<PAGE>1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1998
Commission File Number 1-6512
AIRBORNE FREIGHT CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware
----------------------------------------
(State of incorporation or organization)
91-0837469
---------------------------------
(IRS Employer Identification No.)
3101 Western Avenue
P.O. Box 662
Seattle, Washington 98111-0662
------------------------------
(Address of Principal Executive Office)
Registrant's telephone number, including area code: (206) 285-4600
--------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes: XXX No:
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the close of the period covered by this report.
Common Stock, par value $1 per share
Outstanding (net of 497,078 treasury shares)
as of March 31, 1998 50,184,794 shares
-----------------<PAGE>
<PAGE>2
<TABLE>
AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF NET EARNINGS
(Dollars in thousands except per share data)
(Unaudited)
<CAPTION>
Three Months Ended
March 31
------------------
1998 1997
---- ----
<S> <C> <C>
REVENUES:
Domestic $662,518 $562,111
International 87,675 93,411
-------- --------
750,193 655,522
OPERATING EXPENSES:
Transportation purchased 230,323 208,890
Station and ground operations 222,694 200,250
Flight operations and maintenance 117,403 103,783
General and administrative 59,950 51,829
Sales and marketing 17,399 16,178
Depreciation and amortization 44,888 42,271
-------- --------
692,657 623,201
-------- --------
EARNINGS FROM OPERATIONS 57,536 32,321
INTEREST, NET 3,916 8,447
-------- --------
EARNINGS BEFORE INCOME TAXES 53,620 23,874
INCOME TAXES 21,260 9,500
-------- --------
NET EARNINGS 32,360 14,374
======== ========
NET EARNINGS PER SHARE:
BASIC $ .65 $ .34
======== ========
DILUTED $ .63 $ .31
======== ========
DIVIDENDS PER SHARE $ .038 $ .038
======== ========
</TABLE>
See notes to consolidated financial statements.<PAGE>
<PAGE>3
<TABLE>
AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<CAPTION>
March 31 December 31
------------ ------------
1998 1997
---- ----
(Unaudited) (Unaudited)
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash $ 22,166 $ 25,525
Trade accounts receivable,
less allowance of $10,290 and $10,290 320,121 322,549
Spare parts and fuel inventory 39,387 37,966
Deferred income tax assets 15,477 14,530
Prepaid expenses and other 23,676 25,982
---------- ----------
TOTAL CURRENT ASSETS 420,827 426,552
PROPERTY AND EQUIPMENT, NET 922,080 916,331
EQUIPMENT DEPOSITS and OTHER ASSETS 26,546 23,090
---------- ----------
TOTAL ASSETS $1,369,453 $1,365,973
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 136,584 $ 143,966
Salaries, wages and related taxes 60,762 80,154
Accrued expenses 84,137 100,126
Income taxes payable 12,475 5,440
Current portion of debt 386 381
---------- ----------
TOTAL CURRENT LIABILITIES 294,344 330,067
LONG-TERM DEBT 248,993 250,559
DEFERRED INCOME TAX LIABILITIES 72,711 65,322
OTHER LIABILITIES 47,987 49,110
SHAREHOLDERS' EQUITY:
Preferred Stock, without par value -
Authorized 5,200,000 shares,
no shares issued
Common stock, par value $1 per share -
Authorized 60,000,000 shares
Issued 50,681,872 and 50,428,548 shares 50,682 50,429
Additional paid-in capital 290,935 287,208
Retained earnings 364,567 334,083
---------- ----------
706,184 671,720
Treasury stock, 497,078 and 522,300 (766) (805)
shares, at cost ---------- ----------
705,418 670,915
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,369,453 $1,365,973
========== ==========
</TABLE>
See notes to consolidated financial statements.<PAGE>
<PAGE>4
<TABLE>
AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<CAPTION>
Three Months Ended
March 31
------------------
1998 1997
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net Earnings $ 32,360 $ 14,374
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 41,302 39,284
Provision for aircraft engine overhauls 3,586 2,987
Deferred income taxes 6,442 2,578
Other (1,076) (1,252)
-------- --------
CASH PROVIDED BY OPERATIONS 82,614 57,971
Change in:
Receivables 2,428 (16,014)
Inventories and prepaid expenses 885 (1,623)
Accounts payable (7,382) (5,473)
Accrued expenses, salaries and taxes payable (28,005) 8,201
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 50,540 43,062
INVESTING ACTIVITIES:
Additions to property and equipment (47,949) (39,668)
Disposition of property and equipment 136 47
Expenditures for engine overhauls (4,238) (2,585)
Proceeds from insurance on aircraft accident -- 18,000
Other (2,088) 260
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (54,139) (23,946)
FINANCING ACTIVITIES:
Payments on bank notes, net (1,500) (43,000)
Principal payments on debt (62) (57)
Proceeds from common stock issuance 3,678 400
Dividends paid (1,876) (1,597)
-------- --------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 240 (44,254)
-------- --------
NET DECREASE IN CASH (3,359) (25,138)
CASH AT JANUARY 1 25,525 35,816
-------- --------
CASH AT MARCH 31 $ 22,166 $ 10,678
======== ========
</TABLE>
See notes to consolidated financial statements.<PAGE>
<PAGE>5
AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1998 (Unaudited)
NOTE A--SUMMARY OF FINANCIAL STATEMENT PREPARATION:
The consolidated financial statements included herein are unaudited but
include all adjustments which are, in the opinion of management, necessary
for a fair presentation of the financial position and results of operations
and cash flows for the interim periods reported.
Certain amounts for prior periods have been reclassified to conform to the
1998 presentation.
NOTE B--LONG-TERM DEBT:
<TABLE>
Long-term debt consists of the following:
<CAPTION>
March 31 December 31
1998 1997
---- ----
(In thousands)
<S> <C> <C>
Senior debt:
Notes payable $ 28,500 $ 30,000
Senior notes 200,000 200,000
Revenue bonds 13,200 13,200
Other debt 7,678 7,740
-------- --------
249,378 250,940
Less current portion 385 381
-------- --------
$248,993 $250,559
======== ========
</TABLE>
NOTE C--EARNINGS PER SHARE:
Basic earnings per share are based upon the weighted average number of
common shares outstanding during the interim period. Diluted earnings per
share are based upon the weighted average number of common shares
outstanding during the interim period plus dilutive common equivalent
shares applicable to the assumed exercise of outstanding stock options.
Diluted earnings per share for the three months ended March 31, 1997,
assumes conversion of the Company's convertible subordinated debentures as
well as the dilutive common equivalent shares applicable to the assumed
exercise of stock options. Net earnings as adjusted for the elimination of
interest expense, net of applicable taxes was $15,438,000.<PAGE>
<PAGE>6
Weighted average shares outstanding used in earnings per share computations
were as follows:
<TABLE>
<CAPTION>
Three Months Ended
------------------
March 31
-------
1998 1997
---- ----
<S> <C> <C>
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 50,026,298 42,637,255
Diluted 51,181,203 49,533,160
/TABLE
<PAGE>
<PAGE>7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS:
The Company's operating performance in the first quarter of 1998 resulted
in operating income and net earnings significantly higher than the first
quarter of 1997. Strong growth in domestic shipments, and a growth rate in
domestic revenue that exceeded the growth rate in shipments were positive
factors impacting operating results. The operating margin of 7.7% is the
strongest first quarter performance experienced by the Company.
Net earnings for the first quarter of 1998 were $32.4 million, or $.63 per
share on a diluted basis, compared to net earnings of $14.4 million, or
$.31 per share for the comparable period of 1997.
