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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________
Commission File Number: 000-23189
C.H. ROBINSON WORLDWIDE, INC.
(Exact name of registrant as specified in its charter)
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<S> <C>
Delaware 41-1883630
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
8100 Mitchell Road, Eden Prairie, Minnesota 55344-2248
Address of principal executive offices) (Zip Code)
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(952) 937-8500
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
value $.10 per
share
Preferred Share
Purchase Rights
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
The aggregate market value of Common Stock held by non-affiliates of the
registrant as of March 10, 2000 was approximately $1,709,870,973 (based on the
last sale price of such stock as quoted on The Nasdaq National Market ($49.438)
on such date).
As of March 10, 2000, the number of shares outstanding of the registrant's
Common Stock, par value $.10 per share, was 42,276,929.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Stockholders for the year
ended December 31, 1999 (the "Annual Report"), are incorporated by reference in
Part II.
Portions of the Registrant's Proxy Statement relating to its Annual Meeting
of Stockholders to be held May 2, 2000 (the "Proxy Statement"), are incorporated
by reference in Part III.
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PART I
ITEM 1. BUSINESS
Overview
Founded in 1905, C.H. Robinson Worldwide, Inc. (the "Company" or
"Robinson") is one of the largest third-party logistics companies in North
America with 1999 gross revenues of $2.3 billion. The Company is a global
provider of multimodal transportation services and logistics solutions through a
network of 131 offices in the United States, Canada, Mexico, Europe and South
America. Through contracts with approximately 20,000 motor carriers, the Company
maintains the single largest network of motor carrier capacity in North America
and is one of the largest third-party providers of intermodal services in the
United States. In addition, the Company regularly provides air, ocean and
customs services. As an integral part of the Company's transportation services,
the Company provides a wide range of value-added logistics services, such as
fresh produce sourcing, freight consolidation, information reporting and cross-
docking. During 1999, the Company handled over 1,500,000 shipments for more than
10,000 customers ranging from Fortune 100 companies to small businesses in a
wide variety of industries.
The Company has developed global multimodal transportation and distribution
networks to provide seamless logistics services worldwide. As a result, the
Company has the capability of managing all aspects of the supply chain on behalf
of its customers. As a non-asset based transportation provider, the Company can
focus on optimizing the transportation solution for its customer rather than on
its own asset utilization, using established relationships with motor carriers,
railroads (primarily intermodal service providers), air freight carriers and
ocean carriers.
Throughout its 95-year history, the Company has been in the business of
sourcing fresh produce. Much of the Company's logistics expertise can be traced
to its significant experience in handling perishable commodities. Due to the
time-sensitive nature and quality requirements of the shipments, fresh produce
represents a unique logistics challenge, and the distribution and transportation
costs are significant. The Company has developed a network of produce sources
and maintains access to specialized equipment and transportation modes designed
to ensure timely delivery of uniform quality produce. In response to demand from
large grocery retailers and food service distributors, the Company has developed
its own brand of produce, The Fresh 1/(R)/, and entered into licensing
agreements for national brand names. The produce for these brands is sourced
through various relationships and packed to order through contract packing
agreements.
The Company's business philosophy has accounted for its strong historical
results and has positioned the Company for continued growth. The Company's
principal competitive advantage is its large decentralized branch network,
staffed by approximately 2,392 salespersons who are employees rather than
agents. These branch employees are in close proximity to both customers and
carriers which facilitates quick responses to customers' changing needs. Branch
employees act as a team in both marketing the Company's services and providing
these services to individual customers. The Company compensates its branch
employees principally on the basis of individual performance and their branch's
profitability, which in the Company's opinion produces a more service-oriented,
focused and creative sales force. The Company believes it is owned by more than
1,000 of its employees holding a majority of the Company's Common Stock.
The Company was reincorporated in Delaware in 1997 as the successor to a
business existing, in various legal forms, since 1905. The Company's Common
Stock began trading on The Nasdaq National Market under the symbol "CHRW" on
October 15, 1997. Certain stockholders of the Company sold 12,165,155 shares of
the Company's Common Stock to the public pursuant to a registered public
offering, the proceeds of which were paid entirely to the selling stockholders.
Prior to such date, there was no established public trading market for the
Company's Common Stock.
In January 1999, the Company acquired Norminter S.A., a European third
party logistics company, and its subsidiaries. Norminter, headquartered in
Caen, France, provides transportation and logistics services within Europe to
shippers in a variety of industries. Norminter had combined annual net revenues
of approximately $5,000,000 in 1998.
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In August 1999, the Company acquired the ongoing operations and certain
assets of Vertex Transportation, Inc., a non-asset based third-party
transportation provider in East Rochester, New York. Vertex was the operating
subsidiary of Country Wide Transport Services, Inc., which had annual net
revenues of approximately $5,000,000 in 1998.
In December 1999, the Company acquired the ongoing operations and certain
assets of American Backhaulers, Inc., a privately held, non-asset based third-
party transportation provider, located primarily in Chicago, Illinois. American
Backhaulers had annual net revenues of approximately $54,000,000 in 1999. The
Company issued 1,120,715 shares as part of the purchase price for this
acquisition.
The Company's corporate office is located at 8100 Mitchell Road, Eden
Prairie, Minnesota 55344-2248, and its telephone number is (952) 937-8500. Its
web site address is www.chrobinson.com.
Logistic Services
As a global, third-party logistics company, the Company provides multimodal
transportation and related logistics services, sourcing and fee-based
information services.
The Company seeks to establish long-term relationships with its customers
in order to provide logistics solutions that reduce or eliminate inefficiencies
in customers' supply chains. Whenever appropriate, the Company analyzes the
customer's current transportation rate structures, modes of shipping and carrier
selection. The Company may also examine the customer's warehousing, picking
procedures, loading, unloading and dock scheduling procedures, as well as
packaging and pallet configuration procedures. The Company then evaluates how
these procedures interact with shipping, manufacturing and customer service.
Upon completion of an initial analysis, the Company proposes solutions which
allow the customer to streamline operating procedures and contain costs, while
improving the management of its supply chain. Robinson branch employees remain
involved with the customer throughout the analysis and implementation of the
proposed solution. In the course of providing day-to-day transportation
services, branch employees offer further logistics analysis and solutions as the
employees become more familiar with the customer's daily operations and the
nuances of its supply chain. The Company's ultimate goal is to assist the
customer in managing its entire supply chain while being the customer's key
provider of individual transportation services.
Multimodal Transportation Services
On a day-to-day basis, customers communicate their freight needs, typically
on a load-by-load basis, to the Company by means of a telephone call, fax
transmission, Internet, e-mail or EDI message to the branch office salesperson
responsible for the particular customer. All appropriate information about each
load is entered into the Company's computer based operating system. With the
help of the operating system, a salesperson then determines the appropriate mode
of transportation for the load and selects a carrier or carriers, based upon the
salesperson's knowledge of the carrier's service capability, equipment
availability, freight rates and other relevant factors. A salesperson then
communicates with the carrier's dispatch office to confirm a price for the
transportation and the carrier's commitment to provide the transportation. At
this point, the salesperson provides the carrier information to the customer,
together with the Company's sales price, which is intended to provide a profit
to the Company for the totality of services performed for the customer. By
accepting the customer's order, the Company becomes legally responsible for
transportation of the load from origin to destination, rather than being a mere
freight broker. The carrier's contract is with the Company, not the customer,
and the Company is responsible for prompt payment of carrier charges. The
Company is also responsible to its customer for any claims for damage to freight
while in transit or performance. In most cases, the Company receives
reimbursement from the carrier for these claims.
As a result of the Company's logistics capabilities, many customers now
look to Robinson to handle all, or a substantial portion, of their freight
transportation requirements to or from a particular manufacturing facility or
distribution center. In a number of instances, the Company has contracts with
the customer whereby the Company agrees to handle a specified number of loads
usually to specified destinations, such as from the customer's plant to a
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distribution center, at specific rates, but subject to seasonal variation. Most
of the Company's rate commitments are for periods of one year or less. To meet
its obligations under these customer contracts, Robinson may obtain advance
commitments from one or more carriers to transport all, or a significant
portion, of the contracted loads, again at specific rates, for the length of
Robinson's customer contract.
As part of its customer focus, Robinson offers a wide range of logistics
services on a worldwide basis to assure timely, efficient and cost effective
delivery through the use of one or more transportation modes. These logistics
services include: transportation management (price and modal comparisons and
selection; shipment consolidation and optimization; improvement of operating and
shipping procedures and claims management); minimization of storage (through
cross-docking and other flow-through operations); logistics network and nodal
location analysis to optimize the entire supply chain; tracking and tracing;
reverse logistics and other special needs; management information; and analysis
of a customer's risk and claims management practices. Robinson will evaluate a
customer's core carrier program by reviewing such factors as carriers' insurance
certificates, safety ratings and financial stability as well as establishing a
program to measure and monitor key quality standards for those core carriers.
These services are bundled with underlying transportation services and are not
typically separately priced, but instead are reflected as a part of the cost of
transportation services provided by the Company on a transactional basis
pursuant to continuing customer relationships. Incident to these transportation
services, the Company may supply sourcing, contract warehousing, consulting and
other services, for which it is separately compensated.
The Company is capable of arranging all modes of transportation services on
a worldwide basis:
. Truck--Through its contracts with approximately 20,000 motor carriers,
the Company maintains access to dry vans, temperature-controlled units
and flatbeds. It offers both time-definite and expedited truck
transportation. In many instances, particularly in connection with its
sourcing business, the Company will consolidate partial loads for several
customers into full truckloads.
. Less Than Truckload ("LTL") -- LTL transportation involves the shipment
of small package, single or multiple pallet, up to and including full
trailer-load freight. The Company focuses on pallet to partial load
freight, although it handles any size shipment. Through contracts with
motor carriers and its proprietary Internet-based software system,
Robinson consolidates both freight and freight information to provide
shippers with single source tracking and tracing capability, and the
economic benefits of consolidating partial loads into full truckloads.
. Intermodal--Intermodal transportation involves the shipment of trailers
or containers by a combination of truck, rail and/or ship in a
coordinated manner. The Company provides intermodal service by both rail
and ship, arranges local pickup and delivery (known as drayage) through
local motor carriers and provides temperature-controlled double and
triple-stacked intermodal containers. The Company currently owns or
leases approximately 500 intermodal containers. The Company also has
intermodal marketing contracts with railroads, which give the Company
access to additional trailers and containers.
. Ocean--As an indirect ocean carrier and freight forwarder, the Company
consolidates shipments, determines routing, selects ocean carriers,
contracts for ocean shipments, provides for local pickup and delivery of
shipments and arranges for customs clearance of shipments, including the
payment of duties.
. Air--The Company provides door-to-door service as a full-service air
freight forwarder, both domestically and internationally.
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The table below shows the Company's net revenues by transportation mode for
the periods indicated:
Transportation Net Revenues
(in thousands)
Year Ended December 31,
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1995 1996 1997 1998 1999
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Truck(1)............... $ 97,636 $110,460 $133,110 $164,186 $202,877
Intermodal............. 6,864 8,014 9,680 6,671 10,738
Ocean.................. 7,212 8,121 9,226 10,215 11,476
Air.................... 1,402 1,687 1,954 3,427 2,858
Miscellaneous(2)....... 3,907 4,964 5,290 5,298 5,899
Total................ $117,021 $133,246 $159,260 $189,797 $233,848
________________
(1) Includes LTL net revenues.
(2) Consists of customs clearance (Automated Brokerage Interface (ABI) and
Automated Clearing House (ACH) capabilities with the U.S. Customs Service),
warehousing, and other miscellaneous services.
As the Company has emphasized integrated logistics solutions, its
relationships with many customers have become broader, with the Company becoming
a business partner responsible for a greater portion of supply chain management.
Customers may be served by specially created Robinson teams and over several
branches. Robinson's multimodal transportation services are provided to
numerous international customers through its domestic branch offices as well as
through branch offices in Canada, Mexico, Belgium, England, France, Germany,
Italy, Poland, Spain, Argentina, Brazil and Venezuela. The Notes to the
Company's Consolidated Financial Statements present the Company's gross revenues
from international customers for the years ended December 31, 1997, 1998 and
1999, and the Company's long-lived assets as of December 31, 1998 and 1999, in
the United States and in foreign locations.
Sourcing
Throughout its 95-year history, Robinson has been in the business of
sourcing fresh produce. Much of the Company's logistics expertise can be traced
to the Company's significant experience in handling perishable commodities.
Because of its perishable nature, produce must be quickly packaged, transported
within tight timetables in temperature controlled equipment and distributed
quickly to replenish high turnover inventories maintained by wholesalers, food
service companies and retailers. In most instances, the Company consolidates
individual customers' produce orders into truckload quantities at the point of
origin and arranges for transportation of the truckloads, often to multiple
destinations. The Company's sourcing business is with produce wholesalers, who
purchase produce in relatively large quantities through the Company and resell
the produce to grocery retailers, restaurants and other resellers of food, and
with grocery store chains and other multistore retailers. Most of the Company's
remaining customers are food service companies that distribute a range of food
products to retailers, restaurants and institutions.
During the past five years, the Company has actively sought to expand its
food sourcing customer base by focusing on the larger multistore retailers. As
these retailers have expanded through store openings and industry consolidation,
their traditional methods of produce sourcing and store-level distribution,
which relied principally on regional or even local purchases from wholesalers,
have become inefficient. The Company's logistics and perishable commodities
sourcing expertise can greatly improve the retailers' produce purchasing as well
as assure uniform quality from region to region and store to store. The Company
provides just-in-time replenishment services to retailers. The Company
introduced its proprietary The Fresh 1/(R)/ brand of produce in 1989, which
includes a wide range of uniform
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quality, top grade fruits and vegetables purchased from various domestic and
international growers. During 1998, the Company entered into new sourcing
programs, including licensing agreements for major national brands, that have
expanded the Company's market presence and sourcing capabilities with respect to
both product lines and nationally recognized brand names.
Sourcing accounted for approximately 19%, 18% and 15% of the Company's net
revenues in 1997, 1998 and 1999, respectively.
Information Services
A subsidiary of the Company, T-Chek Systems, Inc. provides motor carrier
customers with funds transfer and driver payroll services, fuel management
services, fuel and use tax reporting as well as on-line access to custom-
tailored information management reports, all through the use of its proprietary
automated system. This system enables motor carriers to track equipment, manage
fleets and dictate where and when their drivers purchase fuel. For several
companies and truck stop chains, T-Chek captures sales and fuel cost data,
applies the margin agreed between seller and purchaser, reprices the sale,
invoices the carrier and provides management information to the seller.
Through its subsidiary, Payment & Logistics Services, Inc., the Company
provides freight payment services to shippers using a proprietary system, often
linked to the carriers by EDI, with the ability to process freight payments by
electronic funds transfer. This system also enables the Company to
automatically audit the customer's freight rates, eliminate duplicate payments
to carriers and produce reports containing information about such matters as
shipping patterns, freight volumes and overall transportation costs. Upon
agreement, the Company and the customer can use this data to better manage the
customer's supply chain.
The Company's information services accounted for approximately 4%, 5% and
6% of the Company's net revenues in 1997, 1998 and 1999, respectively.
Organization
To allow the Company to stay close to customers and markets, the Company
has created and continues to expand a network of 131 offices supported by
executives and services in a central office.
Branch Network
Branch salespersons are responsible for developing new business, receiving
and processing orders from specific customers located in the area served by the
branch and contracting with carriers to provide the transportation requested. In
addition to routine transportation, salespersons are often called upon to handle
customers' unusual, seasonal and emergency needs. Shipments to be transported by
truck are almost always contracted at the branch level, and branches cooperate
with each other to cover loads. Some branches may rely on expertise in other
branches when contracting LTL, intermodal, international and air shipments.
Salespersons in the branches both sell and service their customers rather
than rely exclusively on a central office or dedicated sales staff. Sales
opportunities are identified through the Company's database, industry
directories, referrals by existing customers and leads generated by branch
office personnel through knowledge of their local and regional markets. Each
branch is also responsible for locating and contracting with carriers.
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The table below shows certain information about the Company's branches for
the periods indicated:
Branch Data
(Dollars in thousands)
Year Ended December 31,
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1995 1996 1997 1998 1999
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Average employees per branch 14.6 15.4 16.2 18.4 23.9
Average net revenues per branch $1,683 $1,717 $1,822 $2,082 $2,263
Average net revenues per employee $ 113 $ 115 $ 115 $ 119 $ 120
As of December 31, 1999, the Company's branch salespersons represented
approximately 70% of the Company's total work force and all branch employees,
including support staff, represented over 90% of the Company's work force. At
December 31, 1999, the number of salespersons per Company branch ranged from
three to approximately 450 (including salespersons and customer support at
American Backhaulers).
Branch Expansion. The Company expects to continue to add branch offices as
management determines that a new branch may contribute to continued growth and
as branch salespersons develop the capability to manage a new branch. The
Company intends to continue to open overseas branches as opportunities arise to
serve the local needs of multinational customers. Additional branches are often
opened within a territory previously served by another branch, such as within
major cities, as the volume of business in a particular area warrants opening a
separate branch. Capital required to open a new branch is modest, involving a
lease for a small amount of office space, communication links and often employee
compensation guaranties for a short time.
Branch Employees. For almost two decades, new branch salespersons have been
hired through a sophisticated profiling system using standardized tests to
measure an applicant against the traits determined by the Company to be those of
successful Robinson employees. These common traits facilitate cooperative
efforts necessary for the success of each office. Applicants are recruited
nationally from across the United States and Canada, typically have college
degrees and some have business experience, not necessarily within the
transportation industry. The Company is highly selective in determining to whom
it offers employment.
Newly hired branch employees receive extensive on-the-job training at the
branch level, which ranges from six months to a year and emphasizes development
of the necessary skills and attitude to become productive members of a branch
team. The Company believes most salespersons become productive employees in a
matter of weeks. After gaining a year of experience, each salesperson attends a
Company-sponsored national meeting to receive additional training and foster
relationships between branches.
Employees at the branch level form a team, which is enhanced by the
Company's incentive compensation system under which a significant part of the
cash compensation of most branch managers and salespersons is dependent on the
profitability of the particular branch. For any calendar year, branch managers
and salespersons who have been employed for at least one complete year
participate in the branch's earnings for that calendar year, based on a system
of "points" awarded to the employees on the basis of their productivity and
contribution. Most of a branch manager's cash compensation is provided by this
compensation program. For 1999, incentive-based cash compensation averaged
approximately 30% of branch salespersons' total cash compensation, 59% of branch
managers' total cash compensation and 56% of officers' total cash compensation.
Branch employees also participate in significant individual incentive
compensation based on achieving individual growth goals, and in the Company's
Profit Sharing Plan, contributions to which depend on overall Company
profitability and other factors. In connection with establishing new branches
and other special circumstances, the Company may guaranty a level of
compensation to the branch manager and key salespersons.
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All managers and other employees throughout the Company who have
significant responsibilities are eligible to participate in the Company's 1997
Omnibus Stock Plan. Employees at all levels, after a qualifying period of
employment, are eligible to participate in the Company's Employee Stock Purchase
Plan.
Individual salespersons benefit both through the growth and profitability
of individual branches and by achieving individual goals, and are motivated by
the opportunity to become branch managers, assistant managers or department
managers. All branch salespersons are full time employees.
Executive Officers
Under the Company's decentralized operating system, branch managers report
directly to, and receive guidance and support from, a small group of executive
officers at the Company's central office. Customers, carriers, managers and
employees have direct access to the Company's Chief Executive Officer, D.R.
Verdoorn, and all other executive officers. These executives provide training
and education concerning logistics, develop new services and applications to be
offered to customers and provide broad market analysis.
The executive officers of the Company serve at the discretion of the Board
of Directors and are chosen annually by the Board of Directors. Set forth below
are the names, ages and positions of the executive officers of the Company.
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Name Age Position
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D.R. Verdoorn 61 Chairman of the Board and Chief Executive Officer
John P. Wiehoff 38 President
Barry W. Butzow 53 Senior Vice President and Director
Gregory D. Goven 48 Senior Vice President
Owen P. Gleason 48 Vice President, General Counsel, Secretary and Director
James V. Larson 46 Vice President, Transportation
Chad M. Lindbloom 35 Vice President and Chief Financial Officer
Timothy P. Manning 35 Vice President, Branch Operations and Organizational Resources
Joseph J. Mulvehill 46 Vice President, International
Michael T. Rempe 46 Vice President, Produce
Mark Walker 42 Vice President, Chief Information Officer
Troy A. Renner 35 Treasurer
Thomas K. Mahlke 28 Corporate Controller
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D.R. Verdoorn has been Chief Executive Officer of the Company and its
predecessor since 1977, and a director since 1975. In 1998, Mr. Verdoorn was
also named Chairman of the Board. He has been with the Company since 1963. He
has served on the Boards of Directors for United Fresh Fruit and Vegetable
Association and the Produce Marketing Association. Mr. Verdoorn attended Central
College in Pella, Iowa.
John P. Wiehoff has been President of the Company since December 1999.
Previous positions with the Company include Senior Vice President and Chief
Financial Officer since July 1, 1998, Treasurer, and Corporate Controller since
1992. Prior to that, he was employed by Arthur Andersen LLP. He holds a
Bachelor of Science degree from St. John's University.
Barry W. Butzow has been a Vice President of the Company since 1984 and a
director since 1986. In October of 1998, he was named a Senior Vice President.
He began employment with the Company in 1969. He holds a Bachelor of Arts degree
from Moorhead State University.
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Gregory D. Goven has been a Vice President of the Company since 1988, and
was named a Senior Vice President in October of 1998. Mr. Goven joined the
Company in 1973. Mr. Goven holds a Bachelor of Science degree from North Dakota
State University. Mr. Goven's wife is the first cousin of Mr. Verdoorn.
Owen P. Gleason has been Vice President and General Counsel of the Company
since 1990 and served as corporate counsel since 1978. Mr. Gleason has been a
director since 1986. Mr. Gleason holds a law degree from Oklahoma City
University and a Bachelor's Degree from Ripon College.
James V. Larson has been Vice President, Transportation since July 1999.
Prior to that, he served as Vice President of Sales, and later as President, of
Preferred Translocation Systems, which he founded in 1986 and which was acquired
by the Company in July 1998.
Chad M. Lindbloom has been Vice President and Chief Financial Officer of
the Company since December 1999. From June of 1998 until December of 1999, he
served as the Company's Corporate Controller. Mr. Lindbloom joined the Company
in 1990 as a staff accountant. Mr. Lindbloom holds a Bachelor of Science degree
and a Masters of Business Administration from the Carlson School of Management
at the University of Minnesota.
Timothy P. Manning has been Vice President, Branch Operations and
Organizational Resources since December 1999. Previous positions with the
Company include Transportation Manager in the St. Louis branch office, and in
October 1998, Mr. Manning was named Director of Operations. Mr. Manning joined
the Company in 1989. Mr. Manning holds a Bachelor of Science degree from the
University of Minnesota.
Joseph J. Mulvehill has been Vice President, International since 1998. Mr.
Mulvehill joined the Company in 1975. Mr. Mulvehill holds a Bachelor of Arts
degree from the University of St. Thomas.
Michael T. Rempe has been Vice President, Produce since 1994, after
starting with the Company in 1989 as Director of Produce Merchandising. Prior to
that, he held several senior positions in the retail grocery industry. Mr. Rempe
has served on the board of directors of the Produce Marketing Association and is
currently on the board of directors of Produce for Better Health. Mr. Rempe
attended Indiana University Purdue University at Indianapolis.
Mark Walker has been Vice President and Chief Information Officer since
December 1999. Additional positions with the Company include President of T-
Chek Systems LLC and President of Payment & Logistics Services LLC. Mr. Walker
joined the Company in 1980. Mr. Walker holds a Bachelor of Sciences degree from
Iowa State University and a Masters of Business Administration from the
University of St. Thomas.
Troy A. Renner has been Treasurer of the Company since June 1998, and Tax
Director since 1995. Prior to that, he was employed as a tax manager by Arthur
Andersen LLP. Mr. Renner holds a Bachelor of Science and a law degree from the
University of Minnesota.
Thomas K. Mahlke has been Corporate Controller of the Company since
December 1999. Mr. Mahlke joined the Company in November of 1997 as Accounting
Manager. Prior to that, he was employed as a supervisory senior accountant by
Arthur Andersen LLP since 1992. Mr. Mahlke holds a Bachelor of Accountancy
degree from the University of North Dakota.
Employees
As of December 31, 1999, the Company had a total of 3,125 employees,
substantially all of whom are full-time employees and approximately 2,914 of
whom were located in the Company's branch offices. Corporate services such as
accounting, information systems, legal, credit support and claims support are
provided centrally. The Company believes that its compensation and benefit plans
are among the most competitive in the industry and that its relationship with
employees is excellent.
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Customers and Marketing
The Company seeks to establish long-term relationships with its customers
and to increase the amount of business done with each customer by seeking to
provide the customer with a full range of logistic services. The Company serves
customers ranging from Fortune 100 companies to small businesses in a wide
variety of industries. During 1999, no customer accounted for more than 6% of
gross revenues. In recent years, revenue growth has been achieved through the
growth and consolidation of customers, expansion of the services provided by the
Company and an increase in the number of customers served.
The Company believes that decentralization allows salespersons to better
serve the Company's customers by fostering the development of a broad knowledge
of logistics and local and regional market conditions as well as the specific
logistics issues facing individual customers. With the guidance of experienced
branch managers (who have an average tenure of 12 years with the Company),
branches are given significant latitude in pursuing opportunities and committing
the Company's resources to serve customers.
Branches seek additional business from existing customers and pursue new
customers, based on their knowledge of local markets and the range and value of
logistics services that the Company is capable of providing. The Company has
begun placing increased emphasis on national sales and marketing support to
enhance branch capabilities. Increasingly, branches call on central office
executives, a national sales staff and a central logistics group to support them
in the pursuit of multinational corporations and other companies with more
complex logistics requirements.
Relationships with Carriers
The Company seeks to establish long-term relationships with carriers in
order to assure dependable services, favorable pricing and carrier availability
during peak shipping periods and periods of undercapacity. To strengthen and
maintain these relationships, Company salespersons regularly communicate with
carriers serving their region and seek to assist carriers with equipment
utilization, reduction of empty miles and equipment repositioning. The Company
has a policy of prompt payment and provides centralized claims management on
behalf of various shippers. Many smaller carriers effectively consider Robinson
as their sales and marketing department.
As of December 31, 1999, the Company had contracts with approximately
20,000 motor carriers (providing access to temperature controlled vans, dry vans
and flatbeds). Those carriers include owner-operators of a single truck, small
and mid-size fleets, private fleets and the largest national trucking companies.
Consequently, the Company is not dependent on any one carrier. As of December
31, 1999, the Company also had intermodal marketing contracts with railroads,
including all of the major North American railroads, giving the Company access
to additional trailers and containers. The Company qualifies each motor carrier
to assure that it is properly licensed and insured and has the resources to
provide the necessary level of service on a dependable basis. The Company's
motor carrier contracts require that the carrier commit to a minimum number of
shipments, issue invoices only to and accept payment solely from Robinson and
permit Robinson to withhold payment to satisfy previous claims or shortages.
Carrier contracts also establish transportation rates that can be modified by
issuance of an individual load confirmation. The Company's contracts with
railroads govern the transportation services and payment terms by which the
Company's intermodal shipments are transported by rail. Intermodal
transportation rates are typically negotiated between the Company and the
railroad on a customer-specific basis.
Competition
The transportation services industry is highly competitive and fragmented.
The Company competes primarily against a large number of other non-asset based
logistics companies, as well as asset-based logistics companies, third-party
freight brokers, carriers offering logistics services and freight forwarders.
The Company also competes against carriers' internal sales forces and shippers'
own transportation departments. It also buys and sells transportation services
from and to companies with which it competes.
-9-
<PAGE>
The Company often competes with respect to price, scope of services or a
combination thereof, but believes that its most significant competitive
advantages are:
. its large decentralized branch network, staffed by salespersons who
are employees rather than agents, which enables the Company's
salespersons to gain significant knowledge about individual customers
and the local and regional markets they serve,
. its technology, including Internet communications capabilities,
. its ability to provide a broad range of logistics services and
. its ability to provide door-to-door services on a worldwide basis.
Communications and Information Systems
To handle the large number of daily transactions and to accommodate its
decentralized branch system, the Company has designed an extensive
communications and information system. Employees are linked with each other and
with customers and carriers by telephone, facsimile, Internet, e-mail and/or EDI
to communicate requirements and availability, to confirm and bill orders and,
through the Company's Internet home page CHRWe-Center (www.chrobinson.com), to
contract loads or equipment and track and trace shipments. Customers and
carriers also have access to the Company's systems through the CHRW e-Center.
The Company has developed its own proprietary computer based systems that help
salespersons service customer orders, select the optimal modes of
transportation, build and consolidate loads and selects routes, all based on
customer-specific service parameters, makes load data visible to the entire
sales team as well as customers and carriers, enabling the salespersons to
select carriers and track loads in progress, and automatically provides visible
alerts to any arising problems. The Company's internally developed proprietary
decision support system uses data captured from daily transactions to generate
various management reports which are available to the Company's logistics
customers to provide information on traffic patterns, product mix and production
schedules, and enables customers to analyze their own customer base,
transportation expenditure trends and the impact on out-of-route and out-of-
stock costs.
The Company did not experience any material disruptions or other problems
with its internal computer systems related to the Year 2000 issue. In addition,
the Company is not aware of any material systems interruptions with any
customer, produce supplier or transportation carrier that has had a material
impact on its business as a result of the Year 2000 situation. The Company has
no single third party relationship that accounts for more than 6% of its
business.
Government Regulation
The transportation industry has been subject to legislative and regulatory
changes that have affected the economics of the industry by requiring changes in
operating practices or influencing the demand for, and cost of providing,
transportation services. The Company cannot predict the effect, if any, that
future legislative and regulatory changes may have on the transportation
industry.
The Company is subject to licensing and regulation as a transportation
provider. The Company is licensed by the Department of Transportation ("DOT") as
a broker in arranging for the transportation of property by motor vehicle. The
DOT prescribes qualifications for acting in this capacity, including certain
surety bonding requirements. The Company provides motor carrier transportation
services that require registration with the DOT and compliance with certain
economic regulations administered by the DOT, including a requirement to
maintain insurance coverage in minimum prescribed amounts. The Company is
subject to regulation by the Federal Maritime Commission as an ocean freight
forwarder and maintains a non-vessel operating common carrier bond. The Company
operates as an indirect air cargo carrier subject to economic regulation by the
DOT. The Company provides customs brokerage services as a customs broker under
a license issued by the United States Customs Service of the Department of
Treasury. The Company sources fresh produce under a license issued by the United
States Department of Agriculture. Other sourcing
-10-
<PAGE>
and distribution activities may be subject to various federal and state food and
drug statutes and regulations. Although Congress enacted legislation in 1994
that substantially preempts the authority of states to exercise economic
regulation of motor carriers and brokers of freight, the Company and several of
its subsidiaries continue to be subject to a variety of vehicle registration and
licensing requirements. The Company and the carriers that the Company relies on
in arranging transportation services for its customers are also subject to a
variety of federal and state safety and environmental regulations. Although
compliance with the regulations governing licensees in these areas has not had a
materially adverse effect on the Company's operations or financial condition in
the past, there can be no assurance that such regulations or changes thereto
will not adversely impact the Company's operations in the future. Violation of
these regulations could also subject the Company to fines or, in the event of
serious violation, suspension or revocation of operating authority as well as
increased claims liability.
Risk Management and Insurance
In its truck and intermodal operations, the Company assumes full value
cargo risk to its customers. The Company subrogates its losses against the motor
or rail carrier with the transportation responsibilities. The Company requires
all motor carriers participating in its contract program to carry at least
$750,000 in general liability insurance and $25,000 in cargo insurance. Many
carriers carry insurance limits exceeding these minimums. Railroads, which are
generally self-insured, provide limited common carrier liability protection,
generally up to $250,000 per shipment. For both truck and rail transportation,
higher coverage is available to the customer on a load-by-load basis at an
additional price.
In its international freight forwarding, ocean transportation and air
freight businesses, the Company does not assume cargo liability to its customers
above minimum industry standards. The Company offers its customers the option to
purchase ocean marine cargo coverage to insure goods in transit. When the
Company agrees to store goods for its customers for longer terms, it provides
limited warehouseman's coverage to its customers and contracts for warehousing
services from companies which provide the Company the same degree of coverage.
The Company maintains a broad cargo liability policy to protect it against
catastrophic losses that may not be recovered from the responsible carrier. The
Company also carries various liability policies, including auto and general
liability, with a $100 million umbrella.
Agricultural chemicals used on agricultural commodities intended for human
consumption are subject to various approvals, and the commodities themselves are
subject to regulations on cleanliness and contamination. Concern about
particular chemicals and alleged contamination has led to recalls of products,
and tort claims have been brought by consumers of allegedly affected produce.
Because the Company is a seller of produce, it may have legal responsibility
arising from sales of produce. While the Company carries product liability
coverage of $75 million, settlement of class action claims is often costly, and
the Company cannot assure that its liability coverage will be adequate and will
continue to be available. In addition, in connection with any recall, the
Company may be required to bear the cost of repurchasing, transporting and
destroying any allegedly contaminated product, for which it is not insured. Any
recall or allegation of contamination could affect the Company's reputation,
particularly of it's the Fresh 1/(R)/ brand. Loss due to spoilage (including
the need for disposal) is also a routine part of the sourcing business.
