EXHIBIT 3(a)

              UNITED STATES
                    SECURITIES AND EXCHANGE COMMISSION
                          WASHINGTON, D.C. 20549
                     --------------------------------
                                 FORM 10-K

             Annual Report Pursuant to Section 13 or 15(d)RESTATED CERTIFICATE OF INCORPORATION
                               OF
                         AIRBORNE, INC.


     FIRST.    1.1  The name of the Securities Exchange Actcorporation is

                         AIRBORNE, INC.

     SECOND.   2.1  The address of 1934


    For the fiscal year ended           Commission file number
       December 31, 1996                       1-6512
---------------------------------- AIRBORNE FREIGHT CORPORATION (Exactits registered office in the State of Delaware is 1013 Centre Road, in the City of Wilmington, County of New Castle. The name of registrant as specified in its charter) Delaware 91-0837469 (State of Incorporation) (I.R.S. Employer Identification No.)
Airborne Freightregistered agent at such address is The Prentice-Hall Corporation 3101 Western Avenue P.O. Box 662 Seattle, WA 98111 (Address of principal executive offices) Registrant's telephone number including area code: 206-285-4600 Securities registered pursuant to Section 12(b)System, Inc. THIRD. 3.1 The nature of the Act: Name of each Exchange Title of each class on which Registered ------------------- ------------------- Common Stock, Par Value New York Stock Exchange $1.00 per share Pacific Stock Exchange 6 3/4% Convertible Subordinated New York Stock Exchange Debentures Due August 15, 2001 Rights to Purchase Series A New York Stock Exchange Participating Cumulative Pacific Stock Exchangebusiness 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,
Securities registered pursuantwithout par value, issuable in one or more series, and one hundred twenty million (120,000,000) shares shall be Common Stock, par value One Dollar ($1.00) per share, amounting in the aggregate to Section 12(g)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 Act: NONE Indicateshares 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 check mark whether the registrant (1) has filed all reports requiredlaws 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 filed by Section 13issued; and 4.2.9 Such other terms, qualifications, privileges, limitations, options, restrictions, and special or 15(d)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 Securities Exchange ActState of 1934 duringDelaware. Unless otherwise provided in a resolution or resolutions establishing any particular series, the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ Indicateaggregate number of authorized shares of Preferred Stock may be increased by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or anyan amendment to this Form 10-K.(X) As of February 24, 1997, 21,308,812 shares (net of 315,150 treasury shares) of the registrant's Common Stock were outstanding and the aggregate market valueCertificate of Incorporation approved solely by a majority vote of the voting stock held by non-affiliates of the registrant (based on the closing price on that date on the New York Stock Exchange) was approximately $600,367,932.(1) Documents Incorporated by Reference Portions of the 1996 Annual Report to Shareholders are incorporated by reference into Part I and Part II. Portions of the Proxy Statement for the 1997 Annual Meeting of Shareholders to be held April 22, 1997 are incorporated by reference into Part III. (1) Excludes value ofoutstanding shares of Common Stock held of record by non- employee directors and executive officers at February 24, 1997. Includes shares held by certain depository organizations. Exclusion of shares held by any person should not be construed to indicate that such person possesses the power, direct or indirect, to direct or cause the direction of the management or policies of the registrant, or that such person is controlled by or is under common control(or solely with the registrant. AIRBORNE FREIGHT CORPORATION 1996 FORM 10-K ANNUAL REPORT Table of Contents
Page ---- Part I Item 1. Business 1 Item 2. Properties 8 Item 3. Legal Proceedings 9 Item 4. Submission of Matters to a Vote of Security Holders 9 Item 4a. Executive Officers of the Registrant 9 Part II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 11 Item 6. Selected Financial Data 11 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Item 8. Financial Statements and Supplementary Data 11 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 11 Part III Item 10. Directors and Executive Officers of the Registrant 12 Item 11. Executive Compensation 12 Item 12. Security Ownership of Certain Beneficial Owners and Management 12 Item 13. Certain Relationships and Related Transactions 12 Part IV Item 14. Exhibits, Financial Statement Schedules, and 13 Reports on Form 8-K
PART I ITEM 1. BUSINESS - - ------------------ a) General Development of Business ------------------------------- Airborne Freight Corporation (herein referred to as "Airborne Express" or the "Company", which reference shall include its subsidiaries and their assets and operations, unless the context clearly indicates otherwise) was incorporated in Delaware on May 10, 1968. The Company is an air express company and air freight forwarder that expedites shipments of all sizes to destinations throughout the United States and most foreign countries. The Company holds a certificate of registration issued by the United States Patent and Trademark Office for the service mark AIRBORNE EXPRESS. Most public presentation of the Company carries this name. The purpose of using this trade name is to more clearly communicate to the market place the primary nature of the business of the Company. ABX Air, Inc., the Company's principal wholly-owned subsidiary (herein referred to as "ABX"), was incorporated in Delaware on January 22, 1980. ABX provides domestic express cargo service and cargo service to Canada. The Company is the sole customer of ABX for this service. ABX also offers limited charter service. In 1996, the Company commemorated its first 50 years of service. Founded in 1946 in San Francisco, Airborne Flower Association of California began as a transporter of fresh flowers from Hawaii and California to East Coast markets. As Airborne Flower grew and offered other expanded service options and capabilities, it changed its name in 1956 to Airborne Freight Corporation. In 1968, the Company was formed when its predecessor consolidated with Pacific Air Freight, a freight forwarder founded in Seattle in 1949, to transport perishables to Alaska. The Company retained the name Airborne Freight Corporation. The Company is proud of its 50 years of successes and looks forward to the future. b) Financial Information about Industry Segments --------------------------------------------- None c) Narrative Description of Business --------------------------------- Airborne Express provides door-to-door express delivery of small packages and documents throughout the United States and to and from most foreign countries. The Company also acts as an international and domestic freight forwarder for shipments of any size. The Company's strategy is to be the low cost provider of express services for high volume corporate customers. Domestic Operations - - ------------------- The Company's domestic operations, supported by approximately 280 facilities, primarily involve express door-to-door delivery of shipments weighing less than 100 pounds. Shipments consist primarily of business documents and other printed matter, electronic and computer parts, software, machine parts, health care items, films and videotapes, and other items for which speed and reliability of delivery are important. The Company's primary service is its overnight express product. This product, which comprised approximately 58% of the Company's domestic shipments during 1996, generally provides for before noon delivery on the next business day to most metropolitan cities in the United States. The Company also provides Saturday and holiday pickup and delivery service for most cities. -1- Beginning in 1995 and continuing into 1996, the Company redefined its deferred service product through the creation of two distinct levels of service. The services, Next Afternoon Service (NAS) and Second Day Service (SDS) replaced Select Delivery Service, which had been the Company's deferred service product since 1990. NAS is available for shipments weighing five pounds or less and SDS is offered for shipments of all weights. Select Delivery Service provided next afternoon service for shipments weighing five pounds or less, with shipments weighing more than five pounds