<TABLE>
The following table sets forth selected shipment and revenue data for the
periods indicated:
<CAPTION>
Three Months Ended March 31
---------------------------
1998 1997
---- ----
<S> <C> <C>
Shipments (in thousands):
Domestic
Overnight 45,759 39,639
Next Afternoon Service 14,383 12,164
Second Day Service 18,011 15,809
100 Lbs. and Over 91 74
------ ------
Total Domestic 78,244 67,686
------ ------
International
Express 1,389 1,181
Freight 110 116
------ ------
Total International 1,499 1,297
------ ------
Total Shipments 79,743 68,983
====== ======
Average Pounds per Shipment:
Domestic 4.36 4.30
International 44.15 49.99
Average Revenue per Pound:
Domestic $ 1.92 $ 1.92
International $ 1.31 $ 1.41
Average Revenue per Shipment:
Domestic $ 8.46 $ 8.29
International $58.49 $72.02
</TABLE>
Total shipments increased 15.6% in the first quarter of 1998 compared to
8.4% in the first quarter of 1997. Total revenues increased 14.4% in the
first quarter of 1998 compared to 9.6% in the first quarter of 1997.
Domestic revenue growth for the first quarter of 1998 continued to be
positively impacted by strong growth in higher yielding overnight shipments
and the Company's continuing focus on yield enhancement. Domestic revenues
increased 17.9% in the first quarter of 1998 compared to 11.1% in the first
quarter of 1997. A growth rate in domestic revenue that exceeded the
growth rate in shipments had a significant positive impact on domestic
operating margins in the first quarter of 1998. The average revenue per
domestic shipment increased 2.1% to $8.46 in the first quarter of 1998
compared to the first quarter of 1997.
Domestic revenues in the first quarter of 1997 included $4.9 million of
revenue from a fuel surcharge which was implemented on February 17, 1997
for most domestic business and was repealed effective July 1, 1997. This<PAGE>
<PAGE>8
fuel surcharge revenue accounted for approximately $.05 per share in the
first quarter of 1997.
Overnight shipments accounted for 58.5% of total domestic shipments in the
first quarter of 1998, comparable to the overnight shipment percentage
achieved in the first quarter of 1997. The higher yielding overnight
shipments increased 15.4% in the first quarter of 1998, compared to 11.1%
in the corresponding 1997 period. The Company's deferred service products
also experienced strong growth, increasing 15.8% on a combined basis in the
first quarter of 1998 compared to 4.8% in the corresponding period of 1997.
International revenues decreased 6.1% in the first quarter of 1998,
primarily the result of economic troubles in parts of Asia. This compares
to a 1.8% increase in revenues in the first quarter of 1997. Shipments in
the heavier weight, higher revenue per shipment freight segment decreased
5.2% in the first quarter. Mitigating some of the weakness in freight
volumes, the Company experienced strong growth in its international express
segment. International express shipments increased 17.6% in the first
quarter of 1998 compared to 11.6% in the corresponding period of 1997.
Operating expenses as a percentage of revenues were 92.3% for the first
quarter of 1998 compared to 95.1% in the corresponding period of 1997 and
92.3% for all of 1997. Operating cost per shipment handled decreased 3.9%
to $8.69 for the first quarter of 1998 compared to the first quarter of
1997. The Company experienced a 6.8% improvement in productivity for the
first quarter of 1998, compared to the first quarter of 1997, as measured
by shipments handled per paid employee hour. Continued strong productivity
improvement and continued emphasis on cost control were significant factors
having a positive impact on 1998 operating results. Comparisons of certain
operating expense components are discussed below.
Transportation purchased decreased as a percentage of revenues to 30.7% in
the first quarter of 1998 compared to 31.9% in the comparable period of
1997. This decrease was primarily due to commercial airline costs which,
although higher in total, were lower as a percentage of total revenues in
the first quarter of 1998 due to the lower growth in international freight
shipments discussed above. The suspension of the Federal Aviation Excise
Tax reduced costs in the first quarter of 1997 by $4.3 million. The
Aviation Excise Tax moratorium was effective through March 6, 1997,
subsequent to which the tax became effective once again; therefore, no cost
reduction was realized in 1998.
Station and ground expense as a percentage of revenues decreased to 29.7%
in the first quarter of 1998 compared to 30.5% in the first quarter of
1997. Strong productivity improvement had a positive impact on this
category of expense measured as a percentage of revenues.
Flight operations and maintenance expense as a percentage of revenues
during the first quarter of 1998 was 15.6%, compared to 15.8% in the first
quarter of 1997. The average aviation fuel price for the first quarter of
1998 was $.62 per gallon compared to $.82 per gallon in the first quarter
of 1997. Aviation fuel consumption increased to 44.1 million gallons in
the first quarter of 1998, a 9.3% increase over the first quarter of 1997.
As a result of fuel hedging contracts, the Company incurred $1.0 million of
expense in the first quarter of 1998 compared to a $1.7 million benefit in
the first quarter of 1997. Offsetting the lower fuel costs were higher
costs associated with periodic aircraft maintenance checks.
The increase in depreciation and amortization expense in the first quarter
of 1998 is due in large part to the increased number of aircraft in service
since the first quarter of 1997.
Interest expense in the first quarter of 1998 was significantly lower than
the same period of 1997. This is attributable to the significant reduction
in average outstanding borrowings in the first quarter of 1998, compared to
the corresponding period of 1997.
The Company's effective tax rate was 39.6% in the first quarter of 1998
compared to 39.8% in the first quarter of 1997 and 39.2% for all of 1997.
LIQUIDITY AND CAPITAL RESOURCES:
Cash provided by operations net of change in working capital increased for
the first quarter of 1998 to $51 million, compared to $43 million in the
first quarter of 1997. This increased liquidity is primarily the result of
the significant increase in profitability in 1998.<PAGE>
<PAGE>9
Capital expenditures continue to be a primary factor affecting the
financial condition of the Company. The Company anticipates total capital
expenditures to approximate $274 million in 1998. During the first quarter
of 1998, total capital expenditures net of dispositions were $48 million.
Cash provided by operations was the primary source for funding capital
expenditures.
The Company's strong operating cash flow has become the major source of
liquidity, whereas, the Company's $250 million unsecured revolving bank
credit agreement had traditionally been used as the major source of
liquidity for periods between other financing transactions. The Company
also has available $65 million under unsecured uncommitted money market
lines of credit with several banks, used in conjunction with the revolving
credit agreement to facilitate settlement and accommodate short-term
borrowing fluctuations. Reliance on the bank facilities has decreased
commensurately, with a total of $28.5 million outstanding at March 31, 1998
under the revolving bank credit and money market credit lines, compared to
$30.0 million outstanding at December 31, 1997 and $145.5 million
outstanding at March 31, 1997.
In management's opinion, the available capacity under the bank credit
agreements coupled with internally generated cash flow from remaining 1998
operations should provide adequate flexibility to finance anticipated
capital expenditures for the balance of 1998.<PAGE>
<PAGE>10
PART II. OTHER INFORMATION
--------------------------
Item 4. Submission of Matters to a Vote of Security Holders.
The annual meeting of Airborne Freight Corporation was held at Cavanaugh's
on Fifth Avenue, 1415 Fifth Avenue, Seattle, Washington 98101 on April 28,
1998, at which a total of 45,474,266 shares were represented at the meeting
comprising 89.9% of the outstanding shares of the Company entitled to vote
at the meeting on the record date (February 23, 1998).