Forward-Looking Statements
This Form 10-K Annual Report and the Company's financial statements,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in Item 7 and other documents incorporated by reference contain
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. These forward-looking statements represent our expectations or
beliefs, including, but not limited to, our current assumptions about future
financial performance, anticipated problems, and our plans for future
operations, which are subject to various risks and uncertainties. When used in
this Form 10-K and in future filings by the Company with the Securities and
Exchange Commission, in our press releases, presentations to securities analysts
or investors, in oral statements made by or with the approval of an executive
-11-
<PAGE>
officer of the Company, the words or phrases "believes," "may," "will,"
"expects," "should," "continue," "anticipates," "intends," "will likely result,"
"estimates," "projects," or similar expressions and variations thereof are
intended to identify such forward-looking statements. However, any statements
contained in this Form 10-K that are not statements of historical fact may be
deemed to be forward-looking statements. We caution that these statements by
their nature involve risks and uncertainties, certain of which are beyond our
control, and actual results may differ materially depending upon a variety of
important factors, including those described in Exhibit 99 to this Form 10-K.
ITEM 2. PROPERTIES
All of the Company's 131 offices are leased from third parties under leases
with initial terms ranging from three to ten years. The Company leases
approximately 65,000 square feet of office space in Eden Prairie, Minnesota as
its corporate headquarters, and an additional approximately 40,000 square feet
of office space in Eden Prairie for branch sales and operating activities. The
Company's corporate headquarters and Eden Prairie sales office leases expire in
2004. The following table sets forth certain information with respect to the
Company's largest branch offices:
City/state Approximate Square Feet
------------------- ---------------------------
Southfield, MI 13,076
Oak Brook, IL 9,861
Tampa, FL 8,721
Burr Ridge, IL 7,328
Des Plaines, IL 6,324
Watertown, MA 6,000
Paulsboro, NJ 5,910
Sugarland, TX 5,548
Independence, OH 5,475
Secaucus, NJ 5,253
Omaha, NE 5,160
Dallas, TX 5,157
Coralville, IA 5,143
Cheektowga, NY 5,000
Plano, TX 4,932
Knoxville, TN 4,890
St. Louis, MO 4,884
Louisville, KY 4,835
Ashland, VA 4,680
The Company also leases 55,665 square feet of warehouse space in Aurora,
Colorado, and 53,000 square feet of warehouse space in Medley, Florida. Through
its asset acquisition from American Backhaulers, the Company has added
approximately 40,000 square feet of office space in Chicago, Illinois, and will
exercise an option to add an additional approximately 20,000 square feet of
office space. The Company considers its current offices adequate for its current
level of operations. The Company has not had difficulty in obtaining sufficient
office space and believes it can renew existing leases or relocate branches to
new offices as leases expire.
ITEM 3. LEGAL PROCEEDINGS
In 1995, the United States Customs Service began an investigation of
possible duties owed on imports of certain juice concentrates by Daystar-
Robinson, Inc., a subsidiary of the Company ("Daystar"). In the fourth quarter
of 1999, the United States Customs Service agreed to a compromise with Daystar,
whereby Daystar agreed to pay additional duties of approximately $4,175,940 and
a civil monetary penalty of $1,500,000, to be paid in quarterly
-12-
<PAGE>
installments over a seven year period following an initial installment of
$1,000,000. In December 1999, the Company paid in advance the full amount owed
by Daystar pursuant to the compromise agreement. The disposition of this matter
has not had, and is not expected to have, a material adverse effect on the
business, financial condition or results of operations of the Company. The
Company had adequately reserved for the payment of duties and penalties owed by
Daystar.
The Company is currently not otherwise subject to any pending or threatened
litigation other than routine litigation arising in the ordinary course of
business, none of which is expected to have a material adverse effect on the
business, financial condition or results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the year ended December 31, 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock began trading on The Nasdaq National Market
under the symbol "CHRW" on October 15, 1997. Certain stockholders of the
Company sold 12,165,155 shares of the Company's Common Stock to the public
pursuant to a registered public offering, the proceeds of which were paid
entirely to the selling stockholders. Prior to such date, there was no
established public trading market for the Company's Common Stock.
The following table sets forth, for the periods indicated, the high and low
sales prices of the Company's Common Stock, as quoted on The Nasdaq National
Market.
1999 Low High
-------- --------
Fourth Quarter $27.438 $42.063
Third Quarter 30.500 37.625
Second Quarter 25.500 37.625
First Quarter 24.000 29.750
1998 Low High
------------ -----------
Fourth Quarter $14.375 $26.250
Third Quarter 15.625 25.813
Second Quarter 21.500 27.000
First Quarter 21.000 26.250
On March 10, 2000, the closing sales price per share of the Company's
Common Stock as quoted on The Nasdaq National Market was $49.438 per share. On
March 15, 2000, there were approximately 1,400 holders of record and
approximately 5,200 beneficial owners of the Company's Common Stock. On
February 10, 1999, the Company announced that its Board of Directors authorized
a stock repurchase program under which up to 2,000,000 shares of the Company's
Common Stock may be repurchased from time to time through open market
transactions, block purchases, tender offers, private transactions, accelerated
share repurchase programs or otherwise. The Company intends to fund such
repurchases with internally generated funds.
The Company declared quarterly dividends during 1998 for an aggregate of
$0.25 per share, and quarterly dividends during 1999 for an aggregate of $0.29
per share. The Company has declared a quarterly dividend of $0.08
-13-
<PAGE>
per share payable to shareholders of record as of March 8, 2000 payable on April
3, 2000. The declaration of dividends by the Company is subject to the
discretion of the Board of Directors. Any determination as to the payment of
dividends will depend upon the results of operations, capital requirements and
financial condition of the Company, and such other factors as the Board of
Directors may deem relevant. Accordingly, there can be no assurance that the
Board of Directors will declare or continue to pay dividends on the shares of
Common Stock in the future.
On December 16, 1999, the Company acquired the operations and certain
assets of American Backhaulers, Inc. The purchase price of the assets was
$136,925,000, including $100,000,000 in cash and 1,120,715 newly issued shares
of common stock. The shares of common stock were issued pursuant to Section
4(2) of the Securities Act of 1933, as amended.
ITEM 6. SELECTED FINANCIAL DATA
Selected consolidated financial and operating data on page 10 of the Annual
Report is incorporated by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's Discussion and Analysis on pages 11 through 15 of the Annual
Report is incorporated by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Disclosure about Market Risk on page 15 of the Annual Report is
incorporated by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's consolidated financial statements on pages 16 through 27 of
the Annual Report are incorporated by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to the Company's Board of Directors on pages 2
through 4, and "Section 16(a) Beneficial Ownership Reporting Compliance" on page
10 of the Proxy Statement are incorporated by reference. Information with
respect to the Company's executive officers is provided in Part I, Item 1.
ITEM 11. EXECUTIVE COMPENSATION
"Executive Compensation" on pages 4 and 5 of the Proxy Statement is
incorporated by reference.
-14-
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
"Security Ownership of Certain Beneficial Owners and Management" on page 9
of the Proxy Statement is incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
"Certain Transactions" on page 8 of the Proxy Statement is incorporated by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Financial Statements.
The Company's consolidated financial statements listed in the
accompanying Index to Consolidated Financial Statements at page F-1, on
pages 16 through 27 of the Annual Report are incorporated by reference.
(2) Financial Statement Schedules.
Schedule II. Valuation and Qualifying Accounts, is included at the end
of this Report.
(3) Index to Exhibits
Number Description
------ -----------
2.1 Asset Purchase Agreement dated November 18, 1999, by and
among the Company, C.H. Robinson Company, American
Backhaulers, Inc., Paul L. Loeb, the Paul L. Loeb Family
Trust and the Jodi Sue Loeb Family Trust (Incorporated by
reference to Exhibit 2 to the Registrant's Current Report on
Form 8-K dated December 28, 1999).
3.1 Certificate of Incorporation of the Company (Incorporated by
reference to Exhibit 3.1 to the Registrant's Registration
Statement on Form S-1, Registration No. 333-33731)
3.2 Bylaws of the Company (Incorporated by reference to Exhibit
3.2 to the Registrant's Registration Statement on Form S-1,
Registration No. 333-33731)
3.3 Certificate of Designations of Series A Junior Participating
Preferred Stock of the Company (Incorporated by reference to
Exhibit 3.3 to the Registrant's Registration Statement on
Form S-1, Registration No. 333-33731)
4.1 Form of Certificate for Common Stock (Incorporated by
reference to Exhibit 4.1 to the Registrant's Registration
Statement on Form S-1, Registration No. 333-33731)
4.2 Form of Rights Agreement between the Company and Norwest
Bank Minnesota, National Association (Incorporated by
reference to Exhibit 4.2 to the Registrant's Registration
Statement on Form S-1, Registration No. 333-33731)
-15-
<PAGE>
*+10.1 Operational Executive Compensation Program for 1999
+10.2 Employee Incentive Program (Incorporated by reference to
Exhibit 10.3 to the Registrant's Registration Statement on
Form S-1, Registration No. 333-33731)
+10.3 1997 Omnibus Stock Plan (Incorporated by reference to
Exhibit 10.4 to the Registrant's Registration Statement on
Form S-1, Registration No. 333-33731)
+10.4 Form of Stock Option Agreement (Incorporated by reference to
Exhibit 10.22 to the Registrant's Registration Statement on
Form S-1, Registration No. 333-33731)
+10.5 C.H. Robinson Worldwide, Inc. Directors' Stock Plan
(Incorporated by reference to Exhibit 10.21 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1998)
+10.6 Form of Management--Employee Agreement between the Company
and each of by D.R. Verdoorn and Barry Butzow (Incorporated
by reference to Exhibit 10.5 to the Registrant's
Registration Statement on Form S-1, Registration No. 333-
33731)
+10.7 Form of Management--Employee Agreement entered into by
Gregory Goven and Michael Rempe (Incorporated by reference
to Exhibit 10.6 to the Registrant's Registration Statement
on Form S-1, Registration No. 333-33731)
10.8 Form of Management Confidentiality and Noncompetition
Agreement (Incorporated by reference to Exhibit 10.21 to the
Registrant's Registration Statement on Form S-1,
Registration No. 333-33731)
10.9 Master Equipment Lease Agreement, dated August 19, 1994,
between Wagonmaster Transportation Company and AT&T
Commercial Finance Corporation (Incorporated by reference to
Exhibit 10.10 to the Registrant's Registration Statement on
Form S-1, Registration No. 333-33731)
10.10 Keep-Well Agreement, dated August 19, 1994, between C.H.
Robinson, Inc., Wagonmaster Transportation Company and AT&T
Commercial Finance Corporation (Incorporated by reference to
Exhibit 10.11 to the Registrant's Registration Statement on
Form S-1, Registration No. 333-33731)
10.11 Master Equipment Lease Agreement, dated ________, 1994,
between Wagonmaster Transportation Company and Metlife
Capital Limited Partnership (Incorporated by reference to
Exhibit 10.12 to the Registrant's Registration Statement on
Form S-1, Registration No. 333-33731)
10.12 Keep-Well Agreement, dated April __, 1994, between C.H.
Robinson, Inc., Wagonmaster Transportation Company and
Metlife Capital Limited Partnership (Incorporated by
reference to Exhibit 10.13 to the Registrant's Registration
Statement on Form S-1, Registration No. 333-33731)
10.13 Long Term Lease Agreement, dated to be effective August 1,
1997, between C.H. Robinson Company and Genstar Container
Corporation (Incorporated by reference to Exhibit 10.19 to
the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1997)
-16-
<PAGE>
10.14 Long Term Lease Agreement, dated to be effective November 1,
1997, between C.H. Robinson Company and Genstar Container
Corporation (Incorporated by reference to Exhibit 10.20 to
the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1997)
*10.15 Credit Agreement, dated as of December 29, 1999, by and
among C.H. Robinson Worldwide, Inc., U.S. Bank National
Association and Norwest Bank Minnesota, National Association
*10.16 Revolving Note, dated December 29, 1999, payable by C.H.
Robinson Worldwide, Inc. to the order of U.S. Bank National
Association, up to an aggregate principal amount of
$20,000,000
*10.17 Revolving Note, dated December 29, 1999, payable by C.H.
Robinson Worldwide, Inc. to the order of Norwest Bank
Minnesota, National Association, up to an aggregate
principal amount of $20,000,000
*+10.18 Management Bonus Plan
*13 Selected pages of the Company's Annual Report to
Stockholders for the year ended December 31, 1999
*21 Subsidiaries of the Company
*23 Consent of Arthur Andersen LLP
24 Powers of Attorney (included on signature page of this
Report)
*27 Financial Data Schedule [Filed in electronic format only]
*99 Cautionary Statement for Purposes of the "Safe Harbor"
Provisions of the Private Securities Litigation Reform Act
of 1995
_________________
+ Management contract or compensatory plan or arrangement required to
be filed as an exhibit to Form 10-K pursuant to Item 14(c) of the
Form 10-K Report.
* Filed herewith
(b) Reports on Form 8-K
A report on Form 8-K, dated December 2, 1999, was filed by the Registrant;
such Report contained information under Item 5 (Other Events) and included
as an exhibit under Item 7 a copy of a press release issued by the
Registrant.
A report on Form 8-K, dated December 28, 1999, was filed by the Registrant;
such Report contained information under Item 2 (Acquisition or Disposition
of Assets) and included under Item 7 as an exhibit a copy of the Asset
Purchase Agreement by and among the Registrant, C.H. Robinson Company,
American Backhaulers, Inc., Paul L. Loeb, the Paul L. Loeb Family Trust and
the Jodi Sue Loeb Family Trust.
(c) See Item 14(a)(3) above.
(d) See Item 14(a)(2) above.
-17-
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
The following financial statements of the Company and its subsidiaries
required to be included in Item 14(a)(1) are listed below:
C.H. ROBINSON WORLDWIDE, INC. AND SUBSIDIARIES
Consolidated Financial Statements (incorporated by reference under Item 8 of
Part II from pages 16 through 27 of the Company's Annual Report to Stockholders
for the year ended December 31, 1999):
Consolidated Balance Sheets as of December 31, 1999 and 1998
Consolidated Statements of Operations for the years ended December 31,
1999, 1998 and 1997
Consolidated Statements of Stockholders' Investment and Comprehensive
Income for the years ended December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the years ended December 31,
1999, 1998 and 1997
Notes to Consolidated Financial Statements
F-1
<PAGE>
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Eden
Prairie, State of Minnesota, on March 24, 2000.
C.H. ROBINSON WORLDWIDE, INC.
By: /s/ Owen P. Gleason
-----------------------------
Owen P. Gleason
Vice President, General Counsel and Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 24, 2000.
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints John P. Wiehoff and Owen P. Gleason (with
full power to act alone), as his or her true and lawful attorneys-in-fact and
agents, with full powers of substitution and resubstitution, for him or her and
in his or her name, place and stead, in any and all capacities, to sign any and
all amendments to the Annual Report on Form 10-K of C.H. Robinson Worldwide,
Inc., and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite or necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitute or substitutes, lawfully do or cause to be done by
virtue hereof.
<TABLE>
<CAPTION>
Signature Title
<S> <C>
/s/ D. R. Verdoorn Chairman of the Board and Chief Executive Officer
- ---------------------------
D.R. Verdoorn (Principal Executive Officer)
/s/ Chad M. Lindbloom Vice President and Chief Financial Officer
- ---------------------------
Chad M. Lindbloom (Principal Financial Officer)
/s/ Thomas K. Mahlke Corporate Controller (Principal Accounting Officer)
- ----------------------------
Thomas K. Mahlke
/s/ Dale S. Hanson Director
- ----------------------------
Dale S. Hanson
/s/ Looe Baker III Director
- -----------------------------
Looe Baker III
/s/ Barry W. Butzow Senior Vice President and Director
- -------------------------------
Barry W. Butzow
/s/ Owen P. Gleason Vice President, General Counsel, Secretary and Director
- --------------------------------
Owen P. Gleason
/s/ Robert Ezrilov Director
- ---------------------------------
Robert Ezrilov
/s/ Gerald A. Schwalbach Director
- ----------------------------------
Gerald A. Schwalbach
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To C.H. Robinson Worldwide, Inc.:
We have audited in accordance with auditing standards generally accepted in the
United States, the consolidated financial statements included in C.H. Robinson
Worldwide, Inc.'s annual report to shareholders incorporated by reference in
this Form 10-K, and have issued our report thereon dated January 28, 2000. Our
audit was made for the purpose of forming an opinion on those statements taken
as a whole. The accompanying schedule is the responsibility of the Company's
management and is presented for purposes of complying with the Securities and
Exchange Commission rules and is not part of the basic financial statements.
The schedule has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
January 28, 2000
<PAGE>
C.H. Robinson Worldwide, Inc.
Schedule II. Valuation and Qualifying Accounts
Allowance for Doubtful Accounts
The transactions in the allowance for doubtful accounts for the years ended
December 31, 1999, 1998 and 1997 were as follows (in thousands):
December 31, December 31, December 31,
1999 1998 1997
Balance, beginning of year $12,412 $ 8,936 $10,079
Provision 10,393 6,902 3,870
Write-offs (4,525) (3,426) (5,013)
------- ------- -------
Balance, end of year $18,280 $12,412 $ 8,936
S-1
<PAGE>
Index to Exhibits
Number Description
- ------ -----------
2.1 Asset Purchase Agreement dated November 18, 1999, by and among the
Company, C.H. Robinson Company, American Backhaulers, Inc., Paul L. Loeb,
the Paul L. Loeb Family Trust and the Jodi Sue Loeb Family Trust
(Incorporated by reference to Exhibit 2 to the Registrant's Current
Report on Form 8-K dated December 28, 1999).
3.1 Certificate of Incorporation of the Company (Incorporated by reference to
Exhibit 3.1 to the Registrant's Registration Statement on Form S-1,
Registration No. 333-33731)
3.2 Bylaws of the Company (Incorporated by reference to Exhibit 3.2 to the
Registrant's Registration Statement on Form S-1, Registration No. 333-
33731)
3.3 Certificate of Designations of Series A Junior Participating Preferred
Stock of the Company (Incorporated by reference to Exhibit 3.3 to the
Registrant's Registration Statement on Form S-1, Registration No. 333-
33731)
4.1 Form of Certificate for Common Stock (Incorporated by reference to
Exhibit 4.1 to the Registrant's Registration Statement on Form S-1,
Registration No. 333-33731)
4.2 Form of Rights Agreement between the Company and Norwest Bank Minnesota,
National Association (Incorporated by reference to Exhibit 4.2 to the
Registrant's Registration Statement on Form S-1, Registration No. 333-
33731)
*+10.1 Operational Executive Compensation Program for 1999
+10.2 Employee Incentive Program (Incorporated by reference to Exhibit 10.3 to
the Registrant's Registration Statement on Form S-1, Registration No.
333-33731)
+10.3 1997 Omnibus Stock Plan (Incorporated by reference to Exhibit 10.4 to
the Registrant's Registration Statement on Form S-1, Registration No.
333-33731)
+10.4 Form of Stock Option Agreement (Incorporated by reference to Exhibit
10.22 to the Registrant's Registration Statement on Form S-1,
Registration No. 333-33731)
+10.5 C.H. Robinson Worldwide, Inc. Directors' Stock Plan (Incorporated by
reference to Exhibit 10.21 to the Registrant's Annual Report on Form 10-
K for the year ended December 31, 1998)
+10.6 Form of Management--Employee Agreement between the Company and each of
by D.R. Verdoorn and Barry Butzow (Incorporated by reference to Exhibit
10.5 to the Registrant's Registration Statement on Form S-1,
Registration No. 333-33731)
+10.7 Form of Management--Employee Agreement entered into by Gregory Goven and
Michael Rempe (Incorporated by reference to Exhibit 10.6 to the
Registrant's Registration Statement on Form S-1, Registration No. 333-
33731)
10.8 Form of Management Confidentiality and Noncompetition Agreement
(Incorporated by reference to Exhibit 10.21 to the Registrant's
Registration Statement on Form S-1, Registration No. 333-33731)
10.9 Master Equipment Lease Agreement, dated August 19, 1994, between
Wagonmaster Transportation Company and AT&T Commercial Finance
Corporation (Incorporated by reference to Exhibit 10.10 to the
Registrant's Registration Statement on Form S-1, Registration No. 333-
33731)
10.10 Keep-Well Agreement, dated August 19, 1994, between C.H. Robinson, Inc.,
Wagonmaster Transportation Company and AT&T Commercial Finance
Corporation (Incorporated by reference to Exhibit 10.11 to the
Registrant's Registration Statement on Form S-1, Registration No. 333-
33731)
<PAGE>
10.11 Master Equipment Lease Agreement, dated ________, 1994, between
Wagonmaster Transportation Company and Metlife Capital Limited
Partnership (Incorporated by reference to Exhibit 10.12 to the
Registrant's Registration Statement on Form S-1, Registration No. 333-
33731)
10.12 Keep-Well Agreement, dated April __, 1994, between C.H. Robinson, Inc.,
Wagonmaster Transportation Company and Metlife Capital Limited
Partnership (Incorporated by reference to Exhibit 10.13 to the
Registrant's Registration Statement on Form S-1, Registration No. 333-
33731)
10.13 Long Term Lease Agreement, dated to be effective August 1, 1997, between
C.H. Robinson Company and Genstar Container Corporation (Incorporated by
reference to Exhibit 10.19 to the Registrant's Annual Report on Form 10-
K for the year ended December 31, 1997)
10.14 Long Term Lease Agreement, dated to be effective November 1, 1997,
between C.H. Robinson Company and Genstar Container Corporation
(Incorporated by reference to Exhibit 10.20 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1997)
*10.15 Credit Agreement, dated as of December 29, 1999, by and among C.H.
Robinson Worldwide, Inc., U.S. Bank National Association and Norwest
Bank Minnesota, National Association
*10.16 Revolving Note, dated December 29, 1999, payable by C.H. Robinson
Worldwide, Inc. to the order of U.S. Bank National Association, up to an
aggregate principal amount of $20,000,000
*10.17 Revolving Note, dated December 29, 1999, payable by C.H. Robinson
Worldwide, Inc. to the order of Norwest Bank Minnesota, National
Association, up to an aggregate principal amount of $20,000,000
*+10.18 Management Bonus Plan
*13 Selected pages of the Company's Annual Report to Stockholders for the
year ended December 31, 1999
*21 Subsidiaries of the Company
*23 Consent of Arthur Andersen LLP
24 Powers of Attorney (included on signature page of this Report)
*27 Financial Data Schedule [Filed in electronic format only]
*99 Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the
Private Securities Litigation Reform Act of 1995
_________________
+ Management contract or compensatory plan or arrangement required to be filed
as an exhibit to Form 10-K pursuant to Item 14(c) of the Form 10-K Report.
* Filed herewith
<PAGE>
Exhibit 10.1
[C.H. Robinson Letterhead]
March 26, 1999
OPERATIONAL EXECUTIVE COMPENSATION PROGRAM (O.E.C.P.)
The Compensation Committee is pleased to continue the O.E.C.P. compensation
program for certain selected operating personnel. Some modifications to the
program have been made which the Compensation Committee believes will be
beneficial. Only continued growth will cause this program to give you
increasing financial rewards.
1. The program will run for one calendar year, commencing in 1999. There
is no commitment by the Committee or the Company that the program will
continue beyond this year.
2. The units allocated to you below are for the year 1999. These units may
be decreased or increased, or remain the same in any year at the
discretion of the Committee.
3. The individual must be an employee on December 31 of the plan year in
order to earn the award. In the event of a sale of substantially all of
the assets of the Company or a change in ownership of 50 percent or
more of the Company's outstanding stock, the individual need only work
through the date of the asset sale or change in ownership to earn the
award.
4. Payment of any awards earned hereunder will be paid in cash.
5. Profit Sharing will be paid only on those awards earned and paid, and
in the year those awards are in fact paid.
6. This award shall be based on C. H. Robinson Worldwide, Inc., (the
Company's) adjusted gross net earnings from operations, (earnings prior
to federal and state income taxes, profit sharing, extraordinary gains
or losses from sale of all or part of various businesses, and this
plan, O.E.C.P.), as determined by the Compensation Committee, which
determination shall be final and binding on all parties; provided,
however, that the foregoing computation of earnings shall eliminate,
and shall not take into account, any deduction or amortization on
account of any goodwill, going concern value, covenants not to compete
or any other similar or related intangible. In addition, any tax exempt
investment income will be grossed up to a taxable equivalent using the
applicable federal corporate income tax rate. The contributions shall
be determined by taking the number of units in each bracket and
multiplying by the unit value shown. For example, if we were to achieve
our 1999 Budget of $92,000,000 Gross Net each unit in the following
brackets would have a value as follows:
<PAGE>
A to D $10,000,000 to $30,000,000
E to H $30,000,000 to $50,000,000
I to L $50,000,000 to $70,000,000
M $70,000,000 to $75,000,000
N $75,000,000 to $80,000,000
O $80,000,000 to $85,000,000
P $85,000,000 to $90,000,000
Q $90,000,000 to $95,000,000
R $95,000,000 to $100,000,000
S $100,000,000 to $105,000,000
T $105,000,000 to $110,000,000
You have been awarded the following units:
Number of Units
---------------
A to D $10,000,000 to $30,000,000
E to H $30,000,000 to $50,000,000
I to L $50,000,000 to $70,000,000
M $70,000,000 to $75,000,000
N $75,000,000 to $80,000,000
O $80,000,000 to $85,000,000
P $85,000,000 to $90,000,000
Q $90,000,000 to $95,000,000
R $95,000,000 to $100,000,000
S $100,000,000 to $105,000,000
T $105,000,000 to $110,000,000
7. Any awards earned hereunder shall be paid in February following the end of
the year to which the cash award relates.
8. Any payment due hereunder will be forfeited if you leave the Company and are
employed or perform a service that is determined to be in direct competition
with C. H. Robinson Worldwide, Inc. or its subsidiaries, or if you disclose
any confidential information or trade secrets of C. H. Robinson Worldwide,
Inc. or its subsidiaries. The Compensation Committee's determination of this
is final. Your participation in the program shall not confer on you any
right with respect to continuance of employment with the Company, nor will
it interfere in any way with the right of the Company to terminate such
employment at any time. Furthermore, the adoption of this program will not
in any way interfere with the right of the Company to select among, adopt or
change any business investment or compensation policies or plans at any time
or from time to time in its sole and absolute discretion.
9. Individuals may take advances against the awards. The advance that may be
taken is subject to the absolute discretion of the Compensation Committee.
10. The Company has the right and obligation to withhold the following from
advances and final payouts: federal and state income tax withholding, FICA
withholding, loan payments to the Company, and any other withholding
required by law.
<PAGE>
The Committee is enthusiastic about this program, as it feels that the more
incentives it can provide each person, the more vitally and personally
interested and involved this person will become in making C. H. Robinson
Worldwide, Inc. a bigger and better company.
Your very truly,
D. R. (Sid) Verdoorn
DRV/bjp
Enclosure
<PAGE>
Exhibit 10.15
CREDIT AGREEMENT
----------------
THIS CREDIT AGREEMENT, dated as of December 29, 1999, is by and among C. H.
ROBINSON WORLDWIDE, INC., a Delaware corporation (the "Borrower" or
"Worldwide"), U. S. Bank National Association, a national banking association,
as administrative bank (in such capacity, the "Administrative Bank"), and lead
arranger, Norwest Bank Minnesota, National Association, a national banking
association, as co-arranger, and the financial institutions now or hereafter
"Bank" parties hereto (individually a "Bank" and collectively the "Banks," which
term shall include U. S. National Association and Norwest Bank Minnesota
National Association in their respective roles as Banks).
ARTICLE I
---------
DEFINITIONS AND ACCOUNTING TERMS
Section 1.1 Defined Terms. In addition to terms defined elsewhere in
-------------
this Agreement, the following terms shall have the following respective meanings
(and such meanings shall be equally applicable to both the singular and plural
form of the terms defined, as the context may require):
"Adjusted CD Rate": Applicable to a CD Rate Loan Unit during its Interest
-------------------
Period, the rate (rounded upward, if necessary, to the next higher one-
hundredth of one percent) equal to the sum of: (a) the rate per annum determined
by dividing: (i) the CD Rate for the relevant Interest Period, by (ii) 1.00
minus the Domestic Reserve Percentage; plus (b) the annual rate most recently
----
estimated by the Administrative Bank as the then current net annual assessment
rate payable by the Administrative Bank to the Federal Deposit Insurance
Corporation (or any successor) for insuring time deposits made in Dollars at the
Administrative Bank's domestic offices; plus (c) the cost (converted to an
----
equivalent rate per annum) of customary brokerage fees charged by the
Administrative Bank in obtaining funds through the sale of its negotiable
certificates of deposit.
"Adjusted Eurodollar Rate": Applicable to a Eurodollar Rate Loan Unit
------------------------
during its Interest Period, the rate (rounded upward, if necessary, to the next
higher one-hundredth of one percent) determined by dividing the Eurodollar Rate
for the relevant Interest Period by 1.00 minus the Eurodollar Reserve
Percentage.
"Adjusted Net Income": For any period, the Net Income for such period, but
-------------------
excluding therefrom, non-operating gains and losses (including extra-ordinary
or unusual gains and losses, gains and losses from discontinuance of operations,
gains and losses arising from the sale of assets other than inventory and other
non-recurring gains and losses) during such period.
"Administrative Bank": As defined in the preamble hereto.
-------------------
"Adverse Event": The occurrence of any event that could have a material
-------------
adverse effect on the business, operations, property, assets or condition
(financial or otherwise) of Worldwide and its Subsidiaries (taken as a whole on
a consolidated basis) or on the ability of any Loan Party to perform its
obligations under the Loan Documents.
"Agreement": This Credit Agreement, as it may be amended, modified,
---------
supplemented, restated or replaced from time to time.
"Banks": As defined in the preamble hereto.
-----
"Borrower": As defined in the preamble hereto.
--------
"Business Day": Any day (other than a Saturday, Sunday or legal holiday in
------------
the State of Minnesota) on which national banks are permitted to be open in
Minneapolis, Minnesota.
<PAGE>
"CD Rate": Applicable to determining the Adjusted CD Rate for a CD Rate
-------
Loan Unit during its Interest Period, the rate of interest determined by the
Administrative Bank for the relevant Interest Period to be the average (rounded
upward, if necessary, to the next higher one- hundredth of one percent) of the
rates quoted to the Administrative Bank at approximately 8:00 a.m.,
Administrative Bank time (or as soon thereafter as practicable), or at the
option of the Administrative Bank at approximately the time of the request for a
CD Rate Loan Unit if such request is made later than 8:00 a.m., Administrative
Bank time, in each case on the first day of the applicable Interest Period by
certificate of deposit dealers selected by the Administrative Bank, in its sole
discretion, for the purchase from the Administrative Bank, at face value, of
certificates of deposit issued by the Administrative Bank in an amount and
maturity comparable to the amount and maturity of the requested CD Rate Loan
Unit or, at the option of the Administrative Bank, determined for such amount
and maturity based on published composite quotations of certificate of deposit
rates selected by the Administrative Bank; provided, however, that if the
-------- -------
Borrower elects an Interest Period of one day, then the CD Rate shall be the
rate set forth above for a 30 day Interest Period as of the one day Interest
Period (or, if such day is not a Business Day, on the immediately preceding
Business Day).
"CD Rate Loan Unit": Each portion of any Loan designated as such in a
-----------------
notice of borrowing under Section 2.3 or a notice of continuation or conversion
-----------
under Section 2.4.
-----------
"Capitalized Lease": Any lease which, in accordance with GAAP, is
-----------------
capitalized on the books of the lessee.
"Change of Control": The occurrence after the date of this Agreement of any
-----------------
of the following events: (a) any Person or two or more Persons acting in
concert becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5
promulgated by the SEC) directly or indirectly, of more than 25% of the combined
voting power of the outstanding securities of Worldwide entitled to vote in the
election of directors; or (b) during any period of up to twelve (12) consecutive
months, whether commencing on or before the Closing Date, individuals who at the
beginning of such period constituted the board of directors of Worldwide
(together with any new directors whose election by such board of directors or
whose nomination for election by the shareholders of Worldwide, as the case may
be, was approved by a vote of at least a majority of the directors of Worldwide
then still in office) who were either directors at the beginning of such period
or whose election or nomination for election was previously so approved cease
for any reason to constitute a majority of the board of directors of Worldwide
then in office; or (c) any Person or two or more Persons acting in concert
acquire, by contract or otherwise, or enter into any contract or arrangement
which, upon consummation, will result, in such Person or Person's acquisition of
, or control over, more than 25% of the combined voting power of the
outstanding securities of Worldwide entitled to vote in the election of
directors
"Closing Date": The date on which the initial Revolving Loans are made
------------
after the satisfaction of all conditions precedent specified in Article VI.
----------
"Code": The Internal Revenue Code of 1986, as amended, or any successor
----
statute, together with regulations thereunder.
"Commitment": The agreement of the Banks to make the Loans and of U. S.
----------
Bank to issue the Letters of Credit and of each Bank to purchase its Letter of
Credit Participations.
"Compliance Certificate": As defined in Section 8.1(c).