delivered on a second day basis. Deferred service shipments, which comprised approximately 42% of domestic shipments during 1996, are lower priced than the overnight express product reflecting the less time sensitive nature of the shipments. NAS rates are generally higher than SDS rates. While the Company's domestic airline system is designed primarily to handle express shipments, any available capacity is also utilized to carry shipments which the Company would normally move on other carriers in its role as an air freight forwarder. Communications System - - --------------------- FOCUS (Freight On-line Control and Update System) is a proprietary communications system which provides real time information for purposes of tracking and providing the status of customer's shipments as well as monitoring the performance of the Company's operational systems. The Company's facilities and international agents are linked to FOCUS and provide inputs to the system, in part through the driver's use of hand-held scanners which read bar-codes on the shipping documents, with information necessary to determine the status and location of customer shipments 24 hours a day. FOCUS allows for direct customer access to shipment information through the use of their own computer systems. FOCUS provides the Company's personnel with important information for use in coordinating its operational activities. Information regarding Company-operated aircraft arrivals and departures, weather, and documentation requirements for shipments destined to foreign locations are several examples of the information maintained and provided by FOCUS. Pickup and Delivery - - ------------------- The Company accomplishes its door-to-door pickup and delivery service using approximately 13,300 radio-dispatched delivery vans and trucks, of which approximately 5,100 are owned by the Company. Independent contractors under contract with the Company provide the balance of the pickup and delivery services. Because convenience is an important factor in attracting business from less frequent shippers, the Company has an ongoing program to place drop boxes in convenient locations. The Company has approximately 11,100 boxes in service. Sort Facilities - - --------------- The Company's main sort center is located in Wilmington, Ohio. As express delivery volume has increased, the main sort center has been expanded. In 1995, the sort center was expanded and currently has the capacity to handle approximately 980,000 pieces during the primary 2-1/2 hour nightly sort operation. On average, approximately 835,000 pieces were sorted each weekday night at the sort center during the fourth quarter of 1996. In addition to the main sort facility at Wilmington, ten regional hub facilities have been established primarily to sort shipments originating and having a destination within approximately a 300 mile radius of a regional hub. The Company also conducts a day sort operation at Wilmington which services SDS shipments. The day sort receives shipments weighing five pounds or less from flights -2- arriving during the previous night sort operation. Shipments weighing more than five pounds are either trucked or flown to the day sort from the regional hub facilities. The operation of the Wilmington facility is critical to the Company's business. The inability to use the Wilmington airport, because of bad weather or other factors, would have a serious adverse effect on the Company's service. However, contingency plans, including landing at nearby airports and transporting packages to and from the sort center by truck, can be implemented to address, in part, temporary inaccessibility of the Wilmington airport. In the fourth quarter of 1996, approximately 54% and 19% of total shipment weight was handled through the night sort and day sort operations at Wilmington, respectively, with the remaining 27% being handled exclusively by the regional hubs. Shipment Routing - - ---------------- The logistics of moving a shipment from its origin to destination is determined by several factors. Shipments are routed differently depending on shipment product type, weight, geographic distances between origin and destination, and locations of Company stations relative to the locations of sort facilities. Shipments generally are moved between stations and sort facilities on either Company aircraft or contracted trucks. A limited number of shipments are transported airport-to-airport on commercial air carriers. Overnight express shipments, NAS shipments and SDS shipments weighing five pounds or less are picked up by local stations and generally consolidated with other stations' shipments at Company airport facilities. Shipments that are not serviced through regional hubs are loaded on Company aircraft departing each weekday evening from various points within the United States and Canada. These aircraft may stop at other airports to permit additional locations and feeder aircraft to consolidate their cargo onto the larger aircraft before completing the flight to the Wilmington hub. The aircraft are scheduled to arrive at Wilmington between approximately 11:30 p.m. and 3:00 a.m. at which time the shipments are sorted and reloaded. The aircraft are scheduled to depart before 6:00 a.m. and return to their applicable destinations in time to complete scheduled next business morning or deferred service commitments. The Wilmington hub also receives shipments via truck from selected stations in the vicinity of the Wilmington hub for integration with the nightly sort process. For the day sort operation, handling SDS shipments weighing over five pounds, generally 12 aircraft return to Wilmington from overnight service destinations on Tuesday through Thursday. These aircraft, and trucks from six regional hubs, arrive at Wilmington between 10:00 a.m. and 2:00 p.m., at which time shipments are sorted and reloaded on the aircraft or trucks by 3:30 p.m. for departure and return to their respective destinations. The Company also performs weekend sort operations at Wilmington to accommodate Saturday pickups and Monday deliveries of both overnight express and deferred service shipments. This sort is supported by 14 Company aircraft and by trucks. Aircraft - - -------- The Company currently utilizes used aircraft manufactured in the late 1960s and early 1970s. Upon acquisition, the aircraft are modified by the Company. At the end of 1996, the Company's in-service fleet consisted of a total of 110 aircraft, including 35 McDonnell Douglas DC-8s (consisting of 13 series 61, 6 series 62 and 16 series 63), 66 DC-9s (consisting of 2 series 10, 43 series 30 and 21 series 40), and 9 YS-11 turboprop aircraft. The Company owns the majority of the aircraft it operates, but has completed sale-leaseback transactions with respect to six DC-8 and six DC-9 aircraft. In addition, approximately 65 smaller aircraft are chartered nightly to connect small cities with Company aircraft that then operate to and from Wilmington. -3- In December 1995, the Company announced an agreement to purchase 12 used Boeing 767-200's between the years 1997 and 2000 and its plans to pursue the acquisition of 10 to 15 additional used 767-200's between the years 2000 and 2004. This newer generation of aircraft should increase operating efficiency and allow the Company to meet anticipated demand for additional lift capacity. There are no plans to retire any aircraft as a result of these acquisitions, although retirement is an option if shipment growth does not require the added capacity. At year end 1996, the nightly lift capacity of the system was about 3.8 million pounds versus approximately 3.5 million pounds and 3.1 million pounds at the end of 1995 and 1994, respectively. During 1996, the Company's utilization of available lift capacity approximated 74%. In response to increased public awareness regarding the operation of older aircraft, the Federal Aviation Administration ("FAA") periodically mandates additional maintenance requirements for certain aircraft, including the type operated by the Company. In recent years, the Company has completed, and continues to perform, a number of inspection and maintenance programs pertaining to various Airworthiness Directives issued by the FAA. The FAA could, in the future, impose additional maintenance requirements for aircraft and engines of the type operated by the Company or interpret existing rules in a manner which could have a material effect on the Company's operations and financial position. In accordance with federal law and FAA regulations, only subsonic turbojet aircraft classified as Stage 2 or 3 by the FAA may be operated in the United States. Generally, Stage 3 aircraft produce less noise than a comparable