The following directors were duly elected for terms ending in 2001, in each
case by an affirmative vote in excess of 99.1% of the shares represented at
the meeting:
Number of Shares
Voted For
---------
Andrew Brimmer 45,114,648
Harold M. Messmer, Jr. 45,106,118
Mary Agnes Wilderotter 45,115,890
The following are continuing directors with terms expiring as indicated:
Terms Expiring in 1999 Terms Expiring in 2000
---------------------- ----------------------
Robert G. Brazier Robert S. Cline
James H. Carey Richard M. Rosenberg
Andrew B. Kim William Swindells
The shareholders, by an affirmative vote in excess of 79.9% of the
outstanding shares, approved the amendment of the Restated Certificate of
Incorporation of the Company to increase the number of authorized shares of
Common Stock from 60,000,000 to 120,000,000. 40,078,459 votes were cast
for the proposal, 5,259,962 against, with 135,845 abstentions.
The shareholders, by an affirmative vote in excess of 50.3% of the votes
cast at the meeting, approved the Airborne Freight Corporation 1998 Key
Employee Stock Option Plan. 19,680,692 votes were cast for the proposal,
19,200,755 against, with 179,240 abstentions and 6,413,579 broker nonvotes.
The Airborne Board of Directors on the same date, April 28, 1998, reelected
all existing executive officers, including Robert S. Cline as Chairman and
Chief Executive Officer, and Robert G. Brazier as President and Chief
Operating Officer.
The Board of Directors declared a quarterly cash dividend of $.04 per share
on the Common Stock of the Company payable on May 26, 1998 to shareholders
of record on May 12, 1998.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits -
EXHIBIT NO. 3 The Restated Certificate of Incorporation of the Company,
dated as of April 28, 1998.
EXHIBIT NO. 27 Financial Data Schedule<PAGE>
<PAGE>11
SIGNATURES
----------
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized:
AIRBORNE FREIGHT CORPORATION
----------------------------
(Registrant)
<TABLE>
<CAPTION>
<S> <C> <C>
Date: 5/14/98 /s/Roy C. Liljebeck
------- --------------------
Roy C. Liljebeck
Executive Vice President,
Chief Financial Officer
Date: 5/14/98 /s/Lanny H. Michael
------- -------------------
Lanny H. Michael
Senior Vice President,
Treasurer and Controller
/TABLE
<PAGE>
<PAGE>1
EXHIBIT 3
---------
RESTATED CERTIFICATE OF INCORPORATION
OF AIRBORNE FREIGHT CORPORATION
-------------------------------------
The following Restated Certificate of Incorporation of Airborne
Freight Corporation was duly adopted by the Board of Directors of
said corporation on April 28, 1998, pursuant to the provisions of
Section 245 of the General Corporation Law of the State of
Delaware and only restates and integrates and does not further
amend the provisions of the Corporation's Restated Certificate of
Incorporation filed with the Secretary of State of the State of
Delaware as theretofore amended or supplemented, and there is no
discrepancy between those provisions and the provisions of the
Restated Certificate. The date of filing the original Certificate
of Incorporation with the Secretary of State of the State of
Delaware was May 10, 1968. The provisions of the original
Certificate of Incorporation which named the incorporators have
been omitted and certain articles and sections have been
renumbered.
FIRST. 1.1 The name of the corporation is AIRBORNE FREIGHT
CORPORATION.
SECOND. 2.1 The address of its registered office in the State
of Delaware is 1013 Centre Road, in the City of Wilmington,
County of New Castle. The name of its registered agent at such
address is The Prentice-Hall Corporation System, Inc.
THIRD. 3.1 The nature of the business or purposes to be
conducted or promoted is:
3.1.1 To transport intrastate, interstate, and/or foreign
commerce by aircraft, motor, rail, water vehicle and/or other
means of transportation, passengers, freight, securities and
articles of merchandise of every nature and description, either
directly, indirectly or as agent or principal; to engage in and
carry on the business of receiving, carrying, transporting, and
delivering for compensation, passengers, baggage, goods, wares,
mail matter, packages, freight, and merchandise of every kind and
description, to, from and between airports, air terminals,
railroad stations, terminals, or wharves, and to, from and
between any other places whatsoever, by fixed routes or otherwise
either public, quasi-public, or private; to engage in and carry
on a general shipping and forwarding business, a general
transfer, express and baggage business; to engage in and carry on
a general taxi business; to engage in and carry on a general
trucking, contracting, cooperage and stevedore business, to
engage in and carry on a general brokerage, factoring and import-
export business; and to contract with air carriers, railroads,
warehouses, water carriers, motor carriers and transportation
lines or carriers of every kind, as well as with corporation,
copartnerships, business concerns of every kind, individuals, and
the public in general, covering, relating, or incidental to any
of the foregoing purposes.
3.1.2 It is the purpose of this corporation to engage in any
lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware and none of the
above-stated purposes shall be or be deemed to be in limitation
of such general purposes.
FOURTH. 4.1 The total number of shares of all classes of
capital stock which the corporation shall have authority to issue
is one hundred twenty-six million (126,000,000), of which six
million (6,000,000) shares shall be Preferred Stock, without par
value, issuable in one or more series, and one hundred twenty
million (120,000,000) shares shall be Common Stock, par value One<PAGE>
<PAGE>2
Dollar ($1.00) per share, amounting in the aggregate to One
Hundred Twenty Million Dollars ($120,000,000).
4.2 The Board of Directors is hereby expressly authorized,
at any time or from time to time, to divide any or all of the
shares of Preferred Stock into one or more series, and in the
resolution or resolutions establishing a particular series,
before issuance of any of the shares thereof, to fix and
determine the number of shares and the designation of such
series, so as to distinguish it from the shares of all other
series and classes, and to fix and determine the preferences,
voting rights, qualifications, privileges, limitations, options,
conversion rights, restrictions and other special or relative
rights of the Preferred Stock or of such series to the fullest
extent now or hereafter permitted by the laws of the State of
Delaware, including, but not limited to, the variations between
different series in the following respects:
4.2.1 The distinctive designation of such series and the
number of shares which shall constitute such series, which number
may be increased or decreased (but not below the number of shares
thereof then outstanding) from time to time by the Board of
Directors;
4.2.2 The annual dividend rate for such series, and the date
or dates from which dividends shall commence to accrue;
4.2.3 The price or prices at which, and the terms and
conditions on which, the shares of such series may be made
redeemable;
4.2.4 The purchase or sinking fund provisions, if any, for
the purchase or redemption of shares of such series;
4.2.5 The preferential amount or amounts payable upon shares
of such series in the event of the liquidation, dissolution or
winding up of the corporation;
4.2.6 The voting rights, if any, of shares of such series;
4.2.7 The terms and conditions, if any, upon which shares of
such series may be converted and the class or classes or series
of shares of the corporation or other securities into which such
shares may be converted;
4.2.8 The relative seniority, parity or junior rank of such
series as to dividends or assets with respect to any other
classes or series of stock then or thereafter to be issued; and
4.2.9 Such other terms, qualifications, privileges,
limitations, options, restrictions, and special or relative
rights and preferences, if any, of shares of such series as the
Board of Directors may, at the time of such resolution or
resolutions, lawfully fix and determine under the laws of the
State of Delaware.
Unless otherwise provided in a resolution or resolutions
establishing any particular series, the aggregate number of
authorized shares of Preferred Stock may be increased by an
amendment of the Certificate of Incorporation approved solely by
a majority vote of the outstanding shares of Common Stock (or
solely with a lesser vote of the Common Stock, or solely by
action of the Board of Directors, if permitted by law at the
time).
All shares of any one series shall be alike in every particular,
except with respect to the accrual of dividends prior to the date
of issuance.
