a series of Offered Preferred Stock which
is subject to mandatory redemption will specify the number of shares of such
series which shall be redeemed by the Company in each year commencing after a
date to be specified, at a redemption price per share to be specified, together
with an amount equal to all accrued and unpaid dividends thereon (including
accumulated dividends on any such series on which dividends are cumulative) to
the date fixed for redemption. The redemption price may be payable in cash,
securities or other property, as specified in the Prospectus Supplement
relating to such series of Offered Preferred Stock.
If fewer than all of the outstanding shares of any series of Offered Preferred
Stock are to be redeemed, the shares to be redeemed will be determined pro
rata, by lot or by any other method deemed equitable by the Company.
In the event that full cumulative dividends on any series of Offered Preferred
Stock (including accumulated dividends on any such series on which dividends
are cumulative) have not been declared and paid or declared and a sum
sufficient for the payment thereof set apart for payment, the Company shall not
redeem, repurchase or otherwise acquire any shares of such series of Offered
Preferred Stock except by conversion into or exchange for capital stock of the
Company ranking junior to the Offered Preferred Stock of such series as to
dividends and as to distributions upon liquidation, dissolution or winding up
of the Company, or except pursuant to a purchase or exchange offer made on the
same terms to all holders of such series of Offered Preferred Stock.
Notice of redemption shall be given by mailing the same to each record holder
of the shares to be redeemed, not less than 30 nor more than 60 days prior to
the date fixed for redemption thereof, to the respective addresses of such
holders as the same shall appear in the stock registry of the Company. Each
such notice shall state: (i) the redemption date; (ii) the number of shares and
series of Offered Preferred Stock to be redeemed; (iii) the redemption price;
(iv) the place or places where certificates for such Offered Preferred Stock
are to be surrendered for payment of the redemption price; (v) that dividends
on the shares to be redeemed will cease to accrue on such redemption date; and
(vi) the date upon which the holder's conversion rights as to such shares, if
any, shall terminate. If fewer than all shares of any series of the Preferred
Stock held by any holder are to be redeemed, the notice mailed to such holder
shall also specify the number of shares to be redeemed from such holder.
If a notice of redemption has been given, from and after the redemption date
for the shares of Offered Preferred Stock called for redemption (unless the
Company shall default in providing money for the payment of the redemption
price of the shares so called for redemption plus, if applicable, accrued and
unpaid dividends), dividends on the shares of Offered Preferred Stock so called
for redemption shall cease to accrue and such shares shall no longer be deemed
to be outstanding, and all rights of the holders thereof as shareholders of the
Company shall cease, except the right to receive the redemption price plus, if
applicable, accrued and unpaid dividends upon surrender of the certificates
representing the shares to be so redeemed (properly endorsed or assigned for
transfer, if the Company shall so require) in accordance with such notice. If
fewer than all of the shares represented by any such certificates are redeemed,
a new certificate shall be issued representing the unredeemed shares.
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The Company will be prohibited from redeeming or repurchasing Offered Preferred
Stock of any series in the event of a dividend arrearage on the Series B
Preferred Stock and may be prohibited from redeeming or repurchasing Offered
Preferred Stock of any series as the result of certain other dividend
restrictions. See "-- Dividend, Repurchase and Redemption Restrictions" above
and "Description of Capital Stock" below.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of the
Company, and after payment of all amounts due upon liquidation, dissolution or
winding up to holders of the Series B Preferred Stock and any other capital
stock of the Company ranking prior to the Offered Preferred Stock of any series
as to the distribution of assets upon liquidation, dissolution or winding up,
and subject to the rights of holders of any capital stock of the Company
ranking on a parity with the shares of Offered Preferred Stock of such series
as to distribution of assets upon liquidation, dissolution or winding up of the
Company, the holders of shares of Offered Preferred Stock of such series shall
be entitled to receive, out of assets of the Company legally available therefor
and before any distribution or payment shall be made to the holders of any
Common Stock or any other class or series of capital stock of the Company
ranking junior to the Offered Preferred Stock of such series as to distribution
of assets upon liquidation, dissolution or winding up of the Company,
liquidating distributions in the amount of the liquidation preference per share
set forth in the applicable Prospectus Supplement, plus accrued and unpaid
dividends (including accumulated dividends if dividends on such series of
Offered Preferred Stock are cumulative). After payment of the full amount of
the liquidating distributions to which they are entitled, the holders of
Offered Preferred Stock of such series will have no right or claim to any of
the remaining assets of the Company. In the event that, upon any such voluntary
or involuntary liquidation, dissolution or winding up, the legally available
assets of the Company are insufficient to pay the amount of the liquidating
distributions on all outstanding shares of Offered Preferred Stock of any
series and the corresponding amounts payable on all shares of other capital
stock of the Company ranking on a parity with the Offered Preferred Stock of
such series in the distribution of assets upon liquidation, dissolution or
winding up, the holders of the Offered Preferred Stock of such series and of
such other capital stock shall share ratably in any such distribution of assets
in proportion to the full liquidating distributions to which they would
otherwise be respectively entitled.
For such purposes, the consolidation or merger of the Company with or into any
other person, or the sale, lease, transfer or conveyance of all or
substantially all or any portion of the property or business of the Company,
shall not be deemed to constitute a liquidation, dissolution or winding up of
the Company.
VOTING RIGHTS
Holders of Offered Preferred Stock will not have any voting rights, except as
set forth below or as otherwise from time to time required by law or as
indicated in the applicable Prospectus Supplement. In the event that the
Company issues a series of Offered Preferred Stock with voting rights or the
Offered Preferred Stock of any series is entitled pursuant to applicable law to
vote on any matter, then, unless otherwise specified in the Prospectus
Supplement relating to such series, each share of such series will be entitled
to one vote on matters on which holders of such shares are entitled to vote.
However, as more fully described under "Description of Depositary Shares," if
the Company elects to provide for the issuance of Depositary Shares
representing fractional interests in shares of any such series of Offered
Preferred Stock, the holder of any such Depositary Share will, in effect and
subject to certain limitations and conditions, be entitled to such fraction of
a vote, rather than a full vote. In the case of any series of Offered Preferred
Stock having one vote per share on matters on which holders of such series are
entitled to vote, the voting power of such series on matters on which holders
of such series and holders of any other series of Preferred Stock or other
capital stock of the Company are entitled to vote as a single class will depend
on the number of shares in such series, not the aggregate stated value,
liquidation preference or initial offering price of the shares of such series.
So long as any shares of Offered Preferred Stock remain outstanding, and except
as otherwise set forth in the applicable Prospectus Supplement or except as
otherwise required by applicable law, the Company will not, without the
affirmative vote or consent of the holders of at least a majority of the shares
of any affected series of Offered Preferred Stock outstanding at the time
(voting separately as a single class with all other affected series of
Preferred Stock ranking on a parity with the Offered Preferred Stock of such
series either as to dividends or as to distribution of assets upon liquidation,
dissolution or winding up of the Company and upon which like voting rights have
been conferred and are then exercisable), given in person or by proxy, either
in writing or at a meeting, (i) authorize, create or issue, or increase the
authorized or issued amount of, any class or series of capital stock ranking
prior to such affected series of Offered Preferred Stock with respect to
payment of dividends or the distribution of assets upon liquidation,
dissolution or winding up or reclassify any authorized capital stock of the
Company into any such shares, or create, authorize or issue any obligation or
security convertible into or evidencing the right to purchase any such shares;
or (ii) amend, alter or repeal
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the provisions of the Amended Certificate of Incorporation (including the
certificate of designations for such affected series of Offered Preferred
Stock), whether by merger, consolidation or otherwise, so as to materially and
adversely affect any right, preference or privilege of such affected series of
Offered Preferred Stock; provided, however, that any increase in the amount of
the authorized Preferred Stock or the creation or issuance of any other class
or series of capital stock or any other series of Preferred Stock, or any
increase in the number of authorized shares of any series of Preferred Stock,
in each case, ranking on a parity with or junior to the Preferred Stock of such
affected series with respect to payment of dividends and the distribution of
assets upon liquidation, dissolution or winding up, shall not be deemed to
materially and adversely affect such rights, preferences or privileges.
None of the foregoing voting provisions will apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be effected or occur, all outstanding shares of the relevant series of Offered
Preferred Stock shall have been redeemed or called for redemption upon proper
notice and sufficient funds shall have been deposited in trust to effect such
redemption.