Stage 2 aircraft. In 1990, Congress passed the Airport Noise and Capacity Act of 1990 (the "Noise Act"). Among other things, the Noise Act generally requires turbojet aircraft weighing in excess of 75,000 pounds and operating in the United States (the type of DC-8 and DC-9 aircraft operated by the Company) to comply with Stage 3 noise emission standards on or before December 31, 1999. The Company's YS-11 turboprop aircraft are not subject to these requirements. In accordance with the Noise Act, the FAA has issued regulations establishing interim compliance deadlines. These rules required air carriers to reduce the base level of Stage 2 aircraft they operate 50% by December 31, 1996; and 75% by December 31, 1998. As of December 31, 1996, the Company has complied with interim compliance deadline and expects to meet or exceed the December 31, 1998 interim compliance deadline. As of December 31, 1996, 61% of the Company's turbojet aircraft (25 DC-8 and 37 DC-9 aircraft) were Stage 3 aircraft, the balance being Stage 2 aircraft. In addition to FAA regulation, certain local airports also regulate noise compliance. See "Business - Regulation". The Company, in conjunction with several other companies, has developed noise suppression technology known as hush kits for its DC-9 series aircraft which have been certified to meet FAA Stage 3 requirements. The capital cost for Stage 3 hush kits is approximately $1.4 million for each DC-9 series aircraft. The Company has installed hush kits which satisfy Stage 3 compliance requirements on all of its DC-8-62 and DC-8-63 series aircraft and three of its DC-8-61 series aircraft. The capital cost to modify the Company's remaining DC-8-61 aircraft to meet Stage 3 noise standards is approximately $5.7 million per aircraft. International Operations - - ------------------------ The Company provides international express door-to-door delivery and a variety of freight services. These services are provided in most foreign countries on an inbound and outbound basis through a network of Airborne offices and independent agents. Most international deliveries are accomplished within 24 to 96 hours of pickup. The Company's domestic stations are staffed and equipped to handle international shipments to or from almost anywhere in the world. In addition to its extensive domestic network, the Company operates its own offices in the Far East, Australia, New Zealand, and -4- the United Kingdom. The Company's freight and express agents worldwide are connected to FOCUS, Airborne's on-line communication network, through which the Company can provide its customers with immediate access to the status of shipments almost anywhere in the world. The Company's international air express service is intended for the movement of non dutiable and certain dutiable shipments weighing less than 99 pounds. The Company's international air freight service handles heavier weight shipments on either an airport-to-airport, door-to-airport or door- to-door basis. The Company also offers ocean service capabilities for customers who want a lower cost shipping option. The Company's strategy is to use a variable-cost approach in delivering and expanding international services to its customers. This strategy uses existing commercial airline lift capacity in connection with the Company's domestic network to move shipments to and from overseas destinations and origins. Additionally, service arrangements with independent freight and express agents have been entered into to accommodate shipments in locations not currently served by Company-owned operations. The Company currently believes there are no significant service advantages which would justify the operation of its own aircraft on international routes, or making significant investment in additional offshore facilities or ground operations. In order to expand its business at a reasonable cost, the Company continues to explore possible joint venture agreements which combine the Company's management expertise, domestic express system and information systems with local business knowledge and market reputation of suitable partners. Joint ventures have been formed in Japan, Thailand, Malaysia, the Netherlands, and South Africa. Customers and Marketing - - ----------------------- The Company's primary domestic strategy focuses on express services for high volume corporate customers. Most high volume customers have entered into service agreements providing for specified rates or rate schedules for express deliveries. As of December 31, 1996, the Company serviced approximately 460,000 active customer shipping locations. The Company determines prices for any particular domestic express customer based on competitive factors, anticipated costs, shipment volume and weight, and other considerations. The Company believes that it generally offers prices that are competitive with, or lower than, prices quoted by its principal competitors for comparable services. Internationally, the Company's marketing strategy is to target the outbound express and freight shipments of U.S. corporate customers, and to sell the inbound service of the Company's distribution capabilities in the United States. Both in the international and domestic markets, the Company believes that its customers are most effectively reached by a direct sales force and, accordingly, does not currently engage in mass media advertising. Domestic sales representatives are responsible for selling both domestic and international express shipments. In addition, the International Division has its own dedicated direct sales organization for selling international freight service. The Company's sales force currently consists of approximately 300 domestic representatives and approximately 80 international specialists. The Company's sales efforts are supported by the Marketing and International Divisions, based at the Company headquarters. Senior management is also active in marketing the Company's services to major accounts. Value-added services continue to be important factors in attracting and retaining customers. Accordingly, the Company is automating more of its operations to make the service easier for customers to use and to provide them with valuable management information. The Company believes that it is generally competitive with other express carriers in terms of reliability, value-added services and convenience. -5- For many of its high volume customers, the Company offers a metering device, called LIBRA II, which is installed at the customer's place of business. With minimum data entry, the metering device weighs the package, calculates the shipping charges, generates the shipping labels and provides a daily shipping report. At year end 1996, the system was in use at approximately 9,300 domestic customer locations and 900 international customer locations. Use of LIBRA II not only benefits the customer directly, but also lowers the Company's operating costs, since LIBRA II shipment data is transferred into the Airborne FOCUS shipment tracking system automatically, thus avoiding duplicate data entry. "Customer Linkage", an electronic data interchange ("EDI") program developed for Airborne's highest volume shippers, allows customers, with their computers, to create shipping documentation at the same time they are entering orders for their goods. At the end of each day, shipping activities are transmitted electronically to the Airborne FOCUS system where information is captured for shipment tracking and billing purposes. Customer Linkage benefits the customer by eliminating repetitive data entry and paperwork and also lowers the Company's operating costs by eliminating manual data entry. EDI also includes electronic invoicing and payment remittance processing. The Company also has available a software program known as Quicklink, which significantly reduces programming time required by customers to take advantage of linkage benefits. In 1995, the Company unveiled "LIGHTSHIP TRACKER", a PC-based tracking software, which was the first in a series of software products designed to improve customer productivity and provide convenient access to the Company's various services. LIGHTSHIP TRACKER allows customers, working from their PCs, to view the status of and receive information regarding their shipments through access to the Airborne FOCUS system. In 1997, the Company will provide customers with additional flexibility and productivity opportunities through the introduction of its PC-based software program, "LIGHTSHIP SHIPPER". Through personal or office computers via modem connection to the Airborne FOCUS system, customers will be able to obtain estimated shipping rates and delivery times, fill out and print shipping labels, schedule