<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
XX ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the year ended December 31, 1995.
OR
__ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _____________ to _______________.
Commission File Number 0-23828
LABOR READY, INC.
(Exact name of registrant as specified in its Charter)
Washington 91-1287341
(State of Incorporation or Organization) (I.R.S. I.D. Number)
2156 Pacific Avenue, Tacoma, Washington 98402
(Address of Principal Executive Offices) (Zip Code)
(206)383-9101
(Registrant's Telephone Number)
Securities Registered Under Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None None
Securities Registered Under Section 12(g) of the Act:
Common Stock, No Par Value
(Title of class)
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 any definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
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 last ninety days. YES XX NO _____
The aggregate market value (based on the average between the bid and ask
prices) of the voting stock held by non-affiliates (4,076,306 shares) of the
Registrant at March 20, 1996 was approximately $79,487,967. As of March 20,
1994, there were 6,029,133 shares of Registrant's common stock outstanding.
No Documents are incorporated herein by reference.
<PAGE>
LABOR READY, INC.
FORM 10-K
PART I.
Item 1. Business.
Organizational History. The Company was incorporated under the
laws of the State of Washington on March 18, 1985. Since 1989, the
Company has been engaged in the temporary help business. Operations
prior to 1989 are reported in the Company's Form 10 Registration
Statement, SEC File Number 0-23828.
P.N.L.F., Inc. ("PNLF") was organized on January 17, 1989. Labor
Ready of So. Calif., Inc.("LRSC") was organized on March 12, 1990, as a
wholly owned subsidiary of PNLF. In April, 1992, PNLF spun the stock
ownership of LRSC out to PNLF's shareholders. Labor Ready Franchise
Development Corporation ("LRFD") was organized on November 21, 1991.
Labour Ready Temporary Services Limited was formed as a wholly owned
subsidiary of the Company on February 10, 1994, to conduct business in
Canada.
During 1994, the Company reached a settlement in a legal dispute
involving two of the Series A Preferred Stockholders. As a result of the
settlement, 149,006 Series A Preferred Shares were canceled. Effective
January 1, 1995, PNLF and LRSC were merged into Labor Ready, Inc.
Current Business Operations. The Company is engaged in the
business of providing temporary help primarily to construction,
warehousing, landscaping and manufacturing businesses. The temporary
help industry addresses the fact that businesses frequently experience
times when the work load temporarily exceeds the workforce available.
In these circumstances, the business must either hire additional people,
work existing employees overtime and pay the overtime rate, refuse to
accept the work, or develop a backlog and deliver the product or service
late. Each of these alternatives may have undesirable results to the
long-term profitability of the business. In this environment, the
temporary help business offers an acceptable temporary solution while
avoiding some of the draw backs of the traditional alternatives. By
engaging a temporary service, businesses are not exposed to workers
compensation claim risks, or to the litigation risks of hiring and
terminating employees.
The Company focuses primarily on temporary help for construction,
warehousing, landscaping and manufacturing businesses. This market
niche is attractive to the Company for a number of reasons. First, the
users' requirements are typically for low to medium skilled workers, and
the Company has been able to develop a large pool of laborers in this
category. In addition, there are a large number of users of this type of
temporary help. The customers involved in construction, warehousing,
landscaping and manufacturing operations tend to be seasonal or subject
to regular cyclic fluctuations in work flow. The cost of temporary
labor to the company is significantly less than the cost of adding
permanent positions to meet fluctuating needs.
The Company operates its locations as dispatch halls. Interested
laborers report to the dispatch hall prior to being assigned to jobs.
Space in the dispatch hall is available for the workers to wait for job
assignments. When a customer requests temporary help, the dispatch
hall manager assigns the available workers to the position openings, and
the workers are dispatched to the job site. The workers are provided
with a labor ticket which they must return to the dispatch hall for
payment. Temporary laborers are paid daily, and the customers are
billed weekly. The worker is employed by the Company which must pay all
related payroll taxes and maintain all payroll records, including W-2's which
are prepared at year end. The Company also provides workers compensation
insurance to each temporary laborer. The Company maintains a computer based
software package to maintain the various types of information needed to
process all required payroll information and related payroll tax returns. The
Company processed 1.1 million payroll checks written to 100,000 temporary
laborers in 1995.
The Company is responsible for workers' compensation insurance.
Therefore, it is critical for the Company to monitor and control
workers' compensation claims arising from injuries suffered by the
Company's employees in the course of performing the temporary jobs. The
Company controls workers' compensation costs through training of its
management employees and office staff, safety sessions with employees,
issuance of safety equipment, monitoring of job sites, and communication
with customers to assure that the job request order is one that can be
safely accomplished.
The Company maintains workers' compensation benefit coverage. To
maintain the coverage, the Company has established a separate workers'
compensation department at its corporate headquarters in Tacoma
Washington, to oversee Company policy. The Company has recently hired
two individuals, one with 18 years of claim closing experience, and one
with 20 years of experience dealing with a captive and self insurance
program for a company with requirements similar to those of Labor Ready.
On August 1, 1994, the Company went to a captive insurance program in
all non-monopolistic states. Monopolistic states are those states that
require coverage to be administered by a state plan. At that time, the
Company engaged a national insurance company to act as administrator of
the plan. The Company incurs a large number of claims, the majority of
which are closed within ninety days. The average claim paid is between
$1,000 and $2,000. The Company provides light duty work so that lost
time claims are minimized.
The Company employs in-house specialists in its insurance,
workers' compensation, marketing, accounting, collection, computer
hardware, education, and computer software departments to monitor
company wide performance and address performance issues as they arise.
The Company holds an area director training seminar on a quarterly basis
and one of the focuses of area director training is to monitor and
control workers' compensation claims. In addition, the Company holds a
planning session each year to prepare a one year and six year plan and
to establish budgets and projections. The Company's Regional Directors
are in regular communication with the Area Directors and the Regional
Directors provide a further source of monitoring and control for
workers' compensation costs.
Labor Ready University, the Company's training division, operates
out of a training center in Tacoma, Washington, which is also the
dispatch location for Tacoma. Labor Ready University was formed in
February, 1995, to train managers. The Company hired an experienced
trainer from a national company to write the necessary training manuals,
organize the facility, and coordinate the hiring and training of its managers.
By operating the training center as part of an ongoing dispatch location, the
managers receive training under actual and simulated dispatch conditions.
In 1992, the Washington State division of the Company entered into
a State retro program and has received rebates of its workers'
compensation costs because the Company's State loss experience rating is
less than premium rates charged for coverage.
The business of temporary labor is one that is easily entered by
small operators. Certain economies of scale can be achieved, however,
by the expansion of the operations beyond small local sites.
Additionally, larger temporary help companies also have the financial
ability to hire in house insurance and other specialists. This helps to
assure that various claims, such as workers' compensation, unemployment,
and garnishment claims, are controlled and processed in a timely
fashion. The Company has already expended the time and effort necessary
to develop computer software and hardware systems for monitoring company
performance, and is capable of producing reports to single location
detail as needed. The Company's systems for monitoring and controlling
workers' compensation claims also affords the company a competitive
advantage over smaller operators with less sophisticated systems.
The Company has grown, in part, through acquisition of existing
operations and/or hiring employees of businesses which have ceased
operations. Of the 119 dispatch halls open at March 20, 1996, 113
dispatch halls have been operated from inception as company owned
dispatch halls. Additional dispatch halls will be acquired or opened
when attractive market opportunities are identified. The Company has
standardized the basic dispatch hall concept and can now open new
dispatch halls in four to six weeks while maintaining control over
start-up costs.
When penetrating new markets, the Company allows for an initial
advertising budget to generate an awareness of the new business. The
Company also attempts to follow initial penetration with additional
dispatch halls as warranted by the area demographics. This expansion
allows a rapid build up of the temporary labor base needed to operate
successfully in a given area.
Economic Conditions. Historically, the general level of economic
activity in the Company's markets has significantly affected the demand
for temporary labor in the construction and manufacturing trades. As
economic activity increases, temporary employees are often added to the
work force before permanent employees are hired. As economic activity
slows, the use of temporary personnel is generally curtailed before
permanent employees are laid off. The Company has been expanding
rapidly as general economic conditions have improved. No assurances can
be given, however, that general economic activity will continue to
improve, that the Company will benefit from such improvement, or that
the Company's rapid expansion will continue. A slow down in general
economic activity would have a material adverse effect on the Company's
business and results of operations, and could create material cash flow
shortages.
Competition. The Company markets its temporary labor to customers
primarily in the construction and manufacturing trades. Marketing is
accomplished through yellow pages advertising and direct mail campaigns.
Word of mouth also provides a significant source of new business for the
Company. The temporary services industry is highly competitive with
limited barriers to entry. The Company competes in national and local
markets with other suppliers of temporary help. Many of these
competitors have substantially greater financial and marketing resources
than those of the Company. The availability to the Company's customers
of multiple temporary service providers creates significant pricing
pressure as competitors compete for the available demand, and this
pricing pressure adversely impacts operating margins. Increasing
competition in the future will limit the Company's ability to maintain
or increase its market share or maintain its operating margins, and
could have a material adverse effect on the Company's business,
financial condition and operating results.
At the present time, the Company is a growing international
temporary help business in a market dominated by large international
companies. To minimize direct competition with the large national temporary
service companies, the Company has focused on a market niche available for
dispatch halls to provide temporary help on very short notice. This
niche has been largely ignored by the large national companies, who
choose instead to rely on telephone marketing for customer orders in
advance of the need. The Company's use of the dispatch hall concept
allows the Company to provide temporary help on the day of the order.
The Company opens its dispatch halls at 5:30 a.m. for this purpose and
laborers available for work wait on location for an assignment.
Other Operational Considerations. The Company is not dependent on
any individually large customers for a majority of its revenues. While
a single dispatch hall may derive a majority of its revenues from a
single customer, the loss of that customer on the overall organization
would not have a significant impact on revenues. At present, the
Company has in excess of 40,000 customers.
The Company currently employs a total of 80 administrative and
executive staff in the corporate office, and 370 personnel in the
dispatch halls as managers and support staff. The Company operates with
a pool of temporary laborers numbering between 4,000 and 8,000
depending on seasonal fluctuations and demand.
The Company's business is not presently dependent on any patents,
licenses, franchises, or concessions. The Company's name, "Labor Ready,
Inc." and associated trademarks are protected within its region of
operation, and the Company is licensed to offer franchises. To date the
Company has only one franchisee with three locations, and is not currently
pursuing other franchising operations. The Company's name and trademarks will
continue to be protected so long as the Company utilizes the name and
trademarks in its operations.
The Company's business operations focus on providing temporary
help to the construction and manufacturing trades. The construction
trade in particular, and other customer businesses to a lesser degree,
are significantly affected by the weather. The construction trade
activity increases in the spring and summer, and then tapers off as late
fall and winter weather hinders outdoor activities. Inclement weather
during the normally mild spring and summer months can also slow
construction activities. Conversely, mild fall and winter periods can
result in greater than usual construction business. The Company
anticipates a significant increase in temporary labor demand in the
spring and summer, and a slow down of the demand in the winter months.
An adverse weather cycle could have a material adverse impact on the
Company's revenues in any given period, and could materially adversely
affect future operations.
Additionally, general economic conditions impact revenues over
time. In periods of improving economic conditions, the demand for
temporary labor rises as companies staff to meet their own rising
revenues activities. When a general economic slowdown occurs, the
temporary labor is generally the first group of workers terminated, and
the Company experiences the termination as a slow down in revenues. The
current economic climate in the Company's region of operation is
generally trending up, and the Company has been experiencing increased
revenues at existing dispatch halls. Should economic conditions change,
this trend could reverse and adversely affect the Company's revenues and
results of operations.
The Company is responsible for and pays workers' compensation
costs and unemployment insurance premiums for its temporary employees.
As part of the presently contemplated health care reform, recent federal
and state legislative proposals have included provisions that would
mandate health care coverage for the Company's temporary personnel who are
not presently covered under another health care plan. There can be no
assurance that the Company will be able to increase fees charged to its
customers to offset the increased costs if workers' compensation rates or
unemployment insurance premiums increase, or if the Company is required
to provide health care coverage for its temporary employees. Currently,
the Company does not provide health care coverage to its temporary
workers. A material increase in these costs could, therefore, have a
material effect on the Company's financial condition and results of
operations. It is likely that any impact from health care legislation which
affects the Company, would also affect other temporary service providers, and
the Company's competitive position in the industry would not necessarily be
adversely affected.
The Company has experienced significant growth in revenues during
1993, 1994, and 1995, and expects this growth to continue. This growth
requires substantial working capital to fund operating activities,
capital expenditures, and establishing new dispatch halls. Moreover,
the ability of the Company to continue to increase revenues will depend
on a number of factors, including general economic conditions, existing
and emerging competition, availability of workforce, and the
availability of working capital to support the growth. The Company may
face pricing pressures that will make it more difficult to maintain
operating margins. There can be no assurances that the Company will be
able to obtain the necessary working capital or to recruit and train
qualified personnel to staff continued growth, or that it will be able
to hold costs in line with historical levels as, and if the growth
continues.
The Company is currently expanding its operations through the
addition of new dispatch hall locations. The Company is also operating
with limited capital and the costs of expansion create a continuing
drain on existing cash flows. The Company is a growing international
provider of temporary help services competing against larger regional
and international companies, and is faced with all of the usual business
risks associated with a growth oriented business in a competitive
market. There can be no assurances that the Company's efforts at
expansion can be successfully accomplished, or that the expansion will
be profitable.
Planned Operational Growth. The Company intends to continue
expansion through the year 2000 through the opening of new start-up
dispatch halls. As the business grows, the Company is continuing to
upgrade its proprietary computer software used to control Company
operations and maintain employee records. From January 1, 1995, through
December 31, 1995, the Company opened 55 additional dispatch halls, and
13 new dispatch halls were opened by March 20, 1996.
Item 2. Properties.
In February, 1995, the Company purchased a labor dispatch building which
doubles as a training center and supplies inventory warehouse facility
in Tacoma, Washington. In March, 1995, the Company also purchased a
24,000 square foot facility in Tacoma, Washington which serves as its
headquarters and administrative office building. The headquarters
location is currently being remodeled to accommodate the Company's
continuing expansion. The new headquarters building replaces the facility
located at 2342 Tacoma Avenue South, in Tacoma, Washington. The 2342 Tacoma
Avenue location is owned by the Company, but is listed for lease, at this
time, and is not being used in operations. The Company owns dispatch buildings
in Kent, Washington, and Kansas City, Missouri. Prior to March, 1996, the
Company also owned its dispatch building in Spokane, Washington. In
March, 1996, the Company sold the building, and now leases facilities
in Spokane. All other dispatch offices are leased, and the leases
generally include ninety day buyout clauses. The Company presently
operates dispatch halls in 32 states and Canada. All of the Company's
facilities are currently believed by management to be suitable for their
intended use. At present growth rates, management anticipates that the
Company will outgrow its existing corporate facilities in 1998.
Item 3. Legal Proceedings.
The Company is involved in various lawsuits arising in the ordinary course of
business which will not, in the opinion of management, either individually or
in the aggregate have a material effect on the Company's results of
operations.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of the security holders during the fourth
quarter of the year ended December 31, 1995.
PART II
Item 5. Market Price of, and Dividends on the Registrant's Common Equity
and Related Stockholder Matters.
The Company's common stock is traded over-the-counter and has limited
liquidity. The high and low bids for the last two years were as follows:
Quarter Ended High* Low*
March 31, 1994 $2.67 $1.34
June 30, 1994 3.67 2.67
September 30, 1994 5.17 3.67
December 31, 1994 6.50 5.17
March 31, 1995 7.50 6.00
June 30, 1995 15.33 6.67
September 30, 1995 14.33 11.58
December 31, 1995 19.00 12.50
*Dollar amounts are adjusted to reflect a three for
two forward stock split which was effective on
November 22, 1995.
The Company had 655 shareholders of record as of December 31, 1995. The
quotation information has been derived from the Electronic Bulletin Board
Quotation System operated by the National Association of Securities Dealers,
Inc. The bid price is the price between broker/dealers and does not include
retail markups or markdowns or commissions. The bid price does not reflect
prices in actual transactions. No cash dividends have been declared on the
Company' Common Stock to date and the Company does not intend to pay a cash
dividend on common stock in the foreseeable future. Future earnings will be
used to finance the growth and development of the Company.
Item 6. Selected Financial Information.
The following selected consolidated financial data of the Company has been
derived from its Consolidated Financial Statements. The Consolidated Financial
Statements for the years ended December 31, 1995 and December 31, 1994 were
audited by BDO Seidman, LLP, whose report thereon appears elsewhere herein.
The Consolidated Statements of Operations, Changes in Stockholders' Equity,
and Cash Flows for the year ended December 31, 1993, have been examined by
Terrence J. Dunne, CPA, independent certified public accountant, whose report
thereon appears elsewhere herein. The data should be read in conjunction with
the Company's Consolidated Financial Statements and the notes thereto, and
Management's Discussion and Analysis of Financial Condition and Results of
Operations included elsewhere herein.
Dollars in Thousands Except Per Share Amounts
- ------------------------------------------------------------------------------
INCOME STATEMENT DATA
Year Ended December 31 1995 1994 1993 1992 1991
------ ------ ------ ------ ------
REVENUE
Revenues from services $94,361 $38,951 $15,659 $ 8,424 $ 6,020
Cost of services 76,643 30,713 12,401 6,485 4,831
------ ------ ------ ------ ------
Gross profit 17,718 8,238 3,258 1,939 1,189
EXPENSES
Selling, general, &
administrative expenses 13,639 6,593 2,652 1,482 1,717
------ ------ ------ ------ ------
Income from operations 4,079 1,645 607 457 (528)
Interest and other , net (866) (457) (354) (278) (187)
------ ------ ------ ------ ------
INCOME (LOSS) BEFORE INCOME
TAX AND EXTRAORDINARY ITEM 3,213 1,188 253 180 (715)
INCOME TAX 1,152 336 32 21 --
EXTRAORDINARY ITEM, NET OF TAX -- -- 48 -- --
------ ------ ------ ------ ------
NET INCOME (LOSS) 2,062 852 269 159 (715)
EARNINGS (LOSS) PER COMMON SHARE
Income before extraordinary item $0.34 $0.18 $0.04 $0.06 $(0.26)
Extraordinary item -- -- 0.02 -- --
Net income $0.34 $0.18 $0.06 $0.06 $(0.26)
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING (Primary) 5,862 4,455 3,669 2,702 2,721
- ------------------------------------------------------------------------------
BALANCE SHEET DATA
At December 31 1995 1994 1993 1992 1991
------ ------ ------ ------ ------
Total current assets 20,216 7,572 2,313 1,454 812
Total assets 26,182 8,912 3,153 1,880 1,149
Total current liabilities 7,956 5,631 1,706 1,086 436
Total long term liabilities 9,695 319 777 577 733
Total Liabilities 17,650 5,950 2,483 1,664 1,168
Stockholder's Equity 8,531 2,962 670 216 (19)
Working capital 12,260 1,941 607 368 377
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Item 7. Management's Discussion And Analysis Of Financial Condition And
Results Of Operations
Results of Operations.
1995 Compared to 1994. The Company's revenues increased to $94,361,629
from the $38,950,683 for the year ended December 31, 1995, as compared
to the year ended December 31, 1994. This represents an increase of
$55,410,946 or 142%. The sales increase came from an increase in same
store sales, and from the opening of new locations, as indicated below:
Same store sales $13,741,807
New locations $41,669,139
-----------
Total increase $55,410,946
The increase in revenues also resulted in an increase in net profit for
the year ended December 31, 1995 of $2,061,807 compared to a net profit
of $851,805 for the same period a year earlier. This represents an
increase of $1,210,002 or 142%. The increase in net profits is primarily
the result of a high level of growth in revenues. The high levels of
growth have required that the Company continue to incur corresponding
levels of operating expenses. Consequently, as a percentage of revenues,
net profit has stayed relatively constant as a percentage of revenues at
2.2% in 1995 and 1994. Management anticipates high levels of growth
through 1996, and expects that net profits as a percentage of revenues
will remain relatively constant during this period.
The Company grew from fifty-one operating dispatch locations at December
31, 1994 to 106 operating locations at December 31, 1995, an increase of
fifty-five operating dispatch locations for the year.
Opening costs for new dispatch locations, which are expensed, are
estimated to have averaged $35,000 per location in 1995 and $25,000 in
1994. In the aggregate, a total of $1,925,000 was expended on new
location openings for the year ended December 31, 1995, compared to
$850,000 for the year ended December 31, 1994. The costs of opening new
dispatch locations continues to increase. The increases are primarily the
result of a longer manager training period at Labor Ready University and
the added opening costs related to the upgraded computer software.
In order to maintain pace with the Company's growth, during 1995, the Company
underwent a significant upgrade of its computer systems. The upgraded system
is now designed to accommodate continuing growth, and provides management with
all of the informational tools needed to manage the increasing number of
locations. The costs of the computer system upgrades have been capitalized and
are reflected as fixed assets on the balance sheet.
Cost of revenues increased to $76,642,962 for the year ended December
31, 1995 from $30,712,945 for the same period in 1994, an increase of
$45,930,017 or 150%. Cost of revenues as a percentage of revenues
increased to 81.2% for the year ended December 31, 1995, from 78.8% for
the year ended December 31, 1994, an increase of 2.4%. This increase in costs
as a percentage of revenues is primarily the result of the Company's use of
lower introductory rates to attract new customers at new stores.
Operating expenses increased to $13,639,034 from $6,592,555 in 1995
compared to 1994, an increase of $7,046,479 or 107%. As a percentage of
revenues, operating expenses decreased to 14.5% for the year ended
December 31, 1995, from 16.9% for the same period a year earlier. This
percentage decrease in operating expenses partially offset the
percentage increase on cost of revenues, and resulted primarily from
more efficient administrative operations, and economies of scale which
have accompanied the high levels of growth.
The Company has a net deferred tax asset of $715,407 at December 31, 1995,
resulting primarily from temporary timing differences. The Company has not
established a valuation allowance against this net deferred tax asset as
management believes that it is more likely than not that the benefit from the
asset will be realized in the current period based on the historical levels of
pre-tax income.
1994 Compared to 1993. The Company earned a net income for the year
ended December 31, 1994 of $851,805 vs. a net income of $ 269,008 for
the same period a year earlier; a difference of $582,797.
The primary factor creating the net increase in profits was the fact
that management made the decision to rapidly expand its operations in
1994. This expansion resulted in an increase in revenues. The Company
grew from seventeen operating dispatch halls at December 31, 1993 to
fifty-one operating and reporting dispatch halls at December 31, 1994 .
The Company had a negative cash flow from operating activities for 1994
in the amount of $2,250,551, and a net cash outlay for capital
expenditures in the amount of $593,460. The total of $2,844,111 was
financed by borrowings in the amount of $2,062,188 and net proceeds from
the issuance of equity securities in the amount of $1,130,223, leaving a
net cash surplus for the year.
For the year ended December 31, 1994 revenues increased to $38,950,683 from
$15,658,832 for the year earlier period, an increase of $23,291,851 or 149%.
Costs of revenues and related selling, general, and administrative expenses
increased proportionately. Thirty-four new dispatch halls were opened in
the year ended December 31, 1994 which generated revenues of $13,255,922.
A summary of the revenues for the years ended 1994 and 1993 follow:
1994 1993
Revenues Per Hall Revenues Per Hall
17 existing dispatch halls $ 25,694,761 $1,511,457 $ 15,658,832 $ 921,108
34 new dispatch halls $ 13,255,922 $ 389,880
Selling, general, and administrative expenses increased from $2,651,702
to $6,592,555, an increase of $3,940,853 or 149%, reflecting additional
salaries and expenses needed for the Company's continued growth and expansion.
In the aggregate, as a percentage of revenues, selling, general, and
administrative expenses did not change. Salaries increased to $1,130,168 from
$517,588. The increase represents normal salary adjustments which occur on an
annual basis. Administrative expenses increased in 1994 compared to 1993 as a
result of the Company's continuing growth. Increases within line item
categories are either proportional to the increase in revenues or are not
material.
Repairs and maintenance increased as a percentage of revenues, from .5%
to 1.2 %. The increase was due to the updating of existing dispatch
halls and new dispatch location expansion. Contract and professional
fees increased as a percentage of revenues to 2.0% from 1.2%. The
increase was primarily related to the increased need for professional
services in connection with expansion activities, workers' compensation
advisory services, employee testing, general corporate governance
activities, and legal and auditing costs. Uncollectible accounts
decreased as a percentage of revenues to .9% from 1.7%. The decrease
was due in part to the Company's development of computer software for
control management of customer credit. Management continues to monitor
uncollectible accounts and the Company continues with a policy of
aggressively pursuing delinquent accounts in order to control future
uncollectibles.
In 1994, the Company incurred interest charges on borrowings of
$510,772, an increase of $155,753 over 1993. The impact of the increase
in interest charges was lessened somewhat by a reduction in the
effective rate charged the Company for its operating line of credit.
The reduction resulted in a decrease in interest charges to 1.3% from
2.3%, as a percentage of revenues.
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," (SFAS No. 109), effective
December 31, 1993. SFAS No. 109 requires a company to recognize deferred tax
assets and liabilities for the expected future income tax consequences of
events that have been recognized in a company's financial statements. Under
this method, deferred tax liabilities and assets are determined based on the
temporary differences between the financial statement carrying amounts and tax
bases of assets and liabilities using enacted tax rates in effect in the years
in which the temporary differences are expected to reverse.
Liquidity and Capital Resources.
During 1995 and 1994, the Company used net cash in operating activities of
$3.7 million and $2.25 million, respectively, an increase of 64.4%, reflecting
the significant growth in the Company's revenues and accounts receivable, and
opening of 54 new offices. Management anticipates continuing cash flow
deficits from operations while the Company's growth in the number of offices
continues at a rapid rate. Management expects such cash flow deficits will be
financed by short term lines of credit, long term debt and sale of additional
equity securities.
The Company financed its operations and growth in 1995 primarily through debt
financing. In early 1995, holders of outstanding warrants to purchase the
Company's common stock agreed to exercise 474,960 warrants for 474,960 shares
of common stock with an aggregate exercise price of $1.78 million. In
August 1995, the Company and its lender agreed to expand the size of its
operating line of credit (secured by accounts receivable) from $6 million to
$9 million.
In October 1995, the Company completed a private placement financing of $10
million in 13.0% Senior Subordinated Notes (the "Notes") which netted the
Company $9.2 million. Under the terms of the Notes, which require principal
payments beginning in 1998 and mature in 2002, the Company pledged its
remaining assets as collateral and agreed to issue warrants to the purchasers
of the Notes to purchase 10% of the outstanding common stock of the Company at
an exercise price of $11.67 per shares (as adjusted for the Company's recent 3
for 2 stock split). The warrants are exercisable at any time prior to the
seventh anniversary of the Notes and six years from the date the Notes are
paid in full.
In connection with the issuance of the Notes, the amount of the Company's
operating line of credit was reduced to $5 million and the terms extended
through June 1996. Subsequent to year end, the Company refinanced its
existing line of credit. The Company obtained from U.S. Bank of Washington
a new revolving credit facility which provides for borrowing of up to $10
million secured by accounts receivable. As of March 28, 1996, the Company
borrowed $4.4 million against this line. The U.S. Bank line of credit bears
interest at a rate of prime plus 1/4%
There is some uncertainty in connection with government regulation and
health care proposals, and the effects such proposals would have on the
temporary help industry if new laws were enacted. It is generally believed
that health care reform would have the effect of increasing costs of
temporary employees to the Company and no assurances can be given that such
increased costs could be passed on to the Company's customers. The Company is
also aware that workers' compensation costs and unemployment insurance
premiums are generally increasing. The Company has not, however, experienced
a significant variance in its rates due to its efforts to hold such costs
down through internal monitoring and control, as well as its participation
in a cooperative workers' compensation rebate association. At present, the
Company is not aware of any material trends or uncertainties that will have
a material impact on short or long-term liquidity, other than those discussed
above.
During 1996, the Company expects to continue opening new dispatch halls.
The capital requirement of such openings costs $30,000 to $50,000, and
new location start-up costs will be a continuing drain on liquidity.
The Company intends to finance new dispatch halls with available cash
from lines of credit and internally generated cash flows. To the extent
that the Company's resources are not sufficient to finance new location
start-ups, or are not sufficient to open all currently targeted dispatch
halls, the Company would scale back its expansion plans. In such event,
the Company's growth rate would slow or cease, and operating results
could be adversely affected. At present, the Company has adequate
capital to open all dispatch halls for which it has made commitments.
Inflation is not expected to have a material impact on the Company's
operations in the near future. As inflation continues to affect pricing in
the general economy, the cost of labor will likely increase. As labor costs
generally increase, Management believes that the Company will be in a position
to increase its pricing to its customers at a corresponding rate. As a result,
inflation may impact the Company's total revenues, but should not impact to
any significant degree, the bottom line.
Recent Accounting Pronouncements
In October, 1995, the Financial Accounting Standards Board (FASB), issued
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation," which requires that companies recognize the cost of
stock-based employee compensation on the fair value of the stock options. SFAS
No. 123 is effective for financial statements issued for fiscal years
beginning after December 15, 1995, and is not expected to have a significant
impact on the Company's financial statements.
In March, 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." This
statement requires that long-lived assets and certain intangibles to be held
and used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying value of an asset may not be
recoverable. The measurement of an impairment loss for long-lived assets and
identifiable intangibles that an entity expects to hold and use should be
based on the fair value of the asset. SFAS No. 121 is effective for financial
statements for fiscal years beginning after December 15, 1995, and is not
expected to have a significant impact on the Company's financial statements.
Item 8. Financial Statements and Supplementary Data.
The financial statements are located on pages 15 through 35 of this
Form 10-K. The financial statements Table of Contents is located on
page 15.
<PAGE>
LABOR READY, INC.
CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS
Page
Independent Auditors' Report 16-17
Consolidated Balance Sheets
at December 31, 1995 and 1994 18-19
Consolidated Statements of Income
for the Years Ended December 31, 1995, 1994 and 1993 20
Consolidated Statements of Stockholders' Equity
for the Years Ended December 31, 1995, 1994 and 1993 21
Consolidated Statements of Cash Flows
for the Years Ended December 31, 1995, 1994 and 1993 22-23
Summary of Accounting Policies 24-26
Notes to Consolidated Financial Statements 27-35
All financial statement schedules are omitted because they are not
applicable, not required, or the information required to be set forth
therein is included in the financial statements or the notes thereto.
<PAGE>
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS' REPORT
The Board of Directors and Stockholders of
Labor Ready, Inc.
We have audited the accompanying consolidated balance sheets of Labor
Ready, Inc. and subsidiaries as of December 31, 1995 and 1994 and the
related consolidated statements of income, stockholders' equity, and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the financial statements
are free of material misstatements. 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 consolidated financial
position of Labor Ready, Inc. and subsidiaries at December 31, 1995 and
1994 and the consolidated results of their operations and their cash
flows for the years then ended, in conformity with generally accepted
accounting principles.
Spokane, Washington /s/BDO Seidman, LLP
March 6, 1996
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Stockholders of
Labor Ready, Inc.
I have audited the accompanying consolidated statements of income,
stockholders' equity and cash flows of Labor Ready, Inc. for the year
ended December 31, 1993. These financial statements are the
responsibility of the Company's management. My responsibility is to
express an opinion on these financial statements based on my audit.
I conducted an audit in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatements. 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. I believe that my audit
provides a reasonable basis for my opinion.
In my opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated results of
operations and cash flows for the year ended December 31, 1993 of Labor
Ready, Inc. in conformity with generally accepted accounting principles.
Terrence J. Dunne
Certified Public Accountant
February 7, 1994
As restated June 22, 1994
<PAGE>
LABOR READY, INC. Consolidated Balance Sheets
ASSETS
December 31, 1995 1994
- ------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents $ 5,359,113 $ 603,977
Accounts receivable, less allowance
for doubtful accounts of
$868,607 and $365,927 (Notes 2 and 12) 12,182,806 5,162,830
Workers' compensation deposits and
credits (Note 1) 1,886,644 1,337,369
Prepaid expenses and other 602,052 348,814
Deferred income taxes (Note 9) 185,011 118,590
--------- --------
Total current assets 20,215,626 7,571,580
Property and equipment (Note 3):
Buildings and land 1,536,086 366,920
Computers and software 2,005,985 704,150
--------- --------
3,542,071 1,071,070
Less accumulated depreciation 690,648 244,497
Property and equipment, net 2,851,423 826,573
--------- --------
Other assets:
Intangible assets, less amortization
of $114,588 and $69,020 962,632 191,431
Workers' compensation deposits and credits,
less current portion (Note 1) 1,427,905 105,832
Deferred income taxes (Note 9) 530,396 94,366
Other 193,653 122,194
--------- --------
Total other assets 3,114,586 513,823
--------- --------
Total assets (Notes 2 and 4) $26,181,635 $ 8,911,976
- ------------------------------------------------------------------------------
See accompanying summary of accounting policies and notes to consolidated
financial statements
<PAGE>
LABOR READY, INC. Consolidated Balance Sheets
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, 1995 1994
- ------------------------------------------------------------------------------
Current liabilities:
Checks issued against future deposits $ 514,842 $ -
Accounts payable 1,118,081 364,639
Accrued wages and related expenses 1,588,147 821,487
Workers' compensation claims (Note 1) 1,943,338 708,869
Income taxes payable (Note 9) 1,161,000 497,000
Note payable (Note 2) 1,591,206 3,160,580
Current maturities of long-term debt (Note 3) 39,117 78,291
----------- ----------
Total current liabilities 7,955,731 5,630,866
----------- ----------
Long-term liabilities:
Long-term debt, less current maturities (Note 3) 953,937 244,250
Subordinated debt, less unamortized discount
of $1,259,377 (Note 4) 8,740,623 -
Convertible debentures (Note 6) - 75,000
----------- ----------
Total long-term liabilities 9,694,560 319,250
----------- ----------
Total liabilities: 17,650,291 5,950,116
----------- ----------
Commitments and contingencies (Note 10)
Stockholders' equity:
Preferred stock, $0.667 par value (Note 7):
5,000,000 shares authorized; issued
and outstanding 1,281,123 shares 854,082 854,082
Common stock, no par value (Note 8)
25,000,000 shares authorized; issued and
outstanding, 5,879,133 and 4,971,594 shares 7,116,422 3,540,187
Cumulative foreign currency translation adjustment (28,707) (2,853)
Retained earnings (accumulated deficit) 589,547 (1,429,556)
Total stockholders' equity 8,531,344 2,961,860
Total liabilities and stockholders' equity $26,181,635 $ 8,911,976
- ------------------------------------------------------------------------------
See accompanying summary of accounting policies and notes to consolidated
financial statements.
<PAGE>
LABOR READY, INC. Consolidated Statements of Income
Year Ended December 31, 1995 1994 1993
Revenues from services $94,361,62 $38,950,683 $15,658,832
Costs and expenses:
Cost of services 76,642,962 30,712,945 12,400,599
Selling, general and administrative 13,639,034 6,592,555 2,651,702
Interest and other, net 866,113 457,378 353,569
---------- ---------- ----------
Income before taxes on income
and extraordinary item 3,213,520 1,187,805 252,962
Taxes on income (Note 9) 1,151,713 336,000 31,775
---------- ---------- ----------
Income before
extraordinary item 2,061,807 851,805 221,187
Extraordinary item - forgiveness of debt
(net of income tax effect of $24,635) - - 47,821
--------- ---------- ----------
Net income $2,061,807 $ 851,805 $ 269,008
--------- ----------- ----------
Earnings per common share:
Income before extraordinary item $ 0.34 $ 0.18 $0.04
Extraordinary item - - $0.02
--------- ----------- ---------
Net income $ 0.34 $ 0.18 $0.06
---------- ---------- ----------
Weighted average shares outstanding 5,861,500 4,454,883 ,668,585
- ------------------------------------------------------------------------------
See accompanying summary of accounting policies and notes to consolidated
financial statements.
<PAGE>
<TABLE>
<CAPTION>
LABOR READY, INC. Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1995, 1994 and 1993.
Cumulative
Retained Foreign
Earnings Currency
Common Stock Preferred Stock (Accumulated Translation
Shares Amount Shares Amount Deficit) Adjustment
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, Jan. 1, 1993 2,524,902 $1,819,756 1,504,632 $1,003,088 ($2,606,516) $ -
- ------------------------------------------------------------------------------------------------------------------------
Net income for the year - - - - 269,008 -
Common stock exchanged for:
Equipment from related
party 60,000 8,000 - - - -
Notes 142,500 95,000 - - - -
Services 8,100 2,850 - - - -
Real estate 49,341 37,500 - - - -
Software 4,500 7,500 - - - -
Common stock sold
for cash 22,500 11,250 - - - -
Common stock options
exercised 1,079,310 143,908 - - - -
Debentures converted 13,158 10,000 - - - -
Preferred stock dividend - - - - (50,154) -
- ------------------------------------------------------------------------------------------------------------------------
Balance, Dec. 31, 1993 3,904,311 2,135,764 1,504,632 1,003,088 (2,387,662) -
- ------------------------------------------------------------------------------------------------------------------------
Net income for the year - - - - 851,805 -
Debentures converted 356,843 271,200 - - - -
Common stock issued
from private placement 712,440 1,130,223 - - - -
Preferred stock canceled - - (223,509) (149,006) 149,006 -
Common stock canceled
on lapsing subscriptions (3,500) (2,000) - - - -
Common stock issued
for services 1,500 5,000 - - - -
Foreign currency translation - - - - - 2,853)
Preferred stock dividend - - - - (42,705) -
- ------------------------------------------------------------------------------------------------------------------------
Balance, Dec. 31, 1994 4,971,594 3,540,187 1,281,123 854,082 (1,429,556) (2,853)
- ------------------------------------------------------------------------------------------------------------------------
Net income for the year - - - - 2,061,807 -
Common stock issued on
conversion of debt 119,972 382,364 - - - -
Common stock issued
for 401(k) Plan 1,197 7,679 - - - -
Common stock issued
from private placement 14,000 69,998 - - - -
Common stock issued on
warrants exercised 742,370 1,781,100 - - - -
Common stock issued on
the exercise of options 30,000 45,000 - - - -
Detachable stock warrants - 1,290,094 - - - -
Preferred stock dividend - - - - (42,704) -
Foreign currency translation - - - - - (25,854)
- ----------------------------------------------------------------------------------------------------------------------
Balance, Dec. 31, 1995 5,879,133 $7,116,422 1,281,123 $854,082 $589,547 $(28,707)
- -----------------------------------------------------------------------------------------------------------------------
See accompanying summary of accounting policies and notes to consolidated financial statements.
</TABLE>
<PAGE>
LABOR READY, INC. Consolidated Statements of Cash Flows for the Years
Ended December 31, 1995, 1994 and 1993.
Increase (Decrease) in Cash and Cash Equivalents
Year Ended December 31 1995 1994 1993
Cash flows from operating activities:
Net income: $2,061,807 $ 851,805 $ 269,008
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation and amortization 522,436 178,416 65,135
Common stock issued for services - 5,000 2,850
Provision for doubtful accounts 1,084,526 341,799 119,049
Forgiveness of debt, extraordinary - - (72,456)
Deferred income taxes (502,451) (260,000) 47,044
Changes in assets and liabilities:
Accounts receivable (8,104,502) (3,597,793) (1,045,788)
Workers' compensation deposits
and credits (1,871,348) (1,265,962) (177,239)
Prepaid expenses and other (324,697) (234,221) (44,224)
Accounts payable 753,442 239,186 46,353
Accrued wages and benefits 774,339 535,281 188,021
Accrued workers'
compensation claims 1,234,469 458,938 173,038
Income taxes payable 664,000 497,000 (20,717)
- ------------------------------------------------------------------------------
Net cash used in operating activities (3,707,979) 2,250,551) 449,926)
- ------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (2,471,001 (549,959) (176,383)
Intangible assets acquired - (43,501) -
- -----------------------------------------------------------------------------
Net cash used in investing activities (2,471,001) (593,460) (176,383)
- -----------------------------------------------------------------------------
See accompanying summary of accounting policies and notes to consolidated
financial statements.
<PAGE>
LABOR READY, INC. Consolidated Statements of Cash Flows for the Years
Ended December 31, 1995, 1994 and 1993.
Increase (Decrease) in Cash and Cash Equivalents
Year Ended December 31 1995 1994 1993
- ------------------------------------------------------------------------------
Cash flows from financing activities:
Net borrowings on note payable (1,569,374) 2,177,409 163,771
Checks issued against future deposits 514,842 - -
Proceeds from issuance of common stock 69,998 1,130,223 11,250
Proceeds from warrants exercised 1,781,100 - -
Proceeds from options exercised 45,000 - -
Debt issue costs (816,769) - -
Proceeds from stock subscriptions - 79,325 13,675
Proceeds from issuance of
convertible debentures - - 356,200
Borrowings on long-term debt 11,529,951 74,000 10,000
Payments on long-term debt (552,074) (189,221) (103,075)
Dividends paid (42,704) (50,154) -
- ----------------------------------------------------------------------------
Net cash provided by financing activities 10,959,970 3,221,582 451,821
- ----------------------------------------------------------------------------
Effect of exchange rates (25,854) (2,853) -
Net increase (decrease) in cash
and cash equivalents 4,755,136 374,718 (174,488)
Cash and cash equivalents:
Beginning of year 603,977 229,259 403,747
- -----------------------------------------------------------------------------
End of year $5,359,113 $ 603,977 $ 229,259
- -----------------------------------------------------------------------------
Supplemental cash flow information:
Interest paid $1,302,929 $ 513,497 $ 344,302
========== ========= =========
Income taxes paid $ 990,164 $ 99,000 $ 46,552
========== ========= =========
Non-cash investing and financing activities:
Issuance of common stock for subscriptions,
assets and debt - - $ 278,233
=========
Issuance of common stock for conversion
of promissory notes $ 307,364 - -
==========
Contribution of common stock to employer
401(k) plan $ 7,679 - -
==========
Assets acquired in exchange for note - $ 35,000
=========
Debt forgiven - - $ 2,456
=========
Cancellation of preferred stock - $ 149,006 -
=========
Issuance of common stock for conversion
of convertible debentures $ 75,000 $ 271,200 $ 10,000
========== ========= =========
Refinance of note payable, net - $ 2,000 -
=========
See accompanying summary of accounting policies and notes to consolidated
financial statements.
<PAGE>
LABOR READY, INC.
Notes to Consolidated Financial Statements
Organization
The consolidated financial statements include the accounts of Labor Ready,
Inc. and its wholly-owned subsidiary Labour Ready Temporary Services
Limited (collectively referred to as "the Company"). The Company's
principal business activity involves providing temporary help services to
construction and small manufacturing companies in the United States and
Canada. The Company was incorporated under the laws of the State of
Washington on March 19, 1985.
All intercompany balances and transactions have been eliminated in
consolidation.
Revenue recognition
Revenues from services and the related cost of services are recorded in the
period in which the services are performed. Franchise activity and fees
are minimal.
Cash and cash equivalents
The Company considers all highly liquid instruments purchased with a
remaining maturity of three months or less to be cash equivalents.
Property and equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the respective
assets.
Intangible assets
The intangible assets primarily consist of deferred financing costs,
customer lists, and non-compete agreements. The deferred financing costs
resulted from the issuance of subordinated debt. The deferred financing
costs are being amortized over the life of the subordinated debt.
Amortization of the other intangible assets is computed using the straight
line method over periods not exceeding ten years. Management evaluates, on
an ongoing basis, the carrying value of the intangible assets and makes a
specific provision against the asset when an impairment is identified.
Income taxes
The Company accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes". Deferred income taxes are provided for temporary
differences between the financial reporting and tax basis of assets and
liabilities. Deferred taxes are measured using enacted tax rates in effect
in the years in which the temporary differences are expected to reverse.
Tax credits are accounted for as a reduction of income taxes in the year in
which the credit originates.
<PAGE>
LABOR READY, INC.
Notes to Consolidated Financial Statements
Earnings per share
The primary earnings per common share was computed by dividing the net
income less preferred stock dividends by the weighted average number of
shares of common stock and common stock equivalents outstanding for all
periods presented. Fully diluted earnings per share does not differ
materially from primary earnings per share. In 1995, the Company declared
a stock split which has been retroactively applied for 1994 and 1993, in
the determination of the weighted average number of shares of common stock
and common stock equivalents outstanding.
Foreign currency translation
Assets and liabilities of Labour Ready Temporary Services Limited are
translated at the rate of exchange in effect on the balance sheet date;
income and expenses are translated at the weighted average rates of
exchange prevailing during the year. The related translation adjustments
are reflected in the accumulated translation adjustment section of the
stockholders' equity.
Workers' Compensation
The Company is generally self-insured for losses and liabilities related to
workers' compensation claims. The Company establishes for provisions for
future claim liabilities based on the estimates of the ultimate cost of
claims and claim losses (including future claim adjustment expenses) that
have been reported but not settled, and of losses that have been incurred
but not reported. Adjustments to the claims reserve are charged or
credited to expense in the periods in which they are made.
Management's Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported assets and liabilities and disclosures
of contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Advertising Costs
The company adopted Statement of Position 93-7, "Reporting on Advertising
Costs." This statement was issued by the American Institute of Certified
Public Accountants and requires the Company to expense the costs of
advertising as incurred or the first time that the advertising takes place.
The adoption of this standard did not have a significant effect on the
financial statements of the Company.
<PAGE>
LABOR READY, INC.
Notes to Consolidated Financial Statements
Stock-Based Compensation
In October, 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which requires that companies recognize the cost of stock-
based employee compensation plans based on the fair value of the stock
options. SFAS No. 123 is effective for financial statements issued for
fiscal years beginning after December 15, 1995, and is not expected to have
a significant impact on the Company's financial statements.
Accounting for Long-Lived Assets
In March, 1995, the FASB issued SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of." This statement requires that long-lived assets and certain
intangibles to be held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. The measurement of an
impairment loss for long-lived assets and identifiable intangibles that an
entity expects to hold and use should be based on the fair value of the
asset. SFAS No. 121 is effective for financial statements for fiscal years
beginning after December 15, 1995, and is not expected to have a
significant impact on the Company's financial statements.
Reclassification
Certain items in the 1994 and 1993 consolidated financial statements have
been reclassified to conform to the classifications used in 1995.
<PAGE>
LABOR READY, INC.
Notes to Consolidated Financial Statements
NOTE 1 - WORKERS' COMPENSATION CREDITS RECEIVABLE
As required by the laws in the various states in which Labor Ready, Inc.
does business, the Company provides workers' compensation insurance to its
temporary labor force and office staff. Each state has specific workers
compensation programs and requirements regarding the deposit of funds for
the payment of workers compensation claims and related claim settlement and
administrative expenses. In Washington, Nevada and Ohio (the
"monopolistic" states), the Company is required to make payments at a pre-
established rate directly with the state employed workers' compensation
administrator who in turn disburses funds for the settlement of claims and
related expenses. Amounts paid with these state administered programs
which are not expected to be disbursed for claims and claim related
expenses are returned to the Company over a one-year period beginning one
year from the end of the period covered. At December 31, 1995 and 1994,
the Company had recorded workers' compensation deposits and credits
receivables from the monopolistic states of $967,644 and $312,626.
Workers' compensation claims in the remaining states (the "non-
monopolistic" states) are administered by a third party administrator
engaged by the Company. These non-monopolistic states allow a fronting
insurance company to guarantee Labor Ready's ability to pay these claims
and related expenses as they occur, and allow the use of Company managed or
selected claims administrators.
In 1995, the Company deposited $4.6 million with a foreign off-shore
company for the payment of workers' compensation claims and related
expenses on claims originating in the non-monopolistic states. At December
31, 1995, $2.3 million remains on deposit for the payment of future claims
and is recorded as workers' compensation deposits and credits. Estimated
incurred losses and related settlement and administrative expenses to be
paid from those deposits of $1,380,000 are recorded as current workers'
compensation claims payable at December 31, 1995.
In 1994, the workers' compensation for non-monopolistic states was
administered by a domestic third party administrator and insured by the
various states in which the Company employed workers. Workers compensation
expense of $5,907,771 and $3,126,601 was recorded in 1995 and 1994 as a
component of cost of services.
NOTE 2 - NOTE PAYABLE
The Company pledged its accounts receivable to a private financing company
for an accounts receivable revolving credit line. On October 31, 1995, the
Company renegotiated its loan agreement which changed the nature of the
borrowings to an asset based loan limited to the lesser of 80% of eligible
receivables (as defined in the credit agreement) or $5,000,000. Borrowings
under the line, which expires on April 30, 1996, are secured by the
Company's accounts receivable. Interest on borrowings is charged at prime
plus two percent plus a facility fee of one percent per annum and an
administrative fee equal to one-fifth of one percent per month. The
<PAGE>
LABOR READY, INC.
Notes to Consolidated Financial Statements
agreement requires compliance with certain financial covenants principally
relating to working capital, debt to equity, and dividend payment
restrictions. As of December 31, 1995, the Company was in compliance with
the covenants except for the dividend payment restrictions, for which a
waiver was obtained.
Short-term borrowing activity was as follows:
1995 1994
- ------------------------------------------------------------------------------
Balance outstanding at year-end $1,591,206 $3,160,580
Stated interest rate at
year-end, including applicable fees 11.95% 11.25%
Maximum amount outstanding
at any month end $7,731,789 $4,483,762
Average amount outstanding $5,907,364 $2,898,549
Weighted average interest rate
during the year, including applicable fees 16.49% 15.27%
The average amount outstanding and the weighted average interest rate
during the year were computed based upon the average daily balances and
rates.
On February 15, 1996, the Company entered into an agreement with US Bank to
provide Labor Ready, Inc. with a $10,000,000 revolving line of credit with
an interest rate of prime plus one quarter of one percent maturing on
September 30, 1996. At the option of the Company, the interest rate can be
locked at the rate in effect as of the date this option is exercised. This
agreement replaces the Company's former line of credit. The line of credit
will be collateralized by all the Company's accounts, chattel paper,
contract rights and general intangibles.
<PAGE>
LABOR READY, INC.
Notes to Consolidated Financial Statements
NOTE 3 - LONG-TERM DEBT
The Company's long-term debt at December 31 consists of the following:
1995 1994
- ------------------------------------------------------------------------------
Mortgage note payable - secured by a building in Tacoma,
Washington, payable at $4,721 per month through
May, 2005, including interest at 9.71% $523,124 $ -
Mortgage note payable - secured by a building in Tacoma,
Washington, payable at $1,736 per month through
January, 2015, including interest at 8.5% 196,707 -
Mortgage note payable - secured by a building in
Tacoma, Washington, payable at $1,637 per month
through February, 2004, including interest at 8% 112,366 122,589
Mortgage note payable - secured by a building in Kansas
City, Missouri, payable at $988 per month through
June, 2005, including interest at 10.5% 70,757 -
Mortgage note payable - secured by a building in
Kent, Washington, payable at $1,142 per month through
January, 2000, including interest at 9% 46,671 55,000
Mortgage note payable - secured by a building in Kansas
City, Missouri, payable at $601 per month through
March, 2004, including interest at 8% 43,429 46,999
Unsecured note payable to Washington State
Department of Labor & Industries, payable at
$4,342 per month through October, 1996,
including interest at 12%. Paid in full in 1995. - 85,953
Other notes payable - 12,000
- -----------------------------------------------------------------------------
Long-term debt 993,054 322,541
Less current maturities 39,117 78,291
- -----------------------------------------------------------------------------
Total long-term debt $953,937 $244,250
=============================================================================
<PAGE>
LABOR READY, INC.