SERIES A PARTICIPATING CUMULATIVE PREFERRED STOCK
-------------------------------------------------<PAGE>
<PAGE>3
Section 1. Designation and Number of Shares
--------------------------------------------
The shares of such series shall be designated as "Series A
Participating Cumulative Preferred Stock (without par value)"
(the "Series A Preferred Stock"). The number of shares initially
constituting the Series A Preferred Stock shall be 300,000;
provided, however, that, if more than a total of 300,000 shares
of Series A Preferred Stock shall be issuable upon the exercise
of Rights (the "Rights") issued pursuant to the Rights Agreement
dated as of February 14, 1997, between the Corporation and The
Bank of New York, a New York banking corporation, as Rights Agent
(the "Rights Agreement"), the Board of Directors of the
Corporation, pursuant to Section 151(g) of the General
Corporation Law of the State of Delaware, shall direct by
resolution or resolutions that a certificate be properly
executed, acknowledged, filed and recorded, in accordance with
the provisions of Section 103 thereof, providing for the total
number of shares of Series A Preferred Stock authorized to be
issued to be increased (to the extent that the Certificate of
Incorporation then permits) to the largest number of whole shares
(rounded up to the nearest whole number) issuable upon exercise
of such Rights.
Section 2. Dividends or Distributions
--------------------------------------
(a) Subject to the prior and superior rights of the holders of
shares of any other series of Preferred Stock or other class of
capital stock of the Corporation ranking prior and superior to
the shares of Series A Preferred Stock with respect to dividends,
the holders of shares of the Series A Preferred Stock shall be
entitled to receive, when, as and if declared by the Board of
Directors, out of the assets of the Corporation legally available
therefor, (1) quarterly dividends payable in cash on the last day
of each fiscal quarter in each year, or such other dates as the
Board of Directors of the Corporation shall approve (each such
date being referred to herein as a "Quarterly Dividend Payment
Date"), commencing on the first Quarterly Dividend Payment Date
after the first issuance of a share or a fraction of a share of
Series A Preferred Stock, in the amount of $30 per whole share
(rounded to the nearest cent) less the amount of all cash
dividends declared on the Series A Preferred Stock pursuant to
the following clause (2) since the immediately preceding
Quarterly Dividend Payment Date or, with respect to the first
Quarterly Dividend Payment Date, since the first issuance of any
share or fraction of a share of Series A Preferred Stock (the
total of which shall not, in any event, be less than zero) and
(2) dividends payable in cash on the payment date for each cash
dividend declared on the Common Stock in an amount per whole
share (rounded to the nearest cent) equal to the Formula Number
(as hereinafter defined) then in effect times the cash dividends
then to be paid on each share of Common Stock. In addition, if
the Corporation shall pay any dividend or make any distribution
on the Common Stock payable in assets, securities or other forms
of noncash consideration (other than dividends or distributions
solely in shares of Common Stock), then, in each such case, the
Corporation shall simultaneously pay or make on each outstanding
whole share of Series A Preferred Stock a dividend or
distribution in like kind equal to the Formula Number then in
effect times such dividend or distribution on each share of the
Common Stock. As used herein, the "Formula Number" shall be 100;
provided, however, that, if at any time after February 14, 1997,
the Corporation shall (i) declare or pay any dividend on the
Common Stock payable in shares of Common Stock or make any
distribution on the Common Stock in shares of Common Stock, (ii)
subdivide (by a stock split or otherwise) the outstanding shares
of Common Stock into a larger number of shares of Common Stock or
(iii) combine (by a reverse stock split or otherwise) the
outstanding shares of Common Stock into a smaller number of
shares of Common Stock, then in each such event the Formula
Number shall be adjusted to a number determined by multiplying<PAGE>
<PAGE>4
the Formula Number in effect immediately prior to such event by a
fraction, the numerator of which is the number of shares of
Common Stock that are outstanding immediately after such event
and the denominator of which is the number of shares of Common
Stock that are outstanding immediately prior to such event (and
rounding the result to the nearest whole number); and provided
further that, if at any time after February 14, 1997, the
Corporation shall issue any shares of its capital stock in a
merger, reclassification, or change of the outstanding shares of
Common Stock, then in each such event the Formula Number shall be
appropriately adjusted to reflect such merger, reclassification
or change so that each share of Preferred Stock continues to be
the economic equivalent of a Formula Number of shares of Common
Stock prior to such merger, reclassification or change.
(b) The Corporation shall declare a dividend or distribution on
the Series A Preferred Stock as provided in Section 2(a)
immediately prior to or at the same time it declares a dividend
or distribution on the Common Stock (other than a dividend or
distribution solely in shares of Common Stock); provided,
however, that, in the event no dividend or distribution (other
than a dividend or distribution in shares of Common Stock) shall
have been declared on the Common Stock during the period between
any Quarterly Dividend Payment Date and the next subsequent
Quarterly Dividend Payment Date, a dividend of $30 per share on
the Series A Preferred Stock shall nevertheless be payable on
such subsequent Quarterly Dividend Payment Date. The Board of
Directors may fix a record date for the determination of holders
of shares of Series A Preferred Stock entitled to receive a
dividend or distribution declared thereon, which record date
shall be the same as the record date for any corresponding
dividend or distribution on the Common Stock.
(c) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Preferred Stock from and after the
Quarterly Dividend Payment Date next preceding the date of
original issue of such shares of Series A Preferred Stock;
provided, however, that dividends on such shares which are
originally issued after the record date for the determination of
holders of shares of Series A Preferred Stock entitled to receive
a quarterly dividend and on or prior to the next succeeding
Quarterly Dividend Payment Date shall begin to accrue and be
cumulative from and after such Quarterly Dividend Payment Date.
Notwithstanding the foregoing, dividends on shares of Series A
Preferred Stock which are originally issued prior to the record
date for the determination of holders of shares of Series A
Preferred Stock entitled to receive a quarterly dividend on the
first Quarterly Dividend Payment Date shall be calculated as if
cumulative from and after the last day of the fiscal quarter next
preceding the date of original issuance of such shares. Accrued
but unpaid dividends shall not bear interest. Dividends paid on
the shares of Series A Preferred Stock in an amount less than the
total amount of such dividends at the time accrued and payable on
such shares shall be allocated pro rata on a share-by-share basis
among all such shares at the time outstanding.
(d) So long as any shares of the Series A Preferred Stock are
outstanding, no dividends or other distributions shall be
declared, paid or distributed, or set aside for payment or
distribution, on the Common Stock unless, in each case, the
dividend required by this Section 2 to be declared on the Series
A Preferred Stock shall have been declared.
(e) The holders of the shares of Series A Preferred Stock shall
not be entitled to receive any dividends or other distributions
except as provided herein.
Section 3. Voting Rights
-------------------------<PAGE>
<PAGE>5
The holders of shares of Series A Preferred Stock shall have the
following voting rights:
(a) Each holder of Series A Preferred Stock shall be entitled to
a number of votes equal to the Formula Number then in effect, for
each share of Series A Preferred Stock held of record on each
matter on which holders of the Common Stock or stockholders
generally are entitled to vote, multiplied by the maximum number
of votes per share which any holder of the Common Stock or
stockholders generally then have with respect to such matter
(assuming any holding period or other requirement to vote a
greater number of shares is satisfied).
(b) Except as otherwise provided herein or by applicable law,
the holders of shares of Series A Preferred Stock and the holders
of shares of Common Stock shall vote together as one class for
the election of directors of the Corporation and on all other
matters submitted to a vote of stockholders of the Corporation.