pickups, as well as track the status of their shipments. The Company offers a number of special logistics programs to customers through Airborne Logistics Services ("ALS"), a division of ABX Air, Inc. ALS operates the Company's Stock Exchange and Hub Warehousing and other logistics programs. These programs provide customers the ability to maintain inventories which can be managed either by Company or customer personnel. Items inventoried at Wilmington can be delivered utilizing either the Company's airline system or, if required, commercial airlines on a next-flight-out basis. ALS' Central Print program allows information to be sent electronically to customer computers located at Wilmington where Company personnel monitor printed output and ship the material according to customer instructions. In addition, the Company's Sky Courier business provides expedited next-plane-out service at premium prices. Sky Courier also offers a Regional Warehousing program where customer inventories are managed at any of over 60 locations around the United States and Canada. The Company has obtained ISO 9000 certification for its Chicago, Philadelphia and London stations and its Seattle Headquarters. ISO 9000 is a program developed by the International Standards Organization ("ISO"), based in Geneva, Switzerland. This organization provides a set of international standards on quality management and quality assurance presently recognized in over 90 countries. The certification is an asset in doing business worldwide and provides evidence of the Company's commitment to excellence and quality. -6- Competition - - ----------- The market for the Company's services has been and is expected to remain highly competitive. The principal competitive factors in both domestic and international markets are price, the ability to provide reliable pickup and delivery, and value-added services. Federal Express continues to be the dominant competitor in the domestic express business, followed by United Parcel Service. Airborne Express ranks third in shipment volume behind these two companies in the domestic express business. Other domestic express competitors include the U.S. Postal Service's Express Mail Service and several other transportation companies offering next morning or next-plane-out delivery service. The Company also competes to some extent with companies offering ground transportation services and with facsimile and other forms of electronic transmission. The Company believes it is important to maintain an active capital expansion program to increase capacity, improve service and increase productivity as its volume of shipments increases. However, the Company has significantly less capital resources than its two primary competitors. In the international markets, in addition to Federal Express and United Parcel Service, the Company competes with DHL, TNT and other air freight forwarders or carriers and most commercial airlines. Employees - - --------- As of December 31, 1996, the Company and its subsidiaries had approximately 12,700 full-time employees and 8,000 part-time and casual employees. Approximately 6,000 full-time employees (including the Company's 715 pilots) and 3,200 part-time and casual employees are employed under union contracts, primarily with locals of the International Brotherhood of Teamsters and Warehousemen. Labor Agreements - - ---------------- Most labor agreements covering the Company's ground personnel are for a four-year term expiring in 1998. The Company's pilots are covered by a contract which became amendable on July 31, 1995. The Company has not experienced any significant disruption from labor disputes in the past. However, negotiations with the pilots are in mediation, and the Company cannot predict whether the contract with the pilots will be amended without experiencing any work disruption. Subsidiaries - - ------------ The Company has the following wholly-owned subsidiaries: 1. ABX Air, Inc., a Delaware corporation, is a certificated air carrier which owns and operates the Company's domestic express cargo service. Its wholly-owned subsidiaries are as follows: a) Wilmington Air Park, Inc., an Ohio corporation, is the owner of the Wilmington airport property (Airborne Air Park). b) Airborne FTZ, Inc., an Ohio corporation, is the holder of a foreign trade zone certificate at the Wilmington airport property and owns and manages the Company's expendable aircraft parts inventory. c) Aviation Fuel, Inc., an Ohio corporation, purchases and sells aviation and other fuels. -7- d) Advanced Logistics Services Corp., an Ohio corporation, provided customized warehousing, inventory management and shipping services, through late 1996. Logistics services are currently provided by Airborne Logistic Services, a division of ABX Air, Inc. e) Sound Suppression, Inc., an Ohio corporation with no current operating activities. 2. Awawego Delivery, Inc., a New York corporation, holds trucking rights in New York and Connecticut. 3. Airborne Forwarding Corporation, a Delaware corporation doing business as Sky Courier, provides expedited courier service. 4. Airborne Freight Limited, a New Zealand corporation, provides air express and air freight services. Regulation - - ---------- The Company's operations are regulated by the United States Department of Transportation ("DOT"), the FAA, and various other federal, state, local and foreign authorities. The DOT, under federal transportation statutes, grants air carriers the right to engage in domestic and international air transportation. The DOT issues certificates to engage in air transportation and has the authority to modify, suspend or revoke such certificates for cause, including failure to comply with federal law or the DOT regulations. The Company believes it possesses all necessary DOT-issued certificates to conduct its operations. The FAA regulates aircraft safety and flight operations generally, including equipment, ground facilities, maintenance, security procedures, and communications. The FAA issues operating certificates to carriers who possess the technical competence to conduct air carrier operations. In addition, the FAA issues certificates of airworthiness to each aircraft which meets the requirements for aircraft design and maintenance. The Company believes it holds all airworthiness and other FAA certificates required for the conduct of its business, although the FAA has the power to suspend or revoke such certificates for cause, including failure to comply with federal law. The federal government generally regulates aircraft engine noise at its source. However, local airport operators may, under certain circumstances, regulate airport operations based on aircraft noise considerations. The Noise Act provides that in the case of Stage 2 aircraft restrictions, the airport operator must notify air carriers of its intention to propose rules and satisfy the requirements of federal statutes before implementation of the rules or in the case of Stage 3 aircraft, the airport operator must obtain the carriers' or the governments' approval of the rule prior to its adoption. The Company believes the operation of its aircraft either complies with or is exempt from compliance with currently applicable local airport rules. However, if more stringent aircraft operating regulations were adopted on a widespread basis, the Company might be required to expend substantial sums, make schedule changes or take other actions. The Company's aircraft currently meet all known requirements for emission levels. However, under the Clean Air Act, individual states or the Federal Environmental Protection Agency (the "EPA") may adopt regulations requiring the reduction in emissions for one or more localities based on the measured air quality at such localities. The EPA has proposed regulations for portions of California calling for emission reductions through restricting the use of emission producing ground service equipment or aircraft auxiliary power units. There can be no assurance, that if such regulations are adopted in the future or changes in existing laws or regulations are promulgated, such laws or rules would not have a material adverse effect on the Company. -8- Under currently applicable federal aviation law, the Company's airline subsidiary could cease to be eligible to operate as an all-cargo carrier if more than 25% of the voting stock of the Company were owned or controlled by non-U.S. citizens or the airline were not effectively controlled by U.S. citizens. Moreover, in order to hold an all-cargo air carrier certificate, the president and at least two-thirds of the directors and officers of an air carrier must be U.S. citizens. To the best of the Company's knowledge, foreign