Notes to Consolidated Financial Statements
Scheduled long-term debt maturities at December 31, 1995 are as follows:
Year ending December 31, Amount
- ------------------------------------------------------------------------------
1996 $ 39,117
1997 45,360
1998 47,690
1999 52,097
2000 43,881
Thereafter 764,909
- ------------------------------------------------------------------------------
Total $ 993,054
==============================================================================
NOTE 4 - SUBORDINATED DEBT
In November, 1995, the Company issued subordinated debt with detachable
stock warrants in exchange for $10,000,000. The debt, which is secured by
substantially all assets of the Company, bears interest at 13% and is to be
repaid in 17 quarterly installments of $588,235 commencing in October 1998.
The Company recorded a debt discount and allocated $1,259,377 of the
proceeds to the value of the detachable stock warrants. (See note 8.) In
connection with arranging the debt agreement, the Company incurred costs of
approximately $800,000, which have been included in other assets and will
be amortized over the life of the debt. The debt agreement contains
various financial covenants, primarily related to minimum net worth,
capital additions and cash flow requirements, with which the Company was in
compliance at December 31, 1995.
Scheduled maturities of the subordinated debentures at December 31, 1995
are as follows:
Year ending December 31, Amount
1996 $ 0
1997 0
1998 588,235
1999 2,352,940
2000 2,352,940
Thereafter 4,705,885
- -----------------------------------------------------------------------------
Total 10,000,000
Less unamortized discount (1,259,377)
- -----------------------------------------------------------------------------
Subordinated debt, net of discount $ 8,740,623
==============================================================================
<PAGE>
LABOR READY, INC.
Notes to Consolidated Financial Statements
NOTE 5 - RELATED PARTY DEBT
In 1995, officers of the Company provided cash in exchange for short term
notes payable. These notes payable were at an interest rate of 12% with
aggregated loans of $424,687. These notes payable were paid in full during
1995.
In January 1993, the officers used $143,908 of the related long-term debt
due related parties outstanding at December 31, 1992 to exercise common
stock options. The officers forgave $72,456 of this debt which is
reflected as an extraordinary item in 1993.
NOTE 6 - CONVERTIBLE DEBENTURES
In 1993, the Company sold $356,200 of convertible debentures. The
debentures were convertible into common stock at prices which increase at
$.09 per year from $.76 per share through June 30, 1994 to $1.13 per share
through June 30, 1998. In 1994, $271,200 of the debentures was converted
into 356,843 shares at $.76 per share. In 1995, the remaining $75,000 of
convertible debentures were converted to 87,893 shares of common stock at
the established conversion rate of $.85.
NOTE 7 - PREFERRED STOCK
The Company has authorized 5,000,000 shares of blank check preferred stock.
The preferred stock is issuable in one or more series, each with such
designations, preferences, rights, qualifications, limitations and
restrictions as the Board of Directors of the Company may determine and set
forth in supplemental resolutions at the time of issuance, without further
shareholder action.
The initial series of preferred stock of the corporation authorized by the
Board of Directors in accordance with the Articles of Incorporation, was
designated as Preferred Stock, Series A. At December 31, 1995 and 1994,
the Company had 1,281,123 outstanding shares of the "Series A" preferred
stock with the following terms:
Par value $.662/3, each share of Series A Preferred stock shall be entitled
to one vote in all matters submitted to a vote of the shareholders of the
Company. The Series A Preferred stock will vote on par with the common
shares as a single class unless the action being considered involves a
change in the rights of the Series A Preferred stock. The Series A
Preferred stock bears a cumulative annual dividend rate of five percent
accrued on December 31 of each year, is redeemable at par value plus
accumulated dividends at the option of the Company at any time after
December 31, 1994 and contains an involuntary preferential liquidation
distribution equivalent to the par value plus all accumulated dividends
remaining unpaid.
<PAGE>
LABOR READY, INC.
Notes to Consolidated Financial Statements
In February, 1996, the Board of Directors authorized a three-for-two
preferred stock split. This preferred stock split was effected in the form
of three shares of preferred stock issued for every two shares of preferred
stock outstanding as of the date of declaration. All applicable share and
per share data have been adjusted for the stock split.
During 1994, 223,509 shares of preferred stock outstanding were canceled as
a result of settlement of litigation. There is no established market for
the Company's preferred stock and management estimated the value of these
canceled shares to be insignificant.
A preferred stock dividend in the amount of $42,704 was accrued December
31, 1995 and 1994, and paid in January, 1996 and 1995.
NOTE 8 - COMMON STOCK
In 1995, the Board of Directors granted options to purchase 54,900 shares
of the Company's common stock at a price equal to 85% of the common stock's
bid price at the date of grant ($5.45 to $13.60), based on a rate of one
option for one share of common stock. These options will vest evenly over
a four year period from the date of grant and generally expire five years
from the date of grant.
In November, 1995, the Board of Directors declared a three-for-two common
stock split. This common stock split was effected in the form of three
shares of common stock issued for every two shares of common stock
outstanding, as of the date of declaration. All applicable share and per
share data have been adjusted for the stock split.
In 1994, the Board of Directors granted options to purchase 226,500 shares
of the Company's common stock. Of these options, 46,500 are exercisable at
85% of the common stock's bid price at the date of grant ($2.27 to $4.82),
based on a rate of one option for one share of common stock. The options
will vest at a rate of 25% annually, beginning one year from the date of
grant and generally expire five years from the date of grant. The
remaining 180,000 of stock options outstanding at December 31, 1994 are
exercisable at prices at or above the common stock's market price at the
date of grant ($1.83 to $5.00), based on a rate of one option for one share
of common stock. These options were fully vested upon grant and expire two
years from the date of grant.
On September 30, and October 31, 1994, respectively, the Company issued
287,700 and 424,740 shares of common stock for $1.67 per share in a private
placement. Included with each share of common stock issued, were detachable
warrants for one share of common stock each. Warrants are exercisable for
three years at a price of $2.50 per share and the warrants are callable at
a price of $2.50 per share.
In connection with the issuance of $10,000,000 of subordinated debt in
1995 (see note 4), the Company issued warrants to purchase 742,370 shares
<PAGE>
LABOR READY, INC.
Notes to Consolidated Financial Statements
of common stock at an exercise price of $11.67 per share. The warrants
expire in October, 2002.
NOTE 9 - INCOME TAXES
Temporary differences which gave rise to the deferred tax assets
(liabilities) at December 31 are:
1995 1994
- -----------------------------------------------------------------------------
Allowance for doubtful accounts $ 323,990 $143,635
Prepaid expenses (161,385) (114,277)
Workers' compensation credits receivable (360,931) (125,050)
Workers' compensation reserves 207,976 153,475
Net operating loss carryforwards 126,985 146,653
Workers' compensation deposits and credits 513,919 -
Vacation accrual 20,515 -
Foreign net operating loss carryforwards 75,166 -
Other, net (30,828) 8,520
- ------------------------------------------------------------------------------
Total deferred tax assets, net 715,407 212,956
Less non-current deferred tax assets, net 530,396 94,366
- ------------------------------------------------------------------------------
Current deferred tax assets, net $185,011 $ 118,590
==============================================================================
The Company has assessed its past earnings history and trends, budgeted
sales, expiration dates of loss carryforwards, and its ability to implement
tax planning strategies which are designed to accelerate or increase
taxable income. Based on the results of this analysis, no valuation
allowance has been established as management believes that it is more
likely than not that the deferred tax asset of $715,407 will be realized.
As of December 31, 1995, the Company has operating loss carryforwards
totaling $340,444, limited to use of $26,188 per year, the majority of
which expire in 2006.
<PAGE>
LABOR READY, INC.
Notes to Consolidated Financial Statements
The provision (benefit) for income taxes consists of:
1995 1994 1993
- -----------------------------------------------------------------------------
Current:
Federal $1,419,728 $ 506,919 $ -
State 234,436 89,081 9,366
- ------------------------------------------------------------------------------
Total current 1,654,164 596,000 9,366
- ------------------------------------------------------------------------------
Deferred:
Federal (482,051) (221,074) 47,044
State (20,400) (38,926) -
- ------------------------------------------------------------------------------
Total deferred (502,451) (260,000) 47,044
- ------------------------------------------------------------------------------
Total taxes on income $1,151,713 $ 336,000 $56,410
==============================================================================
A reconciliation between taxes computed at the United States federal
statutory tax rate, and the consolidated effective tax rate is as follows:
1995 1994 1993
Amount % Amount % Amount %
- -----------------------------------------------------------------------------
Income tax expense based on
statutory rate $1,092,597 34 $ 403,853 34 $ 110,642 34
Increase (decrease) resulting from:
State income taxes, net of
federal benefit 106,046 3 71,268 6
Change in valuation allowance - (157,128) (13)
Utilization of net operating losses
not previously benefited (46,930) (1) - (58,794) (18)
Other, net - 18,007 1 4,562 1
- ------------------------------------------------------------------------------
Total taxes on income $1,151,713 36 $ 336,000 28 $ 56,410 17
==============================================================================
NOTE 10 - COMMITMENTS AND CONTINGENCIES
The Company rents certain properties for temporary labor dispatching
operations. The leases are all short term with ninety day buy-out
provisions and expire at various dates. Certain of these leases require
additional payments for taxes, insurance, maintenance and renewal options.
Lease commitments for 1996 at December 31, 1995 total $358,000. Lease
expenses for 1995, 1994, and 1993 totaled $1,113,000, $380,000, and
$162,000 respectively.
<PAGE>
LABOR READY, INC.
Notes to Consolidated Financial Statements
The Company is involved in various lawsuits arising in the ordinary course
of business which will not, in the opinion of management, have a material
effect on the Company's results of operations.
The Board of Directors entered into an executive employment agreement with
a key officer of the Company. The agreement is for a period of time
commencing on October 31, 1995, and ending December 31, 1998, and which
contains certain restrictions on the covered employee. Officer
compensation under this agreement has been set by the Board at $375,000 per
year and shall be increased annually on the first of each calendar year to
110% of the preceding years' salary.
NOTE 11 - RETIREMENT PLAN
Effective October 1, 1994, the Company established a 401(k) savings plan
for qualifying employees. Employee contributions to the 401(k) plan are
matched by the Company $0.25 for every $1 up to the legal maximum eligible
employee's gross earnings. Employees are eligible the calendar quarter
following the completion of one year of service and are fully vested in the
401(k) plan after five years of service. The amount charged to expense
under the 401(k) plan totaled $48,150 and $7,800 in 1995 and 1994
respectively.
NOTE 12 - VALUATION AND QUALIFYING ACCOUNTS
Allowance for doubtful accounts activity was as follows:
1995 1994
- -----------------------------------------------------------------------------
Balance at beginning of year $ 365,927 $ 149,361
Charged to expense 1,084,526 341,799
Write-offs, net of recoveries (581,846) (125,233)
- -----------------------------------------------------------------------------
Balance at end of year $ 868,607 $ 365,927
=============================================================================
<PAGE>
LABOR READY, INC.
Notes to Consolidated Financial Statements
NOTE 13 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts and fair values of the Company's financial instruments
at December 31, were as follows:
1995 1994
- -----------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- ------------------------------------------------------------------------------
Cash and cash equivalents 5,359,113 5,359,113 603,977 603,977
Short-term borrowings 1,591,206 1,591,206 3,160,580 3,160,580
Long-term debt 993,054 1,012,248 322,541 304,248
Subordinated debt 8,740,623 8,709,000 - -
Warrants - 1,290,000 - -
- ------------------------------------------------------------------------------
The following methods and assumptions were used by the Company in
estimating fair values for financial instruments:
Cash and cash equivalents: The carrying amount reported in the balance
sheets for cash and cash equivalents approximates fair value.
Short-term borrowings: The carrying amounts of the short-term borrowings
approximates fair value due to the short-term maturity of the debt.
Long-term debt: The fair value of the Company's long-term debt is
estimated based on the quoted market prices for the same or similar issues
or on the current rates offered to the Company for debt of the same
maturities.
Subordinated debt: The fair value of the subordinated debt, representing
the amount at which the debt could be exchanged on the open market, are
determined based on the Company's current incremental borrowing rate for
similar types of borrowing arrangements.
Warrants: The fair value of the warrants is based on the difference
between the face value of the related debt and the present value of the
future stream of debt payments.
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures.
There have been no disagreements with the Company's outside auditor on
accounting and financial disclosures during the periods covered by this Form
10-K.
As previously reported on Form 8-K, on June 22, 1994, the Company
engaged BDO Seidman, LLP, as independent accountants to audit the Company's
financial statements as of and for the years ended December 31, 1995 and
1994. BDO Seidman, LLP, replaced Terrence J. Dunne, CPA, as the Company's
independent auditor. Mr. Dunne audited the Company's financial statements for
the year ended December 31, 1993.
PART III
Item 10. Directors and Executive Officers of the Registrant.
Tenure of Directors and Officers
All members of the Board of Directors hold office until the annual
meeting of shareholders or until their successors are duly elected and
qualified. The Executive Officers serve at the pleasure of the Board of
Directors.
Identification of Directors, Officers and Key Employees
Name Age Position
Glenn A. Welstad 52 Director & President
Ronald Junck 48 Director & Secretary
Robert J. Sullivan 65 Director & Treasurer
Thomas McChesney 49 Director
Ralph Peterson 60 Director, Chief Financial Officer, and
Assistant Secretary
Business Experience
The business experience and brief resumes on each of the Directors,
Executive Officers, and significant employees are as follows:
Glenn Welstad: Mr. Welstad is the Chief Executive Officer, Chairman of
the Board of Directors and President of the Company. Mr. Welstad has held that
position since February, 1988. From September , 1969 through March 1984, Mr.
Welstad was active in the restaurant business. Starting with one restaurant in
1969, Mr. Welstad expanded operations and incorporated Northwest Management
Corporation. Doing business in five states and twenty-two locations,
operations included eight Hardees Hamburger Restaurants, as well as pizza and
Mexican restaurants. In March 1984, Mr. Welstad sold all of his outstanding
shares of Northwest Management Corporation to North Central Foods, Inc. From
February, 1987 to March 1989, Mr. Welstad was an officer of Body Toning, Inc.,
W.I.T. Enterprises, and Money Mailer.
Robert J. Sullivan: Mr. Sullivan was elected as a director at the calendar
1994 annual meeting held on July 20, 1995. From November, 1994, until his
election in July, 1995, Mr. Sullivan served as an appointed member of the
Board, serving out the remainder of the term of a former director. Prior to
joining the Board, Mr. Sullivan served for two years in a consulting capacity
for the Company and is familiar with the Company's operations. Mr. Sullivan
has had an extensive career in financial management, as both a CPA-audit
manager, and as a member of the executive office. Most recently, Mr. Sullivan
has served as a business and financial consultant to a number of emerging
growth companies. A listing of Mr. Sullivan's employment history includes:
1957 - 1966, Price Waterhouse & Co. - CPA, audit manager; 1966 - 1968,
American Express Company - Senior Financial Manager; 1968 - 1972, Bush
Universal, Inc. - CFO, New York Stock Exchange Listed Company; 1972 - 1982,
American Express Company - Senior Financial Manager; 1982 - 1985, Cablevision
Systems, Inc. - General Manager and CFO; 1986 - 1987, Financial Consultant to
three companies; 1987 - 1989, Micron Products, Inc. - CFO and later President
of American Stock Exchange listed company - medical products manufacturing and
distribution; 1990 - 1991, Unifast Industries, Inc. - CFO of manufacturing
business; 1992 - 1993, Reserve Supply Company of Long Island - General Manager
of building supplies business; and 1993 -1994, Labor Ready, Inc. - financial
consultant.
Thomas E. McChesney: Mr. McChesney was elected as a Director of the
Company on July 20, 1995. Until July 1995, Mr. McChesney was employed by
Paulson Investment Co. and in this capacity, over the last 19 years managed in
excess 50 offerings, raising over 400 million dollars. In July 1995, Mr.
McChesney left Paulson Investment Co. to open his own investment banking and
consulting firm. Mr. McChesney has served on the Board of Directors of
Paulson Capital Corp. and Paulson Investment Co., both publicly held companies
and currently serves on the Board of Directors of Ciclo Sports, a Portland
based retailer of bicycles.
Ralph E. Peterson: Mr. Peterson was appointed Chief Financial Officer in
January, 1996. Mr. Peterson had served since 1991 as Executive Vice President
and Chief Financial Officer of Rax Restaurant, an Ohio-based restaurant
company that operates and frnachises Rax Roast Beef restaurants in the
Midwest, and operates as a franchisee of the Hardee's hamburger chain in North
Carolina, South Carolina and Georgia. Prior to Rax, Mr. Peterson had served
for 13 years as Executive Vice President and Chief Financial Officer and a
member of the Board of Directors of Hardee's Food Systems, Inc., a restaurant
company operating and franchising 4,000 restaurants located throughout the
United States and abroad.
Ronald Junck: Mr. Junck is an attorney in Phoenix, Arizona. He is a
legal advisor to the Company and is familiar with the Company's operations.
Mr. Junck has practiced law continuously since 1974, specializing in business
law and commercial transactions. He is legal advisor and counsel to a large
number of corporations on a wide range of issues.
Mr. Junck is a member of the Arizona Bar Association and has been
elected to fellowship in the Arizona Bar Foundation. He is licensed to
practice before the Arizona Supreme Court, the U.S. District Courts for
Arizona, the U.S. Court of Appeals for the Ninth Circuit in San Francisco and
the U.S. Claims Court.
<PAGE>
Section 16(a) Compliance.
Section 16(a) of the Securities Exchange Act of 1934 requires the
directors and executive officers, and persons who own beneficially more than
ten percent of the Common Stock of the Company, to file reports of ownership
and changes in ownership, with the Securities and Exchange Commission. Copies
of all reports are required to be furnished to the Company pursuant to Section
16(a). Based on the reports received by the Company, and on written
representations from the reporting persons, the Company believes that the
directors, officers, and greater than ten percent beneficial owners, complied
with all applicable reporting requirements during the year ended December 31,
1995, except as noted below.
Two directors were appointed during the year, and in the course of
implementing the Company's Section 16 Compliance policies, the directors were
not advised of and steps were not taken to assist the Directors in preparing
and filing the Initial Statement of Beneficial Ownership on Form 3. In
addition, because these new directors were not yet included in the compliance
process, certain sales which took place after these individuals became
directors, were not reported on Form 4, Statement of Changes in Beneficial
Ownership, in a timely fashion. Mr. Thomas McChesney's Form 3 was due on July
31, 1995, as a result of his election to the Board of Directors on July 20,
1995. Through an oversight, the Form 3 was not filed until December 5, 1995.
In addition, sales of 2,000 shares on August 24, 1995, 1,000 shares on
September 12, 1995, and 1,000 shares on October 3, 1995, should have been
reported on Form 4's due on September 10, October 10, and November 10, 1995,
respectively. These Form 4's were filed at the same time as the Form 3 on
December 5, 1995. Since filing the delinquent forms, Mr. McChesney has filed
all other required reports in a timely manner. Mr. Robert Sullivan's Form 3
was due on April 25, 1995, but was not filed until December 14, 1995. All
required Form 4's were timely filed by Mr. Sullivan. At this time, to the
knowledge of Management of the Company, all required reports under Section
16(a) have been filed by the Company's officers and directors.
While primary responsibility for Section 16(a) compliance rests with the
reporting persons, the Company anticipates that the implementation of its
Section 16(a) compliance program will substantially alleviate the non-
compliance issues addressed above. The Company has now provided each officer
and director with a Memorandum and various forms designed to assist them in
complying with Section 16(a) in the future.
Item 11. Executive Compensation
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
- ------------------------------------------------------------------------------------------------------------------
Long-term Compensation
----------------------------------------------------
Annual Compensation Awards Payouts
-------------------------------- --------------------------- -----------------------
Other Securities
Annual Restricted Underlying LTIP All Other
Name & Position Year Salary Bonus Compensation Stock Awards Options/SAR's Payouts Compensation
- ------------------ ------ -------- -------- ------------ ------------ ------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Glenn Welstad, 1995 $375,000 0 0 0 0 0 0
CEO, Director 1994 216,653 0 0 0 0 0 0
1993 120,000 0 0 0 459,970 0 0
John Coghlan 1995 $110,558 0 $27,800 0 0 0 0
Former CFO, 1994 59,192 0 $21,400 0 0 0 0
Director Note 1<F1> 1993 30,000 0 $26,400 0 128,446 0 0
<FN>
<F1>
Notes to Summary Compensation Table:
Note (1) The "Other Compensation" listed for John Coghlan includes
$27,800 in 1995, $21,400 in 1994 and $26,400 in 1993, respectively, of
compensation paid for consulting services as the Company's accountant.
Management has represented that the amount paid is comparable to the
cost of such services if rendered by an unrelated party, and the amount
paid is the fair market value of the services received. Effective on
October 31, 1995, Mr. Coghlan converted from an employee of the Company
to a consultant, and resigned as an officer and director of the Corporation.
</FN>
</TABLE>
The Company's Chief Executive Officer and the Chief Financial Officer
received the compensation set forth below during 1995. None of the other
executive officers of the Company received direct compensation in excess of
$100,000 in 1995.
The stock options granted to the named executives in 1993 were
exercised on the date of the grant and the shares have been issued.
Consequently, the executives will realize the value of appreciation in the
shares, if any.
The Company's executives also received $40,080 in 1995, 1994 and 1993
in preferred stock dividends declared payable to the preferred shareholders
in December,1995 1994, and 1993, and paid in January, 1995, 1994, and 1993,
respectively.
The Compensation Committee.
The Company's executive compensation is determined by a compensation
committee comprised of the three members of the Board of Directors.
Compensation is determined by the Directors using comparative statistics
from other temporary help businesses. On January 1, 1994, the Company
entered into employment agreements with its Chief Executive Officer and its
Chief Financial Officer. The terms of the employment agreements were
intended to provide an objective basis on which future compensation can be
determined. The compensation committee determined that the employment
agreements were reasonable at the time executed and that the compensation
formula set out meets the criteria for fair compensation in future periods.
Employment Agreements.
During 1995, the Company negotiated a new employment agreement with
Glenn Welstad, the Company's president, which provides for annual
compensation of $31,250 per month, subject to annual increases on the
anniversary date of the agreement of 10% of the prior periods base salary.
In addition, the employment agreement provides for a bonus, as determined by
the compensation committee, based on Mr. Welstad's performance, and the
overall performance of the Company. This employment agreement replaces the
previous employment agreement between the Company and Mr. Welstad which was
effective on January 1, 1994. The term of Mr. Welstad's employment agreement
runs from October 31, 1995 through December 31, 1998.
Mr. John Coghlan was previously employed by the Company under an
employment agreement dated January 1, 1994. At the time the Company
negotiated a private debt financing in the amount of $10,000,000 in October,
1995, and pursuant to negotiations with the lender, Mr. Coghlan's employment
agreement was voluntarily terminated by the parties and Mr. Coghlan entered
into a consulting agreement with the Company. The consulting agreement
provides for monthly consulting fees not in excess of $12,500 per month
subject to an annual increase of 10% on January 1, 1997 and January 1, 1998.
The agreement also provides for reimbursement of expenses. The term of the
agreement is through December 31, 1998.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Common stock ownership of all directors and officers of the Company and all
persons known by management to be owners of five percent or more of the
Company's outstanding equity securities, as of March 20, 1996, is set forth
below. There are no other individuals known to management to be owners of five
percent or more of the outstanding shares of any class of the Company's
securities. Percentages reflected below are based on 6,029,133 common shares
and 1,281,123 preferred shares outstanding on March 20, 1996. Both share
amounts outstanding reflect a three shares for two forward stock split which
occurred prior to March 20, 1996.
Amount of
Name & Address of Title Beneficial Percent of
Beneficial Owner of Class Ownership Class
- -------------------------- ---------------- ---------- ----------
Glenn Welstad Common Stock 1,263,671 20.9%
2156 Pacific Avenue
Tacoma, Washington 98402 Preferred Stock 872,325 68.1%
Robert Sullivan Common Stock 9,000 *
323 Woodbury Road
Huntington, New York 11743 Preferred Stock -0- 0.0%
Thomas McChesney Common Stock 31,158 *
1118 S.W. Myrtle Drive
Portland, Oregon 97201 Preferred Stock -0- 0.0%
Ronald Junck Common Stock 46,158 *
1202 E. Missouri, #100
Phoenix, Arizona 85014 Preferred Stock -0- 0.0%
Ralph E. Peterson Common Stock 10,000 *
2156 Pacific Avenue
Tacoma, Washington 98402 Preferred Stock -0- 0.0%
John R. Coghlan Common Stock 585,394 9.7%
5102 S. Morrill Lane
Spokane, Washington 99223 Preferred Stock -0- 0.0%
Pauline Ferrell Common Stock 118,302 2.0%
6736 N. 58th.
Scottsdale, Arizona 85253 Preferred Stock 165,032 12.9%
Sandra F. Jacques, Trustee Common Stock -0- 0.0%
M. Jack Ferrell Trust
c/o David Hega Preferred Stock 165,032 12.9%
2800 North Central, # 1100
Phoenix, Arizona 85004
Dwight Enget Common Stock 23,900 *
3400 S. Mill Ave., Ste. 128
Tempe, Arizona 85286 Preferred Stock 78,734 6.1%
All Officers and Directors Common Stock 1,359,987 22.6%
as a group Preferred Stock 872,325 68.1%
* Less than 1%.
Item 13. Certain Relationships and Related Transactions.
During 1995, certain executives of the Company loaned an aggregate of $424,687
to the Company in exchange for short term notes bearing interest at the rate
of 12% per annum. The loans provided short term cash used to cover cash flow
deficits during periods when the Company was experiencing substantial growth.
The loans were paid in full prior to the end of the year, and the Company is
not currently indebted to any of its officers or directors. Management
represented that the loans were on terms at least as favorable as those
available from unrelated third parties.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
The Financial Statements are found on pages 17 through 37 of this Form 10-K.
The Financial Statement Table of Contents is on Page 17. The Exhibit Index is
found on Page 45 of this Form 10-K. Cross references to Financial Statement
Schedules are found on Page 47.
No reports on Form 8-K were filed during the quarter ended December 31, 1995.
SIGNATURES
Pursuant to the requirements of 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.
LABOR READY, INC.
/s/Glenn Welstad 3/29/96
Signature Date
By: Glenn Welstad, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
/s/Glenn Welstad 3/29/96
Signature Date
Glenn Welstad, President and Director
/s/Ralph E. Peterson 3/29/96
Signature Date
Ralph E. Peterson, Chief Financial Officer and Director
/s/Robert Sullivan 3/29/96
Signature Date
Robert Sullivan, Director
/s/Ronald Junck 3/29/96
Signature Date
Ronald Junck, Secretary and Director
/s/Thomas McChesney 3/29/96
Signature Date
Thomas McChesney, Director
<PAGE>
FORM 10-K
Labor Ready, Inc.
EXHIBIT INDEX
Exhibit Number Description Sequential Page
3 Articles of Incorporation & Bylaws *
4 Instruments Defining Rights of Security Holders *
10 Material Contracts
10.1 Note Purchase Agreement **
10.2 Warrant Purchase Agreement **
10.3 Form of Warrant **
10.4 Shareholder Agreement **
10.5 Security Agreement (LR,LRN,LRFD) **
10.6 Intercreditor and Subordination Agreement **
10.7 Executive Employment Agreement between LR
and Glenn A. Welstad **
10.8 Independent Contractor Agreement between LR
and John R. Coghlan **
10.9 Employment Agreement between LR and
Scott Sabo **
11 Computation of Earnings Per Shares **
* As previously filed in the Company's Form 10 Registration
Statement, SEC File No. 0-23828.
** Exhibits filed with the Securities & Exchange Commission
in electronic format under the EDGAR Reporting System. Page
numbers are omitted in accordance with EDGAR Regulations.
Copies of Exhibits may be obtained upon request directed to
Mr. Ralph E. Peterson, Labor Ready, Inc., 2156 Pacific Avenue,
Tacoma, Washington 98402.
NOTE PURCHASE AGREEMENT
This Note Purchase Agreement (this "Agreement"), dated as of
October 31, 1995, is by and among LABOR READY, INC., a Washington
corporation, LABOR READY OF NEVADA, INC., a Washington
corporation, and LABOR READY FRANCHISE DEVELOPMENT CORP. INC., a
Washington corporation (individually and collectively, the
"Company" or the "Companies"), SEACOAST CAPITAL PARTNERS LIMITED
PARTNERSHIP, a Delaware limited partnership ("Seacoast"), and
ALLIED INVESTMENT CORPORATION, a Maryland corporation, ALLIED
INVESTMENT CORPORATION II, a Maryland corporation, and ALLIED
CAPITAL CORPORATION II, a Maryland corporation (collectively, the
"Allied Investors") (Seacoast and the Allied Investors are
collectively referred to herein as the "Purchaser"). Capitalized
terms used in this Agreement are defined in Section 11.1.
To induce Purchaser to purchase the Senior Subordinated
Notes from the Company, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound,
agree as follows.
I. DESCRIPTION OF SENIOR SUBORDINATED NOTES AND COMMITMENT
1.1 Description of Senior Subordinated Notes. The Company will
authorize the issuance and sale of the Senior Subordinated Notes
which shall be dated as of the Closing Date, shall be in the
aggregate original principal amount of $10,000,000, and shall
bear interest at the fixed rate of thirteen percent (13%) per
annum; provided, however, that upon the occurrence of any Event
of Default, and during the continuation thereof, the unpaid
principal amount of the Senior Subordinated Notes shall bear
interest at a rate equal to eighteen percent (18%) per annum.
Interest on the Senior Subordinated Notes shall be computed on
the basis of the actual number of days elapsed over a three
hundred-sixty (360) day year. Each Senior Subordinated Note
shall be substantially in the form attached hereto as Exhibit A.
1.2 Funding.
(a) Subject to the terms and conditions hereof and
on the basis of the representations and warranties hereinafter
set forth, the Company agrees to issue and sell to each
Purchaser, and each Purchaser agrees to purchase from the
Company, a Senior Subordinated Note in the principal amount set
forth beneath the name of such Purchaser on the signature page of
this Agreement. Each Senior Subordinated Note will be delivered
to each respective Purchaser in fully registered form, and shall
be issued in each Purchaser's name or the name of its respective
nominee.
(b) On the Closing Date, the Company shall deliver
to each Purchaser a Senior Subordinated Note in the original
principal amount set forth beneath the name of such Purchaser on
the signature page of this Agreement, and upon receipt thereof
and subject to Section 1.3, each Purchaser shall disburse one
hundred percent (100%) of such principal amount in immediately
available funds to such Persons as the Company shall designate in
writing (the "Principal Amount").
1.3 Commitment Fee. Each Purchaser hereby acknowledges
that the Company has paid to such Purchaser, prior to the date
hereof, a commitment fee equal to the amount set forth each such
Purchaser's name on Schedule 1.3 attached hereto (the "Commitment
Fee"), which fee was fully earned and nonrefundable on the date
of such payment. On or prior to the Closing Date, the Company
shall pay to each Purchaser, in immediately available funds, a
closing fee equal to the amount set forth each such Purchaser's
name on Schedule 1.3 attached hereto (the "Closing Fee"), which
fee shall be payable and deemed fully earned and nonrefundable on
the Closing Date. At closing, each Purchaser will deduct its
portion of the Closing Fee and its portion of all reasonable fees
and expenses of Purchaser's counsel from the Principal Amount to
be disbursed by it on the Closing Date.
1.4 Use of Proceeds. The proceeds from the sale of the
Senior Subordinated Notes shall be used solely: (a) to fund the
Company's bonding requirements for self insured workers'
compensation programs; (b) to finance the expansion of the
Company's business into new dispatch hall locations during the
years ending December 31, 1995 and December 31, 1996; (c) to pay
costs and expenses payable pursuant to this Agreement and the
transactions contemplated hereunder (including, without
limitation, fees, expenses and disbursements of the Purchaser's
counsel and the Company's broker), (d) to provide the Company
with general working capital and (e) to finance up to $400,000 of
costs and expenses associated with the construction of
improvements to the Company's real property facility located at
2156 Pacific Avenue South, Tacoma, Washington 98402.
II. PAYMENT AND PREPAYMENT OF SENIOR SUBORDINATED
OBLIGATIONS
2.1 Principal and Interest Payments. Principal and
interest on each of the Senior Subordinated Notes shall be due
and payable as follows:
(a) Unless otherwise accelerated pursuant to the
terms hereof, principal shall be due and payable in seventeen
(17) installments (each in an equal amount sufficient to fully
amortize the principal balance of such Senior Subordinated Note
in seventeen (17) installments), commencing on the fifth Business
Day of October, 1998, and continuing on the fifth Business Day of
each January, April, July and October thereafter through and
including October 5, 2002, with all remaining unpaid principal
being due and payable in full on Termination Date.
(b) Interest shall be due and payable (i) quarterly
in arrears on the fifth Business Day of each October, January,
April and July, commencing on the fifth Business Day of January,
1995, and (ii) on the Termination Date.
2.2 Optional Prepayments.
(a) At the Company's option, upon notice given as
provided below, the Company may, at any time and from time to
time, prepay all or any part of the principal of the Senior
Subordinated Notes.
(b) Each partial prepayment under this Section 2.2
shall be in a principal amount of not less than $100,000 or, if
greater than $100,000, then in integral multiples of $100,000.
Each prepayment under this Section 2.2 shall be applied first to
accrued interest on the principal amount prepaid, second to
installments of principal in the inverse order of their
maturities, and third to any expenses and/or damages to which
Purchaser may be entitled. The amount of any such prepayment may
not be reborrowed by the Company. The Company shall give notice
of any optional prepayment to Purchaser not less than thirty (30)
days nor more than sixty (60) days before the date for
prepayment, specifying in each such notice the date upon which
prepayment is to be made and the principal amount (together with
accrued interest) to be prepaid on such date. Notice of
prepayment having been so given, the applicable prepayment amount
shall become due and payable on the specified prepayment date.
The Company shall have no right to prepay the Senior Subordinated
Notes except as provided in this Section 2.2 or in Section 2.3.
2.3 Mandatory Prepayments. Any prepayment under this
Section 2.3 shall be applied first to accrued interest, second to
installments of principal in the inverse order of their
maturities and third to any expenses and/or damages for which
Purchaser may be entitled. The amount of any such mandatory
prepayment may not be reborrowed by the Company. The Company
shall make mandatory prepayments in each of the following
circumstances:
(a) If during any fiscal year the Company shall
sell or otherwise dispose of (other than in the ordinary course
of business or a disposition governed by Section 2.3(b) hereof or
a disposition permitted by Section 6.8 or Section 7.3) any
property or properties, then the Company shall prepay the Senior
Subordinated Obligations in an amount equal to the lesser of (i)
the aggregate net cash proceeds of such sales or other
dispositions or (ii) the aggregate amount of all Senior
Subordinated Obligations, such prepayment to be made within five
(5) Business Days of receipt of such net proceeds. The amount of
any prepayment required under this Section 2.3(a) shall be
reduced, if applicable, by the amount of any prepayment required
under the Senior Loan Documents resulting from the same event
triggering the mandatory prepayment required under this Section
2.3(a).
(b) In the event of any sale or other disposition
of all or substantially all of the stock or assets of the Company
or any Significant Subsidiary of the Company in a single
transaction or series of transactions, the Company shall prepay
the Senior Subordinated Notes in an amount equal to the lesser of
(i) the aggregate net cash proceeds of such sales or dispositions
or (ii) the aggregate amount of all Senior Subordinated
Obligations, such prepayment to be made within five (5) Business
Days of receipt of such net proceeds.
(c) In the event of the resignation or termination
of Glenn A. Welstad as Chief Executive Officer of the Company,
the Company shall prepay the Senior Subordinated Obligations in
full, such prepayment to be made within ninety (90) Business
Days from the date of such resignation or termination.
2.4 Additional Payments. Unless otherwise provided
herein or in the Other Agreements, all Senior Subordinated
Obligations, other than principal and interest on the Senior
Subordinated Notes, shall be payable by the Company to the Holder
thereof within thirty (30) days of demand therefor, and shall
bear interest thereafter until paid at the rate of interest then
applicable under Section 1.1. Payment of reasonable fees and
expenses due and payable on the Closing Date to Purchaser and
Purchaser's legal counsel shall be paid in full on the Closing
Date.
2.5 Direct Payment. The Company will pay all sums
becoming due hereunder and on the Senior Subordinated Notes to
each Purchaser at the address specified for each Purchaser on
Annex I hereto, by wire transfer in U.S. Dollars of Federal
Reserve Funds or other immediately available funds, to the
account specified for such Purchaser on Annex I, or at such other
address or in such other form as such Purchaser shall have
designated by notice to the Company at least five Business Days
prior to the date of any payment, in each case without
presentment and without notations being made thereon. All
payments by the Company shall be made without set-off or
counterclaim. Any wire transfer shall identify such payment as
"Labor Ready, Inc., 13% Senior Subordinated Note" and shall
identify the payment as principal, premium, interest and/or
reimbursement of costs and expenses, together with the applicable
date or period to which it relates.
2.6 Payments Payable on Business Days. Payments of all
amounts due hereunder or under the Senior Subordinated Notes
shall be made on a Business Day. Any payment due on a day that
is not a Business Day shall be made on the next Business Day.
2.7 Interest Laws. Notwithstanding any provision to the
contrary contained in this Agreement or any Other Agreement, the
Company shall not be required to pay, and Purchaser shall not be
permitted to contract for, take, reserve, charge or receive, any
compensation which constitutes interest under applicable law in
excess of the maximum amount of interest permitted by law
("Excess Interest"). If any Excess Interest is provided for or
determined by a court of competent jurisdiction to have been
provided for in this Agreement or in any Other Agreement or
otherwise contracted for, taken, reserved, charged or received,
then in such event: (a) the provisions of this Section 2.7 shall
govern and control; (b) the Company shall not be obligated to pay
any Excess Interest; (c) any Excess Interest that Purchaser may
have contracted for, taken, reserved, charged or received
hereunder shall be, at Purchaser's option, (i) applied as a
credit against the outstanding principal balance of the Senior
Subordinated Obligations or accrued and unpaid interest (not to
exceed the maximum amount permitted by law), (ii) refunded to the
payor thereof, or (iii) any combination of the foregoing; (d) the
interest provided for shall be automatically reduced to the
maximum lawful rate allowed from time to time under applicable
law (the "Maximum Rate"), and this Agreement and the Other
Agreements shall be deemed to have been, and shall be, reformed
and modified to reflect such reduction; and (e) the Company shall
have no action against Purchaser for any damages arising due to
any Excess Interest. Notwithstanding the foregoing, if for any
period of time interest on any Senior Subordinated Obligations is
calculated at the Maximum Rate rather than the applicable rate
under this Agreement, and thereafter such applicable rate becomes
less than the Maximum Rate, the rate of interest payable on such
Senior Subordinated Obligations shall remain at the Maximum Rate
until Purchaser shall have received the amount of interest which
Purchaser would have received during such period on such Senior
Subordinated Obligations had the rate of interest not been
limited to the Maximum Rate during such period. All sums paid or
agreed to be paid hereunder or under the Other Agreements for the
use, forbearance or detention of sums due shall, to the extent
permitted by applicable law, be amortized, pro-rated, allocated
and spread throughout the full term of the Senior Subordinated
Obligations until payment in full so that the rate or amounts of
interest on account of the Senior Subordinated Obligations does
not exceed the Maximum Rate. The terms of this Section 2.7 shall
be deemed incorporated into each Other Agreement and any other
document or instrument between the Company and any Purchaser or
directed to the Company by any Purchaser, whether or not specific
reference to this Section 2.7 is made.
2.8 Security. Payment of the Senior Subordinated Notes
and the other Senior Subordinated Obligations, and the
performance of the covenants set forth herein and in the Other
Agreements, will be secured by a perfected security interest,
mortgage, assignment or Lien, as the case may be (subject only to
Permitted Liens), in favor of the Purchaser, in and upon the
Collateral. The Company shall execute, acknowledge and deliver,
and/or cause to be executed, acknowledged and delivered, to each
Purchaser such certificates, stock powers, instruments, security
agreements, pledges, statements, assignments, consents, Lien
waivers, financing statements or amendments thereof, guarantees
and other documents, in form and substance reasonably acceptable
to each such Purchaser, as in each such Purchaser's good faith
belief may be required to grant, enforce, perfect and protect
such security interest, assignments, Liens and mortgages,
including, without limitation, the Security Documents.
2.9 Joint and Several Liability; Rights of Contribution.
(a) Each Company states and acknowledges that: (i)
pursuant to this Agreement, the Companies desire to utilize their
borrowing potential on a consolidated basis to the same extent
possible if they were merged into a single corporate entity; (ii)
it has determined that it will benefit specifically and
materially from the advances of credit contemplated by this
Agreement; (iii) it is both a condition precedent to the
obligations of the Purchaser hereunder and a desire of the
Companies that each Company execute and deliver to the Purchaser
this Agreement; and (iv) the Companies have requested and
bargained for the structure and terms of and security for the
advances contemplated by this Agreement.
(b) Each Company hereby irrevocably and
unconditionally: (i) agrees that it is jointly and severally
liable to the Purchaser for the full and prompt payment of the
Senior Subordinated Obligations and the performance by each
Company of its obligations hereunder in accordance with the terms
hereof; (ii) agrees to fully and promptly perform all of its
obligations hereunder with respect to each advance of credit
hereunder as if such advance had been made directly to it; and
(iii) agrees as a primary obligation to indemnify the Purchaser
on demand for and against any loss incurred by the Purchaser as a
result of any of the obligations of any Company being or becoming
void, voidable, unenforceable or ineffective for any reason
whatsoever, whether or not known to the Purchaser or any Person,
the amount of such loss being the amount which the Purchaser
would otherwise have been entitled to recover from such Company.
(c) It is the intent of each Company that the
indebtedness, obligations and liability hereunder of no one of
them be subject to challenge on any basis. Accordingly, as of
the date hereof, the liability of each Company under this Section
2.9, together with all of its other liabilities to all Persons as
of the date hereof and as of any other date on which a transfer
is deemed to occur by virtue of this Agreement, calculated in
amount sufficient to pay its probable net liabilities on its
existing Indebtedness as the same become absolute and matured
("Dated Liabilities") is, and is to be, less than the amount of
the aggregate of a fair valuation of its assets as of such
corresponding date ("Dated Assets"). To this end, each Company
under this Section 2.9, (i) grants to and recognizes in each
other Company, ratably, rights of subrogation and contribution in
the amount, if any, by which the Dated Assets of such Company,
but for the aggregate of subrogation and contribution in its
favor recognized herein, would exceed the Dated Liabilities of
such Company or, as the case may be, (ii) acknowledges receipt of
and recognizes its right to subrogation and contribution ratably
from each other Company in the amount, if any, by which the Dated
Liabilities of such Company, but for the aggregate of subrogation
and contribution in its favor recognized herein, would exceed the
Dated Assets of such Company under this Section 2.9. In
recognizing the value of the Dated Assets and the Dated
Liabilities, it is understood that the Companies will recognize,
to at least the same extent of their aggregate recognition of
liabilities hereunder, their rights to subrogation and
contribution hereunder. It is a material objective of this
Section 2.9 that each Company recognizes rights to subrogation
and contribution rather than be deemed to be insolvent (or in
contemplation thereof) by reason of an arbitrary interpretation
of its joint and several obligations hereunder.
2.10 Certain Rights and Obligations Among Holders. The
provisions of this Section 2.10 are solely for the benefit of the
Holders, and neither the Company nor any other Person shall have
any rights with respect to or be entitled to enforce this Section
2.10.
(a) Sharing of Payments. If, at any time or times,
a Holder shall not have received a payment on its Senior
Subordinated Note, then it shall notify the other Holders of such
fact, the amount of such nonpayment, the date or period to which
it relates and, subject to the terms of the Senior Subordination
Agreement, such other Holders which have received such payments
shall remit to the unpaid Holder such amount as is necessary to
allocate the aggregate amount of such payments pro rata among all
Holders. The amount of any such remittance shall be credited on
the Senior Subordinated Note of the Holder to whom it is
remitted, and shall not be credited on the Senior Subordinated
Note of the remitting Holder.
(b) Sharing of Prepayments. Subject to the terms
and provisions of the Senior Subordination Agreement, if, at any
time or times, a Holder shall receive a prepayment on its Senior
Subordinated Note, it shall notify the other Holders of the
amount and date of such prepayment. If all other Holders shall
not have received a pro rata prepayment as agreed, the Holder
giving such notice shall remit to the other Holders such amount
as is necessary to distribute such prepayment pro rata among all
Holders. The amount of any such remittance shall be credited on
the Senior Subordinated Note of the Holder to whom it is
remitted, and shall not be credited on the Senior Subordinated
Note of the remitting Holder.
III. REPRESENTATIONS AND WARRANTIES OF PURCHASER
Each Purchaser severally and not jointly represents and
warrants to the Company as follows:
3.1 Existence. It is a limited partnership or
corporation, as the case may be, duly organized, validly existing
and in good standing under the laws of the jurisdiction of its
organization.
3.2 Authority. It has the right and power and authority
to enter into, execute, deliver and perform its obligations under
this Agreement, and its partners, officers or agents executing
and delivering this Agreement are duly authorized to do so. This
Agreement has been duly and validly executed and delivered and
constitutes the legal, valid and binding obligation of such
Purchaser, enforceable in accordance with its terms.
3.3 Investor Status. It (i) is an "accredited
investor," as that term is defined in Regulation D under the
Securities Act of 1933, as amended, and (ii) has such knowledge,
skill, sophistication and experience in business and financial
matters, based on actual participation, that it is capable of
evaluating the merits and risks of the purchase of its Senior
Subordinated Note from the Company and the suitability thereof
for such Purchaser.
3.4 Investment for own Account. Except as otherwise
contemplated by this Agreement, it is acquiring its Senior
Subordinated Note for investment for its own account and not with
a view to any distribution thereof in violation of applicable
securities laws.
3.5 Legend on Notes. Its Senior Subordinated Note will
bear the appropriate legends referencing restrictions on transfer
and will not be offered, sold or transferred in the absence of
registration or exemption under applicable securities laws.
3.6 Access to Information; Due Diligence and Principal
Place of Business. Purchaser has had the opportunity to ask
questions of and receive answers from officers of the Company,
including Glenn A. Welstad and John R. Coghlan, the Company's
President and Chief Executive Officer and Secretary and
Treasurer, respectively, and the Company's accountants and legal
counsel concerning the transactions contemplated hereby and by
the Warrant Documents. Purchaser's principal place of business
is set forth on Annex I hereto. Notwithstanding anything in this
Section 3.6 to the contrary, nothing in this Section 3.6 shall
affect any representation or warranty made by the Company in
Article IV.
IV. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
To induce each Purchaser to enter into this Agreement, the
Company represents and warrants to each Purchaser that the
following statements are true, correct and complete:
4.1. Corporate Existence and Authority. The Company (a)
is a corporation duly organized, validly existing, and in good
standing under the laws of Washington; (b) has all requisite
corporate power and authority to own its assets and carry on its
business as now conducted; and (c) is qualified to do business in
all jurisdictions in which the nature of its business makes such
qualification necessary and where failure to so qualify would
have a Material Adverse Effect. The Company has the corporate
power and authority to execute, deliver, and perform its
obligations under this Agreement, the Senior Loan Documents, and
all Other Agreements to which it is, or in connection with the
transactions contemplated hereby, may become, a party.
4.2 Financial Statements. The Company has delivered to
Purchaser (a) audited consolidated financial statements of the
Company as at and for the fiscal year ended December 31, 1994,
(b) unaudited consolidated financial statements of the Company
for the eight (8) month period ended August 31, 1995, and (c)
cash flow projections and analyses of the Company through
December 31, 1999, together with a written statement of the
assumptions underlying them, which financial statements are
attached hereto as Schedule 4.2. The financial statements
referred to in clauses (a) and (b) of this Section 4.2 are true
and correct in all material respects, have been prepared in
accordance with GAAP (except as otherwise noted therein or on
Schedule 4.2), and fairly present both the financial condition of
the Company as of the respective dates indicated therein and the
results of the Company's operations for the respective periods
indicated therein. The cash flow projections and analyses
referred to in clause (c) of this Section 4.2 fairly present the
Company's best estimate of the future cash flow position of the
Company, based on the Company's historical performance and the
Company's knowledge of its business plans and assumptions
underlying them. It is the Company's good faith belief that such
cash flow projections are reasonably achievable by the Company.
At August 31, 1995, the Company has no liabilities or obligations
(absolute, accrued, contingent or otherwise) of a nature required
by GAAP to be reflected in such financial statements which are,
individually or in the aggregate, material to the condition,
financial or otherwise, or operations of the Company as of that
date which are not reflected on such financial statements. There
has been no material adverse change in the condition, financial
or otherwise, or operations of the Company since August 31, 1995,
nor has there otherwise occurred a Material Adverse Effect.
4.3 Default. Except as disclosed on Schedule 4.3, the
Company is not in default under any loan agreement, indenture,
mortgage, security agreement, lease, franchise, permit, license
or other agreement or obligation to which it is a party or by
which any of its properties may be bound. The Company is paying
its debts as they become due.
4.4 Authorization and Compliance with Laws and Material
Agreements. The execution, delivery and performance by the
Company of this Agreement, the Senior Loan Documents and the
Other Agreements to which it is or may in connection with the
transactions contemplated hereby become a party, have been or
prior to the consummation of such transactions will be duly
authorized by all requisite action on the part of the Company and
do not and will not violate its Articles of Incorporation or
Bylaws or any law or any order of any court, governmental
authority or arbitrator, and, except as set forth on Schedule
4.4, do not and will not upon the consummation of the
transactions contemplated hereby conflict with, result in a
breach of, or constitute a default under, or result in the
imposition of any Lien (except Permitted Liens) upon any assets
of the Company pursuant to the provisions of any loan agreement,
indenture, mortgage, security agreement, franchise, permit,
license or other instrument or agreement by which the Company or
any of its properties is bound. Except as set forth on Schedule
4.4, no authorization, approval or consent of, and no filing or
registration with, any court, governmental authority or third
Person is or will be necessary for the execution, delivery or
performance by the Company of this Agreement, the Senior Loan
Documents, and the Other Agreements to which it is a party or the
validity or enforceability thereof. All such authorizations,
approvals, consents, filings and registrations described in
Schedule 4.4 have been obtained. The Company is not in violation
of any term of its Articles of Incorporation or Bylaws or any
contract, agreement, judgment or decree and is in full compliance
with all applicable laws, regulations and rules.