---------------------- --------------
"Contingent Obligations": With respect to any Person at the time of any
----------------------
determination, without duplication, any obligation, contingent or otherwise, of
such Person guaranteeing or having the economic effect of guaranteeing any
Indebtedness of any other Person (the "primary obligor") in any manner, whether
directly or otherwise; (a) to purchase or pay (or advance or supply funds for
the purchase or payment of) such Indebtedness or to purchase (or to advance or
supply funds for the purchase of) any direct or indirect security therefor, (b)
to purchase property, securities or services for the purpose of assuring the
owner of such Indebtedness of the payment of such Indebtedness, (c) to maintain
working capital, equity capital or other financial statement condition of the
primary obligor so as to enable the primary obligor to pay such Indebtedness or
otherwise to protect the owner thereof
2
<PAGE>
against loss in respect thereof, or (d) entered into for the purpose of assuring
in any manner the owner of such Indebtedness of the payment of such Indebtedness
or to protect the owner against loss in respect thereof; provided, that the term
"Contingent Obligation" shall not include endorsements for collection or
deposit, in each case in the ordinary course of business.
"Default": Any event which, with the giving of notice to the Borrower or
-------
lapse of time, or both, would constitute an Event of Default.
"Default Rate": The rate applicable to Reference Rate Loan Units
------------
determined in accordance with Section 3.1(b).
--------------
"Domestic Reserve Percentage": Applicable to determining the Adjusted CD
---------------------------
Rate for a CD Rate Loan Unit during its Interest Period, as of any day, the
percentage (expressed as a decimal) which is in effect on such day, as
prescribed by the Federal Reserve Board for determining the maximum reserve
requirement (including, without limitation, any basic, supplemental or emergency
reserves) for a member bank of the Federal Reserve System, with deposits
comparable in amount to those held by the Administrative Bank, in respect of new
non-personal time deposits in dollars having a maturity comparable to the
related Interest Period and in an amount of $100,000.00 or more. The rate of
interest applicable to any outstanding CD Rate Loan Unit shall be adjusted
automatically on and as of the effective date of any change in the Domestic
Reserve Percentage.
"EBITDA": For any period, the sum of: (a) the Adjusted Net Income for
------
such period; plus (b) the sum of the following amounts deducted in arriving at
----
the Net Income included in such Adjusted Net Income (but without duplication for
any item): (i) Interest Expense; (ii) depreciation and amortization; and (iii)
federal, state and local income taxes.
"ERISA": The Employee Retirement Income Security Act of 1974, as amended,
-----
or any successor statute, together with regulations thereunder.
"ERISA Affiliate": Any trade or business (whether or not incorporated)
---------------
that is a member of a group of which the Borrower or any of its Subsidiaries is
a member and which is treated as a single employer under Section 414 of the
Code.
"Eurodollar Business Day": A Business Day which is also a day for trading
-----------------------
by and between banks in United States dollar deposits in the interbank
Eurodollar market and a day on which banks are open for business in New York
City.
"Eurodollar Rate": Applicable to determining the Adjusted Eurodollar Rate
---------------
for a Eurodollar Rate Loan Unit during its Interest Period, the average offered
rate for deposits in United States Dollars (rounded upward, if necessary, to the
next highest one- hundredth of one percent), for delivery of such deposits on
the first day of such Interest Period, for the number of days in such Interest
Period, which appears on the Reuters Screen LIBO Page as of 11:00 a.m., London
time (or such other time as of which such rate appears) two Eurodollar Business
Days prior to the first day of such Interest Period, or, if the Reuters Screen
LIBO Page is not published at the time, the rate for such deposits determined by
the Administrative Bank at such time based on such other published service of
general application as shall be selected by the Administrative Bank for such
purpose or, if no such published service is available, based on rates at which
United States dollar deposits are offered to the Administrative Bank in the
interbank Eurodollar market at such time for delivery in immediately available
funds on the first day of such Interest Period in an amount approximately equal
to the principal balance to be outstanding on such Eurodollar Rate Loan Unit
(rounded upward, if necessary, to the next highest one- hundredth of one
percent); provided, however, that if the Borrower elects an Interest Period of
-------- -------
one day, then the Eurodollar Rate shall be the rate set forth above for a one
month Interest Period as of the one day Interest Period (or, if such day is not
a Eurodollar Business Day, on the immediately preceding Eurodollar Business
Day). "Reuters Screen LIBO Page" means the display designated as page "LIBO" on
the Reuter Monitor Money Rates Service (or such other page as may replace the
LIBO Page on that
3
<PAGE>
service) for the purpose of displaying London interbank offered rates of major
banks for United States Dollar deposits.
"Eurodollar Rate Loan Unit": Each portion of any Revolving Loan designated
-------------------------
as such in a notice of borrowing under Section 2.3 or a notice of continuation
-----------
or conversion under Section 2.4.
-----------
"Eurodollar Reserve Percentage": Applicable in determining the Adjusted
-----------------------------
Eurodollar Rate for a Eurodollar Rate Loan Unit during its Interest Period, as
of any day, that percentage (expressed as a decimal) which is in effect on such
day, as prescribed by the Federal Reserve Board for determining the maximum
reserve requirement for the Administrative Bank, in respect of "Eurocurrency
Liabilities" (or in respect of any other category of liabilities which includes
deposits by reference to which the interest rate of Eurodollar Rate Loan Units
is determined or any category of extensions of credit or other assets which
includes loans by a non-United States office of the Administrative Bank to
United States residents). Any rate of interest based on the Eurodollar Rate
shall be adjusted automatically on and as of the effective date of any change in
the Eurodollar Reserve Percentage.
"Event of Default": Any event described in Section 10.1 which has not been
---------------- ------------
cured to the satisfaction of, or waived by, the Banks in accordance with Section
-------
12.1.
- ----
"Exchange Act": The Securities Exchange Act of 1934, as it may be amended,
------------
and any successor act thereto and the rules and regulations promulgated
thereunder.
"Existing Letter(s) of Credit": The letters of credit issued by U. S. Bank
----------------------------
that are described on Schedule 1.1(a) attached hereto and incorporated herein by
---------------
reference.
"Facility Fee": As provided in Section 3.2.
------------ -----------
"Federal Funds Rate": For any date, the overnight effective borrowing rate
------------------
per annum for such date (or, if such date is not a Business Day of the
Administrative Bank, the last Business Day of the Administrative Bank preceding
such date) for reserves in the amount of $1,000,000 or more traded among
commercial banks in the New York Federal Reserve District as published by the
Federal Reserve Bank of New York as being such rate in effect on such date;
provided, however, that if said rate is no longer published, then the Federal
- -------- -------
Funds Rate shall be determined on the basis of other sources reasonably selected
by the Administrative Bank.
"Federal Reserve Board": The Board of Governors of the Federal Reserve
---------------------
System or any successor thereto.
"GAAP": Generally accepted accounting principles as in effect from time to
----
time including, without limitation, applicable statements, bulletins and
interpretations of the Financial Accounting Standards Board and applicable
bulletins, opinions and interpretations issued by the American Institute of
Certified Public Accountants or its committees.
"Guaranty": Each Guaranty, substantially in the form of Exhibit E, made by
-------- ---------
a Guarantor in favor of the Administrative Bank for itself and the ratable
benefit of the Banks as originally executed and as it may be amended, modified,
supplemented, restated or replaced from time to time.
"Guarantors": Each of the Borrower's now existing or hereafter arising
----------
Subsidiaries which the Required Banks require to execute and deliver a Guaranty
in accordance with Section 8.11.
-------------
"Indebtedness": Without duplication, all obligations, contingent or
------------
otherwise, which in accordance with GAAP should be classified upon the obligor's
balance sheet as liabilities, but in any event including the following (whether
or not they should be classified as liabilities upon such balance sheet): (a)
obligations secured by any mortgage, pledge, security interest, lien, charge or
other encumbrance existing on property owned or acquired subject thereto,
whether or not the obligation secured thereby shall have been assumed and
whether or not the obligation secured is the obligation of the owner or another
party; (b) any obligation on account of deposits or
4
<PAGE>
advances; (c) any obligation for the deferred purchase price of any property or
services; (d) any obligation as lessee under any Capitalized Lease; (e) all
guaranties, endorsements and other contingent obligations in respect to
Indebtedness of others, except that Indebtedness shall not include endorsements
of instruments for payment in the ordinary course of business; and (f)
undertakings or agreements to reimburse or indemnify issuers of letters of
credit. For all purposes of this Agreement, the Indebtedness of any Person shall
include the Indebtedness of any partnership or joint venture in which such
Person is a general partner or a joint venturer unless such Indebtedness is non-
recourse to such Person.
"Individual Letter of Credit Commitment(s)": At any date, with respect to
-----------------------------------------
any Bank, such Bank's Percentage times the Letter of Credit Commitment at such
-----
date.
"Individual Revolving Credit Commitment(s)": At any date, with respect to
-----------------------------------------
any Bank, such Bank's Percentage times the Revolving Credit Commitment at such
-----
date.
"Interest Coverage Ratio": At any Quarterly Measurement Date, the ratio
-----------------------
of: (a) the EBITDA for the Measurement Period ending at such date; to (b) the
Interest Expense for such Measurement Period.
"Interest Expense": For any period, the aggregate consolidated interest
----------------
expense (including capitalized interest) of Worldwide and its Subsidiaries for
such period including, without limitation, the interest portion of any
Capitalized Lease.
"Interest Period": For any: (a) Eurodollar Rate Loan Unit, the period
---------------
which shall begin on (and include) the date of the initial borrowing date of
such Eurodollar Rate Loan Unit, or the date of the conversion of any other Type
of Unit into a Eurodollar Rate Loan Unit, or the date of the continuation of a
Eurodollar Rate Loan Unit as a Eurodollar Rate Loan Unit upon the termination of
the Interest Period then applicable thereto and, unless the final maturity of
such Eurodollar Rate Loan Unit is accelerated, shall end on (but exclude) the
date which is one, two, three or six months thereafter or, at the option of the
Required Banks, one day thereafter, as selected by the Borrower; or (b) any CD
Rate Loan Unit, the period which shall begin on (and include) the date of the
initial borrowing date of such CD Rate Loan Unit, or the date of the conversion
of any other Type of Unit into a CD Rate Loan Unit, or the date of the
continuation of a CD Rate Loan Unit as a CD Rate Loan Unit upon the termination
of the Interest Period then applicable thereto and, unless the final maturity of
such CD Rate Loan Unit is accelerated, shall end on (but exclude) the date which
is 30, 60, 90 or 180 days thereafter or, at the option of the Required Banks,
one day thereafter, as selected by the Borrower;
(w) any Interest Period for any CD Rate Loan Unit which would
otherwise end on a day which is not a Business Day shall end on the next
succeeding Business Day;
(x) any Interest Period for any Eurodollar Rate Loan Unit which would
otherwise end on a day not a Eurodollar Business Day shall end on the next
succeeding Eurodollar Business Day unless such extension would cause the
last day of such Interest Period to fall in the next following calendar
month, in which event the last day of such Interest Period for such
Eurodollar Rate Loan Unit shall occur on the next preceding Eurodollar
Business Day;
(y) no Interest Period shall extend beyond the stated Maturity of the
Revolving Loans; and
(z) any Interest Period for any Eurodollar Rate Loan Unit which begins
on the last day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such
Interest Period) shall end on the last Eurodollar Business Day in such
Interest Period.
"Investment": The acquisition, purchase, making or holding of any stock or
----------
other security, any loan, advance, contribution to capital, extension of credit
(except for trade and customer accounts receivable for inventory sold or
services rendered in the ordinary course of business and payable in accordance
with customary trade terms), any acquisitions of real or personal property
(other than real and personal property acquired in the ordinary course of
5
<PAGE>
business) and any purchase or commitment or option to purchase stock or other
debt or equity securities of, or any interest in, another Person or any integral
part of any business or the assets comprising such business or part thereof.
"Letter of Credit": As provided in Section 2.7(a) including, in all
---------------- --------------
events, the Existing Letter of Credit.
"Letter of Credit Application": As provided in Section 2.7(c).
---------------------------- --------------
"Letter of Credit Commission": As provided in Section 2.7(e)(i).
--------------------------- -----------------
"Letter of Credit Commitment": The maximum amount of Letter of Credit
---------------------------
Obligations which may from time to time be outstanding hereunder, being
initially $5,000,000.00 and, as the context may require, the agreement of U. S.
Bank to issue the Letters of Credit for the account of the Borrower and the
agreement of each other Bank to purchase a participation in the Letter of Credit
Obligations up to its Individual Letter of Credit Commitment subject to the
terms and conditions of this Agreement.
"Letter of Credit Obligations": At any date, the sum of: (a) the aggregate
----------------------------
amount available to be drawn on the Letters of Credit on such date; plus (b) the
----
aggregate amount owed by the Borrower to U. S. Bank on such date as a result of
draws on the Letters of Credit for which the Borrower has not reimbursed U. S.
Bank.
"Letter of Credit Participations": At any date, with respect to any Bank,
-------------------------------
such Bank's participations in the Letter of Credit Obligations.
"Letter of Credit Commitment Termination Date": The earlier of: (a) the
--------------------------------------------
Revolving Credit Termination Date; or (b) the date on which the Borrower
terminates the Letter of Credit Commitment pursuant to Section 4.3.
-----------
"Leverage Ratio": At any Quarterly Measurement Date, the ratio of: (a) the
--------------
Total Debt at such date; to (b) the sum of: (i) such Total Debt; plus (ii) the
Net Worth at such date.
"Liabilities": At any date of determination, the aggregate amount of
-----------
liabilities appearing on Worldwide's consolidated balance sheet at such date
prepared in accordance with GAAP.
"Lien": Any security interest, mortgage, pledge, lien, hypothecation,
----
judgment lien or similar legal process, charge, encumbrance, title retention
agreement or analogous instrument or device (including, without limitation, the
interest of the lessors under Capitalized Leases and the interest of a vendor
under any conditional sale or other title retention agreement).
"Loan Documents": This Agreement, the Notes, the Guaranties, the Letters
--------------
of Credit, the Letter of Credit Applications and each other instrument,
document, guaranty, security agreement, mortgage, or other agreement executed
and delivered by the Borrower or any other Loan Party pursuant to which the
Borrower or such other Loan Party incurs any liability to the Administrative
Bank or any Bank with respect to the Obligations, agrees to perform any covenant
or agreement with respect to the Obligations or grants any security interest to
secure the Obligations.
"Loan Party": The Borrower and, if any, each Guarantor.
----------
"Loans": The Revolving Loans.
-----
"Loan Units": A Reference Rate Loan Unit, CD Rate Loan Unit and a
----------
Eurodollar Rate Loan Unit (each a "Type" of Loan Unit).
"Maturity": The earlier of: (a) the date on which the Loans become due
--------
and payable under Section 10.2 upon the occurrence of an Event of Default; or
------------
(b) the Revolving Credit Termination Date for the Revolving Loans.
6
<PAGE>
"Measurement Period": At any Quarterly Measurement Date, the four fiscal
------------------
quarters ending on such Quarterly Measurement Date.
"Monthly Payment Date": The last day of each month.
--------------------
"Net Income": For any period, the Worldwide's and its Subsidiaries'
----------
consolidated after-tax net income for such period determined in accordance with
GAAP.
"Net Worth": At any date, the total of all assets appearing on Worldwide's
----------
consolidated balance sheet at such date prepared in accordance with GAAP minus
all Liabilities.
"Norwest": Norwest Bank Minnesota, National Association, a national banking
-------
association.
"Notes": The Revolving Notes.
-----
"Obligations": All loans (including the Loans and the Letter of Credit
-----------
Obligations), advances, debts, liabilities, obligations, covenants and duties
owing by any Loan Party or the Loan Parties to the Administrative Bank or any
Bank of any kind or nature, present or future, which arise under this Agreement
or any other Loan Document, whether or not evidenced by any note, guaranty or
other instrument, whether or not for the payment of money, whether arising by
reason of an extension of credit, opening, guarantying or confirming of a letter
of credit, guaranty, indemnification or in any other manner, whether joint,
several, or joint and several, direct or indirect (including those acquired by
assignment or purchases), absolute or contingent, due or to become due, and
however acquired. The term includes, without limitation, all principal,
interest, fees, charges, expenses, attorneys' fees, and any other sum chargeable
to any Loan Party or the Loan Parties under this Agreement or any other Loan
Document.
"PACA": The Perishable Agricultural Commodities Act, 7 U.S.C. 499a et seq.
---- ------
as the same may from time to time be amended, and the rules and regulations
promulgated thereunder by any governmental agency or authority, as from time to
time in effect.
"PACA Bond": The bond, if any, required to be posted by Worldwide or any
---------
of its Restricted Subsidiaries in order to obtain its PACA License or conduct
its business.
"PACA License": If applicable, Worldwide's or any of its Restricted
------------
Subsidiaries' license to do business as a commission merchant and/or dealer
and/or broker under PACA.
"PBGC": The Pension Benefit Guaranty Corporation, established pursuant to
----
Subtitle A of Title IV of ERISA, and any successor thereto or to the functions
thereof.
"Percentage": With respect to any Bank, the percentage specified
----------
opposite such Bank's name on Schedule A attached hereto and incorporated herein
----------
by reference.
"Permitted Distributions": The dividends, distributions, repurchases and
-----------------------
redemptions permitted by the provisions of Section 9.15.
------------
"Permitted Liens": Liens permitted by the provisions of Section 9.7.
--------------- -----------
"Person": Any natural person, corporation, partnership, joint venture,
------
firm, association, trust, unincorporated organization, government or
governmental agency or political subdivision, or any other entity, whether
acting in an individual, fiduciary or other capacity.
"Plan": An employee benefit plan or other plan, maintained for employees
----
of the Borrower or of any ERISA Affiliate, and subject to Title IV of ERISA or
Section 412 of the Code.
7
<PAGE>
"Pro Forma Compliance": With respect to any proposed Investment proposed
--------------------
incurrence of Indebtedness or proposed Permitted Distribution, that the Borrower
would be in pro forma compliance with each of Sections 9.12, 9.13, and 9.14. as
------------- ---- ----
of the immediately preceding Quarterly Measurement Date as if the proposed
transaction (including, without limitation, pro forma application of the net
proceeds from the incurrence of Indebtedness) had occurred at the beginning of
the Measurement Period ending on such Quarterly Measurement Date, where, for
purposes of determining the pro forma effect of any such transaction:
(a) the pro forma Interest Expense shall be determined as though the
interest rate on the Revolving Loans and other interest-bearing
Indebtedness, as the case may be, in effect on the date of the proposed
transaction was in effect throughout such Measurement Period; and
(b) with respect to any proposed Investment in another Person, only
that portion of such other Person's historical net income or EBITDA
allocable to the Borrower's or its Restricted Subsidiaries' proposed
Investment shall be added to the Adjusted Net Income or EBITDA, as the case
may be.
"Purchase Money Indebtedness": Any Indebtedness incurred for the purchase
---------------------------
of personal property where the repayment thereof is secured solely by an
interest in the personal property so purchased.
"Quarterly Measurement Date": The last day of each quarter of Worldwide's
--------------------------
fiscal year, commencing with the fiscal quarter ending on December 31, 1999.
"Quarterly Payment Date": The last day of each March, June, September, and
----------------------
December.
"Reference Rate": The rate of interest from time to time publicly
--------------
announced by the Administrative Bank as its "reference rate." Any Bank may lend
to its customers at rates that are at, above or below the Reference Rate. For
purposes of determining any interest rate which is based on the Reference Rate,
such interest rate shall change on the effective date of any change in the
Reference Rate.
"Reference Rate Loan Unit": Each portion of any Loan designated as such in
------------------------
a notice of borrowing under Section 2.3 or a notice of continuation or
-----------
conversion under Section 2.4.
-----------
"Regulatory Change": As to any Bank, any change (including any scheduled
-----------------
change) applicable to a class of banks which includes such Bank in any:
(a) federal or state law or foreign law; or
(b) regulation, interpretation, directive or request (whether or not
having the force of law) of any court or governmental authority charged
with the interpretation or administration of any law referred to in clause
(a) of this definition or of any fiscal, monetary or other authority having
jurisdiction over such class of banks;
or the adoption after the date hereof of any new or final law, regulation,
interpretation, directive or request applicable to a class of banks which
includes such Bank.
"Related Party": Any Person (other than a Subsidiary): (a) which directly
-------------
or indirectly, through one or more intermediaries, controls, or is controlled
by, or is under common control with, the Borrower; (b) which beneficially owns
or holds 15% or more of the equity interest of the Borrower; or (c)15% or more
of the equity interest of which is beneficially owned or held by the Borrower or
a Subsidiary. The term "control" means the possession, directly or indirectly,
of the power to direct or cause the direction of the management and policies of
a Person, whether through the ownership of voting securities or by contract.
"Reportable Event": A reportable event, as defined in Section 4043 of
----------------
ERISA and the regulations issued under such section, with respect to a Plan,
excluding, however, such events as to which the PBGC, by regulation,
8
<PAGE>
has waived the requirement of Section 4043(a) of ERISA that it be notified
within 30 days of the occurrence of such event, provided that a failure to meet
the minimum funding standard of Section 412 of the Code and Section 302 of ERISA
shall be a reportable event regardless of the issuance of any such waivers in
accordance with Section 412(d) of the Code.
"Required Banks": At any time, those Banks (which term shall include the
--------------
Administrative Bank) at such time having Percentages aggregating more than
66.67%.
"Restricted Subsidiary": Each of the Worldwide' Subsidiaries except for
---------------------
those identified on Schedule 1.1(b) attached hereto as being non-Restricted
---------------
Subsidiaries.
"Revolving Credit Commitment": The maximum unpaid principal amount of
---------------------------
Revolving Loans which may from time to time be outstanding hereunder, being
initially $40,000,000.00, as the same may be reduced from time to time pursuant
to Section 4.3 and, as the context may require, the agreement of each Bank to
-----------
make Revolving Loans to the Borrower up to its Individual Revolving Credit
Commitment subject to the terms and conditions of this Agreement.
"Revolving Credit Termination Date": The date which is the earliest of:
---------------------------------
(a) December 28, 2002; (b) the date on which the Borrower terminates the
Revolving Credit Commitment pursuant to Section 4.3; or (c) the date upon which
-----------
the obligation of the Banks to make Revolving Loans is terminated pursuant to
Section 10.2.
- ------------
"Revolving Loan(s)": The Loans described in Section 2.1.
----------------- -----------
"Revolving Notes": The promissory notes of the Borrower described in
---------------
Section 2.5, substantially in the form of Exhibit A, as such promissory notes
- ----------- ---------
may be amended, modified or supplemented from time to time, and such term shall
include any substitutions for, or renewals of, such promissory notes.
"SEC": The Securities and Exchange Commission or any successor thereto.
---
"Solvent" shall mean, with respect to any Person on any date of
-------
determination, that on such date:
(a) the fair value of such Person's tangible and intangible assets as
a going concern is in excess of the total amount of such Person's
liabilities including, without limitation, Contingent Obligations, provided
that, in computing the amount of any Contingent Obligation at any time in
connection with this clause (a), it is intended that such obligation will
be computed at the amount which, in light of all facts and circumstances
existing at such time, represents the amount that can be reasonably be
expected to become an actual or matured obligation as determined in
accordance with GAAP; and
(b) such Person is then able to pay its debts as they mature; and
(c) such Person has capital sufficient to carry on its business.
"Subsidiary": Any Person of which or in which the described Person and its
----------
other Subsidiaries own directly or indirectly 50% or more of: (a) the combined
voting power of all classes of stock having general voting power under ordinary
circumstances to elect a majority of the board of directors of such Person, if
it is a corporation, (b) the capital interest or profit interest of such Person,
if it is a partnership, joint venture or similar entity, or (c) the beneficial
interest of such Person, if it is a trust, association or other unincorporated
organization.
"Total Debt": At any date, Worldwide's and its Subsidiaries' consolidated
----------
interest-bearing Indebtedness including, without limitation, the outstanding
principal balance of the Loans, any Capitalized Leases, other interest-bearing
Indebtedness and, without duplication, guaranties of interest-bearing
Indebtedness.
9
<PAGE>
"Total Usage": At any date, the sum of: (a) the outstanding principal
-----------
balance of the Revolving Loans; plus (b) the Letter of Credit Obligations.
----
"U. S. Bank": U. S. Bank National Association, a national banking
----------
association.
"USB Letter of Credit Fee": As provided in Section 2.7(e)(i).
------------------------ -----------------
Section 1.2 Accounting Terms and Calculations. Except as may be expressly
---------------------------------
provided to the contrary herein, all accounting terms used herein shall be
interpreted and all accounting determinations hereunder (including, without
limitation, determination of compliance with financial ratios and restrictions
in Articles VIII and IX hereof) shall be made in accordance with GAAP
------------- --
consistently applied on a consolidated basis for the Borrower and its
consolidated Subsidiaries as used in the preparation of the audited financial
statements described in Section 7.5(a).
--------------
Section 1.3 Computation of Time Periods. In this Agreement, in the
---------------------------
computation of a period of time from a specified date to a later specified date,
unless otherwise stated, the word "from" means "from and including" and the
words "to" or "until" each means "to but excluding."
Section 1.4 Other Definitional Provisions. The words "hereof," "herein,"
-----------------------------
and "hereunder" and words of similar import when used in this Agreement shall
refer to this Agreement as a whole and not to any particular provision of this
Agreement. References to Sections, Exhibits, Schedules and like references are
to this Agreement unless otherwise expressly provided.
ARTICLE II
----------
TERMS OF LENDING
Section 2.1 The Loans. Subject to the terms and conditions hereof and in
---------
reliance upon the warranties of the Borrower herein, the Banks severally agree
to make loans (each a "Revolving Loan" and collectively the "Revolving Loans")
to the Borrower from time to time from the date hereof until the Revolving
Credit Termination Date up to an aggregate unpaid principal amount at any time
equal to the Revolving Credit Commitment, during which period the Borrower may
repay and reborrow in accordance with the provisions hereof, provided that: (i)
--------
the Banks shall not be obligated to make any Revolving Loan if, after giving
effect to such Revolving Loan, the Total Usage would exceed the Revolving Credit
Commitment; and (ii) no Bank shall be obligated to make any Revolving Loan if,
after giving effect to such Revolving Loan, the aggregate unpaid principal
amount of all Revolving Loans made by such Bank plus its Letter of Credit
----
Participations would exceed such Bank's Individual Revolving Credit Commitment
at such time. Each borrowing under this Section 2.1 shall consist of Revolving
-----------
Loans made on the same day ratably by the Banks in accordance with their
Percentages, and each Bank's Revolving Loans made on such day shall be of the
same Type and shall have the same Interest Period (if applicable).
Section 2.2 Loan Units. Except as otherwise provided herein, the Loans
----------
shall be comprised of Eurodollar Rate Loan Units, CD Rate Loan Units and/or
Reference Rate Loan Units as shall be selected by the Borrower in accordance
with Section 2.3 and Section 2.4. Any combination of Types of Loan Units may be
----------- -----------
outstanding at the same time; provided, however, that the Revolving Loans may
-------- -------
not consist of more than ten (10) different Eurodollar Rate Loan Units and/or
ten (10) different CD Rate Loan Units. Each Eurodollar Rate Loan Unit or CD
Rate Loan Unit shall be in a minimum amount of $1,000,000.00 and in an integral
multiple of $100,000.00 above such amount. Each Reference Rate Loan Unit shall
be in an amount of not less than $500,000.00 and an integral multiple of
$100,000.00 above such amount.
10
<PAGE>
Section 2.3 Borrowing Procedures. Any request by the Borrower for
--------------------
Revolving Loans shall be in writing, or by telephone promptly confirmed in
writing if so requested by the Administrative Bank, and must be given so as to
be received by the Administrative Bank not later than 12:00 noon,
Administrative Bank time, on: (i) the date of the requested Revolving Loans, if
such Revolving Loans will not include Eurodollar Rate Loan Units having an
Interest Period of one month or more; or (ii) on the third Eurodollar Business
Day prior to the date of the requested Revolving Loans, if such Revolving Loans
will include Eurodollar Rate Loan Units having an Interest Period of one month
or more. Each request for Revolving Loans shall specify the borrowing date
(which shall be a Business Day and, in the case of any request for Eurodollar
Rate Loan Units, a Eurodollar Business Day) and the amount of such Revolving
Loans. Each request for Revolving Loans shall be in a minimum amount of
$500,000.00 and an integral multiple of $100,000.00 above such amount. Each
request for Revolving Loans shall be deemed a representation and warranty by the
Borrower that all conditions precedent specified in Section 6.2 to such
-----------
Revolving Loans are satisfied on the date of such request and on the date the
requested Revolving Loans are made. Each written request or confirmation shall
be in the form of Exhibit B attached hereto.
---------
The Administrative Bank shall give prompt telephonic notice to each Bank of
the Borrower's request for Loans and the Borrower's interest rate elections for
such Loans. By not later than 1:00 p.m. (Administrative Bank time) on the date
of such Loans, each Bank shall make available to the Administrative Bank, in
immediately available funds, such Bank's Percentage of such Loans. After the
Administrative Bank's receipt of such funds, and upon satisfaction of the
applicable conditions set forth in Article VI, the Administrative Bank will make
----------
the amount of the requested Loans available to the Borrower at the
Administrative Bank's principal office in Minneapolis, Minnesota in immediately
available funds on the date requested.
Unless the Administrative Bank and the Borrower shall have been notified by
any Bank in writing at least one Business Day prior to the date of a Loan that
such Bank does not intend to make available to the Administrative Bank its
Percentage of such Loan (except that no such notice to the Borrower is required
if the Borrower is not then able to satisfy the applicable conditions set forth
in Article VI), the Administrative Bank may assume that each Bank has made such
----------
amount available to the Administrative Bank on such date, and the Administrative
Bank may, in reliance upon such assumption, make available to the Borrower a
corresponding amount. If and to the extent any Bank shall not have made
available to the Administrative Bank on the date of any Loan such Bank's
Percentage of such Loan, such Bank and the Borrower agree to repay the
Administrative Bank forthwith on demand such corresponding amount, together with
interest thereon, for each day from the date of such Loan amount until the date
such amount is repaid to the Administrative Bank, at the Federal Funds Rate, in
the case of payment by such Bank, or at the interest rate applicable at the time
to the relevant Loan, in the case of payment by the Borrower; provided, however,
-------- -------
if such Bank shall repay to the Administrative Bank such corresponding amount,
the amount repaid shall constitute such Bank's Loan for purposes of this
Agreement.
Section 2.4 Continuation or Conversion of Loan Units for Loans. The
--------------------------------------------------
Borrower may elect to: (a) continue any outstanding Eurodollar Rate Loan Unit
or CD Rate Loan Unit from one Interest Period into a subsequent Interest Period
to begin on the last day of the earlier Interest Period; provided, however that
any Eurodollar Rate Loan or CD Rate Loan Unit having a daily Interest Period
shall automatically be continued, without further notice, as the same Type of
Loan Unit having a daily Interest Period; or (b) convert any outstanding Loan
Unit into another Type of Loan Unit (on the last day of an Interest Period only,
in the instance of a Eurodollar Rate Loan Unit or a CD Rate Loan Unit), by
giving the Administrative Bank notice in writing, or by telephone promptly
confirmed in writing if so requested by the Administrative Bank, given so as to
be received by the Administrative Bank not later than 12:00 noon, Administrative
Bank time: (i) on the date of the requested continuation or conversion, if the
continuing or converted Loan Unit shall be a Reference Rate Loan Unit, CD Rate
Loan Unit or a Eurodollar Rate Loan Unit having a daily Interest Period; or
(ii) three (3) Eurodollar Business Days prior to the date of the requested
continuation or conversion, if the continuing or converted Loan Unit shall be a
Eurodollar Rate Loan Unit having an Interest Period of one month or more. Each
required notice of continuation or conversion of a Loan Unit shall specify: (r)
the effective date of continuation or conversion (which shall be a Business Day
and, if the resulting Loan Unit is a Eurodollar Rate Loan Unit, a Eurodollar
Business Day); (s) the amount and the Type or Types of Loan Units following such
continuation or conversion; and (t) for continuation as, or conversion into,
Eurodollar Rate Loan Units or CD Rate Loan Units, the Interest Periods for such
Loan Units. Absent timely notice
11
<PAGE>
of continuation or conversion, each Eurodollar Rate Loan Unit having an Interest
Period of one month or more or CD Rate Loan Unit having an Interest Period of 30
days or more shall automatically convert into a Reference Rate Loan Unit on the
last day of an applicable Interest Period, unless paid in full on such last day.
No Loan Unit comprising part of the Revolving Loans shall be continued as, or
converted into, a Eurodollar Rate Loan Unit or a CD Rate Loan Unit if the
Interest Period selected for such Loan Unit may not transpire prior to the
Maturity of the relevant Revolving Loans or if a Default or Event of Default
shall exist. Each written notice of continuation or conversion shall be in the
form of Exhibit C attached hereto. The Administrative Bank shall give prompt
---------
written notice to each Bank of any notice received by the Administrative Bank
from the Borrower pursuant to this Section 2.4.
-----------
Section 2.5 The Notes and Maturities. The Revolving Loans made by a Bank
------------------------
shall be evidenced by a Revolving Note, in the amount of such Bank's Individual
Revolving Credit Commitment. The Revolving Loans and the Revolving Notes shall
mature and be payable at Maturity of the Revolving Loans. Each Bank shall enter
in its records the amount of its Revolving Loan, the rate of interest borne on
such Revolving Loans by each Loan Unit, and the payments of the Revolving Loans
received by such Bank, and such records shall be conclusive evidence of the
subject matter thereof, absent manifest error.