stockholders do not control more than 25% of the outstanding voting stock. Two of the Company's 42 officers are not U.S. citizens. The Company believes that its current operations are substantially in compliance with the numerous regulations to which its business is subject; however, various regulatory authorities have jurisdiction over significant aspects of the Company's business, and it is possible that new laws or regulations or changes in existing laws or regulations or the interpretations thereof could have a material adverse effect on the Company's operations. Financial Information Regarding International and Domestic Operations - - --------------------------------------------------------------------- Financial information relating to foreign and domestic operations for each of the three years in the period ended December 31, 1996 is presented in Note J (Segment Information) of the Notes to Consolidated Financial Statements appearing in the 1996 Annual Report to Shareholders and is incorporated herein by reference. ITEM 2. PROPERTIES - - -------------------- The Company leases general and administrative office facilities located in Seattle, Washington. At year end the Company maintained approximately 280 domestic and 40 foreign stations, most of which are leased. The majority of the facilities are located at or near airports. The Company owns the airport at the Airborne Air Park, in Wilmington, Ohio. The airport currently consists of two runways, taxi-ways, aprons, buildings serving as aircraft and equipment maintenance facilities, sort facilities, storage facilities, a training center, and operations and administrative offices. The Company believes its existing facilities are adequate to meet current needs. Information regarding collateralization of certain property and lease commitments of the Company is set forth in Notes E and F of the Notes to Consolidated Financial Statements appearing in the 1996 Annual Report to Shareholders and is incorporated herein by reference. ITEM 3. LEGAL PROCEEDINGS - - --------------------------- None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - - ------------------------------------------------------------- None -9- ITEM 4a. EXECUTIVE OFFICERS OF THE REGISTRANT - - ----------------------------------------------
Positions and Offices Presently Name Age Held and Business Experience - - ---- --- ---------------------------- Robert S. Cline 59 Chairman and Chief Executive Officer (1984 to date); Vice Chairman and Chief Financial Officer (1978 to 1984); Executive Vice President and Chief Financial Officer (1973 to 1978); Senior Vice President, Finance (1970 to 1973); Vice President, Finance (1968 to 1970); Vice President, Finance, Pacific Air Freight, Inc. (1966 to 1968) Robert G. Brazier 59 President and Chief Operating Officer (1978 to date); Executive Vice President and Chief Operating Officer (1973 to 1978); Senior Vice President, Operations (1970 to 1973); Vice President, Operations (1968 to 1970); Vice President, Sales and Operations, Pacific Air Freight, Inc. (1964 to 1968) Roy C. Liljebeck 59 Chief Financial Officer (1984 to date); Executive Vice President, Finance Division (1979 to date); Senior Vice President (1973 to 1979); Treasurer (1968 to 1988) Kent W. Freudenberger 56 Executive Vice President, Marketing Division (1980 to date); Senior Vice President (1978 to 1980); Vice President (1973 to 1978) Raymond T. Van Bruwaene 58 Executive Vice President, Field Services Division (1980 to date); Senior Vice President (1978 to 1980); Vice President (1973 to 1978) John J. Cella 56 Executive Vice President, International Division (1985 to date); Senior Vice President, International Division (1982 to 1985); Vice President, International Divi sion (1981 to 1982); Vice President, Far East (1971 to 1981) Carl D. Donaway 45 President and Chief Executive Officer, ABX Air, Inc. (1992 to date); offices held in the Company: Vice President, Business Analysis (1992); Vice President, Customer Support (1990 to 1992); Director, Customer Support (1988 to 1990)
-10- PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED - - --------------------------------------------------------------- STOCKHOLDERS MATTERS - - -------------------- The response to this Item is contained in the 1996 Annual Report to Shareholders and the information contained therein is incorporated by reference. On February 24, 1997 there were 1,298 shareholders of recordlesser vote of the Common Stock, of the Company based on information providedor solely by the Company's transfer agent. ITEM 6. SELECTED FINANCIAL DATA - - --------------------------------- The response to this Item is contained in the 1996 Annual Report to Shareholders and the information contained therein is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND - - ------------------------------------------------------------------------- RESULTS OF OPERATIONS - - --------------------- The response to this Item is contained in the 1996 Annual Report to Shareholders and the information contained therein is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - - ----------------------------------------------------- The response to this Item is contained in the 1996 Annual Report to Shareholders and the information contained therein is incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND - - ------------------------------------------------------------------------- FINANCIAL DISCLOSURE - - -------------------- None -11- PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - - ------------------------------------------------------------ The response to this Item is contained in part in the Proxy Statement for the 1997 Annual Meetingaction of Shareholders under the captions "Election of Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" and the information contained therein is incorporated herein by reference. The executive officers of the Company are elected annually at the Board of Directors, meeting held in conjunction with the annual meeting of shareholders. There are no family relationships between any directors or executive officers of the Company. Additional information regarding executive officers is set forth in Part I, Item 4a. ITEM 11. EXECUTIVE COMPENSATION - - -------------------------------- The response to this Item is contained in the Proxy Statement for the 1997 Annual Meeting of Shareholders under the caption "Executive Compensation" and the information contained therein is incorporated hereinif permitted by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - - ------------------------------------------------------------------------ The response to this Item is contained in the Proxy Statement for the 1997 Annual Meeting of Shareholders under the captions "Votinglaw at the Meeting" and "Stock Ownershiptime). All shares of Management" and the information contained therein is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - - -------------------------------------------------------- The response to this Item is containedany one series shall be alike in the Proxy Statement for the 1997 Annual Meeting of Shareholders under the caption "Executive Compensation" and the information contained therein is incorporated herein by reference. -12- PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K - - ------------------------------------------------------------------------- (a)1. Financial Statements -------------------- The following consolidated financial statements of Airborne Freight Corporation and its subsidiaries as contained in its 1996 Annual Report to Shareholders are incorporated by reference in Part II, Item 8: Consolidated Statements of Net Earnings Consolidated Balance Sheets Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Independent Auditors' Report (a)2. Financial Statement Schedules ----------------------------- Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable or are not required, or because the required information is included in the consolidated financial statements or notes thereto. (a)3. Exhibits - - --------------- A) The following exhibits are filed with this report: EXHIBIT NO. 3 Articles of Incorporation and By-laws - - ---------------------------------------------------- 3(a) The Restated Certificate of Incorporation of the Company, dated as of August 4, 1987 (incorporated herein by reference from Exhibit 3(a) to the Company's Form 10-K for the year ended December 31, 1987). 