4.5 Environmental Condition of the Property. Except as
disclosed on Schedule 4.5, to the best of the Company's
knowledge:
(a) The location, construction, occupancy,
operation and use of the Property do not violate any applicable
law, statute, ordinance, rule, regulation, order or determination
of any governmental authority or other body exercising similar
functions, or any restrictive covenant or deed restriction
(recorded or otherwise) affecting the Property, including,
without limitation, all applicable zoning ordinances and building
codes, flood disaster, occupational health and safety laws and
Environmental Laws and regulations (as referred to in this
Section 4.5, collectively, "applicable laws");
(b) Without limitation of clause (a) of this
Section 4.5, neither the Company nor the Property is subject to
any existing, pending or threatened investigation or inquiry by
any governmental authority or subject to any remedial obligations
due to violations of applicable laws;
(c) The Company is not subject to any liability or
obligation relating to (i) the environmental conditions on, under
or about the Property, including, without limitation, the soil
and ground water conditions at the Property, or (ii) the use,
management, handling, transport, treatment, generation, storage,
disposal, release or discharge of any Polluting Substance;
(d) There is no Polluting Substance or other
substance that may pose any risk to safety, health or the
environment on, under or about any Property;
(e) The Company has taken reasonable steps to
determine and hereby represents and warrants that no Polluting
Substances have been disposed of or otherwise released on, onto,
into, or from the Property, and the use which the Company makes
and intends to make of the Property does not and will not result
in the disposal or other release of any Polluting Substances on,
onto, into or from the Property; and
(f) The Company has been issued all required
federal, state and local licenses, certificates or permits
relating to, and the Property, the Company and the Company's
facilities, business, assets, leaseholds and equipment are all in
compliance in all respects with all applicable federal, state and
local laws, rules and regulations relating to, air emissions,
water discharge, noise emissions, solid or liquid waste disposal,
Polluting Substances, or other environmental, health or safety
matters.
4.6 Solvency. After giving effect to the transactions
contemplated by the Senior Loan Agreement, this Agreement and the
Other Agreements, the Company will be solvent, able to pay its
debts as they mature, have capital sufficient to carry on its
business and all businesses in which it is about to engage, and
(a) the assets of the Company, at a fair valuation,
exceed the total liabilities (including contingent, subordinated,
unmatured and unliquidated liabilities) of the Company;
(b) current projections which are based on
underlying assumptions which provide a reasonable basis for the
projections and which reflect the Company's judgment based on
present circumstances, the most likely set of conditions and the
Company's most likely course of action for the period projected,
demonstrate that the Company will have sufficient cash flow to
enable it to pay its debts as they mature; and
(c) the Company does not have an unreasonably small
capital base with which to engage in its anticipated business.
For purposes of clause (a) of this Section 4.6, the "fair
valuation" of the assets of the Company shall be determined on
the basis of the amount which may be realized within a reasonable
time, either through collection or sale of such assets at market
value, deeming the latter as the amount which could be obtained
for the property in question within such period by a capable and
diligent businessman from an interested buyer who is willing to
purchase under ordinary selling conditions.
4.7 Litigation and Judgments. Except as disclosed on
Schedule 4.7, there is no material action, suit, proceeding or
investigation before any court, governmental authority or
arbitrator pending, or to the knowledge of the Company
threatened, against or affecting the Company, this Agreement, the
Senior Loan Documents and/or the Other Agreements. Except as
disclosed on Schedule 4.7, there are no outstanding judgments
against the Company. None of the matters listed on Schedule 4.7
could reasonably be expected to have, either individually or in
the aggregate, a Material Adverse Effect.
4.8 Rights in Properties; Liens. The Company has good
and indefeasible title to all properties and assets reflected on
its balance sheets, and none of such properties or assets is
subject to any Liens, except Permitted Liens. The Company enjoys
peaceful and undisturbed possession under all leases necessary
for the operation of its other properties, assets, and businesses
and all such leases are valid and subsisting and are in full
force and effect. There exists no default under any provision of
any lease which would permit the lessor thereunder to terminate
any such lease or to exercise any rights under such lease which,
individually or together with all other such defaults, could have
a Material Adverse Effect. Except as otherwise set forth on
Schedule 4.8, the Company has the right to terminate each of its
leases upon ninety (90) days prior notice to the respective
landlord. The Company has the exclusive right to use all of the
Intellectual Property necessary to its business as presently
conducted, and the Company's use of the Intellectual Property
does not infringe on the rights of any other Person. To the best
of the Company's knowledge, no other Person is infringing the
rights of the Company in any of the Intellectual Property. The
Company owes no royalties, honoraria or fees to any Person by
reason of its use of the Intellectual Property.
4.9 Enforceability. This Agreement, the Senior Loan
Documents and the Other Agreements to which the Company is a
party, when delivered, shall constitute the legal, valid and
binding obligations of the Company enforceable against the
Company in accordance with their respective terms, except to the
extent that such enforceability may be limited by (a) bankruptcy,
insolvency, reorganization, moratorium or other similar laws
affecting the enforceability of creditor's rights generally, or
(b) general principles of equity.
4.10 Indebtedness. The Company has no Indebtedness,
except Permitted Indebtedness. All Indebtedness owed by the
Company to any Affiliate is set forth on Schedule 4.10.
4.11 Taxes. The Company has filed all tax returns
(federal, state, and local) required to be filed, including,
without limitation, all income, franchise, employment, property,
and sales taxes, and has paid all of its tax liabilities, other
than immaterial amounts and taxes that are being contested by the
Company in good faith by appropriate actions or proceedings
diligently pursued, and for which adequate reserves in conformity
with GAAP with respect thereto have been established to the
reasonable satisfaction of Purchaser. The Company knows of no
pending investigation of the Company by any taxing authority or
pending but unassessed tax liability of the Company. The Company
has made no presently effective waiver of any applicable statute
of limitations or request for an extension of time to file a tax
return, and the Company is not a party to any tax-sharing
agreement.
4.12 Use of Proceeds; Margin Securities. The Company is
not engaged principally, or as one of its important activities,
in the business of extending credit for the purpose of purchasing
or carrying margin stock (within the meaning of Regulations G, T,
U or X of the Board of Governors of the Federal Reserve System),
and no part of the proceeds of any extension of credit under this
Agreement will be used to purchase or carry any such margin stock
or to extend credit to others for the purpose of purchasing or
carrying margin stock. Neither the Company nor any Person acting
on its behalf has taken any action that might cause the
transactions contemplated by this Agreement, the Senior Loan
Documents or any Other Agreements to violate Regulations G, T, U
or X or to violate the Securities Exchange Act of 1934, as
amended.
4.13 ERISA. All members of any Controlled Group have
complied with all applicable minimum funding requirements and all
other applicable and material requirements of ERISA and the Code,
applicable to the Employee Benefit Plans it or they sponsor or
maintain, and there are no existing conditions that would give
rise to material liability thereunder. With respect to any
Employee Benefit Plan, all members of any Controlled Group have
made all contributions or payments to or under each Employee
Benefit Plan required by law, by the terms of such Employee
Benefit Plan or the terms of any contract or agreement. No
Termination Event has occurred in connection with any Pension
Plan, and there are no unfunded benefit liabilities, as defined
in Section 4001(a)(18) of ERISA, with respect to any Pension Plan
which poses a risk of causing a Lien to be created on the assets
of the Company or which will result in the occurrence of a
Reportable Event. No member of any Controlled Group has been
required to contribute to a multiemployer plan, as defined in
Section 4001(a)(3) of ERISA, since September 2, 1974. No
material liability to the Pension Benefit Guaranty Corporation
has been, or is expected to be, incurred by any member of a
Controlled Group. The term "liability," as referred to in this
Section 4.13, includes any joint and several liability. No
prohibited transaction under ERISA or the Code has occurred with
respect to any Employee Benefit Plan which could have a Material
Adverse Effect or a material adverse effect on the condition,
financial or otherwise, of an Employee Benefit Plan.
4.14 Non-Compete Agreements. Purchaser has received a
complete copy of the Non-Compete Agreements and all documents
executed in connection therewith (including all exhibits,
schedules and disclosure letters referred to therein or delivered
pursuant thereto, if any) and all amendments thereto, waivers
relating thereto and other side letters or agreements affecting
the terms thereof. None of such documents and agreements has
been amended or supplemented, nor have any of the provisions
thereof been waived, except pursuant to a written agreement or
instrument which has heretofore been delivered to Purchaser.
4.15 Disclosure. No representation or warranty made by
the Company in this Agreement, the Senior Loan Documents or any
Other Agreement to which the Company is a party contains any
untrue fact or omits to state any material fact necessary to make
the statements herein or therein not misleading. There is no
fact known to the Company which the Company has determined has a
Material Adverse Effect, or which the Company has determined
could have a Material Adverse Effect, that has not been disclosed
in writing to Purchaser.
4.16 Subsidiaries and Capitalization. The Company has
no Subsidiaries except as otherwise set forth on Schedule 4.16.
All the issued and outstanding shares of capital stock of the
Company are duly authorized, validly issued, fully paid and
nonassessable. The capitalization of the Company on the Closing
Date is set forth on Schedule 4.16. No violation of any
preemptive rights of shareholders of the Company has occurred by
virtue of the transactions contemplated under this Agreement, the
Senior Loan Documents or any Other Agreement. Except as
otherwise set forth on Schedule 4.16, there are no outstanding
contracts, options, warrants, instruments, documents or
agreements binding upon the Company granting to any Person or
group of Persons any right to purchase or acquire shares of the
Company's capital stock, except pursuant to the Warrant
Documents.
4.17 Current Locations. Schedule 4.17 identifies (a)
the Company's principal place of business and chief executive
office, (b) all the locations where the Company maintains any
books or records relating to any of its assets, (c) all other
locations where the Company has a place of business, and (d) each
address where any of the Company's assets are located. Schedule
4.17 accurately indicates whether each such location is owned or
leased, and, if leased, identifies the owner or manager of such
location. No Person other than the Company has possession of any
material amount of the assets of the Company except as disclosed
on Schedule 4.17.
4.18 Investment Company Act. Neither the Company nor any
company controlling the Company is required to be registered as
an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
4.19 Public Utility Holding Company Act. The Company is
not a "holding company" or a "subsidiary company" of a "holding
company" or an "affiliate" of a "holding company" or a "public
utility" within the meaning of the Public Utility Holding Company
Act of 1935, as amended.
4.20 Securities Laws. Based in part on the Purchaser's
representations and warranties contained herein, the Company has
complied with or is exempt from the registration and/or
qualification requirements of all federal and state securities or
blue sky laws applicable to the issuance or sale of the Senior
Subordinated Notes.
4.21 Labor Relations. The Company is not involved in
any labor dispute. Except as disclosed on Schedule 4.21, the
Company is not a party to any collective bargaining agreement,
and there are no strikes or walkouts of any of the Company's
employees threatened or in existence and no labor contract is
scheduled to expire during the term of this Agreement.
4.22 Brokers. Neither the Company nor any of its
shareholders has dealt with any broker, finder, commission agent
or other Person in connection with the transactions referenced in
or contemplated by this Agreement, nor is the Company or any of
its shareholders under any obligation to pay any broker's fee or
commission in connection with such transactions, except as set
forth on Schedule 4.22.
4.23 Liens. Purchaser's Liens attaching to the
Collateral and the Mortgaged Property will constitute at all
times valid, perfected and enforceable Liens, subject to no prior
or superior Lien, except Permitted Liens. Before purchase of the
Senior Subordinated Notes, the Company will have taken, or will
have participated with Purchaser in taking, such action
(including making all necessary filings) as requested by the
Purchaser to provide Purchaser with perfected Liens in the
Collateral and the Mortgaged Property under the laws of all
applicable jurisdictions.
4.24 Insurance. Except as otherwise disclosed on
Schedule 4.24 hereto, the amount and types of insurance carried
by the Company, and the terms and conditions thereof, are
substantially similar to the coverage maintained by companies in
the same or similar business as the Company and similarly
situated. The Company has, under the direction of its insurance
carriers, established workers compensation reserves in an amount
sufficient to cover any losses payable under the Company's self
insured workers compensation program.
4.25 Conduct of Business. On the Closing Date, the
Company is engaged only in businesses of the type described in
Schedule 4.25.
4.26 Small Business Concern. The Company is a "small
business concern" as defined in Section 103(5) of the Act, which
for purposes of size eligibility meets the applicable criteria
set forth in Section 121.802(a)(3) of Title 13 of the Code of
Federal Regulations.
4.27 Projections. The projections delivered to
Purchaser in connection herewith and with the Warrant Documents
have been prepared on the basis of the assumptions accompanying
them, and such projections and assumptions, as of the date of
preparation thereof and as of the Closing Date, are reasonable
and represent the Company's good faith estimate of its future
financial performance, it being understood that nothing contained
in this Section 4.27 shall constitute a representation or
warranty that such future financial performance or results of
operation will in fact be achieved.
4.28 Net Income. The Company's net income (determined
in accordance with GAAP) for the period commencing on July 1,
1995 and ending on September 30, 1995 was in excess of One
Million Dollars ($1,000,000).
V. CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER
Each Purchaser's obligations hereunder shall be subject to
(a) the performance by the Company of its obligations hereunder
which by the terms hereof are to be performed at or prior to
delivery of the Senior Subordinated Notes, and (b) the
satisfaction of the following conditions on or before the Closing
Date:
5.1 Effectiveness of Senior Loan Documents. The Senior
Loan Documents have been duly executed and delivered by the
parties thereto and shall be on terms and conditions satisfactory
to Purchaser. All conditions precedent to the making of the
Senior Loans shall have been satisfied or waived with Purchasers'
consent.
5.2 Portfolio Financing Report. The Company shall have
provided Purchaser with all information and documentation that
Purchaser shall have requested in connection with the preparation
and completion of the Portfolio Financing Report on SBA Form
1031.
5.3 Effectiveness of Senior Subordination Agreement.
The Senior Subordination Agreement shall have been duly executed
and delivered by the parties thereto, and shall be on terms and
conditions which are satisfactory to Purchaser.
5.4 No Litigation; Consummation of Transactions. No
injunction, preliminary injunction, or temporary restraining
order shall be threatened or shall exist which prohibits or may
prohibit the transactions contemplated herein or any other
related transaction, and no litigation or similar proceeding
(including, without limitation, any litigation or other
proceeding seeking injunctive or similar relief) shall be
threatened or shall exist with respect to the transactions
contemplated herein, which, if adversely determined, could in the
judgment of Purchaser have a Material Adverse Effect.
5.5 Documents. Purchaser shall have received the
following, each in form and substance satisfactory to Purchaser:
(a) Senior Subordinated Notes. The Senior
Subordinated Notes issued in the name of each Purchaser and duly
executed by the Company;
(b) Warrants and Warrant Documents. The Warrants,
duly issued by the Company to each Purchaser in the denomination
specified on Annex I hereto, along with the other fully executed
Warrant Documents and all other documents and instruments
required pursuant thereto;
(c) Security Documents and Other Agreements. The
Security Documents and all Other Agreements, duly executed by the
parties thereto;
(d) Approvals and Consents. Copies, certified by
the Company of all consents, authorizations, filings, licenses
and approvals, if any, required in connection with the execution,
delivery and performance by the Company, or the validity and
enforceability of, this Agreement, the Senior Loan Documents or
the Other Agreements to which the Company is a party;
(e) Opinion of Counsel to the Company. The written
legal opinions of Brad E. Herr, P.S., general counsel to the
Company, and Preston Gates & Ellis, special counsel to the
Company; and written permission from each other legal counsel
issuing a legal opinion to the Company or the Senior Lender in
connection with this Agreement or the Senior Loan Documents,
authorizing the Purchaser to rely on such opinion;
(f) General Certificate of the Company's Secretary.
A certificate of the Secretary of the Company together with true,
correct and complete copies of the following:
(i) Articles of Incorporation. The Articles
of Incorporation of the Company, including all amendments
thereto, certified by the Secretary of State of the state of its
incorporation and dated within thirty (30) days prior to the
Closing Date;
(ii) Bylaws. The Bylaws of the Company,
including all amendments thereto;
(iii) Resolutions. The resolutions of the Board
of Directors of the Company authorizing the execution, delivery
and performance of this Agreement and the Other Agreements to
which the Company is a party;
(iv) Existence and Good Standing Certificates.
Certificates of the appropriate government officials of the state
of incorporation of the Company as to its existence and good
standing, and certificates of the appropriate government
officials in each state where the Company does business and where
failure to qualify as a foreign corporation would have a Material
Adverse Effect, as to its good standing and due qualification to
do business in such state, each dated within sixty (60) days
prior to the Closing Date; and
(v) Incumbency. The names of the officers of
the Company authorized to sign this Agreement and the Other
Agreements to be executed by the Company, together with a sample
of the true signature of each such officer;
(g) Senior Loan Documents. Copies of the Senior
Loan Documents and each document relating thereto in form and
substance satisfactory to Purchaser, and a certificate of the
Chief Executive Officer and Chief Financial Officer or Treasurer
of the Company certifying that the attached documents are a true,
correct and complete set of the Senior Loan Documents, that all
conditions precedent to funding of the Senior Loans have been met
or waived, and that those transactions have been consummated
prior to or are being consummated simultaneously with the sale of
the Senior Subordinated Note;
(h) Sources and Uses Certificate. A certificate
executed by the Chief Executive Officer and Chief Financial
Officer of the Company, setting forth in reasonable detail the
sources and uses of funds in the transactions contemplated herein
and in the Other Agreements;
(i) Communication with Accountants. Purchaser
shall have received a copy of a letter from the Company addressed
to its accountants authorizing such accountants to disclose to
Purchaser any and all financial information concerning the
Company requested by Purchaser in determining compliance with any
of the financial covenants set forth in Sections 7.10 and 7.11;
(j) Transaction Certificate. A certificate of the
Chief Executive Officer and the Chief Financial Officer of the
Company that, to the best of their knowledge after due
investigation, all conditions precedent to the effectiveness of
this Agreement have been satisfied or waived;
(k) Liens. Evidence satisfactory to Purchaser
that, as of the Closing Date, Purchaser has (other than with
respect to Permitted Liens) a (i) first priority Lien on all
Collateral which is not subject to a Lien in favor of the Senior
Lender and (ii) second priority Lien on all other Collateral;
(l) SBA Documentation. Originals executed by the
Company of each of (i) the Size Status Declaration on SBA Form
480, and (ii) the Assurance of Compliance on SBA Form 652-D;
(m) Non-Compete Agreements. A copy of the Non-
Compete Agreements; and
(n) Additional Information, Other Documents and
Agreements. Such other information, documents, agreements,
commitments and undertakings as Purchaser or Purchaser's counsel
shall reasonably request.
5.6 Material Adverse Change. For the period from June
30, 1995 to the Closing Date, and except for the transactions
contemplated by this Agreement, the Other Agreements, and the
Senior Loan Documents, there shall have been (a) no occurrence or
event which, in Purchaser's opinion, has or could have a Material
Adverse Effect, and (b) no occurrence or event which would lead
the Company or Purchaser to believe that the Company would fail
to meet the cash flow projections delivered to Purchaser pursuant
to Section 4.2.
5.7 No Event of Default. No Event of Default or
Potential Default shall have occurred and be continuing.
5.8 Representations and Warranties. All representations
and warranties contained in this Agreement and the Other
Agreements shall be true and correct on the Closing Date.
VI. AFFIRMATIVE COVENANTS
The Company covenants and agrees that, from the date hereof
and until the Senior Subordinated Obligations have been finally
and irrevocably paid in full in accordance with the terms hereof
and thereof:
6.1 Financial Statements. The Company will furnish to
Purchaser:
(a) As soon as available, and in any event within
ninety (90) days after the end of each fiscal year of the
Company, beginning with the fiscal year ending December 31, 1995,
(i) a copy of the annual report of the Company for such fiscal
year on Form 10-K, containing a balance sheet, statement of
income, statement of stockholders' equity, and statement of cash
flow as at the end of such fiscal year and for the fiscal year
then ended, in each case setting forth in comparative form the
figures for the preceding fiscal year, all in reasonable detail
and audited and certified by BDO Seidman, or other independent
certified public accountants of recognized national standing
selected by the Company, to the effect that such report has been
prepared in accordance with GAAP; (ii) a certificate delivered to
Purchaser by such independent certified public accountants
confirming the calculations set forth in the officers'
certificate delivered to Purchaser simultaneously therewith in
accordance with Section 6.2(a); and (iii) a comparison of the
actual results during such fiscal year to those originally
budgeted by the Company prior to the beginning of such fiscal
year, together with a summary analysis of variances prepared by
the Company's management. The annual audit report required
hereby shall not be qualified or limited. The Company shall
deliver copies of all material reports and correspondence
(including, without limitation, any management letters) sent to
the Company by its independent certified public accountants
promptly upon receipt thereof.
(b) As soon as available, and in any event within
forty-five (45) days after the end of each calendar quarter, a
copy of the Company's Form 10-Q, containing balance sheets,
statements of income, and statements of cash flow, in each case
setting forth in comparative form the figures for the
corresponding period of the preceding fiscal year, together with
a comparison of the actual results during such period to those
originally budgeted by the Company for such period.
(c) As soon as available, and in any event within
thirty (30) days after the end of each calendar month, a copy of
an unaudited financial report of the Company as of the end of
such calendar month and for the portion of the fiscal year then
ended, containing balance sheets, statements of income, and
statements of cash flow, in each case setting forth in
comparative form the figures for the corresponding period of the
preceding fiscal year, together with a comparison of the actual
results during such period to those originally budgeted by the
Company for such period.
(d) On or before thirty (30) days prior to the
beginning of each fiscal year of the Company, an annual budget or
business plan for such fiscal year on a monthly basis, including
projected consolidated and consolidating balance sheets, income
statements, and cash flow statements for each month of such
fiscal year, and, promptly during each fiscal year, all revisions
thereto.
6.2 Certificates; Other Information. The Company will
furnish to Purchaser all of the following:
(a) Concurrently with the delivery of each of the
financial statements referred to in Section 6.1(a) and Section
6.1(b), a certificate of an authorized officer of the Company in
the form of the officer's certificate attached hereto as Exhibit
B (i) stating that no Potential Default or Event of Default has
occurred and is continuing or, if such officer has knowledge of a
Potential Default or Event of Default, the nature thereof and
specifying the steps taken or proposed to remedy such matter,
(ii) showing in reasonable detail the calculations showing
compliance with Sections 7.10 and 7.11, (iii) stating that the
financial statements attached have been prepared in accordance
with GAAP (except as otherwise noted thereon) and fairly and
accurately present (subject to year-end audit adjustments, for
the annual certificates) the financial condition and results of
operations of the Company at the date and for the period
indicated therein, (iv) containing summaries of accounts payable
agings and accounts receivable agings, (v) containing a schedule
of the outstanding Indebtedness for borrowed money of the Company
and its Subsidiaries describing in reasonable detail each such
debt issue or loan outstanding and the principal amount and
amount of accrued and unpaid interest with respect to each such
debt issue or loan, (vi) containing management's discussion and
analysis of the business and affairs of the Company which
includes, but is not limited to, a discussion of the results of
operations compared to those originally budgeted for such period,
and (vii) a report detailing all matters that could reasonably be
expected to have a Material Adverse Effect.
(b) As soon as available, (i) a copy of each
financial statement, report, notice or proxy statement sent by
the Company to its stockholders in their capacity as
stockholders, (ii) a copy of each regular, periodic or special
report, registration statement, or prospectus filed by the
Company with any securities exchange or the Securities and
Exchange Commission or any successor agency, (iii) any material
order issued by any court, governmental authority, or arbitrator
in any material proceeding to which the Company is a party, (iv)
copies of all press releases and other statements made available
generally by the Company to the public generally concerning
material developments in the Company's business, and (v) a copy
of all correspondence and reports sent by the Company to the
Senior Lender outside of the ordinary course of business.
(c) Promptly, such additional information
concerning the Company as Purchaser may reasonably request.
6.3 Books and Records. The Company will keep (a) proper
books of record and account in which full, true and correct
entries will be made of all dealings or transactions of or in
relation to its business and affairs; (b) set up on its books
accruals with respect to all taxes, assessments, charges, levies
and claims; and (c) on a reasonably current basis set up on its
books from its earnings allowances against doubtful receivables,
advances and investments and all other proper accruals
(including, without limitation, by reason of enumeration,
accruals for premiums, if any, due on required payments and
accruals for depreciation, obsolescence, or amortization of
properties), which should be set aside from such earnings in
connection with its business. All determinations pursuant to
this subsection shall be made in accordance with, or as required
by, GAAP consistently applied.
6.4 Financial Disclosure. The Company hereby
irrevocably authorizes and directs all accountants and auditors
employed by it at any time during the term of this Agreement to
exhibit and deliver to Purchaser copies of any of the Company's
financial statements, trial balances or other accounting records
in the accountant's or auditor's possession, and to disclose to
Purchaser any information they may have concerning the Company's
financial status and business operations. The Company will, upon
the request of Purchaser, authorize any federal, state or
municipal authority to furnish to Purchaser copies of reports or
examinations relating to the Company, whether made by the Company
or otherwise.
6.5 Disclosure of Material Matters. The Company will
promptly report to Purchaser all matters materially and adversely
affecting the value, enforceability or collectibility of any
material portion of the Collateral or its business.
6.6 Performance of Obligations. The Company will duly
and punctually pay and perform its obligations under this
Agreement, the Senior Loan Documents and the Other Agreements.
6.7 Preservation of Existence and Conduct of Business.
The Company will preserve and maintain its corporate existence
and all of its leases, privileges, franchises, qualifications and
rights that are necessary or useful in the ordinary conduct of
its business, and conduct its business as presently conducted in
an orderly and efficient manner in accordance with good business
practices.
6.8 Maintenance of Properties. The Company will operate
and maintain in good condition and repair (ordinary wear and tear
excepted) and replace as necessary, all of its assets and
properties which are necessary or useful in accordance with sound
business practices in the proper conduct of its business so that
the value and operating efficiency of its assets and properties
are maintained and preserved. The Company will at all times
maintain the Intellectual Property in full force and effect, and
will defend and protect the Intellectual Property against all
adverse claims.
6.9 Payment of Taxes and Claims. The Company will pay
or discharge, at or before maturity or before becoming delinquent
(a) all taxes, levies, assessments, vault, water and sewer rents,
rates, charges, levies, permits, inspection and license fees and
other governmental and quasi-governmental charges and any
penalties or interest for nonpayment thereof, heretofore or
hereafter imposed or which may become a Lien upon any property
owned by the Company or arising with respect to the occupancy,
use, possession or leasing thereof (collectively the
"Impositions") and (b) all lawful claims for labor, material, and
supplies, which, if unpaid, might become a Lien upon any of its
property; provided, however, the Company will not be required to
pay or discharge any claim for labor, material, or supplies or
any Imposition which is being contested in good faith by
appropriate actions or proceedings diligently pursued, and for
which adequate reserves in conformity with GAAP with respect
thereto have been established to the reasonable satisfaction of
Purchaser.
6.10 Compliance with Laws. The Company will comply with
all acts, rules, regulations and orders of any legislative,
administrative or judicial body or official applicable to the
operation of the Company's business if noncompliance with such
acts, rules, regulations or orders could have a Material Adverse
Effect; provided, however, the Company may contest or dispute any
acts, rules, regulations, orders and directions of those bodies
or officials by appropriate actions or proceedings diligently
pursued, if adequate reserves in conformity with GAAP with
respect thereto are established to the reasonable satisfaction of
Purchaser.
6.11 Payment of Leasehold Obligations. The Company will
at all times pay, when and as due, its rental obligations under
all leases under which it is a tenant or lessee, and shall
otherwise comply, in all material respects, with all other terms
of such leases and keep them in full force and effect and, at
Purchaser's request, will provide evidence of its having done so;
provided, however, the Company may contest or dispute its
obligations under such leases by appropriate actions or
proceedings diligently pursued if adequate reserves in conformity
with GAAP with respect thereto are established.
6.12 Insurance. Except as otherwise disclosed on
Schedule 6.12 hereto, the Company will maintain, with financially
sound, reputable and solvent companies, insurance policies (a)
insuring its assets against loss by fire, explosion, theft and
other risks and casualties as are customarily insured against by
companies engaged in the same or a similar business and (b)
insuring it against liability for personal injury and property
damages relating to its assets, such policies to be in such
amounts and covering such risks as are usually insured against by
companies engaged in the same or a similar business. All general
liability policies shall be endorsed in favor of Purchaser as an
additional insured. The Company shall provide copies of all such
insurance policies to Purchaser within ten (10) days following
Purchaser's request for the same. The Company shall (i) pay, or
cause to be paid, all premiums for such insurance on or before
the date on which such premiums become due, (ii) cause such
policies to require the insurer to give notice to Purchaser of
termination of any such policy at least thirty (30) days before
such termination is to be effective, and (iii) immediately
deliver written notice to Purchaser of any casualty loss
affecting the Collateral. If the Company fails to provide and
pay for any such insurance, Purchaser may, at its option, but
shall not be required to, pay the same and charge the Company
therefor.
6.13 Inspection Rights. Subject to the provisions of
Section 12.15 hereof, at any reasonable time and from time to
time, the Company will permit representatives of Purchaser to
examine and make copies of the books and records of, and visit
and inspect the properties of, the Company, and to discuss the
business, operations, and financial condition of the Company with
its respective officers and employees and with its independent
certified public accountants. Such examinations and inspections
may include, but are not limited to, audits of the application of
proceeds from the Senior Subordinated Notes. In accordance with
the terms of Section 12.1 hereof, the Company will promptly
reimburse Purchaser for all reasonable expenses incurred by
representatives of Purchaser in connection with such inspections.
6.14 Notices. The Company will promptly, but in any
event within (i) fifteen (15) Business Days with respect to
Subsection (a) below and (ii) five (5) Business Days with respect
to Subsections (b) and (c) below after first becoming aware
thereof, notify Purchaser in writing of:
(a) the commencement of any event, including but
not limited to, any action, suit, or proceeding against the
Company, that could have a Material Adverse Effect, which notice
shall specify the nature of such event and what action the
Company has taken or is taking or proposes to take with respect
thereto;
(b) the occurrence of an event of default, or an
event which with the passage of time or giving of notice or both
constitutes an event of default under the Senior Loan Documents
or under any instrument or agreement evidencing any other
Indebtedness of the Company, which notice shall specify the
nature of such event, condition or default and what action the
Company has taken or is taking or proposes to take with respect
thereto; or
(c) The occurrence of a Potential Default or an
Event of Default, which notice shall specify the nature of such
event, condition or default and what action the Company has taken
or is taking or proposes to take with respect thereto.
6.15 Senior Loan Document Amendments. The Company shall
promptly provide Purchaser with copies of all proposed amendments
to the Senior Loan Documents, all other material loan agreements
to which the Company is a party and all other loan agreements to
which the Company is a party that could have a Material Adverse
Effect or in any way impair the Purchaser's Liens on the
Collateral.
6.16 Further Assurances. The Company shall execute and
deliver to Purchaser from time to time, upon demand, such
supplemental agreements, statements, assignments and transfers,
or instructions or documents as Purchaser may request, in order
that the full intent of this Agreement and the Other Agreements
may be carried into effect.
6.17 Compliance with ERISA and the Code. The Company
will comply, and will cause each other member of any Controlled
Group to comply, with all minimum funding requirements, and all
other material requirements, of ERISA and the Code, if
applicable, to any Employee Benefit Plan it or they sponsor or
maintain, so as not to give rise to any liability thereunder.
The Company will pay and will cause each other member of any
Controlled Group to pay when due any amount payable by it to the
Pension Benefit Guaranty Corporation. Promptly after the filing
thereof, the Company shall furnish to Purchaser with regard to
each Employee Benefit Plan, copies of each annual report required
to be filed pursuant to Section 104 of ERISA in connection with
each such plan for each plan year.
6.18 Compliance with Regulations G, T, U and X. Neither
the Company nor any Person acting on its behalf will take any
action which might cause this Agreement, the Senior Subordinated
Note, the Warrant Documents, the Senior Loan Documents or any
Other Agreements to violate, and the Company will take all
actions necessary to cause compliance with, Regulations G, T, U
and X of the Board of Governors of the Federal Reserve System and
the Securities Exchange Act of 1934, in each case as now in
effect or as the same may hereafter be in effect.
6.19 Board Observation and Membership. The Company will
deliver to Purchaser a copy of the minutes of and all materials
distributed at or prior to all meetings of the Board of Directors
of the Company (including, without limitation, meetings of the
executive committee), certified as true and accurate by the
Secretary of the Company, promptly following each such meeting.
The Company will (a) permit Seacoast, so long as Seacoast is a
Holder, to designate one (1) Observer who shall be entitled to
attend all meetings of the Company's Board of Directors and
shareholders as an observer, (b) permit the Allied Investors,
collectively, so long as any Allied Investor is a Holder, to
designate one (1) Observer who shall be entitled to attend all
meetings of the Company's Board of Directors and shareholders as
an observer (provided that if a representative of Purchaser is
serving as a member of the Company's Board of Directors,
Purchaser shall be allowed to collectively designate only one (1)
Observer), (c) provide such Observers not less than twenty one
(21) calendar days' actual notice of all regular meetings of the
Company's Board of Directors and shareholders and two (2)
Business Days' actual notice via facsimile of all special
meetings of the Company's Board of Directors (provided that the
approval at a duly-called meeting of the Company's Board of
Directors of a schedule of dates of future regular meetings of
the Company's Board of Directors shall satisfy the notice
requirements of this Subsection (c) if (i) the Observer(s) is/are
in attendance at such meeting and (ii) the approved schedule of
dates is clearly reflected in the minutes of the meeting), (d)
permit Purchaser to collectively designate one (1) person to
serve as a member of the Company's Board of Directors; provided,
however, that the Purchaser will not have any obligation to
designate or cause such individuals to serve on the Company's
Board of Directors, and (e) provide to such designees a copy of
all materials distributed at such meetings or otherwise to the
Board of Directors of the Company. Any failure by the Purchaser
to designate such persons pursuant to Subsection (d) above will
not constitute a failure to comply with this Agreement or result
in any liability to the Purchaser. Such meetings shall be held
in person at least quarterly, and the Company will cause its
Board of Directors to call a meeting at any time upon the request
of any such designated observer on two (2) occasions per calendar
year on seven (7) calendar days' actual notice to the Company.
The Company agrees to compensate such individuals referred to in
Subsection (d) above in the same manner as each of the other
members of the Company's Board of Directors and agrees to
reimburse each individual referred to in Subsections (a), (b) and
(d) above for all reasonable expenses incurred in traveling to
and from such meetings and attending such meetings.
6.20 Environmental Costs.
(a) The Company hereby indemnifies and holds
Purchaser harmless from and against any liability, loss, damage,
suit, action or proceeding pertaining to solid or hazardous waste
materials or other waste-like or toxic substances, including, but
not limited to, claims of any federal, state or municipal
government or quasi-governmental agency or any third person,
whether arising under any federal, state or municipal law or
regulation, or tort, contract or common law that relates to the
Company.
(b) To the extent the laws of the United States or
any state in which property, leased or owned, of the Company
provide that a Lien upon the property of the Company may be
obtained for the removal of Polluting Substances which have been
released, no later than sixty (60) days after notice is given by
Purchaser to the Company, the Company shall deliver to Purchaser
a report issued by a qualified, third party environmental
consultant selected by the Company and approved by Purchaser as
to the existence of any Polluting Substances located upon or
beneath the specified property, leased or owned by the Company.
To the extent any such Polluting Substance is located therein or
thereunder that either (i) subjects the property to Lien or (ii)
requires removal to safeguard the health of any Person, the
Company shall remove, or cause to be removed, such Lien and such
Polluting Substance at the Company's expense.
6.21 The Act. At the request any Purchaser, the Company
will promptly correct any defect, error, or omission with respect
to the Act which may be discovered in the contents of this
Agreement or the Other Agreements or in the execution or
acknowledgment thereof, and will execute, acknowledge and deliver
such further instruments and do such further acts as may be
reasonably necessary for this Agreement and the Other Agreements,
and all transactions contemplated thereby, to comply with the
Act.
6.22 Key-Man Life Insurance. The Company will maintain
and pay for a key-man life insurance policy in the amount of at
least $1,000,000 on the life of Glenn A. Welstad, such life
insurance policy to be issued by a life insurance company
reasonably satisfactory to the Purchaser. Promptly after the
Closing Date, the Company will use its best efforts to procure,
maintain and pay for an additional key-man life insurance policy
in the amount of at least $4,000,000 on the life of Glenn A.
Welstad, such life insurance policy to be issued by a life
insurance company reasonably satisfactory to the Purchaser.
6.23 Non-Compete Agreements. The Company will at all
times maintain the Non-Compete Agreements in full force and
effect, and will diligently enforce the Non-Compete Agreements
against any parties thereto who violate or attempt to violate the
terms of such Non-Compete Agreements.
VII. NEGATIVE COVENANTS
The Company covenants and agrees that from the date hereof
until the Senior Subordinated Obligations have been finally and
irrevocably paid in full in accordance with the terms hereof and
thereof:
7.1 Indebtedness. The Company will not create, incur,
issue, assume, guarantee or otherwise become liable for any
Indebtedness except (a) Permitted Indebtedness; (b) any
extension, renewal or refinancing of any Permitted Indebtedness
(other than the Senior Loans) on such terms and conditions as
are, on the whole, no more onerous to the Company than the terms
and conditions of such Permitted Indebtedness on the date of such
extension, renewal or refinancing; and (c) any replacement or
refinancing of the Senior Loans; provided that (i) the interest
rate on such refinancing shall be no greater than the interest
rate provided for in the Senior Loan Agreement in effect on the
date hereof, (ii) the Company will not incur any term
Indebtedness in connection with any replacement or refinancing of
the Senior Loans, (iii) the amount so replaced or refinanced
shall be no greater than an amount equal to eighty percent (80%)
of the Company's billed Eligible Accounts, (iv) the collateral
security for such replacement or refinancing does not extend to
assets other than those contemplated by the Senior Loan Agreement
in effect on the date hereof (and proceeds thereof) and (v) the
other terms and conditions of such replacement or refinancing
are, on the whole, no more onerous to the Company than the terms
of the Senior Loan Agreement in effect on the date hereof. Any
Permitted Indebtedness which is subordinated to the Senior
Subordinated Obligations shall continue to be subordinated to the
Senior Subordinated Obligations on terms and conditions
satisfactory to Purchaser.
7.2 Limitation on Liens. The Company will not incur,
create, assume, or permit to exist any Lien upon any of its
property, assets, or revenues, including, but not limited to, its
shares of capital stock of each of its Subsidiaries, whether now
owned or hereafter acquired, except Permitted Liens.
7.3 Merger, Acquisition, Dissolution and Sale of Assets.
The Company will not (a) become a party to any merger or
consolidation if the Purchase Price for the assets to be acquired
in connection with any such merger or consolidation would exceed,
when combined with the Purchase Price of all other Acquisitions
consummated during any calendar year, ten percent (10%) of the
Company's Net Worth (determined as of the first day of such
calendar year), (b) purchase or otherwise acquire all or a
substantial part of the assets of any Person or any shares or
other evidence of beneficial ownership of any Person if the
Purchase Price for the assets or shares to be acquired in
connection with any such acquisition would exceed, when combined
with the Purchase Price of all other Acquisitions consummated
during any calendar year, ten percent (10%) of the Company's Net
Worth (determined as of the first day of such calendar year), (c)
dissolve or liquidate, (d) form or acquire any Significant
Subsidiary, or (e) without Purchaser's prior written consent,
sell, assign or transfer any of its assets (except assets
reasonably and in good faith determined by the Company to be
obsolete or no longer necessary to the Company's business).
7.4 Negative Pledge. Until payment and performance in
full of all of the Senior Subordinated Obligations and
termination of this Agreement, the Company will not, without
Purchaser's prior written consent, pledge or suffer to exist any
Lien (except for Permitted Liens) on any part of its assets.
7.5 Restricted Payments. The Company will not at any
time make or become obligated to make, directly or indirectly,
any (a) declaration of any dividend on, or any other payment or
distribution in respect of, any shares of capital stock of the
Company (except for the payment of an annual cumulative dividend
of not more than five percent (5%) on the Preferred Stock, but
only if no Potential Default or Event of Default (A) shall have
occurred and be continuing at the time any such dividend is
declared or paid or (B) would arise as a result of the
declaration or payment of any such dividend), (b) payment or
distribution on account of the purchase, repurchase, redemption,
put, call or other retirement of any shares of the Company or of
any warrant, option or other right to acquire such shares (except
pursuant to the Warrant Documents or the Kemper Agreement), or
(c) payment or distribution on account of any Indebtedness of the
Company which is subordinate to the Senior Subordinated Note,
except Permitted Indebtedness.
7.6 Loans and Investments. Except for Permitted
Investments or except as otherwise permitted by Section 7.3, the
Company will not make any advance, loan, extension of credit, or
capital contribution to or investment in, or purchase any stock,
bonds, notes, debentures, or other securities of any Person.
7.7 Transactions with Affiliates. Except as
contemplated by this Agreement and the Other Agreements, the
Company will not enter into any transaction with any director,
officer, employee, shareholder, or Affiliate of the Company
except transactions (including those permitted by Section 7.6, if
any) that are (i) approved by the Company's Board of Directors
and, (ii) upon terms which are fair and reasonable and which are
at least as favorable as would result in a comparable arm's-
length transaction with a Person not a director, officer,
employee, shareholder or Affiliate of the Company.
7.8 Nature of Business. The Company will not engage in
any business other than the businesses set forth on Schedule
4.25, or any business reasonably related thereto.
7.9 Modification of Senior Loan Agreement. The Company
will not agree or consent to any modification, amendment or
waiver of any of the terms or provisions of the Senior Loan
Documents in effect on the date hereof without Purchaser's prior
written consent, which consent will not be unreasonably withheld.
7.10 Capital Expenditures. The Company will not make
any Capital Expenditures if, as a result thereof, the Capital
Expenditures of the Company in the aggregate would, as a result
thereof, exceed the following maximum aggregate amounts for any
of the corresponding periods set forth below:
Period Amount
January 1, 1995 - December 31, 1995 $3,000,000
January 1, 1996 - December 31, 1996 $4,000,000
January 1, 1997 - December 31, 1997 $5,000,000
January 1, 1998 - December 31, 1998 $5,000,000
January 1, 1999 - December 31, 1999 $5,000,000
January 1, 2000 - December 31, 2000 $5,000,000
January 1, 2001 - December 31, 2001 $5,000,000
January 1, 2002 - October 30, 2002 $5,000,000
In the event that the Company enters into a capital lease with
respect to fixed assets, for purposes of calculating Capital
Expenditures under this Section 7.10, the lesser of (a) the
aggregate amount of the present value of all minimum payments
(excluding executory costs) due for the entire term of such
capital lease or (b) the cost of such fixed asset at the
inception of such capital lease shall be considered expended in
full on the date that the Company enters into such capital lease.
7.11 Financial Covenants.
(a) Minimum Net Worth. At all times during the
periods set forth below, the Company shall not permit its Net
Worth to be less than the amounts set forth below for the period
corresponding thereto:
Period Minimum Net Worth
Closing Date - December 31, 1995 $ 6,000,000
January 1, 1996 - September 30, 1996 $ 6,000,000
October 1, 1996 - December 31, 1996 $ 8,000,000
January 1, 1997 - December 31, 1997 $10,000,000
January 1, 1998 - December 31, 1998 $15,000,000
January 1, 1999 - December 31, 1999 $20,000,000
January 1, 2000 and thereafter $25,000,000
(b) Minimum Cash Flow Coverage Ratio. The Company
shall not permit its Minimum Cash Flow Coverage Ratio to be or
become less than 2.0 to 1.0, measured as of the last day of each
calendar quarter for the twelve-month period ending on the last
day of such calendar quarter.
(c) Maximum Indebtedness to Net Worth Ratio. The
Company shall not permit its Maximum Indebtedness to Net Worth
Ratio to exceed the ratios set forth below, measured as of the
end of the calendar quarters specified below:
Calendar Quarter Ratio
December 31, 1995 3.0 to 1.0
Last day of each calendar quarter from
January 1, 1996 through December 31, 1996 3.0 to 1.0
Last day of each calendar quarter thereafter 2.0 to 1.0
7.12 Remuneration. The Company will not permit (a) the
base compensation (including, without limitation, all salary,
employee benefits and professional, consulting and management
fees) paid by the Company to either of Glenn A. Welstad or John
R. Coghlan to exceed (i) with respect to the Company's fiscal
year ending December 31, 1995, the amounts set forth on Schedule
7.12 hereto, and (ii) with respect to any fiscal year of the
Company thereafter, an amount greater than one hundred ten
percent (110%) of the amount permitted to be paid under this
Section 7.12(a) during the preceding fiscal year of the Company,
or (b) the payment of any bonuses (or other incentive
compensation or commissions, whether direct or indirect) by the
Company to either of Glenn A. Welstad or John R. Coghlan, unless
(i) the payment of such bonuses (or other incentive compensation)
is approved by the compensation committee of the Company's Board
of Directors (and such compensation committee is comprised of
Persons other than Glenn A. Welstad and John R. Coghlan), (ii)
the aggregate amount of such bonuses (or other incentive
compensation) does not exceed $200,000 during any fiscal year of
the Company and (iii) no Potential Default or Event of Default
exists at the time any such bonuses (other incentive
compensation) are approved or would exist after giving effect to
any such payments.
7.13 Modification of Non-Compete Agreement. The Company
will not agree to any modification, amendment or waiver of any of
the terms or provisions of the Non-Compete Agreement without
Purchaser's prior written consent.
7.14 Use of Proceeds. The Company will not use the
proceeds of the sale of the Senior Subordinated Notes for any
purpose except as set forth in Section 1.4.
7.15 Going Private. The Company will not enter into a
Rule 13e-3 transaction within the meaning of Section 13e-3(a)(3)
of the Exchange Act.
7.16. Junior Debt Documents. The Company will not agree
or consent to any modification, amendment or waiver of any of the
terms or provisions of the Junior Debt Documents as in effect on
the date hereof without Purchaser's prior written consent.
VIII. EVENTS OF DEFAULT AND REMEDIES THEREFOR
8.1 Events of Default. The occurrence of any one or
more of the following events shall constitute an "Event of
Default":
(a) The Company or the Guarantor shall fail to pay,
when due (whether upon acceleration or otherwise), any principal,
interest or other sums payable under the Senior Subordinated
Notes or this Agreement, or shall fail to pay, when due (whether
upon acceleration or otherwise), any other Senior Subordinated
Obligations;
(b) The Company or the Guarantor shall fail to pay
when due and after passage of any applicable notice and cure
periods (whether upon acceleration or otherwise), any
Indebtedness (excluding the Senior Loans) in excess of $250,000
in the aggregate;
(c) The Company shall fail to perform or observe
any agreement, covenant, term or condition contained in the
Senior Subordinated Notes or in Sections 6.1, 6.2, 6.7, 6.13,
6.14, 6.19, or in Article VII of this Agreement;
(d) The Company shall fail to perform or observe
any agreement, covenant, term or condition contained in this
Agreement (excluding the specific Sections and Article referred
to in Section 8.1 (c) above), and such failure shall continue for
a period of thirty (30) days after the later to occur of (i) the
initial occurrence of such failure or (ii) the date that any
Responsible Officer first becomes aware of the occurrence of such
failure;
(e) The Company or the Guarantor shall fail to
comply, after giving effect to any applicable notice or cure
periods, with any material agreement, indenture, mortgage, deed
of trust, or other agreement binding on it or affecting its
properties or business, including, without limitation, the Senior
Loan Documents and the Other Agreements to which the Company is a
party;
(f) Any representation, warranty or other material
information whatsoever made or provided by the Company or the
Guarantor in connection with this Agreement or otherwise to
induce Purchaser to purchase the Senior Subordinated Notes or the
Warrants was incorrect or misleading in any respect, when made;
(g) The Company or the Guarantor shall become
subject to an Event of Bankruptcy;
(h) Any judgment or order for payment of money
shall be rendered against the Company or the Guarantor which
exceeds $250,000 and either (i) enforcement proceedings shall
have been commenced by any creditor upon such judgment or order,
or (ii) there shall be a period of thirty (30) consecutive days
during which a stay of enforcement of such judgment or order, by
reason of a pending appeal or otherwise, shall not be in effect;
(i) The occurrence or existence of any event of
default under the Senior Loan Documents, except for such defaults
as have been waived by the Senior Lender;
(j) The Guarantor shall revoke or attempt to revoke
the Guaranty Agreement, or shall repudiate its liability
thereunder or shall fail to observe or comply with any of the
terms thereof; or
(k) The occurrence of a change in control of the
Company (excluding a material change in ownership arising solely
from the exercise of the Warrants).
8.2 Remedies of Holders upon Occurrence of Event of
Default. When any Event of Default described in Section 8.1
above, other than any Event of Default described in clause (g)
thereof, has occurred and is continuing, any Purchaser may (in
addition to any other right, power or remedy permitted to such
Purchaser by law) declare the entire amount of the Senior
Subordinated Obligations owing to it, including, without
limitation, the entire principal and all interest accrued then
outstanding under its Senior Subordinated Note, to be, and the
same shall thereupon become, forthwith due and payable, without
any presentment, demand, protest, notice of default, notice of
intention to accelerate, notice of acceleration or other notice
of any kind, all of which are hereby expressly waived, and in
such event the Company shall (subject to the terms of the Senior
Subordination Agreement) forthwith pay to such Purchaser an
amount equal to one hundred percent (100%) of the amount thereof.
When any Event of Default described in clause (g) of Section 8.1
above shall occur, all of the Senior Subordinated Obligations,
including, without limitation, the entire principal and all
accrued interest then outstanding under the Senior Subordinated
Notes, shall thereupon be forthwith due and payable without any
presentment, demand, protest, notice of default, notice of
intention to accelerate, notice of acceleration or other notice
of any kind (including any notice by the Holders of the Senior
Subordinated Notes), all of which are hereby expressly waived by
the Company, and the Company will (subject to the terms of the
Senior Subordination Agreement) forthwith pay to Purchaser an
amount equal to one hundred percent (100%) of the amount thereof.
Notwithstanding anything to the contrary in this Section 8.2, any
action taken under this Section 8.2 will be deemed binding and
effective (i) with respect to Seacoast, if such action is
approved by not less than fifty percent (50%) of the Holders of
the Senior Subordinated Notes held by Seacoast on the date hereof
and (ii) with respect to the Allied Investors, if such action is
approved by not less than fifty percent (50%) of the Holders of
the Senior Subordinated Notes held by the Allied Investors on the
date hereof.
8.3 Joint Action by Holders after Default. The
provisions of this Section 8.3 are solely for the benefit of the
Holders, and neither the Company nor any other Person shall have
any rights with respect to or be entitled to enforce this Section
8.3. If, at any time or times, the Company shall be in default
under the Senior Subordinated Notes, this Agreement or any Other
Agreement, the Holders shall consult one another before taking
any action with respect to such default and shall attempt to
agree on the action to be taken to protect all Holders' interests
and/or enforce their rights and remedies. To the extent the
Holders agree on such matters, all expenses incurred and all
amounts realized shall be apportioned among the Holders, pro
rata, and reimbursed by the Company as provided in this
Agreement.
8.4 Annulment of Acceleration. The provisions of the
foregoing Section 8.2 are subject to the condition that, if all
or any part of the Senior Subordinated Obligations have been
declared or have otherwise become immediately due and payable by
reason of the occurrence of any Event of Default, any Purchaser
may, by written instrument delivered to the Company (an
"Annulment Notice"), rescind and annul such declaration and the
consequences thereof as to its Senior Subordinated Note, provided
that (a) at the time such Annulment Notice is delivered no
judgment or decree has been entered for the payment of any monies
due pursuant to such Senior Subordinated Obligations in
connection therewith, and (b) all arrears of interest and all
other sums payable on such Senior Subordinated Obligations in
connection therewith (except any principal or interest which has
become due and payable solely by reason of such declaration under
Section 8.2 hereof) shall have been duly paid or deferred by the
Holder of the Senior Subordinated Obligations agreeing to such
rescission and annulment; and provided further, that no such
rescission and annulment shall extend to or affect any subsequent
default or Event of Default or impair any right consequent
thereto, and shall not be deemed a waiver of the Event of Default
giving rise to the acceleration unless specifically waived in
writing by the Purchaser consenting to such rescission and
annulment.