Under Delaware law, notwithstanding anything to the contrary set forth above,
holders of all outstanding shares of Preferred Stock will be entitled to vote
as a class upon a proposed amendment to the Amended Certificate of
Incorporation if the amendment would increase or decrease the aggregate number
of authorized shares of such class, increase or decrease the par value of the
shares of such class, or alter or change the powers, preferences or rights of
the shares of such class so as to affect them adversely. However, if any such
proposed amendment would change the powers, preferences or rights of one or
more series of Preferred Stock so as to affect them adversely, but shall not
affect all series of Preferred Stock, then only the shares of the series so
affected shall be considered a separate class for such purposes. Any such
amendment requires the vote of a majority of the shares entitled to vote
thereon, voting as a class.
CONVERSION AND EXCHANGE RIGHTS
The terms, if any, upon which shares of any series of Preferred Stock are
convertible into or exchangeable for the Common Stock, another series of
Preferred Stock or other Securities will be set forth in the applicable
Prospectus Supplement relating thereto. Such terms may include provisions for
conversion or exchange, either mandatory, at the option of the holders or at
the option of the Company.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the shares of Preferred Stock will be
named in the applicable Prospectus Supplement.
DESCRIPTION OF DEPOSITARY SHARES
The Company may offer Depositary Shares (either separately or together with
other Securities) representing fractional interests in shares of Preferred
Stock of any series. In connection with the issuance of any Depositary Shares,
the Company will enter into a deposit agreement (a "Deposit Agreement") with a
bank or trust company, as depositary (the "Preferred Stock Depositary"), which
will be named in the applicable Prospectus Supplement. Depositary Shares will
be evidenced by depositary receipts (the "Depositary Receipts") issued pursuant
to the related Deposit Agreement. The summary of certain provisions of the
Depositary Shares and the Deposit Agreement set forth below and the summary of
certain terms of a particular issue of Depositary Shares and the related
Deposit Agreement set forth in the applicable Prospectus Supplement do not
purport to be complete and are subject to and qualified in their entirety by
reference to all the provisions of the form of Deposit Agreement, together with
the form of related Depositary Receipt which will be filed as an exhibit to or
incorporated by reference in the Registration Statement, all of which are
incorporated herein by reference.
The following description of Depositary Shares sets forth certain general terms
and provisions of the Depositary Shares and the related Deposit Agreement to
which any Prospectus Supplement may relate. Certain other terms of any such
Depositary Shares and the related Deposit Agreement will be described in the
applicable Prospectus Supplement. To the extent that any particular terms of
the Depositary Shares or the related Deposit Agreement described in a
Prospectus Supplement differ from any of the terms described herein, then such
terms described herein shall be deemed to have been superseded by such
Prospectus Supplement.
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GENERAL
The Company may provide for the issuance by the Preferred Stock Depositary of
Depositary Receipts evidencing the related Depositary Shares, each of which
Depositary Shares in turn will represent a fractional interest (which will be
specified in the applicable Prospectus Supplement) in one share of a series of
Preferred Stock. Shares of Preferred Stock of any series represented by
Depositary Shares will be deposited under a separate Deposit Agreement. Subject
to the terms of the Deposit Agreement, each owner of a Depositary Receipt will
be entitled, in proportion to the fraction of a share of Preferred Stock
represented by the related Depositary Share, to all the rights, preferences and
privileges of, and will be subject to all of the limitations and restrictions
on, the Preferred Stock represented thereby (including, if applicable and
subject to certain matters discussed below, dividend, voting, conversion,
exchange, redemption and liquidation rights).
Depositary Shares may be issued in respect of shares of the Preferred Stock of
any series. Immediately following the issuance of any such shares of Preferred
Stock by the Company, the Company will deposit such shares of Preferred Stock
with the relevant Preferred Stock Depositary and will cause the Preferred Stock
Depositary to issue, on behalf of the Company, the related Depositary Receipts.
Reference is made to the applicable Prospectus Supplement relating to the
Depositary Shares offered thereby for specific terms, including (where
applicable): (1) the terms of the series of Preferred Stock deposited by the
Company under the related Deposit Agreement; (2) the number of such Depositary
Shares and the fraction of one share of such Preferred Stock represented by one
such Depositary Share; (3) whether such Depositary Shares will be listed on any
securities exchange; (4) whether such Depositary Shares will be sold with any
other Securities and, if so, the amount and terms thereof; and (5) any other
specific terms of such Depositary Shares and the related Deposit Agreement.
Depositary Receipts may be surrendered for transfer or exchange for new
Depositary Receipts of different authorized denominations at any office or
agency of the relevant Preferred Stock Depositary maintained for such purpose,
subject to the terms of the related Deposit Agreement. Unless otherwise
specified in the applicable Prospectus Supplement, Depositary Receipts will be
issued in denominations evidencing any whole number of Depositary Shares. No
service charge will be made for any permitted transfer or exchange of
Depositary Receipts, but the Company or the Preferred Stock Depositary may
require payment of any tax or other governmental charge payable in connection
therewith.
DIVIDENDS AND OTHER DISTRIBUTIONS
The Preferred Stock Depositary will distribute all cash dividends or other cash
distributions received in respect of the related Preferred Stock to the record
holders of Depositary Receipts in proportion, insofar as possible, to the
number of Depositary Receipts owned by such holders on the relevant record
date. The Preferred Stock Depositary will distribute only such amount, however,
as can be distributed without attributing to any holder of Depositary Receipts
a fraction of one cent, and any balance not so distributed will be added to and
treated as part of the next sum, if any, received by the Preferred Stock
Depositary for distribution to the record holders of Depositary Receipts.
In the event of a distribution other than in cash, the Preferred Stock
Depositary will distribute property received by it to the record holders of
Depositary Receipts entitled thereto in proportion, insofar as possible, to the
number of Depositary Receipts owned by such holders on the relevant record
date, unless the Preferred Stock Depositary determines that it is not feasible
to make such distribution, in which case the Preferred Stock Depositary may,
with the approval of the Company, adopt such method as it deems equitable and
practicable for the purpose of effecting such distribution, including sale
(public or private) of such property and distribution of the net proceeds from
such sale to such holders.
The Deposit Agreement will also contain provisions relating to the manner in
which any subscription or similar rights offered by the Company to holders of
the related series of Preferred Stock will be made available to holders of
Depositary Receipts.
The amount distributed in any of the foregoing cases will be reduced by any
amount required to be withheld by the Company or the Preferred Stock Depositary
on the account of taxes.
WITHDRAWAL OF PREFERRED STOCK
Upon surrender of the Depositary Receipts at an office or agency of the
Preferred Stock Depositary maintained for such purpose (unless the related
shares of Preferred Stock have previously been called for redemption), the
holder thereof will be entitled to delivery, at such office or agency, to or
upon such holder's order, of the number of whole shares of the related series
of Preferred
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Stock and any money or other property represented by such Depositary Receipts.
Shares of Preferred Stock so withdrawn, however, may not be redeposited. If the
Depositary Receipts delivered by the holder evidence a number of Depositary
Shares in excess of the number of whole shares of Preferred Stock to be
withdrawn, the Preferred Stock Depositary will deliver to such holder at the
same time a new Depositary Receipt evidencing such excess number of Depositary
Shares.
REDEMPTION AND REPURCHASE OF PREFERRED STOCK
If a series of Preferred Stock represented by Depositary Shares is subject to
redemption at the option of the Company, then, whenever the Company redeems
shares of Preferred Stock of such series held by the Preferred Stock
Depositary, the Preferred Stock Depositary will redeem as of the same
redemption date the number of Depositary Shares representing the shares of the
Preferred Stock so redeemed, provided the Company shall have paid in full to
the Preferred Stock Depositary the redemption price of the Preferred Stock to
be redeemed plus any other amounts or property payable with respect to the
Preferred Stock to be redeemed. The redemption price per Depositary Share will
be equal to the redemption price and any other amounts or property per share
payable with respect to the Preferred Stock multiplied by the fraction of a
share of Preferred Stock represented by one such Depositary Share. If less than
all of the Depositary Shares are to be redeemed, the Depositary Shares to be
redeemed will be selected by the Preferred Stock Depositary by lot or pro rata
or other equitable method, in each case as may be determined by the Company. If
the Depositary Shares evidenced by a Depositary Receipt are to be redeemed in
part only, one or more new Depositary Receipts will be issued for any
Depositary Shares not so redeemed.
After the date fixed for redemption, the Depositary Shares so called for
redemption will no longer be deemed to be outstanding and all rights of the
holders of the Depositary Receipts evidencing the Depositary Shares so called
for redemption will cease, except the right to receive any monies payable upon
such redemption and any money or other property to which the holders of such
Depositary Receipts were entitled upon such redemption upon surrender of such
Depositary Receipts to the Preferred Stock Depositary.