3(b) The By-laws of the Company as amended to February 4, 1997. EXHIBIT NO. 4 Instruments Defining the Rights of Security Holders - - ------------------------------------------------------------------ Including Indentures - - -------------------- 4(a) Indenture dated as of August 15, 1991, between the Company and Bank of America National Trust and Savings Association, as Trustee,every particular, except with respect to the Company's 6-3/4% Convertible Subordinated Debentures due August 15, 2001 (incorporated herein by reference from Exhibit 4(i) to Amendment No. 1accrual of dividends prior to the Company's Registration Statement on Form S-3 No. 33-42044 filed withdate of issuance. SERIES A PARTICIPATING CUMULATIVE PREFERRED STOCK 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 Securities and Exchange Commission on August 15, 1991). 4(b) First Supplemental Trust Indenture dated asSeries A Preferred Stock shall be 300,000; provided, however, that, if more than a total of June 30, 1994 between300,000 shares of Series A Preferred Stock shall be issuable by the Company and LaSalle National Bank, as Successor Trustee, with respect tocorporation upon the Company's 6-3/4% Convertible Subordinated Debentures due August 15, 2001 (incorporated by reference from Exhibit 4(d) toexercise of Rights (the "Rights") outstanding under the Company's Form 10-K for the year ended December 31, 1996). -13- 4(c) Indenture dated as of December 3, 1992, between the Company and The Bank of New York, as trustee, relating to the Company's 8-7/8% Notes due 2002 (incorporated by reference from Exhibit 4(a) to Amendment No. 1 to the Company's Registration Statement on Form S-3, No. 33-54560 filed with the Securities and Exchange Commission on December 4, 1992). 4(d) First Supplemental Indenture dated as of September 15, 1995, between the Company and The Bank of New York, as trustee, relating to the Company's 7.35% Notes due 2005 (incorporated by reference from Exhibit 4(b) to Amendment No. 1 to the Company's Registration Statement on Form S-3, No. 33- 61329, filed with the Securities and Exchange Commission on September 5, 1995). 4(e) Second Supplemental Indenture dated as of February 12, 1997 between the Company and The Bank of New York, as trustee, relating to the Company's 8-7/8% Notes due 2002. 4(f) Rights Agreement dated as of February 14, 1997 between the CompanyAirborne Freight Corporation, a Delaware corporation ("ABF"), and The Bank of New York, a New York banking corporation, as Rights Agent (incorporated by reference from Exhibit 1(the "Rights Agreement"), following the date (the "Effective Date") on which the corporation succeeds to the Company's Registration Statement on Form 8-A, filedrights and obligations of ABF under the Rights Agreement in connection with the Securities and Exchange Commission on February 12, 1997). 4(g) Certificatemerger pursuant to which ABF becomes a wholly-owned subsidiary of the Voting Powers, Designations, Preferencescorporation, 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 Relative Participating, Optional and Other Special Rights and Qualifications, Limitations or Restrictionsrecorded, in accordance with the provisions of Section 103 thereof, providing for the total number of shares of Series A Participating Cumulative Preferred Stock authorized to be issued to be increased (to the extent that the Certificate of Airborne Freight Corporation (incorporated by reference from Exhibits 1 and 2Incorporation then permits) to the Company's Registration Statement on Form 8-A, filed with the Securities and Exchange Commission on February 12, 1997.) 4(h) Formlargest number of Right Certificate relatingwhole shares (rounded up to the Rights Agreement (see 4(f) above, incorporated by reference from Exhibits 2 and 3nearest whole number) issuable upon exercise of such Rights. Section 2. Dividends or Distributions. (a) Subject to the Company's Registration Statement on Form 8-A, filed withprior and superior rights of the Securitiesholders of shares of any other series of Preferred Stock or other class of capital stock of the corporation ranking prior and Exchange Commission on February 12, 1997.) EXHIBIT NO. 10 Material Contracts - - --------------------------------- Executive Compensation Plans and Agreements - - ------------------------------------------- 10(a) 1983 Airborne Freight Corporation Key Employee Stock Option and Stock Appreciation Rights Plan, as amended through February 2, 1987 (incorporated by reference from Exhibit 10(c)superior to the Company's Form 10-K forshares of Series A Preferred Stock with respect to dividends, the year ended December 31, 1986). 10(b) 1989 Airborne Freight Corporation Key Employee Stock Option and Stock Appreciation Rights Plan (incorporated herein by reference from Exhibit 10(d) to the Company's Form 10-K for the year ended December 31, 1989). 10(c) 1994 Airborne Freight Corporation Key Employee Stock Option and Stock Appreciation Rights Plan (incorporated herein by reference from the Addendum to the Company's Proxy Statement for the 1994 Annual Meetingholders of Shareholders). 10(d) Airborne Freight Corporations Directors Stock Option Plan (incorporated herein by reference from the Addendum to the Company's Proxy Statement for the 1991 Annual Meeting of Shareholders). 10(e) Airborne Freight Corporation Director Stock Bonus Plan dated April 23, 1996 (incorporated by reference from Exhibit 10(a) to the Company's Form 10-Q for the quarter ended June 30, 1996). -14- 10(f) Airborne Express Executive Deferral Plan dated January 1, 1992 (incorporated by reference from Exhibit 10(b) to the Company's Form 10-K for the year ended December 31, 1991). 10(g) Airborne Express Supplemental Executive Retirement Plan dated January 1, 1992 (incorporated by reference from Exhibit 10(c) to the Company's Form 10-K for the year ended December 31, 1991). 10(h) Airborne Express 1995-1999 Executive Incentive Compensation Plan, amended as of January 1, 1997. 10(i) Airborne Express 1997-1999 Executive Group Incentive Compensation Plan as of January 1, 1997. 10(j) Employment Agreement dated December 15, 1983, as amended November 20, 1986, between the Company and Mr. Robert G. Brazier, President and Chief Operating Officer (incorporated by reference from Exhibit 10(a) to the Company's Form 10-K for the year ended December 31, 1986). Identical agreements exist between the Company and the other six executive officers. 10(k) Employment Agreement dated November 20, 1986 between the Company and Mr. Lanny H. Michael, then Vice President, Treasurer and Controller (incorporated by reference from Exhibit 10(b) to the Company's Form 10-K for the year ended December 31, 1986). The Company and its principal subsidiary, ABX Air, Inc., have entered into substantially identical agreements with most of their officers. Other Material Contracts ------------------------ 10(l) $240,000,000 Revolving Loan Facility dated as of November 19, 1993 among the Company, as borrower, and Wachovia Bank of Georgia, N.A., as agent, and Wachovia Bank of Georgia, N.A., ABN AMRO Bank N.V., United States National Bank of Oregon, Seattle-First National Bank, CIBC, Inc., Continental Bank N.A., Bank of America National Trust and Savings Association, The Bank of New York, NBD Bank, N.A., as banks (incorporated herein by reference from Exhibit 10(k) to the Company's Form 10-K for the year ended December 31, 1993). 10(m) First Amendment to Revolving Loan Facility dated as of March 31, 1995 among the Company, as borrower, and Wachovia Bank of Georgia, N.A., as Agent, and Wachovia Bank of Georgia, N.A., ABN AMRO Bank N.V., United States National Bank of Oregon, Seattle-First National Bank, CIBC, Inc., National City Bank, Columbus, Bank of America National Trust and Savings Association, The Bank of New York, and NBD Bank, N.A., as banks (incorporated by reference from Exhibit 10(a) to the Company's Form 10-Q for the quarter ended March 31, 1995). 