8.5 Payment of Senior Subordinated Obligations. Subject
to the terms of the Senior Subordination Agreement, Purchaser
shall have the right, which is absolute and unconditional, to
receive payment of the principal of and interest on such Senior
Subordinated Notes and payment of all other Senior Subordinated
Obligations on the date when due and, upon the occurrence and
continuance of an Event of Default, to institute suit against the
Company for the enforcement of any such payment. Such rights
shall not be impaired without Purchaser's prior written consent.
8.6 Remedies. Subject to the terms of the Senior
Subordination Agreement, if any Event of Default shall occur and
be continuing, each and every Holder may exercise any right or
remedy it has at law, in equity or under this Agreement or any
Other Agreement. No right or remedy conferred upon or reserved
to Purchaser under this Agreement or any Other Agreement is
intended to be exclusive of any other right or remedy, and every
right and remedy shall be cumulative and in addition to every
other right or remedy given hereunder or now or hereafter
existing under any applicable law. Every right and remedy given
by this Agreement or by applicable law to Purchaser may be
exercised from time to time and as often as may be deemed
expedient by Purchaser.
8.7 Conduct No Waiver. No course of dealing on the part
of any Purchaser, nor any delay or failure on the part of any
Purchaser to exercise any of its rights, shall operate as a
waiver of such right or otherwise prejudice any Purchaser's
rights, powers and remedies. If the Company fails to pay, when
due, the principal of or the interest on, the Senior Subordinated
Notes, or fails to comply with any other provision of this
Agreement, the Company shall pay to the Holder, to the extent
permitted by law, on demand, such further amounts as shall be
sufficient to cover the cost and expenses, including, but not
limited to, reasonable attorney's fees, incurred by Purchaser in
collecting any sums due on the Senior Subordinated Notes or in
otherwise enforcing any of Purchaser's rights.
IX. SUBORDINATION
Notwithstanding any provision in this Agreement to the
contrary, the Indebtedness evidenced by the Senior Subordinated
Notes shall be subordinate in right of payment to all regularly
scheduled payments of principal and interest with respect to
Senior Debt, and Purchaser's rights and remedies hereunder shall
be subordinate to the rights and remedies of the Senior Lender,
in accordance with the terms of the Senior Subordination
Agreement. Nothing contained in this Article IX or elsewhere in
this Agreement, in the Senior Subordinated Notes or the Senior
Subordination Agreement is intended to or shall impair, as
between the Company and Purchaser, the obligations of the
Company, which are absolute and unconditional, to pay to
Purchaser the principal of and interest on the Senior
Subordinated Notes and all other Senior Subordinated Obligations
as and when the same shall become due and payable in accordance
with their terms, or is intended to or shall affect the relative
rights of Purchaser and creditors of the Company other than the
holders of the Senior Debt, nor shall anything herein or therein
prevent Purchaser from exercising all remedies otherwise
permitted by applicable law upon an Event of Default under this
Agreement.
X. FORM OF SENIOR SUBORDINATED NOTES, REGISTRATION, TRANSFER
AND REPLACEMENT
10.1 Form of Senior Subordinated Notes. The Senior
Subordinated Notes initially delivered under this Agreement will
be fully registered notes on the books of the Company. The
Senior Subordinated Notes are issuable only in fully registered
form in such denominations as are requested by each Purchaser.
Each Senior Subordinated Note shall contain the following legend:
THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO
OR FOR SALE IN CONNECTION WITH THE DISTRIBUTION HEREOF. THIS
NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS, AND MAY NOT BE PLEDGED,
SOLD, OFFERED FOR SALE, TRANSFERRED, OR OTHERWISE DISPOSED OF IN
THE ABSENCE OF REGISTRATION UNDER OR EXEMPTION FROM SUCH ACT AND
ALL APPLICABLE STATE SECURITIES LAWS.
THIS NOTE IS SUBJECT TO THE TERMS AND PROVISIONS OF A NOTE
PURCHASE AGREEMENT, DATED AS OF OCTOBER 31, 1995, BY AND AMONG
LABOR READY, INC., LABOR READY OF NEVADA, INC. AND LABOR READY
FRANCHISE DEVELOPMENT CORP. INC. (INDIVIDUALLY AND COLLECTIVELY,
THE "COMPANY"), SEACOAST CAPITAL PARTNERS LIMITED PARTNERSHIP,
ALLIED INVESTMENT CORPORATION, ALLIED INVESTMENT CORPORATION II
AND ALLIED CAPITAL CORPORATION II (AS SUCH AGREEMENT MAY BE
SUPPLEMENTED, MODIFIED, AMENDED, OR RESTATED FROM TIME TO TIME,
THE "AGREEMENT"). COPIES OF THE AGREEMENT ARE AVAILABLE AT THE
CHIEF EXECUTIVE OFFICES OF THE COMPANY.
THE TRANSFER OF AND ANY PAYMENTS ON THIS NOTE ARE RESTRICTED BY
AND SUBJECT TO THE TERMS AND PROVISIONS OF, AN INTERCREDITOR AND
SUBORDINATION AGREEMENT DATED AS OF OCTOBER 31, 1995, BY AND
AMONG CONCORD GROWTH CORPORATION, SEACOAST CAPITAL PARTNERS
LIMITED PARTNERSHIP, ALLIED INVESTMENT CORPORATION, ALLIED
INVESTMENT CORPORATION II AND ALLIED CAPITAL CORPORATION II (AS
SUCH AGREEMENT MAY BE SUPPLEMENTED, MODIFIED, AMENDED OR RESTATED
FROM TIME TO TIME), A COPY OF WHICH IS ON FILE AT THE CHIEF
EXECUTIVE OFFICES OF THE COMPANY.
10.2 Senior Subordinated Notes Register. The Company
shall cause to be kept at the principal office a register for the
registration and transfer of the Senior Subordinated Notes. The
names and addresses of the Holder of the Senior Subordinated
Notes, the transfer thereof and the name and address of the
transferee of such Senior Subordinated Note shall be recorded in
such register.
10.3 Issuance of New Senior Subordinated Notes upon
Exchange or Transfer. Upon surrender for exchange or
registration of transfer of a Senior Subordinated Note at the
office of the Company designated for notices in accordance with
Section 12.3 hereof, the Company shall execute and deliver, at
its expense, one or more new Senior Subordinated Notes of any
authorized denomination requested by the Holder of the
surrendered Senior Subordinated Note, each dated the date to
which interest has been paid on the Senior Subordinated Note so
surrendered (or, if no interest has been paid, the date of such
surrendered Senior Subordinated Note), but in the same aggregate
unpaid principal amount as such surrendered Senior Subordinated
Note, and registered in the name of such Person or Persons as
shall be designated in writing by such Holder. Every Senior
Subordinated Note surrendered for registration of transfer shall
be duly endorsed, or be accompanied by a written instrument of
transfer duly executed, by the Holder of such Senior Subordinated
Note or by his attorney duly authorized in writing.
10.4 Replacement of Senior Subordinated Notes. Upon
receipt of evidence satisfactory to the Company of the loss,
theft, mutilation or destruction of any Senior Subordinated Note
and, in the case of any such loss, theft or destruction, upon
delivery of a bond of indemnity in such form and amount as shall
be reasonably satisfactory to the Company or, in the event of
such mutilation upon surrender and cancellation of such Senior
Subordinated Note, the Company, without charge to the Holder
thereof, will make and deliver a new Senior Subordinated Note of
like tenor and the same series in lieu of such lost, stolen,
destroyed or mutilated Senior Subordinated Note. If any such
lost, stolen or destroyed Senior Subordinated Note is owned by
any Purchaser or any other Holder whose credit is satisfactory to
the Company, then the affidavit of an authorized officer of such
owner setting forth the fact of loss, theft or destruction and of
its ownership of such Senior Subordinated Note at the time of
such loss, theft or destruction shall be accepted as satisfactory
evidence thereof, and no further indemnity shall be required as a
condition to the execution and delivery of a new Senior
Subordinated Note, other than a written agreement of such owner
(in form reasonably satisfactory to the Company) to indemnify the
Company.
XI. INTERPRETATION OF AGREEMENT
11.1 Certain Terms Defined. When used in this
Agreement, the terms set forth below are defined as follows:
"Acquisitions" means, with respect to the Company, any
purchase of, or investment in, any assets or stock of any Person
(whether by asset purchase, stock purchase, merger, consolidation
or otherwise).
"Act" means the Small Business Investment Act of 1958, as
amended and in effect from time to time, and the regulations
promulgated thereunder.
"Affiliate" means any Person directly or indirectly
controlling, controlled by, or under common control with, the
Person in question. A Person shall be deemed to control a
corporation if such Person possesses, directly or indirectly, the
power to direct or cause the direction of the management and
policies of such corporation, whether through the ownership of
voting securities, by contract, or otherwise.
"Agreement" means this Note Purchase Agreement, including
all schedules and exhibits hereto, as the same may be modified,
supplemented, extended and/or amended from time to time.
"Allied Investors" is defined in the opening paragraph.
"Annulment Notice" is defined in Section 8.4.
"Business Day" means each day of the week except Saturdays,
Sundays, and days on which banking institutions are authorized by
law to close in the Commonwealth of Massachusetts.
"Capital Expenditures" means expenditures made and
liabilities incurred for the acquisition of any fixed assets or
improvements, replacements, substitutions or additions thereto
which have a useful life of more than one (1) year, including,
but not limited to, the direct or indirect acquisition of such
assets or incurrence of such expenses by way of increased product
or service charges, offset items or otherwise and payments with
respect to capitalized lease obligations.
"Closing Date" means October 31, 1995.
"Closing Fee" is defined in Section 1.3.
"Code" means the Internal Revenue Code of 1986, as amended
and in effect from time to time, and the regulations promulgated
thereunder.
"Collateral" is defined in Section 2 of the Security
Agreement.
"Commitment Fee" is defined in Section 1.3.
"Company" means Labor Ready, Inc., a Washington corporation
and, unless the context requires otherwise, shall include its
Subsidiaries, if any.
"Controlled Group" means any group of organizations within
the meaning of Section 414(b), (c), (m) or (o) of the Code of
which the Company is a member.
"Dated Assets" is defined in Section 2.9.
"Dated Liabilities" is defined in Section 2.9.
"EBITDA" means, for any period of determination, (a) net
income; plus, (b) in each case, to the extent deducted in
determining net income for such period (i) taxes, (ii) interest
expenses and (iii)amortization and depreciation and similar non-
cash charges; and minus (c) to the extent included in determining
net income for such period, extraordinary gains, all calculated
in accordance with GAAP.
"Eligible Accounts" means accounts created by the Company in
the ordinary course of its business which are and remain
acceptable to Purchaser for lending purposes. Purchaser will
deem the Company's accounts to be Eligible Accounts if:
(a) such accounts arise from bona fide completed
transactions and have not remained unpaid for more than ninety
(90) days after the invoice date;
(b) the amounts of the account reported to Purchaser are
absolutely owing to the Company and do not arise from sales on
consignment, guaranteed sale or other terms under which payment
by the account debtors may be conditional or contingent;
(c) the account debtor's chief executive office or
principal place of business is located in the United States or
Canada;
(d) such accounts do not arise from progress billings or
retainages or bill and hold sales;
(e) there are no contra relationships, setoffs,
counterclaims or disputes existing with respect thereto and there
are no other facts existing or threatened which would impair or
delay the collectibility of all or any portion thereof;
(f) the goods giving rise thereto were not at the time
of the sale subject to any liens except those permitted in this
Agreement and the Senior Loan Agreement;
(g) such accounts are not accounts with respect to which
the account debtor or any officer or employee thereof is an
officer, employee or agent of or is affiliated with the Company,
directly or indirectly, whether by virtue of family membership,
ownership, control, management or otherwise;
(h) such accounts are not accounts with respect to which
the account debtor is the United States or any State or political
subdivision, unless there has been compliance with the Assignment
of Claims Act or any similar State or local law, if applicable;
(i) The Company has delivered to the Purchaser or the
Purchaser's representative such original documents as the
Purchaser may have requested in connection with such accounts and
the Purchaser shall have received a verification of such account,
satisfactory to it, if sent to the account debtor or any other
obligor or any bailee;
(j) there are no facts existing or threatened which
might result in any adverse change in the account debtor's
financial condition;
(k) such accounts owned by a single account debtor or
its affiliates do not represent more than twenty percent (20%) of
all otherwise Eligible Accounts (accounts excluded from Eligible
Accounts solely by reason of this Subsection (k) shall
nevertheless be considered Eligible Accounts to the extent of the
amount of such accounts which does not exceed twenty percent
(20%) of all otherwise Eligible Accounts;
(l) such accounts are not owned by an account debtor who
is or whose affiliates are past due upon other accounts owed to
the Company comprising more than twenty-five percent (25%) of the
accounts of such account debtor or its affiliates owed to the
Company; and
(m) such accounts are owed by account debtors whose
total indebtedness to the Company does not exceed the amount of
any customer credit limits as established, and changed, from time
to time by the Purchaser on notice to the Company (accounts
excluded from Eligible Accounts solely by reason of this
Subsection (m) shall nevertheless be considered Eligible Accounts
to the extent the amount of such accounts does not exceed such
customer credit limit).
"Employee Benefit Plan" means any employee benefit plan, as
defined in Section 3(3) of ERISA, which is, previously has been
or will be established or maintained by any member of a
Controlled Group.
"Environmental Laws" means all federal, state, or local
laws, ordinances, rules, regulations, interpretations and orders
of courts or administrative agencies or authorities relating to
pollution or protection of the environment (including, without
limitation, ambient air, surface water, ground water, land
surface, and subsurface strata), and other laws relating to (a)
Polluting Substances or (b) the manufacture, processing,
distribution, use, treatment, handling, storage, disposal, or
transportation of Polluting Substances.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended and in effect from time to time, and the
regulations promulgated thereunder.
"Event of Bankruptcy" means any of (a) the filing by a
Person of a voluntary petition in bankruptcy under any provision
of any bankruptcy law or a petition to take advantage of any
insolvency act, (b) the admission in writing by the Company of
its inability to pay its debts generally as they become due, (c)
the appointment of a receiver or receivers for all or a material
part of a Person's assets with the consent of such Person, (d)
the filing of any bankruptcy, arrangement or reorganization
petition by or, with the consent of a Person, against such Person
under any provision of any bankruptcy law, (e) a receiver,
liquidator or trustee of a Person or a substantial part of its
assets shall be appointed pursuant to the Federal Bankruptcy Code
by the order of a court of competent jurisdiction which shall not
be dismissed or stayed within thirty (30) days, or (f) an
involuntary petition to reorganize or liquidate a Person pursuant
to the Federal Bankruptcy Code shall be filed against such Person
and shall not be dismissed or stayed within 30 days.
"Event of Default" is defined in Section 8.1.
"Excess Interest" is defined in Section 2.7.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder.
"GAAP" means generally accepted accounting principles,
applied on a consistent basis, as set forth in Opinions of the
Accounting Principles Board of the American Institute of
Certified Public Accountants and/or in statements of the
Financial Accounting Standards Board and/or their respective
successors and which are applicable in the circumstances as of
the date in question, provided, that the Company may not change
the use or application of any accounting method, practice or
principle without the prior written consent of Purchaser, which
consent may require that an adjustment be made to any and all the
financial covenants and the capital expenditure covenant set
forth herein. Accounting principles are applied on a "consistent
basis" when the accounting principles observed in a current
period are comparable in all material respects to those
accounting principles applied in a preceding period.
"Guarantor" means Labour Ready Temporary Services, Ltd., a
corporation organized under the laws of the Province of British
Columbia, Canada.
"Guaranty Agreement" means the Unconditional Guaranty
Agreement dated as of the Closing Date executed by Guarantor for
the benefit of the Purchaser.
"Holder" when used in reference to the Senior Subordinated
Notes and/or the Senior Subordinated Obligations, means the
Person or Persons who, at the time of determination, is the
lawful owner of all or a portion of the Senior Subordinated Notes
or an obligee of all or a portion of the Senior Subordinated
Obligations.
"Impositions" is defined in Section 6.9.
"Indebtedness" means for any Person: (a) all indebtedness,
whether or not represented by bonds, debentures, notes,
securities, or other evidences of indebtedness, for the repayment
of money borrowed, (b) all indebtedness representing deferred
payment of the purchase price of property or assets, (c) all
indebtedness under any lease which, in conformity with GAAP, is
required to be capitalized for balance sheet purposes and leases
of property or assets made as a part of any sale and lease-back
transaction if required to be capitalized, (d) all indebtedness
under guaranties, endorsements, assumptions, or other contractual
obligations, including any letters of credit, or the obligations
in respect of, or to purchase or otherwise acquire, indebtedness
of others, (e) all indebtedness secured by a Lien existing on
property owned, subject to such Lien, whether or not the
indebtedness secured thereby shall have been assumed by the owner
thereof, (f) trade accounts payable more than [120] days past
due, (g) all amendments, renewals, extensions, modifications and
refundings of any indebtedness or obligations referred to in
clauses (a), (b), (c), (d) or (e), excluding trade accounts
payable in the ordinary course of business.
"Intellectual Property" means all patents, patent rights,
patent applications, licenses, inventions, trade secrets, know-
how, proprietary techniques (including processes and substances),
trademarks, service marks, trade names and copyrights.
"Kemper Agreement" means that certain agreement between the
Company and Everen Securities, Inc., formerly known as Kemper
Securities, Inc., dated as of February 21, 1995, as amended on
October 3, 1995, providing for the payment by the Company to
Everen Securities, Inc. of a private placement fee and for the
issuance by the Company to Everen Securities, Inc. of warrants to
purchase 40,000 shares of the Company's common stock, pursuant to
the terms and conditions thereunder.
"Junior Debt Documents" means, collectively, that certain
(a) Convertible Promissory Note dated May 8, 1995, in the
original principal amount of $100,000, executed by Labor Ready,
Inc. and payable to the order of Norman H. Schroth, (b)
Convertible Promissory Note dated May 18, 1995, in the original
principal amount of $100,000, executed by Labor Ready, Inc. and
payable to the order of Willis Glinz, and (c) Convertible
Promissory Note dated May 22, 1995, in the original principal
amount of $100,000, executed by Labor Ready, Inc. and payable to
the order of William C. Newton.
"Lien" means any lien, mortgage, security interest, tax
lien, pledge, encumbrance, financing statement, or conditional
sale or title retention agreement, or any other interest in
property designed to secure the repayment of Indebtedness or any
other obligation, whether arising by agreement, operation of law,
or otherwise.
"Material Adverse Effect" means (a) a material adverse
effect upon the business, operations, properties, assets or
condition (financial or otherwise) of the Company taken as a
whole or (b) the impairment of the ability of any party to
perform its obligations under this Agreement or any of the Other
Agreements to which it is a party or of Purchaser to enforce or
collect any of the Senior Subordinated Obligations. In
determining whether any individual event would result in a
Material Adverse Effect, notwithstanding that such event does not
of itself have such effect, a Material Adverse Effect shall be
deemed to have occurred if such event and all other then existing
events would result in a Material Adverse Effect.
"Maximum Indebtedness to Net Worth Ratio" means at any date
of determination thereof, the ratio of the Company's (a)
Indebtedness to (b) Net Worth.
"Maximum Rate" is defined in Section 2.7.
"Minimum Cash Flow Coverage Ratio" means at any date of
determination thereof, the ratio of (a) EBITDA to (b) an amount
equal to (i) interest expense for the period ending on such date
on all of the Company's Indebtedness plus (ii) all principal
payments made on all of the Company's Indebtedness during such
period.
"Mortgaged Property" means the Company's real property
located at 2156 Pacific Avenue South, Tacoma, Washington,
together with all improvements constructed thereon and all
fixtures affixed thereto.
"Net Worth" means at any date of determination thereof, the
aggregate amount of (i) all assets of the Company, less (ii) the
aggregate amount of all liabilities of the Company, all as
determined in accordance with GAAP.
"Non-Compete Agreements" means, collectively, (a) those
certain Employment and Non-Compete Agreements, dated on or about
October 31, 1995, by and between the Company and each of Glenn A.
Welstad and Scott Sabo, (b) that certain Consulting and Non-
Compete Agreement, dated on or about October 31, 1995, by and
between the Company and John R. Coghlan, and (c) any other non-
compete agreement hereafter entered into by and between the
Company and any other officer, employee or consultant of the
Company, together with all renewals, modifications, amendments or
supplements thereto.
"Observer" means any person appointed by Purchaser who is
entitled pursuant to the terms of Section 6.19 to attend meetings
of the Company's Board of Directors or Shareholders as an
observer.
"Other Agreements" means the Senior Subordinated Note, the
Warrant Documents, the Security Documents and all other
agreements, instruments and documents (including, without
limitation, notes, guarantees, powers of attorney, consents,
assignments, contracts, notices, subordination agreements and all
other written matter), and all renewals, modifications and
extensions thereof, whether heretofore, now or hereafter executed
by or on behalf of the Company and delivered to and for the
benefit of Purchaser or any Person participating with Purchaser
in the Senior Subordinated Notes with respect to this Agreement
or any of the transactions contemplated by this Agreement.
"Pension Plan" means any employee pension benefit plan, as
defined in Section 3(2) of ERISA, which is, was or will be
established or maintained by any member of the Controlled Group.
"Permitted Indebtedness" means (a) any Indebtedness in
favor of the Senior Lender not greater than eighty percent (80%)
of the Company's billed Eligible Accounts, (b) any Indebtedness
in favor of Purchaser under this Agreement and/or the Other
Agreements and created pursuant thereto, (c) presently existing
or hereafter arising purchase money Indebtedness incurred by the
Company to finance the acquisition of capital assets by the
Company, subject to the limitations placed on Capital
Expenditures in Section 7.10, (d) any presently existing or
hereafter arising unsecured Indebtedness which is subordinate in
the right of payment of the Senior Subordinated Obligations, and
(e) the other Indebtedness set forth on Schedule 11.1(a) and
approved by Purchaser.
"Permitted Investments" means the following:
(a) securities issued or directly and fully guaranteed
or insured by the United States Government or any agency or
instrumentality thereof (provided that the full faith and credit
of the United States Government is pledged in support thereof),
having maturities of not more than twelve (12) months from the
date of acquisition;
(b) time deposits and certificates of deposit (i) of any
commercial bank incorporated in the United States of recognized
standing having capital and surplus in excess of $100,000,000
with maturities of not more than twelve months from the date of
acquisition or (ii) which are fully insured by the Bank Insurance
Fund with maturities of not more than twelve (12) months from the
date of acquisition;
(c) commercial paper issued by any Person incorporated
in the United States rated at least A-1 or the equivalent thereof
by Standard & Poor's Corporation or at least P-1 or the
equivalent thereof by Moody's Investors Service, Inc. and in each
case maturing not more than twelve (12) months after the date of
acquisition;
(d) investments in money market funds substantially all
of whose assets are comprised of securities of the types
described in clauses (a) through (c) above; or
(e) investments in, or purchases of, one or more
Subsidiaries provided that the aggregate investment in, or
Purchase Price for, any such Subsidiaries does not exceed, when
combined with the Purchase Price of all other Acquisitions
consummated in any calendar year, ten percent (10%) of the
Company's Net Worth (determined as of the first day of such
calendar year).
"Permitted Liens" means (a) Liens in favor of the Senior
Lender under the Senior Loan Agreement in effect on the date
hereof or created pursuant thereto, (b) Liens in favor of
Purchaser under the Security Documents, (c) Liens securing
purchase money Indebtedness incurred to finance the acquisition
of capital assets by the Company, subject to the limitations
placed on Capital Expenditures in Section 7.10 hereof, but only
so long as (i) such Lien attaches only to the asset so financed,
(ii) the Indebtedness secured by such Lien does not exceed one
hundred percent (100%) of the purchase price, including
installation and freight, of the asset so financed and (iii) no
Potential Default or Event of Default has occurred and is
continuing, (d) Liens for property taxes not yet due, (e)
materialmen's, mechanics', worker's, repairmen's, employees' or
other like Liens arising against the Company in the ordinary
course of business, in each case which are either not delinquent
or are being contested in good faith and by appropriate actions
or proceedings conducted with due diligence and for the payment
of which adequate reserves in accordance with GAAP have been
established with respect thereto to the reasonable satisfaction
of Purchaser and (f) Liens disclosed on Schedule 11.1(b) and
approved by Purchaser.
"Person" means any individual, sole proprietorship,
corporation, business trust, unincorporated organization,
association, company, partnership, joint venture, governmental
authority (whether a national, federal, state, county,
municipality or otherwise, and shall include without limitation
any instrumentality, division, agency, body or department
thereof), or other entity.
"Polluting Substances" means all pollutants, contaminants,
chemicals, or industrial, toxic or hazardous substances or wastes
and shall include, without limitation, any flammable explosives,
radioactive materials, oil, hazardous materials, hazardous or
solid wastes, hazardous or toxic substances or related materials
defined in the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, the Superfund Amendments and
Reauthorization Act of 1986, the Resource Conservation and
Recovery Act of 1976, the Hazardous and Solid Waste Amendments of
1984, and the Hazardous Materials Transportation Act, as any of
the same are hereafter amended, and in the regulations adopted
and publications promulgated thereto; provided, in the event any
of the foregoing Environmental Laws is amended so as to broaden
the meaning of any term defined thereby, such broader meaning
shall apply subsequent to the effective date of such amendment
and, provided, further, to the extent that the applicable laws of
any state establish a meaning for "hazardous substance,"
"hazardous waste," "hazardous material," "solid waste," or "toxic
substance" which is broader than that specified in any of the
foregoing Environmental Laws, such broader meaning shall apply.
"Potential Default" means the occurrence of any condition or
event which, with the passage of time or giving of notice or
both, would constitute an Event of Default.
"Preferred Stock" means the Series A Cumulative Preferred
Stock, $1.00 par value, of the Company.
"Principal Amount" is defined in Section 1.2(b).
"Property" means all real property owned, leased or operated
by the Company.
"Purchaser" means Seacoast and the Allied Investors,
together with all of their respective transferees, successors and
assigns of all or any portion of the Senior Subordinated Notes or
the Senior Subordinated Obligations and any nominees on whose
behalf any of the foregoing purchase or otherwise acquire any of
such Indebtedness of the Company, and shall include, but not be
limited to, each and every "Holder" as defined herein. With
respect to any right or action to be taken by Purchaser under
this Agreement (other than under Section 8.2), the term Purchaser
means Holders representing a majority in interest of the Senior
Subordinated Obligations.
"Purchase Price" means, with respect to any purchase of, or
investment in, any assets or stock of any Person (whether by
asset purchase, stock purchase, merger, consolidation or
otherwise), the aggregate purchase price for such assets or
stock, including all (a) cash paid, plus (b) all liabilities
assumed, plus (c) the present value of all future payments to be
paid in connection with such acquisition or investment
(discounted to present value based upon a rate that is mutually
acceptable to the Company and Purchaser at the time of any such
acquisition or investment).
"Reportable Event" means (i) any of the events set forth in
Sections 4043(b) (other than a merger, consolidation or transfer
of assets in which no Pension Plan involved has any unfunded
benefit liabilities), 4068(f) or 4063(a) of ERISA, (ii) any event
requiring any member of the Controlled Group to provide security
under Section 401(a)(29) of the Code, or (iii) any failure to
make payments required by Section 412(m) of the Code.
"Responsible Officer" means the Chairman of the Board,
President, any Vice President, Secretary, Treasurer, Chief
Financial Officer and such other Persons reasonably designated in
writing by Purchaser from time to time.
"Security Agreement" means the Security Agreement dated as
of the Closing Date by and between the Company and Purchaser.
"Security Documents" means all security agreements, pledge
agreements, stock pledge agreements, collateral assignments and
other documents executed in connection with this Agreement and
granting to Purchaser liens and security interests in the
Collateral, second in priority only to the liens and security
interests of the Senior Lender under the Senior Loan Agreement,
and all mortgages, deeds of trust and other documents executed in
connection with this Agreement and granting to Purchaser liens
upon and security interests in the Property, all renewals,
modifications or extensions of such documents, and any such
documents hereafter executed in favor of Purchaser to secure
payment of all or any part of the Senior Subordinated
Obligations, together with all financing statements and other
documents necessary to record or perfect the Liens granted by any
of the foregoing.
"Senior Debt" means, at any given time, the Indebtedness
(whether now outstanding or hereafter incurred) of the Company in
respect of the Senior Loan Agreement, in a principal amount not
to exceed eighty percent (80%) of the Company's billed Eligible
Accounts in revolving loans, plus interest, fees, expenses,
indemnities and all other amounts payable under the Senior Loan
Agreement and any notes, security documents, guaranties or other
loan documents referred to therein or pursuant thereto, secured
by all assets of the Company.
"Senior Lender" means Concord Growth Corporation, a
California corporation, and its successors and assigns, and any
Person who replaces or refinances the Senior Loans under the
terms set forth in Section 7.1(c).
"Senior Loan Agreement" means the Loan Agreement between the
Company and the Senior Lender, dated as of October 31, 1995 and
all documents and instruments delivered pursuant thereto in
connection with the loans and advances made thereunder.
"Senior Loan Documents" means the Senior Loan Agreement and
the agreements, documents and instruments executed in connection
therewith or contemplated thereby, and all amendments thereto.
"Senior Loans" means revolving loans, in the maximum
principal amount of eighty percent (80%) of the Company's billed
Eligible Accounts, made to the Company by the Senior Lender under
the Senior Loan Agreement and any permitted replacements and
refinancings thereof.
"Senior Subordinated Notes" means the term promissory notes
issued by the Company to Purchaser pursuant to this Agreement,
together with all renewals, modifications, extensions,
substitutions and replacements thereof.
"Senior Subordinated Obligations" means and includes any and
all Indebtedness and/or liabilities of the Company to Purchaser
of every kind, nature and description, direct or indirect,
secured or unsecured, joint, several, joint and several, absolute
or contingent, due or to become due, now existing or hereafter
arising, under this Agreement or any Other Agreement (regardless
of how such Indebtedness or liabilities arise or by what
agreement or instrument they may be evidenced or whether
evidenced by any agreement or instrument) and all obligations of
the Company to Purchaser to perform acts or refrain from taking
any action under any of the aforementioned documents, together
with all renewals, modifications, extensions, increases,
substitutions or replacements of any of such Indebtedness.
"Senior Subordination Agreement" means that certain Senior
Subordination Agreement of even date herewith executed by the
Company, the Senior Lender and Purchaser pursuant to which the
relative priorities of the Senior Lender and Purchaser with
respect to the repayment of Senior Debt and the Senior
Subordinated Obligations are established, and all amendments and
modifications thereto.
"Shareholder Agreement" means the Shareholder Agreement
dated as of the Closing Date by and among the Company, the
Purchaser and the shareholders of the Company listed on the
signature pages thereto.
"Significant Subsidiary" has the meaning ascribed to it
under Regulation S-X as adopted by the United States Securities
and Exchange Commission.
"Subsidiary" means any Person of which or in which the
Company and its other Subsidiaries own directly or indirectly
fifty percent (50%) or more of (a) the combined voting power of
all classes having general voting power under ordinary
circumstances to elect a majority of the board of directors or
equivalent body of such Persons, if it is a corporation, (b) the
capital interest or profits 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.
"Termination Date" means the earliest to occur of (a)
October 30, 2002, (b) the date on which the Senior Subordinated
Notes are accelerated pursuant to Article VIII, or (c) the date
on which the Senior Subordinated Obligations are paid in full.
"Termination Event" means (a) a Reportable Event, (b) the
termination of a Pension Plan which has unfunded benefit
liabilities (including an involuntary termination under Section
4042 of ERISA), (c) the filing of a Notice of Intent to Terminate
a Pension Plan, (d) the initiation of proceedings to terminate a
Pension Plan under Section 4042 of ERISA or (e) the appointment
of a trustee to administer a Pension Plan under Section 4042 of
ERISA.
"Transfer" is defined in Section 12.5 hereof.
"Transferee" means any Person to whom a Transfer is made.
"Warrants" mean the warrants issued by Labor Ready, Inc. to
Purchaser providing for the purchase of up to 454,912 shares of
Labor Ready, Inc.'s common stock, representing ten percent (10%)
of Labor Ready, Inc.'s common stock (on a fully diluted basis),
as the same may be adjusted from time to time pursuant to the
terms and conditions of the Warrant Documents.
"Warrant Documents" means, collectively, (a) the Warrants,
(b) the Warrant Purchase Agreement, and (c) the Shareholder
Agreement.
"Warrant Purchase Agreement" means the Warrant Purchase
Agreement dated as of the Closing Date executed by and between
Labor Ready, Inc. and Purchaser.
Terms which are defined in other Sections of this Agreement shall
have the meanings specified therein. All other terms contained
in this Agreement shall have, when the context so indicates, the
meanings provided for by the Uniform Commercial Code as adopted
and in force in the Commonwealth of Massachusetts, as from time
to time in effect.
11.2 Accounting Principles. Where the character or
amount of any asset or liability or item of income or expense is
required to be determined or any consolidation or other
accounting computation is required to be made for the purposes of
this Agreement, the same shall be done, unless specified
otherwise, in accordance GAAP, except where such principles are
inconsistent with the requirements of this Agreement.
11.3 Directly or Indirectly. Where any provision in
this Agreement refers to action to be taken by any Person, or
which such Person is prohibited from taking, such provision shall
be applicable whether the action in question is taken directly or
indirectly by such Person.
11.4 The Term "Company" or "Companies". All references
to "Company" or "Companies" herein shall refer to and include
each Company separately and all representations contained herein
shall be deemed to be separately made by each of them, and each
of the covenants, agreements and obligations set forth herein
shall be deemed to be the joint and several covenants, agreements
and obligations of them. Any notice, request, consent, report or
other information or agreement delivered to the Purchaser by any
Company shall be deemed to be ratified by, consented to and also
delivered by the other Companies. Each Company recognizes and
agrees that each covenant and agreement of "Company" or
"Companies" under this Agreement and the Other Agreements shall
create a joint and several obligation of the Companies, which may
be enforced against the Companies, jointly, or against each
Company separately. Without limiting the terms of this Agreement
and the Other Agreements, security interests granted under this
Agreement and the Other Agreements in properties, interests,
assets and collateral shall extend to the properties, interests,
assets and collateral of each Company. Similarly, the term
"Senior Subordinated Obligations" shall include, without
limitation, all obligations, liabilities and indebtedness of such
corporations, or any one of them, to the Purchaser, whether such
obligations, liabilities and indebtedness shall be joint,
several, joint and several or individual.
XII. MISCELLANEOUS
12.1 Expenses. The Company agrees to pay (a) all
reasonable out-of-pocket expenses of Purchaser (including
reasonable fees, expenses and disbursements of Purchaser's
counsel and the allocated costs of staff counsel) in connection
with the preparation, negotiation, enforcement, operation and
administration of this Agreement, the Senior Subordinated Notes,
the Other Agreements, or any documents executed in connection
therewith, or any waiver, modification or amendment of any
provision hereof or thereof; and (b) if an Event of Default
occurs, all court costs and costs of collection, including,
without limitation, reasonable fees, expenses and disbursements
of counsel employed in connection with any and all collection
efforts. The attorneys' fees arising from such services,
including those of any appellate proceedings, and all expenses,
costs, charges and other fees incurred by such counsel or
Purchaser in any way or respect arising in connection with or
relating to any of the events or actions described in this
Article XII shall be payable by the Company to Purchaser, on
demand, and shall be additional Senior Subordinated Obligations
secured under this Agreement. Without limiting the generality of
the foregoing, such expenses, costs, charges and fees may
include: recording costs, appraisal costs, paralegal fees, costs
and expenses; accountants' fees, costs and expenses; court costs
and expenses; photocopying and duplicating expenses; court
reporter fees, costs and expenses; long distance telephone
charges; air express charges, telegram charges; facsimile
charges; secretarial overtime charges; and expenses for travel,
lodging and food paid or incurred in connection with the
performance of such legal services. The Company agrees to
indemnify Purchaser from and hold it harmless against any
documentary taxes, assessments or charges made by any
governmental authority by reason of the execution and delivery by
the Company or any other Person of this Agreement, the Other
Agreements, and any documents executed in connection therewith.
12.2 Indemnification. IN ADDITION TO AND NOT IN
LIMITATION OF THE OTHER INDEMNITIES PROVIDED FOR HEREIN OR IN ANY
OTHER AGREEMENTS, THE COMPANY HEREBY INDEMNIFIES AND AGREES TO
HOLD HARMLESS PURCHASER AND ANY OTHER HOLDERS, AND EVERY
AFFILIATE OF ANY OF THE FOREGOING, AND THEIR RESPECTIVE OFFICERS,
DIRECTORS, EMPLOYEES AND AGENTS, FROM ANY CLAIMS, ACTIONS,
DAMAGES, COSTS, ATTORNEYS' FEES AND EXPENSES (INCLUDING ANY OF
THE SAME ARISING OUT OF THE SOLE OR CONTRIBUTORY NEGLIGENCE OF
THE PERSON TO BE INDEMNIFIED) TO WHICH ANY OF THEM MAY BECOME
SUBJECT, INSOFAR AS SUCH LOSSES, LIABILITIES, CLAIMS, ACTIONS,
DAMAGES, COSTS AND EXPENSES ARISE FROM OR RELATE TO THIS
AGREEMENT OR THE OTHER AGREEMENTS, OR ANY OF THE TRANSACTIONS
CONTEMPLATED THEREBY, OR FROM ANY INVESTIGATION, LITIGATION, OR
OTHER PROCEEDING, INCLUDING, WITHOUT LIMITATION, ANY THREATENED
INVESTIGATION, LITIGATION OR OTHER PROCEEDING RELATING TO ANY OF
THE FOREGOING, OR FROM ANY VIOLATION OR CLAIM OF VIOLATION OF ANY
APPLICABLE ENVIRONMENTAL LAWS WITH RESPECT TO ANY REAL OR
PERSONAL PROPERTY, OR FROM ANY GOVERNMENTAL OR JUDICIAL CLAIM,
ORDER OR JUDGMENT WITH RESPECT TO ANY REAL OR PERSONAL PROPERTY
OF THE COMPANY, OR FROM ANY BREACH OF THE WARRANTIES,
REPRESENTATIONS OR COVENANTS CONTAINED IN THIS AGREEMENT OR THE
OTHER AGREEMENTS. THE FOREGOING INDEMNIFICATION INCLUDES ANY
SUCH CLAIMS, ACTIONS, DAMAGES, COSTS, AND EXPENSES INCURRED BY
REASON OF THE SOLE OR CONTRIBUTORY NEGLIGENCE OF THE PERSON TO BE
INDEMNIFIED, BUT EXCLUDES ANY OF THE SAME INCURRED BY REASON OF
SUCH PERSON'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
12.3 Notices. Except as otherwise expressly provided
herein, all communications provided for hereunder shall be in
writing and delivered or mailed by the United States mails,
certified mail, return receipt requested, (a) if to Purchaser,
addressed to Purchaser at the address specified on Annex I hereto
or to such other address as Purchaser may in writing designate,
(b) if to any other Holder, addressed to such Holder at such
address as such Holder may in writing designate, and (c) if to
the Company, addressed to the Company at the address set forth
next to its name on the signature pages hereto or to such other
address as the Company may in writing designate. Notices shall
be deemed to have been validly served, given or delivered (and
"the date of such notice" or words of similar effect shall mean
the date) five (5) days after deposit in the United States mails,
certified mail, return receipt requested, with proper postage
prepaid, or upon actual receipt thereof (whether by noncertified
mail, telecopy, telegram, facsimile, express delivery or
otherwise), whichever is earlier.
12.4 Reproduction of Documents. Subject to the
provisions of Section 12.15, this Agreement and all documents
relating hereto, including, without limitation (a) consents,
waivers and modifications which may hereafter be executed, (b)
documents received by Purchaser at the closing of the purchase of
the Senior Subordinated Note, and (c) financial statements,
certificates and other information previously or hereafter
furnished to Purchaser, may be reproduced by Purchaser by any
photographic, photostatic, microfilm, microcard, miniature
photographic or other similar process and Purchaser may destroy
any original document so reproduced. The Company agrees and
stipulates that any such reproduction which is legible shall be
admissible in evidence as the original itself in any judicial or
administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made by you in
the regular course of business) and that any enlargement,
facsimile or further reproduction of such reproduction shall
likewise be admissible in evidence; provided that nothing herein
contained shall preclude the Company from objecting to the
admission of any reproduction on the basis that such reproduction
is not accurate, has been altered, is otherwise incomplete or is
otherwise inadmissible.
12.5 Assignment, Sale of Interest. The Company may not
sell, assign or transfer this Agreement, or the Other Agreements
or any portion thereof, including, without limitation, the
Company's rights, title, interests, remedies, powers and/or
duties hereunder or thereunder. The Company hereby consents to
Purchaser's participation, sale, assignment, transfer or other
disposition (collectively, a "Transfer"), at any time or times
hereafter, of this Agreement, or the Other Agreements to which
the Company is a party, or of any portion hereof or thereof,
including, without limitation, Purchaser's rights, title,
interests, remedies, powers and/or duties hereunder or
thereunder. In connection with any Transfer, the Company agrees
to cooperate fully with Purchaser and any potential Transferee.
Such cooperation shall include, but is not limited to,
cooperating with any audits or other due diligence investigation
undertaken by any potential Transferee.
12.6 Successors and Assigns. This Agreement will inure
to the benefit of and be binding upon the parties hereto and
their respective successors and assigns.
12.7 Headings. The headings of the sections and
subsections of this Agreement are inserted for convenience only
and do not constitute a part of this Agreement.
12.8 Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall
be deemed an original, and it shall not be necessary in making
proof of this Agreement to produce or account for more than one
such counterpart or reproduction thereof permitted by Section
12.3.
12.9 Reliance on and Survival Provisions. All
covenants, representations and warranties made by the Company
herein and in any certificates delivered pursuant hereto, whether
or not in connection with a closing, (a) shall be deemed to be
material and to have been relied upon by Purchaser,
notwithstanding any investigation heretofore or hereafter made by
Purchaser or on Purchaser's behalf, and (b) shall survive the
delivery of this Agreement and the Senior Subordinated Notes
until the Senior Subordinated Notes and all other monetary
obligations owing by the Company to Purchaser under this
Agreement shall have been paid in full.
12.10 Integration and Severability. This Agreement
embodies the entire agreement and understanding between Purchaser
and the Company, and supersedes all prior agreements and
understandings relating to the subject matter hereof. In case
any one or more of the provisions contained in this Agreement or
in any Senior Subordinated Notes, or any application thereof,
shall be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions
contained herein and therein, and any other application thereof,
shall not in any way be affected or impaired thereby.
12.11 Law Governing. THIS AGREEMENT HAS BEEN
SUBSTANTIALLY NEGOTIATED AND IS BEING EXECUTED, DELIVERED, AND
ACCEPTED, AND IS INTENDED TO BE PERFORMED, IN PART IN THE
COMMONWEALTH OF MASSACHUSETTS. ALL OBLIGATIONS, RIGHTS AND
REMEDIES HEREUNDER, SHALL BE GOVERNED BY AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF
MASSACHUSETTS. THE SENIOR SUBORDINATED NOTES SHALL BE GOVERNED
BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF
THE STATE SPECIFIED THEREIN. PURCHASER RETAINS ALL RIGHTS UNDER
THE LAWS OF THE UNITED STATES OF AMERICA, INCLUDING THOSE
RELATING TO THE CHARGING OF INTEREST.
12.12 Waivers; Modification. NO PROVISION OF THIS
AGREEMENT MAY BE WAIVED, CHANGED OR MODIFIED, OR THE DISCHARGE
THEREOF ACKNOWLEDGED, ORALLY, BUT ONLY BY AN AGREEMENT IN WRITING
SIGNED BY THE PARTY AGAINST WHOM THE ENFORCEMENT OF ANY WAIVER,
CHANGE, MODIFICATION OR DISCHARGE IS SOUGHT.
12.13 Waiver of Jury Trial. TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, THE COMPANY AND PURCHASER HEREBY
IRREVOCABLY AND EXPRESSLY WAIVE ALL RIGHT TO A TRIAL BY JURY IN
ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED UPON
CONTRACT, TORT, OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS
AGREEMENT, THE SENIOR SUBORDINATED NOTES OR ANY DOCUMENTS ENTERED
INTO IN CONNECTION THEREWITH OR THE TRANSACTIONS CONTEMPLATED
THEREBY OR THE ACTIONS OF PURCHASER IN THE NEGOTIATION,
ADMINISTRATION, OR ENFORCEMENT THEREOF.
12.14 The Act. This Agreement, the Other Agreements and
all transactions contemplated hereby and thereby are subject to
provisions of the Act, and shall be governed thereby to the
extent of any conflict therewith.
12.15 Confidentiality. Each Purchaser and each Holder
agrees to keep confidential any information delivered by the
Company to such Person under this Agreement; provided, however,
that nothing in this Section 12.15 will prevent such Person from
disclosing such information (a) to any Affiliate of such Person
or any actual or potential purchaser, participant, assignee, or
transferee of such Person's rights or obligations hereunder that
agrees to be bound by the terms of this Section 12.15, (b) upon
order of any court or administrative agency, (c) upon the request
or demand of any regulatory agency or authority having
jurisdiction over such Person, (d) that is in the public domain
otherwise than through the breach of this Section 12.5 by any
such Person, (e) that has been obtained from any Person that is
not a party to this Agreement or an Affiliate of any such party
without breach by such Person of a confidentiality obligation
known to such Holder, (f) in connection with the exercise of any
remedy under this Agreement, (g) to the certified public
accountants of such Person, or (h) to the Senior Lender pursuant
to the terms of the Senior Subordination Agreement. The Company
agrees that such Person will be presumed to have met its
obligations under this Section 12.15 to the extent that it
exercises the same degree of care with respect to information
provided by the Company as it exercises with respect to its own
information of similar character.
IN WITNESS WHEREOF, the Company and Purchaser have caused
this Agreement to be executed and delivered by their respective
officers thereunto duly authorized.
COMPANY:
LABOR READY, INC.
By:
Name: Glenn A. Welstad
Its: Chief Executive Officer
LABOR READY OF NEVADA, INC.
By:
Name: Glenn A. Welstad
Its: Chief Executive Officer
LABOR READY FRANCHISE DEVELOPMENT CORP. INC.
By:
Name: Glenn A. Welstad
Its: Chief Executive Officer
Company's Address for Notices:
2156 Pacific Avenue South
Tacoma, Washington 98402
Attn: Glenn A. Welstad
Facsimile: (206) 383-9311
with copies to:
Brad E. Herr, P.S.
2150 North Pines, Suite 202
Spokane, Washington 99206-7624
Attn: Brad E. Herr, Esq.
Facsimile: (509) 928-9338
Preston Gates & Ellis
701 5th Avenue, Suite 5000
Seattle, Washington 98104
Attn: Mark Beatty, Esq.
Facsimile: (206) 623-7022
PURCHASER:
SEACOAST CAPITAL PARTNERS LIMITED PARTNERSHIP
By: Seacoast Capital Corporation,
its general partner
By:
Name: Thomas W. Gorman
Title: Vice President
Amount of Senior Subordinated Note: $5,000,000
ALLIED INVESTMENT CORPORATION
By:
Name: George Stelljes III
Title: Senior Vice President
Amount of Senior Subordinated Note: $2,650,000
ALLIED INVESTMENT CORPORATION II
By:
Name: George Stelljes III
Title: Senior Vice President
Amount of Senior Subordinated Note: $1,300,000
ALLIED CAPITAL CORPORATION II
By:
Name: George Stelljes III
Title: Senior Vice President
Amount of Senior Subordinated Note: $1,050,000
<PAGE>
WARRANT PURCHASE AGREEMENT
WARRANT PURCHASE AGREEMENT (the "Agreement") made as of
October 31, 1995, by and among LABOR READY, INC., a Washington
corporation (the "Company"), SEACOAST CAPITAL PARTNERS LIMITED
PARTNERSHIP, a Delaware limited partnership ("Seacoast"), and
ALLIED INVESTMENT CORPORATION, a Maryland corporation, ALLIED
INVESTMENT CORPORATION II, a Maryland corporation, and ALLIED
CAPITAL CORPORATION II, a Maryland corporation (collectively, the
"Allied Investors") (Seacoast and the Allied Investors are
collectively referred to herein as the "Purchaser").
W I T N E S S E T H:
WHEREAS, the Company and the Purchaser have entered into a
Note Purchase Agreement (the "Note Agreement") dated of even date
with this Agreement; and
WHEREAS, the Company, the Purchaser and Glenn A. Welstad,
John R. Coghlan and Coghlan Family Corporation, a Washington
corporation (collectively the "Shareholders"), have entered into
a Shareholder Agreement (the "Shareholder Agreement") dated of
even date with this Agreement; and
WHEREAS, the Purchaser is willing to enter into and
consummate the transactions contemplated by the Note Agreement
only if, among other things, the Company enters into, and
performs under, this Agreement, and the Company and the
Shareholders enter into, and perform under, the Shareholder
Agreement.
NOW, THEREFORE, in consideration of the foregoing, the
mutual covenants contained in this Agreement, and other good and
valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Purchaser and the Company, intending to
be legally bound, agree as follows:
Article I
Definitions
As used in this Agreement, the following terms have the
meanings indicated:
Act. This term is defined in Section 3.01(k).
Additional Securities. This term is defined in Section
2.08(a)(iv).
Affiliate. With respect to any Person, (a) a Person that,
directly or indirectly or through one or more intermediaries,
controls, is controlled by, or is under common control with, such
Person; (b) any Person of which such Person or such Person's
spouse is an officer, director, security holder, partner, or, in
the case of a trust, the beneficiary or trustee, and (c) any
Person that is an officer, director, security holder, partner,
or, in the case of a trust, the beneficiary or trustee of such
Person. The term "control" as used with respect to any Person,
means the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of
such Person, whether through the ownership of voting securities,
by contract, or otherwise.
Agreement. This term is defined in the preamble.
Allied Investors. This term is defined in the preamble.
Appraised Value. The value determined in accordance with
the following procedures. For a period of 30 days after the date
of a Valuation Event (the "Negotiation Period"), each party to
this Agreement agrees to negotiate in good faith to reach
agreement upon the Appraised Value of the securities or property
at issue, as of the date of the Valuation Event, which will be
the fair market value of such securities or property, without
premium for control or discount for minority interests,
illiquidity, or restrictions on transfer. In the event that the
parties are unable to agree upon the Appraised Value of such
securities or other property by the end of the Negotiation
Period, then the Appraised Value of such securities or property
will be determined for purposes of this Agreement by a recognized
appraisal or investment banking firm mutually agreeable to the
Holders and the Company (the "Appraiser"). If the Holders and
the Company cannot agree on an Appraiser within fifteen (15) days
after the end of the Negotiation Period, the Company, on the one
hand, and the Holders, on the other hand, shall each select an
Appraiser within twenty-one (21) days after the end of the
Negotiation Period and those two Appraisers shall select within
twenty-five (25) days after the end of the Negotiation Period an
independent Appraiser to determine the fair market value of such
securities or property, without premium for control or discount
for minority interests. Such independent Appraiser shall be
directed to determine fair market value of such securities or
property as soon as practicable, but in no event later than
thirty (30) days from the date of its selection. The
determination by an Appraiser of the fair market value will be
conclusive and binding on all parties to this Agreement.