Depositary Shares, as such, are not subject to repurchase by the Company at the
option of the holders. Nevertheless, if the Preferred Stock represented by
Depositary Shares is subject to repurchase of the option of the holders, the
related Depositary Receipts may be surrendered by the holders thereof to the
Preferred Stock Depositary with written instructions to the Preferred Stock
Depositary to instruct the Company to repurchase the Preferred Stock
represented by the Depositary Shares evidenced by such Depositary Receipts at
the applicable repurchase price specified in the related Prospectus Supplement.
The Company, upon receipt of such instructions and subject to the Company
having funds legally available therefor, will repurchase the requisite whole
number of shares of such Preferred Stock from the Preferred Stock Depositary,
who in turn will repurchase such Depositary Receipts. Notwithstanding the
foregoing, holders shall only be entitled to request the repurchase of
Depositary Shares representing one or more whole shares of the related
Preferred Stock. The repurchase price per Depositary Share will be equal to the
repurchase price and any other amounts per share payable with respect to the
Preferred Stock multiplied by the fraction of a share of Preferred Stock
represented by one Depositary Share. If the Depositary Shares evidenced by a
Depositary Receipt are to be repurchased in part only, one or more new
Depositary Receipts will be issued for any Depositary Shares not to be
repurchased.
VOTING THE PREFERRED STOCK
Upon receipt of notice of any meeting at which the holders of the Preferred
Stock of any series represented by Depositary Shares are entitled to vote, the
relevant Preferred Stock Depositary will mail the information contained in such
notice of meeting to the record holders of the related Depositary Receipts.
Each record holder of Depositary Receipts evidencing Depositary Shares on the
record date (which will be the same date as the record date for the Preferred
Stock) will be entitled to instruct the Preferred Stock Depositary as to the
exercise of the voting rights pertaining to the amount of Preferred Stock
represented by such holder's Depositary Shares. The Preferred Stock Depositary
will endeavor, insofar as practicable, to vote the number of shares of
Preferred Stock represented by such Depositary Shares in accordance with such
instructions, and the Company will agree to take all reasonable action which
may be deemed necessary by the Preferred Stock Depositary in order to enable
the Preferred Stock Depositary to do so. The Preferred Stock Depositary will
abstain from voting shares of Preferred Stock to the extent it does not receive
specific instructions from the holders of Depositary Receipts evidencing the
Depositary Shares representing such Preferred Stock.
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CONVERSION AND EXCHANGE OF PREFERRED STOCK
If the Preferred Stock represented by Depositary Shares is exchangeable at the
option of the Company for other Securities, then, whenever the Company
exercises its option to exchange all or a portion of such shares of Preferred
Stock held by the Preferred Stock Depositary, the Preferred Stock Depositary
will exchange as of the same exchange date a number of such Depositary Shares
representing the shares of the Preferred Stock so exchanged, provided the
Company shall have issued and deposited with the Preferred Stock Depositary the
Securities for which such shares of Preferred Stock are to be exchanged. The
exchange rate per Depositary Share shall be equal to the exchange rate per
share of Preferred Stock multiplied by the fraction of a share of Preferred
Stock represented by one Depositary Share. If less than all of the Depositary
Shares are to be exchanged, the Depositary Shares to be exchanged will be
selected by the Preferred Stock Depositary by lot or pro rata or other
equitable method, in each case as may be determined by the Company. If the
Depositary Shares evidenced by a Depositary Receipt are to be exchanged in part
only, a new Depositary Receipt or Receipts will be issued for any Depositary
Shares not to be exchanged.
Depositary Shares, as such, are not convertible or exchangeable at the option
of the holders into other Securities or property. Nevertheless, if the
Preferred Stock represented by Depositary Shares is convertible into or
exchangeable for other Securities at the option of the holders, the related
Depositary Receipts may be surrendered by holders thereof to the Preferred
Stock Depositary with written instructions to the Preferred Stock Depositary to
instruct the Company to cause conversion or exchange, as the case may be, of
the Preferred Stock represented by the Depositary Shares evidenced by such
Depositary Receipts into a whole number of shares of Common Stock or Preferred
Stock, a whole number of Common Stock Warrants, or Debt Securities in
authorized denominations, as specified in the related Prospectus Supplement.
The Company, upon receipt of such instructions and any amounts payable in
respect thereof, will cause the conversion or exchange, as the case may be, and
will deliver to the holders such number of whole shares of Common Stock or
Preferred Stock, a whole number of Common Stock Warrants, or a principal amount
of Debt Securities in authorized denominations (and cash in lieu of any
fractional Security). The exchange or conversion rate per Depositary Share
shall be equal to the exchange or conversion rate per share of Preferred Stock
multiplied by the fraction of a share of Preferred Stock represented by one
Depositary Share. If the Depositary Shares evidenced by a Depositary Receipt
are to be converted or exchanged in part only, a new Depositary Receipt or
Receipts will be issued for any Depositary Shares not to be converted or
exchanged.
AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT
The Depositary Receipts evidencing Depositary Shares and any provision of the
related Deposit Agreement may at any time be amended by agreement between the
Company and the Preferred Stock Depositary. However, any amendment that
materially and adversely alters the rights of the holders of Depositary
Receipts issued under any Deposit Agreement will not be effective unless such
amendment has been approved by the holders of at least a majority of such
Depositary Receipts then outstanding (or such greater proportion as may be
required by the rules of any securities exchange on which the related
Depositary Shares may be listed). In no event may any such amendment impair the
right of any holder of Depositary Receipts, subject to the conditions specified
in the Deposit Agreement, to receive the related Preferred Stock upon surrender
of such Depositary Receipts as described above under "--Withdrawal of Preferred
Stock."
The Deposit Agreement may be terminated by the Company upon not less than 60
days' notice to the Preferred Stock Depositary. In any such case, the Preferred
Stock Depositary shall deliver or make available to each holder of the related
Depositary Receipts, upon surrender of such Depositary Receipts, such number of
whole shares of the related series of Preferred Stock represented by the
Depositary Shares evidenced by such Depositary Receipts, together with cash in
lieu of any fractional shares (to the extent the Company has deposited such
cash with the Preferred Stock Depositary). The Deposit Agreement will
automatically terminate if all of the shares of Preferred Stock deposited
thereunder shall have been withdrawn, redeemed, converted or exchanged or if
there shall have been a final distribution in respect of such Preferred Stock
in connection with any liquidation, dissolution or winding up of the Company.
CHARGES OF PREFERRED STOCK DEPOSITARY
The Company will pay the fees and expenses of the Preferred Stock Depositary in
connection with the performance of its duties under the Deposit Agreement, and
will pay all transfer and other taxes and governmental charges arising solely
from the existence of the Deposit Agreement. Holders of Depositary Receipts
will be required to pay all other transfer and other taxes and governmental
charges (including taxes and other governmental charges in connection with the
transfer, exchange, surrender or conversion of Depositary Receipts) and such
other charges as are expressly provided in the Deposit Agreement.
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RESIGNATION AND REMOVAL OF DEPOSITARY
The Preferred Stock Depositary may resign at any time by delivering to the
Company notice of its election to do so, and the Company may at any time
remove the Preferred Stock Depositary, any such resignation or removal to take
effect upon the appointment of a successor Preferred Stock Depositary.
MISCELLANEOUS
The Preferred Stock Depositary will forward to holders of Depositary Receipts
any reports and communications from the Company which are received by the
Preferred Stock Depositary with respect to the related Preferred Stock.
Neither the Preferred Stock Depositary nor the Company will be liable if
either is prevented or delayed by law or any circumstances beyond its control
in performing its obligations under the Deposit Agreement. The obligations of
the Company and the Preferred Stock Depositary under the Deposit Agreement
will be limited to performing their duties thereunder without gross negligence
or willful misconduct, and the Company and the Preferred Stock Depositary will
not be obligated to prosecute or defend any legal proceeding in respect of any
Depositary Shares or any related shares of Preferred Stock or Depositary
Receipts unless satisfactory indemnity is furnished. The Company and the
Preferred Stock Depositary may rely on advice of counsel, accountants or other
advisors, and information provided by persons presenting shares of Preferred
Stock for deposit, holders of Depositary Receipts or other persons believed to
be authorized or competent and on documents believed to be genuine.
In the event that the Preferred Stock Depositary shall receive conflicting
claims, requests or instructions from any holders of Depositary Receipts, on
the one hand, and the Company, on the other hand, the Preferred Stock
Depositary shall be entitled to act on such claims, requests or instructions
received from the Company.