Section 2.6 Funding Losses. Upon demand, the Borrower will indemnify and
--------------
hold each Bank free and harmless from and against any loss or expense which such
Bank may sustain or incur (including, without limitation, any loss or expense
sustained or incurred in obtaining, liquidating or employing deposits or other
funds acquired to effect, fund or maintain any Loan Unit) as a consequence of:
(i) any failure of the Borrower to make any payment when due of any amount due
hereunder with respect to the principal of any Loan or under any Note; or (ii)
any failure of the Borrower to borrow, continue or convert a Loan Unit on a date
specified therefor in a notice thereof; or (iii) any payment (including, without
limitation, any payment pursuant to Section 4.2, 4.3 or 10.2), prepayment or
------------------------
conversion of any Eurodollar Rate Loan Unit or CD Rate Loan Unit on a date other
than the last day of the Interest Period for such Loan Unit. Determinations by a
Bank for purposes of this Section 2.6 of the amount required to compensate such
-----------
Bank shall be conclusive in the absence of manifest error.
Section 2.7 Letters of Credit.
-----------------
(a) Letter of Credit Commitment. Subject to the terms and
---------------------------
conditions hereinafter set forth, U. S. Bank agrees to issue stand-by
letters of credit (the "Letters of Credit;" and which term shall include
the Existing Letters of Credit) from time to time on terms reasonably
acceptable to U. S. Bank on any Business Day during the period from the
date hereof and ending on the Letter of Credit Termination Date; provided,
--------
however, that U. S. Bank shall not be required to issue any Letter of
-------
Credit if, after giving effect to such issuance: (i) the Letter of Credit
Obligations would exceed the Letter of Credit Commitment; or (ii) the Total
Usage would exceed the Revolving Credit Commitment.
(b) Termination. The obligation of U. S. Bank to issue any Letter
-----------
of Credit shall terminate on the Letter of Credit Commitment Termination
Date.
(c) Manner of Issuance of Letters of Credit. On the date of this
---------------------------------------
Agreement, the Existing Letters of Credit shall be deemed to have been
issued by U. S. Bank pursuant to this Agreement for the account of the
Borrower. Each subsequent Letter of Credit shall be issued for the account
of the Borrower within three (3) Business Days after receipt of notice from
the Borrower to U. S. Bank specifying the date of the requested issuance,
the face amount of the requested Letter of Credit, and the expiry date of
the requested Letter of Credit; provided that such notice and the required
--------
accompanying documentation is received before 12:00 noon (Administrative
Bank time); any notice received after 12:00 noon (Administrative Bank time)
on any Business Day shall be deemed to have been received on the
immediately following Business Day. In no event shall any Letter of Credit
have an expiry date later than the earlier of: (i) twelve (12) months
after the date of issue ; or (ii) the Revolving Credit Termination Date.
Each request for a Letter of Credit shall be accompanied by an
appropriately completed and duly
12
<PAGE>
executed application for a Letter of Credit in form acceptable to U. S.
Bank (a "Letter of Credit Application").
(d) Reimbursement on Demand. The Borrower agrees to pay to U. S.
-----------------------
Bank on demand at U. S. Bank's address shown on the signature page hereof:
(i) the amount of each draft or other request for payment drawn under any
Letter of Credit (whether drawn before, on or after its stated expiry
date), and (ii) interest on all amounts referred to in clause (i) above
from the date of such draw until payment in full at a fluctuating rate per
annum at all times equal to the Default Rate; provided, however, that so
-------- -------
long as the conditions precedent set forth in Section 2.1 and Article VI
----------- ----------
are satisfied as of the date of any draw under the Letter of Credit, the
Banks will make Revolving Loans in accordance with Section 2.3 (a) to pay
---------------
any draw under a Letter of Credit.
(e) Letter of Credit Fees.
---------------------
(i) The Borrower agrees to pay to U. S. Bank for: (A) its own
account, a fee (the "USB Letter of Credit Fee") at a rate per annum
equal to 0.125% of the undrawn face amount of the Letters of Credit
outstanding from time to time; and (B) the account of each Bank
ratably in accordance with its Percentage, a commission (the "Letter
of Credit Commission")at a rate per annum equal to 0.60% of the
undrawn face amount of the Letters of Credit outstanding from time to
time. The USB Letter of Credit Fee and the Letter of Credit Commission
with respect to each Letter of Credit is payable in arrears on each
Quarterly Payment Date. U. S. Bank shall promptly pay over to each
Bank its Percentage of each Letter of Credit Commission received by
the U.S. Bank.
(ii) The Borrower agrees to pay to U.S. Bank, solely for U.S.
Bank's account, all reasonable and customary charges, fees and
expenses which U. S. Bank may assess in connection with the issuance,
extension, amendment or payment of any Letter of Credit in accordance
with the schedule therefor then in effect, and any and all reasonable
out-of-pocket expenses which U. S. Bank may pay or incur in connection
therewith.
(f) Obligations Absolute. The Obligations of the Borrower
--------------------
under this Section 2.7 shall be unconditional and irrevocable and
-----------
shall be paid strictly in accordance with the terms of this Agreement
under all circumstances, including, without limitation, the following
circumstances: (i) any lack of validity or enforceability of any
Letter of Credit or any other agreement or instrument relating thereto
(collectively, the "Related Documents"); (ii) any amendment or waiver
of, or any consent to departure from, all or any of the Related
Documents; (iii) the existence of any claim, set-off, defense or other
right that the Borrower may have at any time against any beneficiary
or any transferee of any Letter of Credit (or any Persons for whom any
such beneficiary or any such transferee may be acting), U. S. Bank or
any other Person, whether in connection with any Related Document, the
transactions contemplated therein, or any unrelated transaction,
except as set forth in clause (v) below; (iv) any draft, statement or
any other document presented under any Letter of Credit proving to be
forged, fraudulent, invalid or insufficient in any respect or any
statement therein being untrue or inaccurate in any respect, except as
set forth in clause (v) below; (v) payment by U. S. Bank under any
Letter of Credit against presentation of a draft or certificate which
does not comply with the terms of such Letter of Credit, except in the
case of payment resulting from the negligence or willful misconduct of
U. S. Bank; (vi) the occurrence of any Default or Event of Default; or
(vii) any other circumstance or event whatsoever, whether or not
similar to any of the foregoing.
(g) Letter of Credit Participations.
-------------------------------
(i) Concurrently with the issuance of each Letter of Credit
pursuant to this Agreement (including, without limitation, the deemed
issuance of the Existing Letters of Credit
13
<PAGE>
pursuant to the first sentence of Section 2.7(c)), U. S. Bank shall be
--------------
deemed to have sold and transferred to each Bank, and each Bank shall
be deemed irrevocably and unconditionally to have purchased and
received from U. S. Bank, without recourse or warranty, an undivided
Letter of Credit Participation in each Letter of Credit and the Letter
of Credit Obligations with respect thereto and any security therefor.
U. S. Bank shall retain its individual Letter of Credit Participation
in each Letter of Credit and the Letter of Credit Obligations with
respect thereto and any security therefor. U. S. Bank shall promptly
give each other Bank notice of the issuance of each Letter of Credit
and the amount of such Bank's Letter of Credit Participation therein.
(ii) U. S. Bank shall promptly notify the Borrower and each Bank
of each demand for payment under a Letter of Credit and of the date on
which such payment is to be made and the amount of such Bank's
Revolving Loan to be made pursuant to Sections 2.3 and 2.7(d), if any.
-----------------------
By not later than 1:00 p.m. (Administrative Bank time), on each date
on which payment is to be made to U. S. Bank, each Bank shall pay to
U. S. Bank in immediately available funds, such Bank's Percentage of
such demand for payment which the Borrower has not paid to U. S. Bank,
by Revolving Loans or otherwise. Each Bank's obligation to make such
amounts available to U. S. Bank shall be irrevocable and shall not be
subject to any qualification or exception whatsoever and shall be made
in accordance with the terms and conditions of this Agreement under
all circumstances except where the Borrower is not liable to U. S.
Bank for payment of a draw on a Letter of Credit under Section
-------
2.7(f)(v). If and to the extent any Bank shall not have made such
---------
amount available to U. S. Bank on any such date, such Bank agrees,
upon demand, to pay interest on such amount to U. S. Bank for the
account of U. S. Bank for each day from and including the date on
which such payment was to be made to but excluding the date such
payment is made at a rate per annum equal to the Federal Funds Rate
from time to time in effect, based upon a year of 360 days. Any
Bank's failure to make available to U. S. Bank its Percentage of any
demand for payment under a Letter of Credit shall not relieve any
other Bank of its obligation to make available to U. S. Bank its
Percentage of such demand for payment on the date such payment is to
be made, but no Bank shall be responsible for the failure of any other
Bank to make available to U. S. Bank such other Bank's Percentage of
any such payment.
(iii) Whenever, at any time after U. S. Bank has made a payment
under any Letter of Credit and has received from another Bank such
other Bank's Percentage of the unreimbursed portion of such payment,
U. S. Bank receives any reimbursement on account of such unreimbursed
portion or any payment of interest on account thereof, U. S. Bank will
promptly distribute to such other Bank its pro rata share thereof in
--- ----
like funds as received in accordance with Section 4.4; provided,
----------- --------
however, that in the event that U. S. Bank is required to return such
-------
reimbursement or such payment of interest (as the case may be), such
other Bank will return to U. S. Bank any portion thereof previously
distributed to it by U. S. Bank in like funds as such reimbursement or
payment is required to be returned by U. S. Bank.
(h) Indemnification by Banks. The Banks severally agree to indemnify
------------------------
U. S. Bank acting in its capacity as issuer of the Letters of Credit, and
each officer, director, employee, agent and affiliate of U. S. Bank (herein
collectively called "LC Issuer Parties" and individually called a "LC
Issuer Party"), ratably according to their respective Percentages, to the
extent not reimbursed by the Borrower, from and against any and all claims,
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind or nature whatsoever
which may at any time (including, without limitation, at any time following
the payment of any of the Letter of Credit Obligations) be imposed on,
incurred by or asserted against U. S. Bank in any way relating to or
arising out of the issuance of or payment or failure to pay under the
Letter of Credit or the use of proceeds of any payment made under the
Letter of Credit; provided, however, that no Bank shall be liable for the
-------- -------
payment to U. S. Bank of any portion of such claims, liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever resulting from
U. S. Bank's gross negligence
14
<PAGE>
or willful misconduct. All obligations provided for in this subsection (h)
shall survive the termination of this Agreement.
(i) Conflicts. The rights of U. S. Bank against the Borrower
---------
hereunder shall be in addition to all rights under (and shall control over
any conflict under) any Letter of Credit Application.
ARTICLE III
-----------
INTEREST AND FEES
Section 3.1 Interest. Subject to the provisions of Section 3.1(b), the
-------- --------------
Borrower agrees to pay interest on the outstanding principal amount of each
Revolving Loan from the date of such Revolving Loan until the Maturity thereof:
(a) With respect to each:
(i) Reference Rate Loan Unit comprising a portion of such
Revolving Loan, at a fluctuating rate per annum equal at all
times to the Reference Rate;
(ii) Eurodollar Rate Loan Unit comprising a portion of such
Revolving Loan, at a rate per annum equal at all times during the
Interest Period relating to such Eurodollar Rate Loan Unit to the
sum of the Adjusted Eurodollar Rate in effect for such Interest
Period plus 0.60%; and
----
(iii) CD Rate Loan Unit comprising a portion of such
Revolving Loan, at a rate per annum equal at all times during the
Interest Period relating to such Eurodollar Rate Loan Unit to the
sum of the Adjusted CD Rate in effect for such Interest Period
plus 0.60%
----
(b) Notwithstanding the provisions of Section 3.1(a), at all times
--------------
after the occurrence and during the continuance of any Event of Default,
the Borrower agrees to pay interest on the outstanding principal amount of
each Revolving Loan from the date on which the Administrative Bank notifies
the Borrower of such Event of Default at a rate per annum at all times
equal to the sum of the rate equal to the sum of (i) the Reference Rate;
plus (ii) two percent (2.0%) per annum.
----
(c) Until Maturity of a Loan: (i) interest accrued through the end of
a month on each Reference Rate Loan Unit shall be payable on the Monthly
Payment Date coinciding with the end of such month, commencing on the first
such Monthly Payment Date following the Closing Date; and (B) interest
accrued during the applicable Interest Period on each Eurodollar Rate Loan
Unit or CD Rate Loan Unit shall be payable on the last day of such
applicable Interest Period; provided, however, that in the case of any
-------- -------
Interest Period of longer than three (3) months, interest shall also be
payable at each Quarterly Payment Date occurring within such Interest
Period. Interest on each Loan shall also be payable at its Maturity.
Interest accrued after Maturity shall be payable on demand.
(e) No provision of this Agreement or any Note shall require the payment of
interest in excess of the rate permitted by applicable law.
Section 3.2 Facility Fee. The Borrower shall pay to the Administrative
------------
Bank a fee (the "Facility Fee"), for the account of each Bank ratably in
accordance with its Percentage, determined by applying a rate equal to 0.1875%
to the daily Revolving Credit Commitment. The Facility Fee shall be payable to
the Administrative Bank in arrears on each Quarterly Payment Date, commencing
with the first such date following the Closing Date, and on the Revolving Credit
Termination Date.
15
<PAGE>
Section 3.4 Computation. Interest, the Facility Fee, the USB Letter of
-----------
Credit Fee, the Letter of Credit Commission and any other fee calculated on a
per annum basis shall be computed on the basis of actual days elapsed and a
year of 360 days.
ARTICLE IV
----------
PAYMENTS, PREPAYMENTS, REDUCTION OR
TERMINATION OF THE CREDIT AND SETOFF
Section 4.1 Repayment. Principal of the Loans shall be due and payable
---------
in accordance with the provisions of Section 2.5 hereof and this Article IV.
----------- ----------
Section 4.2 Voluntary and Mandatory Prepayments.
-----------------------------------
(a) Optional Prepayments. The Borrower, by giving written or
--------------------
telephonic notice to the Administrative Bank by no later than 2:00 p.m.
(Administrative Bank time) on the Business Day of a prepayment, may prepay
the Loans, in whole or in part, at any time, without premium or penalty;
provided, however, that: (i) any prepayment shall be subject to the
-------- -------
provisions of Section 2.6; and (ii) each partial prepayment shall be in an
-----------
amount of $500,000.00 and an integral multiple $100,000.00 above such
amount. Any such prepayment must be accompanied by accrued and unpaid
interest on the amount prepaid and any amount payable pursuant to Section
-------
2.6. The Administrative Bank shall give prompt notice to each Bank of any
---
notice received by the Administrative Bank pursuant to this Section 4.2(a).
--------------
(b) Mandatory Prepayment of Revolving Loans. The Borrower shall
---------------------------------------
prepay the Revolving Loans as follows:
(i) If, at any time, the Total Usage exceeds the Revolving
Credit Commitment, then the Borrower shall immediately prepay the
Revolving Loans and cash collateralize the Letter of Credit
Obligations by the amount of such excess together with interest on the
amount prepaid. Any prepayment required by this subsection (i) shall
--------------
be applied first to prepay the Revolving Loans, and the remainder of
such prepayment, if any, shall be deposited in an interest-bearing
account maintained at U. S. Bank for application to the Borrower's
reimbursement obligations under Section 2.7(d) as payments are made
--------------
on the Letters of Credit, with the balance, if any, to be applied to
the other Obligations.
(ii) If, at any time, the Administrative Bank notifies the
Borrower that the sum of the aggregate unpaid principal amount of the
Revolving Loans made by any Bank plus its Letter of Credit
----
Participations exceeds such Bank's Individual Revolving Credit
Commitment by providing the Borrower with a written certificate from
such Bank calculating the amount of such excess, then the Borrower
shall immediately prepay the amount of such excess together with
interest on the amount prepaid to the Administrative Bank for
distribution to such Bank for application to the Revolving Loans owed
to such Bank.
(c) Application of Prepayments. Except as otherwise directed by the
--------------------------
Borrower, the Banks shall apply prepayments first to Reference Rate Loan
Units, then to Eurodollar Rate Loan Units having an Interest Period ending
on such day of prepayment, then to CD Rate Loan Units having an Interest
Period ending on such day of prepayment, then to other CD Rate Loan Units,
and then to other Eurodollar Rate Loan Units.
Section 4.3 Reduction or Termination of Revolving Credit Commitment or
-------------------------------------------------------
Letter of Credit Commitment.
16
<PAGE>
(a) Voluntary. The Borrower may, at any time, upon no less than
---------
three (3) Business Days' prior written notice received by the
Administrative Bank, permanently reduce the Revolving Credit Commitment,
with any such reduction in a minimum amount of $5,000,000.00 or an integral
multiple of $1,000,000.00 in excess of that amount; provided, however, the
-------- -------
Borrower may not reduce the Revolving Credit Commitment below the sum of
the aggregate unpaid principal amount of the Revolving Loans plus the
----
Letter of Credit Obligations. The Borrower may, at any time when no
Revolving Loans or Letter of Credit Obligations are outstanding, upon not
less than three (3) Business Days' prior written notice to the
Administrative Bank, terminate both the Revolving Credit Commitment and
Letter of Credit Commitment in their entireties or may, when no Letter of
Credit Obligations are outstanding, terminate the Letter of Credit
Commitment. Upon termination of both of the Revolving Credit Commitment and
the Letter of Credit Commitment pursuant to this Section, the Borrower
shall pay to the Administrative Bank all accrued and unpaid interest on the
Revolving Loans, all unpaid Revolving Credit Non-Usage Fee accrued to the
date of such termination and all other unpaid Obligations of the Borrower
to the Administrative Bank or any Bank hereunder with respect to the
Revolving Loans, the Revolving Credit Commitment, the Letters of Credit and
the Letter of Credit Commitment including, without limitation, any amount
required to be paid under Section 10.3. Upon termination of the Letter of
------------
Credit Commitment (without a corresponding termination of the Revolving
Credit Commitment) pursuant to this Section, the Borrower shall pay to the
Administrative Bank all unpaid Obligations of the Borrower to U. S. Bank
hereunder with respect to the Letters of Credit and the Letter of Credit
Commitment including, without limitation, any amount required to be paid
under Section 10.3.
------------
(b) Application. Each reduction in the Revolving Credit Commitment
-----------
or Letter of Credit Commitment shall reduce the Banks' Individual Revolving
Credit Commitments or Individual Letter of Credit Commitments, as the case
may be, pro rata in accordance with their respective Percentages.
--- ----
Section 4.4 Payments. Except to the extent that this Agreement
--------
specifically requires that payments be made directly to an individual Bank, all
payments and prepayments of principal of, and interest on, the Notes and all
fees, expenses and other Obligations under the Loan Documents payable to the
Administrative Bank or the Banks shall be made without deduction, set-off, or
counterclaim and net of any withholding taxes, in immediately available funds,
not later than 2:00 p.m., Administrative Bank time, on the dates due to the
Administrative Bank at the office specified by it from time to time for the
ratable benefit of the Banks in accordance with their Percentages, except as
otherwise specifically provided in this Agreement. Funds received on any day
after such time shall be deemed to have been received on the next Business Day.
Subject to the definition of the term "Interest Period", whenever any payment to
be made hereunder or on the Notes shall be stated to be due on a day which is
not a Business Day, such payment shall be made on the next succeeding Business
Day and such extension of time shall be included in the computation of any
interest or fees. The Borrower authorizes each Bank to charge any of the
Borrower's accounts maintained at such Bank for the amount of any payment or
prepayment on the Notes or other amount owing pursuant to any of the other Loan
Documents. The Borrower hereby authorizes the Banks, at the discretion of the
Required Banks, to make a Revolving Loan in order to pay, on behalf of the
Borrower, any amount due on any Note or pursuant to any of the other Loan
Documents without further action on the part of the Borrower and regardless of
whether the Borrower is able to comply with the terms, conditions and covenants
of this Agreement at the time of such Revolving Loan. The Administrative Bank
will use its best efforts to inform the Borrower immediately prior to or
promptly after any such charge to the Borrower's account or Revolving Loan is
made. The Administrative Bank (or its designee) shall promptly distribute to
each Bank its respective Percentage of all payments of principal of or interest
on the Loans or other payments due under this Agreement or any other Loan
Document received by it for the account of such Bank; provided, however that:
-------- -------
(a) the Administrative Bank may set off against any amount distributable to any
Bank the amount, if any, which such Bank is obligated to pay to the
Administrative Bank under this Agreement or any other Loan Document; and (b) if
the Administrative Bank reasonably determines that any amount received by it
under this Agreement or any other Loan Document must be returned to the Borrower
or paid to any other Person pursuant to any insolvency law or otherwise, then,
notwithstanding any other term or condition of this Agreement or any other Loan
Document, the Administrative Bank will not be required to distribute any portion
thereof to any Bank and each Bank will repay to the Administrative Bank, on
demand, any portion of such amount that the Administrative Bank has distributed
to such Bank, together with interest at such rate, if any, as the
17
<PAGE>
Administrative Bank is required to pay to the Borrower or such other Person,
without set-off, counterclaim or deduction of any kind. All amounts received by
each Bank (whether as a result of payment transmitted by the Borrower or
otherwise) on account of payment of interest on or principal of the Notes, or
other payments due under this Agreement or any other Loan Document, as the case
may be, shall be so applied by it to such payment.
Section 4.5 Pro Rata Sharing. If any Bank or any holder of any Note
----------------
shall obtain any payment (whether voluntary, involuntary, by application of
offset or otherwise) upon any Loan or other Obligation which is to be shared pro
---
rata under this Agreement in excess of its Percentage of such payment then or
- ----
thereafter obtained by all other Banks or other holders of Notes upon such
Obligations, such Bank or other holder shall purchase from the other Banks or
the other holders of Notes such participations in the relevant Obligation as
shall be necessary for such purchasing Bank or holder to share the excess
payment ratably with the other Banks or holders according to each Bank's or
other holder's Percentage; provided, however, that if all or any portion of the
-------- -------
excess payment is thereafter recovered from such purchasing holder, the purchase
shall be rescinded and the purchase price restored to the extent of such
recovery, but without interest. The Borrower agrees that any Bank or holder so
purchasing a participation from another Bank or holder pursuant to this Section
-------
4.5 may, to the fullest extent permitted by law, exercise all its rights of
- ---
payment (including the right of setoff) with respect to such participation as
fully as if such Bank or holder were the direct creditor of the Borrower in the
amount of such participation.
Section 4.6 Set-Off; etc. In addition to the remedies set forth in Section
------------- -------
10.2 and Section 10.3, upon the occurrence of any Event of Default or at any
- ---- ------------
time thereafter while such Event of Default continues, each Bank or any other
holder of the Notes may offset any and all balances, credits, deposits (general
or special, time or demand, provisional or final), accounts or monies of the
Borrower then or thereafter with such Bank or such other holder, or any
obligations of such Bank or such other holder of the Notes against the
Obligations. The Borrower hereby grants to each Bank and each other Note holder
a security interest in all such balances, credits, deposits, accounts or monies.
ARTICLE V
---------
ADDITIONAL PROVISIONS RELATING TO THE LOANS
Section 5.1 Increased Costs. If, as a result of any Regulatory Change:
---------------
(a) any tax, duty or other charge with respect to any Loan, the
Notes, the Letters of Credit, the Letter of Credit Participations or the
Commitment is imposed, modified or deemed applicable, or the basis of
taxation of payments to any Bank of interest or principal of the Loans, or
of the Facility Fee or of the USB Letter of Credit Fee or the Letter of
Credit Commission (other than taxes imposed on the overall net income of
such Bank by the jurisdiction in which such Bank has its principal office)
is changed;
(b) any reserve, special deposit, special assessment or similar
requirement against assets of, deposits with or for the account of, or
credit extended by, such Bank is imposed, modified or deemed applicable;
(c) any increase in the amount of capital required or expected to
be maintained by such Bank or any Person controlling such Bank is imposed,
modified or deemed applicable;
(d) any other condition affecting this Agreement or the Commitment
is imposed on such Bank or the relevant funding markets;
and such Bank determines that, by reason thereof, the cost to such Bank of
making or maintaining the Loans, the Letters of Credit, the Letter of Credit
Participations or the Commitment is increased, or the amount of any sum
receivable by such Bank hereunder or under the Notes is reduced; then, the
Borrower shall pay to such Bank upon demand such additional amount or amounts as
will compensate such Bank (or the controlling Person in the instance
18
<PAGE>
of (c) above) on an after-tax basis for such additional costs or reduction
(provided that the Bank has not been compensated for such additional cost or
reduction in the calculation of the Eurodollar Reserve Percentage or Domestic
Reserve Percentage, as the case may be, for any affected Loan Unit). The Bank
claiming compensation under this Section will promptly notify the Borrower and
the Administrative Bank of any event of which it has knowledge, occurring after
the date hereof, which will entitle such Bank to compensation pursuant to this
Section. A certificate of the Bank claiming compensation under this paragraph,
setting forth the additional amount or amounts to be paid to it hereunder and
stating in reasonable detail the basis for the charge and the method of
computation, shall be conclusive in the absence of error. In determining any
compensation under this Section, the claiming Bank may use any reasonable
averaging and attribution methods. Failure on the part of a Bank to demand
compensation under this Section for any period shall not constitute a waiver of
such Bank's rights to demand compensation for any subsequent period.
Section 5.2 Deposits Unavailable or Interest Rate Unascertainable or
--------------------------------------------------------
Inadequate; Impracticability. If any Bank determines (which determination
- ----------------------------
shall be conclusive and binding on the parties hereto) that:
(a) deposits of the necessary amount for the relevant Interest Period
for any Eurodollar Rate Loan Unit or CD Rate Loan Unit are not available to
such Bank in the relevant market or that, by reason of circumstances
affecting such market, adequate and reasonable means do not exist for
ascertaining the Eurodollar Rate or CD Rate for such Interest Period;
(b) the Adjusted Eurodollar Rate or the Adjusted CD Rate will not
adequately and fairly reflect the cost to such Bank of making or funding
the relevant Loan Unit for its Interest Period; or
(c) the making or funding of any Eurodollar Rate Loan Unit or CD Rate
Loan Unit has become impracticable as a result of any event occurring after
the date of this Agreement which, in the opinion of such Bank, materially
and adversely affects such Loan Unit or such Bank's Commitment to make such
Loan Unit or the relevant market;
such Bank shall promptly give notice of such determination to the Borrower and
the Administrative Bank that the adversely affected Type of Loan Unit is no
longer available to the Borrower, and (A) all Loans made by such Bank during
the period on and after the date of such Bank's notice through the date on which
such Bank determines that the circumstances giving rise to such Bank's
determination under subsection (a), (b) or (c) no longer exists shall accrue
interest only as a Type of Loan Unit not subject to such notice; (B) (1) any
notice of a new Eurodollar Rate Loan Unit previously given by the Borrower and
not yet borrowed or converted shall be deemed, as to such Bank, to be a notice
to make a Reference Rate Loan Unit, and (2) the Borrower shall be obligated to
either prepay in full any outstanding Eurodollar Rate Loan Units without premium
or penalty other than any amount required by Section 2.6 on the last day of the
-----------
current Interest Period with respect thereto or convert any such Eurodollar Rate
Loan Unit to a Reference Rate Loan Unit or, if then permitted, a CD Rate Loan
Unit or, in either case, on such earlier date as may be required by applicable
law. Any prepayment of any Eurodollar Rate Loan Unit or CD Rate Loan Unit prior
to the end of its Interest Period shall be accompanied by any payment required
by Section 2.6.
------------
Section 5.3 Changes in Law Rendering Eurodollar Rate Loan Units Unlawful.
------------------------------------------------------------
If at any time due to the adoption of any law, rule, regulation, treaty or
directive, or any change therein, or in the interpretation or administration
thereof by any court, central bank, governmental authority, agency or
instrumentality, or comparable agency charged with the interpretation or
administration thereof, or for any other reason arising subsequent to the date
of this Agreement, it shall become unlawful or impossible for any Bank to make
or fund any Eurodollar Rate Loan Unit, the obligation of such Bank to provide
such Loan Unit shall, upon the happening of such event, forthwith be suspended
for the duration of such illegality or impossibility. If any such event shall
make it unlawful or impossible for any Bank to continue any Eurodollar Rate Loan
Unit previously made by it hereunder, such Bank shall, upon the happening of
such event, notify the Borrower and the Administrative Bank thereof in writing,
and the Borrower shall, at the time notified by the Bank, either convert each
such unlawful Loan Unit to a Reference Rate Loan Unit or, if then permitted, a
CD Rate Loan Unit, or repay such Loan Unit in full, together with accrued
interest thereon and any payment required pursuant to Section 2.6.
-----------
19
<PAGE>
Section 5.4 Withholding Taxes. Upon the written request of the Borrower,
-----------------
each Bank (or transferee) that is organized under the laws of a jurisdiction
outside the United States shall, if legally able to do so, prior to the
immediately following due date of any payment by the Borrower hereunder, deliver
to the Borrower such certificates, documents or other evidence, as required by
the Code or Treasury Regulations issued pursuant thereto, including Internal
Revenue Service Form 1001 or Form 4224 and any other certificate or statement of
exemption required by Treasury Regulation Section 1.1441-1, 1.1441-4 or 1.1441-
6(c) or any subsequent version thereof or successors thereto, properly completed
and duly executed by such Bank (or transferee) establishing that such payment is
(a) not subject to United States Federal withholding tax under the Code because
such payment is effectively connected with the conduct by such Bank (or
transferee) of a trade or business in the United States or (b) totally exempt
from United States Federal withholding tax, or subject to a reduced rate of such
tax under a provision of an applicable tax treaty. Unless the Borrower and the
Administrative Bank have received forms or other documents satisfactory to them
indicating that such payments hereunder are not subject to United States Federal
withholding tax or are subject to such tax at a rate reduced by an applicable
tax treaty, the Borrower or the Administrative Bank shall withhold taxes from
such payments at the applicable statutory rate. The Borrower shall not be
required to pay any additional amounts to any Bank (or transferee) in respect of
United States Federal withholding tax pursuant to Section 5.1 above if the
-----------
obligation to pay such additional amounts would not have arisen but for a
failure by such Bank (or transferee) to comply with the provisions of this
Section; provided, however, that the Borrower shall be required to pay those
--------- -------
amounts to any Bank (or transferee) it was required to pay hereunder prior to
the failure of such Bank (or transferee) to comply with the provisions of this
Section. Any Bank (or transferee) claiming any additional amounts payable
pursuant to this Section 5.4 shall use reasonable efforts (consistent with legal
-----------
and regulatory restrictions) to file any certificate or document requested by
the Borrower or to change the jurisdiction of its applicable lending office if
the making of such a filing or change would avoid the need for or reduce the
amount of any such additional amounts which may thereafter accrue and would not,
in the sole determination of such Bank, be otherwise disadvantageous to such
Bank (or transferee).
Section 5.5 Discretion of the Banks as to Manner of Funding.
-----------------------------------------------
Notwithstanding any provision of this Agreement to the contrary, each Bank shall
be entitled to fund and maintain its funding of all or any part of the Loans in
any manner it elects; it being understood, however, that for purposes of this
Agreement, all determinations hereunder shall be made as if the Banks had
actually funded and maintained each Eurodollar Rate Loan Unit during its
Interest Period through the purchase of deposits having a term corresponding to
such Interest Period and bearing an interest rate equal to the Eurodollar Rate
and each CD Rate Loan Unit during its Interest Period through the purchase of
deposits having a term corresponding to such Interest Period and bearing an
interest rate equal to the CD Rate (whether or not the Banks shall have granted
any participation in such Loan Units).
Section 5.6 Funding Through the Sale of Participation. Subject only to
-----------------------------------------
the provisions of Section 12.5, the Borrower acknowledges that each Bank may
------------
fund all or any part of the Loans by sales of participation to various
participants and agrees that each Bank may, in invoking its rights under this
Article V or under Section 2.6, demand and receive payment for costs and other
- --------- -----------
amounts incurred by, or allocable to, any such participant, or take other action
arising from circumstances applicable to any such participant, to the same
extent that such participant could demand and receive payments, or take other
action, under this Article V or under Section 2.6 if such participant were the
--------- -----------
Bank under this Agreement except that no participant's claims for payment of
costs and other amounts under this Article V or Section 2.6 shall exceed the
-----------
amount which such Bank would have received had such Bank not sold a
participation to such participant.
Section 5.7 Funding Through Branch or Affiliate. At each Bank's sole
-----------------------------------
option, it may fulfill its commitment to make Eurodollar Rate Loan Units by
causing a foreign branch or an affiliate to make or continue such Eurodollar
Rate Loan Units; provided, that in such instance such Eurodollar Rate Loan Unit
--------
shall be deemed for purposes of this Agreement to have been made by the Bank and
the obligation of the Borrower to repay such Eurodollar Rate Loan Units shall be
to such Bank and shall be deemed held by such Bank for the account of such
branch or affiliate.