Appraised Value of each share of Common Stock at a time when (i)
the Company is not a reporting company under the Exchange Act and
(ii) the Common Stock is not traded in the organized securities
markets, will, in all cases, be calculated by determining the
Appraised Value of the entire Company taken as a whole and
dividing that value by the sum of (x) the number of shares of
Common Stock then outstanding plus (y) the number of shares of
Common Stock Equivalents, without premium for control or discount
for minority interests, illiquidity, or restrictions on transfer.
The costs of the Appraiser will be borne equally by the Company
and the Purchaser. In no event will the Appraised Value of the
Common Stock or Other Securities be less than the per share
consideration received or receivable with respect to the Common
Stock or securities or property of the same class as the Other
Securities, as the case may be, in connection with a pending
transaction involving a sale, merger, recapitalization,
reorganization, consolidation, or share exchange, dissolution of
the Company, sale or transfer of all or a majority of its assets
or revenue or income generating capacity, or similar transaction.
The prevailing market prices for any security or property will
not be dispositive of the Appraised Value thereof.
Appraiser. This term is defined in the definition of
Appraised Value.
Average Market Value. The average of the Closing Price for
the security in question for the thirty (30) trading days
immediately preceding the date of determination.
Capital Stock. As to any Person, its common stock and any
other capital stock of such Person authorized from time to time,
and any other shares, options, interests, participations, or
other equivalents (however designated) of or in such Person,
whether voting or nonvoting, including, without limitation,
common stock, options, warrants, preferred stock, phantom stock,
stock appreciation rights, preferred stock, convertible notes or
debentures, stock purchase rights, and all agreements,
instruments, documents, and securities convertible, exercisable,
or exchangeable, in whole or in part, into any one or more of the
foregoing.
Closing Date. October 31, 1995.
Closing Price.
(a) If the primary market for the security in question is
a national securities exchange registered under the Exchange Act,
the National Association of Securities Dealers Automated
Quotation System -- National Market System, or other market or
quotation system in which last sale transactions are reported on
a contemporaneous basis, the last reported sales price, regular
way, of such security for such day, or, if there has not been a
sale on such trading day, the highest closing or last bid
quotation therefor on such trading day (excluding, in any case,
any price that is not the result of bona fide arm's length
trading); or
(b) If the primary market for such security is not an
exchange or quotation system in which last sale transactions are
contemporaneously reported, the highest closing or last bona fide
bid or asked quotation by disinterested Persons in the over-the-
counter market on such trading day as reported by the National
Association of Securities Dealers through its Automated Quotation
System or its successor or such other generally accepted source
of publicly reported bid quotations as the Holders designate.
Common Stock. The common stock, no par value, of the
Company.
Common Stock Equivalent. Any option, warrant, right, or
similar security exercisable into, exchangeable for, or
convertible to Common Stock.
Commission. The Securities and Exchange Commission and any
successor federal agency having similar powers.
Company. Labor Ready, Inc. and any successor or assign,
and, unless the context requires otherwise, the term Company
includes any Subsidiary.
Dilution Fee. This term is defined in Article VII.
Exchange Act. The Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder.
Exercise Price. The price per share specified in Section
2.03 as adjusted from time to time pursuant to the provisions of
this Agreement.
Fair Market Value.
(a) As to securities regularly traded in the organized
securities markets, the Average Market Value; and
(b) As to all securities (including, without
limitation, the Issuable Warrant Shares) not regularly traded in
the securities markets and other property, the fair market value
of such securities or property as determined in good faith by the
board of directors of the Company at the time it authorizes the
transaction or if no authorization is required, at the time of
the transaction requiring valuation, (a "Valuation Event")
requiring a determination of Fair Market Value under this
Agreement; provided, however, that, at the election of the
Holders, the Fair Market Value of such securities and other
property will be the Appraised Value.
Forced Exercise Date. This term is defined in Section 8.04.
Forced Exercise Option. This term is defined in Section
8.01.
Forced Exercise Period. This term is defined in Section
8.01.
Holders. The Purchaser, and all Persons holding Registrable
Securities, except that neither the Company nor any Shareholder
nor any Affiliate of the Company or any Shareholder will at any
time be a Holder. Unless otherwise provided in this Agreement,
in each instance that either of the Purchasers is required to
request or consent to an action, such Purchaser will be deemed to
have requested or consented to such action if (a) with respect to
Seacoast, the Holders of a majority in interest of the
Registrable Securities initially issued to Seacoast on the date
hereof so requests or consents and (b) with respect to the Allied
Investors, the Holders of a majority in interest of the
Registrable Securities initially issued to the Allied Investors
on the date hereof so requests or consents.
Indemnified Party. This term is defined in Section 10.01.
Initial Holders. Seacoast, the Allied Investors and any
Affiliate of Seacoast or the Allied Investors to which any of the
Warrants or any part of or interest in the Warrants is assigned.
Intellectual Property. This term is defined in Section
3.01(g).
Issuable Warrant Shares. Shares of Common Stock or Other
Securities issuable on exercise of the Warrants.
Issued Warrant Shares. Shares of Common Stock or Other
Securities issued on exercise of the Warrants.
Kemper Agreement. That certain agreement between the
Company and Everen Securities, Inc., formerly known as Kemper
Securities, Inc., dated as of February 21, 1995, as amended on
October 3, 1995, providing for the payment by the Company to
Everen Securities, Inc. of a private placement fee and for the
issuance by the Company to Everen Securities, Inc. of warrants to
purchase 40,000 shares of Common Stock pursuant to the terms and
conditions thereof.
Material Adverse Effect. (a) a material adverse effect upon
the business, operations, properties, assets or condition
(financial or otherwise) of the Company taken as a whole or (b)
the impairment of the ability of the Company to perform its
obligations under this Agreement. In determining whether any
individual event would result in a Material Adverse Effect,
notwithstanding that such event does not of itself have such
effect, a Material Adverse Effect shall be deemed to have
occurred if such event and all other then existing events would
result in a Material Adverse Effect.
Negotiation Period. This term is defined in the definition
of Appraised Value.
New Securities. Any Capital Stock other than Warrant Shares
and other than the Permitted Stock.
Non-Compete Agreements. Collectively, (a) those certain
Employment and Non-Compete Agreements dated as of October 31,
1995, by and between the Company and each of Glenn A. Welstad and
Scott Sabo, (b) that certain Consulting and Non-Compete Agreement
on or about the Closing Date, by and between the Company and John
R. Coghlan, and (c) any other non-compete agreement hereinafter
entered into by and between the Company and any other officer,
employee or consultant of the Company, and all renewals,
modifications, amendments and supplements thereto.
Note Agreement. This term is defined in the preamble and
includes the Note Purchase Agreement of even date with this
Agreement among the Company, the Purchaser and the other entities
a party thereto, and all documents evidencing indebtedness
thereunder or otherwise related to the Note Agreement as the same
may be amended from time to time, and any refinancing, refunding,
or replacements of the indebtedness under the Note Agreement.
Notes. All or any portion of any of the Senior Subordinated
Notes (as defined in the Note Agreement) and any and all
documents evidencing the indebtedness under the Notes and any
refinancing, refunding, or replacement of the Notes.
Offering Price. This term is defined in Section
2.08(a)(iv).
Other Securities. Any stock, other securities, property, or
other property or rights (other than Common Stock) that the
Holders become entitled to receive upon exercise of the Warrants.
Permitted Stock. Common Stock or options or warrants to
acquire Common Stock issued or reserved for issuance to (a)
Everen Securities, Inc. pursuant to the terms of the Kemper
Agreement, and (b) present and future key management of the
Company pursuant to a management incentive program, constituting,
in the aggregate, ten percent (10%) or less of the outstanding
Common Stock. In no event will (a) the number of shares of
Permitted Stock issued or reserved for issuance, in the
aggregate, exceed the lesser of the number of shares constituting
ten percent (10%) of the outstanding Common Stock on (i) the date
of this Agreement or (ii) the date issued, (b) the number of
shares of Permitted Stock issued or reserved for issuance to any
present and future key management of the Company during any
calendar year exceed, in the aggregate, the lesser of the number
of shares constituting two percent (2%) of the outstanding Common
Stock on (i) the date of this Agreement or (ii) the date issued
and (c) any shares of Permitted Stock issued to present and
future key management of the Company be exercisable for a per
share consideration less than eighty-five percent (85%) of the
Fair Market Value per share of the Common Stock determined as of
the date of issuance of such Permitted Stock.
Person. This term will be interpreted broadly to include
any individual, sole proprietorship, partnership, joint venture,
trust, unincorporated organization, association, corporation,
company, institution, entity, party, or government (whether
national, federal, state, county, city, municipal, or otherwise,
including, without limitation, any instrumentality, division,
agency, body, or department of any of the foregoing).
Purchaser. This term is defined in the preamble.
Qualifying Holder. The Initial Holders and any transferee
of fifty percent (50%) or more of an Initial Holder's Issued
Warrant Shares or Issuable Warrant Shares.
"Register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration
statement in compliance with the Securities Act, and the
declaration or ordering of the effectiveness of such registration
statement.
Registrable Securities. (a) the Issuable Warrant Shares and
(b) the Issued Warrant Shares that have not been previously sold
to the public.
SEC Filings. This term is defined in Section 3.01(l).
Securities Act. The Securities Act of 1933, as amended, and
the rules and regulations thereunder.
Senior Lender. This term means Concord Growth Corporation,
a California corporation, and its successors and assigns, and any
Person who replaces or refinances the Senior Loans (as defined in
the Note Agreement) under the terms set forth in Section 7.1(c)
of the Note Agreement.
Shareholders. This term is defined in the preamble.
Shareholder Agreement. This term is defined in the preamble
and includes the Shareholder Agreement dated as of the Closing
Date between the Company, the Purchaser and the Shareholders in
substantially the form attached to this Agreement as Annex A and
incorporated in this Agreement by reference.
Subsidiary. Each Person of which or in which the Company or
its other Subsidiaries own directly or indirectly fifty-one
percent (51%) or more of (i) 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 or
equivalent body of such Person, if it is a corporation or similar
person; (ii) the capital interest or profits interest of such
Person, if it is a partnership, joint venture, or similar entity;
or (iii) the beneficial interest of such Person, if it is a
trust, association, or other unincorporated organization.
Valuation Event. This term is defined in the definition of
Fair Market Value.
Warrants. The Warrants referred to in Section 2.01, dated
as of the Closing Date, issued to Initial Holders, and all
Warrants issued upon the transfer or division of, or in
substitution for, such Warrants.
Warrant Shares. The Issued Warrant Shares and the Issuable
Warrant Shares.
Article II
The Warrant
2.01 The Warrant. On the Closing Date, each Purchaser
severally agrees to purchase from the Company at the purchase
price set forth beneath the name of such Purchaser on the
signature page of this Agreement, and the Company agrees to issue
to each Purchaser, a Warrant in substantially the form attached
to this Agreement as Annex A and incorporated in this Agreement
by reference to purchase the number of shares of Common Stock set
forth beneath the name of each such Purchaser on the signature
page of this Agreement, all in accordance with the terms and
conditions of this Agreement.
2.02 Legend. The Company will deliver to each Purchaser
on the Closing Date one or more certificates representing the
Warrant purchased by such Purchaser in such denominations as such
Purchaser requests. Such certificates will be issued in the
Purchaser's name or in the name or names of its designee or
designees, as the case may be. It is understood and agreed that
the certificates evidencing the Warrants will bear the following
legend:
"THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE
HEREOF HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO
OR FOR SALE IN CONNECTION WITH THE DISTRIBUTION HEREOF. THIS
WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY STATE SECURITIES LAWS, AND MAY NOT BE PLEDGED, SOLD, OFFERED
FOR SALE, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF
REGISTRATION UNDER OR EXEMPTION FROM SUCH ACT AND ALL APPLICABLE
STATE SECURITIES LAWS".
"THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE
HEREOF ARE SUBJECT TO THE TERMS AND PROVISIONS OF A WARRANT
PURCHASE AGREEMENT, DATED AS OF OCTOBER 31, 1995, BY AND AMONG
LABOR READY, INC. (THE "COMPANY"), SEACOAST CAPITAL PARTNERS
LIMITED PARTNERSHIP ("SEACOAST"), ALLIED INVESTMENT CORPORATION
("AIC"), ALLIED INVESTMENT CORPORATION II ("AIC II") AND ALLIED
CAPITAL CORPORATION II ("ACC II") AND A SHAREHOLDER AGREEMENT,
DATED AS OF OCTOBER 31, 1995, BY AND AMONG THE COMPANY, SEACOAST,
AIC, AIC II, ACC II AND THE SHAREHOLDERS OF THE COMPANY LISTED ON
THE SIGNATURE PAGES THERETO (AS SUCH AGREEMENTS MAY BE
SUPPLEMENTED, MODIFIED, AMENDED, OR RESTATED FROM TIME TO TIME,
THE "AGREEMENTS"). COPIES OF THE AGREEMENTS ARE AVAILABLE AT THE
EXECUTIVE OFFICES OF THE COMPANY."
2.03 Exercise Price. The Exercise Price per share will be
$17.50 for each share of Common Stock covered by the Warrants,
subject to adjustment as provided in this Section 2.03 and in
Section 2.08. In the event the Company fails to employ a Chief
Financial Officer reasonably acceptable to the Purchaser on or
before the one hundred eightieth (180th) day of the Closing Date,
the Exercise Price for each share of Common Stock covered by the
Warrants shall be reduced by $1.00 per share on such date (i.e.
reduced from $17.50 to $16.50 per share). The Exercise Price for
each share of Common Stock covered by the Warrants shall continue
to be reduced by an additional $1.00 per share upon the
expiration of each successive ninety (90) day period thereafter
until such time as the Company has employed a Chief Financial
Officer reasonably acceptable to the Purchaser.
2.04 Exercise.
(a) Each of the Warrants may be exercised at any
time or from time to time on or after the Closing Date and prior
to the earlier of (i) the seventh (7th) anniversary of the
Closing Date and (ii) six (6) years from the date the Notes are
paid in full, on any day that is a business day, for all or any
part of the number of Issuable Warrant Shares purchasable upon
its exercise. In order to exercise any Warrant, in whole or in
part, the Holder will deliver to the Company at the address
designated by the Company pursuant to Section 10.06, (i) a
written notice of such Holder's election to exercise its Warrant,
which notice will specify the number of Issuable Warrant Shares
to be purchased pursuant to such exercise, (ii) payment of the
Exercise Price, in an amount equal to the aggregate purchase
price for all Issuable Warrant Shares to be purchased pursuant to
such exercise, and (iii) the Warrant. Such notice will be
substantially in the form of the Subscription Form appearing at
the end of the Warrants. Upon receipt of such notice, the
Company will, as promptly as practicable, and in any event within
five (5) business days, execute, or cause to be executed, and
deliver to such Holder a certificate or certificates representing
the aggregate number of full shares of Common Stock and Other
Securities issuable upon such exercise, as provided in this
Agreement. The stock certificate or certificates so delivered
will be in such denominations as may be specified in such notice
and will be registered in the name of such Holder, or such other
name as designated in such notice. A Warrant will be deemed to
have been exercised, such certificate or certificates will be
deemed to have been issued, and such Holder or any other Person
so designated or named in such notice will be deemed to have
become a holder of record of such shares for all purposes, as of
the date that such notice, together with payment of the Exercise
Price and the Warrant, is received by the Company. If the Warrant
has been exercised in part, the Company will, at the time of
delivery of such certificate or certificates, deliver to such
Holder a new Warrant evidencing the rights of such Holder to
purchase a number of Issuable Warrant Shares with respect to
which the Warrant has not been exercised, which new Warrant will,
in all other respects, be identical with the Warrants, or, at the
request of such Holder, appropriate notation may be made on the
Warrant and the Warrant returned to such Holder.
(b) Payment of the Exercise Price will be made, at
the option of the Holder, by (i) company or individual check,
certified or official bank check, (ii) cancellation of any debt
owed by the Company to the Holder, or (iii) cancellation of
Warrants, valued at Fair Market Value. If the Holder surrenders
a combination of cash or cancellation of any debt owed by the
Company to the Holder or Warrants, the Holder will specify the
respective number of shares of Common Stock to be purchased with
each form of consideration, and the foregoing provisions will be
applied to each form of consideration with the same effect as if
the Warrant were being separately exercised with respect to each
form of consideration; provided, however, that a Holder may
designate that any cash to be remitted to a Holder in payment of
debt be applied, together with other monies, to the exercise of
the portion of the Warrant being exercised for cash.
2.05 Taxes. The issuance of any Common Stock or Other
Securities upon the exercise of the Warrant will be made without
charge to any Holder for any tax, other than income taxes
assessed on such Holder, in respect of such issuance.
2.06 Warrant Register. The Company will, at all times
while any of the Warrants remain outstanding and exercisable,
keep and maintain at its principal office a register in which the
registration, transfer, and exchange of the Warrants will be
provided for. The Company will not at any time, except upon the
dissolution, liquidation, or winding up of the Company, close
such register so as to result in preventing or delaying the
exercise or transfer of any Warrant.
2.07 Transfer and Exchange. Subject to compliance with
the restrictions on transfer set forth in the legend prescribed
by Section 2.02, the Warrants and all options and rights under
the Warrants are transferable, as to all or any part of the
number of Issuable Warrant Shares purchasable upon its exercise,
by the Holders of the Warrants, in person or by duly authorized
attorney, on the books of the Company upon surrender of the
Warrants at the principal offices of the Company, together with
the form of transfer authorization attached to the Warrants duly
executed and, if requested by the Company, an opinion of Hughes &
Luce, L.L.P. (or other counsel reasonably acceptable to the
Company) to the effect that such transfer does not violate the
registration requirements of the Securities Act. Absent any such
transfer and subject to the terms and conditions of this
Agreement, the Company may deem and treat the registered Holders
of the Warrants at any time as the absolute owners of the
Warrants for all purposes and will not be affected by any notice
to the contrary. If any Warrant is transferred in part, the
Company will, at the time of surrender of such Warrant, issue to
the transferee a Warrant covering the number of Issuable Warrant
Shares transferred and to the transferor a Warrant covering the
number of Issuable Warrant Shares not transferred.
2.08 Adjustments to Number of Shares Purchasable.
(a) The Warrants will be exercisable for the
number of shares of Common Stock in such manner that, following
the complete and full exercise of the Warrant of each Holder, the
amount of Common Stock issued to all Holders will equal the
aggregate number of shares of Common Stock set forth beneath the
names of the Purchaser on the signature pages of this Agreement,
as adjusted, to the extent necessary, to give effect to the
following events:
(i) In case at any time or from time to time,
the holders of any class of Common Stock or Common Stock
Equivalent have received, or (on or after the record date fixed
for the determination of shareholders eligible to receive) have
become entitled to receive, without payment therefor:
(A) consideration (other than cash) by
way of dividend or distribution; or
(B) consideration (including cash) by way
of spin-off, split-up, reclassification (including any
reclassification in connection with a consolidation or merger in
which the Company is the surviving corporation),
recapitalization, combination of shares into a smaller number of
shares, or similar corporate restructuring;
other than additional shares of Common Stock issued as
a stock dividend or in a stock-split (adjustments in respect of
which are provided for in Sections 2.08(a)(ii) and (iii)), then,
and in each such case, the Holders, on the exercise of the
Warrants, will be entitled to receive for each share of Common
Stock issuable under the Warrants as of the record date fixed for
such distribution, the greatest per share amount of consideration
received by any holder of any class of Common Stock or Common
Stock Equivalent or to which such holder is entitled less the
amount of any Dilution Fee actually and irrevocably paid to such
Holders. All such consideration receivable upon exercise of the
Warrant with respect to such a distribution will be deemed to be
outstanding and owned by such Holder for purposes of determining
the amount of consideration to which such Holder is entitled upon
exercise of the Warrant with respect to any subsequent
distribution.
(ii) If at any time there occurs any stock
split, stock dividend, reverse stock split, or other subdivision
of the Common Stock, then the number of shares of Common Stock to
be received by the Holder of the Warrant and the Exercise Price,
subject to the limitations set forth in this Agreement, will be
proportionately adjusted.
(iii) In case of any reclassification or
change of outstanding shares of any class of Common Stock or
Common Stock Equivalent (other than a change in par value, or
from par value to no par value, or from no par value to par
value), or in the case of any consolidation of the Company with,
or merger or share exchange of the Company with or into, another
Person, or in case of any sale of all or a majority of the
property, assets, business, income or revenue generating
capacity, or goodwill of the Company, the Company, or such
successor or other Person, as the case may be, will provide in
writing that the Holder of this Warrant will thereafter be
entitled to receive, upon exercise of a Warrant, in lieu of each
share of Common Stock otherwise issuable under this Warrant, the
highest per share kind and amount of consideration received or
receivable (including cash) upon such reclassification, change,
consolidation, merger, share exchange, or sale by any holder of
any class of Common Stock or Common Stock Equivalent that the
Holder would have been entitled to receive if, immediately prior
to such reclassification, change, consolidation, merger, share
exchange, or sale (as adjusted pursuant to Section 2.08(a)(i) and
otherwise in this Agreement) the Holder had exercised its
Warrants in full. Any such successor Person, which thereafter
will be deemed to be the Company for purposes of the Warrants,
will provide for adjustments that are as nearly equivalent as may
be possible to the adjustments provided for by this Section 2.08.
(iv) If at any time the Company issues or
sells any shares of any Common Stock or any Common Stock
Equivalent (the "Additional Securities") at a per unit or share
consideration which consideration will include the price paid
upon issuance plus the minimum amount of any exercise,
conversion, or similar payment made upon exercise or conversion
of any Common Stock Equivalent (the "Offering Price"), less than
the Exercise Price or the then current Fair Market Value per
share of Common Stock immediately prior to the time such
Additional Securities are issued or sold, then:
(A) the Exercise Price will be reduced to
the lower of:
(I) the Offering Price; and
(II) the price determined by
multiplying the then existing Exercise Price by a fraction, the
numerator of which is (x) the sum of (1) the number of shares of
Common Stock outstanding on a fully diluted basis immediately
prior to such issuance or sale, multiplied by the Fair Market
Value per share of Common Stock immediately prior to such
issuance or sale, plus (2) the aggregate net consideration
received by the Company upon such issuance or sale, divided by
(y) the total number of shares of Common Stock outstanding on a
fully diluted basis immediately after such issuance or sale, and
the denominator of which is the Fair Market Value per share of
Common Stock immediately prior to such issuance or sale (for
purposes of this subsection (II), the date as of which the Fair
Market Value per share of Common Stock will be computed will be
the earlier of the date upon which the Company (aa) enters into a
firm contract for the issuance of such shares, or (bb) issues
such shares); and
(B) the number of shares of Common Stock
for which any of the Warrants may be exercised at the Exercise
Price resulting from the adjustment described in subsection (A)
above will be equal to the product of the number of shares of
Common Stock purchasable under such Warrants immediately prior to
such adjustment multiplied by a fraction, the numerator of which
is the Exercise Price in effect immediately prior to such
adjustment and the denominator of which is the Exercise Price
resulting from such adjustment.
(v) In case any event occurs as to which the
preceding Sections 2.08(a)(i) through (iv) are not strictly
applicable, but as to which the failure to make any adjustment
would not fairly protect the purchase rights represented by the
Warrants in accordance with the essential intent and principles
of this Agreement, then, in each such case, the Company may
appoint an independent investment bank or firm of independent
public accountants acceptable to the Holder in good faith, which
will give its opinion as to the adjustment, if any, on a basis
consistent with the essential intent and principles established
in this Agreement, necessary to preserve the purchase rights
represented by the Warrants. Upon receipt of such opinion, the
Company will promptly deliver a copy of such opinion to the
Holder and will make the adjustments described in such opinion.
The fees and expenses of such investment bank or independent
public accountants will be borne by the Company.
(b) The Company will not by any action including,
without limitation, amending, or permitting the amendment of, the
charter documents, bylaws, or similar instruments of the Company
or through any reorganization, reclassification, transfer of
assets, consolidation, merger, share exchange, dissolution, issue
or sale of securities, or any other similar voluntary action,
avoid or seek to avoid the observance or performance of any of
the terms of this Agreement or the Warrants, but will at all
times in good faith assist in the carrying out of all such terms
and in the taking of all such actions as may be necessary or
appropriate to protect the rights of the Holders against
impairment or dilution. Without limiting the generality of the
foregoing, the Company will (i) take all such action as may be
necessary or appropriate in order that the Company may validly
and legally issue fully paid and nonassessable shares of Common
Stock and Other Securities, free and clear of all liens,
encumbrances, equities, and claims and (ii) use its best efforts
to obtain all such authorizations, exemptions, or consents from
any public regulatory body having jurisdiction as may be
necessary to enable the Company to perform its obligations under
the Warrants. Without limiting the generality of the foregoing,
the Company represents and warrants that the board of directors
of the Company has determined the Exercise Price to be adequate
and the issuance of the Warrants to be in the best interests of
the Company.
(c) Any calculation under this Section 2.08 will be
made to the nearest one ten-thousandth of a share and the number
of Issuable Warrant Shares resulting from such calculation will
be rounded up to the next whole share of Common Stock or Other
Securities comprising Issuable Warrant Shares.
(d) The Company will not, and will not permit any
Subsidiary to, issue any Capital Stock other than Common Stock
and Common Stock Equivalents.
(e) If the Company pays in full the Notes,
including all principal and interest thereon, prior to the third
anniversary of the Closing Date, the aggregate number of Issuable
Warrant Shares shall be reduced by twenty percent (20%) (with
such reduction calculated based upon the number of Issuable
Warrant Shares at January 1, 1996), as adjusted from time to time
consistent with the adjustments set forth in Section 2.08(a).
2.09 Lost, Stolen, Mutilated, or Destroyed Warrants. If
any Warrant is lost, stolen, mutilated, or destroyed, the Company
will issue a new Warrant of like denomination, tenor, and date as
the Warrant so lost, stolen, mutilated, or destroyed. Any such
new Warrant will constitute an original contractual obligation of
the Company, whether or not the allegedly lost, stolen,
mutilated, or destroyed Warrant is at any time enforceable by any
Person.
2.10 Stock Legend. The Warrants and the Warrant Shares
have not been registered under the Securities Act or qualified
under applicable state securities laws. Accordingly, unless
there is an effective registration statement and qualification
respecting the Warrants and the Warrant Shares under the
Securities Act or under applicable state securities laws at the
time of exercise of a Warrant, any stock certificate issued
pursuant to the exercise of a Warrant will bear the following
legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE (A) HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY STATE SECURITIES LAWS, AND MAY NOT BE PLEDGED, SOLD,
OFFERED FOR SALE, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF REGISTRATION UNDER OR EXEMPTION FROM SUCH ACT AND ALL
APPLICABLE STATE SECURITIES LAWS AND (B) ARE SUBJECT TO THE TERMS
OF AND PROVISIONS OF A WARRANT PURCHASE AGREEMENT, DATED AS OF
OCTOBER 31, 1995 BY AND AMONG LABOR READY, INC. (THE "COMPANY"),
SEACOAST CAPITAL PARTNERS LIMITED PARTNERSHIP ("SEACOAST"),
ALLIED INVESTMENT CORPORATION ("AIC"), ALLIED INVESTMENT
CORPORATION II ("AIC II") AND ALLIED CAPITAL CORPORATION II ("ACC
II") AND A SHAREHOLDER AGREEMENT, DATED AS OF OCTOBER 31, 1995,
BY AND AMONG THE COMPANY, SEACOAST, AIC, AIC II, ACC II AND THE
SHAREHOLDERS OF THE COMPANY LISTED ON THE SIGNATURE PAGES THERETO
(AS SUCH AGREEMENTS MAY BE SUPPLEMENTED, MODIFIED, AMENDED, OR
RESTATED FROM TIME TO TIME, THE "AGREEMENTS"). COPIES OF THE
AGREEMENTS ARE AVAILABLE AT THE OFFICES OF THE COMPANY."
Article III
Representations and Warranties
3.01 Representations and Warranties of the Company. The
Company represents and warrants to the Purchaser that:
(a) The Company is a corporation duly organized and
existing and in good standing under the laws of its state of
incorporation and is qualified or licensed to do business in all
other countries, states, and jurisdictions the laws of which
require it to be so qualified or licensed and where the failure
to be so qualified or licensed would have a Material Adverse
Effect. Except as set forth on Schedule I, the Company has no
Subsidiaries or debt or equity investment in any Person. Each
Shareholder owns the equity interest of the Company set forth on
Schedule II, free and clear of all liens, claims, and
encumbrances, and no Person has any rights, whether granted by
the Company or any other Person, to acquire any portion of the
equity interest of the Company or the assets of the Company
except pursuant to this Agreement or pursuant to the agreements
described on Schedule III which grant warrants or options to any
Persons other than Purchaser.
(b) The Company has, and at all times that this
Agreement is in force will have, the right and power, and is duly
authorized, to enter into, execute, deliver, and perform this
Agreement, the Shareholder Agreement and the Warrants, and the
officers of Company executing and delivering this Agreement, the
Shareholder Agreement and the Warrants are duly authorized to do
so. This Agreement, the Shareholder Agreement and the Warrants
have been duly and validly executed, issued, and delivered and
constitute the legal, valid, and binding obligations of Company
and the Shareholders, enforceable in accordance with their
respective terms.
(c) The execution, delivery, and performance of
this Agreement, the Shareholder Agreement and the Warrants will
not, by the lapse of time, the giving of notice, or otherwise,
constitute a violation of any applicable provision contained in
the charter, bylaws, or organizational documents of the Company
or contained in any agreement, instrument, or document to which
the Company is a party or by which it is bound.
(d) As of the Closing Date, the authorized capital
stock of the Company consists of (i) 25,000,000 shares of Common
Stock, no par value, of which 3,878,415 shares are issued and
outstanding, and (ii) 5,000,000 shares of Preferred Stock
consisting of 1,052,242 authorized shares of Series A Cumulative
Preferred Stock, of which 854,082 shares are issued and
outstanding. 454,912 shares of Common Stock are reserved for
issuance on exercise of the Warrants. All such issued and
outstanding shares have been duly authorized and validly issued,
are fully paid and nonassessable, and have been offered, issued,
sold, and delivered by Company free from preemptive rights,
rights of first refusal, or similar rights and in compliance with
applicable federal and state securities laws. Except pursuant to
this Agreement and except for the Permitted Stock, the Company is
not obligated to issue or sell any Capital Stock, and neither the
Company nor the Shareholders are party to, or otherwise bound by,
any agreement affecting the voting of any Capital Stock. Except
for this Agreement, the Company is not, a party to, or otherwise
bound by, any agreement obligating it to register any of its
Capital Stock.
(e) The shares of Common Stock and other
consideration issuable on exercise of the Warrants have been duly
and validly authorized and reserved for issuance and, when issued
in accordance with the terms of the Warrants will be validly
issued, fully paid, and nonassessable and free of preemptive
rights, rights of first refusal, or similar rights.
(f) The Company has good, indefeasible,
merchantable, and marketable title to, and ownership of, all of
its assets free and clear of all liens, pledges, security
interests, claims, or other encumbrances except those in favor of
the Senior Lender, and those pursuant to the Note Agreement.
(g) The Company has the exclusive right to use all
patents, patent rights, patent applications, licenses,
inventions, trade secrets, know-how, proprietary techniques,
including processes and substances, trademarks, service marks,
trade names, and copyrights used in or necessary or desirable to
its business as presently, or presently proposed to be, conducted
(the "Intellectual Property"), and, to the best of the Company's
knowledge, the use by the Company of the Intellectual Property
does not infringe the rights of any other Person. No other
Person is infringing the rights of the Company in any of the
Intellectual Property. The Company owes no royalties, honoraria,
or fees to any Person by reason of its use of any of Intellectual
Property.
(h) There is not now, and at no time during the
term of this Agreement will there be, any agreement, arrangement,
or understanding involving the Company or the Shareholders, other
than this Agreement and the documents contemplated hereby and
thereby, modifying, restricting, or in any way affecting the
rights of any security holder to vote securities of the Company.
(i) Each of the representations and warranties made
by the Company pursuant to the Note Agreement is true and
correct.
(j) None of the documents, instruments, or other
information furnished to the Purchaser by the Company, contains
any untrue statement of a material fact or omits to state any
material fact necessary in order to make any statements made
therein not misleading. No representation, warranty, or
statement made by the Company in this Agreement, the Note
Agreement or in any document, certificate, exhibit or schedule
attached hereto or thereto or delivered in connection herewith or
therewith, contains or will contain any untrue statement of a
material fact, or omits or will omit to state a material fact
necessary to make any statements made herein or therein not
misleading. There is no fact that materially and adversely
affects the condition (financial or otherwise), results of
operations, business, properties, or prospects of the Company or
any of its Subsidiaries that has not been disclosed in the
documents provided to the Purchaser.
(k) The Company is a "small business concern" as
defined in Section 103(5) of the Small Business Investment Act of
1958, as amended and in effect from time to time, and the
regulations promulgated thereunder (the "Act"), which for
purposes of size eligibility meets the applicable criteria set
forth in Section 121.802(a)(3) of Title 13 of the Code of Federal
Regulations.
(l) The Company has delivered to the Purchaser
copies of (a) the Company's annual report on Form 10-K for the
fiscal years ended December 31, 1993 and 1994, (b) the Company's
quarterly reports on Form 10-Q for the periods ended March 31,
1995 and June 30, 1995, and (c) the Company's registration
statement on Form S-1 dated August 11, 1995, and (d) the
Company's proxy statement dated June 26, 1995, ((a), (b), (c) and
(d) are collectively referred to herein as the "SEC Filings").
All reports and filings required to be filed by the Company with
the Commission during the last twelve (12) months have been
timely filed with the Commission. The SEC Filings (a) were
prepared in all material respects in accordance with the
requirements of the Exchange Act, and the rules and regulations
thereunder, and (b) did not at the time of filing contain any
untrue statement of material fact necessary to make the
statements therein, in light of the circumstances under which
they were made, not misleading. The financial statements
contained in the Company's SEC Filings present fairly in all
material respects the consolidated financial position and results
of operations and changes in shareholders' equity and changes in
cash flow of the Company and its subsidiaries as of the dates and
for the periods indicated therein in accordance with GAAP
throughout the periods indicated. The Company has no outstanding
liabilities or indebtedness not reflected on the balance sheet
(known or unknown, absolute, accrued, contingent or otherwise)
which are material to the financial condition or operating
results of the Company on a consolidated basis.
3.02 Representations and Warranties of the Purchaser.
Each Purchaser, severally and not jointly, represents and
warrants to the Company with respect to itself and not with
respect to any other Purchaser:
(a) It is a limited partnership or corporation, as
the case may be, duly incorporated and existing and in good
standing under the laws of the state of its organization.
(b) It has the right and power and is duly
authorized to enter into, execute, deliver, and perform this
Agreement and the Shareholder Agreement, and its partners,
officers or agents executing and delivering this Agreement and
the Shareholder Agreement are duly authorized to do so. This
Agreement and the Shareholder Agreement have been duly and
validly executed, issued, and delivered and constitute the legal,
valid, and binding obligation of the Purchaser, enforceable in
accordance with their terms.
(c) It (i) is an "accredited investor," as that term
is defined in Regulation D under the Securities Act; and (ii) has
such knowledge, skill, and experience in business and financial
matters, based on actual participation, that it is capable of
evaluating the merits and risks of an investment in the Company
and the suitability thereof as an investment for the Purchaser.
(d) Except as otherwise contemplated by this
Agreement, it is acquiring its Warrant and any securities
issuable upon exercise of its Warrant for investment for its own
account and not with a view to any distribution thereof in
violation of applicable securities laws.
(e) It agrees that the certificates representing
its Warrant and any Issued Warrant Shares will bear the legends
referenced in this Agreement, and such Warrant or securities
issuable upon exercise of the Warrant will not be offered, sold,
or transferred in the absence of registration or exemption under
applicable securities laws.
(f) It has had the opportunity to ask questions of
and receive answers from officers of the Company, including Glen
A. Welstad and John R. Coghlan, the Company's President and Chief
Executive Officer and Secretary and Treasurer, respectively, and
the Company's accountants and legal counsel concerning the
transactions contemplated hereby and by the Note Agreement.
Purchaser's principal place of business is set forth in Section
10.06. Notwithstanding anything in this Section 3.2(f) to the
contrary, nothing in this Section 3.2(f) shall affect any
representation or warranty made by the Company in Section 3.1.
Article IV
Covenants
The Company covenants and agrees as follows:
4.01 Financial Statements. The Company will keep books
of account and prepare financial statements and will cause to be
furnished to the Purchaser or other Holder (all of the foregoing
and following to be kept and prepared in accordance with United
States generally accepted accounting principles applied on a
consistent basis):
(a) As soon as available, and in any event within
ninety (90) days after the end of each fiscal year, beginning
with the fiscal year ending December 31, 1995, a certificate of
an authorized officer of the Company in the form of the officer's
certificate attached as Exhibit B to the Note Agreement.
(b) As soon as available, a copy of each (i)
financial statement, report, notice, or proxy statement sent by
the Company to its shareholders; (ii) regular, periodic, or
special report, registration statement, or prospectus filed by
the Company with any securities exchange, state securities
regulator, or the Commission; (iii) material order issued by any
court, governmental authority, or arbitrator in any material
proceeding to which the Company is a party or to which any of its
assets is subject; (iv) press release or other statement made
available generally by the Company or the Shareholders to the
public generally concerning material developments in the business
of the Company; and (v) a copy of all material correspondence,
reports, and other information sent by the Company to any holder
of any indebtedness, including, without limitation the Senior
Lender.
(c) Promptly, such additional information
concerning the Company as any Holder may reasonably request,
including, without limitation, (i) auditor management reports and
audit "waive" lists and (ii) at any time that the Company fails
to comply or is not required to comply with the financial
reporting requirements of the Securities Act, copies of the
financial statements and other information required under Section
6.1 of the Note Agreement, which financial statements and other
information shall be delivered in the same form, for the same
periods, and at the same intervals as required under Section 6.1
of the Note Agreement.
4.02 Laws. The Company and the Shareholders will comply
with all applicable statutes, regulations, and orders of the
United States, domestic and foreign states, and municipalities,
agencies, and instrumentalities of the foregoing applicable to
the Company and the Shareholders.
4.03 Board Observation and Membership. The Company will
deliver to Purchaser a copy of the minutes of and all materials
distributed at or prior to all meetings of the board of directors
of the Company (including, without limitation, meetings of the
executive committee), certified as true and accurate by the
Secretary of the Company, promptly following each such meeting.
The Company will (a) permit Seacoast, so long as Seacoast owns at
least twenty percent (20%) or more of the Warrant Shares owned by
it on January 1, 1996, to designate one (1) person to attend all
meetings of the Company's board of directors and shareholders as
an observer, (b) permit the Allied Investors, collectively, so
long as the Allied Investors own, in the aggregate, at least
twenty percent (20%) or more of the Warrant Shares owned by them
on January 1, 1996, to designate one (1) person to attend all
meetings of the Company's board of directors and shareholders as
an observer (provided that if a representative of the Purchaser
is serving as a member of the Company's board of directors,
Purchaser shall be allowed to collectively designate only one (1)
person to attend such meetings of the Company's board of
directors and shareholders as an observer), (c) provide such
designees not less than twenty-one (21) calendar days' actual
notice of all regular meetings of the Company's board of
directors and shareholders and two (2) business days' actual
notice via facsimile of all special meetings of the Company's
board of directors (provided that the approval at a duly-called
meeting of the Company's Board of Directors of a schedule of
dates of future regular meetings of the Company's Board of
Directors shall satisfy the notice requirements of this
Subsection (c) if (i) the Observer(s) is/are in attendance at
such meeting and (ii) the approved schedule of dates is clearly
reflected in the minutes of the meeting), (d) permit Purchaser,
so long as Purchaser owns, in the aggregate, at least twenty
percent (20%) or more of the Warrant Shares owned by it on
January 1, 1996, to collectively designate one (1) person to
serve as a member of the Company's board of directors provided,
however, that the Purchaser will not have any obligation to
designate or cause such individuals to serve on the Company's
board of directors, and (e) provide to such designees a copy of
all materials distributed at such meetings or otherwise to the
Company's directors. Any failure by the Purchaser to designate
such persons pursuant to Subsection (d) above will not constitute
a failure to comply with this Agreement or result in any
liability to the Purchaser. Such meetings shall be held in
person at least quarterly, and the Company will cause its board
of directors to call a meeting at any time upon the request of
any such designated observer on two (2) occasions per calendar
year on seven (7) calendar days' actual notice to the Company.
The Company agrees to compensate such individuals referred to in
Subsection (d) above in the same manner as each of the other
members of the Company's board of directors and agrees to
reimburse each individual referred to in Subsections (a), (b) and
(d) above for all reasonable expenses incurred in traveling to
and from such meetings and attending such meetings.
Notwithstanding anything to the contrary contained in this
Agreement or in the Note Agreement, Company and Purchaser hereby
agree and acknowledge that the number of persons who may be
appointed by Purchaser to attend meetings of the Company's board
of directors pursuant to this Section 4.03 (whether as observers
or as members of the Company's board of directors) shall not be
cumulative of the number of persons who may be appointed to by
Purchaser to attend meetings of the Company's board of directors
pursuant to Section 6.19 of the Note Agreement. Furthermore,
this Section 4.03 shall not become effective until the payment in
full of the Notes (prior to which time Section 6.19 of the Note
Agreement shall govern Purchaser's board observation and
membership rights).
4.04 Certain Actions. Without the prior written consent
of the Holders, which consent may be withheld in the sole
discretion of the Holders, the Company will not:
(a) permit to occur any amendment, alteration, or
modification of the Articles of Incorporation or Bylaws of the
Company, as constituted on the date of this Agreement, the effect
of which, in the sole judgment of the Holders, would be to alter,
impair, or affect adversely, either the rights and benefits of
the Holders or the duties and obligations of Company or the
Shareholders under this Agreement or the Warrants;
(b) redeem, retire, purchase, or otherwise acquire,
directly or indirectly, any of the Capital Stock or capital stock
or securities of any Affiliate of the Company, or any securities
convertible or exchangeable into Capital Stock or capital stock
or securities of any Affiliate of the Company;
(c) dissolve or liquidate, or effect any
consolidation or merger involving the Company or any Subsidiary
(other than a merger in which the Company or its Subsidiary, as
the case may be, is the surviving entity and the holders of each
class of voting securities of the Company continue to hold a
majority of each class of voting securities of the Company);
(d) except for the issuance of Permitted Stock,
enter into any transaction or transactions with any director,
officer, employee, or shareholder of the Company, or any
Affiliate or relative of the foregoing except upon terms that are
fair and reasonable and that are, in any event, at least as
favorable as would result in a comparable arm's-length
transaction with a Person not a director, officer, employee,
shareholder, or Affiliate of the Company or any Affiliate or
related party of the foregoing, or advance any monies to any such
Persons, except for travel advances in the ordinary course of
business;
(e) materially modify or amend, or terminate or
waive any provision of the Non-Compete Agreements or require
Glenn A. Welstad to cease to perform the functions of chief
executive office of the Company for reasons other than permanent
disability;
(f) allow the aggregate par value of the Capital
Stock subject to the Warrants from time to time to exceed the
price payable upon exercise of the Warrants, as adjusted from
time to time; or
(g) obligate itself or otherwise agree to take,
permit or enter into any of the events described in subsections
(a) through (f) above.
4.05 Records. The Company and each of its Subsidiaries
will keep books and records of account in which full, true, and
correct entries will be made of all dealings and transactions in
relation to its business and affairs in accordance with generally
accepted accounting principles applied on a consistent basis.
4.06 Accountants. The Company will retain independent
public accountants who will certify the consolidated and
consolidating financial statements of the Company at the end of
each fiscal year, and in the event that the services of the
independent public accountants so selected, or any firm of
independent public accounts hereafter employed by Company, are
terminated, the Company will promptly thereafter notify each
Holder and upon the Holders' request, the Company will request
the firm of independent public accountants whose services are
terminated to deliver (without liability for such firm) to each
Holder a letter of such firm setting forth the reasons for the
termination of their services and in its notice to each Holder
the Company will state whether the change of accountants was
recommended or approved by the board of directors of the Company
or any committee thereof.
4.07 Existence. The Company will maintain in full force
and effect its corporate existence, rights, and franchises and
all licenses and other rights to use Intellectual Property.
4.08 Notice.
(a) In the event of (i) any setting by the Company
of a record date with respect to the holders of any class of
Capital Stock for the purpose of determining which of such
holders are entitled to dividends, repurchases of securities or
other distributions, or any right to subscribe for, purchase or
otherwise acquire any shares of Capital Stock or other property
or to receive any other right; or (ii) any capital reorganization
of the Company, or reclassification or recapitalization of the
Capital Stock or any transfer of all or a majority of the assets,
business, or revenue or income generating capacity of the
Company, or consolidation, merger, share exchange,
reorganization, or similar transaction involving the Company; or
(iii) any voluntary or involuntary dissolution, liquidation, or
winding up of the Company; or (iv) any proposed issue or grant by
the Company of any Capital Stock, or any right or option to
subscribe for, purchase, or otherwise acquire any Capital Stock
(other than the issue of Permitted Stock or Issuable Warrant
Shares upon exercise of the Warrants), then, in each such event,
the Company will deliver or cause to be delivered to the Holders
a notice specifying, as the case may be, (A) the date on which
any such record is to be set for the purpose of such dividend,
distribution, or right, and stating the amount and character of
such dividend, distribution, or right; (B) the date as of which
the holders of record will be entitled to vote on any
reorganization, reclassification, recapitalization, transfer,
consolidation, merger, share exchange, conveyance, dissolution,
liquidation, or winding-up; (C) the date on which any such
reorganization, reclassification, recapitalization, transfer,
consolidation, merger, share exchange, conveyance, dissolution,
liquidation, or winding-up is to take place and the time, if any
is to be fixed, as of which the holders of record of any class of
Capital Stock will be entitled to exchange their shares of
Capital Stock for securities or other property deliverable upon
such event; (D) the amount and character of any Capital Stock,
property, or rights proposed to be issued or granted, the
consideration to be received therefor, and, in the case of rights
or options, the exercise price thereof, and the date of such
proposed issue or grant and the Persons or class of Persons to
whom such proposed issue or grant will be offered or made; and
(E) such other information as the Holders may reasonably request.
Any such notice will be deposited in the United States mail,
postage prepaid, at least twenty (20) days prior to the date
therein specified, and notwithstanding anything in this Agreement
or the Warrants to the contrary the Holders may exercise the
Warrants within thirty (30) days from the receipt of such notice.
(b) If there is any adjustment as provided above in
Article II, or if any Other Securities become issuable in lieu of
shares of such Common Stock upon exercises of the Warrants, the
Company will immediately cause written notice thereof to be sent
to the each Holder, which notice will be accompanied by a
certificate of the chief financial officer of the Company setting
forth in reasonable detail the basis for the Holders' becoming
entitled to receive such Other Securities, the facts requiring
any such adjustment in the number of shares receivable after such
adjustment, or the kind and amount of any Other Securities so
purchasable upon the exercise of the Warrants, as the case may
be. At the request of any Holder and upon surrender of the
Warrant of such Holder, the Company will reissue the Warrant of
such Holder in a form conforming to such adjustments.
4.09 Taxes. The Company will file all required tax
returns, reports, and requests for refunds on a timely basis and
will pay on a timely basis all taxes imposed on either of it or
upon any of its assets, income, or franchises.
4.10 Warrant Rights. The Company covenants and agrees
that during the term of this Agreement and so long as any Warrant
is outstanding, (a) the Company will at all times have authorized
and reserved a sufficient number of shares of Common Stock and
Other Securities, to provide for the exercise in full of the
rights represented by the Warrants and the exercise in full of
the rights of the Holders under this Agreement; (b) the Company
will not increase or permit to be increased the par value per
share or stated capital of the Issuable Warrant Shares or the
consideration receivable upon issuance of its Issuable Warrant
Shares; and (c) in the event that the exercise of the Warrant
would require the payment by the Holder of consideration for the
Common Stock or Other Securities receivable upon such exercise of
less than the par or stated value of such Issuable Warrant
Shares, the Company and the Shareholders will promptly take such
action as may be necessary to change the par or stated value of
such Issuable Warrant Shares to an amount less than or equal to
such consideration.
4.11 Inspection. Subject to Section 10.17, at any
reasonable time and from time to time, the Company will permit
representatives of Purchaser to examine and make copies of the
books and records of, and visit and inspect the properties of,
the Company, and to discuss the business, operations, and
financial condition of the Company with its respective officers
and employees and with its independent certified public
accountants The Company will promptly reimburse Purchaser for
all reasonable expenses incurred by representatives of Purchaser
in connection with such inspections.
4.12 Small Business Investment Act. At the request of
any Holder, the Company will promptly correct any defect, error
or omission with respect to the Act that may be discovered in the
contents of this Agreement or the documents executed in
connection herewith or in the execution or acknowledgment
thereof, and will execute, acknowledge and deliver such further
instruments and do such further acts as may be necessary for this
Agreement and such other documents, and all transactions
contemplated thereby, to comply with the Act.
Article V
Conditions
The obligations of the Purchaser to effect the transactions
contemplated by this Agreement are subject to the following
conditions precedent:
5.01 Opinion. The Purchaser will have received
favorable opinions, dated the Closing Date, from Brad E. Herr,
P.S., general counsel to the Company, and Preston Gates & Ellis,
special counsel to the Company, covering matters raised by this
Agreement and the Shareholder Agreement and such other matters as
the Purchaser or their counsel may request, and otherwise in form
and substance satisfactory to the Purchaser and its counsel.
5.02 Note Agreement Conditions. All of the conditions
precedent to the obligations of the Purchaser under the Note
Agreement will have been satisfied in full.
5.03 Material Change. There will have occurred no
material adverse change in the business, prospects, results,
operations, or condition, financial or otherwise, of the Company.
5.04 Representations and Agreements. Each
representation and warranty of the Company set forth in this
Agreement will be true and correct when made and as of the
Closing Date, and the Company will have fully performed all
covenants and agreements set forth in this Agreement to be
performed by the Company on or prior to the date hereof.
5.05 Proceedings; Consents. All proceedings taken in
connection with the transactions contemplated by this Agreement,
and all documents necessary to the consummation of this
Agreement, will be satisfactory in form and substance to the
Purchaser and their counsel, and the Purchaser and their counsel
will have received certificates of compliance and copies
(executed or certified as may be appropriate) of all documents,
instruments, and agreements that the Purchaser or such counsel
may request in connection with the consummation of such
transactions. All consents of any Person necessary to the
consummation of the transactions contemplated by this Agreement
will have been received, be in full force and effect, and not be
subject to any onerous condition.