DESCRIPTION OF COMMON STOCK
The Company may issue (either separately or together with other Securities)
shares of its Common Stock. Under its Amended Certificate of Incorporation,
the Company is authorized to issue up to 100,000,000 shares of Common Stock.
Reference is made to the applicable Prospectus Supplement relating to Common
Stock offered thereby for the terms relevant thereto, including the number of
shares offered and the initial public offering price. For a summary of certain
terms of the Common Stock, see "Description of Capital Stock" below.
DESCRIPTION OF COMMON STOCK WARRANTS
The Company may issue (either separately or together with other Securities)
warrants for the purchase of Common Stock ("Common Stock Warrants"). The
Common Stock Warrants are to be issued under warrant agreements (each a
"Common Stock Warrant Agreement") to be entered into between the Company and a
bank or trust company, as warrant agent ("Common Stock Warrant Agent"), all as
set forth in the Prospectus Supplement relating to the particular issue of
Common Stock Warrants. The form of Common Stock Warrant Agreement, including
the form of certificates representing the Common Stock Warrants ("Common Stock
Warrant Certificates"), that will be entered into with respect to a particular
offering of Common Stock Warrants will be filed as an exhibit to or
incorporated by reference in the Registration Statement. The following summary
of certain provisions of the Common Stock Warrant Agreement and the Common
Stock Warrants and the summary of certain terms of the particular Common Stock
Warrant Agreement and Common Stock Warrants set forth in the applicable
Prospectus Supplement do not purport to be complete and are subject to, and
are qualified in their entirety by reference to, all the provisions of the
particular Common Stock Warrant Agreement and the related Common Stock Warrant
Certificates, all of which are incorporated herein by reference.
The following description of the Common Stock Warrants sets forth certain
general terms and provisions of the Common Stock Warrants and the related
Common Stock Warrant Agreement to which any Prospectus Supplement may relate.
Certain other terms of any Common Stock Warrants and the related Common Stock
Warrant Agreement will be described in the applicable Prospectus Supplement.
To the extent that any particular terms of the Common Stock Warrants or the
related Common Stock Warrant Agreement described in a Prospectus Supplement
differ from any of the terms described herein, then such terms described
herein shall be deemed to have been superseded by such Prospectus Supplement.
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GENERAL
Reference is made to the applicable Prospectus Supplement for the terms of the
Common Stock Warrants offered thereby, including (where applicable): (1) the
title and aggregate number of such Common Stock Warrants; (2) the number of
shares of Common Stock that may be purchased upon exercise of each such Common
Stock Warrant; the price, or the manner of determining the price, at which such
shares may be purchased upon such exercise; if other than cash, the property
and manner in which the exercise price may be paid; and any minimum number of
such Common Stock Warrants that are exercisable at any one time; (3) the time
or times at which, or period or periods during which, such Common Stock
Warrants may be exercised and the expiration date of such Common Stock
Warrants; (4) the terms of any right of the Company to redeem such Common Stock
Warrants; (5) the terms of any right of the Company to accelerate the exercise
of such Common Stock Warrants upon the occurrence of certain events; (6)
whether such Common Stock Warrants will be sold with any other Securities, and
the date, if any, on and after which such Common Stock Warrants and any such
other Securities will be separately transferable; and (7) any other terms of
such Common Stock Warrants.
Common Stock Warrant Certificates may be surrendered for transfer or exchange
for new Common Stock Warrant Certificates of authorized denominations at any
office or agency of the relevant Common Stock Warrant Agent maintained for such
purpose, subject to the terms of the related Common Stock Warrant Agreement.
Unless otherwise specified in the applicable Prospectus Supplement, Common
Stock Warrant Certificates will be issued in denominations evidencing any whole
number of Warrants. No service charge will be made for any permitted transfer
or exchange of Common Stock Warrant Certificates, but the Company or the Common
Stock Warrant Agent may require payment of any tax or other governmental charge
payable in connection therewith.
EXERCISE OF WARRANTS
Each Common Stock Warrant will entitle the holder to purchase such number of
shares of Common Stock at such exercise price as shall in each case be set
forth in, or be determinable from, the Prospectus Supplement relating to such
Common Stock Warrants, by payment of such exercise price in the Currency and in
the manner specified in the Prospectus Supplement. Common Stock Warrants may be
exercised at any time up to the date and time specified in the applicable
Prospectus Supplement for the expiration thereof. After the specified
expiration time on the specified date of expiration, unexercised Common Stock
Warrants will become void.
Upon receipt at an office or agency indicated in the applicable Prospectus
Supplement of (i) payment of the exercise price and (ii) the Common Stock
Warrant Certificate properly completed and duly executed, the Company will, as
soon as practicable, forward a certificate or certificates representing the
whole number of shares of Common Stock purchasable upon such exercise. Unless
otherwise indicated in the applicable Prospectus Supplement, fractional shares
of Common Stock will not be issued upon the exercise of Warrants and, in lieu
thereof, the Company will make a cash payment in an amount determined as
provided in the applicable Prospectus Supplement. If less than all of the
Common Stock Warrants represented by such Common Stock Warrant Certificate are
exercised, a new Common Stock Warrant Certificate will be issued for the
remaining number of Common Stock Warrants. The holder of a Common Stock Warrant
will be required to pay any tax or other governmental charge that may be
imposed in connection with any transfer involved in the issuance of the Common
Stock purchased upon such exercise.
MODIFICATIONS
Any Common Stock Warrant Agreement and the terms of the related Common Stock
Warrants may be modified or amended by the Company and the applicable Common
Stock Warrant Agent, without the consent of any holder of the related Common
Stock Warrants, for the purpose of curing any ambiguity, or of curing,
correcting or supplementing any defective or inconsistent provision contained
therein, or in any other manner that the Company deems necessary or desirable
and that will not materially and adversely affect the interests of the holders
of the related Common Stock Warrants.
The Company and the applicable Common Stock Warrant Agent may also modify or
amend the applicable Common Stock Warrant Agreement and the terms of the
related Common Stock Warrants with the consent of the holders of not less than
a majority in number of the then outstanding unexercised Common Stock Warrants
affected thereby; provided that no such modification or amendment that
accelerates the expiration date, increases the exercise price, or reduces the
number of outstanding Common Stock Warrants the consent of whose holders is
required for any such amendment or modification, may be made without the
consent of each holder affected thereby.
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NO RIGHTS AS STOCKHOLDERS
Holders of Common Stock Warrants are not entitled, by virtue of being such
holders, to vote, consent or receive notice as stockholders of the Company in
respect of any meeting of stockholders for the election of directors of the
Company or any other matter, or to exercise any other rights whatsoever as
stockholders of the Company, or to receive any dividends or distributions, if
any, on the Common Stock.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of (i) 100,000,000 shares
of Common Stock, par value $.625 per share, and (ii) 5,000,000 shares of
Preferred Stock, no par value.
As of December 31, 1996, (i) 51,595,827 shares of Common Stock were issued and
outstanding and an additional 7,029,917 shares of Common Stock were issued and
held in the Company's treasury and (ii) 1,100,000 shares of the Company's
Series B Cumulative Convertible Preferred Stock (the "Series B Preferred
Stock") had been authorized and 875,191 such shares were outstanding.
The following summary of certain provisions of the Common Stock, Preferred
Stock, Series B Preferred Stock, and the Company's Amended Certificate of
Incorporation and By-laws does not purport to be complete and is qualified in
its entirety by reference to the Amended Certificate of Incorporation
(including the certificate of designations establishing the terms of the Series
B Preferred Stock) and By-laws, copies of which have been incorporated by
reference or filed as exhibits to the Registration Statement.
COMMON STOCK
The holders of Common Stock are entitled to one vote per share on all matters
voted on by stockholders, including elections of directors, and, except as
otherwise required by law or provided by the express provisions of any series
of Preferred Stock of the Company, the holders of such shares will exclusively
possess all voting power of the Company. In that regard, the holders of Series
B Preferred Stock are entitled to vote with the Common Stock as a single class
on all matters upon which the Common Stock is entitled to vote. See "--
Preferred Stock" below. There is no cumulative voting in the election of
directors, and no holder of Common Stock is entitled as such, as a matter of
right, to subscribe for or purchase any shares of Common Stock or Preferred
Stock. Subject to the preferential rights of any outstanding series of
Preferred Stock, the holders of Common Stock are entitled to receive ratably
such dividends as may be declared from time to time by the Board of Directors
from funds legally available therefor. In the event of a liquidation,
dissolution or winding up of the Company, holders of Common Stock are entitled
to share ratably in all assets remaining after payment or provision for
liabilities and amounts owing in respect of any outstanding Preferred Stock.