(c) If, at the time of any annual meeting of stockholders for
the election of directors, the equivalent of six quarterly
dividends (whether or not consecutive) payable on any share or
shares of Series A Preferred Stock are in default, the number of
directors constituting the Board of Directors of the Corporation
shall be increased by two. In addition to voting together with
the holders of Common Stock for the election of other directors
of the Corporation, the holders of record of the Series A
Preferred Stock, voting separately as a class to the exclusion of
the holders of Common Stock, shall be entitled at said meeting of
stockholders (and at each subsequent annual meeting of
stockholders), unless all dividends in arrears have been paid or
declared and set apart for payment prior thereto, to vote for the
election of two directors of the Corporation, the holders of any
Series A Preferred Stock being entitled to cast a number of votes
per share of Series A Preferred Stock equal to the Formula
Number. Until the default in payments of all dividends which
permitted the election of said directors shall cease to exist,
any director who shall have been so elected pursuant to the next
preceding sentence may be removed at any time, either with or
without cause, only by the affirmative vote of the holders of the
shares of Series A Preferred Stock at the time entitled to cast a
majority of the votes entitled to be cast for the election of any
such director at a special meeting of such holders called for
that purpose, and any vacancy thereby created may be filled by
the vote of such holders. If and when such default shall cease to
exist, the holders of the Series A Preferred Stock shall be
divested of the foregoing special voting rights, subject to
revesting in the event of each and every subsequent like default
in payments of dividends. Upon the termination of the foregoing
special voting rights, the terms of office of all persons who may
have been elected directors pursuant to said special voting
rights shall forthwith terminate, and the number of directors
constituting the Board of Directors shall be reduced by two. The
voting rights granted by this Section 3(c) shall be in addition
to any other voting rights granted to the holders of the Series A
Preferred Stock in this Section 3.
(d) Except as provided herein, in Section 11 or by applicable
law, holders of Series A Preferred Stock shall have no special
voting rights and their consent shall not be required (except to
the extent they are entitled to vote with holders of Common Stock
as set forth herein) for authorizing or taking any corporate
action.
Section 4. Certain Restrictions
--------------------------------
(a) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Preferred Stock as provided
in Section 2 are in arrears, thereafter and until all accrued and
unpaid dividends and distributions, whether or not declared, on
shares of Series A Preferred Stock outstanding shall have been<PAGE>
<PAGE>6
paid in full, the Corporation shall not (i) declare or pay
dividends on, make any other distributions on, or redeem or
purchase or otherwise acquire for consideration any shares of
stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Preferred Stock; (ii)
declare or pay dividends on or make any other distributions on
any shares of stock ranking on a parity (either as to dividends
or upon liquidation, dissolution or winding up) with the Series A
Preferred Stock, except dividends paid ratably on the Series A
Preferred Stock and all such parity stock on which dividends are
payable or in arrears in proportion to the total amounts to which
the holders of all such shares are then entitled; (iii) redeem or
purchase or otherwise acquire for consideration shares of any
stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A
Preferred Stock; provided that the Corporation may at any time
redeem, purchase or otherwise acquire shares of any such parity
stock in exchange for shares of any stock of the Corporation
ranking junior (either as to dividends or upon dissolution,
liquidation or winding up) to the Series A Preferred Stock; or
(iv) purchase or otherwise acquire for consideration any shares
of Series A Preferred Stock, or any shares of stock ranking on a
parity with the Series A Preferred Stock, except in accordance
with a purchase offer made in writing or by publication (as
determined by the Board of Directors) to all holders of such
shares upon such terms as the Board of Directors, after
consideration of the respective annual dividend rates and other
relative rights and preferences of the respective series and
classes, shall determine in good faith will result in fair and
equitable treatment among the respective series or classes.
(b) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration
any shares of stock of the Corporation unless the Corporation
could, under paragraph (a) of this Section 4, purchase or
otherwise acquire such shares at such time and in such manner.
Section 5. Liquidation Rights
------------------------------
Upon the liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, no distribution
shall be made (1) to the holders of shares of stock ranking
junior (either as to dividends or upon liquidation, dissolution
or winding up) to the Series A Preferred Stock unless, prior
thereto, the holders of shares of Series A Preferred Stock shall
have received an amount equal to the accrued and unpaid dividends
and distributions thereon, whether or not declared, to the date
of such payment, plus an amount equal to the greater of (x) $100
per whole share or (y) an aggregate amount per share equal to the
Formula Number then in effect times the aggregate amount to be
distributed per share to holders of Common Stock or (2) to the
holders of stock ranking on a parity (either as to dividends or
upon liquidation, dissolution or winding up) with the Series A
Preferred Stock, except distributions made ratably on the Series
A Preferred Stock and all other such parity stock in proportion
to the total amounts to which the holders of all such shares are
entitled upon such liquidation, dissolution or winding up.
Section 6. Consolidation, Merger, etc.
---------------------------------------
In case the Corporation shall enter into any consolidation,
merger, combination or other transaction in which the shares of
Common Stock are exchanged for or changed into other stock or
securities, cash or any other property, then in any such case the
then outstanding shares of Series A Preferred Stock shall at the
same time be similarly exchanged or changed into an amount per
share equal to the Formula Number then in effect times the
aggregate amount of stock, securities, cash or any other property
(payable in kind), as the case may be, into which or for which
each share of Common Stock is exchanged or changed. In the event<PAGE>
<PAGE>7
both this Section 6 and Section 2 appear to apply to a
transaction, this Section 6 will control.
Section 7. No Redemption; No Sinking Fund
------------------------------------------
(a) The shares of Series A Preferred Stock shall not be subject
to redemption by the Corporation or at the option of any holder
of Series A Preferred Stock except as set forth in Section 5 of
Article IV of the Restated Certificate of Incorporation of the
Corporation; provided, however, that the Corporation may purchase
or otherwise acquire outstanding shares of Series A Preferred
Stock in the open market or by offer to any holder or holders of
shares of Series A Preferred Stock.
(b) The shares of Series A Preferred Stock shall not be subject
to or entitled to the operation of a retirement or sinking fund.
Section 8. Ranking
-------------------
The Series A Preferred Stock shall rank junior to all other
series of Preferred Stock of the Corporation unless the Board of
Directors shall specifically determine otherwise in fixing the
powers, preferences and relative, participating, optional and
other special rights of the shares of such series and the
qualifications, limitations and restrictions thereof.
Section 9. Fractional Shares
-----------------------------
The Series A Preferred Stock shall be issuable upon exercise of
the Rights issued pursuant to the Rights Agreement in whole
shares or in any fraction of a share that is one one-hundredth of
a share or any integral multiple of such fraction which shall
entitle the holder, in proportion to such holder's fractional
shares, to receive dividends, exercise voting rights, participate
in distributions and to have the benefit of all other rights of
holders of Series A Preferred Stock. In lieu of fractional
shares, the Corporation, prior to the first issuance of a share
or a fraction of a share of Series A Preferred Stock, may elect
(a) to make a cash payment as provided in the Rights Agreement
for fractions of a share other than one one-hundredths of a share
or any integral multiple thereof or (b) to issue depository
receipts evidencing such authorized fraction of a share of Series
A Preferred Stock pursuant to an appropriate agreement between
the Corporation and a depository selected by the corporation;
provided that such agreement shall provide that the holders of
such depository receipts shall have all the rights, privileges
and preferences to which they are entitled as holders of the
Series A Preferred Stock.
Section 10. Reacquired Shares
------------------------------
Any shares of Series A Preferred Stock purchased or otherwise
acquired by the Corporation in any manner whatsoever shall be
retired and canceled promptly after the acquisition thereof. All
such shares shall upon their cancellation become authorized but
unissued shares of Preferred Stock, without designation as to
series until such shares are once more designated as part of a
particular series by the Board of Directors pursuant to the
provisions of paragraph 4.2 of Article Fourth.