5.06 Small Business Concern Documents. The Company will
have completed, executed and delivered to the Purchaser a Size
Status Declaration on SBA Form 480, a Non-Discrimination
Certificate on SBA Form 652-D and shall have provided the
Purchaser the information necessary to complete the Portfolio
Financing Report on SBA Form 1031.
5.07 Shareholder Agreement. The Company and the
Shareholders will have entered into the Shareholder Agreement
with Purchaser.
Article VI
Holders' Right to Purchase New Securities
6.01 Right to Purchase New Securities. The Company will
not issue or sell any New Securities without first complying with
this Article VI. The Company hereby grants to each Holder the
right to purchase, pro rata, all or any part of the New
Securities that the Company may, from time to time, propose to
sell or issue. In the event New Securities are offered or sold as
part of a unit with other New Securities, the right granted by
this Article VI will apply to such units and not to the
individual New Securities composing such units. Each Holder's
pro rata share for purposes of Article VI is the ratio that the
number of shares of Common Stock issuable to such Holder upon
exercise of its Warrant plus the number of shares of Common Stock
that are Issued Warrant Shares owned by such Holder immediately
prior to the issuance of the New Securities, bears to the sum of
(x) the total number of shares of Common Stock then outstanding,
plus (y) the number of shares of Common Stock issuable upon
exercise of all Warrants then outstanding.
6.02 Notice to Holders. In the event the Company
proposes to issue or sell New Securities, it will give each
Holder written notice of its intention, describing the type of
New Securities and the price and terms upon which the Company
proposes to issue or sell the New Securities. Each Holder will
have fifteen (15) days from the date of receipt of any such
notice and such information as the Holders may reasonably request
to facilitate their investment decision to agree to purchase up
to its respective pro rata share of the New Securities for the
price (valued at Fair Market Value for any noncash consideration)
and upon the terms specified in the notice by giving written
notice to the Company stating the quantity of New Securities
agreed to be purchased.
6.03 Allocation of Unsubscribed New Securities. In the
event a Holder fails to exercise such right to purchase within
such fifteen (15) day period, the other Holders, if any, will
have an additional five (5) day period to purchase such Holder's
portion not so agreed to be purchased in the same proportion in
which such other Holders were entitled to purchase the New
Securities (excluding for such purposes such nonpurchasing
Holder). Thereafter, the Company will have ninety (90) days to
sell the New Securities not elected to be purchased by the
Holders at the same price and upon the same terms specified in
the Company's notice described in Section 6.02. In the event the
Company has not sold the New Securities within such ninety (90)
day period, the Company will not thereafter issue or sell any New
Securities without first offering such securities in the manner
provided above.
Article VII
Dilution Fee
In the event that, during the term of the Warrants, the
Company pays any cash dividend or makes any cash distribution to
any holder of any class of its Capital Stock with respect to such
Capital Stock, each Holder of the Warrants will be entitled to
receive in respect of its Warrant a dilution fee in cash (the
"Dilution Fee") on the date of payment of such dividend or
distribution, which Dilution Fee will be equal to the highest
amount per share paid to any class of Capital Stock times the
number of Issued Warrant Shares then owned by such Holder plus
the number if Issuable Warrant Shares then owned by such Holder,
less the amount of such dividend or distribution otherwise paid
to such Holder as a result of its ownership of Common Stock.
Article VIII
Forced Exercise Option
8.01 Grant of Option. Each Holder hereby severally
grants to the Company an option to require such Holder to
exercise, and each Holder is obligated to exercise under this
option (the "Forced Exercise Option"), its Warrant. The Forced
Exercise Option shall only be effective (i) after the fourth
anniversary of the Closing Date, (ii) after the Notes have been
paid in full, and (iii) if the closing price of the Common Stock
has exceeded two hundred percent (200%) of the Exercise Price for
the thirty (30) trading days ending five (5) days prior to the
Company giving notice to each Holder pursuant to Section 8.03
hereof (the "Forced Exercise Period").
8.02 Exercise Price. In the event that the Company
exercises the Forced Exercise Option, each Holder shall pay to
the Company, at the Forced Exercise Date (as defined below), the
Exercise Price for each Issuable Warrant Share covered by its
Warrant. The Exercise Price shall be paid, at the option of each
Holder, in the same form(s) of consideration permitted under
Section 2.04(b) hereof; provided, however, that if any Holder
fails to designate the form of consideration to be utilized to
pay the Exercise Price, such Holder shall pay the Exercise Price
by cancellation of its Warrant, valued at Fair Market Value.
8.03 Exercise of Forced Exercise Option. The Forced
Exercise Option may be exercised during the Forced Exercise
Period with respect to all of the Warrants of all Holders, by the
Company giving notice to each Holder during the Forced Exercise
Period of the election of the Company to exercise the Forced
Exercise Option, and the date of the Forced Exercise Date, which
in any event shall be the thirtieth (30th) day after the date of
such notice (unless such thirtieth day is not a business day in
which case the Forced Exercise Date shall be held on the next
succeeding business day). Notwithstanding anything contained in
this Article VIII to the contrary, each Holder shall be permitted
to exercise its Warrants pursuant to Section 2.04 at any time
following receipt of notice that the Company intends to exercise
the Forced Exercise Option and prior to the Forced Exercise Date.
8.04 Forced Exercise Date. The closing for the forced
exercise of all of the Warrants will take place at the office of
the Company, on the date specified in such notice of exercise
(the "Forced Exercise Date"). At the Forced Exercise Date, the
Holders of the Warrants will deliver the Warrants to the Company.
In consideration therefor, the Company will deliver to each
Holder a certificate or certificates representing the aggregate
number of full shares of Common Stock and Other Securities
issuable upon the exercise of such Holder's Warrant. The Stock
certificate or certificates so delivered will be in such
denominations as may be specified by each Holder and will be
registered in the name of such Holder, or such other name as
designated by such Holder prior to the Forced Exercise Date. A
Warrant will be deemed to have been exercised, such certificate
or certificates will be deemed to have been issued, and such
Holder or any other person so designated will be deemed to have
become a holder of record of such shares for all purposes, as of
the date of the Forced Exercise Date.
8.05 Holdback Agreement. The Company agrees (i) not to
effect any public sale or distribution during the period thirty
(30) days prior to the Forced Exercise Date and ending on the
sixtieth (60th) day after the Forced Exercise Date, and (ii) to
use their best efforts to cause each holder of the Company's
equity securities or any securities convertible into or
exchangeable or exercisable for any of such securities, in each
case purchased from the Company at any time after the date of
this Agreement (other than in a public offering), to agree not to
effect any such public ale or distribution of such securities
during such period.
Article IX
Liquidity
9.01 Required Registration. At any time, each
Qualifying Holder may, upon not more than one (1) occasion, make
a written request to the Company requesting that the Company
effect the registration of Registrable Securities. After receipt
of such a request, the Company will, as soon as practicable,
notify all Holders of such request and use its best efforts to
effect the registration of all Registrable Securities that the
Company has been so requested to register by any Qualifying
Holder for sale, all to the extent required to permit the
disposition (in accordance with the intended method or methods
thereof) of the Registrable Securities so registered. In no
event will any Person other than a Holder be entitled to include
any shares of Capital Stock in any registration statement filed
pursuant to this Section 9.01.
9.02 Incidental Registration. If the Company at any
time proposes to file on its behalf or on behalf of any of its
security holders a registration statement under the Securities
Act on any form (other than a registration statement on Form S-4
or S-8 or any successor form unless such forms are being used in
lieu of or as the functional equivalent of, registration rights)
for any class that is the same or similar to Registrable
Securities, it will give written notice setting forth the terms
of the proposed offering and such other information as the
Holders may reasonably request to all holders of Registrable
Securities at least thirty (30) days before the initial filing
with the Commission of such registration statement, and offer to
include in such filing such Registrable Securities as any Holder
may request. Each Holder of any such Registrable Securities
desiring to have Registrable Securities registered under this
Section 9.02 will advise the Company in writing within thirty
(30) days after the date of receipt of such notice from the
Company, setting forth the amount of such Registrable Securities
for which registration is requested. The Company will thereupon
include in such filing the number of Registrable Securities for
which registration is so requested, and will use its best efforts
to effect registration under the Securities Act of such
Registrable Securities.
Notwithstanding the foregoing, if the managing underwriter
or underwriters, if any, of such offering deliver a written
opinion to each Holder of such Registrable Securities that the
success of the offering would be materially and adversely
affected by the inclusion of the Registrable Securities requested
to be included, then the amount of securities to be offered for
the accounts of Holders will be reduced pro rata (according to
the Registrable Securities proposed for registration) to the
extent necessary to reduce the total amount of securities to be
included in such offering to the amount recommended by such
managing underwriter or underwriters; provided, however, that if
securities are being offered for the account of other persons as
well as the Company, then with respect to the Registrable
Securities intended to be offered to Holders, the proportion by
which the amount of such class of securities intended to be
offered by Holders is reduced will not exceed the proportion by
which the amount of such class of securities intended to be
offered by such other Persons (other than the Company) is
reduced.
9.03 Form S-3 Registrations. In addition to the
registration rights provided in Sections 9.01 and 9.02 above, if
at any time the Company is eligible to use Form S-3 (or any
successor form) for registration of secondary sales of
Registrable Securities, any Holder of Registrable Securities may
request in writing that the Company register shares of
Registrable Securities on such form. Upon receipt of such
request, the Company will promptly notify all holders of
Registrable Securities in writing of the receipt of such request
and each such Holder may elect (by written notice sent to the
Company within thirty (30) days of receipt of the Company's
notice) to have its Registrable Securities included in such
registration pursuant to this Section 9.03. Thereupon, the
Company will, as soon as practicable, use its best efforts to
effect the registration on Form S-3 of all Registrable Securities
that the Company has so been requested to register by such Holder
for sale. The Company will use its best efforts to qualify and
maintain its qualification for eligibility to use Form S-3 for
such purposes.
9.04 Registration Procedures. In connection with any
registration of Registrable Securities under this Article IX, the
Company will, as soon as practicable:
(a) prepare and file with the Commission a
registration statement with respect to such Registrable
Securities and use its best efforts to cause such registration
statement to become and remain effective until the earlier of
such time as all Registrable Securities subject to such
registration statement have been disposed of or the expiration of
two hundred seventy (270) days (except with respect to
registrations effected on Form S-3 or any successor form, as to
which no such period shall apply);
(b) prepare and file with the Commission such
amendments and supplements to such registration statement and the
prospectus used in connection therewith as may be necessary to
keep such registration statement effective and to comply with the
provisions of the Securities Act with respect to the sale or
other disposition of all Registrable Securities covered by such
registration statement until the earlier of such time as all of
such Registrable Securities have been disposed of or the
expiration of two hundred seventy (270) days (except with respect
to registrations effected on Form S-3 or any successor form, as
to which no such period shall apply);
(c) furnish to each Holder such number of copies of
the registration statement and prospectus (including, without
limitation, a preliminary prospectus) in conformity with the
requirements of the Securities Act (in each case including all
exhibits) and each amendment or supplement thereto, together with
such other documents as any Holder may reasonably request;
(d) use its best efforts to register or qualify the
Registrable Securities covered by such registration statement
under such other securities or blue sky laws of such
jurisdictions within the United States and Puerto Rico as each
Holder reasonably requests, and do such other acts and things as
may be reasonably required of it to enable such holder to
consummate the disposition in such jurisdiction of the securities
covered by such registration statement;
(e) otherwise use its best efforts to comply with
all applicable rules and regulations of the Commission, and make
available to its securities holders, as soon as practicable, an
earnings statement covering the period of at least twelve months
beginning with the first month after the effective date of such
registration statement, which earnings statement will satisfy the
provisions of Section 11(a) of the Securities Act;
(f) provide and cause to be maintained a transfer
agent and registrar for Registrable Securities covered by such
registration statement from and after a date not later than the
effective date of such registration statement;
(g) if requested by the underwriters for any
underwritten offering or Registrable Securities on behalf of a
Holder of Registrable Securities pursuant to a registration
requested under Section 9.01, the Company will enter into an
underwriting agreement with such underwriters for such offering,
such agreement to contain such representations and warranties by
the Company and such other terms and provisions as are
customarily contained in underwriting agreements with respect to
secondary distributions, including, without limitation,
provisions with respect to indemnities and contribution as are
reasonably satisfactory to such underwriters and the Holders; the
Holders on whose behalf Registrable Securities are to be
distributed by such underwriters will be parties to any such
underwriting agreement and the representations and warranties by,
and the other agreements on the part of, the Company to and for
the benefit of such underwriters, will also be made to and for
the benefit of such Holders of Registrable Securities; and no
Holder of Registrable Securities will be required by the Company
to make any representations or warranties to or agreements with
the Company or the underwriters other than reasonable and
customary representations, warranties, or agreements regarding
such Holder, such Holder's Registrable Securities, such Holder's
intended method or methods of disposition, and any other
representation required by law;
(h) furnish, at the written request of any Holder,
on the date that such Registrable Securities are delivered to the
underwriters for sale pursuant to such registration, or, if such
Registrable Securities are not being sold through underwriters,
on the date that the registration statement with respect to such
Registrable Securities becomes effective, (i) an opinion in form
and substance reasonably satisfactory to such Holders, and
addressing matters customarily addressed in underwritten public
offerings, of the counsel representing the Company for the
purposes of such registration (who will not be an employee of the
Company and who will be satisfactory to such Holders), addressed
to the underwriters, if any, and to the selling Holders; and (ii)
a letter (the "comfort letter") in form and substance reasonably
satisfactory to such Holders, from the independent certified
public accountants of the Company, addressed to the underwriters,
if any, and to the selling Holders making such request (and, if
such accountants refuse to deliver the comfort letter to such
Holders, then the comfort letter will be addressed to the Company
and accompanied by a letter from such accountants addressed to
such Holders stating that they may rely on the comfort letter
addressed to the Company); and
(i) during the period when the registration
statement is required to be effective, notify each selling Holder
of the happening of any event as a result of which the prospectus
included in the registration statement contains an untrue
statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading, and prepare a supplement or amendment to
such prospectus so that, as thereafter delivered to the
purchasers of such Registrable Securities, such prospectus will
not contain an untrue statement of a material fact or omit to
state any material fact required to be stated therein or
necessary to make the statements therein not misleading.
It will be a condition precedent to the obligation of the
Company to take any action pursuant to this Article IX in respect
of the Registrable Securities that are to be registered at the
request of any Holder of Registrable Securities that such Holder
furnish to the Company such information regarding the Registrable
Securities held by such Holder and the intended method of
disposition thereof as is legally required in connection with the
action taken by the Company. The managing underwriter or
underwriters, if any, for any offering of Registrable Securities
to be registered pursuant to Section 9.01 or 9.03 will be
selected by the Holders of a majority of the Registrable
Securities being so registered.
9.05 Allocation of Expenses. Except as provided in the
following sentence, the Company will bear all expenses arising or
incurred in connection with any of the transactions contemplated
by this Article IX, including, without limitation, (a) all
expenses incident to filing with the National Association of
Securities Dealers, Inc.; (b) registration fees; (c) printing
expenses; (d) accounting and legal fees and expenses; (e)
expenses of any special audits or comfort letters incident to or
required by any such registration or qualification; and (f)
expenses of complying with the securities or blue sky laws of any
jurisdictions in connection with such registration or
qualification. Each Holder will severally bear the expense of
its underwriting fees, discounts, or commissions relating to its
sale of Registrable Securities.
9.06 Listing on Securities Exchange. If the Company
lists any shares of Capital Stock on any securities exchange or
on the National Association of Securities Dealers, Inc. Automated
Quotation System or similar system, it will, at its expense, list
thereon, maintain and, when necessary, increase such listing of,
all Registrable Securities.
9.07 Holdback Agreements.
(a) If any registration pursuant to Section 9.02 is
in connection with an underwritten public offering, each Holder
of Registrable Securities agrees, if so required by the managing
underwriter, not to effect any public sale or distribution of
Registrable Securities (other than as part of such underwritten
public offering) during the period beginning seven (7) days prior
to the effective date of such registration statement and ending
on the one hundred eightieth (180th) day after the effective date
of such registration statement; provided, however, that the
Shareholders and each Person that is an officer, director, or
beneficial owner of five percent (5%) or more of the outstanding
shares of any class of Capital Stock enters into such an
agreement.
(b) The Company and the Shareholders agree (i) not
to effect any public sale or distribution during the period seven
(7) days (or such longer period as may be prescribed by Rule 10b-
6 under the Exchange Act) prior to the effective date of the
registration statement employed in any underwritten public
offering and ending on the one hundred eightieth (180th) day
after any such registration statement contemplated by Sections
9.01 or 9.03 has become effective, except as part of such
underwritten public offering pursuant to such registration
statement and except pursuant to securities registered on Forms
S-4 or S-8 of the Commission or any successor forms, and (ii) use
their best efforts to cause each holder of its equity securities
or any securities convertible into or exchangeable or exercisable
for any of such securities, in each case purchased from the
Company at any time after the date of this Agreement (other than
in a public offering), to agree not to effect any such public
sale or distribution of such securities during such period.
9.08 Rule 144. The Company will, at all times during
the terms of this Agreement, take such action as any Holder may
reasonably request, all to the extent required from time to time,
to enable such Holder to sell shares of Registrable Securities
without registration pursuant to and in accordance with (a) Rule
144 under the Securities Act, as such Rule may be amended from
time to time, or (b) any similar rule or regulation adopted by
the Commission. Upon the request of any Holder of Registrable
Securities, the Company will deliver to such Holder a written
statement as to whether it has complied with such requirements.
9.09 Rule 144A. The Company agrees that, upon the
request of any Holder or any prospective purchaser of a Warrant
or Warrant Shares designated by a Holder, the Company will
promptly provide (but in any case within fifteen (15) days of a
request) to such Holder or potential purchaser, the following
information:
(a) a brief statement of the nature of the business
of the Company and any Subsidiaries and the products and services
they offer;
(b) the most recent consolidated balance sheets and
profit and losses and retained earnings statements, and similar
financial statements of the Company for such part of the two
preceding fiscal years prior to such request as the Company has
been in operation (such financial information will be audited, to
the extent reasonably available); and
(c) such other information about the Company, any
Subsidiaries, and their business, financial condition, and
results of operations as the requesting Holder or purchaser of
such Warrants requests in order to comply with Rule 144A, as
amended, and the antifraud provisions of the federal and state
securities laws.
The Company hereby represents and warrants to any such requesting
Holder and any prospective purchaser of Warrants or Warrant
Shares from such Holder that the information provided by the
Company pursuant to this Section 9.09 will not contain any untrue
statement of a material fact or omit to state a material fact
necessary in order to make the statements made, in light of the
circumstances under which they were made, not misleading.
9.10 Form S-3 Required Registration. As soon as the
Company is eligible to use Form S-3 (or any successor form) for
registration of secondary sales of Registrable Securities, the
Company will register all shares of Registrable Securities owned
by the Holders on such form. The Company will promptly notify
all holders of Registrable Securities in writing at such time
that it is eligible to use Form S-3 (or any successor form) for
registration of Secondary Sales of Registrable Securities, and
thereafter, upon the request of Holders representing a majority
in interest of the Registrable Securities, the Company will, as
soon as practicable, use its best efforts to effect the
registration on Form S-3 of all Registrable Securities owned by
the Holders. The Company will use its best efforts to qualify
and maintain its qualification for eligibility to use Form S-3
for such purposes. In connection with any registration of
Registrable Securities under this Section 9.10, the Company will
comply with Section 9.04 hereof.
9.11 Limitations on Subsequent Registration Rights.
From and after the date of this Agreement, the Company will not,
without the prior written consent of the Holders of a majority of
the outstanding Registrable Securities, enter into any agreement
with any holder or prospective holder of any securities of the
Company that would allow such holder or prospective holder (a) to
include such securities in any registration filed under Section
9.01, unless under the terms of such agreement, such holder or
prospective holder may include such securities in any such
registration only to the extent that the inclusion of its
securities will not reduce the amount of the Registrable
Securities of the Holders that is included or (b) to make a
demand registration that could result in such registration
statement being declared effective prior to the effectiveness of
the first registration statement effected under Section 9.01 or
within one hundred twenty (120) days of the effective date of any
registration effected pursuant to Section 9.01.
9.12 No Impairment of Registration Rights. The Company
and the Shareholders will not avoid or seek to avoid the
observance or performance of any of the terms of this Article IX,
but will at all times in good faith assist in the carrying out of
all such terms and in the taking of all such actions as may be
necessary or appropriate in order to protect the rights of the
Holders under this Article IX from dilution or impairment.
9.13 Survivability of Demand Registration Rights.
Notwithstanding anything contained herein to the contrary, if the
Company has registered all shares of Registrable Securities owned
by the Holders on Form S-3 pursuant to Section 9.10 and for so
long as the Company is complying with all of its obligations
under Section 9.10, no Holder shall be entitled to the benefits
of Sections 9.01, 9.02 or 9.03 hereof.
Article X
Miscellaneous
10.01 Indemnification. In addition to any other rights
or remedies to which the Purchaser and the Holders may be
entitled, the Company agrees to and will indemnify and hold
harmless the Purchaser, the Holders, and their Affiliates and
their respective successors, assigns, officers, directors,
employees, attorneys, and agents (individually and collectively,
an "Indemnified Party") from and against any and all losses,
claims, obligations, liabilities, deficiencies, diminutions in
value, penalties, causes of action, damages, costs, and expenses
(including, without limitation, costs of investigation and
defense, attorneys' fees, and expenses), including, without
limitation, those arising out of the sole or contributory
negligence of any Indemnified Party, that the Indemnified Party
may suffer, incur, or be responsible for, arising or resulting
from any misrepresentation, breach of warranty, or nonfulfillment
of any covenant or agreement on the part of the Company under
this Agreement, the Shareholder Agreement, or under any other
agreement to which the Company is a party in connection with this
transaction, or from any misrepresentation in or omission from
any certificate or other instrument furnished or to be furnished
to the Purchaser or the Holders under this Agreement.
10.02 Default. It is agreed that a violation by any
party of the terms of this Agreement cannot be adequately
measured or compensated in money damages, and that any breach or
threatened breach of this Agreement by a party to this Agreement
would do irreparable injury to the nondefaulting party. It is,
therefore, agreed that in the event of any breach or threatened
breach by a party to this Agreement of the terms and conditions
set forth in this Agreement, the nondefaulting party will be
entitled, in addition to any and all other rights and remedies
that it may have in law or in equity, to apply for and obtain
injunctive relief requiring the defaulting party to be restrained
from any such breach or threatened breach or to refrain from a
continuation of any actual breach.
10.03 Integration. This Agreement constitutes the
entire agreement between the parties with respect to the subject
matter hereof and thereof and supersede all previous written, and
all previous or contemporaneous oral, negotiations,
understandings, arrangements, and agreements. This Agreement may
not be amended or supplemented except by a writing signed by
Company, the Shareholders, and each Holder.
10.04 Headings. The headings in this Agreement are for
convenience and reference only and are not part of the substance
of this Agreement. References in this Agreement to Sections and
Articles are references to the Sections and Articles of this
Agreement unless otherwise specified.
10.05 Severability. The parties to this Agreement
expressly agree that it is not the intention of any of them to
violate any public policy, statutory or common law rules,
regulations, or decisions of any governmental or regulatory body.
If any provision of this Agreement is judicially or
administratively interpreted or construed as being in violation
of any such policy, rule, regulation, or decision, the provision,
section, sentence, word, clause, or combination thereof causing
such violation will be inoperative (and in lieu thereof there
will be inserted such provision, sentence, word, clause, or
combination thereof as may be valid and consistent with the
intent of the parties under this Agreement) and the remainder of
this Agreement, as amended, will remain binding upon the parties,
unless the inoperative provision would cause enforcement of the
remainder of this Agreement to be inequitable under the
circumstances.
10.06 Notices. Whenever it is provided herein that any
notice, demand, request, consent, approval, declaration, or other
communication be given to or served upon any of the parties by
another, such notice, demand, request, consent, approval,
declaration, or other communication will be in writing and will
be deemed to have been validly served, given or delivered (and
"the date of such notice" or words of similar effect will mean
the date) five (5) days after deposit in the United States mails,
certified mail, return receipt requested, with proper postage
prepaid, or upon receipt thereof (whether by non-certified mail,
telecopy, telegram, express delivery, or otherwise), whichever is
earlier, and addressed to the party to be notified as follows:
If to the Purchaser, at: Seacoast Capital Partners
Limited Partnership
c/o Seacoast Capital
Corporation
55 Ferncroft Road
Danvers, Massachusetts 01923
Attention: Thomas W. Gorman
Facsimile: (508) 750-1301
Allied Investment Corporation
1666 K Street, N.W.
Suite 901
Washington D.C. 20006
Attn: George Stelljes III
Facsimile: (202) 659-2053
Allied Investment Corporation II
1666 K Street, N.W.
Suite 901
Washington D.C. 20006
Attn: George Stelljes III
Facsimile: (202) 659-2053
Allied Capital Corporation II
1666 K Street, N.W.
Suite 901
Washington, D.C. 20006
Attn: George Stelljes III
Facsimile: (201) 659-2053
with courtesy copies to: Hughes & Luce, L.L.P.
1717 Main Street
Suite 2800
Dallas, Texas 75201
Attn: Larry A. Makel, Esq.
Facsimile: 214-939-6100
Dickstein Shapiro & Morin
2101 L Street, N.W.
Suite 800
Washington, D.C. 20037
Attn: David Parker
Facsimile: (202) 887-0689
If to the Company, at: Labor Ready, Inc.
2156 Pacific Avenue South
Tacoma, Washington 98402
Attn: Glenn A. Welstad
Facsimile: (206) 383-9311
with courtesy copies to: Preston Gates & Ellis
701 5th Avenue, Suite 5000
Seattle, Washington 98104
Attn: Mark Beatty, Esq.
Facsimile: (206) 623-7022
Brad E. Herr, P.S.
2150 North Pines, Suite 202
Spokane, Washington 99206
Facsimile: (509) 928-9338
or to such other address as each party may designate for itself
by like notice. Notice to any Holder other than the Purchaser
will be delivered as set forth above to the address shown on the
stock transfer books of the Company or the Warrant Register
unless such Holder has advised the Company in writing of a
different address to which notices are to be sent under this
Agreement.
Failure or delay in delivering courtesy copies of any
notice, demand, request, consent, approval, declaration, or other
communication to the persons designated above to receive copies
of the actual notice will in no way adversely affect the
effectiveness of such notice, demand, request, consent, approval,
declaration, or other communication.
No notice, demand, request, consent, approval, declaration
or other communication will be deemed to have been given or
received unless and until it sets forth all items of information
required to be set forth therein pursuant to the terms of this
Agreement.
10.07 Successors. This Agreement will be binding upon
and inure to the benefit of the parties and their respective
successors and assigns, provided that the Purchaser will have the
right to assign its rights under this Agreement in connection
with any transfer of the Warrants or Warrant Shares to not more
than twenty (20) Persons.
10.08 Remedies. The failure of any party to enforce any
right or remedy under this Agreement, or promptly to enforce any
such right or remedy, will not constitute a waiver thereof, nor
give rise to any estoppel against such party, nor excuse any
other party from its obligations under this Agreement. Any
waiver of any such right or remedy by any party must be in
writing and signed by the party against which such waiver is
sought to be enforced.
10.09 Survival. All warranties, representations, and
covenants made by any party in this Agreement or in any
certificate or other instrument delivered by such party or on its
behalf under this Agreement will be considered to have been
relied upon by the party to which it is delivered and will
survive the Closing Date, regardless of any investigation made by
such party or on its behalf. All statements in any such
certificate or other instrument will constitute warranties and
representations under this Agreement. Notwithstanding anything
to the contrary contained in this Agreement, (a) Seacoast shall
not be entitled to the benefits of this Agreement at such time
that it (i) no longer owns a Warrant and (ii) owns less than
twenty percent (20%) of the Warrant Shares owned by it on the
Closing Date, (b) no Allied Investor shall be entitled to the
benefits of this Agreement at such time that (i) no Allied
Investor holds a Warrant and (ii) the Allied Investors own, in
the aggregate, less than twenty percent (20%) of the Warrant
Shares owned by them, collectively, on the Closing Date, and (c)
a Holder (other than Seacoast or the Allied Investors) shall not
be entitled to the benefits of this Agreement at such time that
it (i) no longer owns a Warrant and (ii) owns less than ten
percent (10%) of the Warrant Shares.
10.10 Fees. Subject to the second sentence of this
Section 10.10, any and all fees, costs, and expenses, of whatever
kind and nature, including attorneys' fees and expenses, incurred
by the Holders in connection with the defense or prosecution of
any actions or proceedings arising out of or in connection with
this Agreement will be borne and paid by the Company within ten
(10) days of demand by the Holders. Notwithstanding the
foregoing, with respect to any actions or proceedings solely
between any Holder and the Company arising out of or in
connection with this Agreement, the prevailing party shall
recover, within ten (10) days of demand, any and all fees, costs,
and expenses, of whatever kind and nature, including attorneys'
fees and expenses, reasonably incurred in connection with the
defense or prosecution of any such actions or proceedings.
10.11 Counterparts. This Agreement may be executed in
any number of counterparts, which will individually and
collectively constitute one agreement.
10.12 Other Business. It is understood and accepted
that the Purchaser, the Holders, and their Affiliates have
interests in other business ventures that may be in conflict with
the activities of the Company and that nothing in this Agreement
will limit the current or future business activities of such
parties whether or not such activities are competitive with those
of the Company. The Company agrees that all business
opportunities in any field substantially related to the business
of the Company will be pursued exclusively through the Company.
10.13 Choice of Law. THIS AGREEMENT HAS BEEN EXECUTED,
DELIVERED, AND ACCEPTED BY THE PARTIES IN THE COMMONWEALTH OF
MASSACHUSETTS, WILL BE DEEMED TO HAVE BEEN MADE IN THE
COMMONWEALTH OF MASSACHUSETTS, AND WILL BE INTERPRETED AND THE
RIGHTS OF THE PARTIES DETERMINED IN ACCORDANCE WITH THE LAWS OF
THE UNITED STATES APPLICABLE THERETO AND THE INTERNAL LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS APPLICABLE TO AN AGREEMENT
EXECUTED, DELIVERED AND PERFORMED THEREIN WITHOUT GIVING EFFECT
TO THE CHOICE-OF-LAW RULES THEREOF OR ANY OTHER PRINCIPLE THAT
COULD REQUIRE THE APPLICATION OF THE SUBSTANTIVE LAW OF ANY OTHER
JURISDICTION.
10.14 Nominees for Beneficial Owners. In the event that
any Registrable Securities are held by a nominee for the
beneficial owner of such Registrable Securities, the beneficial
owner of Registrable Securities may, at its election, be treated
as the Holder of such Registrable Securities for purposes of any
request or other action by any Holder or Holders of Registrable
Securities pursuant to this Agreement or any determination of any
number or percentage of shares of Registrable Securities held by
any Holder or Holders of Registrable Securities contemplated by
this Agreement. If the beneficial owner of any Registrable
Securities so elects, the Company may require assurances
reasonably satisfactory to it of such owner's beneficial
ownership of such Registrable Securities. In no event will a
Holder be required to exercise the Warrants as a condition to the
registration of such Warrant or Registrable Securities
thereunder.
10.15 Duties Among Holders. Each Holder agrees that no
other Holder will by virtue of this Agreement be under any
fiduciary or other duty to give or withhold any consent or
approval under this Agreement or to take any other action or omit
to take any action under this Agreement, and that each other
Holder may act or refrain from acting under this Agreement as
such other Holder may, in its discretion, elect.
10.16 Small Business Investment Act. This Agreement,
the other purchase documents executed in connection herewith, and
all transactions contemplated hereby and thereby are subject to
the provisions of the Act, and shall be governed thereby to the
extent of any conflict therewith.
10.17 Confidentiality. Each Purchaser and each Holder
agrees to keep confidential any information delivered by the
Company to such Person under this Agreement; provided, however,
that nothing in this Section 10.17 will prevent such Person from
disclosing such information (a) to any Affiliate of such Person
or any actual or potential purchaser, participant, assignee, or
transferee of such Person's rights or obligations hereunder that
agrees to be bound by the terms of this Section 10.17, (b) upon
order of any court or administrative agency, (c) upon the request
or demand of any regulatory agency or authority having
jurisdiction over such Person, (d) that is in the public domain
otherwise than through the breach of this Section 10.17 by any
such Person, (e) that has been obtained from any Person that is
not a party to this Agreement or an Affiliate of any such party
without breach by such Person of a confidentiality obligation
known to such Person, (f) in connection with the exercise of any
remedy under this Agreement, (g) to the certified public
accountants of such Person, or (h) to the Senior Lender pursuant
to the terms of the Senior Subordination Agreement (as defined in
the Note Agreement). The Company agrees that such Person will be
presumed to have met its obligations under this Section 10.17 to
the extent that it exercises the same degree of care with respect
to information provided by the Company as it exercises with
respect to its own information of similar character.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the parties have executed and delivered
this Agreement as of the date first above written.
COMPANY:
LABOR READY, INC.
By:
Name: Glenn A. Welstad
Title: Chief Executive Officer
PURCHASER:
SEACOAST CAPITAL PARTNERS
LIMITED PARTNERSHIP
By: Seacoast Capital Corporation,
its general partner
By:
Name: Thomas W. Gorman
Title: Vice President
55 Ferncroft Road
Danvers, Massachusetts 01923
Attn: Thomas W. Gorman
Facsimile: (508) 750-1301
Number of Warrant Shares: 227,456 shares
Purchase Price: $23
ALLIED INVESTMENT CORPORATION
By:
Name: George Stelljes III
Title: Senior Vice President
1666 K Street, N.W., Suite 901
Washington D.C. 20006
Attn: George Stelljes III
Facsimile: (202) 659-2053
Number of Warrant Shares: 120,552 shares
Purchase Price: $12
ALLIED INVESTMENT CORPORATION II
By:
Name: George Stelljes III
Title: Senior Vice President
1666 K Street, N.W., Suite 901
Washington D.C. 20006
Attn: George Stelljes III
Facsimile: (202) 659-2053
Number of Warrant Shares: 59,138 shares
Purchase Price: $6
ALLIED CAPITAL CORPORATION II
By:
Name: George Stelljes III
Title: Senior Vice President
1666 K Street, N.W., Suite 901
Washington D.C. 20006
Attn: George Stelljes III
Facsimile: (202) 659-2053
Number of Warrant Shares: 47,766 shares
Purchase Price: $5
WARRANT
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF
HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO OR FOR
SALE IN CONNECTION WITH THE DISTRIBUTION HEREOF. THIS WARRANT
AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
STATE SECURITIES LAWS, AND MAY NOT BE PLEDGED, SOLD, OFFERED FOR
SALE, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF
REGISTRATION UNDER OR EXEMPTION FROM SUCH ACT AND ALL APPLICABLE
STATE SECURITIES LAWS.
"THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF
ARE SUBJECT TO THE TERMS AND PROVISIONS OF A WARRANT PURCHASE
AGREEMENT, DATED AS OF OCTOBER 31, 1995, BY AND AMONG LABOR
READY, INC. (THE "COMPANY"), SEACOAST CAPITAL PARTNERS LIMITED
PARTNERSHIP ("SEACOAST"), ALLIED INVESTMENT CORPORATION ("AIC"),
ALLIED INVESTMENT CORPORATION II ("AIC II") AND ALLIED CAPITAL
CORPORATION II ("ACC II"), AND A SHAREHOLDER AGREEMENT, DATED AS
OF OCTOBER 31, 1995, BY AND AMONG THE COMPANY, SEACOAST, AIC, AIC
II, ACC II AND THE SHAREHOLDERS OF THE COMPANY LISTED ON THE
SIGNATURE PAGES THERETO (AS SUCH AGREEMENTS MAY BE SUPPLEMENTED,
MODIFIED, AMENDED, OR RESTATED FROM TIME TO TIME, THE
"AGREEMENTS"). COPIES OF THE AGREEMENTS ARE AVAILABLE AT THE
EXECUTIVE OFFICES OF THE COMPANY."
227,456 shares of
Common Stock Warrant No. W-1
WARRANT TO PURCHASE COMMON STOCK OF
LABOR READY, INC.
This is to certify that, in consideration of __________
dollars ($______) and other valuable consideration, which is
hereby acknowledged as received, Seacoast Capital Partners
Limited Partnership (the "Holder"), its successors and registered
assigns, is entitled at any time after the date hereof and prior
to 5:00 p.m. October 31, 2002, to exercise this Warrant to
purchase __________(___________) shares of the common stock of Labor
Ready, Inc., a Washington corporation, as the same shall be adjusted
from time to time pursuant to the provisions of the Agreements at a price
per share as specified in the Agreements and to exercise the
other rights, powers, and privileges hereinafter provided, all on
the terms and subject to the conditions specified in this Warrant
and in the Agreements.
This Warrant is issued under, and the rights represented
hereby are subject to the terms and provisions contained in the
Agreements, to all terms and provisions of which the registered
holder of this Warrant, by acceptance of this Warrant, assents.
Reference is hereby made to the Agreements for a more complete
statement of the rights and limitations of rights of the
registered holder of this Warrant and the rights and duties of
the Company under this Warrant. Copies of the Agreements are on
file at the office of the Company.
IN WITNESS WHEREOF, the Company has caused this Warrant to
be duly executed.
Dated as of October ___, 1995.
LABOR READY, INC.
By:
Name: Glenn A. Welstad
Title: Chief Executive Officer
SUBSCRIPTION FORM
(To be executed only upon exercise of Warrant)
The undersigned registered owner of this Warrant irrevocably
exercises this Warrant for and purchases ________ of the number
of shares of Common Stock of Labor Ready, Inc. purchasable with
this Warrant, and herewith makes payment therefor, all at the
price and on the terms and conditions specified in this Warrant
and requests that certificates for the shares of Common Stock
hereby purchased (and any securities or other property issuable
upon such exercise) be issued in the name of and delivered to
_______________________ whose address is
___________________________________________, and if such shares
of Common Stock do not include all of the shares of Common Stock
issuable as provided in this Warrant, that a new Warrant of like
tenor and date for the balance of the shares of Common Stock
issuable thereunder to be delivered to the undersigned.
Dated: _______________, 19__.
By:
Name:
Title
Address:
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of this
Warrant hereby sells, assigns and transfers unto the Assignee
named below all of the rights of the undersigned under this
Warrant, with respect to the number of shares of Common Stock set
forth below:
No. of Shares Name and Address of Assignee
and does hereby irrevocably constitute and appoint as attorney
______________________ to register such transfer on the books of
Labor Ready, Inc. maintained for the purpose, with full power of
substitution in the premises.
Dated: _______________, 19__.
By:
Name:
Title:
<PAGE>
SHAREHOLDER AGREEMENT
SHAREHOLDER AGREEMENT (the "Agreement") made as of October
31, 1995, by and between LABOR READY, INC., a Washington
corporation (the "Company"), and GLENN A. WELSTAD, JOHN R.
COGHLAN and COGHLAN FAMILY CORPORATION, a Washington corporation
(individually and collectively, the "Shareholder" or the
"Shareholders"), SEACOAST CAPITAL PARTNERS LIMITED PARTNERSHIP, a
Delaware limited partnership ("Seacoast"), and ALLIED INVESTMENT
CORPORATION, a Maryland corporation, and ALLIED INVESTMENT
CORPORATION II, a Maryland corporation and ALLIED CAPITAL
CORPORATION II (collectively, the "Allied Investors") (Seacoast
and the Allied Investors are collectively referred to herein as
the "Purchaser").
W I T N E S S E T H:
WHEREAS, the Company has entered into a Note Purchase
Agreement (the "Note Agreement") dated of even date with this
Agreement with the Purchaser;
WHEREAS, the Company has entered into a Warrant Purchase
Agreement (the "Warrant Agreement") dated of even date with this
Agreement with the Purchaser;
WHEREAS, the Purchaser is willing to enter into and
consummate the transactions contemplated by the Note Agreement
and the Warrant Agreement only if, among other things, the
Company and the Shareholders enter into, and perform under, this
Agreement.
NOW, THEREFORE, in consideration of the foregoing, the
mutual covenants contained in this Agreement, and other good and
valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Purchaser, the Shareholders, and the
Company, intending to be legally bound, agree as follows:
Article I
Definitions
Act. The Small Business Investment Act of 1958, as amended and
in effect from time to time, and the regulations promulgated
thereunder.
Affiliate. With respect to any Person, (a) a Person that,
directly or indirectly or through one or more intermediaries,
controls, is controlled by, or is under common control with,
such Person; (b) any Person of which such Person or such
Person's spouse is an officer, director, security holder,
partner, or, in the case of a trust, the beneficiary or trustee,
and (c) any Person that is an officer, director, security
holder, partner, or, in the case of a trust, the beneficiary or
trustee of such Person. The term "control" as used with respect
to any Person, means the possession, directly or indirectly, of
the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting
securities, by contract, or otherwise.
Agreement. This term is defined in the preamble.
Allied Investors. This term is defined in the preamble.
Buyer. This term is defined in Section 2.02(a)(ii).
Capital Stock. As to any Person, its common stock and any other
capital stock of such Person authorized from time to time, and
any other shares, options, interests, participations, or other
equivalents (however designated) of or in such Person, whether
voting or nonvoting, including, without limitation, common
stock, options, warrants, preferred stock, phantom stock, stock
appreciation rights, preferred stock, convertible notes or
debentures, stock purchase rights, and all agreements,
instruments, documents, and securities convertible, exercisable,
or exchangeable, in whole or in part, into any one or more of
the foregoing.
Closing Date. October 31, 1995.
Coghlan Shareholders. Collectively, John R. Coghlan and Coghlan
Family Corporation, a Washington corporation.
Commission. The Securities and Exchange Commission and any
successor federal agency having similar powers.
Common Stock. The common stock, no par value, of the Company.
Company. Labor Ready, Inc. and any successor or assign, and,
unless the context requires otherwise, the term Company includes
any Subsidiary.
Company Sale. The consummation of a single transaction or
series of related transactions, wherein one or more "independent
third parties" (i.e., persons who, prior to the consummation of
the transaction in question, did not own more than five percent
(5%) of any class of the Capital Stock of the Company), either
directly or indirectly, (i) acquire (whether by merger,
consolidation, transfer or issuance of Capital Stock or
otherwise) Capital Stock of the Company (or any such surviving
or resulting corporation or entity) possessing the voting power
to elect a majority of the Board of Directors of such
corporation (or such surviving or resulting corporation or
entity) or (ii) acquire assets constituting all or any
substantial part of the assets of the Company (that is, twenty
percent (20%) or more).
Co-Sell Shares. This term is defined in Section 2.02(c).
Co-Sellers. This term is defined in Section 2.02(c).
Election Notice. This term is defined in Section 2.02(b).
Exchange Act. The Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder.
Fair Market Value. This term is defined in the Warrant
Agreement.
Holders. The Purchaser, and all Persons holding Registrable
Securities, except that neither the Company nor any Shareholder
nor any Affiliate of the Company or any Shareholder will at any
time be a Holder. Unless otherwise provided in this Agreement,
in each instance that the either of the Purchasers is required
to request or consent to an action, such Purchaser will be
deemed to have requested or consented to such action if (a) with
respect to Seacoast, the Holders of a majority in interest of
the Registrable Securities initially issued to Seacoast on the
date hereof so requests or consents and (b) with respect to the
Allied Investors, the Holders of a majority in interest of the
Registrable Securities initially issued to the Allied Investors
on the date hereof so requests or consents.
Indemnified Party. This term is defined in Section 7.01.
Initial Holders. Seacoast, the Allied Investors and any
Affiliate of Seacoast or the Allied Investors to which any of
the Warrants or any part of or interest in the Warrants is
assigned.
Issuable Warrant Shares. Shares of Common Stock or Other
Securities issuable on exercise of the Warrants.
Issued Warrant Shares. Shares of Common Stock or Other
Securities issued on exercise of the Warrants.
Kemper Agreement. That certain agreement between the Company and
Everen Securities, Inc., formerly known as Kemper Securities,
Inc., dated as of February 21, 1995, as amended on October 3,
1995, providing for the payment by the Company to Everen
Securities, Inc. of a private placement fee and for the issuance
by the Company to Everen Securities, Inc. of warrants to
purchase 40,000 shares of Common Stock pursuant to the terms and
conditions thereof.
Material Adverse Effect. (a) a material adverse effect upon the
business, operations, properties, assets or condition (financial
or otherwise) of the Company taken as a whole or (b) the
impairment of the ability of the Company to perform its
obligations under this Agreement. In determining whether any
individual event would result in a Material Adverse Effect,
notwithstanding that such event does not of itself have such
effect, a Material Adverse Effect shall be deemed to have
occurred if such event and all other then existing events would
result in a Material Adverse Effect.
Non-Compete Agreements. Collectively, (a) those certain
Employment and Non-Compete Agreements dated as of October 31,
1995, by and between the Company and each of Glenn A. Welstad
and Scott Sabo, (b) that certain Consulting and Non-Compete
Agreement dated on or about the Closing Date, by and between the
Company and John R. Coghlan, and (c) any other non-compete
agreement hereinafter entered into by and between the Company
and any other officer, employee or consultant of the Company,
and all renewals, modifications, amendments and supplements
thereto.
Note Agreement. This term is defined in the preamble and
includes the Note Purchase Agreement of even date with this
Agreement between the Company and the Purchaser and all
documents evidencing indebtedness thereunder or otherwise
related to the Note Agreement as the same may be amended from
time to time, and any refinancing, refunding, or replacements of
the indebtedness under the Note Agreement.
Notice of Sale. This term is defined in Section 2.02(a).
Other Securities. Any stock, other securities, property, or
other property or rights (other than Common Stock) that the
Holders become entitled to receive upon exercise of the
Warrants.
Permitted Sales. (a) With respect to Glenn A. Welstad, the sale
of up to twenty thousand (20,000) shares of Common Stock in any
calendar quarter, not to exceed one hundred sixty thousand
(160,000) shares of Common Stock in the aggregate, and (b) with
respect to the Coghlan Shareholders, the sale of up to one
hundred fifty thousand (150,000) shares of Common Stock in the
aggregate.
Permitted Stock. Common Stock or options or warrants to acquire
Common Stock issued or reserved for issuance to (a) Everen
Securities, Inc. pursuant to the terms of the Kemper Agreement,
and (b) present and future key management of the Company
pursuant to a management incentive program, constituting, in the
aggregate, ten percent (10%) or less of the outstanding Common
Stock. In no event will (a) the number of shares of Permitted
Stock issued or reserved for issuance, in the aggregate, exceed
the lesser of the number of shares constituting ten percent
(10%) of the outstanding Common Stock on (i) the date of this
Agreement or (ii) the date issued, (b) the number of shares of
Permitted Stock issued or reserved for issuance to any present
and future key management of the Company during any calendar
year exceed, in the aggregate, the lesser of the number of
shares constituting two percent (2%) of the outstanding Common
Stock on (i) the date of this Agreement or (ii) the date issued
and (c) any shares of Permitted Stock issued to present and
future key management of the Company be exercisable for a per
share consideration less than eighty-five percent (85%) of the
Fair Market Value per share of the Common Stock determined as of
the date of issuance of such Permitted Stock.
Person. This term will be interpreted broadly to include any
individual, sole proprietorship, partnership, joint venture,
trust, unincorporated organization, association, corporation,
company, institution, entity, party, or government (whether
national, federal, state, county, city, municipal, or otherwise,
including, without limitation, any instrumentality, division,
agency, body, or department of any of the foregoing).
Purchaser. This term is defined in the preamble.
Registrable Securities. (a) the Issuable Warrant Shares and (b)
the Issued Warrant Shares that have not been previously sold to
the public.
Related Party. (a) An entity wholly owned by a Selling
Shareholder or one or more Related Parties, (b) a trust all of
the beneficiaries of which are a parent, sibling, spouse or
lineal issue of a Selling Shareholder that is an individual and
(c) a parent, sibling, spouse, or lineal issue, as well as, the
heirs, devisees, executors, administrators and testamentary
trustees of a Selling Shareholder that is an individual.
Selling Shareholder. This term is defined in Section 2.02.
Securities Act. The Securities Act of 1933, as amended, and the
rules and regulations thereunder.
Shareholders. This term is defined in the preamble.
Subsidiary. Each Person of which or in which the Company or its
other Subsidiaries own directly or indirectly fifty-one percent
(51%) or more of (i) 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 or equivalent body
of such Person, if it is a corporation or similar person; (ii)
the capital interest or profits interest of such Person, if it
is a partnership, joint venture, or similar entity; or (iii) the
beneficial interest of such Person, if it is a trust,
association, or other unincorporated organization.
Warrant Purchase Agreement. The Warrant Purchase Agreement
dated as of the Closing Date by and between the Company and
Purchaser.
Warrant Shares. This term is defined in Article I of the
Warrant Purchase Agreement.
Warrants. The Warrants issued to the Initial Holders referred
to in Section 2.01 of the Warrant Purchase Agreement and all
Warrants issued upon the transfer or division of, or in
substitution for, such Warrants.
Article II
Co-Sale Rights; and Unlocking Rights
2.01 Rights of Co-Sale. In the event that any
Shareholder intends to sell or transfer, directly or indirectly,
any shares of any class of Capital Stock held by it to any Person
other than a Related Party, each Holder will have the right to
participate in such sale or transfer on the terms set forth in
this Article II; provided, however, none of the provisions of
this Article II will apply to (a) any sale by the Shareholders of
shares of Capital Stock in a bona fide underwritten public
offering under the Securities Act, so long as all Holders have
had an opportunity to participate in such offering pursuant to
the registration rights under this Agreement, or (b) Permitted
Sales, so long as such sales are consummated in compliance with
Rule 144 under the Securities Act and with respect to which the
provisions of paragraphs (e), (f), and (g) of such Rule 144
apply.
2.02 Method of Electing Sale; Allocation of Sales. No
sale or transfer by any Shareholder of any shares of Capital
Stock will be valid unless the transferee of such Capital Stock
first agrees in writing to be bound by the same terms and
conditions that apply to such Shareholder under this Agreement.
In addition, before any shares of Capital Stock held, directly or
indirectly, by any Shareholder may be sold or transferred to a
Person other than a Related Party, the Shareholder (as such, the
"Selling Shareholder") will comply with the following provisions:
(a) The Selling Shareholder will deliver or cause
to be delivered a written notice (the "Notice of Sale") to each
Holder at least fifteen (15) days prior to making any such sale
or transfer. The Company agrees to provide the Selling
Shareholder with a list of the names and addresses of each such
Holder for such purpose. The Notice of Sale will include (i) a
statement of the Selling Shareholder's bona fide intention to
sell or transfer; (ii) the name of the and address of the
prospective transferee (the "Buyer"); (iii) the number of shares
of Capital Stock of the Company to be sold or transferred; (iv)
the terms and conditions of the contemplated sale or transfer;
(v) the purchase price that the Buyer will pay for such shares of
Capital Stock; (vi) the expected closing date of the transaction;
and (vii) such other information as the Holders may reasonably
request to facilitate their decision as to whether or not to
exercise the rights granted by this Article II.
(b) Any Holder receiving the Notice of Sale may
elect to participate in the contemplated sale or transfer by
exercising its right to co-sell its Capital Stock pursuant to
Section 2.02(c). Such rights may be exercised in the sole
discretion of the Holder by delivering a written notice (an
"Election Notice") to the Company and the Selling Shareholder
within fifteen (15) days after receipt of such Notice of Sale
stating the election of the Holder to exercise its right of
co-sale pursuant to Section 2.02(c).