Certain agreements to which the Company is a party contain covenants which have
the effect of restricting the payment of dividends on capital stock by the
Company. In the event of a deterioration in the financial condition or results
of operations of the Company, such covenants could limit or prohibit the
payment of dividends on Common Stock. In addition, the Company is a holding
company substantially all of whose consolidated assets are held by its
subsidiaries, and the cash flow of the Company and the consequent ability to
pay dividends on Common Stock are largely dependent upon the results of
operations of such subsidiaries. See "Description of Debt Securities--Ranking
of Debt Securities; Holding Company Structure."
The transfer agent for the Common Stock is First Chicago Trust Company of New
York.
PREFERRED STOCK
Preferred Stock may be issued from time to time in one or more series. Subject
to limitations prescribed by Delaware law and the Amended Certificate of
Incorporation, the Board of Directors is authorized to fix the number of shares
constituting each series of Preferred Stock and the designations, preferences
and relative participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, including, without
limitation, the dividend rights, dividend rates, conversion rights, exchange
rights, voting rights, rights and terms of redemption (including sinking and
purchase fund provisions), the redemption prices and the dissolution
preferences. The issuance of Preferred Stock, while providing flexibility in
connection with possible acquisitions and other corporate purposes, could,
among other things, adversely, affect the voting power of the holders of Common
Stock and, under certain circumstances, make it more difficult for a third
party to gain control of the Company and could have the effect of
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delaying or preventing a merger, tender offer or other attempted takeover of
the Company. No Holder of Preferred Stock shall be entitled, as a matter of
right, to subscribe for or purchase any shares of Preferred Stock or Common
Stock.
Series B Preferred Stock
In 1989, the Board of Directors amended the Company's TASP. As part of this
amendment, the Board designated a series of 1,100,000 preferred shares as
Series B Preferred Stock. As of December 31, 1996, 875,191 shares of Series B
Preferred Stock were issued and outstanding. The Series B Preferred Stock is
convertible into Common Stock at the option of the holder. At December 31,
1996, the Series B Preferred Stock was convertible into Common Stock at the
rate of 4.71 shares of Common Stock for each share of Series B Preferred Stock,
subject to antidilution adjustments in certain circumstances (which include,
but are not limited to, issuances of Common Stock at less than fair market
value), subject to the matters described in the following paragraph.
As of December 31, 1996, all of the outstanding shares of Series B Preferred
Stock were held for the benefit of the TASP participants by a trustee (the
"TASP Trustee"). In the event of any transfer of Series B Preferred Stock to a
person other than a trustee for an employee stock ownership or other employee
benefit plan of the Company, the shares of Series B Preferred Stock so
transferred shall be automatically converted into shares of Common Stock on the
terms then in effect for such conversion. However, in the event that shares of
Series B Preferred Stock are automatically converted upon transfer to a
participant in an employee stock ownership plan of the Company in connection
with the termination of the transferee's participation in the plan, each such
share shall be converted into a number of shares of Common Stock which is the
greater of (i) 4.71 shares of Common Stock (the conversion rate at December 31,
1996), subject to antidilution adjustments in certain circumstances, and (ii)
the number of shares of Common Stock obtained by dividing $152.10 by the then
fair market value (as defined) of a share of Common Stock.
Holders of the Series B Preferred Stock are entitled to vote with the Common
Stock as a single class on all matters upon which the Common Stock is entitled
to vote and each share of Series B Preferred Stock is entitled to a number of
votes in such circumstances equal to the product of 1.3 times the number of
shares of Common Stock into which each share of the Series B Preferred Stock is
then convertible on the record date for such vote. The approval of the holders
of at least two-thirds of the outstanding shares of Series B Preferred Stock,
voting separately as a class, is required for certain actions, including,
without limitation, the authorization of any additional class of capital stock,
or any increase in the authorized amount of any class of capital stock, ranking
prior to or on parity with the Series B Preferred Stock as to dividends or the
distribution of assets upon liquidation, dissolution or winding up of the
Company, except an increase in the authorized amount of any class of stock
ranking on a parity with the Series B Preferred Stock to be used for the
purpose of transferring such stock to an employee stock ownership plan or other
employee benefit plan of the Company or any subsidiary; any amendment to the
Amended Certificate of Incorporation or any other certificate filed pursuant to
law which would adversely affect any of the rights, powers or preferences of
the Series B Preferred Stock; or any consolidation, merger, sale or other
transfer of more than 50% of the "assets" or "earning power" (as defined) of
the Company which, in the determination of a majority of the Company's
independent directors (as defined), can reasonably be expected to jeopardize
the Company's financial ability to meet its dividend, redemption or liquidation
payment obligations to the holders of the Series B Preferred Stock. The TASP
Trustee is required to vote the allocated shares of Series B Preferred Stock
based upon instructions from the TASP participants; unallocated shares are
voted in proportion to the voting instructions received from the participants
with allocated shares.
Each share of Series B Preferred Stock is entitled to receive, when, as and if
declared by the Board of Directors out of funds legally available therefor,
cumulative cash dividends in the amount of $12.93 per annum, payable semi-
annually. In the event that full cumulative dividends on the Series B Preferred
Stock have not been declared and paid or set apart for payment when due, the
Company shall not declare or pay or set apart for payment any dividends, or
make any other distributions on, or make any payment on account of the
purchase, redemption or other retirement of, any other class or series of stock
of the Company ranking, as to dividends or as to distributions in the event of
a liquidation, dissolution or winding up of the Company, junior to the Series B
Preferred Stock (including, without limitation, the Common Stock and the
Preferred Stock offered hereby), until full cumulative dividends on the Series
B Preferred Stock shall have been paid or declared and set apart for payment;
provided that the foregoing shall not apply to (i) any dividend payable solely
in shares of stock ranking, as to dividends and as to distributions in the
event of a liquidation, dissolution or winding up of the Company, junior to the
Series B Preferred Stock, or (ii) the acquisition of shares of any stock
ranking, as to dividends or as to distributions in the event of a liquidation,
dissolution or winding up of the Company, junior to the Series B Preferred
Stock either (A) pursuant to any existing or future employee or director
benefit plan of the Company or any subsidiary, or (B) in exchange solely for
shares of any other stock ranking as to dividends and as to distributions in
the event of a liquidation, dissolution or winding up of the Company, junior to
the Series B Preferred Stock. No dividend may be declared or paid
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on any shares of capital stock ranking on a parity with the Series B Preferred
Stock as to dividends unless there are also declared and paid or set apart for
payment on the Series B Preferred Stock dividends for all dividend payment
periods ending on or before the dividend payment date for such parity stock,
ratably in proportion to the respective amounts of dividends accrued and unpaid
on the Series B Preferred Stock and such parity stock.
Upon liquidation, dissolution or winding up of the Company, the holders of the
Series B Preferred Stock are entitled to receive out of assets legally
available therefor and subject to the rights of any stock ranking senior to or
on a parity with the Series B Preferred Stock in respect of distributions upon
liquidation, dissolution or winding up, an amount equal to $152.10 per share
plus accrued and unpaid dividends, before any amount shall be paid or
distributed to the holders of shares of capital stock ranking junior to the
Series B Preferred Stock with respect to distributions upon liquidation,
dissolution and winding up, including the Preferred Stock offered hereby and
the Common Stock. If, upon any such liquidation, dissolution or winding up,
amounts payable in respect of the Series B Preferred Stock and any other
capital stock ranking as to such distribution on a parity with the Series B
Preferred Stock are not paid in full, the holders of Series B Preferred Stock
and such parity stock shall share ratably in any distribution of assets in
proportion to the full respective preferential amounts to which they are
entitled. Neither the merger or consolidation of the Company with or into any
other corporation, nor the sale, transfer, exchange or lease of all or any
portion of the assets of the Company, shall be deemed to be a dissolution,
liquidation or winding up for the foregoing purposes.