Section 11. Amendment
----------------------
None of the powers, preferences and relative, participating,
optional and other special rights of the Series A Preferred Stock
as provided herein or in the Certificate of Incorporation shall
be amended in any manner which would alter or change the powers,
preferences, rights or privileges of the holders of Series A<PAGE>
<PAGE>8
Preferred Stock so as to affect them adversely without the
affirmative vote of the holders of at least 66-2/3% of the
outstanding shares of Series A Preferred Stock, voting as a
separate class; provided, however, that no such amendment
approved by the holders of at least 66-2/3% of the outstanding
shares of Series A Preferred Stock shall be deemed to apply to
the powers, preferences, rights or privileges of any holder of
shares of Series A Preferred Stock originally issued upon
exercise of the Rights after the time of such approval without
the approval of such holder.
4.3 Except for and subject to those rights expressly
granted to the holders of Preferred Stock or any series thereof
by resolution or resolutions adopted by the Board of Directors
pursuant to Section 4.2 of this Article Fourth and except as may
be provided by the laws of the State of Delaware, the holders of
Common Stock shall have exclusively all other rights of
shareholders.
4.4.1 The Bylaws shall divide the directors into three
classes and prescribe the tenure of office of the several
classes; but such Bylaws shall not provide for the election of
any class for a period shorter than from the time of election
following the division into classes until the next annual
meeting, and thereafter for a period shorter than the interval
between annual meetings or for a period longer than three years
and shall provide that the term of the office of at least one
class shall expire each year. At all elections of directors,
voting shall be by class.
4.4.2 At all elections of directors of the corporation,
each holder of shares of Common Stock shall be entitled to as
many votes as shall equal the number of votes which (except for
such provision as to cumulative voting) he would be entitled to
cast for the election of directors with respect to his shares of
stock multiplied by the number of directors to be elected, and he
may cast all of such votes for a single director or may
distribute them among the number to be voted for, or for any two
or more of them as he may see fit.
FIFTH. The corporation is to have perpetual existence.
SIXTH. 6.1 In furtherance and not in limitation of the powers
conferred by statute, the board of directors is expressly
authorized:
6.1.1 To make, alter or repeal the bylaws of the corporation.
6.1.2 To authorize and cause to be executed mortgages and
liens upon the real and personal property of the corporation.
6.1.3 To set apart out of any of the funds of the corporation
available for dividends a reserve or reserves for any proper
purpose and to abolish any such reserve in the manner in which it
was created.
6.1.4 By a majority of the whole board, to designate one or
more committees, each committee to consist of two or more of the
directors of the corporation. The board may designate one or more
directors as alternate members of any committee, who may replace
any absent or disqualified member at any meeting of the
committee. Any such committee, to the extent provided in the
resolution or in the bylaws of the corporation, shall have and
may exercise the powers of the board of directors in the
management of the business and affairs of the corporation, and
may authorize the seal of the corporation to be affixed to all
papers which may require it; provided, however, the by-laws may
provide that in the absence or disqualification of any member of
such committee or committees, the member or members thereof
present at any meeting and not disqualified from voting, whether
or not he or they constitute a quorum, may unanimously appoint<PAGE>
<PAGE>9
another member of the board of directors to act at the meeting in
the place of any such absent or disqualified member.
6.1.5 When and as authorized by the affirmative vote of the
holders of a majority of the stock issued and outstanding having
voting power given at a stockholders' meeting duly called upon
such notice as is required by statute, or when authorized by the
written consent of the holders of a majority of the voting stock
issued and outstanding, to sell, lease or exchange all or
substantially all of the property and assets of the corporation,
including its good will and its corporate franchises, upon such
terms and conditions and for such consideration, which may
consist in whole or in part of money or property including shares
of stock in, and/or other securities of, any other corporation or
corporations, as its board of directors shall deem expedient and
for the best interests of the corporation.
SEVENTH. 7.1 Whenever a compromise or arrangement is proposed
between this corporation and its creditors or any class of them
and/or between this corporation and its stockholders or any class
of them, any court of equitable jurisdiction within the State of
Delaware may, on the application in a summary way of this
corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for this
corporation under the provisions of Section 291 of Title 8 of the
Delaware Code or on the application of trustees in dissolution or
of any receiver or receivers appointed for this corporation under
the provisions of Section 279 of Title 8 of the Delaware Code
order a meeting of the creditors or class of creditors, and/or
stockholders or class of stockholders of this corporation, as the
case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three-fourths in
value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this corporation, as the
case may be, agree to any compromise or arrangement and to any
reorganization of this corporation as a consequence of such
compromise or arrangement, the said compromise or arrangement and
the said reorganization shall, if sanctioned by the court to
which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders
or class of stockholders, of this corporation, as the case may
be, and also on this corporation.
EIGHTH. 8.1 Meetings of shareholders may be held within or
without the State of Delaware as the Bylaws may provide.
Notwithstanding any provision of law, no action may be taken by
the shareholders, including without limitation amendment of this
Certificate or of the Bylaws, except at a meeting duly called in
accordance with the Bylaws.
8.2 The books of this Corporation may be kept (subject to
any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time
to time by the Board of Directors or in the Bylaws of the
Corporation. Election of Directors need not be by written ballot
unless the Bylaws of the Corporation shall so provide.
NINTH. 9.1 The corporation shall at all times indemnify its
officers and directors from and against all expenses and
liabilities of whatsoever nature to the full extent permitted by
Delaware law, and without limiting the generality of the
foregoing, shall indemnify any director or officer or any former
director or former officer or any person who may have served at
its request as a director or officer of another corporation, and
the heirs, personal representatives and estates of each of them,
against all costs and expenses including attorneys' fees
reasonably incurred by him or imposed on him in connection with
any action, proceeding or investigation of whatsoever nature,
civil, administrative or criminal (including any shareholder's
action and any other action in which the corporation is a party,
plaintiff or defendant) in which he is or may be made a party or
is proceeded against or involved by reason of any action<PAGE>
<PAGE>10
whatsoever alleged to have been taken by him or omitted by him as
such director or officer, and against any liabilities, judgments,
fines, penalties or damages imposed against him in such action,
proceeding or investigation, or sums paid in settlement or
compromise thereof with the approval of the Board of Directors;
provided, that the provisions of this paragraph shall not apply
unless such person acted in a manner he reasonably believed to be
in or not opposed to the best interests of the corporation, and
shall not apply if such person shall be duly and finally adjudged
(1) to be guilty of willful misconduct, bad faith or gross
negligence in the performance of his duties to the corporation,
in a derivative action or one brought by the corporation, or (2)
to be guilty of willful misconduct or bad faith, if such action
or proceeding is brought by a third party.
9.2 Expenses incurred in defending such action, proceeding
or investigation may be paid by the corporation in advance of the
final disposition thereof as authorized by the Board of Directors
in the specific case and upon receipt of an undertaking by or on
behalf of the director or officer to repay such amount if it
shall ultimately be determined that he is not entitled to be
indemnified by the corporation.
9.3 The corporation shall have power to purchase and
maintain insurance on behalf of any person who is or was an
officer, director, employee or agent of the corporation, or is or
was serving at the request of the corporation as an officer,
director, employee and agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability
whatsoever asserted against him and incurred by him in any such
capacity or arising out of his status as such, and against any
and all expenses in connection therewith, whether or not the
corporation would have the power to indemnify him against such
liability under the provisions of this certificate of
incorporation or under Delaware law.