(c) Each Holder may elect to sell or transfer in
the contemplated transaction up to the total of the number of
shares of Capital Stock then held by it (including the Issuable
Warrant Shares). Promptly after the receipt of an Election
Notice exercising such right, the Selling Shareholder will use
its best efforts to cause the Buyer to amend its offer so as to
provide for the Buyer's purchase, upon the same terms and
conditions as those contained in the Notice of Sale, of all of
the shares of Capital Stock (including the Issuable Warrant
Shares) elected to be sold (the "Co-Sell Shares") in such
Election Notices. In the event that the Buyer is unwilling to
amend its offer to purchase all of the Co-Sell Shares in addition
to the shares of Capital Stock described in the related Notice of
Sale, if the Selling Shareholder desires to proceed with the
sale, the total number of shares that such Buyer is willing to
purchase will be allocated to the Selling Shareholder and each
Holder having given an Election Notice exercising its right
pursuant to this Section 2.02(c) (the "Co-Sellers") in proportion
to the aggregate number of shares of Capital Stock (including
Issuable Warrant Shares) held by each such Person; provided,
however, that no such Person will be so allocated a number of
shares greater than the number of shares that it has sought to
sell to such Buyer in the related Notice of Sale or Election
Notice. All Capital Stock sold or transferred by the Selling
Shareholder and the Co-Sellers with respect to a single Notice of
Sale under Section 2.02(b) will be sold or transferred to the
Buyer in a single closing on the terms described in such Notice
of Sale, and each such share will receive the same per share
consideration. In the event that the Buyer for whatever reason,
declines to purchase any shares from any Holder delivering an
Election Notice, then the Selling Shareholder will not be
permitted to sell or transfer any shares of Capital Stock to such
Buyer.
2.03 Sales to Related Parties. No sale or transfer of
shares of Capital Stock by any Shareholder to a Related Party
will be subject to the provisions of Section 2.02; provided,
however, that such Related Party first agrees to assume the
obligations of such Shareholder (without relieving such
Shareholder of any obligations under this Agreement) under this
Agreement with respect to the shares of Capital Stock thereby
acquired by it and to be bound by the same terms and conditions
that apply to the Shareholders under this Agreement in a written
instrument in a form and substance satisfactory to the Holders.
2.04 Unlocking Rights. If at any time the Company or
its shareholders (other than the Holders) receive an offer to
consummate a transaction that would constitute a Company Sale,
then the party receiving such offer (hereinafter, the offeree)
shall submit a copy of the offer, together with such information
pertinent thereto as the offeree may have, to the Holders (in
their capacity as equity holders) within three (3) days of
receipt of said offer. Within ten (10) days of receipt of said
copy, each Holder will indicate in writing to the offeree whether
it approves or disapproves of the offer. If a Holder approves the
offer, than the offeree shall within twenty (20) days thereafter
(or such shorter time if provided in the offer) accept or reject
the offer. If the offeree desires to accept such offer after
approval by a Holder, then such Holder shall have the right to
participate in such sale proportionately based on the terms of
the offer (that is, the Holder shall receive a proportionate
amount of the net proceeds received (or which would be received
by the Company's shareholders) from the Company Sale equal to
such Holder's proportionate interest in the Company). If the
offeree desires to reject the offer after approval of the offer
by a Holder, then simultaneously with such rejection the offeree
shall be bound to purchase, or cause the Company to purchase if
the offeree is not the Company, the approving Holder's Warrants
or resulting stock in the Company on the same terms and
conditions that such Holder would have received under the offer.
If a Holder disapproves the offer, then the offeree shall reject
the offer. If a Holder fails to communicate approval or
disapproval within such ten (10) day period, the Company may
construe such failure as disapproval.
Article III
Registration Rights and Forced Exercise Agreements
3.01 Registration Holdback Agreements.
(a) If any registration pursuant to Section 9.02 of
the Warrant Purchase Agreement is in connection with an
underwritten public offering, each Holder of Registrable
Securities agrees, if so required by the managing underwriter,
not to effect any public sale or distribution of Registrable
Securities (other than as part of such underwritten public
offering) during the period beginning seven (7) days prior to the
effective date of such registration statement and ending on the
one hundred eightieth (180th) day after the effective date of
such registration statement; provided, however, that the
Shareholders and each Person that is an officer, director, or
beneficial owner of five percent (5%) or more of the outstanding
shares of any class of Capital Stock enters into such an
agreement.
(b) The Shareholders agree (i) not to effect any
public sale or distribution during the period seven (7) days (or
such longer period as may be prescribed by Rule 10b-6 under the
Exchange Act) prior to the effective date of the registration
statement employed in any underwritten public offering and ending
on the one hundred eightieth (180th) day after any such
registration statement contemplated by Sections 9.01 or 9.03 of
the Warrant Purchase Agreement has become effective, except as
part of such underwritten public offering pursuant to such
registration statement and except pursuant to securities
registered on Forms S-4 or S-8 of the Commission or any successor
forms, and (ii) use their best efforts to cause each holder of
its equity securities or any securities convertible into or
exchangeable or exercisable for any of such securities, in each
case purchased from the Company at any time after the date of
this Agreement (other than in a public offering), to agree not to
effect any such public sale or distribution of such securities
during such period.
3.02 No Impairment of Registration Rights. The
Shareholders will not avoid or seek to avoid the observance or
performance of any of the terms of Article IX of the Warrant
Purchase Agreement or this Article III, but will at all times in
good faith assist in the carrying out of all such terms and in
the taking of all such actions as may be necessary or appropriate
in order to protect the rights of the Holders under Article IX of
the Warrant Purchase Agreement or this Article III from dilution
or impairment.
3.03 Forced Exercise Holdback Agreement. The
Shareholders agree (i) not to effect any public sale or
distribution during the period thirty (30) days prior to the
Forced Exercise Date (as defined in the Warrant Agreement) and
ending on the sixtieth (60th) day after the Forced Exercise Date,
and (ii) to use their best efforts to cause each holder of the
Company's equity securities or any securities convertible into or
exchangeable or exercisable for any of such securities, in each
case purchased from the Company at any time after the date of
this Agreement (other than in a public offering), to agree not to
effect any such public sale or distribution of such securities
during such period.
Article IV
Directors
4.01 Voting Agreement. To ensure compliance with this
Article IV, the Shareholders hereby irrevocably covenant and
agree to vote, or give or withhold consent with respect to, all
shares of Capital Stock now owned or later acquired by it, all in
accordance with the terms of this Article IV. The agreement to
vote contained in this Article IV will expire on the earlier to
occur of (a) the day prior to maximum period permitted under
applicable law or (b) the date that Purchaser is no longer
entitled to designate a Person to serve on the Company's board of
directors in accordance with the terms and conditions of the
Warrant Agreement. A counterpart of this Agreement will be
deposited with the Company at its principal place of business or
registered office and will be subject to the same right of
examination by a shareholder of the Company, in person or by
agent or attorney, as are the books and records of the Company.
4.02 Board of Directors. So long as either the Note
Agreement or the agreement to vote set forth in Section 4.01
remains in effect, each Shareholder will, at the request of the
each Purchaser, vote, or give or withhold consent with respect
to, all shares of Capital Stock now owned or later acquired by
such Shareholder so that at all times the individuals designated
as directors by the Purchaser or its respective designee in
accordance with the terms and conditions of the Warrant Agreement
and Note Agreement will be directors of the Company; provided,
however, that the Purchaser will not have any obligation to
designate or cause any individual to serve on the board of
directors of the Company. No director designated by the
Purchaser or its designee may be removed without the consent of
the Purchaser unless such designee breaches its/his/her fiduciary
duties to the Company and/or the Company's shareholders under
applicable law, and in any such case, such designee may be
removed only if the Company shall have appointed another
individual designated by the Purchaser to serve on the Company's
board of directors. The Purchaser may, at any time, terminate
its rights under this Article IV by providing written notice of
such termination to the Company.
Article V
Representations, Warranties and Covenants
5.01 Representations and Warranties of the Shareholders.
Each Shareholder, severally and not jointly, represents and
warrants to the Purchaser with respect to itself and not with
respect to any other Shareholder:
(a) If such Shareholder is a corporation or partnership,
it is duly organized and existing and in good standing under the
laws of its state of organization and is qualified or licensed to
do business in all other countries, states, and jurisdictions the
laws of which require it to be so qualified or licensed and where
the failure to be so qualified or licensed would have a Material
Adverse Effect. Each Shareholder owns the equity interest of the
Company set forth on Schedule I, free and clear of all liens,
claims, and encumbrances, and, to the knowledge of such
Shareholder, no Person has any rights, whether granted by the
Company or any other Person, to acquire any portion of the equity
interest of the Company or the assets of the Company except
pursuant to this Agreement, the Warrant Agreement or the
agreements described on Schedule II which grant warrants or
options to Persons other than Purchaser.
(b) Such Shareholder has, and at all times that
this Agreement is in force will have, the right and power, and is
duly authorized, to enter into, execute, deliver, and perform
this Agreement. This Agreement has been duly and validly
executed, issued, and delivered and constitutes a legal, valid,
and binding obligation of such Shareholder, enforceable in
accordance with its terms.
(c) The execution, delivery, and performance of
this Agreement will not, by the lapse of time, the giving of
notice, or otherwise, constitute a violation of any applicable
provision contained in the charter, bylaws, or organizational
documents of such Shareholder, if any, or contained in any
agreement, instrument, or document to which it is a party or by
which it is bound.
(d) There is not now, and at no time during the
term of this Agreement will there be, any agreement, arrangement,
or understanding involving such Shareholder, other than this
Agreement and the documents contemplated hereby and thereby,
modifying, restricting, or in any way affecting the rights of
such Shareholder to vote securities of the Company.
(e) None of the documents, instruments, or other
information furnished to the Purchaser, contains any untrue
statement of a material fact or omits to state any material fact
necessary in order to make any statements made therein not
misleading. No representation, warranty, or statement made by
such Shareholder in this Agreement or in any document,
certificate, exhibit or schedule attached hereto or thereto or
delivered in connection herewith or therewith, contains or will
contain any untrue statement of a material fact, or omits or will
omit to state a material fact necessary to make any such
statements made herein or therein not misleading. To the
knowledge of such Shareholder, in its capacity as such, there is
no fact that materially and adversely affects the condition
(financial or otherwise), results of operations, business,
properties, or prospects of the Company or any of its
Subsidiaries that has not been disclosed in the documents
provided by such Shareholder to the Purchaser.
5.02 Covenants of the Shareholders. Without the prior
written consent of the Holders, which consent may be withheld in
the sole discretion of the Holders, the Shareholders will not
permit the Company to:
(a) permit to occur any amendment, alteration, or
modification of the Articles of Incorporation or Bylaws of the
Company, as constituted on the date of this Agreement, the effect
of which, in the sole judgment of the Holders, would be to alter,
impair, or affect adversely, either the rights and benefits of
the Holders or the duties and obligations of Company or the
Shareholders under this Agreement or the Warrants;
(b) redeem, retire, purchase, or otherwise acquire,
directly or indirectly, any of the Capital Stock or capital stock
or securities of any Affiliate of the Company, or any securities
convertible or exchangeable into Capital Stock or capital stock
or securities of any Affiliate of the Company;
(c) dissolve or liquidate, or effect any
consolidation or merger involving the Company or any Subsidiary
(other than a merger in which the Company or its Subsidiary, as
the case may be, is the surviving entity and the holders of each
class of voting securities of the Company continue to hold a
majority of each class of voting securities of the Company);
(d) except for the issuance of Permitted Stock,
enter into any transaction or transactions with any director,
officer, employee, or shareholder of the Company, or any
Affiliate or relative of the foregoing except upon terms that are
fair and reasonable and that are, in any event, at least as
favorable as would result in a comparable arm's-length
transaction with a Person not a director, officer, employee,
shareholder, or Affiliate of the Company or any Affiliate or
related party of the foregoing, or advance any monies to any such
Persons, except for travel advances in the ordinary course of
business;
(e) materially modify or amend, or terminate or
waive any provision of the Non-Compete Agreements or require
Glenn A. Welstad to cease to perform the functions of chief
executive office of the Company, for reasons other than cause or
permanent disability;
(f) allow the aggregate par value of the Capital
Stock subject to the Warrants from time to time to exceed the
price payable upon exercise of the Warrants, as adjusted from
time to time; or
(g) obligate themselves or otherwise agree to take,
permit or enter into any of the events described in subsections
(a) through (f) above.
Article VI
Conditions
The obligations of the Purchaser to effect the transactions
contemplated by this Agreement will be subject to the following
conditions:
6.01 Note Agreement and Warrant Agreement Conditions.
All of the conditions precedent to the obligations of the
Purchaser under the Note Agreement and the Warrant Agreement will
have been satisfied in full or waived.
6.02 Proceedings. All proceedings taken in connection
with the transactions contemplated by this Agreement, and all
documents necessary to the consummation thereof, will be
reasonably satisfactory in form and substance to the Purchaser
and its counsel, and the Purchaser and its counsel will have
received copies (executed or certified as may be appropriate) of
all documents, instruments, and agreements that the Purchaser or
its counsel may request in connection with the consummation of
such transactions.
Article VII
Miscellaneous
7.01 Indemnification. In addition to any other rights
or remedies to which the Purchaser and the Holders may be
entitled, the Shareholder agree to and will indemnify and hold
harmless the Purchaser, the Holders, and their Affiliates and
their respective successors, assigns, officers, directors,
employees, attorneys, and agents (individually and collectively,
an "Indemnified Party") from and against any and all losses,
claims, obligations, liabilities, deficiencies, diminutions in
value, penalties, causes of action, damages, out-of-pocket costs,
reasonable attorneys' fees, and expenses (including, without
limitation, costs of investigation and defense, attorneys' fees,
and expenses) including, without limitation, those arising out of
the sole or contributory negligence of any Indemnified Party (but
excluding those arising out of the gross negligence or willful
misconduct of any Indemnified Party), that the Indemnified Party
may suffer, incur, or be responsible for, arising or resulting
from any misrepresentation, breach of warranty, or nonfulfillment
of any agreement on the part of the Shareholders under this
Agreement, or the Company under this Agreement, the Warrant
Agreement, or under any other agreement to which the Company or
the Shareholders are a party in connection with the transactions
contemplated by this transaction, or from any misrepresentation
in or omission from any certificate or other instrument furnished
or to be furnished by the Company to the Purchaser or the Holders
under this Agreement.
7.02 Default. It is agreed that a violation by any
party of the terms of this Agreement cannot be adequately
measured or compensated in money damages, and that any breach or
threatened breach of this Agreement by a party to this Agreement
would do irreparable injury to the nonbreaching party. It is,
therefore, agreed that in the event of any breach or threatened
breach by a party to this Agreement of the terms and conditions
set forth in this Agreement, the nondefaulting party will be
entitled, in addition to any and all other rights and remedies
that it may have in law or in equity, to apply for and obtain
injunctive relief requiring the defaulting party to be restrained
from any such breach, or threatened breach or to refrain from a
continuation of any actual breach.
7.03 Integration. This Agreement constitutes the entire
agreement among the parties with respect to the subject matter
hereof and supersedes all previous written, and all previous or
contemporaneous oral, negotiations, understandings, arrangements,
and agreements. This Agreement may not be amended or
supplemented except by a writing signed by the Shareholders and
each Holder.
7.04 Headings. The headings in this Agreement are for
convenience and reference only and are not part of the substance
of this Agreement. References in this Agreement to Sections and
Articles are references to the Sections and Articles of this
Agreement unless otherwise specified.
7.05 Severability. The parties to this Agreement
expressly agree that it is not their intention to violate any
public policy, statutory or common law rules, regulations, or
decisions of any governmental or regulatory body. If any
provision of this Agreement is judicially or administratively
interpreted or construed as being in violation of any such
policy, rule, regulation, or decision, the provision, section,
sentence, word, clause, or combination thereof causing such
violation will be inoperative (and in lieu thereof there will be
inserted such provision, sentence, word, clause, or combination
thereof as may be valid and consistent with the intent of the
parties under this Agreement) and the remainder of this
Agreement, as amended, will remain binding upon the parties to
this Agreement, unless the inoperative provision would cause
enforcement of the remainder of this Agreement to be inequitable
under the circumstances.
7.06 Notices. Whenever it is provided herein that any
notice, demand, request, consent, approval, declaration, or other
communication be given to or served upon any of the parties by
another, such notice, demand, request, consent, approval,
declaration, or other communication will be in writing and will
be deemed to have been validly served, given or delivered (and
"the date of such notice" or words of similar effect will mean
the date) five (5) days after deposit in the United States mails,
certified mail, return receipt requested, with proper postage
prepaid, or upon receipt thereof (whether by non-certified mail,
telecopy, telegram, express delivery, or otherwise), whichever is
earlier, and addressed to the party to be notified as follows:
If to the Purchaser, at: Seacoast Capital Partners
Limited Partnership
c/o Seacoast Capital Corporation
55 Ferncroft Road
Danvers, Massachusetts 01923
Attention: Thomas W. Gorman
Facsimile: (508) 750-1301
Allied Investment Corporation
1666 K Street, N.W.
Suite 901
Washington D.C. 20006
Attn: George Stelljes III
Facsimile: (202) 659-2053
Allied Investment Corporation II
1666 K Street, N.W.
Suite 901
Washington D.C. 20006
Attn: George Stelljes III
Facsimile: (202) 659-2053
Allied Capital Corporation II
1666 K Street, N.W.
Suite 901
Washington D.C. 20006
Attn: George Stelljes III
Facsimile: (202) 659-2053
with courtesy copies to: Hughes & Luce, L.L.P.
1717 Main Street
Suite 2800
Dallas, Texas 75201
Attn: Larry A. Makel, Esq.
Facsimile: 214 939-6100
Dickstein Shapiro & Morin
2101 L Street, N.W.
Suite 800
Washington, D.C. 20037
Attn: David Parker
Facsimile: (202) 887-0689
If to the Company, at: Labor Ready, Inc.
2150 Pacific Avenue
Tacoma, Washington 98402
Attn: Glenn A. Welstad
Facsimile: (206) 383-9311
If to the Shareholders, at: Glenn A. Welstad
2156 Pacific Avenue South
Tacoma, Washington 98402
Facsimile: (206) 383-9311
John R. Coghlan
2156 Pacific Avenue South
Tacoma, Washington 98402
Facsimile: (206) 383-9311
Coghlan Family Corporation
2156 Pacific Avenue South
Tacoma, Washington 98402
Facsimile: (206) 383-9311
with courtesy copies to: Preston Gates & Ellis
701 5th Avenue, Suite 5000
Seattle, Washington 98104
Facsimile: (206) 623-7022
Attn: Mark Beatty
Brad E. Herr, P.S.
2150 North Pines, Suite 202
Spokane, Washington 99206
Facsimile: (509) 928-9338
or to such other address as each party may designate for itself
by like notice. Notice to any Holder other than the Purchaser
will be delivered as set forth above to the address shown on the
stock transfer books of the Company or the Warrant Register
unless such Holder has advised the Company in writing of a
different address to which notices are to be sent under this
Agreement.
Failure or delay in delivering courtesy copies of any
notice, demand, request, consent, approval, declaration, or other
communication to the persons designated above to receive copies
of the actual notice will in no way adversely affect the
effectiveness of such notice, demand, request, consent, approval,
declaration, or other communication.
No notice, demand, request, consent, approval, declaration
or other communication will be deemed to have been given or
received unless and until it sets forth all items of information
required to be set forth therein pursuant to the terms of this
Agreement.
7.07 Successors. This Agreement will be binding upon
and inure to the benefit of the parties and their respective
successors and permitted assigns, provided that the Purchaser
will have the right to assign its rights under this Agreement in
connection with any transfer of the Warrants or the Warrant
Shares to not more than twenty (20) Persons.
7.08 Remedies. The failure of any party to enforce any
right or remedy under this agreement, or to enforce any such
right or remedy promptly, will not constitute a waiver thereof,
nor give rise to any estoppel against such party, nor excuse any
other party from its obligations under this Agreement. Any
waiver of any such right or remedy by any party must be in
writing and signed by the party against which such waiver is
sought to be enforced.
7.09 Survival. All warranties, representations, and
covenants made by any party in this Agreement or in any
certificate or other instrument delivered by such party or on its
behalf under this Agreement will be considered to have been
relied upon by the party to which it is delivered and will
survive the Closing Date, regardless of any investigation made by
such party or on its behalf. All statements in any such
certificate or other instrument will constitute warranties and
representations under this Agreement. Notwithstanding anything
to the contrary contained in this Agreement (a) Seacoast shall
not be entitled to the benefits of this Agreement at such time
that it (i) no longer owns a Warrant and (ii) owns less than
twenty percent (20%) of the Warrant Shares owned by it on the
Closing Date, (b) no Allied Investor shall be entitled to the
benefits of this Agreement at such time that (i) no Allied
Investor holds a Warrant and (ii) the Allied Investors own, in
the aggregate, less than twenty percent (20%) of the Warrant
Shares owned by them, collectively, on the Closing Date, (c) a
Holder (other than Seacoast or the Allied Investors) shall not
be entitled to the benefits of this Agreement at such time that
it (i) no longer owns a Warrant and (ii) owns less than ten
percent (10%) of the Warrant Shares, (d) Glenn A. Welstad shall
no longer be bound by the terms of this Agreement if his
employment with the Company is terminated by the Company for
reasons other than cause (as defined in his Non-Compete Agreement
with the Company), and (e) John R. Coghlan shall no longer be
bound by the terms of this Agreement if his employment with the
Company (as a consultant) is terminated by the Company for
reasons other than cause (as defined in his Non-Compete Agreement
with the Company).
7.10 Fees. Subject to the second sentence of this
Section 7.10, any and all fees, costs, and expenses, of whatever
kind and nature, including attorneys' fees and expenses, incurred
by the Holders in connection with the defense or prosecution of
any actions or proceedings arising out of or in connection with
this Agreement will, to the extent provided in this Agreement, be
borne and paid by the Company within ten (10) days of demand by
the Holders. Notwithstanding anything to the contrary in this
Section 7.10, with respect to any actions or proceedings solely
between any Holder and the Company and/or Shareholders, the
prevailing party shall recover, within ten (10) days of demand,
any and all fees, costs, and expenses, of whatever kind and
nature, including attorneys' fees and expenses, reasonably
incurred in connection with the defense or prosecution of any
such actions or proceedings arising out of or in connection with
this Agreement.
7.11 Counterparts. This Agreement may be executed in
any number of counterparts, which will individually and
collectively constitute one agreement.
7.12 Other Business. It is understood and accepted that
the Purchaser, the Holders, and their Affiliates have interests
in other business ventures that may be in conflict with the
activities of the Company and that nothing in this Agreement will
limit the current or future business activities of such parties
whether or not such activities are competitive with those of the
Company. The Shareholders agree that all business opportunities
in any field substantially related to the business of the Company
will be pursued exclusively through the Company.
7.13 Choice of Law. THIS AGREEMENT HAS BEEN EXECUTED,
DELIVERED, AND ACCEPTED BY THE PARTIES IN THE COMMONWEALTH OF
MASSACHUSETTS, WILL BE DEEMED TO HAVE BEEN MADE IN THE
COMMONWEALTH OF MASSACHUSETTS, AND WILL BE INTERPRETED AND THE
RIGHTS OF THE PARTIES DETERMINED IN ACCORDANCE WITH THE LAWS OF
THE UNITED STATES APPLICABLE THERETO AND THE INTERNAL LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS APPLICABLE TO AN AGREEMENT
EXECUTED, DELIVERED AND PERFORMED THEREIN WITHOUT GIVING EFFECT
TO THE CHOICE-OF-LAW RULES THEREOF OR ANY OTHER PRINCIPLE THAT
COULD REQUIRE THE APPLICATION OF THE SUBSTANTIVE LAW OF ANY OTHER
JURISDICTION.
7.14 Duties Among Holders. Each Holder agrees that no
other Holder will by virtue of this Agreement be under any
fiduciary or other duty to give or withhold any consent or
approval under this Agreement or to take any other action or omit
to take any action under this Agreement, and that each other
Holder may act or refrain from acting under this Agreement as
such other Holder may, in its discretion, elect.
7.15 Small Business Investment Act. This Agreement, the
other purchase documents executed in connection herewith, and all
transactions contemplated hereby and thereby are subject to the
provisions of the Act, and shall be governed thereby to the
extent of any conflict therewith.
IN WITNESS WHEREOF, the parties have executed and delivered
this Agreement as of the date first above written.
COMPANY:
LABOR READY, INC.
By:
Name: Glenn A. Welstad
Title: Chief Executive Officer
PURCHASER:
SEACOAST CAPITAL PARTNERS
LIMITED PARTNERSHIP
By: Seacoast Capital Corporation,
its general partner
By:
Name: Thomas W. Gorman
Title: Vice President
55 Ferncroft Road
Danvers, Massachusetts 01923
Attn: Thomas W. Gorman
Facsimile: (508) 750-1301
ALLIED INVESTMENT CORPORATION
By:
Name: George Stelljes III
Title: Senior Vice President
1666 K Street, N.W., Suite 901
Washington D.C. 20006
Attn: George Stelljes III
Facsimile: (202) 659-2053
ALLIED INVESTMENT CORPORATION II
By:
Name: George Stelljes III
Title: Senior Vice President
1666 K Street, N.W., Suite 901
Washington D.C. 20006
Attn: George Stelljes III
Facsimile: (202) 659-2053
ALLIED CAPITAL CORPORATION II
By:
Name: George Stelljes III
Title: Senior Vice President
1666 K Street, N.W., Suite 901
Washington D.C. 20006
Attn: George Stelljes III
Facsimile: (202) 659-2053
SHAREHOLDERS:
Glenn A. Welstad
John R. Coghlan
COGHLAN FAMILY CORPORATION
By:
Name: John R. Coghlan
Title:President
<PAGE>
SECURITY AGREEMENT
This SECURITY AGREEMENT (the "Agreement") is dated October
31, 1995 and is executed by and among LABOR READY, INC., a
Washington corporation, LABOR READY OF NEVADA, INC., a Washington
corporation, and LABOR READY FRANCHISE DEVELOPMENT CORP. INC., a
Washington corporation (individually and collectively, "Debtor"),
SEACOAST CAPITAL PARTNERS LIMITED PARTNERSHIP, a Delaware limited
partnership ("Seacoast"), and ALLIED INVESTMENT CORPORATION, a
Maryland corporation, ALLIED INVESTMENT CORPORATION II, a
Maryland corporation, and ALLIED CAPITAL CORPORATION II, a
Maryland corporation (collectively, "Allied") (Seacoast and
Allied are collectively referred to herein as the "Purchasers").
W I T N E S S E T H:
WHEREAS, Debtor and Purchasers are parties to a Note
Purchase Agreement dated the date hereof (as the same may be
amended and in effect from time to time, the "Note Purchase
Agreement"), providing for the purchase by Purchasers from Debtor
of four senior subordinated notes in the aggregate original
principal amount of $10,000,000;
WHEREAS, it is a condition precedent to the performance by
Purchasers of their obligations under the Note Purchase Agreement
that Debtor shall have granted the security interests
contemplated by this Agreement; and
NOW, THEREFORE, in consideration of the premises and in
order to induce Purchasers to enter into the Note Purchase
Agreement and perform its obligations thereunder, Debtor hereby
agrees with Purchasers as follows:
SECTION 1. Definitions
1.1 Certain Defined Terms. Unless otherwise defined
herein, all capitalized terms shall have the meanings ascribed to
them in the Note Purchase Agreement. The following terms, as
used herein, have the meanings set forth below:
"Accounts" means all "accounts" (as defined in the UCC) now
owned or hereafter created or acquired by Debtor including,
without limitation, all of the following now owned or hereafter
created or acquired by Debtor: (a) accounts receivable, contract
rights, book debts, notes, drafts and other obligations or
indebtedness owing to Debtor arising from the sale, lease or
exchange of goods or other property and/or the performance of
services; (b) Debtor's rights in, to and under all purchase
orders for goods, services or other property; (c) Debtor's rights
to any goods, services or other property represented by any of
the foregoing (including returned or repossessed goods and unpaid
sellers' rights of rescission, replevin, reclamation and rights
to stoppage in transit); (d) monies due to or to become due to
Debtor under all contracts for the sale, lease or exchange of
goods or other property and/or the performance of services
(whether or not earned by performance on the part of Debtor); and
(e) Proceeds of any of the foregoing and all collateral security
and guaranties of any kind given by any Person with respect to
any of the foregoing.
"Collateral" has the meaning assigned to that term in
Section 2.
"Collateral Account" has the meaning assigned to that term
in Section 7.
"Copyright License" means any written agreement now or
hereafter in existence granting to Labor Ready, Inc. any right to
use any Copyright including, without limitation, the agreements
described in Schedule 1 of the Copyright Security Agreement.
"Copyrights" means collectively all of the following: (a)
all copyrights, rights and interests in copyrights, works
protectable by copyright, copyright registrations and copyright
applications now owned or hereafter created or acquired by
Debtor, including, without limitation, those listed on Schedule 1
of the Copyright Security Agreement; (b) all renewals of any of
the foregoing; (c) all income, royalties, damages and payments
now or hereafter due and/or payable under any of the foregoing,
including, without limitation, damages or payments for past or
future infringements of any of the foregoing; (d) the right to
sue for past, present and future infringements of any of the
foregoing; (e) all rights corresponding to any of the foregoing
throughout the world; and (f) all goodwill associated with and
symbolized by any of the foregoing.
"Copyright Security Agreement" means the copyright security
agreement to be executed and delivered by Labor Ready, Inc. to
Purchasers, substantially in the form of Exhibit A, as such
agreement may hereafter be amended, supplemented or otherwise
modified from time to time.
"Documents" means all "documents" (as defined in the UCC) or
other receipts covering, evidencing or representing goods now
owned or hereafter acquired by Debtor.
"Equipment" means all "equipment" (as defined in the UCC)
now owned or hereafter acquired by Debtor including, without
limitation, all machinery, motor vehicles, trucks, trailers,
vessels, aircraft and rolling stock and all parts thereof and all
additions and accessions thereto and replacements therefor.
"Fixtures" means all of the following now owned or hereafter
acquired by Debtor: plant fixtures; business fixtures; other
fixtures and storage office facilities, wherever located; and all
additions and accessions thereto and replacements therefor.
"General Intangibles" means all "general intangibles" (as
defined in the UCC) now owned or hereafter acquired by Debtor
including, without limitation, all right, title and interest of
Debtor in and to: (a) all agreements, leases, licenses and
contracts to which Debtor is or may become a party; (b) all
obligations or indebtedness owing to Debtor (other than Accounts)
from whatever source arising; (c) all tax refunds; (d)
Intellectual Property; and (e) all trade secrets and other
confidential information relating to the business of Debtor
including by way of illustration and not limitation: the names
and addresses of, and credit and other business information
concerning, Debtor's past, present or future customers; the
prices which Debtor obtains for its services or at which it sells
merchandise; estimating and cost procedures; profit margins;
policies and procedures pertaining to the sale and design of
equipment, components, devices and services furnished by Debtor;
information concerning suppliers of Debtor; and information
concerning the manner of operation, business plans, pledges,
projections and all other information of any kind or character,
whether or not reduced in writing, with respect to the conduct by
Debtor of its business not generally known by the public.
"Instruments" means all "instruments", "chattel paper" or
"letters of credit" (each as defined in the UCC) including, but
not limited to, promissory notes, drafts, bills of exchange and
trade acceptances, now owned or hereafter acquired by Debtor.
"Intellectual Property" shall mean collectively all of the
following: Copyrights, Copyright Licenses, Patents, Patent
Licenses, Trademarks and Trademark Licenses.
"Inventory" means all "inventory" (as defined in the UCC),
now owned or hereafter acquired by Debtor, wherever located
including, without limitation, finished goods, raw materials,
work in process and other materials and supplies (including
packaging and shipping materials) used or consumed in the
manufacture or production thereof and goods which are returned to
or repossessed by Debtor.
"Patent License" means any written agreement now or
hereafter in existence granting to Debtor any right to use any
invention on which a Patent is in existence.
"Patents" means collectively all of the following: (a) all
patents, patentable inventions and patent applications now owned
or hereafter created or acquired by Debtor; (b) the reissues,
divisions, continuations, renewals, extensions and continuations-
in-part of any of the foregoing; (c) all income, royalties,
damages or payments now and hereafter due and/or payable under
any of the foregoing with respect to any of the foregoing,
including, without limitation, damages of payments for past or
future infringements of any of the foregoing; (d) the right to
sue for past, present and future infringements of any of the
foregoing; (e) all rights corresponding to any of the foregoing
throughout the world; and (f) all goodwill associated with any of
the foregoing.
"Proceeds" means all proceeds of, and all other profits,
rentals or receipts, in whatever form, arising from the
collection, sale, lease, exchange, assignment, licensing or other
disposition of, or realization upon, any Collateral, including,
without limitation, all claims of Debtor against third parties
for loss of, damage to or destruction of, or for proceeds payable
under, or unearned premiums with respect to, policies of
insurance with respect to any Collateral, and any condemnation or
requisition payments with respect to any Collateral, in each case
whether now existing or hereafter arising.
"Secured Obligations" has the meaning assigned to that term
in Section 3.
"Security Interests" means the security interests granted
pursuant to Section 2, as well as all other security interests
created or assigned by Debtor as additional security for the
Secured Obligations pursuant to the provisions of this Agreement.
"Senior Debt Payout Date" means that day on which (i) the
Senior Loans are paid in full and (ii) the Senior Loan Documents
are terminated.
"Trademark License" means any written agreement now or
hereafter in existence granting to Debtor any right to use any
Trademark, including, without limitation, the agreements
described in Schedule 1 to the Trademark Security Agreement.
"Trademarks" means collectively all of the following now
owned or hereafter created or acquired by Debtor: (a) all
trademarks, trade names, corporate names, company names, business
names, fictitious business names, trade styles, service marks,
logos, other business identifiers, prints and labels on which any
of the foregoing have appeared or appear, all registrations and
recordings thereof, and all applications in connection therewith
including registrations, recordings and applications in the
United States Patent and Trademark Office or in any similar
office or agency of the United States, any State thereof or any
other country or any political subdivision thereof, including,
without limitation, those described in Schedule 1 of the
Trademark Security Agreement; (b) all reissues, extensions or
renewals thereof; (c) all income, royalties, damages and payments
now or hereafter due and/or payable under any of the foregoing or
with respect to any of the foregoing including damages or
payments for past or future infringements of any of the
foregoing; (d) the right to sue for past, present and future
infringements of any of the foregoing; (e) all rights
corresponding to any of the foregoing throughout the world; and
(f) all goodwill associated with and symbolized by any of the
foregoing.
"Trademark Security Agreement" means the trademark security
agreement executed and delivered by Labor Ready, Inc. to
Purchasers substantially in the form of Exhibit B, as such
agreement may hereafter be amended, supplemented or otherwise
modified from time to time.
"UCC" means the Uniform Commercial Code as in effect on the
date hereof in the Commonwealth of Massachusetts, as amended from
time to time, and any successor statute; provided that if by
reason of mandatory provisions of law, the perfection or the
effect of perfection or non-perfection of the Security Interest
in any Collateral is governed by the Uniform Commercial Code as
in effect on or after the date hereof in any other jurisdiction,
"UCC" means the Uniform Commercial Code as in effect in such
other jurisdiction for purposes of the provision hereof relating
to such perfection or effect of perfection or non-perfection.
1.2 Other Definition Provisions. References to
"Sections", "subsections", "Exhibits" and "Schedules" shall be to
Sections, subsections, Exhibits and Schedules, respectively, of
this Agreement unless otherwise specifically provided. Any of
the terms defined in Section 1.1 may, unless the context
otherwise requires, be used in the singular or the plural
depending on the reference. All references to statutes and
related regulations shall include any amendments to the same and
any successor statutes and regulations.
SECTION 2. Grant of Security Interests
In order to secure the payment and performance of the
Secured Obligations in accordance with the terms thereof, Debtor
hereby grants to Purchasers a continuing security interest in and
to all right, title and interest of Debtor in the following
property, whether now owned or existing or hereafter acquired or
arising and regardless of where located (all being collectively
referred to as the "Collateral"):
(a) Accounts;
(b) Inventory;
(c) General Intangibles;
(d) Documents;
(e) Instruments;
(f) Equipment;
(g) Fixtures;
(h) All deposit accounts of Debtor maintained with
any bank or financial institution;
(i) The Collateral Account, all cash deposited
therein from time to time and other monies and property of Debtor
in the possession or under the control of Purchasers;
(j) All books, records, ledger cards, files,
correspondence, computer programs, tapes, disks and related data
processing software that at any time evidence or contain
information relating to any of the property described in subparts
(a) - (i) above or are otherwise necessary or helpful in the
collection thereof or realization thereon; and
(k) Proceeds of all or any of the property
described in subparts (a) - (j) above.
Notwithstanding the foregoing, so long as no Event of Default has
occurred and is continuing, Debtor shall have the exclusive, non-
transferable right and license to use the Intellectual Property
and the exclusive right to grant to other Persons licenses and
sublicenses with respect to Intellectual Property.
SECTION 3. Security for Obligations
The Security Interests secure the payment and performance of
(a) the Senior Subordinated Obligations, (b) all obligations of
Debtor now or hereafter existing under this Agreement and (c) all
renewals, extensions, restructurings and refinancings of any of
the above (all such debts, obligations and liabilities of Debtor
being collectively called the "Secured Obligations").
SECTION 4. Debtor Remains Liable
Anything herein to the contrary notwithstanding: (a) Debtor
shall remain liable under the contracts and agreements included
in the Collateral to the extent set forth therein to perform all
of its duties and obligations thereunder to the same extent as if
this Agreement had not been executed; (b) the exercise by
Purchasers of any of the rights hereunder shall not release
Debtor from any of its duties or obligations under the contracts
and agreements included in the Collateral; and (c) Purchasers
shall not have any obligation or liability under the contracts
and agreements included in the Collateral by reason of this
Agreement, nor shall Purchasers be obligated to perform any of
the obligations or duties of Debtor thereunder or to take any
action to collect or enforce any claim for payment assigned
hereunder.
SECTION 5. Representations and Warranties
Debtor represents and warrants as follows:
5.1 Binding Obligation. This Agreement is the legally
valid and binding obligation of Debtor, enforceable against it in
accordance with its terms, except as enforcement may be limited
by bankruptcy, insolvency, reorganization, moratorium or similar
laws or equitable principles relating to or limiting creditors'
rights generally.
5.2 Location of Equipment and Inventory. Except for
Inventory and Equipment in transit, all of the Equipment and
Inventory is located at the places specified on Schedule I.
5.3 Ownership of Collateral. Except for matters
disclosed on Schedule II, other Permitted Liens and the Security
Interests, Debtor owns the Collateral free and clear of any Lien.
No effective financing statement or other form of lien notice
covering all or any part of the Collateral is on file in any
recording office, except for Permitted Liens, those in favor of
Purchasers and as disclosed on Schedule II.
5.4 Office Locations; Fictitious Names. The chief place
of business, the chief executive office and the office where
Debtor keeps its books and records are located at the places
specified on Schedule I. Debtor does not do business and has not
done business during the past five years under any trade-name or
fictitious business name except as disclosed on Schedule III.
5.5 Perfection. Purchasers shall have a valid,
perfected security interest in the Collateral (subject only to
the prior security interest in favor of the Senior Lender)
securing the payment of the Secured Obligations. All filings and
other actions necessary or desirable to perfect and protect such
security interest have been duly taken.
5.6 Governmental Authorizations. No authorization,
approval or other action by, and no notice to or filing with, any
governmental authority or regulatory body is required either (a)
for the grant by Debtor of the security interest granted hereby
or for the execution, delivery or performance of this Agreement
by Debtor or (b) for the perfection of or the exercise by
Purchasers of their rights and remedies hereunder (except as may
have been taken by or at the direction of Debtor or Purchasers).
5.7 Accounts. Each Account constitutes the legally
valid and binding obligation of the customer obligated to pay the
same. The amount represented by Debtor to Purchasers as owing by
each customer is the correct amount actually and unconditionally
owing, except for normal cash discounts and allowances where
applicable. No customer has any defense, set-off, claim or
counterclaim against Debtor that can be asserted against
Purchasers, whether in any proceeding to enforce Purchasers'
rights in the Collateral or otherwise except defenses, set-offs,
claims or counterclaims that are not, in the aggregate, material
to the value of the Accounts. None of the Accounts is evidenced
by a promissory note or other instrument other than a check that
has not been delivered to Purchasers.
5.8 Intellectual Property. The Copyrights, Copyright
Licenses, Trademarks and Trademark Licenses listed on the
respective schedules to each of the Copyright Security Agreement
and the Trademark Security Agreement constitute all of the
Intellectual Property owned by Debtor.
5.9 Accurate Information. All information heretofore,
herein or hereafter supplied to Purchasers by or on behalf of
Debtor with respect to the Collateral is and will be accurate and
complete in all material respects.
5.10 Credit Agreement Warranties. Each representation
and warranty set forth in Article IV of the Note Purchase
Agreement is true and correct in all material respects and such
representations and warranties are hereby incorporated herein by
this reference with the same effect as though set forth in their
entirety herein.
SECTION 6. Further Assurances; Covenants
6.1 Other Documents and Actions. Debtor will, from time
to time, at its expense, promptly execute and deliver all further
instruments and documents and take all further action that may be
necessary or desirable, or that Purchasers may request, in order
to perfect and protect any security interest granted or purported
to be granted hereby or to enable Purchasers to exercise and
enforce their rights and remedies hereunder with respect to any
Collateral. Without limiting the generality of the foregoing,
Debtor will: (a) execute and file such financing or continuation
statements, or amendments thereto, and such other instruments or
notices, as may be necessary or desirable, or as Purchasers may
request, in order to perfect and preserve the security interests
granted or purported to be granted hereby; (b) at any reasonable
time, upon demand by Purchasers exhibit the Collateral to allow
inspection of the Collateral by Purchasers or persons designated
by Purchasers; and (c) upon Purchasers' request, appear in and
defend any action or proceeding that may affect Debtor's title to
or Purchasers' security interest in the Collateral.
6.2 Purchasers Authorized. Debtor hereby authorizes
Purchasers to file one or more financing or continuation
statements, and amendments thereto, relating to all or any part
of the Collateral without the signature of Debtor where permitted
by law.
6.3 Corporate or Name Change. Debtor will notify
Purchasers prior to any change in Debtor's name, identity or
corporate structure.
6.4 Business Locations. Except as provided in Section
5.2, Debtor will keep the Collateral at the locations specified
on Schedule I. Debtor will give Purchasers 30 days prior notice
of any change in Debtor's chief place of business or of any new
location of business or any new location for any of the
Collateral. With respect to any new location, Debtor will
execute such documents and take such actions as Purchasers deem
necessary to perfect and protect the Security Interests.
6.5 Bailees. If any Collateral is at any time in the
possession or control of any warehouseman, bailee or any of
Debtor's agents or processors, Debtor shall, upon the request of
Purchasers, notify such warehouseman, bailee, agent or processor
of the Security Interests created hereby and shall instruct such
Person to hold all such Collateral for Purchasers' account
subject to Purchasers' instructions.
6.6 Instruments. Debtor will deliver and pledge to
Purchasers all Instruments duly endorsed and accompanied by duly
executed instruments of transfer or assignment, all in form and
substance satisfactory to Purchasers. Debtor will mark
conspicuously all chattel paper with a legend, in form and
substance satisfactory to Purchasers, indicating that such
chattel paper is subject to the Security Interests.
6.7 Certificates of Title. Debtor shall, upon
Purchasers' request, promptly deliver to Purchasers any and all
certificates of title, applications for title or similar evidence
of ownership of all Equipment and shall cause Purchasers to be
named as lienholder on any such certificate of title or other
evidence or ownership. Debtor shall promptly inform Purchasers
of any additions to or deletions from the Equipment and shall not
permit any such items to become fixtures to real estate unless
Purchasers have perfected security interest thereon (subject only
to the lien of the Senior Lender) superior to any rights held by
the owner, or any other person with an interest in, such real
estate.
6.8 Account Covenants. Except as otherwise provided in
this Section 6.8, Debtor shall continue to collect, at its own
expense, all amounts due or to become due Debtor under the
Accounts. In connection with such collections, Debtor may take
(and, after the occurrence of an Event of Default, at Purchasers'
direction, shall take such actions as reasonably directed by
Purchasers) such action as Debtor or Purchasers may deem
necessary or advisable to enforce collection of the Accounts;
provided, that Purchasers shall have the right at any time after
the occurrence of an Event of Default to: (a) notify the
customers or obligors under any Accounts of the assignment of
such Accounts to Purchasers and to direct such customers or
obligors to make payment of all amounts due or to become due
directly to Purchasers; (b) enforce collection of any such
Accounts; and (c) adjust, settle or compromise the amount or
payment of such Accounts. After the occurrence of an Event of
Default, all amounts and proceeds (including instruments)
received by Debtor with respect to the Accounts shall be received
in trust for the benefit of Purchasers, shall be segregated from
other funds of Debtor, and shall be forthwith paid over to
Purchasers in the same form as so received (with any necessary
endorsement) to be held in the Collateral Account pursuant to
Section 7. After the occurrence of an Event of Default, Debtor
shall not adjust, settle or compromise the amount or payment of
any Account, or release wholly or partly any customer or obligor
thereof, or allow any credit or discount thereon without the
prior consent of Purchasers.
6.9 Intellectual Property Covenants. Labor Ready, Inc.
shall concurrently herewith deliver to Purchasers the Copyright
Security Agreement and the Trademark Security Agreement and all
other documents, instruments and other items as may be necessary
for Purchasers to file such agreements with the United States
Copyright Office, United States Patent and Trademark Office and
any similar domestic or foreign office, department or agency.
If, before the Secured Obligations are paid in full, any Debtor
obtains any new Intellectual Property or rights thereto or
becomes entitled to the benefit of any Intellectual Property not
listed on the respective schedules to each security agreement,
such Debtor shall give to Purchasers prompt written notice
thereof, and shall amend the respective security agreement to
include any such new Intellectual Property. Debtor shall: (a)
prosecute diligently any copyright, patent, trademark or license
application at any time pending; (b) make application on all new
copyrights, patents and trademarks as reasonably deemed
appropriate by Debtor; (c) preserve and maintain all rights in
the Intellectual Property; and (d) use its best efforts to obtain
any consents, waivers or agreements necessary to enable
Purchasers to exercise its remedies with respect to the
Intellectual Property. Debtor shall not abandon any right to
file a copyright, patent or trademark application nor shall
Debtor abandon any pending copyright, patent or trademark
application, or Copyright, Copyright License, Patent, Patent
License, Trademark or Trademark License without the prior written
consent of Purchasers. Debtor represents and warrants to
Purchasers that the execution, delivery and performance of this
Agreement by Debtor will not violate or cause a default under any
of the Intellectual Property or any agreement in connection
therewith.
6.10 Equipment Covenants. Debtor shall cause the
equipment to be maintained and preserved in the same condition,
repair and working order as when new, ordinary wear and tear
excepted, and in accordance with any manufacturer's manual, and
shall promptly make or cause to be made all repairs, replacements
and other improvements in connection therewith that are
reasonably necessary or desirable to such end.
6.11 Insurance. Debtor shall maintain insurance with
respect to the Collateral in accordance with the terms of the
Note Purchase Agreement.
6.12 Taxes and Claims. Debtor will pay promptly when
due all property and other taxes, assessments and governmental
charges or levies imposed upon, and all claims against, the
Collateral (including claims for labor, materials and supplies),
except to the extent the validity thereof is being contested in
good faith.
6.13 Collateral Description. Debtor will furnish to
Purchasers, from time to time, statements and schedules further
identifying and describing the Collateral and such other reports
in connection with the Collateral as Purchasers may reasonably
request, all in reasonable detail.
6.14 Use of Collateral. Debtor will not use or permit
any Collateral to be used unlawfully or in violation of any
provision of this Agreement or any applicable statue, regulation
or ordinance or any policy of insurance covering any of the
Collateral.
6.15 Records of Collateral. Debtor shall keep full and
accurate books and records relating to the Collateral and shall
stamp or otherwise mark such books and records in such manner as
Purchasers may reasonable request indicating that the Collateral
is subject to the Security Interests.
6.16 Other Information. Debtor will, promptly upon
request, provide to Purchasers all information and evidence it
may reasonably request concerning the Collateral, and in
particular the Accounts, to enable Purchasers to enforce the
provisions of this Agreement.
SECTION 7. Collateral Account
7.1 Cash Account. After the occurrence of an Event of
Default at any time after the Senior Debt Payout Date and upon
notice by Purchasers, Debtor shall establish with Purchasers a
cash collateral account (the "Collateral Account") in the name
and under the control of Purchasers into which there shall be
deposited from time to time the cash proceeds of the Collateral
required to be delivered to Purchasers pursuant to Section 7.2 or
any other provision of this Agreement. Any income received by
Purchasers with respect to the balance from time to time standing
to the credit of the Collateral Account shall remain, or be
deposited, in the Collateral Account. All right, title and
interest in and to the cash amounts on deposit from time to time
in the Collateral Account shall vest in Purchasers and shall
constitute part of the Collateral.
7.2 Customer Payments. After the occurrence of an Event
of Default at any time after the Senior Debt Payout Date and upon
notice by Purchasers, Debtor shall instruct all customers and
other Persons obligated with respect to all Accounts to make all
payments directly to Purchasers (by instructing that such
payments be remitted to a post office box which shall be in the
name and under the control of Purchasers). All such payments
made to Purchasers shall be deposited in the Collateral Account.
In addition to the foregoing, Debtor agrees that if the proceeds
of any Collateral hereunder (including the payments made in
respect of Accounts) shall be received by it, Debtor shall as
promptly as possible deposit such proceeds into the Collateral
Account. Until so deposited, all such proceeds shall be held in
trust by Debtor for the benefit of Purchasers and shall be
segregated from any other funds or property of Debtor.
7.3 Direction to Pay. Debtor hereby authorizes and
directs Purchasers to apply the balance from time to time
outstanding in the Collateral Account to the Secured Obligations
on a daily basis.
SECTION 8. Purchasers Appointed Attorney-in-Fact
Debtor hereby irrevocable appoints Purchasers as Debtor's
attorney-in-fact, with full authority in the place and stead of
Debtor and in the name of Debtor, Purchasers or otherwise, from
time to time in Purchasers' discretion to take any action and to
execute any instrument that Purchasers may deem necessary or
advisable to accomplish the purposes of this Agreement,
including, without limitation:
(a) to obtain and adjust insurance required to be
paid to Purchasers;
(b) to ask, demand, collect, sue for, recover,
compound, receive and give acquittance and receipts for moneys
due and to become due under or in respect of any of the
Collateral;
(c) to receive, endorse, and collect any drafts or
other instruments, documents and chattel paper, in connection
with clauses (a) and (b) above;
(d) to file any claims or take any action or
institute any proceedings that Purchasers may deem reasonably
necessary or desirable for the collection of any of the
Collateral or otherwise to enforce the rights of Purchasers with
respect to any of the Collateral;
(e) to pay or discharge taxes or Liens, levied or
placed upon or threatened against the Collateral, the legality or
validity thereof and the amounts necessary to discharge the same
to be determined by Purchasers in its reasonable discretion, and
such payments made by Purchasers to become obligations of Debtor
to Purchasers, due and payable immediately without demand;
(f) to sign and endorse any invoices, freight or
express bills, bills of lading, storage or warehouse receipts,
assignments, verifications and notices in connection with
Accounts and other documents relating to the Collateral; and
(g) generally to sell, transfer, pledge, make any
agreement with respect to or otherwise deal with any of the
Collateral as fully and completely as though Purchasers were the
absolute owner thereof for all purposes, and to do, at
Purchaser's option and Debtor's expense, at any time or from time
to time, all acts and things that Purchasers deems reasonably
necessary to protect, preserve or realize upon the Collateral.