10(n) Second Amendment to Credit Agreement dated May 1, 1996 among the Company, as borrower, and Wachovia Bank of Georgia, N.A., as Agent, and Wachovia Bank of Georgia, N.A., ABN AMRO Bank N.V., United States National Bank of Oregon, Bank of America NW, N.A., CIBC, Inc., National City Bank, Columbus, as assignee of Continental Bank N.A., Bank of America National Trust and Savings Association, The Bank of New York and NBD Bank, N.A., as banks (incorporated by reference from Exhibit 10(b) to the Company's Form 10-Q for the quarter ended June 30, 1996). -15- 10(o) Used Aircraft Sales Agreement entered into as of December 22, 1995 between ABX Air, Inc. and KC-One, Inc; KC- Two, Inc.; and KC-Three, Inc. Confidential treatment has been granted for confidential commercial and financial information, pursuant to Rule 24b-2 under the Securities Exchange Act of 1934 (incorporated herein by reference from Exhibit 10(n) to the Company's From 10-K for the year ended December 31, 1996.). EXHIBIT NO. 11 Statement Re Computation of Per Share Earnings - - ------------------------------------------------------------- 11 Statement re computation of earnings per share EXHIBIT NO. 12 Statements Re Computation of Ratios - - -------------------------------------------------- 12 Statement re computation of ratio of senior long-term debt and total long-term debt to total capitalization EXHIBIT NO. 13 Annual Report to Security Holders - - ------------------------------------------------ 13 Portionsshares of the 1996 Annual ReportSeries A Preferred Stock shall be entitled to Shareholders of Airborne Freight Corporation EXHIBIT NO. 21 Subsidiaries of the Registrant - - --------------------------------------------- 21 The subsidiaries of the Company are listed in Part I of this report on Form 10-K for the year ended December 31, 1996. EXHIBIT NO. 23 Consents of Expertsreceive, when, as and Counsel - - ---------------------------------------------- 23 Independent Auditors' Consent and Report on Schedule EXHIBIT NO. 27 Financial Data Schedule - - -------------------------------------- 27 Financial Data Schedule All other exhibits are omitted because they are not applicable, or not required, or because the required information is included in the consolidated financial statements or notes thereto. (b) Reports on Form 8-K ------------------- A Form 8-K was filed February 12, 1997 which disclosed the following information: (1) Approval,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 shareholder rights plan effective February 14, 1997.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) Summary descriptionsince 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 200; provided, however, that, if at any time after the Effective Date, 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 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 the Effective Date, 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. 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 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 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 Fourth 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 Section 4.2 of this 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 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 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 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 rights plan. -16- SIGNATURES Pursuantvote 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 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 Section 13this clause (b)(2) shall be required to be met with respect to every class of outstanding Voting Stock, whether or 15(d)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 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 Securities Exchange Actcorporation; and (C) the Fair Market Value per share of 1934,such class of Voting Stock on the Company has duly caused this reportAnnouncement Date or on the Determination Date, whichever is higher. (3) The consideration to be signed on its behalfreceived 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 undersigned, thereunto duly authorized. AIRBORNE FREIGHT CORPORATION By /s/ Robert S. Cline -------------------------- Robert S. Cline Chief Executive Officer By /s/ Robert G. Brazier -------------------------- Robert G. Brazier Chief Operating Officer By /s/ Roy C. Liljebeck -------------------------- Roy C. Liljebeck Chief Financial Officer By /s/ Lanny H. Michael -------------------------- Lanny H. Michael TreasurerInterested 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 Controller Date: March 27, 1997 Pursuantprior 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 reportArticle 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 or has been signed belowotherwise 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 following persons on behalfcorporation; provided, however, that for the purposes of the Registrantdefinition 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 capacities andcase 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 quotations are available, the fair market value on the date indicated: /s/ Robert G. Brazier /s/ Andrew V. Smith - - ----------------------------- ----------------------------- Robert G. Brazier (Director) Andrew V. Smith (Director) /s/ Robert S. Cline /s/ Mary Agnes Wilderotter - - ----------------------------- ----------------------------- Robert S. Cline (Director) Mary Agnes Wilderotter (Director) /s/ Harold M. Messmer, Jr. /s/ James H. Carey - - ----------------------------- ----------------------------- Harold M. Messmer, Jr.(Director) James H. Carey (Director) -17-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 Business 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. DATED as of the 15th day of December, 2000. AIRBORNE FREIGHT CORPORATION, AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (In thousands)
Column A Column B Column C Column D Column E -------- -------- -------- -------- -------- Additions Balance at Charged to Balance at Beginning Costs and End Description of Period Expenses Deductions of Period -------- -------- -------- -------- -------- DEDUCTED FROM ASSETS TO WHICH THEY APPLY: 1. Allowance for doubtful accounts - Year Ended December 31, 1996 $7,750 $16,157 $15,562 $8,345 Year Ended December 31, 1995 $7,500 $13,309 $13,059 $7,750 Year Ended December 31, 1994 $6,925 $12,631 $12,056 $7,500
-18- EXHIBIT INDEX
Exhibit Page Number Description Number - - ------- ------------ ------- (a)3. Exhibits - - --------------- A) The following exhibits are filed with this report:
EXHIBIT NO. 3 Articles of Incorporation and By-laws - - ---------------------------------------------------- 3(a) The Restated Certificate of Incorporation of the -- Company, dated as of August 4, 1987 (incorporated herein by reference from Exhibit 3(a) to the Company's Form 10-K for the year ended December 31, 1987). 3(b) The By-laws of the Company as amended to -- February 4, 1997.
EXHIBIT NO. 4 Instruments Defining the Rights of Security Holders - - ------------------------------------------------------------------ Including Indentures - - -------------------- 4(a) Indenture dated as of August 15, 1991, between -- the Company and Bank of America National Trust and Savings Association, as Trustee, with respect to the Company's 6-3/4% Convertible Subordinated Debentures due August 15, 2001 (incorporated herein by reference from Exhibit 4(i) to Amendment No. 1 to the Company's Registration Statement on Form S-3 No. 33-42044 filed with the Securities and Exchange Commission on August 15, 1991). 4(b) First Supplemental Trust Indenture dated as of -- June 30, 1994 between the Company and LaSalle National Bank, as Successor Trustee, with respect to the Company's 6-3/4% Convertible Subordinated Debentures due August 15, 2001 (incorporated by reference from Exhibit 4(d) to the Company's Form 10-K for the year ended December 31, 1996). 4(c) Indenture dated as of December 3, 1992, between -- the Company and The Bank of New York, as trustee, relating to the Company's 8-7/8% Notes due 2002 (incorporated by reference from Exhibit 4(a) to Amendment No. 1 to the Company's Registration Statement on Form S-3, No. 33-54560 filed with the Securities and Exchange Commission on December 4, 1992). 4(d) First Supplemental Indenture dated as of -- September 15, 1995, between the Company and The Bank of New York, as trustee, relating to the Company's 7.35% Notes due 2005 (incorporated by reference from Exhibit 4(b) to Amendment No. 1 to the Company's Registration Statement on Form S-3, No. 33-61329, filed with the Securities and Exchange Commission on September 5, 1995). 4(e) Second Supplemental Indenture dated as of -- February 12, 1997 between the Company and The Bank of New York, as trustee, relating to the Company's 8-7/8% Notes due 2002. 4(f) Rights Agreement, dated as of February 14, 1997 -- between the Company and The Bank of New York, as Rights Agent (incorporated by reference from Exhibit 1 to the Company's Registration Statement on Form 8-A, filed with the Securities and Exchange Commission on February 12, 1997). 4(g) Certificate of the Voting Powers, Designations, -- Preferences and Relative Participating, Optional and Other Special Rights and Qualifications, Limitations or Restrictions of Series A Participating Cumulative Preferred Stock of Airborne Freight Corporation (incorporated by reference from Exhibits 1 and 2 to the Company's Registration Statement on Form 8-A, filed with the Securities and Exchange Commission on February 12, 1997.) 4(h) Form of Right Certificate relating to the Rights -- Agreement (see 4(f) above, incorporated by reference from Exhibits 2 and 3 to the Company's Registration Statement on Form 8-A, filed with the Securities and Exchange Commission on February 12, 1997.)