The Series B Preferred Stock is redeemable, in whole or in part, at the
Company's option at a redemption price of $155.98 per share if redeemed during
the twelve months ending July 1, 1997, declining annually to $152.10 per share
if redeemed after July 1, 1999, and the Company may also redeem the Series B
Preferred Stock at any time at $152.10 under certain limited circumstances
relating to federal income tax matters, plus in each case accrued and unpaid
dividends to the date fixed for redemption. The Company, at its option, may
make payment of the redemption price in cash or shares of Common Stock or a
combination thereof. The Series B Preferred Stock is also subject to mandatory
redemption for cash or, at the Company's option, for shares of Common Stock or
a combination thereof, at a price of $152.10 per share, plus accrued and unpaid
dividends to the date fixed for redemption, upon notice from the holder of the
Series B Preferred Stock to the Company, if and to the extent necessary (i) for
the holder of Series B Preferred Stock to make required distributions to, or to
satisfy an investment election provided to, participants in an employee stock
ownership plan of the Company for which it is holding the Series B Preferred
Stock, or (ii) for such employee stock ownership plan to pay principal,
interest or premium on its indebtedness.
Upon consummation of any consolidation, merger, reclassification or similar
transaction involving the Company in which the outstanding Common Stock is by
operation of law exchanged solely for or changed solely into stock of any
successor or resulting company (including the Company) which stock constitutes
"qualifying employer securities" (within the meaning of certain provisions of
the Internal Revenue Code of 1986 and the Employee Retirement Income Security
Act of 1974) with respect to a holder of Series B Preferred Stock, the Series B
Preferred Stock shall become preferred stock of such successor or resulting
company having, insofar as possible, the same terms as the Series B Preferred
Stock and shall be convertible into the number and kind of "qualifying employer
securities" receivable by a holder of the number of shares of Common Stock into
which such shares of Series B Preferred Stock could have been converted
immediately prior to such transaction. Upon consummation or any consolidation,
merger, reclassification or similar transaction involving the Company pursuant
to which the outstanding Common Stock is by operation of law exchanged for or
changed into other securities, cash or other property other than "qualifying
employer securities," holders of shares of Series B Preferred Stock are
entitled to receive the same securities, cash or other property receivable by a
holder of the number of shares of Common Stock into which such shares of
Series B Preferred Stock could have been converted immediately prior to such
transaction or, at the election of each holder of the Series B Preferred Stock,
cash in an amount equal to the amount that would then be payable to such holder
in respect of such Series B Preferred Stock upon liquidation of the Company.
The certificate of designations establishing the Series B Preferred Stock
provides that it shall rank senior to the Common Stock as to the payment of
dividends and the distribution of assets on liquidation, dissolution and
winding up of the Company and, unless otherwise approved by holders of at least
two-thirds of the outstanding shares of Series B Preferred Stock, senior to all
other series of Preferred Stock (including the Preferred Stock offered hereby)
as to the payment of dividends and the distribution of assets on liquidation,
dissolution or winding up.
SECTION 203 OF THE DELAWARE LAW
The Company is subject to Section 203 of the Delaware General Corporation Law
(the "DGCL"). Generally, Section 203 prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three
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years following the time that such stockholder became an interested
stockholder, unless (i) prior to such time either the business combination or
the transaction which resulted in the stockholder becoming an interested
stockholder is approved by the board of directors of the corporation, (ii) upon
consummation of the transaction which resulted in the stockholder becoming an
interested stockholder, the interested stockholder owns at least 85 percent of
the voting stock of the corporation outstanding at the time the transaction
commenced, excluding for purposes of determining the number of shares
outstanding those shares owned by (A) persons who are both directors and
officers and (B) employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer, or (iii) on or after such
time the business combination is approved by the board of directors and
authorized at an annual or special meeting of stockholders, and not by written
consent, by the affirmative vote of at least 66 2/3 percent of the outstanding
voting stock which is not owned by the interested stockholder. A "business
combination" includes certain mergers or consolidations with an interested
stockholder, certain asset sales and transfers to an interested stockholder,
certain issuances of capital stock to an interested stockholder and certain
other transactions resulting in financial benefit to an interested stockholder.
An "interested stockholder" is, in general, a person who, together with
"affiliates" and "associates" (as defined), owns 15% or more of the
corporation's outstanding voting stock or is an affiliate or associate of the
corporation and was the owner of 15% or more of the corporation's outstanding
voting stock at any time during the prior three years, subject to certain
exceptions. Although a corporation's certificate of incorporation may exclude
such corporation from the restrictions imposed by Section 203, the Amended
Certificate of Incorporation does not exclude the Company from those
restrictions. Accordingly, Section 203 could make it more difficult for a third
party to gain control of the Company and could have the effect of delaying or
preventing a merger, tender offer, or other attempted takeover of the Company,
and therefore may discourage attempts to acquire the Company.
CERTAIN PROVISIONS OF THE AMENDED CERTIFICATE OF INCORPORATION AND BY-LAWS
Several provisions of the Company's Amended Certificate of Incorporation and
By-laws may have the effect of deterring a takeover of the Company. These
provisions include: (i) certain advance notice and content requirements for
business to be brought before the annual stockholders' meeting by a stockholder
or for nomination by any stockholder of persons for election to the Board of
Directors; (ii) a requirement that stockholder action taken without a meeting
be by the affirmative vote of at least 80% of the voting power of the
stockholders entitled to vote thereon; (iii) a requirement for the written
request of stockholders holding at least a majority of the voting power of all
stockholders to call a special meeting of the stockholders; and (iv) the
classification of Company's Board of Directors into three classes serving
staggered three-year terms and the prohibition of any amendment, change or
repeal of this structure without the favorable vote, at a stockholders meeting,
of at least 80% of the then outstanding shares of the Company's capital stock
entitled to vote. In addition, the approval of the holders of at least two-
thirds of the outstanding shares of Series B Preferred Stock is required, under
certain circumstances, for a consolidation or merger of the Company or the sale
or other transfer of certain assets by the Company. See "-- Preferred Stock --
Series B Preferred Stock" above.
The foregoing provisions could make it more difficult for a third party to gain
control of the Company, and could have the effect of delaying or preventing a
merger, tender offer or other attempted takeover of the Company.
DESCRIPTION OF TRUST PREFERRED SECURITIES
The Trust may issue only one series of Trust Preferred Securities which shall
have terms described in the Prospectus Supplement relating thereto. The
Declaration of the Trust will authorize the Regular Trustees to issue on behalf
of the Trust one series of Trust Preferred Securities. The Declaration will be
qualified as an indenture under the Trust Indenture Act. The form of
Declaration has been or will be filed or incorporated by reference as an
exhibit to the Registration Statement. The terms of the Declaration will be
those set forth in the Declaration and those made part of the Declaration by
the Trust Indenture Act. The summary of certain provisions of the Trust
Preferred Securities and the Declaration set forth below and in any Prospectus
Supplement do not purport to be complete and are subject to and are qualified
in their entirety by reference to all of the provisions of the Declaration and
the Trust Securities, which provisions (including defined terms) are
incorporated herein by reference.
The following description of the Trust Preferred Securities and the Declaration
sets forth certain general terms and provisions of the Trust Preferred
Securities and the Declaration to which any Prospectus Supplement may relate.
Certain other specific terms of the Trust Preferred Securities and the
Declaration will be described in the applicable Prospectus Supplement. To the
extent that any particular terms of any Trust Preferred Securities or the
Declaration described in a Prospectus Supplement differ from any of the terms
described herein, then such terms described herein shall be deemed to have been
superseded by such Prospectus Supplement.
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The Trust Preferred Securities will have such terms, including distributions,
redemption, voting, liquidation, conversion rights and such other preferred,
deferred or other special rights or such restrictions as shall be set forth in
the Declaration or made part of the Declaration by the Trust Indenture Act, and
which will generally mirror the terms of the Subordinated Debt Securities held
by the Trust and described in the Prospectus Supplement related thereto.
Reference is made to the Prospectus Supplement relating to the Trust Preferred
Securities for specific terms, including (i) the designation of such Trust
Preferred Securities; (ii) the number of Trust Preferred Securities; (iii) the
annual distribution rate (or method of determining such rate) for the Trust
Preferred Securities and the date or dates upon which such distributions shall
be payable; (iv) whether distributions on the Trust Preferred Securities shall
be cumulative, and, in the case of Trust Preferred Securities having such
cumulative distribution rights, the date or dates or method of determining the
date or dates from which distributions on the Trust Preferred Securities shall
be cumulative; (v) the amount or amounts which shall be paid out of the assets
of the Trust to the holders of the Trust Preferred Securities upon voluntary or
involuntary dissolution, winding-up or termination of the Trust; (vi) the right
or obligation, if any, of the Trust to purchase or redeem the Trust Preferred
Securities and the price or prices at which, the period or periods within
which, and the terms and conditions upon which, the Trust Preferred Securities
shall or may be purchased or redeemed, in whole or in part, pursuant to such
right or obligation; (vii) the voting rights, if any, of the Trust Preferred
Securities in addition to those (if any) required by law, including the number
of votes per Trust Preferred Security and any requirement for the approval by
the holders of the Trust Preferred Securities, as a condition to specified
action or amendments to the Declaration; (viii) the terms and conditions, if
any, upon which the Trust Preferred Securities may be converted into or
exchanged for shares of Common Stock or other Securities, including the
conversion price per share or conversion rate and the circumstances, if any,
under which any such conversion right shall expire; (ix) the terms and
conditions, if any, upon which the Subordinated Debt Securities may be
distributed to holders of the Trust Preferred Securities; (x) if applicable,
any securities exchange upon which the Trust Preferred Securities shall be
listed; and (xi) any other relevant rights, preferences, privileges,
limitations or restrictions of the Trust Preferred Securities. All Trust
Preferred Securities offered hereby will be guaranteed by the Company to the
extent set forth below under "Description of Trust Preferred Securities
Guarantee." Certain United States federal income tax considerations applicable
to any offering of Trust Preferred Securities will be described in the
Prospectus Supplement relating thereto.