TENTH. 10.1 The corporation reserves the right to amend,
alter, change or repeal any provision contained in this
certificate of incorporation, in the manner now or hereafter
prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
ELEVENTH. 11.1 A higher than majority shareholder vote for
certain Business Combinations shall be required as follows (all
capitalized terms being used as subsequently defined herein):
(a) In addition to any affirmative vote required by law or the
Certificate of Incorporation, and except as otherwise expressly
provided in Section 11.2 of this Article Eleventh: (1) any
merger or consolidation of the corporation or any Subsidiary with
(A) any Interested Shareholder or with (B) any other corporation
(whether or not itself an Interested Shareholder) which is, or
after such merger or consolidation would be, an Affiliate or
Associate of an Interested Shareholder; (2) any sale, lease,
exchange, mortgage, pledge, transfer or other disposition (in one
transaction or a series of transactions) to or with any
Interested Shareholder or any Affiliate or Associate of any
Interested Shareholder of any assets of the corporation or any
Subsidiary having an aggregate Fair Market Value of $10,000,000
or more; (3) the issuance or sale by the corporation or any
Subsidiary (in one transaction or a series of transactions) of
any securities of the corporation or any Subsidiary to any
Interested Shareholder or any Affiliate or Associate of any
Interested Shareholder in exchange for cash, securities or other
consideration (or a combination thereof) having an aggregate Fair
Market Value of $10,000,000 or more; (4) the adoption of any plan
or proposal for the liquidation or dissolution of the corporation
proposed by or on behalf of any Interested Shareholder or any
Affiliate or associate of any Interested Shareholder; or (5) any
reclassification of securities (including any reverse stock
split), or recapitalization of the corporation, or any merger or
consolidation of the corporation with any of it Subsidiaries or<PAGE>
<PAGE>11
any transaction (whether or not with or into or otherwise
involving an Interested Shareholder) which has the effect,
directly or indirectly, of increasing the proportionate share of
the outstanding shares of any class of equity securities or
securities convertible into equity securities of the corporation
or any Subsidiary which is directly or indirectly owned by any
Interested Shareholder or any Affiliate or Associate of any
Interested Shareholder; shall require the affirmative vote of the
holders of at least 80% of the voting power of the then
outstanding shares of common stock of the corporation entitled to
vote in an annual election of directors, and at least 80% of the
voting power of all shares of all classes of capital stock of the
corporation entitled to vote in an annual election of directors
(all such stock of all classes constituting the "Voting Stock"),
voting together as a single class. Such affirmative vote shall be
required notwithstanding the fact that no vote may be required,
or that a lesser percentage may be specified, by law or in any
agreement with any national securities exchange or otherwise.
(b) The term "Business Combination" as used in this Article
Eleventh shall mean any transaction which is referred to in any
one or more of clauses (1) through (5) of paragraph (a) of
Section 11.1 of this Article Eleventh.
11.2 The provisions of Section 11.1 of this Article Eleventh
shall not be applicable to any Business Combination, and such
Business Combination shall require only such affirmative vote (if
any) as is required by law, any other provision of the
Certificate of such corporation or any agreement with any
national securities exchange, if all of the conditions specified
in either of the following paragraphs (a) or (b) are met:
(a) The Business Combination shall have been approved by a
majority of the Continuing Directors; or
(b) All of the following six conditions shall have been met:
(1) The transaction constituting the Business Combination shall
provide for a consideration to be received by holders of Common
Stock in exchange for their stock, and the aggregate amount of
the cash and the Fair Market Value as of the date of the
consummation of the Business Combination of consideration other
than cash to be received per share by holders of Common Stock in
such Business Combination shall be at least equal to the highest
of the following: (A) (if applicable) the highest per share price
(including any brokerage commissions, transfer taxes and
soliciting dealers' fees) paid in order to acquire any shares of
Common Stock beneficially owned by the Interested Shareholder
which were acquired (i) within the two-year period immediately
prior to the first public announcement of the proposed Business
Combination (the "Announcement Date") or (ii) in the transaction
in which it became an Interested Shareholder, whichever is
higher; and (B) the Fair Market Value per share of Common stock
on the Announcement Date or on the date on which the Interested
Shareholder became an Interested Shareholder (the "Determination
Date"), whichever is higher.
(2) If the transaction constituting the Business Combination
shall provide for a consideration to be received by holders of
any class of outstanding Voting Stock other than Common Stock,
the aggregate amount of the cash and the Fair Market Value as of
the date of the consummation of the Business Combination of
consideration other than cash to be received per share by holders
of shares of such Voting Stock shall be at least equal to the
highest of the following (it being intended that the requirements
of this clause (b)(2) shall be required to be met with respect to
every class of outstanding Voting Stock, whether or not the
Interested Shareholder beneficially owns any shares of a
particular class of Voting Stock): (A) (if applicable) the
highest per share price (including any brokerage commissions,
transfer taxes and soliciting dealers' fees) paid in order to
acquire any shares of such class of Voting Stock beneficially<PAGE>
<PAGE>12
owned by the Interested Shareholder which were acquired (i)
within the two-year period immediately prior to the Announcement
Date or (ii) in the transaction in which it became an Interested
Shareholder, whichever is higher; (B) (if applicable) the highest
preferential amount per share to which the holders of shares of
such class of Voting Stock are entitled in the event of any
voluntary or involuntary liquidation, dissolution or winding up
of the corporation; and (C) the Fair Market Value per share of
such class of Voting Stock on the Announcement Date or on the
Determination Date, whichever is higher.
(3) The consideration to be received by holders of a particular
class of outstanding Voting Stock (including Common Stock) shall
be in cash or in the same form as was previously paid in order to
acquire shares of such class of Voting Stock which are
beneficially owned by the Interested Shareholder. If the
Interested Shareholder beneficially owns shares of any class of
Voting Stock which were acquired with varying forms of
consideration, the form of consideration to be received by
holders of such class of Voting Stock shall be either cash or the
form used to acquire the largest number of shares of such class
of Voting Stock beneficially owned by it.
(4) After such Interested Shareholder has become an Interested
Shareholder and prior to the consummation of such Business
Combination: (A) there shall have been (i) no reduction in the
annual rate of dividends paid on the Common Stock (except as
necessary to reflect any subdivision of the Common Stock), except
as approved by a majority of the Continuing Directors, and (ii)
an increase in such annual rate of dividends (as necessary to
prevent any such reduction) in the event of any reclassification
(including any reverse stock split), recapitalization,
reorganization or any similar transaction which has the effect of
reducing the number of outstanding shares of the Common Stock,
unless the failure so to increase such annual rate is approved by
a majority of the Continuing Directors; and (B) such Interested
Shareholder shall not have become the beneficial owner of any
additional shares of Voting Stock except as part of the
transaction in which it became an Interested Shareholder.
(5) After such Interested Shareholder has become an Interested
Shareholder, such Interested Shareholder shall not have received
the benefit, directly or indirectly (except proportionately as a
shareholder), of any loans, advances, guarantees, pledges or
other financial assistance or any tax credits or other tax
advantages provided by the corporation, whether in anticipation
of or in connection with such Business Combination or otherwise.
(6) A proxy or information statement describing the proposed
Business Combination and complying with the requirements of the
Securities Exchange Act of 1934 and the rules and regulations
thereunder (or any subsequent provisions replacing such Act,
rules or regulations) shall be mailed to public shareholders of
the corporation at least 30 days prior to the consummation of
such Business Combination (whether or not such proxy or
information statement is required to be mailed pursuant to such
Act or subsequent provisions).
11.3 For the purposes of this Article Eleventh:
(a) A "person" shall mean any individual, firm, corporation or
other entity.