20
<PAGE>
ARTICLE VI
----------
CONDITIONS PRECEDENT
Section 6.1 Conditions of Initial Loans, etc. The obligation of the
--------------------------------
Banks to make the initial Revolving Loans or of U. S. Bank to issue the initial
Letter of Credit shall be subject to the satisfaction of the conditions
precedent, in addition to the applicable conditions precedent set forth in
Section 6.2 below, that the Administrative Bank shall have received all of the
- -----------
following, in form and substance satisfactory to the Banks, each duly executed
and certified or dated the date of the initial Loans or Letter of Credit or such
other date as is satisfactory to the Banks:
(a) The Notes appropriately completed and duly executed by the
Borrower;
(b) The other Loan Documents, if any, appropriately completed and duly
executed by each Loan Party which is a party thereto;
(c) A certificate of the secretary or any assistant secretary of each
Loan Party having attached: (i) a copy of the corporate resolution of the
Borrower authorizing the execution, delivery and performance of the Loan
Documents to which such Loan Party is a party, certified by the Secretary
or an Assistant Secretary of such Loan Party; (ii) an incumbency
certificate showing the names and titles, and bearing the signatures of,
the officers of such Loan Party authorized to execute the Loan Documents to
which such Loan Party is a party; and (iii) a copy of the bylaws of such
Loan Party with all amendments thereto;
(d) A copy of the articles or certificate of incorporation of each
Loan Party with all amendments thereto, certified by the appropriate
governmental official of the jurisdiction of its incorporation as of a date
acceptable to the Administrative Bank and the Banks;
(e) Certificates of good standing for the Borrower from the respective
Secretary of States of the States of Delaware and Minnesota;
(f) An opinion of counsel to the Loan Parties, addressed to the
Administrative Bank and the Banks, in form and substance satisfactory to
the Administrative Bank and the Banks;
(g) An officer's certificate in a form provided by the Administrative
Bank executed by the chief financial officer or treasurer of the Borrower;
(h) Evidence of insurance for all insurance required by the Loan
Documents;
(i) A letter signed by the Borrower instructing the Banks as to
payment of the proceeds of the initial Revolving Loans;
(j) A Compliance Certificate appropriately completed as of a date
satisfactory to the Required Banks and duly executed by the Borrower
showing compliance with the financial covenants set forth in this Agreement
as of such date; and
(k) Such other approvals, opinions or documents as the Administrative
Bank or any Bank may reasonably request.
Section 6.2 Conditions Precedent to all Loans, etc. The obligation of the
---------------------------------------
Banks to make any Loan hereunder (including the initial Revolving Loans) or of
U. S. Bank to issue any Letter of Credit shall be subject to the satisfaction of
the following conditions precedent:
21
<PAGE>
(a) Before and after giving effect to such Loan or Letter of Credit,
the representations and warranties contained in Article VII shall be true
-----------
and correct, as though made on the date of such Loan or Letter of Credit,
except that, after the delivery of any financial statements to the Banks in
accordance with Section 8.1(a) or (b), the representations and warranties
-------------- ---
set forth in Section 7.5 shall be deemed a reference to the audited or
-----------
unaudited financial statements then most recently delivered to the Banks;
(b) Before and after giving effect to such Loan or Letter of Credit,
no Default or Event of Default shall have occurred and be continuing; and
(c) The Administrative Bank shall have received the Borrower's request for
such Loan as required by Section 2.3 or the Letter of Credit Application
-----------
for such Letter of Credit as required by Section 2.7.
-----------
ARTICLE VII
-----------
REPRESENTATIONS AND WARRANTIES
To induce the Banks to enter into this Agreement, to grant the Commitment
and to make Loans hereunder, the Borrower represents and warrants to the
Administrative Bank and the Banks:
Section 7.1 Organization, Standing, etc. Each Loan Party and each of its
---------------------------
Restricted Subsidiaries are corporations or companies duly organized and
validly existing and in good standing under the laws of the state of their
respective organization and have all requisite power and authority to carry on
their respective businesses as now conducted, to enter into the Loan Documents
to which they are a party and to perform their obligations under the Loan
Documents. Each Loan Party and each of its Restricted Subsidiaries is duly
qualified and in good standing as a foreign corporation in each jurisdiction in
which the character of the properties owned, leased or operated by it or the
business conducted by it makes such qualification necessary.
Section 7.2 Authorization and Validity. The execution, delivery and
--------------------------
performance by each Loan Party of the Loan Documents to which such Loan Party is
a party have been duly authorized by all necessary corporate action by such Loan
Party. The Loan Documents constitute the legal, valid and binding obligations of
each Loan Party which is a party thereto, enforceable against such Loan Party in
accordance with their respective terms, subject to limitations as to
enforceability which might result from bankruptcy, insolvency, moratorium and
other similar laws affecting creditors' rights generally and subject to
limitations on the availability of equitable remedies.
Section 7.3 No Conflict, No Default. The execution, delivery and
-----------------------
performance by each Loan Party of the Loan Documents to which such Loan Party is
a party will not: (a) violate any provision of any law, statute, rule or
regulation or any order, writ, judgment, injunction, decree, determination or
award of any court, governmental agency or arbitrator presently in effect having
applicability to such Loan Party; (b) violate or contravene any provisions of
the articles (or certificate) of incorporation or bylaws of such Loan Party (in
the case of each Loan Party which is a corporation); or (c) result in a breach
of or constitute a default under any indenture, loan or credit agreement or any
other agreement, lease or instrument to which such Loan Party is a party or by
which it or any of its properties may be bound or result in the creation of any
Lien on any asset of such Loan Party except for Liens created by the Loan
Documents. No Loan Party is in default under or in violation of any such law,
statute, rule or regulation, order, writ, judgment, injunction, decree,
determination or award or any such indenture, loan or credit agreement or other
agreement, lease or instrument in any case in which the consequences of such
default or violation constitute an Adverse Event. No Default or Event of Default
has occurred and is continuing.
Section 7.4 Government Consent. No order, consent, approval, license,
------------------
authorization or validation of, or filing, recording or registration with, or
exemption by, any governmental or public body or authority is required on the
part of any Loan Party to authorize, or is required in connection with the
execution, delivery and performance of, or the legality, validity, binding
effect or enforceability of, the Loan Documents to which such Loan Party is a
party.
22
<PAGE>
Section 7.5 Financial Statements and Condition. Worldwide's audited
----------------------------------
consolidated financial statements as at December 31, 1998, and its unaudited
financial statements as at September 30, 1999, as heretofore furnished to the
Administrative Bank and the Banks, have been prepared in accordance with GAAP on
a consistent basis (except for the omission of footnotes and prior period
comparative data required by GAAP and for variations from GAAP which in the
aggregate are not material) and fairly present the consolidated financial
condition of Worldwide and its Subsidiaries as at such dates and the results of
their consolidated operations and changes in financial position for the
respective periods then ended. Since December 31, 1998, no Adverse Event has
occurred.
Section 7.6 Litigation. There are no actions, suits or proceedings
----------
pending or, to the knowledge of the Borrower, threatened against or affecting
Worldwide or any of its Restricted Subsidiaries or any of their respective
properties before any court or arbitrator, or any governmental department,
board, agency or other instrumentality which, if determined adversely to such
Person, could constitute an Adverse Event.
Section 7.7 Contingent Liabilities. Neither Worldwide nor any of its
----------------------
Restricted Subsidiaries has any Contingent Obligations which are material to
such Person.
Section 7.8 Compliance. Worldwide and each of its Restricted Subsidiaries
----------
are in material compliance with all statutes and governmental rules and
regulations applicable to such Person.
Section 7.9 Environmental, Health and Safety Laws. There does not exist
-------------------------------------
any violation by Worldwide or any of its Restricted Subsidiaries of any
applicable federal, state or local law, rule or regulation or order of any
government, governmental department, board, agency or other instrumentality
relating to environmental, pollution, health or safety matters which will or
threatens to impose a material liability on such Person or which would require a
material expenditure by such Person to cure. Neither Worldwide nor any of its
Restricted Subsidiaries has received any notice to the effect that any part of
its operations or properties is not in material compliance with any such law,
rule, regulation or order or notice that it or its property is the subject of
any governmental investigation evaluating whether any remedial action is needed
to respond to any release of any toxic or hazardous waste or substance into the
environment, the consequences of which non-compliance or remedial action could
constitute an Adverse Event.
Section 7.10 ERISA. Each Plan complies with all material applicable
-----
requirements of ERISA and the Code and with all material applicable rulings and
regulations issued under the provisions of ERISA and the Code setting forth
those requirements, where the consequences of which non-compliance could
constitute an Adverse Event. No Reportable Event has occurred and is continuing
with respect to any Plan. All of the minimum funding standards applicable to
such Plans have been satisfied and there exists no event or condition which
would permit the institution of proceedings to terminate any Plan under Section
4042 of ERISA. The current value of the Plans' benefits guaranteed under Title
IV of ERISA does not exceed the current value of the Plans' assets allocable to
such benefits.
Section 7.11 Regulation U. Neither Worldwide nor any of its Restricted
------------
Subsidiaries is engaged in the business of extending credit for the purpose of
purchasing or carrying margin stock (as defined in Regulation U of the Federal
Reserve Board), and no part of the proceeds of any Loan will be used to purchase
or carry margin stock or for any other purpose which would violate any of the
margin requirements of the Board of the Governors of the Federal Reserve System.
Section 7.12 Ownership of Property; Liens. Worldwide and each of its
----------------------------
Restricted Subsidiaries have good and marketable title to their respective real
properties and good and sufficient title to their respective other properties,
including all properties and assets referred to in the audited financial
statements of Worldwide referred to in Section 7.5 (other than property
-----------
disposed of since the date of such financial statements in the ordinary course
of business). None of the properties, revenues or assets of Worldwide or any or
its Restricted Subsidiaries is subject to a Lien, except for: (a) Liens listed
on Schedule 7.12 attached hereto and incorporated herein by reference; or
-------------
(b) Liens allowed under Section 9.7.
-----------
23
<PAGE>
Section 7.13 Indebtedness. Except for Indebtedness permitted by Section
------------ -------
9.6, neither Worldwide nor any of its Restricted Subsidiaries has any
- ---
Indebtedness.
Section 7.14 Guaranty of Suretyship. Except for Contingent Obligations
----------------------
permitted by Section 9.8, neither Worldwide nor any of its Restricted
-----------
Subsidiaries is a party to any contract of guaranty or suretyship and none of
its assets is subject to such a contract.
Section 7.15 Taxes. Worldwide and each of its Restricted Subsidiaries
-----
have filed all federal, state and local tax returns required to be filed and
have paid or made provision for the payment of all taxes due and payable
pursuant to such returns and pursuant to any assessments made against any such
Person or any of its property and all other taxes, fees and other charges
imposed on any such Person or any of its property by any governmental authority
(other than taxes, fees or charges the amount or validity of which is currently
being contested in good faith by appropriate proceedings and with respect to
which reserves in accordance with GAAP have been provided on the books of
Worldwide). No tax Liens have been filed and no material claims are being
asserted with respect to any such taxes, fees or charges. The charges, accruals
and reserves on the books of Worldwide and each of its Restricted Subsidiaries
in respect of taxes and other governmental charges are adequate to pay and
discharge such taxes.
Section 7.16 Trademarks, Patents. Worldwide and each of its Restricted
-------------------
Subsidiaries possess or have the right to use all of the patents, trademarks,
trade names, service marks and copyrights, and applications therefor, and all
technology, know-how, processes, methods and designs used in or necessary for
the conduct of their respective businesses, without known conflict with the
rights of others. Schedule 7.16 attached hereto and incorporated herein by
-------------
reference is a complete list of all such property.
Section 7.17 Investment Company Act. Neither Worldwide nor any of its
----------------------
Subsidiaries is an "investment company" or is "controlled" by an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
Section 7.18 Public Utility Holding Company Act. Neither Worldwide nor
----------------------------------
any of its Subsidiaries is a "holding company" or a "subsidiary company" of a
holding company or an "affiliate" of a holding company or of a subsidiary
company of a holding company within the meaning of the Public Utility Holding
Company Act of 1935, as amended.
Section 7.19 Subsidiaries. Schedule 7.19 attached hereto and incorporated
------------ -------------
herein by reference sets forth as of the date of this Agreement a list of all of
Worldwide's Subsidiaries.
Section 7.20 Partnerships and Joint Ventures. Schedule 7.20 attached
------------------------------- -------------
hereto and incorporated herein by reference sets forth as of the date of this
Agreement a list of all partnerships or joint ventures in which Worldwide or any
of its Restricted Subsidiaries is a partner (limited or general) or joint
venturer.
Section 7.21 Use of Proceeds. The Revolving Loans will be used for the
---------------
Borrower's general corporate purposes.
Section 7.22 Solvency. Each Loan Party is Solvent after giving effect to
--------
the making of the Loans in the full amount available hereunder, the incurrence
of the Indebtedness pursuant to the Loan Documents, the granting of Liens
pursuant to the Loan Documents.
Section 7.23 Insurance. Schedule 7.23 attached hereto and incorporated
--------- -------------
herein by reference sets forth a summary of the property and casualty insurance
program carried by Worldwide or any of its Restricted Subsidiaries on the date
hereof, including any self-insurance or risk assumption agreed to by any such
Person or imposed upon any such Person by any such insurer.
24
<PAGE>
Section 7.24 Contracts; Labor Matters. (a) Neither Worldwide nor any of
------------------------
its Restricted Subsidiaries is a party to any contract or agreement, or subject
to any charge, corporate restriction, judgment, decree or order, the performance
of which could constitute an Adverse Event; and (b) on the date of this
Agreement: (i) neither Worldwide nor any of its Restricted Subsidiaries is a
party to any labor dispute; and (ii) there are no strikes or walkouts relating
to any labor contracts to which any such Person is subject.
Section 7.25 Accuracy of Information. All factual information heretofore
-----------------------
or herewith furnished by any Loan Party to the Administrative Bank or any Bank
for purposes of or in connection with this Agreement or any transaction
contemplated hereby is, and all other such factual information hereafter
furnished by any Loan Party to the Administrative Bank or any Bank will be, true
and accurate in every material respect on the date as of which such information
is dated or certified and no such information contains any material misstatement
of fact or omits to state a material fact or any fact necessary to make the
statements contained therein not misleading.
Section 7.26 Capital Stock. As of the Closing Date, the stock ownership of
-------------
the Borrower and each of its Restricted Subsidiaries is set forth on Schedule
--------
7.26 attached hereto and incorporated herein by reference. All of the issued
- ----
and outstanding shares of capital stock of the Borrower and each of the
Restricted Subsidiaries is duly authorized, validly issued, fully paid and
nonassessable. Except as set forth in said Schedule 7.26, neither the Borrower
-------------
nor any of its Restricted Subsidiaries has granted or issued, and has not agreed
to grant or issue, any options, warrants or similar rights to any Person to
acquire any shares of, or other securities convertible into, the Borrower's or
such Subsidiaries' capital stock.
Section 7.27 Year 2000. Worldwide has reviewed and assessed its and each
---------
of its Restricted Subsidiaries' respective business operations and computer
systems and applications to address the "year 2000 problem" (that is, that
computer applications and equipment used by Worldwide or such Restricted
Subsidiary, directly or indirectly through third parties, may be unable to
properly perform date-sensitive functions before, during and after January 1,
2000). The Borrower reasonably believes that the year 2000 problem will not
result in a material adverse change in Worldwide's or any of its Restricted
Subsidiaries' business condition (financial or otherwise), operations,
properties or prospects or ability to repay the Banks. The Borrower agrees that
this representation will be true and correct on and shall be deemed made by the
Borrower on each date the Borrower requests any Loan under this Agreement or any
Note or delivers any information to the Bank. The Borrower will promptly
deliver, and will cause Worldwide to deliver, to the Administrative Bank and
the Banks such information relating to this representation as the Administrative
Bank or the Required Banks request from time to time.
Section 7.28 PACA. With respect to the portion of the Borrower's or any
----
of its Restricted Subsidiaries' respective business operations that are subject
to PACA, such Person has received a valid PACA License without having to post
any bond required by PACA as a condition to issuing such PACA License and such
PACA License is in good standing.
Section 7.29 Survival of Representations. All representations and
---------------------------
warranties contained in this Article VII shall survive the delivery of the Notes
-----------
and the making of the Loans evidenced thereby, and any investigation at any time
made by or on behalf of the Administrative Bank or any Bank shall not diminish
their rights to rely thereon.
ARTICLE VIII
------------
AFFIRMATIVE COVENANTS
From the date of this Agreement and thereafter until the Commitment is
terminated or expires and the Loans and all other Obligations of the Borrower to
the Banks hereunder and under the Notes and the other Loan Documents have been
paid in full, unless the Required Banks shall otherwise expressly consent in
writing, the Borrower will do, and will cause Worldwide and each of its
Restricted Subsidiaries to do, all of the following:
25
<PAGE>
Section 8.1 Financial Statements and Reports. Furnish to the
--------------------------------
Administrative Bank with sufficient copies for each Bank to receive its own copy
thereof:
(a) As soon as available and in any event within 120 days after the
end of each fiscal year of the Borrower, the annual audit report of
Worldwide (which may be included in Worldwide's 10K Reports described
below), prepared in conformity with GAAP, consisting of at least
consolidated statements of operations and retained earnings and cash flows,
and a consolidated balance sheet as at the end of such year, setting forth
in each case in comparative form corresponding figures from the previous
annual audit, certified without qualification by independent certified
public accountants of recognized standing selected by the Borrower and
acceptable to the Required Banks together with the related unaudited
consolidating statements. The Administrative Bank and the Banks agree that
Arthur Anderson LLP are acceptable independent certified public
accountants.
(b) As soon as available and in any event within 45 days after the end
of each fiscal quarter of each fiscal year, a copy of the unaudited
consolidated financial statements of Worldwide (which may be included in
Worldwide's 10Q Reports described below), prepared in conformity with GAAP
(except for the omission of footnotes and prior period comparative data
required by GAAP and for variations from GAAP which in the aggregate are
not material) consisting of a consolidated balance sheet as of the close of
such fiscal quarter and related consolidated statements of operations and
retained earnings and cash flow for such fiscal quarter and from the
beginning of such fiscal year to the end of such fiscal quarter and
comparative figures for the corresponding portion of the preceding fiscal
year together with the related unaudited consolidating statements.
(c) As soon as available, and in any event within 45 days after the
end of each quarter of each fiscal year, a compliance certificate (the
"Compliance Certificate") in the form of Exhibit D attached hereto signed
---------
by the Borrower's chief financial officer.
(d) As soon as available and in any event within 10 days after the
filing thereof, a copy of Worldwide's 10K Report (or any successor report)
filed with the SEC.
(e) As soon as available and in any event within 10 days after the
filing thereof (but in no event later than 55 days after the end of each of
the first three (3) fiscal quarters of each fiscal year of Worldwide), a
copy of Worldwide's 10Q Report (or any successor report) filed with the
SEC.
(f) As soon as available and in any event within 30 days after the
filing thereof, a copy of any other report not described above (other than
Form 4) which is filed by Worldwide or any of its Subsidiaries with the
SEC.
(g) Immediately upon becoming aware of any Default or Event of
Default, a notice describing the nature thereof and what action the
Borrower proposes to take with respect thereto.
(h) Immediately upon becoming aware of the occurrence, with respect to
any Plan, of any Reportable Event or any "prohibited transaction" (as
defined in Section 4975 of the Code), a notice specifying the nature
thereof and what action the Borrower proposes to take with respect thereto,
and, when received, copies of any notice from PBGC of intention to
terminate or have a trustee appointed for any Plan.
(i) Immediately upon becoming aware of the occurrence thereof, notice
of the institution of any litigation, arbitration or governmental
proceeding against Worldwide, any of its Restricted Subsidiaries or any of
such Person's property which, if determined adversely to such Person, could
constitute an Adverse Event, or the rendering of a judgment or decision in
such litigation or proceeding which constitutes an Adverse Event, and the
steps being taken by such Person with respect thereto.
26
<PAGE>
(j) Immediately upon becoming aware of the occurrence thereof, notice
of any violation as to any environmental matter by Worldwide or any of its
Restricted Subsidiaries and of the commencement of any judicial or
administrative proceeding relating to health, safety or environmental
matters: (i) in which an adverse determination or result could result in
the revocation of or have a material adverse effect on any operating
permits, air emission permits, water discharge permits, hazardous waste
permits or other permits held by any such Person which are material to the
operations of such Person; or (ii) which will or threatens to impose a
material liability on any such Person to any other Person or which will
require a material expenditure by any such Person to cure any alleged
problem or violation.
(k) From time to time, such other information regarding the business,
operation and financial condition of the Borrower as the Administrative
Bank or the Required Banks may reasonably request.
Section 8.2 Corporate Existence. Except as permitted by Section 9.1,
------------------- -----------
maintain its corporate existence and good standing under the laws of its
jurisdiction of incorporation and its qualification to transact business in each
jurisdiction in which the character of the properties owned, leased or operated
by it or the business conducted by it makes such qualification necessary and
where the failure to so qualify could constitute an Adverse Event.
Section 8.3 Insurance. Maintain with financially sound and reputable
---------
insurance companies such insurance as may be required by any Loan Document or by
law and such other insurance in such amounts and against such hazards as is
customary in the case of reputable corporations engaged in the same or similar
business and similarly situated.
Section 8.4 Payment of Taxes and Claims. File all tax returns and reports
---------------------------
which are required by law to be filed by it and pay before they become
delinquent all taxes, assessments and governmental charges and levies imposed
upon it or its property and all claims or demands of any kind (including,
without limitation, those of suppliers, mechanics, carriers, warehouses,
landlords and other like Persons) which, if unpaid, might result in the creation
of a Lien upon its property; provided that the foregoing items need not be paid
if they are being contested in good faith by appropriate proceedings, and as
long as Worldwide's or any of its Restricted Subsidiaries' title to its property
is not materially adversely affected, its use of such property in the ordinary
course of its business is not materially interfered with and adequate reserves
with respect thereto have been set aside on such Person's books in accordance
with GAAP; provided, however, that, in all events, such Person shall pay or
-------- -------
cause to be paid all such taxes, assessments, charges or levies forthwith upon
the commencement of foreclosure of any Lien which may have attached as security
therefor.
Section 8.5 Inspection. After the occurrence and during the continuance
----------
of any Default or Event of Default, permit any Person designated by the
Administrative Bank or any Bank to visit and inspect any of its properties,
corporate books and financial records, to examine and to make copies of its
books of accounts and other financial records, and to discuss the affairs,
finances and accounts of Worldwide or any of its Subsidiaries with, and to be
advised as to the same by, its officers at such reasonable times and intervals
as the Administrative Bank or any Bank may designate. Such visits, inspections,
and examinations made while any Event of Default is continuing shall be at the
expense of the Borrower.
Section 8.6 Maintenance of Properties. Intentionally omitted.
-------------------------
Section 8.7 Books and Records. Keep adequate and proper records and books
-----------------
of account in which full and correct entries will be made of its dealings,
business and affairs.
Section 8.8 Compliance. Comply in all material respects with all laws,
----------
rules, regulations, orders, writs, judgments, injunctions, decrees or awards to
which it may be subject.
Section 8.9 ERISA. Maintain each Plan in compliance with all material
-----
applicable requirements of ERISA and of the Code and with all material
applicable rulings and regulations issued under the provisions of ERISA and of
the Code.
27
<PAGE>
Section 8.10 Environmental Matters. Observe and comply with all laws,
---------------------
rules, regulations and orders of any government or government agency relating to
health, safety, pollution, hazardous materials or other environmental matters
to the extent non-compliance could result in a material liability or otherwise
could constitute or result in an Adverse Event.
Section 8.11 Additional Loan Parties. By no later than five (5) Business
-----------------------
Days after the Administrative Bank, at the Required Banks' direction, has
delivered a request to the Borrower that one or more of the Borrower's
Subsidiaries guaranty the Obligations, cause the relevant Subsidiary to execute
and deliver a Guaranty together with authorizing resolutions and such other
organizational documents, certificates of good standing, opinions of counsel and
other documents as the Administrative Bank may reasonably require. The Borrower
acknowledges and agrees that the Required Banks may require that such Guaranties
be executed and delivered at any time and from time to time and for any or no
reason.
ARTICLE IX
----------
NEGATIVE COVENANTS
From the date of this Agreement and thereafter until the Commitment and
each Letter of Credit is terminated or expires and the Loans and all other
Obligations of the Borrower to the Administrative Bank and Banks hereunder and
under the Notes and the other Loan Documents have been paid in full, unless the
Required Banks shall otherwise expressly consent in writing, the Borrower will
not do, and will not permit Worldwide or any of its Restricted Subsidiaries to
do, any of the following:
Section 9.1 Merger. Merge or consolidate or enter into any analogous
------
reorganization or transaction with any Person except for any such transaction
whereby: (a) any of the Borrower's Subsidiaries may merge or consolidate with
the Borrower or any other of the Borrower's Subsidiaries or any other Person so
long as: (a) the Borrower is the surviving corporation in any transaction
involving it; or (b) (i)the Borrower Subsidiaries is the surviving corporation
in any transaction involving it and a Person other than the Borrower or any
other of the Borrower's Subsidiaries; (ii) at the beginning of the Measurement
Period ending on the immediately preceding Quarterly Measurement Date, the
Borrower will be in Pro Forma Compliance; and (iii) no Default or Event of
Default has occurred and is continuing or would result from the consummation of
any proposed merger, consolidation or analogous reorganization or transaction;
provided, however, that the Borrower agrees to give the Administrative Bank
- -------- -------
and the Banks at least 15 days' prior written notice of any such transaction
involving the Borrower or any of its Subsidiaries.
Section 9.2 Plans. Permit any condition to exist in connection with any
-----
Plan which might constitute grounds for the PBGC to institute proceedings to
have such Plan terminated or a trustee appointed to administer such Plan; permit
any Plan to terminate under any circumstances which would cause the Lien
provided for in Section 4068 of ERISA to attach to any property, revenue or
asset of the Borrower or any of its ERISA Affiliates; or permit the underfunded
amount of Plan benefits guaranteed under Title IV of ERISA to exceed
$500,000.00.
Section 9.3 Change in Nature of Business. Make any material change in the
----------------------------
nature of the business of Worldwide or any of its Restricted Subsidiaries as
carried on at the date hereof.
Section 9.4 Other Agreements. Enter into any agreement, bond, note or
----------------
other instrument with or for the benefit of any Person other than the
Administrative Bank for itself and the ratable benefit of the Banks which would:
(a) prohibit Worldwide or any of its Restricted Subsidiaries from granting, or
otherwise limit the ability of any such Person to grant to the Administrative
Bank for itself and the ratable benefit of the Banks any Lien on any assets or
properties of such Person; or (b) be violated or breached by any Loan Party's
performance of its obligations under the Loan Documents.
28
<PAGE>
Section 9.5 Investments. Acquire for value, make, have or hold any
-----------
Investments, except:
(a) Investments outstanding on the date hereof and listed on Schedule
--------
9.5 attached hereto and incorporated herein by reference;
---
(b) Travel advances to officers and employees in the ordinary course
of business;
(c) Investments in readily marketable direct obligations of the United
States of America having maturities of one year or less from the date of
acquisition;
(d) Certificates of deposit or bankers' acceptances, each maturing
within one year from the date of acquisition, issued by: (a) a Bank; or (b)
any commercial bank organized under the laws of the United States or any
State thereof which has: (i) combined capital, surplus and undivided
profits of at least $100,000,000; and (ii) a credit rating with respect to
its unsecured indebtedness from a nationally recognized rating service that
is satisfactory to the Required Banks;
(e) Commercial paper maturing within 270 days from the date of
issuance and given the highest rating by a nationally recognized rating
service;
(f) Repurchase agreements relating to securities issued or guaranteed
as to principal and interest by the United States of America;
(g) Extensions of credit in the nature of accounts or notes receivable
arising from the sale of goods and services in the ordinary course of
business to non-Related Parties;
(h) Shares of stock, obligations or other securities received in
settlement of claims arising in the ordinary course of business;
(i) Money market accounts acceptable to the Administrative Bank;
(j) Existing Investments in Subsidiaries;
(k) Additional Investments in Restricted Subsidiaries;
(l) Additional Investments in other Persons (other than then existing
Subsidiaries) after the date of this Agreement so long as: (i) at the
beginning of the Measurement Period ending on the immediately preceding
Quarterly Measurement Date, the Borrower will be in Pro Forma Compliance;
(ii) no Default or Event of Default has occurred and is continuing or would
result from the consummation of any proposed Investment; and (iii) if the
proposed Investment constitutes the acquisition of the integral part of
the business of another Person or the assets comprising such business or
part thereof, the Borrower agrees to give the Administrative Bank and the
Banks at least 15 days' prior written notice of any such transaction.
Section 9.6 Indebtedness. Incur, create, issue, assume or suffer to exist
------------
any Indebtedness except:
(a) Indebtedness under this Agreement;
(b) Current liabilities, other than for borrowed money, incurred in
the ordinary course of business;
(c) Indebtedness existing on the date of this Agreement and disclosed
on the Borrower's September 30, 1999 balance sheet previously delivered to
the Banks or Indebtedness incurred subsequent to the date of such balance
sheet and disclosed on Schedule 9.6 attached hereto and incorporated herein
------------
by
29
<PAGE>
reference; provided, however, that any such Indebtedness shall not be
-------- -------
refinanced without the express written consent of the Administrative Bank
and the Required Banks;
(d) Indebtedness consisting of endorsements for collection, deposit or
negotiation and warranties of products or services, in each case incurred
in the ordinary course of business;
(e) Indebtedness of the Borrower incurred to any Subsidiary or by any
Subsidiary to another Subsidiary; and
(f) Other Indebtedness so long as: (i) at the time and after giving
effect to the pro forma effect of such transaction as if it had occurred at
the beginning of the Measurement Period ending on the immediately
preceding Quarterly Measurement Date, the Borrower will be in Pro Forma
Compliance; and (ii) no Default or Event of Default has occurred and is
continuing or would result from the incurrence of the proposed
Indebtedness.
Section 9.7 Liens. Create, incur, assume or suffer to exist any Lien with
-----
respect to any property, revenues or assets now owned or hereafter arising or
acquired, except:
(a) Liens existing on the date of this Agreement and disclosed on
Schedule 7.12 hereto;
-------------
(b) Liens securing Purchase Money Indebtedness incurred in connection
with capital expenditures made after the date of this Agreement by way of
purchase money security interest, purchase money mortgage, conditional sale
or other title retention agreement, Capitalized Lease or other deferred
payment contract, and attaching only to the property being acquired,
provided that the Indebtedness secured thereby is permitted to be incurred
pursuant to Section 9.6(f) and does not exceed the lesser of the purchase
--------------
price or the fair market value of such property at the time of its
acquisition;
(c) Deposits or pledges to secure payment of workers' compensation,
unemployment insurance, old age pensions or other social security
obligations, in the ordinary course of business of the Borrower or any of
its Restricted Subsidiaries;
(d) Liens for taxes, fees, assessments and governmental charges not
delinquent or to the extent that payments therefor shall not at the time be
required to be made in accordance with the provisions of Section 8.4;
-----------
(e) Liens of carriers, warehousemen, mechanics and materialmen, and
other like Liens arising in the ordinary course of business, for sums not
due or to the extent that payment therefor shall not at the time be
required to be made in accordance with the provisions of Section 8.4;
-----------
(f) Liens securing lease obligations so long as such Liens attach only
to the property then being leased, do not attach to any of the Borrower's
or current assets, and do not secure any other indebtedness;
(g) Deposits to secure the performance of bids, trade contracts,
leases, statutory obligations and other obligations of a like nature
incurred in the ordinary course of business; and
(h) Zoning restrictions, easements, licenses, restrictions on the use
of real property or minor irregularities in title thereto, which do not
materially impair the use of such property in the operation of the
Borrower's business or the value of such property for the purpose of such
business.
Section 9.8 Contingent Liabilities. Either: (a) endorse, guarantee,
----------------------
contingently agree to purchase or to provide funds for the payment of, or
otherwise become contingently liable upon, any obligation of any other Person,
except: (i) by the endorsement of negotiable instruments for deposit or
collection (or similar transactions) in the
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ordinary course of business; or (ii) Indebtedness permitted by Section 9.6; or
-----------
(b) agree to maintain the net worth or working capital of, or provide funds to
satisfy any other financial test applicable to, any other Person.
Section 9.9 Transactions with Related Parties. (a) Permit the direct or
---------------------------------
indirect transfer, distribution or payment of any of its funds, assets or
property to any Related Party, except that Worldwide or any of its Restricted
Subsidiaries may pay: (i) bona fide employee compensation (including benefits)
to Related Parties for services actually rendered to such Person; (ii) expenses
incurred by an employee in the ordinary course of business; (iii) expenses or
rents for services or property or the use thereof allocated to such Person; (iv)
Permitted Distributions to the extent permitted by Section 9.15; and (v) other
------------
amounts permitted to be paid by other subsections of this Section; provided,
-------- --------
however, that all such payments pursuant to subsections (a)(i), (ii) and (iii)
- -------
shall not exceed the amount which would be payable in a comparable arm's length
transaction with a third party who is not a Related Party; (b) lend or advance
money, credit or property to any Related Party except as otherwise by other
subsections of this Section; (c) invest in (by capital contribution or
-------
otherwise) or purchase or repurchase any stock or indebtedness, or any assets or
properties, of any Related Party except as permitted by Section 9.15 or
------------
otherwise permitted by other subsections of this Section; or (d) guarantee,
-------
assume, endorse or otherwise become responsible for, or enter into any agreement
or instrument for the purpose of discharging or assuming (directly or
indirectly, through the purchase of goods, supplies or services or otherwise)
the indebtedness, performance, capability, obligations, dividends or agreement
for the furnishing of funds of any Related Party or any officer, director or
employee thereof except for the Guaranties permitted by Section 9.6 or otherwise
-----------
permitted by other subsections of this Section.