In connection with the issuance of Trust Preferred Securities, the Trust will
issue one series of Trust Common Securities. The Declaration will authorize the
Regular Trustees to issue on behalf of the Trust one series of Trust Common
Securities having such terms including distributions, redemption, voting and
liquidation rights or such restrictions as shall be set forth therein. The
terms of the Trust Common Securities will be substantially identical to the
terms of the Trust Preferred Securities, and the Trust Common Securities will
rank pari passu, and payments will be made thereon pro rata, with the Trust
Preferred Securities except that, if an event of default under the Declaration
occurs and is continuing, the rights of the holders of the Trust Common
Securities to payment in respect of distributions and payments upon
liquidation, redemption and otherwise will be subordinated to the rights of the
holders of the Trust Preferred Securities. Except in certain limited
circumstances, the Trust Common Securities will also carry the right to vote to
appoint, remove or replace any of the Trustees. All of the Trust Common
Securities will be directly or indirectly owned by the Company.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF TRUST PREFERRED SECURITIES
If an event of default under the Declaration occurs and is continuing, then the
holders of the Trust Preferred Securities would rely on the enforcement by the
Property Trustee of its rights as a holder of the Subordinated Debt Securities
against the Company. In addition, the holders of a majority in liquidation
amount of the Trust Preferred Securities will have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Property Trustee or to direct the exercise of any trust or power conferred
upon the Property Trustee under the Declaration, including the right to direct
the Property Trustee to exercise the remedies available to it as a holder of
the Subordinated Debt Securities. If the Property Trustee fails to enforce its
rights under such Subordinated Debt Securities, a holder of the Trust Preferred
Securities, to the fullest extent permitted by law, may institute a legal
proceeding directly against the Company to enforce the Property Trustee's
rights under such Subordinated Debt Securities without first instituting any
legal proceeding against the Property Trustee or any other person or entity.
Notwithstanding the foregoing, if an event of default under the Declaration has
occurred and is continuing and such event is attributable to the failure of the
Company to pay the principal of or premium or interest, if any, on such
Subordinated Debt Securities on the date such principal, premium or interest,
as the case may be, is otherwise payable (or in the case of redemption, on the
redemption date), then a holder of the Trust Preferred Securities may directly
institute a proceeding for enforcement of payment to such holder of the
principal, premium or interest, as the case may be, on such Subordinated Debt
Securities having a principal amount equal to the aggregate liquidation amount
of the Trust Preferred Securities of such holder (a "Direct Action") on or
after the respective due date specified in the Subordinated Debt Securities. In
connection with such
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Direct Action, the Company will be subrogated to the rights of such holder of
the Trust Preferred Securities under the Declaration to the extent of any
payment made by the Company to such holder of Trust Preferred Securities in
such Direct Action.
DESCRIPTION OF TRUST PREFERRED SECURITIES GUARANTEE
Set forth below is a summary of information concerning the Trust Preferred
Securities Guarantee which will be executed and delivered by the Company for
the benefit of the holders from time to time of Trust Preferred Securities. The
Trust Preferred Securities Guarantee will be qualified as an indenture under
the Trust Indenture Act. A trustee whose name will be set forth in the
applicable Prospectus Supplement will act as the trustee under the Trust
Preferred Securities Guarantee (the "Preferred Guarantee Trustee") for purposes
of the Trust Indenture Act. The form of Trust Preferred Securities Guarantee
has been or will be filed or incorporated by reference as an exhibit to the
Registration Statement. The terms of the Trust Preferred Securities Guarantee
will be those set forth in the Trust Preferred Securities Guarantee and those
made part of the Trust Preferred Securities Guarantee by the Trust Indenture
Act. The summary of certain provisions of the Trust Preferred Securities
Guarantee set forth below and in any Prospectus Supplement does not purport to
be complete and is subject to and qualified in its entirety by reference to all
of the provisions of the Trust Preferred Securities Guarantee, which provisions
of the Trust Preferred Securities Guarantee (including defined terms) are
incorporated herein by reference. The Trust Preferred Securities Guarantee will
be held by the Preferred Guarantee Trustee for the benefit of the holders of
the Trust Preferred Securities.
The following description of the Trust Preferred Securities Guarantee sets
forth certain general terms and provisions of the Trust Preferred Securities
Guarantee to which any Prospectus Supplement may relate. Certain other specific
terms of the Trust Preferred Securities Guarantee will be described in the
applicable Prospectus Supplement. To the extent that any particular terms of
the Trust Preferred Securities Guarantee described in a Prospectus Supplement
differ from any of the terms described herein, then such terms described herein
shall be deemed to have been superseded by such Prospectus Supplement.
GENERAL
Pursuant to the Trust Preferred Securities Guarantee, the Company will agree,
to the extent set forth therein, to pay in full, to the holders of the Trust
Preferred Securities, the Guarantee Payments (as defined herein) (except to the
extent paid by the Trust), as and when due, regardless of any defense, right of
setoff or counterclaim which the Trust may have or assert. The following
payments with respect to the Trust Preferred Securities to the extent not paid
by the Trust (the "Guarantee Payments"), will be subject to the Trust Preferred
Securities Guarantee thereof (without duplication): (i) any accumulated and
unpaid distributions which are required to be paid on such Trust Preferred
Securities, to the extent the Trust shall have funds available therefor; (ii)
the redemption price (if any) set forth in the applicable Prospectus Supplement
(the "Redemption Price"), which will not be lower than the liquidation amount,
and all accumulated and unpaid distributions to but excluding the date of
redemption, to the extent the Trust has funds available therefor, with respect
to any Trust Preferred Securities called for redemption by the Trust and
(iii) upon a voluntary or involuntary dissolution, winding-up or termination of
the Trust (other than in connection with certain permitted consolidations,
mergers, asset sales or other transactions involving the Trust, the
distribution of Subordinated Debt Securities to the holders of Trust Preferred
Securities or the conversion or redemption of all of the Trust Preferred
Securities), the lesser of (a) the aggregate of the liquidation amount and all
accumulated and unpaid distributions on the Trust Preferred Securities to the
date of payment, to the extent the Trust has funds available therefor, and (b)
the amount of assets of the Trust remaining available for distribution to
holders of the Trust Preferred Securities in liquidation of the Trust. The
Company's obligation to make a Guarantee Payment may be satisfied by direct
payment of the required amounts by the Company to the holders of Trust
Preferred Securities or by causing the Trust to pay such amounts to such
holders.
The Trust Preferred Securities Guarantee will not apply to any payment of
distributions on the Trust Preferred Securities except to the extent the Trust
shall have funds available therefor. If the Company does not make interest
payments on the Subordinated Debt Securities purchased by the Trust, the Trust
will not pay distributions on the Trust Preferred Securities issued by the
Trust and will not have funds available therefor. The Trust Preferred
Securities Guarantee, when taken together with the Company's obligations under
the Subordinated Debt Securities, the Subordinated Indenture and the
Declaration, including its obligations to pay certain costs, expenses, debts
and liabilities of the Trust (other than with respect to the Trust Securities),
will provide a full and unconditional guarantee on a subordinated basis by the
Company of payments due on the Trust Preferred Securities.
The Company will also agree separately to guarantee the obligations of the
Trust with respect to the Trust Common Securities (the "Trust Common Securities
Guarantee") to the same extent as the Trust Preferred Securities Guarantee,
except that upon an
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event of default under the Subordinated Indenture, holders of Trust Preferred
Securities shall have priority over holders of Trust Common Securities with
respect to distributions and payments on liquidation, redemption or otherwise.