(b) "Interested Shareholder" at any particular time shall mean
any person (other than the corporation or any Subsidiary) who or
which: (1) is at such time the beneficial owner, directly or
indirectly, of more than 20% of the voting power of the
outstanding Voting Stock; (2) is at such time a director of the
corporation and at any time within the two-year period
immediately prior to such time was the beneficial owner, directly
or indirectly, of more than 20% of the voting power of the then
outstanding Voting Stock; or (3) is at such time an assignee of<PAGE>
<PAGE>13
or has otherwise succeeded to the beneficial ownership of any
shares of Voting Stock which were at any time within the two-year
period immediately prior to such time beneficially owned by any
Interested Shareholder, if such assignment or succession shall
have occurred in the course of a transaction or series of
transactions not involving a public offering within the meaning
of the Securities Act of 1933.
(c) A person shall be a "beneficial owner" of any shares of
Voting Stock: (1) which such person or any of its Affiliates or
Associates beneficially owns, directly or indirectly; (2) which
such person or any of its Affiliates or Associates has (A) the
right to acquire (whether or not such right is exercisable
immediately) pursuant to any agreement, arrangements or
understanding or upon the exercise of conversion rights, exchange
rights, warrants or options, or otherwise, or (B) the right to
vote pursuant to any agreement, arrangement or understanding; or
(3) which are beneficially owned, directly or indirectly, by any
other person with which such person or any of its Affiliates or
Associates has any agreement, arrangement or understanding for
the purpose of acquiring, holding, voting or disposing of any
shares of Voting Stock.
(d) For the purposes of determining whether a person is an
Interested Shareholder pursuant to paragraph (b) of this Section
11.3, the number of shares of Voting Stock deemed to be
outstanding shall include shares deemed owned by an Interested
Shareholder through application of paragraph (c) of this Section
11.3 but shall not include any other shares of Voting Stock which
may be issuable pursuant to any agreement, arrangements or
understanding, or upon the exercise of conversion rights,
exchange rights, warrants or options, or otherwise.
(e) "Affiliate" or "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General
Rules and Regulations under the Securities Exchange Act of 1934,
as in effect on March 1, 1984 (the term "registrant" in said Rule
12b-2 meaning in this case the corporation).
(f) "Subsidiary" means any corporation of which a majority of
any class of equity security is owned, directly or indirectly, by
the corporation; provided, however, that for the purposes of the
definition of Interested Shareholder set forth in paragraph (b)
of this Section 11.3, the term "Subsidiary" shall mean only a
corporation of which a majority of each class of equity security
is owned, directly or indirectly, by the corporation.
(g) "Continuing Director" means any member of the Board of
Directors of the corporation who is unaffiliated with, and not a
representative of, the Interested Shareholder and was a member of
the Board of Directors prior to the time that the Interested
Shareholder became an Interested Shareholder, and any successor
of a Continuing Director who is unaffiliated with and not a
representative of, the Interested Shareholder and is recommended
to succeed a Continuing Director by a majority of the Continuing
Directors then on the Board of Directors.
(h) "Fair Market Value" means: (1) in the case stock of the
corporation, the highest closing sale price during a 30-day
period immediately preceding the date in question of a share of
such stock on the Composite Tape for New York Stock Exchange-
Listed Stocks ("Composite Tape"), or, if such stock is not quoted
on the Composite Tape, on the New York Stock Exchange (NYSE), or,
if such stock is not listed on the NYSE, on the principal United
States securities exchange registered under the Securities
Exchange Act of 1934 on which such stock is listed, or, if such
stock is not listed on any such exchange, the highest closing
sale price or closing bid quotation (whichever is higher, if both
are reported) with respect to a share of such stock during the
30-day period preceding the date in question on the National
Association of Securities Dealers, Inc. Automated Quotations
System ("NASDAQ") or any system then in use, or if no such<PAGE>
<PAGE>14
quotations are available, the fair market value on the date in
question of a share of such stock as determined by the Board of
Directors in good faith; (2) in the case of securities, other
than stock of the corporation, which are registered under Section
12 of the 1934 Act, the mean (average) of the Closing sale
prices for the five business days prior to the date in question
for such securities on the Composite Tape, or if such securities
are not listed on the NYSE, on the principal United States
securities exchange registered under the 1934 Act on which such
securities are listed, or, if such securities are not listed on
any such exchange but are listed on the NASDAQ national list or
national market system, the average closing sale price or closing
bid quotation (whichever is higher, if both are reported) for the
five business days prior to the date in question, as quoted on
the NASDAQ system, or if such securities are not so listed or
such quotations are not available, then the Market Value of such
securities as determined by the Board of Directors in good faith;
and (3) in the case of property other than cash or securities of
the type described above, the fair market value of such property
on the date in question as determined by the Board of Directors
in good faith.
(i) In the event of any Business Combination in which the
corporation survives, the phrase "consideration other than cash
to be received" as used in paragraph (b) of Section 11.2 of this
Article Eleventh shall include the shares of Common Stock and/or
the shares of any other class of outstanding Voting Stock
retained by the holders of such shares.
11.4 The Board of Directors shall have the power and duty to
determine for the purpose of this Article Eleventh, on the basis
of information known to them after reasonable inquiry (a) whether
a person is an Interested Shareholder, (b) the number of shares
of Voting Stock beneficially owned by any person, (c) whether a
person is an Affiliate or Associate of another, and (d) whether
the assets which are the subject of any business transaction
which may be a Combination have, or the consideration to be
received for the issuance or transfer of securities by the
corporation or any Subsidiary in any transaction which may be a
Business Combination has, an aggregate Fair Market Value of
$10,000,000 or more. Any such determination made in good faith
shall be binding and conclusive on all parties.
11.5 Nothing contained in this Article Eleventh shall be
construed to relieve any Interested Shareholder from any
fiduciary obligation imposed by law.
11.6 Notwithstanding any other provisions hereof or of law,
the Certificate of Incorporation or the Bylaws of the
corporation, the affirmative vote of the holders of at least 80%
of the voting power of the then outstanding shares of Common
Stock, and at least 80% of the voting power of all of the then
outstanding shares of Voting Stock, voting together as a single
class, shall be required to amend or repeal, or to adopt any
provision inconsistent with this Article Eleventh.
TWELFTH. 12.1 No director of the corporation shall be
personally liable to the corporation or its stockholders for
monetary damages for breach of his or her fiduciary duty as a
director; provided, however, that this Article TWELFTH shall not
eliminate or limit the liability of a director to the extent
provided by applicable law (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174
of the General Corporation Law of the State of Delaware (or
successor provision), or (iv) for any transaction from which the
director derived an improper personal benefit. No amendment to or
repeal of this Article TWELFTH shall apply to or have any effect
on the liability or alleged liability of any director of the
corporation for or with respect to any acts or omissions of such
director occurring prior to such amendment or repeal.<PAGE>
<PAGE>15
DATED as of the 8th day of May, 1998.
AIRBORNE FREIGHT CORPORATION
----------------------------
/s/ Robert S. Cline
-------------------
Robert S. Cline
Chairman and Chief Executive Officer
Attest:
/s/ David C. Anderson
---------------------
David C. Anderson
Corporate Secretary/Counsel<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 22,166
<SECURITIES> 0
<RECEIVABLES> 330,411
<ALLOWANCES> 10,290
<INVENTORY> 39,387
<CURRENT-ASSETS> 420,827
<PP&E> 1,877,563
<DEPRECIATION> 955,483
<TOTAL-ASSETS> 1,369,453
<CURRENT-LIABILITIES> 294,344
<BONDS> 248,993
0
0
<COMMON> 50,682
<OTHER-SE> 654,736
<TOTAL-LIABILITY-AND-EQUITY> 1,369,453
<SALES> 0
<TOTAL-REVENUES> 750,193
<CGS> 0
<TOTAL-COSTS> 692,657
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<INTEREST-EXPENSE> 3,916
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