-------
Section 9.10 Use of Proceeds. Permit any proceeds of the Loans to be
---------------
used, either directly or indirectly, for the purpose, whether immediate,
incidental or ultimate, of "purchasing or carrying any margin stock" within the
meaning of Regulation U of the Federal Reserve Board, as amended from time to
time, and furnish to the Bank upon its request, a statement in conformity with
the requirements of Federal Reserve Form U-l referred to in Regulation U.
Section 9.11 Fiscal Year. Change its fiscal year-end from December 31.
-----------
Section 9.12 Interest Coverage Ratio. Permit, as of any Quarterly
-----------------------
Measurement Date, commencing with the Quarterly Measurement Date occurring on
December 31, 1999, the Interest Coverage Ratio to be less than 19.00 to 1.0.
Section 9.13 Leverage Ratio. Permit, as of any Quarterly Measurement
--------------
Date, commencing with the Quarterly Measurement Date occurring on December 31,
1999, the Leverage Ratio to be greater than 0.20 to 1.00.
Section 9.14 Net Worth. Permit, as of any Quarterly Measurement Date,
---------
commencing with the Quarterly Measurement Date occurring on December 31, 1999,
the Net Worth to be less than $215,000,000.00.
Section 9.15 Restricted Payments. Purchase or redeem any shares of its
-------------------
stock, declare or pay any dividends thereon (other than dividends payable solely
in the paying party's common stock and dividends payable to the Borrower), make
any distribution to stockholders as such, or set aside any funds for any such
purpose; except that: (a) any of Worldwide's direct or indirect wholly-owned
Subsidiaries may pay dividends to its corporate parent; and (b) Worldwide and
any of its less than wholly-owned Restricted Subsidiaries may pay dividends to
their respective shareholders and redeem or repurchase shares of their
respective stock or other equity interests so long as: (i) at the time and
after giving effect to the pro forma effect of such transaction as if it had
occurred at the beginning of the Measurement Period ending on the immediately
preceding Quarterly Measurement Date, the Borrower will be in Pro Forma
Compliance; and (ii) no Default or Event of Default has occurred and is
continuing or would result from the proposed dividend, repurchase or redemption.
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<PAGE>
Section 9.16 Unconditional Purchase Obligations . Enter into or be a
----------------------------------
party to any contract for the purchase or lease of materials, supplies or other
property or services if such contract requires that payment be made by it
regardless of whether or not delivery is ever made of such materials, supplies
or other property or services.
ARTICLE X
---------
EVENTS OF DEFAULT AND REMEDIES
Section 10.1 Events of Default. The occurrence of any one or more of the
-----------------
following events shall constitute an Event of Default upon the expiration of the
cure period, if any, described in the relevant event:
(a) The Borrower shall fail to make when due, whether by acceleration
or otherwise, any payment of principal of or interest on the Notes or any
fee or other amount required to be made to the Administrative Bank or any
Bank pursuant to any Loan Document; or
(b) Any representation or warranty made or deemed to have been made by
or on behalf of the Borrower or any other Loan Party in any of the Loan
Documents or by or on behalf of the Borrower or such other Loan Party in
any certificate, statement, report or other writing furnished by or on
behalf of the Borrower or such other Loan Party to the Banks pursuant to
the Loan Documents shall prove to have been false or misleading in any
material respect on the date as of which the facts set forth are stated or
certified or deemed to have been stated or certified; or
(c) The Borrower shall fail to comply with Section 8.1(g), Section
-------------- -------
8.2, Section 8.11 or any Section of Article IX hereof; or
------------ ----------
(d) Any Loan Party shall fail to comply with any agreement, covenant,
condition, provision or term contained in the Loan Documents on its part to
be performed (and such failure shall not constitute an Event of Default
under any of the other provisions of this Section 10.1) and such failure to
------------
comply shall continue for 30 calendar days after the earliest to occur of:
(A) the date the Borrower gives notice of such failure to the
Administrative Bank; (B) the date the Borrower should have given notice of
such failure to the Administrative Bank pursuant to Section 8.1(g); or (C)
--------------
the date the Administrative Bank gives notice of such failure to the
Borrower; or
(e) Any Loan Party shall become insolvent or shall generally not pay
its debts as they mature or shall apply for, shall consent to, or shall
acquiesce in the appointment of a custodian, trustee or receiver of such
Person or for a substantial part of the property thereof or, in the absence
of such application, consent or acquiescence, a custodian, trustee or
receiver shall be appointed for any such Person or for a substantial part
of the property thereof and shall not be discharged within 60 days; or
(f) Any bankruptcy, reorganization, debt arrangement or other
proceedings under any bankruptcy or insolvency law shall be instituted by
or against any Loan Party, and, if instituted against any such Person,
shall have been consented to or acquiesced in by such Person, or shall
remain undismissed for 60 days, or an order for relief shall have been
entered against any such Person, or any such Person shall take any
corporate action to approve institution of, or acquiesced in, such a
proceeding; or
(g) Any dissolution or liquidation proceeding shall be instituted by
or against any Loan Party and, if instituted against any such Person, shall
be consented to or acquiesced in by such Person or shall remain for 60 days
undismissed, or any such Person shall take any corporate action to approve
institution of, or acquiescence in, such a proceeding; or
(h) A judgment or judgments for the payment of money in excess of the
sum of $10,000,000.00 in the aggregate shall be rendered against any Loan
Party or any such Person shall not
32
<PAGE>
discharge the same or provide for its discharge in accordance with its
terms, or procure a stay of execution thereof, prior to any execution on
such judgments by such judgment creditor, within 30 days from the date of
entry thereof, and within said period of 30 days, or such longer period
during which execution of such judgment shall be stayed, appeal therefrom
and cause the execution thereof to be stayed during such appeal; or
(i) The Borrower or any ERISA Affiliate shall institute steps to
terminate any Plan if in order to effectuate such termination, the Borrower
or any ERISA Affiliate would be required to make a contribution to such
Plan, or would incur a liability or obligation to such Plan, in excess of
$10,000,000.00, or the PBGC shall institute steps to terminate any Plan; or
(j) The maturity of any Indebtedness of any Loan Party (other than
Indebtedness under this Agreement or the other Loan Documents) in the
aggregate amount of more than $10,000,000.00 for any such Person shall be
accelerated, or any such Person shall fail to pay any such Indebtedness
when due or, in the case of such Indebtedness payable on demand, when
demanded, or any event shall occur or condition shall exist and shall
continue for more than the period of grace, if any, applicable thereto and
shall have the effect of causing, or permitting (any required notice having
been given and grace period having expired) the holder of any such
Indebtedness or any trustee or other Person acting on behalf of such holder
to cause such Indebtedness to become due prior to its stated maturity or to
realize upon any collateral given as security therefor; or
(k) Any creditor of any Loan Party shall commence foreclosure,
replevin or other proceedings against any of the Collateral and such
proceeding shall remain unstayed or unbonded for 10 consecutive days; or
(l) Any Change of Control shall occur; or
(m) If the validity or enforceability of any of the Loan Documents
shall be challenged by any Loan Party or any other party thereto, or any
Loan Document shall fail to remain in full force and effect; or
(n) If any part of Worldwide's or any of its Restricted Subsidiaries'
inventory is subject to PACA: (i) such Person's PACA License shall be
revoked or suspended; (ii) supplier, sellers or agents commence actions
seeking to enforce the trust created by PACA in an aggregate amount of
$1,000,000.00 for all such actions; or (iii) any surety company issuing
such Person's PACA Bond shall notify such Person of such surety's decision
not to renew such PACA Bond.
Section 10.2 Remedies. If: (a) any Event of Default described in
--------
Sections 10.1(e), (f) or (g) shall occur, the Commitment shall automatically
- ---------------- --- ---
terminate and the outstanding unpaid principal balance of the Notes, the accrued
interest thereon, the Letter of Credit Obligations and all other Obligations of
the Borrower shall automatically become immediately due and payable; or (b) any
other Event of Default shall occur and be continuing, then the Administrative
Bank, upon written direction from the Required Banks, shall take any or all of
the following actions: (i) declare the Commitment terminated, whereupon the
Commitment shall terminate; (ii) declare that the outstanding unpaid principal
balance of the Notes, the accrued and unpaid interest thereon, the Letter of
Credit Obligations and all other Obligations under the Loan Documents to be
forthwith due and payable, whereupon the Notes, all accrued and unpaid interest
thereon, the Letter of Credit Obligations and all such Obligations shall
immediately become due and payable, in each case without demand or notice of any
kind, all of which are hereby expressly waived, anything in this Agreement or
in the Notes to the contrary notwithstanding; (iii) exercise all rights and
remedies under any other instrument, document or agreement between the Borrower
and the Administrative Bank for the benefit of the Banks; and (iv) enforce all
rights and remedies under any applicable law.
Section 10.3 Prepayment Obligations. The Borrower agrees that if the
----------------------
Obligations become immediately due and payable in full at a time when one or
more Letters of Credit are outstanding, the Borrower shall thereupon
automatically be obligated to pay the Administrative Bank, in addition to all
other amounts owing under this
33
<PAGE>
Agreement, the aggregate face amount of all Letters of Credit then outstanding.
The foregoing obligation to pay in advance for amounts which U. S. Bank may
later have to pay pursuant to the Letters of Credit is and shall at all times
constitute a part of the "Obligations". Amounts paid by the Borrower pursuant to
this Section 10.3 shall be made directly to an interest-bearing collateral
------------
account maintained at U. S. Bank for application to the Borrower's reimbursement
obligations under Section 2.7(d) as payments are made on the Letters of Credit,
--------------
with the balance, if any, to be applied to the other Obligations.
ARTICLE XI
THE ADMINISTRATIVE BANK
Section 11.1 Appointment and Authorization. Each Bank hereby appoints
-----------------------------
U.S. Bank as the Administrative Bank and authorizes the Administrative Bank to
act on such Bank's behalf to the extent provided herein or under any other Loan
Document or in connection therewith, and to take such other action and exercise
such other powers as may be reasonably incidental thereof. Each Bank hereby
agrees to be bound by the terms and conditions of the Borrower Security
Agreement and consents to the execution and delivery and/or acceptance of such
Loan Documents by the Administrative Bank.
Section 11.2 Power. The Administrative Bank shall have and may exercise
-----
such powers under this Agreement and any other Loan Documents as are
specifically delegated to the Administrative Bank by the terms hereof or
thereof, together with such powers as are reasonably incidental thereto. As to
any matters not expressly provided for by the Loan Documents (including, without
limitation, enforcement or collection of the Notes), the Administrative Bank
shall not be required to exercise any discretion or take any action, but shall
be required to act or to refrain from acting (and shall be fully protected in so
acting or refraining from acting) upon the instructions of the Required Banks,
and such instructions shall be binding upon all Banks and all holders of the
Notes; provided, however, that the Administrative Bank shall not be required to
-------- -------
take any action which exposes the Administrative Bank to personal liability or
which is contrary to any Loan Document or applicable law. The Administrative
Bank shall not have any implied duties or any obligation to take any action
under this Agreement or any other Loan Document except such action as is
specifically provided by this Agreement or any other Loan Document to be taken
by the Administrative Bank. The Administrative Bank shall act as an independent
contractor in performing its obligations as Administrative Bank hereunder and
nothing contained herein shall be deemed to create a fiduciary relationship
among or between the Administrative Bank and the Borrower or among or between
the Administrative Bank and any Bank.
Section 11.3 Employment of Counsel; etc. The Administrative Bank may
---------------------------
execute any of its duties under this Agreement or any other Loan Document, and
any instrument, agreement or document executed, issued or delivered pursuant
hereto or in connection herewith, by or through employees, agents and attorneys-
in-fact and shall not be answerable to any of the Banks for the default or
misconduct of any such agent or attorney-in-fact selected by it with reasonable
care. The Administrative Bank shall be entitled to rely on advice of counsel
(including counsel who are the employees of the Administrative Bank) selected by
the Administrative Bank concerning all matters pertaining to the agency hereby
created and its duties under any of the Loan Documents.
Section 11.4 Reliance. The Administrative Bank shall be entitled to rely
--------
upon and shall not be under a duty to examine or pass upon the validity,
effectiveness or genuineness of any notice, consent, waiver, amendment,
certificate, affidavit, letter, telegram, statement, paper, document or writing
believed by it to be genuine and to have been signed or sent by the proper
Person or Persons, and the Administrative Bank shall be entitled to assume that
the same are valid, effective and genuine and what they purport to be.
Section 11.5 General Immunity. Neither the Administrative Bank nor any
----------------
of the Administrative Bank's directors, officers, agents, attorneys or employees
shall be liable to any Bank for any action taken or omitted to be taken by it or
them under the Loan Documents or in connection therewith except that the
Administrative Bank shall be obligated on the terms set forth herein for
performance of its express obligations hereunder and except that no
34
<PAGE>
Person shall be relieved of any liability imposed by law for intentional tort or
gross negligence. Without limiting the generality of the foregoing, the
Administrative Bank: (a) shall not be responsible to any Bank for any recitals,
statements, warranties or representations under the Loan Documents or any
agreement or document relative thereto or for the financial condition of the
Borrower; (b) shall not be responsible for the authenticity, accuracy,
completeness, value, validity, effectiveness, due execution, legality,
genuineness, enforceability or sufficiency of any of the Loan Documents; (c)
shall not be responsible for the validity, genuineness, creation, perfection or
priority of any of the Liens created by any of the Loan Documents, or the
validity, genuineness, enforceability, existence, value or sufficiency of any
Collateral or other security; (d) shall not be bound to ascertain or inquire as
to the performance or observance of any of the terms, covenants or conditions of
any of the Loan Documents on the part of the Borrower or of any of the terms of
any such agreement by any party thereto and shall have no duty to inspect the
property (including the books and records) of the Borrower; (e) shall incur no
liability under or in respect of any of the Loan Documents or any other document
or Collateral by acting upon any notice, consent, certificate or other
instrument or writing (which may be by telegram, cable or telex) believed by the
Administrative Bank to be genuine and signed or sent by the proper party; and
(f) may consult with legal counsel (including counsel for the Borrower),
independent public accountants and other experts selected by the Administrative
Bank and shall not be liable for any action taken or omitted to be taken in
accordance with the advice of such counsel, accountants or experts.
Section 11.6 Credit Analysis. Each Bank has made, and shall continue to
---------------
make, its own independent investigation or evaluation of the operations,
business, property and condition, financial and otherwise, of the Borrower in
connection with the making of its commitments hereunder and has made, and will
continue to make, its own independent appraisal of the creditworthiness of the
Borrower. Without limiting the generality of the foregoing, each Bank
acknowledges that prior to the execution of this Agreement, it had this
Agreement and all other Loan Documents and such other documents or matters as it
deemed appropriate relating thereto reviewed by its own legal counsel as it
deemed appropriate, and it is satisfied with the form of this Agreement and all
other Loan Documents. Each Bank agrees and acknowledges that neither the
Administrative Bank nor any of its directors, officers, attorneys or employees
makes any representations or warranties about the creditworthiness of the
Borrower or with respect to the due execution, legality, validity, genuineness,
effectiveness, sufficiency or enforceability of this Agreement or any other Loan
Documents, or the validity, genuineness, execution, perfection or priority of
Liens created or reaffirmed by any of the Loan Documents, or the validity,
genuineness, enforceability, existence, value or sufficiency of any Collateral
or other security. Except as explicitly provided herein, neither the
Administrative Bank nor any Bank has any duty or responsibility, either
initially or on a continuing basis, to provide any other Bank with any credit or
other information with respect to the operations, business, property, condition
or creditworthiness of the Borrower or any other Loan Party, whether such
information comes into its possession on or before a Default or an Event of
Default or at any time thereafter; provided, however, that the Administrative
-------- -------
Bank agrees that it will promptly provide each Bank with copies of the financial
statements, other financial reports and notices received by the Administrative
Bank pursuant to Section 8.1 and, at the request of a Bank, a copy of any
-----------
Collateral audit performed by the Administrative Bank; provided further,
-------- -------
however, that neither the Administrative Bank nor any of its employees,
- -------
officers, directors or agents makes any representation or warranty regarding any
information or analyses provided to any Bank, whether such information or
analyses was provided by the Borrower or prepared or obtained by the
Administrative Bank and none of the Administrative Bank or any of its employees,
officers, directors or agents shall be liable to any Person receiving a copy of
such information or analyses.
Section 11.7 U.S. Bank and Affiliates. With respect to its Commitments,
------------------------
the Loans made by it, the Notes issued to it and the Letter of Credit
Participations retained by it, U. S. Bank shall have the same rights and powers
under the Loan Documents as any other Bank and may exercise the same as though
it were not the Administrative Bank; and the term "Bank" or "Banks" shall,
unless otherwise expressly indicated, include U. S. Bank in its individual
capacity. U. S. Bank and its Affiliates may accept deposits from, lend money
to, act as trustee under indentures of, and generally engage in any kind of
business with the Borrower, and any person or entity who may do business with or
own securities of the Borrower, all as if U. S. Bank were not the Administrative
Bank and without any duty to account therefor to the Banks.
Section 11.8 Indemnification. The Banks severally agree to indemnify
---------------
and hold harmless the Administrative Bank and its officers, directors, employees
and agents (to the extent not reimbursed by the
35
<PAGE>
Borrower), ratably according to their respective Percentages, from and against
any and all claims, liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever which may be imposed on, incurred by, or asserted against the
Administrative Bank or any of its officers, directors, employees or agents, in
any way relating to or arising out of any investigation, litigation or
proceeding concerning or relating to the transaction contemplated by this
Agreement or any of the other Loan Documents, or any of them, or any action
taken or omitted to be taken by the Administrative Bank or any of its officers,
directors, employees or agents, under any of the Loan Documents' provided,
--------
however, that no Bank shall be liable for any portion of such claims,
- -------
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting from the gross negligence or willful
misconduct of the Administrative Bank or any of its officers, directors,
employees or agents. Without limitation of the foregoing, each Bank agrees to
reimburse the Administrative Bank promptly upon demand for such Bank's
Percentage of any out-of-pocket expenses (including counsel fees) incurred by
the Administrative Bank or its officers, directors, employees or agents in
connection with the preparation, execution, administration or enforcement of, or
obtaining legal advice in respect of rights or responsibilities under any of,
the Loan Documents, to the extent that the Administrative Bank is not reimbursed
for such expenses by the Borrower. If any indemnity furnished to the
Administrative Bank for any purpose shall, in the opinion of the Administrative
Bank, be insufficient or become impaired, the Administrative Bank may call for
additional indemnity and not commence or cease to do the acts indemnified
against until such additional indemnity is furnished.
Section 11.9 Successor Administrative Bank. The Administrative Bank may
-----------------------------
resign at any time as Administrative Bank under the Loan Documents by giving
written notice thereof to the Banks and the Borrower and may be removed as agent
under the Loan Documents at any time with or without cause by the Required
Banks. Upon any such resignation or removal, the Required Banks shall have the
right to appoint a successor Administrative Bank hereunder. If no successor
Administrative Bank shall have been so appointed by the Required Banks, and such
appointed successor shall have accepted such appointment, within 30 days after
the retiring Administrative Bank's giving of notice of resignation or the
Required Bank's removal of the retiring Administrative Bank, then the retiring
Administrative Bank may, on behalf of the Banks, appoint a successor
Administrative Bank, which shall be a commercial bank organized under the laws
of the United States or of any State thereof and having a combined capital and
surplus of at least $300,000,000.00. Upon the acceptance of any appointment as
Administrative Bank under the Loan Documents by a successor Administrative Bank,
such successor Administrative Bank shall thereupon succeed to and become vested
with all the rights, powers, privileges and duties of the retiring
Administrative Bank, and the retiring Administrative Bank shall be discharged
from its duties and obligations under the Loan Documents. After any retiring
Administrative Bank's resignation or removal as Administrative Bank under the
Loan Documents, the provisions of this Article XI shall inure to its benefit as
----------
to any actions taken or omitted to be taken by it while it was Administrative
Bank under the Loan Documents.
36
<PAGE>
ARTICLE XII
-----------
MISCELLANEOUS
Section 12.1 Waiver and Amendment. No failure on the part of any Bank or
--------------------
the holder of any Note to exercise and no delay in exercising any power or right
hereunder or under any other Loan Document shall operate as a waiver thereof;
nor shall any single or partial exercise of any power or right preclude any
other or further exercise thereof or the exercise of any other power or right.
The remedies herein and in any other instrument, document or agreement delivered
or to be delivered to the Banks hereunder or in connection herewith are
cumulative and not exclusive of any remedies provided by law. No notice to or
demand on the Borrower not required hereunder or under any Note or any other
Loan Document shall in any event entitle the Borrower to any other or further
notice or demand in similar or other circumstances or constitute a waiver of the
right of the Banks or the holder of any Note to any other or further action in
any circumstances without notice or demand. The provisions of this Agreement and
each other Loan Document may from time to time be amended, modified or waived,
if such amendment, modification or waiver is in writing and consented to by the
Borrower (in the case of amendments or modifications) and by the Required Banks,
except that the consent of all Banks shall be required to: (a) extend or
increase the amount of the Commitment; (b) extend the maturity of any principal
or any installment of principal payable under any Note or any Letter of Credit
Obligation; (c) reduce the rate of interest payable with respect to any Note or
Letter of Credit Obligation or extend the date of the payment thereof; (d)
reduce the fees or any other payment obligations of the Borrower hereunder or
under any other Loan Document or extend the date of the payment thereof; (e)
release any material collateral except as otherwise expressly permitted by the
terms of the Loan Documents; (f) waive any Event of Default of the nature
described in Section 10.1(a); (g) reduce the aggregate Percentages required to
---------------
effect an amendment, modification, waiver or consent to this Agreement or any
other Loan Document; (h) change the definition of Required Banks; or (i) amend,
modify, supplement, or grant any waiver or consent, under this Section.
-------
Notwithstanding any other provisions of this Agreement, no amendment,
modification or waiver shall be made with respect to the provisions of any Loan
Document which affects the rights and obligations of the Administrative Bank
without the consent of the Administrative Bank. No amendment, modification or
waiver of any provision of this Agreement or consent to any departure by the
Borrower therefrom shall be effective unless the same shall be in writing and
signed by the Required Banks, and then such amendment, modification, waiver or
consent shall be effective only in the specific instances and for the specific
purpose for which given.
Section 12.2 Expenses and Indemnities.
------------------------
(a) Loan Documents. Whether or not any Loan is made, the Borrower
--------------
agrees to pay and reimburse the Administrative Bank, upon demand, for all
reasonable expenses paid or incurred by the Administrative Bank (including
filing and recording costs and fees and expenses of legal counsel, who may
be employees of the Administrative Bank, and including the costs of any
appraisals and environmental assessments) in connection with the
preparation, review, execution, delivery, amendment, modification or
interpretation of the Loan Documents. The Borrower agrees to pay and
reimburse the Administrative Bank and each Bank, upon demand, for all
reasonable expenses paid or incurred by the Administrative Bank or such
Bank (including reasonable fees and expenses of legal counsel, who may be
employees of the Administrative Bank or such Bank) in connection with the
collection and enforcement of the Loan Documents. The Borrower agrees to
pay, and save each Bank (including the Administrative Bank) harmless from
all liability for, any stamp or other taxes which may be payable with
respect to the execution or delivery of the Loan Documents. The Borrower
agrees to indemnify and hold each Bank (including the Administrative Bank)
harmless from any loss or expense which may arise or be created by the
acceptance of telephonic or other instructions for making Loans or
disbursing the proceeds thereof except for losses or expenses caused by
such Bank's or the Administrative Bank's, as the case may be, gross
negligence or willful misconduct. The obligations of the Borrower under
this Section 12.2 shall survive any termination of this Agreement.
------------
(b) General Indemnity. In addition to the payment of expenses
pursuant to Section 12.2(a), whether or not the transactions contemplated
---------------
hereby shall be consummated, the Borrower hereby
37
<PAGE>
indemnifies, and agrees to pay and hold the Administrative Bank, each Bank,
any holder of any Notes, and their respective officers, directors,
employees, agents, successors and assigns (collectively called the
"Indemnitees") harmless from and against, any and all other liabilities,
-----------
obligations, losses, damages, penalties, actions, judgments, suits, claims,
costs, expenses and disbursements of any kind or nature whatsoever
(including, without limitation, the reasonable fees and disbursements of
counsel for any of such Indemnitees in connection with any investigative,
administrative or judicial proceeding commenced or threatened, whether or
not any of such Indemnitees shall be designated a party thereto), that may
be imposed on, incurred by, or asserted against the Indemnitees (or any of
them), in any manner relating to or arising out of the Loan Documents, the
statements contained in any commitment letters delivered by a Bank, the
Banks' several agreements to make the Loans, or the use or intended use of
the proceeds of any of the Loans (the "Indemnified Liabilities"); provided,
----------------------- --------
however, that the Borrower shall have no obligation to an Indemnitee
-------
hereunder with respect to Indemnified Liabilities arising from the gross
negligence or willful misconduct of such Indemnitee. To the extent that the
undertaking to indemnify, pay and hold harmless set forth in the preceding
sentence may be unenforceable because it is violative of any law or public
policy, the Borrower shall contribute the maximum portion that it is
permitted to pay and satisfy under applicable law, to the payment and
satisfaction of all Indemnified Liabilities incurred by the Indemnitees or
any of them.
(c) Survival. The obligations of the Borrower under this Section 12.2
-------- ------------
shall survive any termination of this Agreement.
Section 12.3 Notices. Except when telephonic notice is expressly
-------
authorized by this Agreement, any notice or other communication to any party in
connection with this Agreement shall be in writing and shall be sent by manual
delivery, telegram, telex, facsimile transmission, overnight courier or United
States mail (postage prepaid) addressed to such party at the address specified
on the signature page hereof, or at such other address as such party shall have
specified to the other party hereto in writing. All periods of notice shall be
measured from the date of delivery thereof if manually delivered, from the date
of sending thereof if sent by telegram, telex or facsimile transmission, from
the first Business Day after the date of sending if sent by overnight courier,
or from four days after the date of mailing if mailed; provided, however, that
any notice to the Administrative Bank or any Bank under Article II hereof shall
----------
be deemed to have been given only when received by the Administrative Bank or
such Bank, as the case may be. The Borrower hereby authorizes the Administrative
Bank and the Banks to rely upon the telephone or written instructions of any
person identifying himself as an authorized officer of the Borrower and upon any
signature which the Administrative Bank or the Banks believes to be genuine, and
the Borrower shall be bound thereby in the same manner as if such person were
authorized or such signature were genuine.
Section 12.4 Successors. This Agreement shall be binding upon the
----------
Borrower, the Administrative Bank, and the Banks and their respective successors
and assigns, and shall inure to the benefit of the Borrower, the Administrative
Bank, and the Banks and the successors and assigns of the Administrative Bank
and each Bank. The Borrower shall not assign its rights or duties hereunder
without the consent of the Administrative Bank and all of the Banks With the
prior written consent of the Administrative Bank, which shall not be
unreasonably withheld or delayed by the Administrative Bank, and upon the
payment to the Administrative Bank, solely for the account of the Administrative
Bank, of a fee of $3,500.00 for each assignment, a Bank may assign to a
financial institution a proportionate part of its rights and obligations under
this Agreement; provided, however, that, so long as no Event of Default has
-------- -------
occurred and is continuing, the assignment shall not be less than $10,000,000.00
(or, if a Bank's Individual Revolving Credit Commitment is less than
$10,000,000.00, then not less than the entire amount of such Bank's Individual
Revolving Credit Commitment) of the assigning Bank's Individual Revolving Credit
Commitment. Schedule A shall be amended to reflect each such assignment and the
----------
Borrower agrees to execute and deliver replacement notes to reflect such
assignment.
Section 12.5 Participations and Information. Each Bank may sell
------------------------------
participation interests in any or all of the Loans and in all or any portion of
its Individual Revolving Credit Commitment to any Person without the consent of
the Borrower, the Administrative Bank, or any other Bank.
38
<PAGE>
Section 12.6 Severability. Any provision of this Agreement which is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof or affecting the validity or
enforceability of such provision in any other jurisdiction.
Section 12.7 Captions. The captions or headings herein and any table of
--------
contents hereto are for convenience only and in no way define, limit or describe
the scope or intent of any provision of this Agreement.
Section 12.8 Entire Agreement. This Agreement, the Notes and the other
----------------
Loan Documents embody the entire agreement and understanding between the
Borrower and the Administrative Bank and the Banks with respect to the subject
matter hereof and thereof. This Agreement supersedes all prior agreements and
understandings relating to the subject matter hereof.
Section 12.9 Counterparts. This Agreement may be executed in any number
------------
of counterparts, all of which taken together shall constitute one and the same
instrument, and either of the parties hereto may execute this Agreement by
signing any such counterpart.
Section 12.10 Governing Law. THE VALIDITY, CONSTRUCTION AND
-------------
ENFORCEABILITY OF THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY THE INTERNAL
LAWS OF THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS
PRINCIPLES THEREOF, BUT GIVING EFFECT TO FEDERAL LAWS OF THE UNITED STATES
APPLICABLE TO NATIONAL BANKS.
Section 12.11 Consent to Jurisdiction. AT THE OPTION OF THE REQUIRED
-----------------------
BANKS, THIS AGREEMENT AND THE NOTES MAY BE ENFORCED IN ANY FEDERAL COURT OR
MINNESOTA STATE COURT SITTING IN MINNEAPOLIS OR ST. PAUL, MINNESOTA; AND THE
BORROWER CONSENTS TO THE JURISDICTION AND VENUE OF ANY SUCH COURT AND WAIVES ANY
ARGUMENT THAT VENUE IN SUCH FORUMS IS NOT CONVENIENT. IN THE EVENT THE BORROWER
COMMENCES ANY ACTION IN ANOTHER JURISDICTION OR VENUE UNDER ANY TORT OR CONTRACT
THEORY ARISING DIRECTLY OR INDIRECTLY FROM THE RELATIONSHIP CREATED BY THIS
AGREEMENT, THE REQUIRED BANKS AT THEIR OPTION SHALL BE ENTITLED TO HAVE THE CASE
TRANSFERRED TO ONE OF THE JURISDICTIONS AND VENUES ABOVE-DESCRIBED, OR IF SUCH
TRANSFER CANNOT BE ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH CASE
DISMISSED WITHOUT PREJUDICE.
39
<PAGE>
Section 12.12 Waiver of Jury Trial. EACH OF THE ADMINISTRATIVE BANK, THE
--------------------
BANKS AND THE BORROWER WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR
PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS (a) UNDER THIS AGREEMENT OR UNDER ANY
AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE
FUTURE BE DELIVERED IN CONNECTION HEREWITH OR (b) ARISING FROM ANY BANKING
RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT, AND AGREES THAT ANY
SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.
Section 12.13 Disclosure of Information. Subject to this Section, the
-------------------------
Borrower authorizes each Bank to disclose to any participant or assignee (each a
"Transferee") and any prospective Transferee any and all financial and other
Confidential Information (as hereinafter defined) in such Bank's possession
concerning the Loan Parties which has been delivered to such Bank by the Loan
Parties pursuant to this Agreement or which has been delivered to such Bank by
the Loan Parties in connection with such Bank's credit evaluation of the Loan
Parties prior to entering into this Agreement. The Administrative Bank and each
Bank agree that, except as may be required by applicable law or regulation, or
by reason of subpoena after providing notice thereof and an opportunity to
contest unless such notice is prohibited by the terms of the subpoena or
applicable law, court order or government action or as may be necessary or
convenient for the enforcement of the Administrative Bank's and the Banks'
rights and remedies under the Loan Documents or applicable law after the
occurrence of any Event of Default: (a) neither the Administrative Bank nor such
Bank will divulge, publish or otherwise reveal, either directly or through
another, to any Person (other than a Transferee or prospective Transferee) any
Confidential Information; (b) the Administrative Bank and such Bank will return
all Confidential Information to the relevant Loan Party after the termination of
the Administrative Bank's or such Bank's, as the case may be, interests in this
Agreement; and (c) the relevant Loan Party is entitled to injunctive relief
restraining any disclosure of Confidential Information in contravention of the
provisions of this Section without the prior written consent of the relevant
Loan Party. For purposes of this Agreement, "Confidential Information" shall
mean any proprietary information and, in particular, any confidential
information, including facts, business information, formulae, methods,
processes, inventions, devices, plant facilities or the like delivered to, or
received by, the Banks pursuant to Sections 8.1 or 8.5 or otherwise pursuant to
-------------------
the transactions contemplated by this Agreement except for any such information
which: (w) the relevant Loan Party identifies as not being confidential
information; (x) was known to the public prior to the date of its disclosure to
the Banks; (y) becomes known to the public subsequent to the date of its
disclosure by the Borrower through no act of the Banks; or (z) becomes known to
any Bank on a non-confidential basis from a source other than the Borrower.
40
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above.