Certain covenants of the Company to be set forth in the Trust Preferred
Securities Guarantee will be described in the applicable Prospectus Supplement.
MODIFICATION OF THE TRUST PREFERRED SECURITIES GUARANTEE; ASSIGNMENT
Except with respect to any changes which do not materially adversely affect the
rights of holders of Trust Preferred Securities (in which case no vote will be
required), the Trust Preferred Securities Guarantee may be amended only with
the prior approval of the holders of not less than a majority in liquidation
amount of the outstanding Trust Preferred Securities. The manner of obtaining
any such approval of holders of such Trust Preferred Securities will be as set
forth in an accompanying Prospectus Supplement. All guarantees and agreements
contained in the Trust Preferred Securities Guarantee shall bind the
successors, assigns, receivers, trustees and representatives of the Company and
shall inure to the benefit of the holders of the Trust Preferred Securities
then outstanding.
TERMINATION
The Trust Preferred Securities Guarantee will terminate (a) upon full payment
of the redemption price of, plus accumulated and unpaid distributions on, all
Trust Preferred Securities, (b) upon distribution of the Subordinated Debt
Securities held by the Trust to the holders of the Trust Preferred Securities
or the conversion, if applicable, of all of the Trust Preferred Securities into
Common Stock or other securities, or (c) upon full payment of the amounts
payable in accordance with the Declaration upon liquidation of the Trust. The
Trust Preferred Securities Guarantee will continue to be effective or will be
reinstated, as the case may be, if at any time any holder of Trust Preferred
Securities must restore payment of any sums paid under the Trust Preferred
Securities or the Trust Preferred Securities Guarantee.
EVENTS OF DEFAULT
An event of default under the Trust Preferred Securities Guarantee will occur
upon (a) the failure of the Company to perform any of its payment or other
obligations thereunder or (b) if applicable, the failure by the Company to
deliver Common Stock or other applicable securities upon an appropriate
election by the holder or holders of Trust Preferred Securities to convert the
Trust Preferred Securities into shares of Common Stock or other applicable
securities, as the case may be.
The holders of a majority in liquidation amount of the Trust Preferred
Securities have the right to direct the time, method and place of conducting
any proceeding for any remedy available to the Preferred Guarantee Trustee in
respect of the Trust Preferred Securities Guarantee or to direct the exercise
of any trust or power conferred upon the Preferred Guarantee Trustee under such
Trust Preferred Securities Guarantee. If the Preferred Guarantee Trustee fails
to enforce such Trust Preferred Securities Guarantee, any holder of Trust
Preferred Securities may institute a legal proceeding directly against the
Company to enforce the Preferred Guarantee Trustee's rights under such Trust
Preferred Securities Guarantee, without first instituting a legal proceeding
against the Trust, the Preferred Guarantee Trustee or any other person or
entity. The Company will waive any right or remedy to require that any action
be brought first against the Trust or any other person or entity before
proceeding directly against the Company.
STATUS OF THE TRUST PREFERRED SECURITIES GUARANTEE
The Trust Preferred Securities Guarantee will constitute an unsecured
obligation of the Company and will rank (i) subordinate and junior in right of
payment to all other liabilities of the Company except any liabilities that may
be pari passu expressly by their terms, (ii) pari passu in right of payment
with the most senior preferred or preference stock now or hereafter issued by
the Company, if any, and with any guarantee now or hereafter entered into by
the Company in respect of any preferred or preference stock of any affiliate of
the Company and (iii) senior to Common Stock. The terms of the Trust Preferred
Securities provide that each holder of Trust Preferred Securities by acceptance
thereof agrees to the subordination provisions and other terms of the Trust
Preferred Securities Guarantee relating thereto.
The Trust Preferred Securities Guarantee will constitute a guarantee of payment
and not of collection (that is, the guaranteed party may institute a legal
proceeding directly against the guarantor to enforce its rights under the
guarantee without instituting a legal proceeding against any other person or
entity).
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INFORMATION CONCERNING THE PREFERRED GUARANTEE TRUSTEE
The Preferred Guarantee Trustee, prior to the occurrence of a default with
respect to the Trust Preferred Securities Guarantee, undertakes to perform only
such duties as are specifically set forth in such Trust Preferred Securities
Guarantee and, after default, shall exercise the same degree of care as a
prudent individual would exercise in the conduct of his or her own affairs.
Subject to such provisions, the Preferred Guarantee Trustee is under no
obligation to exercise any of the powers vested in it by a Trust Preferred
Securities Guarantee at the request of any holder of the Trust Preferred
Securities, unless offered reasonable indemnity against the costs, expenses and
liabilities which might be incurred thereby.
PLAN OF DISTRIBUTION
The Company, or the Trust, as the case may be, may sell Securities to one or
more underwriters for public offering and sale by them or may sell Securities
through agents which solicit or receive offers on behalf of the Company or the
Trust, as the case may be, or through dealers or through a combination of any
such methods of sale, and the Company may also sell Securities directly to
investors. Any such underwriter or agent involved in the offer and sale of
Securities will be named in the applicable Prospectus Supplement.
Underwriters may offer and sell the Securities at a fixed price or prices,
which may be changed, or from time to time at market prices prevailing at the
time of sale, at prices related to such prevailing market prices or at
negotiated prices. The Company or the Trust, as the case may be, may, from time
to time, authorize agents acting on a best or reasonable efforts basis to
solicit or receive offers to purchase the Securities upon the terms and
conditions as are set forth in the applicable Prospectus Supplement. In
connection with the sale of Securities, underwriters or agents may be deemed to
have received compensation from the Company or the Trust, as the case may be,
in the form of underwriting discounts or commissions or other underwriting
compensation and may also receive commissions from purchasers of Securities for
whom they may act as agents. Underwriters may sell Securities to or through
dealers, and such dealers may receive compensation in the form of discounts,
concessions or commissions from the underwriters and/or commissions from the
purchasers for whom they may act as agent.
Any compensation paid by the Company or the Trust to underwriters or agents in
connection with the offering of Securities, and any discounts, concessions or
commissions allowed by underwriters to participating dealers, will be set forth
in the applicable Prospectus Supplement. Underwriters, dealers and agents
participating in a distribution of the Securities (including agents only
soliciting or receiving offers to purchase Securities on behalf of the Company
or the Trust) may be deemed to be underwriters, and any discounts, commissions
or other underwriting compensation received by them and any profit realized by
them on resale of Securities may be deemed to be underwriting discounts and
commissions.
Under agreements which may be entered into by the Company or the Trust, as the
case may be, underwriters, dealers and agents who participate in the
distribution of Securities may be entitled to indemnification against certain
liabilities, including liabilities under the Securities Act.
If so indicated in the applicable Prospectus Supplement, the Company may
authorize underwriters or other persons acting as the Company's agents to
solicit offers by certain institutions to purchase Securities from the Company
pursuant to contracts providing for payment and delivery on a future date.
Institutions with which such contracts may be made include commercial and
savings banks, insurance companies, pension funds, investment companies,
educational and charitable institutions and others, but in all cases such
institutions must be approved by the Company. The obligations of any
institutional purchaser under any such contract will not be subject to any
conditions except (i) the purchase by such institution of the Securities
covered by such contract shall not at the time of delivery be prohibited under
the laws of the jurisdiction to which such institution is subject, and (ii) if
such Securities are being sold to underwriters, the Company shall have sold to
such underwriters the total principal amount of such Securities less the
principal amount thereof covered by delayed delivery contracts.
Certain of the underwriters, dealers or agents and their affiliates may engage
in transactions with and perform services for the Company in the ordinary
course of business.
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LEGAL MATTERS
Certain legal matters in connection with the offering made hereby will be
passed upon for the Company by Eberhard G.H. Schmoller, Senior Vice President,
General Counsel and Secretary of the Company, and by Brown & Wood llp, San
Francisco, California. As of March 31, 1997, Mr. Schmoller owned approximately
4,391 shares of Common Stock, held options to acquire approximately 185,033
additional shares of Common Stock, and beneficially owned approximately 99.84
shares of Series B Preferred Stock, which, on such date, were convertible into
approximately 470 shares of Common Stock. The validity of the Trust Preferred
Securities will be passed upon for the Company and the Trust by Richards,
Layton & Finger, Wilmington, Delaware.
EXPERTS
The audited consolidated financial statements and schedule incorporated by
reference in this Prospectus and elsewhere in the Registration Statement have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are incorporated herein
and therein by reference in reliance upon the authority of said firm as experts
in giving said reports.
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