EXHIBIT NO. 10 Material Contracts - - ---------------------------------- Executive Compensation Plans and Agreements - - ------------------------------------------- 10(a) 1983 Airborne Freight Corporation Key Employee -- Stock Option and Stock Appreciation Rights Plan, as amended through February 2, 1987 (incorporated by reference from Exhibit 10(c) to the Company's Form 10-K for the year ended December 31, 1986). 10(b) 1989 Airborne Freight Corporation Key Employee -- Stock Option and Stock Appreciation Rights Plan (incorporated herein by reference from Exhibit 10(d) to the Company's Form 10-K for the year ended December 31, 1989). 10(c) 1994 Airborne Freight Corporation Key Employee -- Stock Option and Stock Appreciation Rights Plan (incorporated herein by reference from the Addendum to the Company's Proxy Statement for the 1994 Annual Meeting of Shareholders). 10(d) Airborne Freight Corporations Directors Stock -- Option Plan (incorporated herein by reference from the Addendum to the Company's Proxy Statement for the 1991 Annual Meeting of Shareholders). 10(e) Airborne Freight Corporation Director Stock -- Bonus Plan dated April 23, 1996 (incorporated by reference from Exhibit 10(a) to the Company's Form 10-Q for the quarter ended June 30, 1996). 10(f) Airborne Express Executive Deferral Plan dated -- January 1, 1992 (incorporated by reference from Exhibit 10(b) to the Company's Form 10-K for the year ended December 31, 1991). 10(g) Airborne Express Supplemental Executive -- Retirement Plan dated January 1, 1992 (incorporated by reference from Exhibit 10(c) to the Company's Form 10-K for the year ended December 31, 1991). 10(h) Airborne Express 1995-1999 Executive Incentive -- Compensation Plan, amended as of January 1, 1997. 10(I) Airborne Express 1997-1999 Executive Group -- Incentive Compensation Plan as of January 1, 1997. 10(j) Employment Agreement dated December 15, 1983, as -- amended November 20, 1986, between the Company and Mr. Robert G. Brazier, President and Chief Operating Officer (incorporated by reference from Exhibit 10(a) to the Company's Form 10-K for the year ended December 31, 1986). Identical agreements exist between the Company and the other six executive officers. 10(k) Employment Agreement dated November 20, 1986 -- between the Company and Mr. Lanny H. Michael, then Vice President, Treasurer and Controller (incorporated by reference from Exhibit 10(b) to the Company's Form 10-K for the year ended December 31, 1986). The Company and its principal subsidiary, ABX Air, Inc., have entered into substantially identical agreements with most of their officers. Other Material Contracts ------------------------ 10(l) $240,000,000 Revolving Loan Facility dated as of -- November 19, 1993 among the Company, as borrower, and Wachovia Bank of Georgia, N.A., as agent, and Wachovia Bank of Georgia, N.A., ABN AMRO Bank N.V., United States National Bank of Oregon, Seattle-First National Bank, CIBC, Inc., Continental Bank N.A., Bank of America National Trust and Savings Association, The Bank of New York, NBD Bank, N.A., as banks (incorporated herein by reference from Exhibit 10(k) to the Company's Form 10-K for the year ended December 31, 1993). 10(m) First Amendment to Revolving Loan Facility dated -- as of March 31, 1995 among the Company, as borrower, and Wachovia Bank of Georgia, N.A., as Agent, and Wachovia Bank of Georgia, N.A., ABN AMRO Bank N.V., United States National Bank of Oregon, Seattle-First National Bank, CIBC, Inc., National City Bank, Columbus, Bank of America National Trust and Savings Association, The Bank of New York, and NBD Bank, N.A., as banks (incorporated by reference from Exhibit 10(a) to the Company's Form 10-Q for the quarter ended March 31, 1995). 10(n) Second Amendment to Credit Agreement dated May -- 1, 1996 among the Company, as borrower, and Wachovia Bank of Georgia, N.A., as Agent, and Wachovia Bank of Georgia, N.A., ABN AMRO Bank N.V., United States National Bank of Oregon, Bank of America NW, N.A., CIBC, Inc., National City Bank, Columbus, as assignee of Continental Bank N.A., Bank of America National Trust and Savings Association, The Bank of New York and NBD Bank, N.A., as banks (incorporated by reference from Exhibit 10(b) to the Company's Form 10-Q for the quarter ended June 30, 1996). 10(o) Used Aircraft Sales Agreement entered into as of -- December 22, 1995 between ABX Air, Inc. and KC- One, Inc; KC-Two, Inc.; and KC-Three, Inc. Confidential treatment has been granted for confidential commercial and financial information, pursuant to Rule 24b-2 under the Securities Exchange Act of 1934 (incorporated herein by reference from Exhibit 10(n) to the Company's From 10-K for the year ended December 31, 1996.).
EXHIBIT NO. 11 Statement Re Computation of Per Share Earnings - - -------------------------------------------------------------- 11 Statement re computation of earnings per share --
EXHIBIT NO. 12 Statements Re Computation of Ratios - - -------------------------------------------------- 12 Statement re computation of ratio of senior long- -- term debt and total long-term debt to total capitalization
EXHIBIT NO. 13 Annual Report to Security Holders - - ------------------------------------------------- 13 Portions of the 1996 Annual Report to -- Shareholders of Airborne Freight Corporation
EXHIBIT NO. 21 Subsidiaries of the Registrant - - ---------------------------------------------- 21 The subsidiaries of the Company are listed in -- Part I of this report on Form 10-K for the year ended December 31, 1996.
EXHIBIT NO. 23 Consents of Experts and Counsel - - ----------------------------------------------- 23 Independent Auditors' Consent and Report on -- Schedules
EXHIBIT NO. 27 Financial Data Schedule - - --------------------------------------- 27 Financial Data Schedule --
All other exhibits are omitted because they are not applicable, or not required, or because the required information is included in the consolidated financial statements or notes thereto. (b) Reports on Form 8-K ------------------- A form 8-K was filed February 12, 1997 which disclosed the following information: (1) Approval, by the Board of Directors, of a -- shareholder rights plan effective February 14, 1997. (2) Summary description of the shareholder rights -- plan.
Incorporator By /s/ David C. Anderson David C. Anderson Corporate Secretary