C. H. ROBINSON WORLDWIDE, INC.
By /s/ Troy Renner
Its: Treasurer
8100 Mitchell Road
Eden Prairie, MN 55344-2248
Attention: Mr. Troy Renner
Telecopier: (612) 937-7781
U. S. Bank National Association, as
Administrative Bank and a Bank
By /s/ Mark R. McDonald
Its Vice President
U. S. Bank Place
Minneapolis, MN 55402
Attention: Mr. Mark McDonald
Telecopier: (612) 973-0822
Norwest Bank Minnesota, National Association
By /s/ Bradley D. Sullivan
Its Assistant Vice President
Norwest Center
Sixth Street and Marquette
Minneapolis, MN 55479
Attention: Mr. Brian Schneider
Telecopier: (612) 316-4203
41
<PAGE>
Exhibit 10.16
REVOLVING NOTE
---------------
$20,000,000.00 Minneapolis, Minnesota
December 29, 1999
FOR VALUE RECEIVED, the undersigned, C. H. ROBINSON WORLDWIDE, INC., a
Delaware corporation (the "Borrower"), promises to pay to the order of U.S. BANK
NATIONAL ASSOCIATION (the "Bank"), on the "Revolving Credit Termination Date"
(as defined in the Credit Agreement hereinafter described (the "Credit
Agreement")), the principal sum of TWENTY MILLION AND NO/100THS DOLLARS
($20,000,000.00) or if less, the then aggregate unpaid principal amount of the
Revolving Loans (as such term is defined in the Credit Agreement) as may be
borrowed by the Borrower from the Bank under the Credit Agreement. All Revolving
Loans and all payments of principal shall be recorded by the holder in its
records which records shall be conclusive evidence of the subject matter
thereof, absent manifest error.
The Borrower further promises to pay to the order of the Bank interest on
each Revolving Loan from time to time outstanding from the date hereof until
paid in full at the rates per annum which shall be determined in accordance with
the provisions of the Credit Agreement. Accrued interest shall be payable on the
dates specified in the Credit Agreement.
All payments of principal and interest under this Note shall be made in
lawful money of the United States of America in immediately available funds to
U.S. Bank National Association, as the Administrative Bank (the "Administrative
Bank"), at the Administrative Bank's office at U. S. Bank Place, Minneapolis,
Minnesota 55402, or at such other place as may be designated by the
Administrative Bank to the Borrower in writing.
This Note is one of the Revolving Notes referred to in, and evidences
indebtedness incurred under, a Credit Agreement dated as of December 29, 1999
(herein, as it may be amended, modified or supplemented from time to time,
called the "Credit Agreement;" capitalized terms not otherwise defined herein
being used herein as therein defined) among the Borrower, the Administrative
Bank, the Bank and the other bank parties thereto, to which Credit Agreement
reference is made for a statement of the terms and provisions thereof, including
those under which the Borrower is permitted and required to make prepayments and
repayments of principal of such indebtedness and under which such indebtedness
may be declared to be immediately due and payable.
<PAGE>
REVOLVING NOTE
--------------
Page 2
$20,000,000.00 Minneapolis, Minnesota
December 29, 1999
All parties hereto, whether as makers, endorsers or otherwise, severally
waive presentment, demand, protest and notice of dishonor in connection with
this Note.
This Note is made under and governed by the internal laws of the State of
Minnesota without giving effect to conflict of laws principles thereof, but
giving effect to the federal laws of the United States applicable to national
banks.
C. H. ROBINSON WORLDWIDE, INC.
By /s/ Troy Renner
_____________________________
Its Treasurer
<PAGE>
Exhibit 10.17
REVOLVING NOTE
---------------
$20,000,000.00 Minneapolis, Minnesota
December 29, 1999
FOR VALUE RECEIVED, the undersigned, C. H. ROBINSON WORLDWIDE, INC., a
Delaware corporation (the "Borrower"), promises to pay to the order of NORWEST
BANK MINNESOTA, NATIONAL ASSOCIATION (the "Bank"), on the "Revolving Credit
Termination Date" (as defined in the Credit Agreement hereinafter described (the
"Credit Agreement")), the principal sum of TWENTY MILLION AND NO/100THS DOLLARS
($20,000,000.00) or if less, the then aggregate unpaid principal amount of the
Revolving Loans (as such term is defined in the Credit Agreement) as may be
borrowed by the Borrower from the Bank under the Credit Agreement. All Revolving
Loans and all payments of principal shall be recorded by the holder in its
records which records shall be conclusive evidence of the subject matter
thereof, absent manifest error.
The Borrower further promises to pay to the order of the Bank interest on
each Revolving Loan from time to time outstanding from the date hereof until
paid in full at the rates per annum which shall be determined in accordance with
the provisions of the Credit Agreement. Accrued interest shall be payable on the
dates specified in the Credit Agreement.
All payments of principal and interest under this Note shall be made in
lawful money of the United States of America in immediately available funds to
U.S. Bank National Association, as the Administrative Bank (the "Administrative
Bank"), at the Administrative Bank's office at U. S. Bank Place, Minneapolis,
Minnesota 55402, or at such other place as may be designated by the
Administrative Bank to the Borrower in writing.
This Note is one of the Revolving Notes referred to in, and evidences
indebtedness incurred under, a Credit Agreement dated as of December 29, 1999
(herein, as it may be amended, modified or supplemented from time to time,
called the "Credit Agreement;" capitalized terms not otherwise defined herein
being used herein as therein defined) among the Borrower, the Administrative
Bank, the Bank and the other bank parties thereto, to which Credit Agreement
reference is made for a statement of the terms and provisions thereof, including
those under which the Borrower is permitted and required to make prepayments and
repayments of principal of such indebtedness and under which such indebtedness
may be declared to be immediately due and payable.
<PAGE>
REVOLVING NOTE
--------------
Page 2
$20,000,000.00 Minneapolis, Minnesota
December 29, 1999
All parties hereto, whether as makers, endorsers or otherwise, severally
waive presentment, demand, protest and notice of dishonor in connection with
this Note.
This Note is made under and governed by the internal laws of the State of
Minnesota without giving effect to conflict of laws principles thereof, but
giving effect to the federal laws of the United States applicable to national
banks.
C. H. ROBINSON WORLDWIDE, INC.
By /s/ Troy Renner
Its Treasurer
<PAGE>
Exhibit 10.18
[C.H. Robinson Letterhead]
February 1, 2000
MANAGEMENT BONUS PLAN
The Compensation Committee is pleased to initiate the management bonus plan
for certain selected personnel. Compared with prior plans some modifications
have been made which the Compensation Committee believes will be beneficial.
C.H. Robinson Worldwide, Inc.'s (the Company's) continued growth will cause this
program to give you increasing financial rewards.
1. The plan will run for one calendar year, commencing in 2000. There is
no commitment by the Committee or the Company that the plan will
continue beyond this year.
2. The units allocated to you below are for the year 2000. These units
may be decreased or increased, or remain the same in any year at the
discretion of the Committee.
3. The individual must be an employee on December 31 of the plan year in
order to earn the award.
4. Payment of any awards earned hereunder will be paid in cash or such
other medium as determined by the Compensation Committee.
5. Profit Sharing will be paid only on those awards earned and paid, and
in the year those awards are paid.
6. This award shall be based on the Company's earnings prior to federal
and state income taxes, to any expense associated with this executive
bonus plan, and to extraordinary gains or losses from the sale of all
or part of various businesses. The calculation of the award value will
be determined by the Compensation Committee which determination shall
be final and binding on all parties. The individual award value shall
be determined by taking the number of units in each bracket and
multiplying by the unit value for units in that bracket. The value of
a whole unit in each bracket is equal to .1% of the final pre tax
earnings included in that bracket. For example, if we were to achieve
our pre tax earnings plan for 2000 of $106,000,000 each unit in the
following brackets would have a value as follows:
<TABLE>
<CAPTION>
BRACKET PRE TAX EARNINGS RANGE UNIT VALUE
------- ---------------------- -----------
<S> <C> <C>
A $0 to $10,000,000
B $10,000,000 to $20,000,000
C $20,000,000 to $30,000,000
D $30,000,000 to $40,000,000
E $40,000,000 to $50,000,000
F $50,000,000 to $60,000,000
G $60,000,000 to $70,000,000
H $70,000,000 to $80,000,000
I $80,000,000 to $90,000,000
J $90,000,000 to $95,000,000
</TABLE>
<PAGE>
<TABLE>
<S> <C>
K $95,000,000 to $100,000,000
L $100,000,000 to $105,000,000
M $105,000,000 to $110,000,000
N $110,000,000 to $115,000,000
</TABLE>
You have been awarded the following units:
<TABLE>
<CAPTION>
BRACKET PRE TAX EARNINGS RANGE NUMBER OF UNITS
------- ---------------------- ---------------
<S> <C> <C>
A $0 to $ 10,000,000
B $ 10,000,000 to $ 20,000,000
C $ 20,000,000 to $ 30,000,000
D $ 30,000,000 to $ 40,000,000
E $ 40,000,000 to $ 50,000,000
F $ 50,000,000 to $ 60,000,000
G $ 60,000,000 to $ 70,000,000
H $ 70,000,000 to $ 80,000,000
I $ 80,000,000 to $ 90,000,000
J $ 90,000,000 to $ 95,000,000
K $ 95,000,000 to $100,000,000
L $100,000,000 to $105,000,000
M $105,000,000 to $110,000,000
N $110,000,000 to $115,000,000
</TABLE>
7. Any awards earned hereunder shall be paid as soon as administratively
practical following the end of the year to which the cash award
relates.
8. Any payment due, paid, or advanced hereunder will be forfeited if you
leave the Company and are employed or perform a service that is
determined to be in direct competition with the Company or its
affiliates or subsidiaries, or if you disclose any confidential
information or trade secrets of the Company or its affiliates or
subsidiaries. The Compensation Committee's determination of this is
final. Your participation in the program shall not confer on you any
right to continued employment with the Company, nor will it interfere
in any way with the right of the Company to terminate such employment
at any time. Furthermore, the adoption of this program will not in any
way interfere with the right of the Company to select among, adopt or
change any business, investment, or compensation policies or plans at
any time or from time to time in its sole and absolute discretion.
9. Individuals may take advances against the awards. The advance that may
be taken is subject to the absolute discretion of the Compensation
Committee.
10. The Company will withhold the following from advances and final
payouts: federal and state income tax withholding, FICA withholding,
loan payments to the Company, and any other withholding required by
law.
<PAGE>
The Committee is enthusiastic about this program, as it feels that the more
incentives it can provide each person, the more vitally and personally
interested and involved this person will become in making C. H. Robinson
Worldwide, Inc. a bigger and better company.
Yours very truly,
John Wiehoff
President
Enclosure
<PAGE>
10 EXHIBIT 13
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
C.H. Robinson Worldwide, Inc. and Subsidiaries
<TABLE>
<CAPTION>
For the years ended December 31, 1999 1998 1997 1997 1996 1995
as adjusted
Statement of Operations Data (In thousands, except per share data)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Gross revenues $2,261,027 $2,038,139 $1,790,785 $1,790,785 $1,605,905 $1,445,975
Net revenues(1) 293,283 245,666 206,020 206,020 179,069 160,094
Income from operations 83,828 68,443 56,735/(2)/ 32,079 50,029 44,980
Net income from continuing
operations 53,349 43,015 36,148/(2)/ 11,492 32,442 29,455
Net income from continuing
operations per share
(basic and diluted) $ 1.29 $ 1.04 $ .88/(2)/ $ .28 $ .78 $ .67
Weighted average number of shares
outstanding (in thousands)
Basic 41,228 41,216 41,285 41,285 41,799 43,934
Diluted 41,503 41,309 41,302 41,302 41,799 43,934
Dividends and distributions
per share $ .290 $ .250 $ .210/(3)/ $ 2.530 $ .185 $ .130
- ------------------------------------------------------------------------------------------------------------------------------------
Balance Sheet Data As of December 31 (In thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
Working capital $ 67,158 $ 135,245 $ 109,042 $ 109,042 $ 114,070 $ 97,144
Total assets 522,661 409,116 340,628 340,628 320,780 285,517
Total long-term debt - - - - - -
Stockholders' investment 246,767 169,518 138,981 138,981 154,428 133,339
- ------------------------------------------------------------------------------------------------------------------------------------
Operating Data (Dollars in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
Branches 131 120 119 119 108 99
Employees 3,125 2,205 1,925 1,925 1,665 1,436
Average net revenues per branch $ 2,263 $ 2,082 $ 1,822 $ 1,822 $ 1,717 $ 1,683
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/(1)/ Net revenues are determined by deducting cost of transportation and
products from gross revenues. See "Management's Discussion and Analysis."
/(2)/ Excludes unusual charges and expenses of $24,656 related to our initial
public offering in October 1997.
/(3)/ Excludes special dividends and distributions related to our initial
public offering in October 1997.
<PAGE>
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
Gross revenues represent the total dollar value of services and goods we sell to
our customers. Our costs of transportation and products include the contracted
direct costs of transportation, including motor carrier, intermodal, ocean, air,
and other costs, and the purchase price of the products we source. We act
principally as a service provider to add value and expertise in the execution
and procurement of these services for our customers. Our net revenues (gross
revenues less cost of transportation and products) are the primary indicator of
our ability to source, add value and resell services and products that are
provided by third parties, and are considered by management to be our primary
measurement of growth. Accordingly, the discussion of results of operations
below focuses on the changes in our net revenues.
In the transportation industry, results of operations generally show a seasonal
pattern as customers reduce shipments during and after the winter holiday
season. In recent years, our operating income and income from continuing
operations have been lower in the first quarter than in the other three
quarters. Seasonality in the transportation industry has not had a significant
impact on our results of operations or our cash flows in recent years. Also,
inflation has not materially affected our operations due to the short-term,
transactional basis of our business. However, we cannot fully predict the impact
seasonality and inflation may have in the future.
Results of Operations
The following table summarizes our net revenues by service line:
<TABLE>
<CAPTION>
For the years ended December 31, (Dollars in thousands) 1999 1998 Change 1997 Change
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net revenues
Transportation $233,848 $189,797 23.2% $159,260 19.2%
Sourcing 42,759 44,229 (3.3) 38,060 16.2
Information services 16,676 11,640 43.3 8,700 33.8
- ------------------------------------------------------------------------------------------------------------------------------------
Total $293,283 $245,666 19.4% $206,020 19.2%
====================================================================================================================================
</TABLE>
The following table represents certain statement of operations data shown as
percentages of our net revenues:
<TABLE>
<CAPTION>
1997
For the years ended December 31, 1999 1998 1997 as adjusted /(1)/
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenues 100.0% 100.0% 100.0% 100.0%
Selling, general and administrative expenses 71.4 72.1 72.5 72.5
Public offering charges and expenses -- -- 12.0 --
- ------------------------------------------------------------------------------------------------------------------------------------
Income from operations 28.6 27.9 15.5 27.5
Investment and other income 1.6 1.1 1.4 1.4
- ------------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before provision for income taxes 30.2 29.0 16.9 28.9
Provision for income taxes 12.0 11.5 11.4 11.4
- ------------------------------------------------------------------------------------------------------------------------------------
Net income from continuing operations 18.2% 17.5% 5.5% 17.5%
====================================================================================================================================
</TABLE>
/(1)/ Adjusted to exclude unusual charges and expenses of $24,656 related to our
initial public offering in October 1997.
1999 Compared to 1998
Revenues - Gross revenues for 1999 were $2.26 billion, an increase of 10.9% over
$2.04 billion for 1998. Net revenues for 1999 were $293.3 million, an increase
of 19.4% over $245.7 million for 1998, resulting from an increase in
transportation net revenues of 23.2% to $233.8 million, a decrease in sourcing
net revenues of 3.3% to $42.8 million, and an increase in information services
net revenues of 43.3% to $16.7 million. Our net revenues increased at a faster
rate than our gross revenues due to the different growth rates in the mix of our
service lines. Our information services net revenues as a percentage of gross
revenues was highest of our three lines, followed by our transportation business
and finally our sourcing business.
The increase in transportation net revenues of 23.2% resulted from internal
growth of approximately 18% and growth from current year acquisitions of
approximately 5%. Revenue per transaction remained relatively consistent from
1998 to 1999. The increase in transaction volume and net revenues was driven by
significant expansion of business with current customers and from new domestic
and international customers.
Sourcing net revenues decreased by 3.3% due principally to difficult comparisons
caused by abnormal net revenue growth of 16.2% during 1998. During 1998, adverse
weather conditions in major produce growing areas created temporary
opportunities for us. We continued to expand our sourcing business with large
retailers, but this was offset by a decline in business with produce
wholesalers.
<PAGE>
12
The increase in information services net revenues was the result of significant
growth in transaction volume from new and existing customers and growth in
market share due to consolidation of our competitors in the information services
industry.
Selling, General and Administrative Expenses - Selling, general and
administrative expenses for 1999 were $209.5 million, an increase of 18.2% over
$177.2 million for 1998. Selling, general and administrative expenses as a
percentage of net revenues were 71.4% and 72.1% in 1999 and 1998. The decrease
in selling, general and administrative expenses as a percentage of net revenues
was due primarily to cost containment efforts in fixed cost areas while growing
net revenues at 19.4%.
Income from Operations - Income from operations was $83.8 million for 1999, an
increase of 22.5% over $68.4 million for 1998. Income from operations as a
percentage of net revenues was 28.6% and 27.9% for 1999 and 1998.
Investment and Other Income - Investment and other income was $4.6 million for
1999, an increase of 63.5% from $2.8 million for 1998. This increase was the
result of the growth in cash and investments throughout the year. In late
December 1999, we used $100 million of our cash and investments to purchase
American Backhaulers, Inc., which we expect will reduce our investment and other
income in 2000.
Provision for Income Taxes - The effective income tax rate was 39.7% for both
1999 and 1998. The effective income tax rate for both periods is greater than
the statutory federal income tax rate primarily due to state income taxes, net
of federal benefit.
Net Income - Net income was $53.3 million for 1999, an increase of 24.0% over
$43.0 million for 1998. Net income per share increased by 24.0% to $1.29 (basic
and diluted) for 1999 compared to $1.04 (basic and diluted) for 1998.
1998 Compared to 1997
Revenues - Gross revenues for 1998 were $2.04 billion, an increase of 13.8% over
$1.79 billion for 1997. Net revenues for 1998 were $245.7 million, an increase
of 19.2% over $206.0 million for 1997, resulting from an increase in
transportation net revenues of 19.2% to $189.8 million, an increase in sourcing
net revenues of 16.2% to $44.2 million, and an increase in information services
net revenues of 33.8% to $11.6 million. Our net revenues increased at a faster
rate than our gross revenues due to the different growth rates in the mix of our
service lines. Our information services net revenues as a percentage of gross
revenues was highest of our three lines, followed by our transportation business
and finally our sourcing business.
The increase in transportation net revenues resulted primarily from an increase
in transaction volume. Net revenue per transaction on our third-party truck
business also increased slightly in 1998. During the fourth quarter of 1997, a
high demand for trucks in the marketplace increased our cost, reducing our net
<PAGE>
13
revenue per transaction. The increase in transaction volume and net revenues was
driven by significant expansion of business with current customers and from new
domestic and international customers.
Sourcing net revenues increased by 16.2% due principally to growth from sourcing
produce for our large retail chain customers and temporary opportunities created
by adverse weather conditions in major produce growing areas. In this
challenging market, our branch network and relationships with produce growers
worldwide provided us with sources of produce, growing both the number of
transactions and the profit per transaction. In addition, we entered into a new
program with an international banana shipper in the first quarter of 1998, which
added to our sourcing growth.
The increase in information services net revenues was the result of significant
growth in transaction volume from new and existing customers.
Selling, General and Administrative Expenses - Selling, general and
administrative expenses for 1998 were $177.2 million, an increase of 18.7% over
$149.3 million for 1997. Selling, general and administrative expenses as a
percentage of net revenues were 72.1% and 72.5% in 1998 and 1997. The decrease
in selling, general and administrative expenses as a percentage of net revenues
was due primarily to the elimination and consolidation of warehouse facilities
in 1998.
Public Offering Charges and Expenses - On October 15, 1997, we recorded charges
and expenses of $24.7 million for unusual items related to our initial public
offering. This amount includes a non-recurring, non-cash charge of $21.6 million
to conform with Securities and Exchange Commission requirements to account for
stock issued to employees and for outstanding stock purchased by certain
employees from retiring employees at prices below the initial public offering
price under our previous book value plans during the 12 months preceding our
initial public offering ("cheap stock"). These book value plans were terminated
and have been replaced by stock-based incentive plans more typical of a publicly
held company, including a stock incentive plan and an employee stock purchase
program.
Income from Operations - Income from operations was $68.4 million for 1998, an
increase of 20.6% over $56.7 million for 1997, excluding the non-recurring
public offering charges and expenses. Income from operations, excluding the
public offering charges and expenses, as percentage of net revenues was 27.9%
and 27.5% for 1998 and 1997. Income from operations, including the public
offering charges and expenses incurred in 1997, increased 113.4% from 1997 to
1998.
Investment and Other Income - Investment and other income was $2.8 million for
1998, a decrease of 2.8% from $2.9 million for 1997.
<PAGE>
14
Provision for Income Taxes - The effective income tax rates for continuing
operations were 39.7% and 39.4% for 1998 and 1997, excluding the public offering
charges and expenses incurred in 1997. The effective income tax rate for both
periods is greater than the statutory federal income tax rate primarily due to
state income taxes, net of federal benefit. The majority of the $24.7 million in
public offering charges and expenses in 1997 is not deductible for income tax
purposes.
Net Income from Continuing Operations - Net income from continuing operations
was $43.0 million for 1998, an increase of 19.0% over $36.1 million for 1997,
excluding the public offering charges and expenses. Net income from continuing
operations per share, excluding the public offering charges and expenses,
increased by 18.2% to $1.04 (basic and diluted) for 1998 compared to $.88 (basic
and diluted) for 1997. Net income from continuing operations for 1998 increased
274.3% from 1997 to 1998, including the effects of our public offering charges
and expenses.
Liquidity and Capital Resources
We have historically generated substantial cash from operations which has
enabled us to fund our growth while paying cash dividends and repurchasing
stock. Cash and cash equivalents totaled $49.6 million and $99.3 million and
available-for-sale securities totaled $0 and $30.7 million as of December 31,
1999 and 1998. In conjunction with our December 1999 acquisition of all of the
operations and certain assets and liabilities of American Backhaulers, Inc.
(ABH), we used $100.0 million of our cash and cash equivalents on hand. This was
the primary reason our working capital decreased from $135.2 million at December
31, 1998 to $67.2 million at December 31, 1999. In addition, we entered into a
new debt facility to fund our expected short-term cash needs. We have had no
long-term debt for the last five years and have no material commitments for
future capital expenditures. We have not experienced, nor do we believe that the
conversion to the euro will have a material business or financial impact on us.
During the fourth quarter of 1997, several transactions occurred related to our
initial public offering including the sale of our finance businesses. On October
10, 1997, we paid a special cash dividend of $1.50 per share ($61.9 million in
the aggregate). We removed restrictions on October 13, 1997 on shares previously
awarded to employees which generated a $40.5 million tax benefit. On October 14,
1997 we sold our finance businesses for $40.3 million and we declared and paid a
liquidating distribution to stockholders of record on October 14, 1997 of $.95
per share ($39.2 million in the aggregate), the net proceeds resulting from this
sale.
We generated $51.9 million, $77.6 million and $70.4 million of cash flow from
operations for 1999, 1998 and 1997. This was due to net income generated, offset
by increases in our working capital resulting from our growth. Our net cash
provided by operating activities was higher in 1998 than 1999 due primarily to
the timing of federal income tax payments. We had a $17.3 million income tax
receivable as of December 31, 1997, which was collected in 1998.
We used $88.8 million and $31.6 million of cash flow for investing activities
for 1999 and 1998 and generated $55.3 million of cash flow from investing
activities in 1997. The cash used in 1999 was due to $112.2 million spent for
acquisitions and $9.4 million to fund capital expenditures necessary for
continued growth, offset by $30.5 million generated by sales and maturities of
available-for-sale securities (net of purchases). Comparing 1999 to 1998, the
effects of selling our available-for-sale securities and funding the acquisition
of ABH accounted for a majority of the excess cash used for investing
activities.
We also used $12.7 million, $9.2 million and $105.7 million of cash flow for
financing activities for 1999, 1998 and 1997. This was due primarily to
quarterly cash dividends and distributions and share repurchases for our
employee stock plans. We have declared an $.08 per share dividend payable to
shareholders of record as of March 8, 2000 payable on April 3, 2000. In 1997, we
paid special dividends and distributions of $101.1 million in conjunction with
our initial public offering and the sale of our finance businesses.
Assuming no change in our current business plan, management believes that our
available cash, together with expected future cash generated from operations and
the amounts available under our line of credit, are sufficient to satisfy our
anticipated needs for working capital, capital expenditures and cash dividends
for all future periods. Our board of directors has authorized two stock
repurchase plans, which allow management to repurchase up to a total of
3,000,000 shares of our common stock for reissuance upon the exercise of
employee stock options and other stock plans. Any purchases would be made from
available cash or cash generated from future operations. As of December 31,
1999, we had purchased a total of 223,000 shares. We have $40.0 million
available under an existing line of credit at an interest rate of 6.4%, as of
December 31, 1999. The line of credit expires on December 16, 2002 and does not
restrict the payment of dividends. We were in compliance with all covenants of
the agreement as of December 31, 1999. There were no borrowings during 1999 or
1998.
<PAGE>
15
Impact of Year 2000
We have not experienced any material disruptions or other problems with our
internal computer systems related to the Year 2000 issue. In addition, we are
not aware of any material systems interruptions with any customer, produce
supplier or transportation carrier that has had a material impact on our
business as a result of Year 2000. We have no single third-party relationship
that accounts for more than 6% of our business.
Total costs we have incurred for programming, testing, purchase of Year 2000
testing software, and outside consultant costs approximated $600,000. Our costs
to replace noncompliant systems are not included in this amount, as these
replacements were planned to occur and were not accelerated due to Year 2000
requirements.
Market Risk
We had approximately $49.6 million of cash and cash equivalents on December 31,
1999. Substantially all of the cash equivalents are money market securities from
domestic issuers. Because of the credit risk criteria of our investment
policies, the primary market risk associated with these investments is interest
rate risk. We do not use derivative financial instruments to manage interest
rate risk or to speculate on future changes in interest rates. A rise in
interest rates could negatively affect the fair value of our investments. We
believe a reasonable near-term change in interest rates would not have a
material impact on our future earnings due to the short-term nature of our
investing practices. We also have inventory which is subject to certain
commodity price volatility, and we sometimes choose to hedge our positions with
futures and options. We believe a reasonable near-term change in foreign
currency exchange rates or commodity prices would not have a material impact on
our future earnings or cash flows because the amount of our inventory and
foreign currency exposure is not material.
Our discussion and analysis of our financial condition and results of
operations, including our market risk discussions, contain forward-looking
statements, including our current assumptions about future financial performance
and our plans for future operations are subject to various risks and
uncertainties. Our actual results may differ significantly. Further discussion
of factors that may cause a difference may be found in an exhibit to the
Company's Form 10-K filed with the Securities and Exchange Commission.
<PAGE>
16
Consolidated Balance Sheets
C.H. Robinson Worldwide, Inc. and Subsidiaries
<TABLE>
<CAPTION>
(In thousands, except per share data)
As of December 31, 1999 1998
Assets
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 49,637 $ 99,341
Available-for-sale securities - 30,730
Receivables, net of allowance for doubtful accounts of $18,280 and $12,412 270,296 221,021
Deferred tax benefit 18,480 12,821
Prepaid expenses and other 2,854 7,442
Inventories 1,785 3,488
- -------------------------------------------------------------------------------------------------------------
Total current assets 343,052 374,843
Property and equipment 51,387 41,285
Accumulated depreciation and amortization (26,640) (21,801)
- -------------------------------------------------------------------------------------------------------------
Net property and equipment 24,747 19,484
Goodwill, net of accumulated amortization of $1,729 and $630 144,625 8,485
Other intangible assets, net of accumulated amortization of $4,396 and $7,946 8,951 4,128
Other assets 1,286 2,176
- -------------------------------------------------------------------------------------------------------------
$ 522,661 $409,116
=============================================================================================================
Liabilities and Stockholders' Investment
- -------------------------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable $ 231,592 $192,908
Accrued expenses -
Compensation and profit-sharing contribution 28,115 27,481
Income taxes and other 16,187 19,209
- -------------------------------------------------------------------------------------------------------------
Total current liabilities 275,894 239,598
- -------------------------------------------------------------------------------------------------------------
Commitments and contingencies (Notes 4 and 8)
Stockholders' investment:
Preferred stock, $.10 par value, 20,000 shares authorized;
no shares issued or outstanding - -
Common stock, $.10 par value, 130,000 shares authorized;
42,386 shares issued, 42,284 and 41,190 outstanding 4,228 4,119
Additional paid-in capital 98,958 62,054
Retained earnings 147,586 106,178
Cumulative other comprehensive loss (1,053) (1,145)
Treasury stock at cost (102 and 75 shares) (2,952) (1,688)
- -------------------------------------------------------------------------------------------------------------
Total stockholders' investment 246,767 169,518
- -------------------------------------------------------------------------------------------------------------
$ 522,661 $ 409,116
=============================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
<PAGE>
17
CONSOLIDATED STATEMENTS OF OPERATIONS
C.H. Robinson Worldwide, Inc. and Subsidiaries
<TABLE>
<CAPTION>
(In thousands, except per share data)
For the years ended December 31, 1999 1998 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross revenues $2,261,027 $2,038,139 $1,790,785
Cost of transportation and products 1,967,744 1,792,473 1,584,765
- ------------------------------------------------------------------------------------------
Net revenues 293,283 245,666 206,020
Selling, general and administrative expenses 209,455 177,223 149,285
Public offering charges and expenses (Note 1) - - 24,656
- ------------------------------------------------------------------------------------------
Income from operations 83,828 68,443 32,079
Investment and other income 4,649 2,844 2,927
- ------------------------------------------------------------------------------------------
Income from continuing operations before provision
for income taxes 88,477 71,287 35,006
Provision for income taxes 35,128 28,272 23,514
- ------------------------------------------------------------------------------------------
Net income from continuing operations 53,349 43,015 11,492
- ------------------------------------------------------------------------------------------
Net income from discontinued operations,
net of taxes of $951 in 1997 - - 1,589
Gain on sale of discontinued operations,
net of taxes of $10,440 in 1997 - - 14,506
- ------------------------------------------------------------------------------------------
Net income $ 53,349 $ 43,015 $ 27,587
==========================================================================================
Basic net income per share:
From continuing operations $ 1.29 $ 1.04 $ .28
From discontinued operations - - .39
- ------------------------------------------------------------------------------------------
Basic net income per share $ 1.29 $ 1.04 $ .67
==========================================================================================
Diluted net income per share:
From continuing operations $ 1.29 $ 1.04 $ .28
From discontinued operations - - .39
- ------------------------------------------------------------------------------------------
Diluted net income per share $ 1.29 $ 1.04 $ .67
==========================================================================================
Basic weighted average shares outstanding 41,228 41,216 41,285
Dilutive effect of outstanding stock options 275 93 17
- ------------------------------------------------------------------------------------------
Diluted weighted average shares outstanding 41,503 41,309 41,302
==========================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
18
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT AND COMPREHENSIVE INCOME
C.H. Robinson Worldwide, Inc. and Subsidiaries
(In thousands, except per share data)
For the years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Cumulative
Common Additional Other Com- Total
Shares Paid-In Retained prehensive Treasury Stockholders'
Outstanding Amount Capital Earnings Loss Stock Investment
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 41,375 $4,137 $ - $ 150,637 $ (346) $ - $ 154,428
Net income - - - 27,587 - - 27,587
Other comprehensive income:
Foreign currency translation adjustment - - - - (372) - (372)
----------
Comprehensive income - - - - - - 27,215
==========
Cash dividends and distributions,
$2.53 per share - - - (104,400) - - (104,400)
Incentive shares of common
stock issued, net 239 24 919 - - - 943
Sale of common stock 25 3 100 - - - 103
Cheap stock charge (Note 1) - - 21,596 - - - 21,596
Tax benefit on vesting of stock awards - - 40,539 - - - 40,539
Repurchase of common stock (374) (38) (1,046) (359) - - (1,443)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 41,265 4,126 62,108 73,465 (718) - 138,981
Net income - - - 43,015 - - 43,015
Other comprehensive income:
Foreign currency translation adjustment - - - - (427) - (427)
----------
Comprehensive income - - - - - - 42,588
==========
Cash dividends, $.25 per share - - - (10,302) - - (10,302)
Sale of common stock 63 6 (115) - - 1,430 1,321
Tax benefit on deferred compensation plans - - 61 - - - 61
Repurchase of common stock (138) (13) - - - (3,118) (3,131)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 41,190 4,119 62,054 106,178 (1,145) (1,688) 169,518
Net income - - - 53,349 - - 53,349
Other comprehensive income:
Foreign currency translation adjustment - - - - 92 - 92
----------
Comprehensive income - - - - - - 53,441
==========
Cash dividends, $.29 per share - - - (11,941) - - (11,941)
Sale of common stock 58 6 51 - - 1,472 1,529
Stock issued in acquisition (Note 2) 1,121 112 36,813 - - - 36,925
Tax benefit on deferred compensation plans - - 40 - - - 40
Repurchase of common stock (85) (9) - - - (2,736) (2,745)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 42,284 $ 4,228 $98,958 $ 147,586 $ (1,053) $(2,952) $ 246,767
====================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
19
CONSOLIDATED STATEMENTS OF CASH FLOWS
C.H. Robinson Worldwide, Inc. and Subsidiaries
<TABLE>
<CAPTION>
(In thousands)
For the years ended December 31 1999 1998 1997
Operating Activities
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $ 53,349 $ 43,015 $ 27,587
Adjustments to reconcile net income to net cash provided
by operating activities -
Depreciation and amortization 10,133 8,521 8,684
Cheap stock charge - - 21,596
Deferred income taxes (4,822) (9,272) 4,842
Gain on sale of discontinued operations, net of tax - - (14,506)
(Gain) loss on sale of assets (178) 141 82
Changes in operating elements, net of effects of acquisitions -
Receivables (35,196) (11,056) (35,808)
Prepaid expenses and other 3,907 (1,379) (3,709)
Inventories 1,703 (374) 2,167
Accounts payable 25,748 20,027 26,413
Accrued compensation and profit-sharing contribution 339 5,275 5,059
Accrued income taxes and other (3,105) 22,750 27,971
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 51,878 77,648 70,378
- ----------------------------------------------------------------------------------------------------------------------
Investing Activities
- ----------------------------------------------------------------------------------------------------------------------
Purchases of property and equipment (9,433) (5,071) (6,305)
Sales of property and equipment 430 1,981 1,446
Cash paid for acquisitions, net of cash acquired (112,216) (6,799) -
Sales of long-term investments 1,300 - 5,536
Sales/maturities of available-for-sale securities 44,172 37,594 113,576
Purchases of available-for-sale securities (13,643) (57,900) (81,293)
Cash provided by discontinued operations - - 24,653
Changes in other assets, net 553 (1,380) (2,321)
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) investing activities (88,837) (31,575) 55,292
- ----------------------------------------------------------------------------------------------------------------------
Financing Activities
- ----------------------------------------------------------------------------------------------------------------------
Sale of common stock 1,529 1,321 103
Repurchase of common stock (2,745) (3,131) (1,443)
Cash dividends and distributions (11,529) (7,419) (104,400)
- ----------------------------------------------------------------------------------------------------------------------
Net cash used for financing activities (12,745) (9,229) (105,740)
- ----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (49,704) 36,844 19,930
Cash and cash equivalents, beginning of year 99,341 62,497 42,567
- ----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 49,637 $ 99,341 $ 62,497
======================================================================================================================
Cash paid for income taxes $ 42,348 $ 34,848 $ 9,678
======================================================================================================================
Supplemental disclosure of noncash activities:
Stock issued in acquisition (Note 2) $ 36,925 $ - $ -
======================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
C.H. Robinson Worldwide, Inc. and Subsidiaries
1. Summary of Significant Accounting Policies
Basis of Presentation - C.H. Robinson Worldwide, Inc. and its Subsidiaries ("the
Company," "we," "us," or "our") is a global provider of multimodal
transportation services and logistics solutions through a network of 131 branch
offices in 39 states throughout the United States, along with offices in Canada,
Mexico, South America and Europe. The consolidated financial statements include
the accounts of C.H. Robinson Worldwide, Inc. and its majority owned and
controlled subsidiaries. Our finance businesses are presented in the
accompanying consolidated statements of operations as discontinued operations
(See Note 6). Minority interests in subsidiaries are not significant. All
significant intercompany transactions and balances have been eliminated in the
consolidated financial statements.
Initial Public Offering - On October 15, 1997, we completed an initial public
offering of 10,578,396 shares of our common stock which were previously held by
our employees. Pursuant to Securities Exchange Commission rules related to stock
issued or sold to employees at prices below the initial public offering price
for the 12 months preceding the date that the initial offering becomes effective
("cheap stock"), we recorded a $21,596,000 charge to expense at the effective
date of the offering. This charge related to approximately 1,519,000 shares
previously sold to employees or issued under incentive plans no longer in effect
and represented the difference between the book value of shares sold and issued
to employees and the offering price per share.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Ultimate results could differ from those estimates.
Revenue Recognition - Gross revenues consist of the total dollar value of goods
and services purchased by customers. We act principally as the service provider
for these transactions and recognize revenue as these services are rendered and
goods are delivered.
Foreign Currency - All balance sheet accounts of foreign subsidiaries are
translated at the current exchange rate as of the end of the year. Statement of
operations items are translated at average exchange rates during the year. The
resulting translation adjustment is recorded as a separate component of
comprehensive income in our statement of stockholders' investment and
comprehensive income.
We provide products and services to numerous international customers. At times,
we enter into forward contracts to hedge against foreign currency exposure
related to these transactions. Upon settlement, resultant gains or losses on
such contracts offset the impact of foreign currency rates on cash collected
from accounts receivable. There are no open contracts at December 31, 1999.
Segment Reporting and Geographic Information - We have adopted the provisions of
Statement of Financial Accounting Standards No. 131, "Disclosure About Segments
of an Enterprise and Related Information" (SFAS No. 131). SFAS No. 131
establishes accounting standards for segment reporting. No operational segments
or customer information is required for us. The following table presents our
gross revenues (based on location of the customer) for the years ended December
31 and our long-lived assets as of December 31 by geographic regions (in
thousands):
1999 1998 1997
- -----------------------------------------------------------------------------
Gross revenues
United States $2,144,386 $1,935,191 $1,700,802
Other locations 116,641 102,948 89,983
- -----------------------------------------------------------------------------
$2,261,027 $2,038,139 $1,790,785
=============================================================================
1999 1998
- -----------------------------------------------------------------------------
Long-lived assets
United States $33,882 $23,303
Other locations 1,102 2,485
- -----------------------------------------------------------------------------
$34,984 $25,788
=============================================================================
Cash and Cash Equivalents - Cash and cash equivalents consist primarily of
highly liquid investments with an original maturity of three months or less. The
carrying amount approximates fair value due to the short maturity of the
instruments.
<PAGE>
21
Available-For-Sale Securities - Available-for-sale securities consist of various
debt and equity securities. The fair value of our available-for-sale securities
equals the quoted market price where available or quoted market prices for
similar securities, if a quoted market price is not available.
Inventories - Inventories consist primarily of produce, fruit concentrates and
related products held for resale and are stated at the lower of cost or market.
Property and Equipment - Property and equipment additions are recorded at cost.
Maintenance and repair expenditures are charged to expense as incurred.
Depreciation is computed using straight-line and accelerated methods over the
estimated lives of the assets of three to 10 years.
Amortization of leasehold improvements is computed over the shorter of the lease
term or the estimated useful lives of the improvements.
Intangible Assets - Intangible assets consist of goodwill and other identifiable
intangible assets. Intangible assets are being amortized over their estimated
economic lives, ranging from three to 40 years. We periodically evaluate whether
events and circumstances have occurred that indicate the remaining balance of
intangible assets may not be recoverable.
Income Per Share - Basic net income per common share are computed by dividing
net income by the weighted average number of shares of common stock outstanding
during the period. Diluted net income per common share are computed under the
treasury stock method and are calculated to compute the dilutive effect of
outstanding options, warrants and other securities.
Comprehensive Income - Comprehensive income includes any changes in the equity
of an enterprise from transactions and other events and circumstances from
nonowner sources. Our foreign currency translation adjustment is currently our
only component of other comprehensive income and is presented on our
consolidated statements of stockholders' investment and comprehensive income.
Recently Issued Accounting Pronouncements - In June 1998, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS
No. 133). SFAS No. 133 establishes accounting and reporting standards requiring
that every derivative instrument (including certain derivative instruments
imbedded in other contracts) be recorded in the balance sheet as either an asset
or liability measured at its fair value. SFAS No. 133 requires changes in the
derivatives' fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. SFAS No. 133 is effective for fiscal years
beginning after June 15, 2000. We do not expect adoption of this standard to
have a material impact on our consolidated financial statements or disclosures
contained herein.
2. Acquisition of American Backhaulers, Inc.
On December 16, 1999, we acquired all of the operations and certain assets and
liabilities of American Backhaulers, Inc. (ABH). ABH was a privately held,
non-asset-based third-party transportation provider, located primarily in
Chicago, Illinois. The purchase price of the assets was $136,925,000, including
$100,000,000 in cash and 1,120,715 newly issued shares of our common stock. We
accounted for the acquisition using the purchase method of accounting, with
assets acquired including primarily goodwill and other identifiable intangible
assets. We are amortizing the goodwill associated with the acquisition over 40
years, and all other intangible assets over periods ranging from three to seven
years. Our results of operations include the operations of ABH from the closing
date through December 31, 1999. Pro forma operating results of the combined
enterprise assuming this transaction had occurred on January 1, 1998 are as
follows for the years ended December 31 (in thousands, except per share data):
1999 1998
- -----------------------------------------------------------
Net revenues
As reported $293,283 $245,666
Pro forma $345,706 $286,185
Income before income taxes
As reported $ 88,477 $ 71,287
Pro forma $ 91,264 $ 67,824
Net income
As reported $ 53,349 $ 43,015
Pro forma $ 55,032 $ 40,898
Basic net income per share
As reported $ 1.29 $ 1.04
Pro forma $ 1.30 $ .97
Diluted net income per share
As reported $ 1.29 $ 1.04
Pro forma $ 1.29 $ .96
- -----------------------------------------------------------
<PAGE>
22
3. Marketable Securities
In December 1999, we liquidated our portfolio of marketable securities to fund
the acquisition of ABH. We have historically classified all of our marketable
securities as available-for-sale. Available-for-sale securities are carried at
amortized cost, which approximates market value. The unrealized gains and losses
are immaterial as the fair value approximates amortized cost. The gross realized
gains and losses on sales of available-for-sale securities were not material for
the years ended December 31, 1999 and 1998.
The following is a summary of marketable securities at December 31, 1998 (in
thousands):
- ------------------------------------------------------------------------
U.S. government and government agency obligations $ 1,803
State and local agency obligations 16,641
Corporate bonds 11,183
Other debt securities 999
Equity securities 104
- ------------------------------------------------------------------------
Available-for-sale securities $30,730
========================================================================
The contractual maturities of marketable securities at December 31, 1998 are
stated below (in thousands):
- ------------------------------------------------------------------------
Debt securities:
Due within one year $ 6,763
Due after one year through five years 21,278
Due after five years 2,585
- ------------------------------------------------------------------------
Total debt securities with contractual maturities 30,626
Equity securities 104
- ------------------------------------------------------------------------
$30,730
========================================================================
4. Lines Of Credit
In connection with our acquisition of ABH we have obtained an unsecured line of
credit with two banks which provides for borrowings of up to $40,000,000 and
expires on December 16, 2002. Interest on borrowings under the line is at LIBOR
plus 0.60% (6.43% at December 31, 1999). We cancelled our previous lines of
credit at that time. There were no borrowings under our lines of credit during
1999, 1998 or 1997. Our credit agreement contains certain financial covenants.
We were in compliance with such covenants at December 31, 1999.
5. Income Taxes
C.H. Robinson Worldwide, Inc. and its 80% (or more) owned U.S. subsidiaries file
a consolidated federal income tax return. We file unitary or separate state
returns based on state filing requirements.
The components of the provision for income taxes consist of the following at
December 31 (in thousands):
1999 1998 1997
- ------------------------------------------------------------------
Tax provision:
Federal $33,207 $29,974 $14,688
State 5,649 5,862 3,619
Foreign 1,094 1,708 365
- ------------------------------------------------------------------
39,950 37,544 18,672
Deferred provision (benefit) (4,822) (9,272) 4,842
- ------------------------------------------------------------------
Total provision $35,128 $28,272 $23,514
==================================================================
A reconciliation from the provision for income taxes using the statutory federal
income tax rate to our effective income tax rate at December 31 is as follows:
1999 1998 1997
- ------------------------------------------------------------------
Federal statutory rate 35.0% 35.0% 35.0%
State income taxes,
net of federal benefit 2.7 4.1 3.3
Public offering charges
and expenses - - 27.8
Foreign and other 2.0 .6 1.1
- ------------------------------------------------------------------
39.7% 39.7% 67.2%
==================================================================
Deferred tax assets (liabilities) are comprised of the following at December 31
(in thousands):
1999 1998
- ------------------------------------------------------------------
Deferred income tax assets:
Receivables $ 6,735 $ 5,000
State taxes 3,797 2,423
Accrued expenses 7,092 5,401
Amortization 1,303 3,026
Accrued compensation 1,409 771
Other 1,607 830
Deferred income tax liabilities:
Long-lived assets (2,169) (2,488)
Other (8) (19)
- ------------------------------------------------------------------
Net deferred income tax asset $19,766 $14,944
==================================================================
<PAGE>
23
6. Discontinued Operations
On October 14, 1997, we sold our finance businesses. As a result, we recorded a
gain on the sale of $14,506,000, net of income taxes. These operations were
reported as discontinued operations in the accompanying consolidated financial
statements. Summary condensed financial information for the discontinued segment
for the year ended December 31, 1997 is as follows (in thousands):
- ----------------------------------------------------------
Revenues $12,996
Expenses 10,456
- ----------------------------------------------------------
Income from discontinued operations $ 2,540
==========================================================
7. Capital Stock and Stock Award Plans
Preferred Stock - Our Certificate of Incorporation (Certificate) authorizes the
issuance of 20,000,000 shares of Preferred Stock, par value $.10 per share, none
of which is outstanding. The Preferred Stock may be issued by resolution of our
board of directors from time to time without any action of the stockholders. The
Preferred Stock may be issued in one or more series and the board of directors
may fix the designation and relative powers, including voting powers,
preferences, rights, qualifications, limitations and restrictions of each
series, so authorized. The issuance of any such series may have an adverse
effect on the rights of holders of Common Stock or impede the completion of a
merger, tender offer or other takeover attempt. We have no present intention to
issue shares of any series of Preferred Stock.
Common Stock - The Certificate authorizes 130,000,000 shares of Common Stock,
par value $.10 per share. Subject to the prior rights of any series of Preferred
Stock which may from time to time be authorized and outstanding, holders of
Common Stock are entitled to receive dividends out of funds legally available
when, and if declared by the board of directors and to receive pro rata the net
assets of the Company legally available for distribution upon liquidation or
dissolution. Holders of Common Stock are entitled to one vote for each share of
Common Stock held on each matter to be voted on by the holders of Common Stock,
including the election of directors. Holders of Common Stock are not entitled to
cumulative voting, which means that the holders of more than 50% of the
outstanding Common Stock can elect all of the directors of any class if they
choose to do so. The stockholders do not have preemptive rights. All outstanding
shares of Common Stock are fully paid and nonassessable.
Share Repurchase Program - In conjunction with our initial public offering, our
board of directors authorized a stock repurchase plan which allows management to
repurchase 1,000,000 common shares for reissuance upon the exercise of employee
stock options and other stock plans. During 1999, the board of directors also
authorized a second stock repurchase plan, allowing for the repurchase of
2,000,000 shares. We purchased approximately 85,000 and 138,000 shares of our
common stock for the treasury at an aggregate cost of $2,745,000 and $3,131,000
in 1999 and 1998 under the initial stock repurchase plan. No shares have been
repurchased under the 1999 stock repurchase plan.
Stock Award Plans - We have an Omnibus Stock Plan to grant certain stock awards,
including stock options at fair market value and restricted shares, to our key
employees and outside directors. A maximum of 2,000,000 shares can be granted
under this plan; 1,035,788 shares were available for stock awards as of December
31, 1999. The contractual lives of all options granted are 10 years.
The following schedule summarizes activity in the plans:
1999 Option 1997 Option
Grant Grant
- --------------------------------------------------------------------------
Outstanding at December 31, 1996 - -
Granted in 1997 at $18/share - 475,667
- --------------------------------------------------------------------------
Outstanding at December 31, 1997 - 475,667
Terminated in 1998 - (43,621)
- --------------------------------------------------------------------------
Outstanding at December 31, 1998 - 432,046
- --------------------------------------------------------------------------
Granted in 1999 at $25.19/share 488,545 -
Terminated in 1999 (24,496) (14,314)
Exercised in 1999 - (1,250)
- --------------------------------------------------------------------------
Outstanding at December 31, 1999 464,049 416,482
Exercisable at December 31, 1998 - -
Exercisable at December 31, 1999 - 112,849
==========================================================================
<PAGE>
24
We follow the provisions of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS No. 123) which encourages, but
does not require, a fair value based method of accounting for employee stock
options or similar equity instruments. As permitted under SFAS No. 123, we have
continued to account for employee stock options using the intrinsic value method
outlined in Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees." Accordingly, we have not recognized any compensation
expense for our stock options. Had compensation expense for our stock-based
compensation plans been determined based on the fair value at the grant dates
consistent with the method of SFAS No. 123, our net income and income per share
would have been as follows (in thousands, except per share amounts):
1999 1998
- --------------------------------------------------------------------
Net income As reported $ 53,349 $ 43,015
Adjusted $ 52,540 $ 42,460
====================================================================
Basic and diluted income
per share As reported $ 1.29 $ 1.04
Adjusted $ 1.27 $ 1.03
====================================================================
The adjusted effects to net income presented reflect compensation costs for all
outstanding options which were granted during 1997 and 1999. The compensation
cost is being reflected over the options' vesting period of five years.
Therefore, the full impact of calculating compensation costs of options under
SFAS No. 123 is not reflected.
The fair value per option was estimated using the Black-Scholes option pricing
model with the following weighted average assumptions:
1999 Grant 1997 Grant
- --------------------------------------------------------------------
Risk-free interest rate 5.10% 5.72%
Expected dividend yield 1.00% 1.00%
Expected volatility factor 30.00% 25.00%
Expected option term 7 years 7 years
Fair value per option $ 9.31 $ 6.09
- --------------------------------------------------------------------
8. Commitments and Contingencies
Employee Benefit Plans - We participate in a defined contribution profit-sharing
and savings plan which qualifies under section 401(k) of the Internal Revenue
Code and covers all full-time employees with one or more years of continuous
service. Annual profit-sharing contributions are determined by each company's
board of directors, in accordance with the provisions of the plan. We can also
elect to make matching contributions to the plan at the discretion of our board
of directors. We contributed a 3% match in 1999. There were no Company matching
contributions during 1998 or 1997. Profit-sharing plan expense, including
matching contributions, was approximately $5,928,000 in 1999, $4,560,000 in
1998, and $4,030,000 in 1997.
Lease Commitments - We lease certain facilities, equipment and automobiles under
operating leases. Lease expense was $16,072,000 for 1999, $14,376,000 for 1998
and $13,356,000 for 1997.
Minimum future lease commitments under noncancelable lease agreements in excess
of one year as of December 31, 1999 are as follows (in thousands):
- -------------------------------------------------------------------
2000 $10,277
2001 8,516
2002 6,053
2003 3,271
2004 2,018
Thereafter 83
- -------------------------------------------------------------------
$30,218
===================================================================
Litigation - We are currently not subject to any pending or threatened
litigation, other than routine litigation arising in the ordinary course of
business, none of which is expected to have a material adverse effect on our
financial condition or results of operations.
<PAGE>
25
9. Supplementary Data (Unaudited)
Our results of operations for each of the quarters in the years ended December
31, 1999 and 1998 are summarized below (in thousands, except per share data).
<TABLE>
<CAPTION>
Quarters Ended
1999 March 31 June 30 September 30 December 31
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross revenues $509,275 $579,423 $593,354 $578,975
Cost of transportation and products 442,256 506,027 518,351 501,110
- --------------------------------------------------------------------------------------------------------------
Net revenues 67,019 73,396 75,003 77,865
Income from operations 16,911 22,060 22,193 22,664
- --------------------------------------------------------------------------------------------------------------
Net income $ 10,772 $ 13,982 $ 14,042 $ 14,553
==============================================================================================================
Basic and diluted net income per share $ .26 $ .34 $ .34 $ .35
==============================================================================================================
Basic weighted average shares outstanding 41,186 41,195 41,181 41,351
Dilutive effect of outstanding stock options 157 283 331 327
- --------------------------------------------------------------------------------------------------------------
Diluted weighted average shares outstanding 41,343 41,478 41,512 41,678
==============================================================================================================
Quarters Ended
1998 March 31 June 30 September 30 December 31
- --------------------------------------------------------------------------------------------------------------
Gross revenues $468,189 $546,672 $516,181 $507,097
Cost of transportation and products 412,968 483,380 452,422 443,703
- --------------------------------------------------------------------------------------------------------------
Net revenues 55,221 63,292 63,759 63,394
Income from operations 13,354 18,621 18,933 17,535
- --------------------------------------------------------------------------------------------------------------
Net income $ 8,374 $ 11,612 $ 11,911 $ 11,118
==============================================================================================================
Basic and diluted net income per share $ .20 $ .28 $ .29 $ .27
==============================================================================================================
Basic weighted average shares outstanding 41,251 41,215 41,203 41,195
Dilutive effect of outstanding stock options 101 100 89 82
- --------------------------------------------------------------------------------------------------------------
Diluted weighted average shares outstanding 41,352 41,315 41,292 41,277
==============================================================================================================
</TABLE>
<PAGE>
26
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
C.H. Robinson Worldwide, Inc. and Subsidiaries
To C.H. Robinson Worldwide, Inc.:
We have audited the accompanying consolidated balance sheets of C.H. Robinson
Worldwide, Inc. (a Delaware corporation) and Subsidiaries as of December 31,
1999 and 1998, and the related consolidated statements of operations,
stockholders' investment and comprehensive income and cash flows for each of the
three years in the period ended December 31, 1999. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of C.H.
Robinson Worldwide, Inc. and Subsidiaries as of December 31, 1999 and 1998, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States.
/s/ ARTHUR ANDERSEN LLP
Minneapolis, Minnesota
January 28, 2000
<PAGE>
27
REPORT OF MANAGEMENT
The management of C.H. Robinson Worldwide, Inc., is responsible for the
integrity and objectivity of the consolidated financial statements and other
financial information contained in this annual report. The consolidated
financial statements and related information were prepared in accordance with
accounting principles generally accepted in the United States and include some
amounts that are based on management's best estimates and judgments.
To meet its responsibility, management depends on its accounting systems and
related internal accounting controls. These systems are designed to provide
reasonable assurance, at an appropriate cost, that financial records are
reliable for use in preparing financial statements and that assets are
safe-guarded. Qualified personnel throughout the organization maintain and
monitor these internal accounting controls on an ongoing basis.
The Audit Committee of the Board of Directors, composed entirely of directors
who are not employees of the Company, meets periodically and privately with the
Company's independent public accountants as well as management to review
accounting, auditing, internal control, financial reporting and other matters.
/s/ John P. Wiehoff
John P. Wiehoff
President
/s/ Chad M. Lindbloom
Chad M. Lindbloom
Vice President and Chief Financial Officer
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF C.H. ROBINSON WORLDWIDE, INC.
The Company's consolidated subsidiaries are shown below together with the
percentage of voting securities owned and the state or jurisdiction of
organization of each subsidiary. The names have been omitted for subsidiaries
which, if considered in the aggregate as a single subsidiary, do not constitute
a significant subsidiary. Subsidiaries of subsidiaries are indented in the
following table:
Percentage of
Outstanding Voting
Subsidiaries Securities Owned
- ------------ ----------------
C.H. Robinson International, Inc. 100%
(Minnesota)
C.H. Robinson Venezuela, C.A. 51%
(Venezuela)
C.H. Robinson de Mexico, S.A. de C.V. 100%
(Mexico)
C.H. Robinson Company (Canada) Ltd. 100%
(Ontario, Canada)
C.H. Robinson Company 100%
(Delaware)
C.H. Robinson Company LP 1%
(Minnesota)
C.H. Robinson Company, Inc. 100%
(Minnesota)
CHR Aviation, LLC 100%
(Minnesota)
Daystar-Robinson, Inc. 100%
(Delaware)
Fresh 1 Marketing, Inc. 100%
(Minnesota)
Preferred Translocation Systems, Inc 100%
(Minnesota)
Robinson Holding Company 100%
(Minnesota)
C.H. Robinson Company LP 99%
(Minnesota)
Wagonmaster Transportation Co. 100%
(Minnesota)
Robinson Europe, S.A. 100%
(France)
Robinson Italia S.R.L 95%
(Italy)
C.H. Robinson Poland Sp. Zo.o 100%
(Poland)
Comexter Trading S.A. 100%
(Argentina)
Comexter Cargo S.A. 100%
(Argentina)
Geotrade S.A. 100%
(Argentina)
Comexter Trading Company 100%
(Florida)
Comexter Cargo, Inc. 100%
(Florida)
Norminter S.A. 100%
(France)
C.H. Robinson (UK) Limited 100%
(United Kingdom)
<PAGE>
Norminter France SARL 100%
(France)
Norminter Iberica 98%
(Spain)
E.G.C. SARL 100%
(France)
Payment & Logistics Services, Inc. 100%
(Minnesota)
T-Chek Systems, Inc. 100%
(Minnesota)
Robinson Logistica Do Brasil Ltda. 100%
(Brazil)
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report incorporated by reference in this Form 10-K, into the Company's
previously filed Registration Statement Nos. 333-53047, 333-41027 and 333-41899.
/s/ ARTHUR ANDERSEN LLP
Minneapolis, Minnesota
March 24, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF C.H. ROBINSON WORLDWIDE, INC. AND
SUBSIDIARIES FOR THE YEAR ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 49,637
<SECURITIES> 0
<RECEIVABLES> 288,576
<ALLOWANCES> 18,280
<INVENTORY> 1,785
<CURRENT-ASSETS> 343,052
<PP&E> 51,387
<DEPRECIATION> 26,640
<TOTAL-ASSETS> 522,661
<CURRENT-LIABILITIES> 275,894
<BONDS> 0
0
0
<COMMON> 4,228
<OTHER-SE> 242,539
<TOTAL-LIABILITY-AND-EQUITY> 522,661
<SALES> 0
<TOTAL-REVENUES> 2,261,027
<CGS> 0
<TOTAL-COSTS> 2,177,199
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 10,393
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 88,477
<INCOME-TAX> 35,128
<INCOME-CONTINUING> 53,349
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 53,349
<EPS-BASIC> 1.29
<EPS-DILUTED> 1.29
</TABLE>
<PAGE>
Exhibit 99
CAUTIONARY STATEMENT
Forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 (the "PSLRA") are included in our Form 10-K. The
words or phrases "believes," "may," "will," "expects," "should," "continue,"
"anticipates," "intends," "will likely result," "estimates," "projects" or
similar expressions identify forward-looking statements in our Form 10-K and in
our future filings with the Securities and Exchange Commission, in our press
releases, in our presentations to securities analysts or investors, and in oral
statements made by or approved by an executive officer of Robinson. Forward-
looking statements involve risks and uncertainties that may materially and
adversely affect our business, results of operation, financial condition or
prospects, and may cause our actual results to differ materially from historical
results or the results discussed in the forward-looking statements.
You should consider carefully the following cautionary statements if you
own our common stock or are planning to buy our common stock. We intend to take
advantage of the "safe harbor" provisions of the PSLRA by providing this
discussion. We are not undertaking to address or update each factor in future
filings or communications regarding our business or results except to the extent
required by law.
Demand for our services may decrease during an economic recession. The
transportation industry historically has experienced cyclical financial results
as a result of economic recession, the business cycles of customers, price hikes
by carriers, interest rate fluctuations, and other economic factors beyond our
control. Carriers can be expected to charge higher prices to cover higher
operating expenses, and our net revenues and income from operations may decrease
if we are unable to pass through to our customers the full amount of higher
transportation costs. If economic recession or a downturn in our customers'
business cycles causes a reduction in the volume of freight shipped by those
customers, particularly among certain national retailers or in the food,
beverage or printing industries, our operating results could also be adversely
affected.
We depend upon available equipment and services. We do not own trucks or
other transportation equipment, and we depend in part on independent third
parties to provide truck, rail, ocean and air services. Equipment shortages in
the transportation industry have occasionally occurred, particularly among
truckload carriers. If we are unable to secure sufficient equipment or other
transportation services to meet our customers' needs, our operating results
could be materially and adversely affected, and our customers could switch to
our competitors temporarily or permanently.
Our international business raises additional difficulties. We provide
services within and between continents on an increasing basis. Our business
outside of the United States is subject to various risks, including:
. changing local economic and market conditions,
. political and economic instability,
<PAGE>
. fluctuations in currency exchange rates,
. armed conflicts, and
. unexpected changes in United States and foreign laws relating to
tariffs, trade restrictions, transportation regulations, foreign
investments and taxation.
As we expand our business in foreign countries we will expose the Company
to increased risk of loss from foreign currency fluctuations and exchange
controls as well as longer accounts receivable payment cycles. We have no
control over these risks, and if we do not correctly anticipate changes in
international economic and political conditions, we may not alter our business
practices in time to avoid adverse effects.
Our management and internal systems may be inadequate to handle continued
growth of our business. Our continued success depends upon our ability to
attract and retain a large group of motivated salespersons and other logistics
professionals. If we cannot recruit and retain a sufficient number of personnel,
we may be forced to limit our growth. We cannot assure you that we will be able
to continue to hire and retain a sufficient number of qualified personnel. Our
rapid expansion of operations has placed added demands on our management and
operating systems. Continued expansion depends in large part on our ability to
develop successful salespersons into managers and to implement enhancements to
our information systems that are adaptable to the changes in our business and
the requirements of our customers.
We face substantial industry competition. Competition in the transportation
services industry is intense and broad based. We compete against other non-asset
based logistics companies as well as logistics companies that own their own
equipment, third-party freight brokers, Internet matching services and Internet
freight brokers, and carriers offering logistics services. We also compete
against carriers' internal sales forces and shippers' transportation
departments. We often buy and sell transportation services from and to many of
our competitors. Historically, competition has created downward pressure on
freight rates, and continued rate pressure may adversely affect our net revenues
and income from operations.
Our earnings may be affected by seasonal changes in the transportation
industry. Results of operations for our industry generally show a seasonal
pattern as customers reduce shipments during and after the winter holiday
season. In recent years, our operating income and earnings have been lower in
the first quarter than in the other three quarters. Although seasonal changes in
the transportation industry have not had a significant impact on our cash flow
or results of operations, we expect this trend to continue and we cannot assure
you that it will not adversely impact us in the future.
Our sourcing business is dependent upon the supply and price of fresh
produce. The supply and price of fresh produce is affected by government food
safety regulation, growing conditions (such as drought, insects and disease),
and other conditions over which we have no control. Shortages or overproduction
of fresh produce affect commodity prices, which are often highly volatile.
Sourcing and reselling fresh produce exposes us to possible product
liability. Agricultural chemicals used on fresh produce are subject to various
approvals, and the
<PAGE>
commodities themselves are subject to regulations on cleanliness and
contamination. Product recalls in the produce industry have been caused by
concern about particular chemicals and alleged contamination, often leading to
lawsuits brought by consumers of allegedly affected produce. Because we sell
produce, we may have legal responsibility arising from the sale. While we are
insured for up to $75 million for product liability claims, settlement of class
action claims is often costly, and we cannot assure you that our liability
coverage will be adequate and will continue to be available. If we have to
recall produce, we may be required to bear the cost of repurchasing,
transporting and destroying any allegedly contaminated product, which our
insurance does not cover. Any recall or allegation of contamination could affect
our reputation, particularly of our produce brand: The Fresh 1(R). Loss due to
spoilage (including the need for disposal) is also a routine part of the
sourcing business.
Our business depends upon compliance with numerous government regulations.
We are licensed by the Department of Transportation as a broker authorized to
arrange for the transportation of general commodities by motor vehicle. We must
comply with certain insurance and surety bond requirements to act in this
capacity. We are also licensed by the Federal Maritime Commission as an ocean
freight forwarder, which requires us to maintain a non-vessel operating common
carrier bond. We are also licensed by the United States Customs Service of the
Department of the Treasury. We source fresh produce under a license issued by
the Department of Agriculture. Our failure to comply with the laws and
regulations applicable to entities holding these licenses could materially and
adversely affect our results of operations or financial condition. Legislative
or regulatory changes can affect the economics of the transportation industry by
requiring changes in operating practices or influencing the demand for, and the
cost of providing, transportation services.
We increasingly derive a significant portion of our gross revenues from our
largest clients. The sudden loss of a number of our major clients could
materially and adversely affect our operating results.
Our change to public company status may have a detrimental effect on our
corporate culture. Prior to our initial public offering, more than 700 employees
owned substantially all of our outstanding common stock. Consequently, our
employees considered themselves the owners of C.H. Robinson. As a result of our
establishing a public market for the trading of shares of our common stock, a
larger portion of common stock may rest in the hands of the general public, and
our employee stockholders will have significant liquid assets. This change in
structure and liquidity may adversely affect employee motivation. We had also
issued restricted stock as an incentive, and employees owning common stock
before going public profited from the growth in the book value of the common
stock. We have replaced our previous stock program with new stock-based
programs, but we cannot predict whether the new plans will be perceived as being
a less valuable form of compensation. If we find that we must initiate new
incentive programs to improve employee performance in the future, our results of
operations could be adversely affected.
We may be unable to identify or complete suitable acquisitions and
investments. We may acquire or make investments in complementary businesses,
products, services or technologies. We cannot assure you that we will be able to
identify suitable acquisitions or
<PAGE>
investment candidates. Even if we identify suitable candidates, we cannot assure
you that we will be able to make acquisitions or investments on commercially
acceptable terms, if at all. If we acquire a company, we may have difficulty
assimilating its businesses, products, services, technologies and personnel into
our operations. These difficulties could disrupt our ongoing business, distract
our management and workforce, increase our expenses and adversely affect our
results of operations. In addition, we may incur debt or be required to issue
equity securities to pay for future acquisitions or investments. The issuance of
any equity securities could be dilutive to our stockholders.