Debtor hereby ratifies and approves all acts of Purchasers
made or taken pursuant to this Section 8. Neither Purchasers nor
any person designated by Purchasers shall be liable for any acts
or omissions or for any error of judgment or mistake of fact or
law, except any of same resulting from its or their gross
negligence or willful misconduct. This power, being coupled with
an interest, is irrevocable so long as this Agreement shall
remain in force.
SECTION 9. Transfers and Other Liens
Except as otherwise permitted by the Note Purchase
Agreement, Debtor shall not:
(a) Sell, assign (by operation of law or otherwise)
or otherwise dispose of, or grant any option with respect to, any
of the Collateral, except that Debtor may sell Inventory in the
ordinary course of business.
(b) Create of suffer to exist any lien, security
interest or other charge or encumbrance upon with respect to any
of the Collateral to secure indebtedness of any Person except for
the security interest created by this Agreement or permitted
under the Note Purchase Agreement.
SECTION 10. Remedies
If any Event of Default shall have occurred and be
continuing, Purchasers may exercise in respect of the Collateral,
in addition to all other rights and remedies provided for herein
or otherwise available to it, all the rights and remedies of a
secured party on default under the UCC (whether or not the UCC
applies to the affected Collateral) and also may: (a) require
Debtor to, and Debtor hereby agrees that it will, at its expense
and upon request of Purchasers forthwith, assemble all or part of
the Collateral as directed by Purchasers and make it available to
Purchasers at a place to be designated by Purchasers which is
reasonably convenient to both parties; (b) withdraw all cash in
the Collateral Account and apply such monies in payment of the
Secured Obligations in the manner provided in Section 13; (c)
without notice or demand or legal process, enter upon any
premises of Debtor and take possession of the Collateral; and (d)
without notice except as specified below, sell the Collateral or
any part thereof in one or more parcels at public or private
sale, at any of the Purchasers' offices or elsewhere, at such
time or times, for cash, on credit or for future delivery, and at
such price or prices and upon such other terms as Purchasers may
deem commercially reasonable. Debtor agrees that, to the extent
notice of sale shall be required by law, at least twenty days
notice to Debtor of the time and place of any public sale or the
time after which any private sale is to be made shall constitute
reasonable notification. At any sale of the Collateral, if
permitted by law, Purchasers may bid (which bid may be, in whole
or in part, in the form of cancellation of indebtedness) for the
purchase of the Collateral or any portion thereof for the account
of Purchasers. Purchasers shall not be obligated to make any
sale of Collateral regardless of notice of sale having been
given. Purchasers may adjourn any public or private sale from
time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, be made at
the time and place to which it was so adjourned. To the extent
permitted by law, Debtor hereby specifically waives all rights of
redemption, stay or appraisal which it has or may have under any
law now existing or hereafter enacted.
SECTION 11. License of Intellectual Property
Debtor hereby assigns, transfers and conveys to Purchasers,
effective upon the occurrence of an Event of Default hereunder,
the nonexclusive right and license to use all Intellectual
Property owned or used by Debtor together with any goodwill
associated therewith, all to the extent necessary to enable
Purchasers to realize on the Collateral and any successor or
assign to enjoy the benefits of the Collateral. This right and
license shall inure to the benefit of all successors, assigns and
transferees of Purchasers and its successors, assigns and
transferees, whether by voluntary conveyance, operation of law,
assignment, transfer, foreclosure, deed in lieu of foreclosure or
otherwise. Such right and license is granted free of charge,
without requirement that any monetary payment whatsoever be made
to Debtor by Purchasers.
SECTION 12. Limitation on Duty of Purchasers with Respect to
Collateral
Beyond the safe custody thereof, Purchasers shall have no
duty with respect to any Collateral in its possession or control
(or in the possession or control of any agent or bailee) or with
respect to any income thereon or the preservation of rights
against prior parties or any other rights pertaining thereto.
Purchasers shall be deemed to have exercised reasonable care in
the custody and preservation of the Collateral in its possession
if the Collateral is accorded treatment substantially equal to
that which it accords its own property. Purchasers shall not be
liable or responsible for any loss or damage to any of the
Collateral, or for any diminution in the value thereof, by reason
of the act or omission of any warehouseman, carrier, forwarding
agency, consignee or other agent or bailee selected by Purchasers
in good faith.
SECTION 13. Application of Proceeds
Upon the occurrence and during the continuance of an Event
of Default, the proceeds of any sale of, or other realization
upon, all or any part of the Collateral and any cash held in the
Collateral Account shall be applied: first, to all reasonable
fees, costs and expenses incurred by Purchasers with respect to
the Note Purchase Agreement, the Other Agreements or the
Collateral including, without limitation, those described in
Section 12.1 of the Note Purchase Agreement and in Section 14
hereof; second, to accrued and unpaid interest on the Secured
Obligations (including any interest which, but for the provisions
of any bankruptcy law, would have accrued on such amounts);
third, to the principal amounts of the Secured Obligations
outstanding; fourth, to any other indebtedness or obligations of
Debtor owing to Purchasers; and fifth, to Debtor or such other
persons as a court of competent jurisdiction may direct.
SECTION 14. Expenses
Debtor shall pay all insurance expenses and all expenses of
protecting, storing, warehousing, appraising, insuring, handling,
maintaining and shipping the Collateral, all costs, fees and
expenses of perfecting and maintaining the Security Interests,
any and all excise, property, sales and use taxes imposed by any
state, federal or local authority on any of the Collateral, or
with respect to periodic appraisals and inspections of the
Collateral, or with respect to the sale or other disposition
thereof. If Debtor fails to promptly pay any portion of the
above expenses when due or to perform any other obligation of
Debtor under this Agreement, Purchasers may, at their option, but
shall not be required to, pay or perform the same and charge
Debtor's account for all costs and expenses incurred therefor,
and Debtor agrees to reimburse Purchasers therefor on demand.
All sums so paid or incurred by Purchasers for any of the
foregoing, any and all other sums for which Debtor may become
liable hereunder and all costs and expenses (including attorneys'
fees, legal expenses and court costs) incurred by Purchasers or
any other Lender in enforcing or protecting the Security
Interests or any of their rights or remedies under this Agreement
shall be payable on demand, shall constitute Secured Obligations,
shall bear interest until paid at the highest rate provided in
the Note Purchase Agreement and shall be secured by the
Collateral.
SECTION 15. Termination of Security Interests; Release of
Collateral
Upon indefeasible payment in full of the Senior Subordinated
Notes and all other monetary obligations owing by Debtor to
Purchasers under the Note Purchase Agreement and the Other
Agreements (other than the Warrant Documents), the Security
Interests shall terminate and all rights to the Collateral shall
revert to Debtor. Upon such termination of the Security
Interests or release of any Collateral, Purchasers will, at the
expense of Debtor, execute and deliver to Debtor such documents
as Debtor shall reasonably request to evidence the termination of
the Security Interests and the release of such Collateral, as the
case may be.
SECTION 16. Notices
All notices, approvals, requests, demands and other
communications hereunder shall be given in accordance with the
notice provision of the Note Purchase Agreement.
SECTION 17. Successors and Assigns
This Agreement is for the benefit of Purchasers and their
successors and assigns, and in the event of an assignment of all
or any of the Secured Obligations, the rights hereunder, to the
extent applicable to the Secured Obligations so assigned, may be
transferred with such Secured Obligations. This Agreement shall
be binding on Debtor and its successors and assigns.
SECTION 18. Changes in Writing
No amendment, modification, termination or waiver of any
provision of this Agreement or consent to any departure by Debtor
therefrom, shall in any event be effective without the written
concurrence of Purchasers and Debtor.
SECTION 19. Applicable Law
THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED
AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS, WITHOUT REGARD TO CONFLICTS OF
LAWS PRINCIPLES.
SECTION 20. Failure or Indulgence Not Waiver; Remedies
Cumulative
No failure or delay on the part of Purchasers in the
exercise of any power, right or privilege hereunder shall impair
such power, right or privilege or be construed to be a waiver of
any default or acquiescence therein, nor shall any single or
partial exercise of any such power, right or privilege preclude
other or further exercise thereof or any other right, power or
privilege. All rights and remedies existing under this Agreement
are cumulative to, and not exclusive of, any rights or remedies
otherwise available.
SECTION 21. Headings
Section and subsection headings in this Agreement are
included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose or be
given any substantive effect.
SECTION 22. Counterparts
This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one
and the same instrument and any of the parties hereto may execute
this Agreement by signing any such counterpart.
SECTION 23. Subordination
Notwithstanding any provision in this Agreement to the
contrary, the Secured Obligations shall be subordinate in right
of payment to the Senior Debt, and Purchasers' rights and
remedies hereunder shall be subordinate to the rights and
remedies of the Senior Lender, all in accordance with the terms
of the Senior Subordination Agreement. Nothing contained in this
Section 23 or elsewhere in this Agreement, in the Senior
Subordinated Notes or the Senior Subordination Agreement is
intended to or shall impair, as between Debtor and Purchasers,
the obligations of Debtor, which are absolute and unconditional,
to pay to Purchasers the principal of and interest on the Senior
Subordinated Notes and all other Secured Obligations as and when
the same shall become due and payable in accordance with their
terms, or is intended to or shall affect the relative rights of
Purchasers and creditors of Debtor other than the holders of the
Senior Debt, nor, as between Purchasers and Debtor, shall
anything herein or therein prevent Purchasers from exercising all
remedies otherwise permitted by applicable law upon an Event of
Default under the Note Purchase Agreement.
Witness the due execution hereof by the respective duly
authorized officers of the undersigned as of the day first above
written.
LABOR READY, INC.
By:
Glenn A. Welstad,
Chief Executive Officer
LABOR READY OF NEVADA, INC.
By:
Glenn A. Welstad,
Chief Executive Officer
LABOR READY FRANCHISE DEVELOPMENT CORP. INC.
By:
Glenn A. Welstad,
Chief Executive Officer
SEACOAST CAPITAL PARTNERS
LIMITED PARTNERSHIP
By:
Seacoast Capital Corporation, its general partner
By:
Thomas W. Gorman,
Vice President
ALLIED INVESTMENT CORPORATION
By:
George Stelljes III,
Senior Vice President
ALLIED INVESTMENT CORPORATION II
By:
George Stelljes III,
Senior Vice President
ALLIED CAPITAL CORPORATION II
By:
George Stelljes III,
Senior Vice President
<PAGE>
INTERCREDITOR AND SUBORDINATION AGREEMENT
THIS INTERCREDITOR AND SUBORDINATION AGREEMENT (the *Agreement") is
entered into as of October 31, 1993 by and among Concord Growth
Corporation, & California corporation ("Senior Lender") and Seacoast
Capital Partners Limited Partnership, a Delaware limited partnership,
Allied Investment Corporation, a Maryland corporation, Allied Investment
Corporation II, a Maryland corporation and Allied Capital Corporation
II, a Maryland corporation (individually and collectively, the
'Subordinated Lender"), with reference to the following facts.
A. Senior lender has made, or in the. future may make, certain loans
and financial accommodations to Labor Ready, Inc., a Washington
corporation, Labor Ready of Nevada, Inc., a Washington corporation and
Labor Ready Franchise Development Corp. Inc., a Washington corporation
(individually and collectively, the "Borrower) pursuant to the terms of
that certain Loan Agreement (as defined below);
B. Subordinated Lender has made, or in the future may make, credit
accommodations available to Borrower pursuant to terms of the Note
Purchase Agreement (as defined below) ; and
C. Subordinated Lender and Senior Lender desire to confirm, as between
themselves, their respective rights and priorities with respect to
the Senior Debt (as defined below) Subordinated Debt (as defined
below) and the collateral (as defined below).
AGREEMENT
NOW, THEREFORE, in consideration of the premises and for other valuable
consideration, the receipt and sufficiency of which is hereby
acknowledged, and in order to induce Senior Lender to make the loans and
financial accommodations provided for in the Loan Agreement, Senior
Lender and Subordinated Lender agree as follows:
1. Definitions. The following terms shall have the meanings specified
below.
"Agreement" shall have the meaning assigned to such term in the
first paragraph of this Agreement.
"Blockage Period" shall have meaning assigned to such term in
Section 2.4.
"Borrower" shall have the meaning assigned to such term in Recital
A, and shall include any and all successors and assigns.
"Collateral" means any and all property which now constitutes or
hereafter will constitate collateral. or other security for payment of
the Senior Debt pursuant to the Loan Documents or otherwise.
"Default Period" shall have the meaning assigned to such term in
Section 2.4.
"Enforcement Period' shall have the meaning assigned to it in
Section 2.5.
"Expenses" shall have the meaning assigned to such term in Section
2.2.
"Guarantor" shall mean Labour Ready Temporary Services Ltd., and any
and all successors and assigns.
"Loan Agreement" means that certain Amended and Restated Loan
Agreementt dated as of October 31, 1995 between Borrower and Senior
Lender, as such Loan Agreement has been or may hereafter be restated,
amended, increased, supplemented or otherwise modified from time to
time.
"Loan Documents" means each and every "Loan Document," as defined in
the Loan Agreement, including without 1imitation, the Loan Agreement,
the Security Agreement (as defined in the Loan Agreement) and the Senior
Guaranties.
"Missed Payments" shall have the meaning assigned to such term in
section 2.4.
"Note Purchase Agreement" means that certain Note Purchase Agreement
dated as of October 31, 1995 by and among Borrower and Subordinated
Lender, as the same may be restated, amended, supp1emented or otherwise
modified from time to time.
"Senior Debt" means (i) all principal advances by Senior Lender to
Borrower under the Loan Agreement up to an aggregate principal amount
outstanding at any time of not more than $5,500,000 (ii) any and all
obligations and liabilities of Borrower to Senior Lender, other than
obligations and liabilities for principal advances, under or pursuant to
the Loan Agreement, or the Loan Documents, and (iii) any and all
obligations and liabilities of Guarantor or any other person or entity
to senior lender under or pursuant to the Senior Guaranties, in each
case now existing or hereafter arising, and with respect to clauses (ii)
and (iii) above, of every kind and description, direct or indirect,
absolute or contingent, whether consisting of premium, interest,
penalties;, fees (including attorneys' fees) experts fees,
indemnification obligations, liabilities for breaches of representations
or warranties or other obligations or liabilities of any kind, together
with any and all reneewals, extensions, modifications, increases and
replacements of any of the foregoing; provided, that in the event
Borrower files or has filed against it a petition under the United
States Bankruptcy code, the definition of Senior Debt shall include
postpetition interest on prepetition indebtedness only to the extent
such postpetition interest is recoverable under the United States
Bankruptcy Code; provided, further; that the definition of Senior Debt
includes postpetition interest on postpetition financing provided by
Senior Lender; provided further, that with respect to clause (iii)
above, the inc1usion of the guaranty obligations shall not have the
effect of increasing the principal amount set forth in clause (i) above.
"Senior Guaranties" means that certain Guarantee and Postponement of
Claim, dated as a October 21, 1995, executed, by Labour Ready Temporary
Services Ltd., in favor of Senior Lender, and any other guarantee
pursuant to which a guarantor guarantees payment of the obligations of
Borrower to Senior Lender.
"Senior Lender" shall have the meaning assigned to such term in the
first paragraph of this Agreement and shall include any participants and
co-lenders that may from time to time be participants in or co-lenders
under, the Loan Agreement, and, any and all successors and assigns.
"Subordinated Debt" means (i) any and all obligations and
liabilities of Borrower to Subordinated Lender, and (ii). any and all
obligations and liabilities of Guarantor or any other person or entity
to Subordinated Lender under or pursuant to' the Subordinated
Guaranties, in each case of every kind and description, direct or
indirect, absolute or contingent, now existing or thereafter arising,
Including, without limitation, obligations under the Subordinated Notes.
the Note Purchase Agreement or the other Subordinated Lender Documents,
whether,consisting of principal, premiums, interest (including post-
petition interest accrued subsequent to the filing of any petition under
any bankruptcy, insolvency or similar law, penalties, fees, expenses
.indemnification obligations, liabilities for breaches of
representations or warranties or other obligations or liabilities of any
kind including any put obligations, together with any and all renewals,
extensions, modifications, increases and replacements of any of the
foregoing.
"Subordinated Guaranties" means that certain Unconditional Guaranty
Agreement, dated as of October 31, 1995, executed by Labour Ready
Temporary Services, Ltd. in favor of Subordinated Lender, and any other
guaranty pursuant to which guarantor guarantees payment of the
obligations of Borrower to Subordinated Lender.
"Subordinated Lender" shall have the meaning assigned to such term
in the first paragraph of this Agreement, together with each and every
future holder of any Subordinated Note and any and all successors and
assigns.
"Subordinated Lender Documents" means each and every agreement,
instrument, promissory note, financing statement and document executed
in connection with or as security for the Subordinated Debt, including,
without limitation, the Subordinated Notes, the Note Purchase Agreement
and the Subordinated Guaranties; provided that the 'Warrant Documents"
as defined in the Note Purchase Agreement, existing and as in effect on
the date of this Agreement, shall not be included in the definition of
Subordinated Lender documents; provided further, that any "put" or debt
obligations of Borrower to Subordinated Lender under such Warrant
Documents shall be - included in the definition of "Subordinated Debt."
"Subordinated Notes" means each of the subordinated notes to be
executed by Borrower and payable to the order of Subordinated Lender
pursuant to the Note Purchase Agreement as any of the foregoing may be
renewed, extended, consolidated; increased, replaced or otherwise
modified at any time, and from time to time, in accordance with the
terms hereof.
2 . SUBORDINATION.
2.1 Subordinated Debt Subordinate to Senior Debt. Subordinated
Lender agrees that (i) to the extent and in the manner set forth in this
Agreement, all Subordinated debt is expressly made subordinate in
priority and subject in right and priority of payment to the prior
performance and payment in full, in cash or cash equivalents, of the
Senior Debt, and (ii)Subordinated Lender's liens upon and security
interests in the Collateral are absolutely subordinate to the priority
of the liens and security interests of Senior Lender in the Collateral,
notwithstanding the date, order, or manner of the granting or perfection
of any security interest in or Lien upon the Collateral. Except as
otherwise provided in Sections 2.2, 2.4, and 2.5 hereof, Subordinated
Lender will not ask for, demand; sue for, take, receive, or possess from
Borrower by setoff, recoupment, collection or enforcement actions
against Borrower, enforcement of rights in Collateral, foreclosure, or
any other manner, all or any payment of the Subordinated Debt whether by
the institution or. commencement of a bankruptcy proceeding or other
judicial action or otherwise, unless and until the Senior Debt has been
fully paid and satisfied. Without limiting the generality of the
foregoing, unless and until the Senior Debt' has been fully paid and
satisfied, Subordinated Lender shall not attempt to verify the validity,
amount, or any other matter relating to, and shall not notify any
account debtor on, any account of Borrower; and, except as provided in
Section 2.4 and 2.5 hereof, Subordinated Lender shall not take any
action to enforce its liens or security interests in any Collateral.
Notwithstanding that Subordinated Lender has a lien on certain real
property of Borrower and that Senior Lender does; not have a lien on
such real property, Subordinated Lender agrees that the Blockage Period
provisions set forth in Sections 2.4 and 2.5 apply to actions in
connection with the real property as if such real property was included
in the definition of Collateral.
2.2 Permitted Payments. Nothing contained in Section 2 shall prevent
Subordinated Lender from receiving from Borrower (i) regularly scheduled
payments of principal and interest on the Subordinated Note, or (ii)
payment of reimbursable out-of-pocket costs and expenses that have been
incurred and are then due and payable under. the Subordinated Lender
Documents, up to a maximum amount of $10,000 per month (the
"Expenses"),except (a) during the pendency of any case proceeding,
disso1ution, liquidation, or other winding up, assignment for the
benefit; of creditors or other marshalling of assets and liabilities of
Borrower referred to in Section 2.3 or (b) under the conditions
described in Sections 2.4 and 2.5. With respect to payment of Expenses,
in the event Borrower pays less than $10,000 in any month, the remaining
portion of such $10,000 shall not be added to the amount permitted for
the next month and so on, and no anticipated expenses may be prepaid.
For purposes of this Agreement, regularly scheduled payments of
principal specifically do not include payment of any mandatory
prepayments required under the Subordinated Lender Documents.
2.3 Payment Over Of Proceeds Upon Bankruptcy or Disso1ution. In the
event of (i) any insolvency or bankruptcy case or proceeding, or any
receivership, liquidation, reorganization, or other similar case or
proceeding in connection therewith, relative to Borrower or to its
creditors, as such. or to its assets, commenced or filed after the date
hereof, or (ii)any liquidation, dissolution, or other Winding up of
Borrower whether voluntary or invo1untary and whether or not involving
insolvency or bankruptcy, or (iii) any assignment for the benefit of
creditors or any other. marshalling of assets; or liabilities of
Borrower, then and in any such event:
A. Senior Lender shall be entitled to receive payment in full, in cash
or cash equivalents, of all amounts due on or in respect of the Senior
Debt or provision satisfactory to Senior Lender shall be made for such
payment, before Subordinated Lender is entitled to receive any payment
or distribution of any kind or character on account of any indebtedness
of Borrower to Subordinated Lender under any of the Subordinated Lender
Documents or otherwise, including, without limitation, principal of, or
interest on the Subordinated Note; and
B. Any payment or distribution of assets of Borrower of any kind or
character, whether in cash, property or securities by setoff or
otherwise, to which Subordinated Lender would be entitled, under any of
the Subordinated Lender Documents, or otherwise, but for the provisions
of this Section 2.3, shall be paid by the liquidating trustee or agent
or other person making such payment or distribution, whether a trustee
in bankruptcy, a receiver, or otherwise, directly to senior Lender to
the extent necessary to make payment in full, in cash or cash
equivalents, of the Senior Debt remaining unpaid, after giving effect to
any concurrent payment or distribution to or for Senior Lender, and
Senior Lender shall be empowered to demand, sue for, collect, and
receive every such payment or distribution.
Notwithstanding the foregoing or anything to the contrary in this
Agreement, Subordinated Lender shall not be required to pay over to
senior Lender any common stock or other securities received by
Subordinated Lender from Borrower that are subordinated and junior in
right and time of payment to the Senior Debt at Least to the extent
provided in this Agreement.
2.4 Suspension of Payment When Senior Debt in Default. Upon (i) the
occurrence of an "Event of Default" under and as defined in the Loan
Agreement, and (ii) receipt by Subordinated Lender from Senior Lender of
written notice of such occurrence together with a copy of the default
notice sent by Senior Lender to Borrower ("Default Notice") , for a
period (for purposes of this Section and Section 2.5, a "Blockage
Period") equal to the lesser of (a) 180 days from the date of Borrower's
receipt of a Default Notice, or (b) the Period during which the Event of
Default is in effect and until senior Lender has confirmed to Borrower
in writing that such Event of Default has been cured or waived pursuant
to the Senior Lender Documents or the Senior Debt has been fully
satisfied ("Default Period"), Subordinated Lender shall not receive any
payments otherwise permitted under Section 2.2, and shall not ask for,
demand, sue for, take, or receive from Borrower, by setoff, recoupment,
enforcement of rights in Collateral, or otherwise, any payment or
distribution of any assets of Borrower of any kind or character on
account of the Subordinated Debt. If the Blockage Period. ends because
the Event of Default has been cured or waived, Subordinated Lender may
receive from Borrower regularly scheduled payments of principal,
interest and Expenses that (i) Borrower did not pay during the Blockage
Period (but not any other amounts due as a result of an acceleration by
Subordinated Lender) (the missed Payments) and (ii) are due and payable
after the Blockage Period, so Long as no subsequent Blockage Period is
in effect. If the Blockage Period ends and the Event of Default is a
payment or monetary default and such payment or monetary default has not
been cured or otherwise waived, Subordinated Lender may not receive any
Missed Payments but may take any action otherwise prohibited during the
Blockage Period, as described above; provided, that if, in such ease,
Subordinated Lender takes any such action, or receives any payments from
Borrower absent any such action, any monies or other assets received by
Subordinated Lender shall be held in trust for Senior Lender and
immediately paid over to Senior Lender for application to the Senior
Debt. If the Blockage Period ends and the Event of Default is a non-
monetery, non-payment default and such default has not been cured or
otherwise waived, Subordinated Lender may receive from Borrower any
Missed Payments and any regularly scheduled payments of principal,
interest and Expenses due after such Blockage Period, so long as no
subsequent Blockage Period is in effect, unless Senior Lender has
accelerated the Senior Debt Notwithstanding the foregoing, (i) not more
than one Default Notice shall be given within a period equal to the
lesser of: (a) 210 consecutive days, or (b) 30 consecutive days after
the end of a Default Period, (ii) no Event of Default that existed or
was continuing on the date of any Default Notice shall be made the basis
for the giving of a subsequent Default Notice, unless such Event of
Default has been cured or waived for a period of not less than.. 30
consecutive days subsequent to the end of the immediately preceding
Blockage Period, (iii) not more than one Blockage Period under this
Section 2.4 or Section 2.5 or both shall be in effect during any period
of the lesser of (a) 210 consecutive days, or (b) 30 consecutive days
from the end of, the immediately proceeding Blockage Period under this
Section 2.4 or Section 2.5 or both. Nothing in Section 2.1, this Section
2.4 or in section 2.5 shall prohibit Subordinated Lender during any
Blockage Period from (i) commencing or joining an involuntary case
against Borrower under the United States Bankruptcy Code, (ii)
accelerating the Subordinated Debt, (iii) commencing an action, and
obtaining a judgment, against Borrower to recover all or any part of the
Subordinated Debt, or (iv) commencing an action against Borrower (a) for
delivery of financial and other information required to be delivered
under the Subordinated Lender Documents, (b) to enable Subordinated
Lender to inspect the property of Borrower on Borrower's premises, or
(c) to enable representatives of Subordinated Lender to attend board
meetings of Borrower; provided, that in no event shall (x) any such
action referred to in clauses (iii) and (iv) immediately above invo1ve
the collateral, including without limitation, any action for turnover or
possession of the Collateral, or (y) Subordinated Lender (A) take any
action to require Borrower to pay the debts of any third party, or (B)
enforce any judgment obtained against Borrower, whether by attachment,
levy or the like, or by any other means.
2.5. Suspension of Payment When Subordinated Debt in Default. Upon
written notice by Subordinated Lender to Borrower that a default or an
"Event of Default" under and as defined in the Subordinated Note or
under and as defined. in the Note Purchase Agreement has occurred and
that Subordinated Lender intends to take an enforcement action (an
"Enforcement Notice"),(i) Subordinated Lender shall simultaneously give
Senior Lender a copy of such Enforcement Notice, and (ii) for a Blockage
Period of 180 days from the date of such Enforcement Notice,
Subordinated Lender shall not receive any payments otherwise permitted
under Section 2.2 and shall not have any right to ask for, demand, sue
for, take, or receive from Borrower, by Setoff recoupment, enforcement
of rights in Collateral, or otherwise, any payment or distribution of
any asset of Borrower of any kind or character on account of principal
of or interest on the Subordinated Note or any other amounts payable
under the Subordinated Note or other Subordinated Lender Documents
unless the Senior Debt shall have been discharged or paid in full, or so
long as no Event of Default under and as. defined in the Loan Agreement
has occurred and is continuing, unless and until such default shall have
been cured or waived to the reasonable satisfaction of Senior Lender.
Thereafter (i) Borrower may pay the Subordinated Lender all Missed
Payments and any regularly scheduled payments of principal, interest and
Expenses due after such Blockage Period so long as no subsequent
Blockage Period is in affect; provided, that Subordinated Lender shall
have no right to receive any such payments if either (a) Senior Lender
has accelerated the Senior debt, or (b) a monetary or payment default
exists under the Loan Agreement, and (ii) Subordinated Lender may take
any action otherwise prohibited during the B1ockage Period as described
above; provided, that if Subordinated Lender takes any such action, any
monies or other assets received by Subordinated Lender in connection
with any such action shall be held in trust for Senior Lender and
immediately paid over to Senior Lender for application to the Senior
Debt so long as either (a) Senior Lender has accelerated the Senior Debt
or. (b) a monetary or payment default exists under the Loan Agreerment.
Notwithstanding the foregoing, if a default under the Subordinated Note
or the Note Purchase Agreement becomes the basis for a Default Notice
and commencement of a Blockage Period pursuant to Section 2.4, the
provisions of Section 2.4 shall govern and control the rights and
obligations of Senior Lender and Subordinated Lender with respect to
such default; provided, that if either Senior Lender or Subordinated
Lender commences a Blockage Period under Section 2.4 or Section 2.5,
respectively, and the other commences a subsequent Blockage Period
before expiration of the then existing Blockage Period, the latter
Blockage Period shall be in effect for not more than 180 days from the
date of commencement of the Blockage Period that was first initiated. In
the event a Blockage Period expires under either Section 2.4 or 2.5 and
Subordinated Lender has commenced an enforcement action that was
prohibited during such Blockage Period before a new B1ockage Period is
initiated, Subordinated Lender sha1l not be prohibited from continuing
with such enforcement action during a subsequent; Blockage Period so
long as prior to initiation of such subsequent Blockage Period (i)
Subordinated Lender has taken substantial steps to pursue such
enforcement action (e.g. Subordinated Lender initiated a collection,
foreclosure, replevy, receivership or similar action against Borrower)
and (ii) the Event of Default giving rise to such enforcement action is
not cured or otherwise waived; provided. that notice to account debtors
shall, in. and of itself, not constitute a substantial step to pursue
such enforcement action.
2 6 Payment Over of Proceeds Upon Event of Default or Default. In
the event that Subordinated Lender shall receive any payment or
distribution of assets of Borrower of any kind or character, in respect
of the Subordinated Debt, that it is not entitled to receive pursuant to
this Agreement, such payment or distribution shall be segregated and
shall be deemed to have been received by Subordinated Lender in trust,
as trustee, for the benefit of Senior Lender. Subordinated Lender shall
promptly upon receipt, and immediately upon demand by Senior Lender,
deliver the same to Senior Lender, in the form received from Borrower
with any necessary endorsement or assignment, or Subordinated Lender
shall pay to Senior Lender an amount equal to the payment received from
or on behalf of Borrower, for application to the payment of the Senior
Debt remaining unpaid. Until so delivered to Senior Lender, all such
Payments and distributions shall be held in trust by Subordinated Lender
as the property of Senior Lender.
2.7 Provisions Solelv to Define Relative Rights. The provisions of
Section 2 are solely for the purpose of defining the relative rights of
Subordinated Lender and Senior Lender. Nothing contained in Section 2
or elsewhere in this Agreement shall impair, as between Borrower and
Subordinated Lender, the obligation of Borrower, which is absolute and
Unconditional, to pay to Subordinated Lender, the principal of and
interest on the Subordinated Note and the other indebtedness, if any,
owing to Subordinated Lender under the other Subordinated Lender
Documents as and when the same shall become due and payable in
accordance with its terms. This Agreement is not for the benefit of any
person other than Subordinated Lender and Senior Lender.
2.8 Power of Attorney. Subordinated Lender hereby irrevocably
appoints Senior Lender as attorney-in-Fact for Subordinated Lender to
file any claim or proof of claim in any bankruptcy or insolvency
proceeding in the event Subordinated Lender fails to file any such claim
or proof of claim by the thirtieth (30th) day before the bar date for
filing such claim or proof of claim. Subordinated Lender will execute
and deliver to Senior Lender such other and further powers-of-attorney
or other documents and agreements as Senior Lender may reasonably
request in order to accomp1ish the foregoing, and shall cooperate with
Senior Lender in providing information and copies of any documentation
requested by Senior Lender to accomplish the foregoing. Nothing in this
Section 2.8 shall prohibit Subordinated Lender from voting its claim in
any such bankruptcy case as Subordinated Lender deems appropriate.
2.9 No Waiver of Subordination Provisions.
(i) No right of Senior Lender to enforce the subordination an
herein provided shall be prejudiced or impaired by any act or failure to
act by Subordinated Lender or Borrower, or by any act or failure to act,
in good faith, by Senior Lender, or by any non-compliance by Borrower
with the terms, provisions, and covenants of this Agreement or any of
the Subordinated Lender Documents, regardless of any knowledge thereof
Senior Lender may have or be otherwise charged with,
(ii) Without in any way limiting the generality of Subsection
(i) of this Section 2.9, Senior Lender may, at any time and from time to
time, without the consent of or notice to Subordinated Lender, and
without impairing or releasing the subordination provided in this
Agreement or the obligations hereunder of Subordinated Lender to Senior
Lender, do any one or more of the fo1lowing: (a) change the manner,
place, or terms of payment or extend the time of Payment of, or refund
or refinance, or renew or amend the terms of the Senior Debt or any
instrument evidencing the senior Debt or any agreement under which the
Senior Debt is outstanding; provided, that Senior Lender shall not,
without the consent of Subordinated Lender, (w) increase the 'Maximum
Credit" under and as defined in the Loan Agreement above $5,500,000, (x)
increase the rates of interest payable under the Senior Lender Documents
except that senior Lender shall be entitled to charge any default rate
of. interest as set forth an the Loan Documents, (y) extend the "Term"
under and as defined in the Loan Agreement beyond October 31, 1996, or
(z) add any additional covenants or events of default to the Loan
Documents or make any covenants or events of default included in the
Loan Documents more restrictive than those existing on the date of this
Agreement; provided that nothing in this Agreement shall restrict or
prohibit Lender from adjusting the advance rate or making changes to the
eligibility criteria (b) sell, exchange, release, or otherwise deal with
any Collateral, or take additional property to secure the senior Debt;
(c) release any person or entity 1iab1e in any manner for the payment,
performance, or collection of the Senior Debt; and (d) exercise or
refrain from exercising any right or waive any right or claim against
Borrower or any other person or entity.
2.10 Subrogation. Upon the satisfaction and payment in full of the
Senior Debt, Subordinated Lender shall be subrogated to the rights of
Senior Lender to receive payments and distributions. of cash, property,
and securities on account of the Senior Debt, to the extent of any
payments or distributions on account of the Subordinated Debt that were
received and applied by Senior Lender to the Senior Debt as a result of
the provisions of this. Agreement until the principal of; and interest
on, the Subordinated Debt :sha11 be paid in full. For purposes of such
subrogation, no payments or distributions; to Senior Lender by Borrower,
or payments received by Subordinated Lender and paid over to Senior
Lender, of any cash, property or securities which Subordinated Lender
would have been entitled to receive and apply on account of the
Subordinated Debt but for the provisions of this Agreement shall, as
among Borrower, its creditors other than Senior Lender and Subordinated
Lender, be deemed to be a payment or distribution by Borrower on account
of. the Senior Debt.
2.11 Consent to Security Interests. Subordinated Lender and Senior
Lender each consent to the continuing liens and security interests of
the other in the Collateral, as described herein.
3. Prepayment. So long as any of the Senior Debt remains unpaid
and outstanding, Subordinated Lender shall not ask for, demand, sue for,
take, or receive from. Borrower any prepayment of the Subordinated Note
or the other Subordinated Debt unless Senior Lender shall have given its
prior written consent to such prepayment and to the application of such
prepayment to the Subordinated Debt.
4. Amendment and Waiver. Any term covenant, agreement, or
condition of this Agreement may be amended, or compliance therewith may
be waived (either generally or in a particular instance and either
retroactively or prospectively), with the written consent of Senior
Lender and Subordinated Lender; provided, however, that no such waiver
shall extend to or affect any obligation not expressly waived or impair
any right consequent thereon.
5. Modification and Assignment of Subordinated Debt. Subordinated
Lender may, at any time and from time to time, without the consent of
Senior Lender, without incurring responsibility to any Senior Lender,
and without impairing or releasing any of Subordinated Lender's rights,
or any of the obligations of Senior Lender hereunder, amend or modify
the Subordinated Debt Documents; provided that Subordinated Lender shall
not, without the prior written Consent of Senior Lender, agree to or
allow any such amendment or modification that has the effect of (i)
increasing the principal amount of the Subordinated Debt above the
amount outstanding on the date of this Agreement, (ii) increasing the
rates of interest payable under the Subordinated Notes or the other
Subordinated Lender Documents above the rates in effect under the
Subordinated Lender Documents as of the date of this Agreement (except
that Subordinated Lender shall be entitled, upon notice to Senior
Lender, to charge the default rate of interest set forth in the
Subordinated Lender Documents upon the occurrence of a default under the
Subordinated Lender Documents), (iii) accelerating the amortization or
maturity date of- the Subordinated Debt from the scheduled amortization
and maturity date in effect under the Subordinated Debt Documents as of
the date at this Agreement, or (iv) adding any additional covenants or
events of default to the Subordinated Lender Documents or making any
covenants or events of default under the Subordinated Lender Documents
more restrictive than those existing on the date of this Agreement. The
Subordinated Lender Documents may be assigned by Subordinated Lender to
any transferee without the prior written consent of Senior Lender so
long as the transferee agrees in writing to be bound by the terms of
this Agreernent.
6. Application of Payments, Marshalling of Assets. Subordinated
Lender agrees that all payments received by Senior Lender may be applied
and reapplied, in whole or part, to any of the Senior Debt, as Senior
Lender, in its sole discretion, deems appropriate. Subordinated Lender
agrees that the subordination by Subordinated Lender of the priority of
its liens upon and security interests in the Collateral to the priority
of the liens and security interests of Senior Lender shall not be
affected by, and Subordinated Lender expressly waives any right;
accruing to Subordinated Lender as a result, of, or with respect to:
(i) any obligation or failure by Senior Lender to marshal any
assets in favor of Subordinated Lender or against or in payment of all
or any of the indebtedness evidenced by any Subordinated Lender
Document;
(ii) any failure by Senior Lender to enforce any security
interest in or lien upon other assets, if any, of Borrower or any other
obligor or guarantor of the Senior Debt before enforcement of any
security interest in or lien upon the Collateral,
(iii) any failure by senior Lender to pursue any remedy
against Borrower or any other assets; of Borrower, or against any other
individual, entity or property that may be liable for or security for
the Senior Debt, including, without limitation, any guarantor, or any
collateral for any guaranty, of the Senior Debt;
(iv) any release by Senior Lender of (a) any security
interest in or lien upon any collateral, (b) any guarantor or other
individual or entity now or hereafter liable for the Senior Debt, or (c)
any other property that may now be or hereafter become security for the
Senior Debt;
(v) any amendments to or modifications of the Loan Agreement,
or of any other Loan Document, or any individual or entity liable for
the Senior Debt (unless such amendments, are prohibited under Section
2.9 hereof); or
(vi) any failure by Senior Lender to pursue any other right
or remedy in the power of Senior Lender.
Subordinated Lender further agrees that, to the extent that
Borrower makes a payment or payments to Senior Lender, which payment or
payments or any part thereof are subsequently invalidated, declared to
be fraudulent or preferential, set: aside, or required to be repaid to a
trustee or receiver or any other party under the Bankruptcy Code, any
State or federal law, common law, or equitable cause, then to the extent
of such payment or repayment, the obligation or part thereof intended to
be satisfied shall be revived and continued in full force and effect as
part of the obligations of Borrower under the Senior Debt as if said
payment had not been made, and shall be subject in all respects to the
subordination and subrogation provisions in favor of Senior Lender
hereunder.
7. Non Interference with Senior Lender's Rights. Subordinated
Lender agrees that the Subordinated Lender will not take any action to
prejudice or interfere in any manner with any right or remedy of Senior
Lender under the Loan Agreement or any other Loan Document; provided,
that nothing' in this Section 7 shall prohibit Subordinated Lender from
taking any action otherwise permitted under this Agreement and nothing
in this Section 7 shall prohibit Subordinated Lender from opposing any
motion for relief from the automatic stay that may be filed by Senior
Lender in any bankruptcy case of Borrower or from voting any claim of
Subordinated Lender in any such bankruptcy case as Subordinated Lender
deems appropriate. At no time, whether before or after the commencement
of a bankruptcy proceeding, shall Subordinated Lender challenge the
extent, validity, enforceability, perfection or priority of Senior
Lender's security interest in the Collateral.
8. Indebtedness Under the Subordinated Note and Other Subordinated
Lender Documents Owed Only to Subordinated Lender. Subordinated Lender
warrants and represents to Senior Lender that Subordinated Lender holds
all of the Subordinated Debt and has not assigned any Interest in the
indebtedness evidenced by any Subordinated Lender Documents to any
party, that no other party owns an interest in the Subordinated Debt
other than Subordinated Lender, whether as joint holders of said
indebtedness, Participants, or otherwise., and, except as permitted
under Section 5 of this Agreement, that the entire amount of the Senior
Debt is, and shall continue to be, owing only to Subordinated Lender
9. Instrument Legend. The Subordinated Note is or will on the date
hereof be, inscribed with a legend conspicuously indicating that payment
thereof is subordinated to the claims of Senior Lender pursuant to the
terms of this Agreement Any instrument evidencing any indebtedness or
any portion of any indebtedness owing by Borrower to Subordinated
Lender, whether or not negotiable, which is hereafter excuted by
Borrower will, on the date thereof, be inscribed with the aforesaid
legend.
10. Notice. Any notice, demand, request, consent, approval,
declaration, delivery, or other communication hereunder to be made
pursuant to the provisions of this Agreement shall be sufficiently given
or made if in writing and either de1ivered in person with receipt
acknowledged or sent by facsimile that is confirmed by registered or
certified nail, return receipt requested, postage prepaid, addressed as
follows:
(i) If to Subordinated Lender, at:
SeaCoast Capital Partners Limited Partnership
c/o Seacoast Capital Corporation
5 Ferncroft Road
Danvers, MA 01923
Attention: Thomas W. Gorman
Facsimile: (508) 750-1301
Allied Investment Corporation
A11ied Investment Corporation II
Allied Capital Corporation' II
1666 K Street, N.W., Suite 901
Washington, DC 20006
Attention: George Stelljes III
Facsimile (202) 659-2053
with copies to:
Hughes & Luce. L.L.P.
1717 Main Street, Suite 2800
Dallas, TX 75201
Attention: Larry A Makel, Esq.
Facsimile (214) 939-6100
Dickstein Shapiro & Marin
2101 L Street N.W., Suite 800
Washington, D.C. 20037
Attention: David Parker, Esq.
Facsimile (202) 887-0689
(ii) If to Senior Lender:
Concord Growth Corporation
1170 East Meadow Drive
Palo Alto, CA 943O3
Attention: Geoffrey Butner
Facsimile: (415) 857-0900
with copies to:
Murphy, Weir & Butler
101 California Street, 39th Floor
San Francisco, CA 94111
Attention: Jane K Sprinqwater, Esq
Facsimile: (415) 421-7979
or at such other address or facsimile transmission number as; may be
substituted by notice as herein provided
11. Miscellaneous.
11.1 Successors and Assigns. This Agreement shall be binding
upon, and inure to the benefit of, the successors and, assigns of Senior
Lender and the permitted successors and assigns of Subordinated Lender.
11.2. Section titles. The section titles contained in this
Agreement are are and shall be without substantive meaning or content of
any kind whatsoever, and are not a part of the agreement set forth in
this Agreement, but are inserted for convenience only.
11.3. Severability. Wherever possible each provision of this
Agreement shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Agreement shall
be prohibited by or invalidated under applicable law, such provision
shall be ineffective to the extent of such prohibition or invalidity,
without invalidating the remainder of such provision or the remaining
provision of this Agreement.
11.4 Attorneys' Fees.. If either Subordinated Lender or Senior
Lender shall incur costs and expenses, including attorneys' fees and
costs, to enforce its rights under this Agreement, the prevailing party
shall be entitled to recover from the other party the reasonable amount
of such costs and expenses incurred.
11 5 Governing Law, Consent to Jurisdiction and Venue. In all
respects, including all matters of construction, validity, and
performance, this Agreement and the obligations arising hereunder shall
be governed by and construed and enforced in accordance with the laws of
the State of California applicable to contracts made and performed in
such State, without regard to the principals thereof regarding conflict
of law, and any applicable laws of the United States of America. THE
PARTIES HERETO CONSENT TO PERSONAL JURISDICTION, WAIVE ANY OBJECTION AS
TO JURISDICTION AND VENUE, AND AGREE NOT TO ASSERT ANY DEFENSE BASED ON
LACK OF JURSIDICTION OR VENUE IN THE COUNTY OF SAN FRANCISCO, STATE OF
CALIFORNIA. Service of process on any the the parties hereto in any
action arising out of or relating to this Agreement shall be effective
if mailed to such party at the address listed in Section 10 of this
Agreement Nothing herein shall preclude Senior Lender or Subordinated
Lender from bringing suit or taking other legal action in any other
jurisdiction.
11.6 MUTUAL WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN
CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKEY AND
ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE
PARTIES WISH APPLICABLE FEDERAL AND STATE LAWS TOAPPLY, RATHER THAN
ARBITRATION RULES, THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY
A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST
COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION,
THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT,
OR PROCEEDING BROUGHT TO ENFORCE OR DEFEND ANY RIGHTS OR REMEDIE UNDER
THIS AGREEMENT.
11.7 Counterparts. This Agreement may be executed in any number of
counterparts each of which when executed and delivered shall be deemed
to be an original an all of which, when taken together, shall constitute
on and the same agreement.
In witness whereof, the parties hereto have executed this
Agreement as of the day and year first above written.
Allied Investment Corporation
("Subordinated Lender")
By: Robert M. Monk
Assistant Vice President
Allied Capital Corporation II
("Subordinated Lender")
By: Robert M. Monk
Assistant Vice President
Allied Investment Corporation II
("Subordinated Lender")
By: Robert M. Monk
Assistant Vice President
Seacoast Capital Partners Limited Partnership
("Subordinated Lender")
By Seacoast Capital Corporation, General Partner
By Thomas W. Gorman
Vice President
Concord Growth Corporation
By Geoffrey Butner
Vice President
<PAGE>
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement is made and entered into this ___ day
of October, 1995, by and between Labor Ready, Inc., a Washington corporation
("Company") and Glenn Welstad ("Executive").
WHEREAS, Executive has been a valued employee and key executive of the
Company and the parties wish to provide for his continued employment and
future services upon the terms and conditions set forth in this Agreement;
and
WHEREAS, it is the consensus of the board of directors that Executive's
services have been of exceptional merit, in excess of the compensation paid
and an invaluable contribution to the profits and position of the Company in
its field of activity. The board further believes that Executive's experience,
knowledge of corporate affairs, reputation and industry contacts are of such
value and his continued services essential to Company's future growth and
profits and that it would suffer great financial loss should Executive
terminate his services.
NOW THEREFORE, in consideration of the mutual promises and
covenants set forth herein, the Company and Executive agree as follows:
1. Termination of Prior Agreements. Effective as of October ____,
1995, all agreements previously entered into between Executive and Company
(whether Labor Ready, Inc., PNLF, Inc., Labor Ready of Southern Calif., Inc.,
or any other subsidiary company) concerning the employment and compensation of
Executive, are hereby terminated.
2. Employment. The Company agrees to and hereby does continue
Executive in its employment, and Executive agrees to and hereby does continue
in employment with the Company, as President and Chief Executive Officer of
the Company in charge of the operation of its business and affairs, subject to
the supervision and direction of its Board of Directors, for a period
commencing on October ___, 1995 and ending on December 31, 1998, unless such
period is extended by written agreement of the parties or is sooner terminated
pursuant to the provisions of Paragraphs 5, 12 or 13.
3. Duties of Executive. Executive agrees to continue to devote his
full time, attention, skill, and efforts to the performance of his duties as
Chief Executive Officer of the Company, and to the performance of all the
duties of the office of President of the Company and, if elected, of any
subsidiary or subsidiaries of the Company, all under the supervision and
direction of their respective boards of directors.
4. Compensation.
(a) Base Salary. Executive's base salary ("Base Salary") shall be at the
rate of Thirty One Thousand Two Hundred Fifty and No/100 Dollars ($31,250.00)
per month, payable semi-monthly, from the date of this Agreement. The Base
Salary amount shall be increased annually on the anniversary date of this
Agreement to 110% of the preceding years salary.
(b) Bonus. The Board of Directors, or the Compensation Committee, as the
case may be, may award to Executive such bonuses, from time to time, subject
to limitations imposed by agreement with lenders or others, as the board may
see fit, commensurate with Executive's performance and the overall performance
of the Company.
(c) Fringe Benefits. In addition to the compensation described in
Paragraphs 4.(a) and 4.(b), Executive shall also be entitled to fringe
benefits, including car allowances, insurance and other benefits, as shall be
provided in accordance with Company policy as it is developed from time to
time, by the Company's Board of Directors.
5. Death or Disability.
(a) In the event that Executive, during the term of his employment
hereunder, shall fail to perform his duties as the result of illness or other
incapacity and such illness or other incapacity shall continue for a period of
more than six months, the Company shall have the right, by written notice
either personally delivered or sent by certified mail, to terminate
Executive's employment hereunder as of a date (not less than 30 days after the
date of the sending of such notice) to be specified in such notice. Upon such
termination Executive shall be entitled to receive his compensation computed
as provided in Paragraph 4 hereof for a period of six (6) months following the
giving of such notice, or in the amount of $30,000.00, whichever is less;
provided, however, that if, prior to the date specified in such notice,
Executive's illness or incapacity shall have terminated and he shall have
taken up and performed his duties hereunder, Executive shall be entitled to
resume his employment hereunder as though such notice had not been given.
(b) In the event of Executive's death during the term of his employment
hereunder, his estate shall be entitled to receive his compensation computed
provided in Paragraph 4 hereof for a period of six (6) months following the
date of death, or in the amount of $30,000.00, whichever is less.
6. Qualified and Non-Qualified Options to Purchase Common Stock.
Company acting through its board of directors may from time to time, but shall
not be required to provide and deliver to Executive qualified and/or
non-qualified options to purchase the Company's common stock. Upon termination
of this Agreement for any reason, the exercise date of all outstanding
non-qualified stock options shall be accelerated, and shall be exercisable
only within six months from the date of termination.
7. Reimbursement for Expenses. Company shall reimburse Executive for
reasonable out-of-pocket expenses that Executive shall incur in connection
with his services for Company contemplated by this Agreement, on presentation
by Executive of appropriate vouchers and receipts for such expenses to
Company. At times it may be in the best interests of the Company for
Executive's spouse to accompany him on such business travel. On such occasions
Company shall reimburse Executive for reasonable out-of-pocket expenses
incurred for his spouse. Such occasions shall be determined by guidelines
established by the Board of sound discretion.
8. Automobile. The duties to be performed by Executive under the
provisions of this agreement will require the regular use of an automobile.
The parties agree that Executive shall be provided with a monthly car
allowance. The amount of the car allowance shall be $500.00 per month, and
shall remain fixed throughout the term of this Agreement.
9. Vacation. Executive shall be entitled each year during the term of
this Agreement to a vacation of twenty-three (23) days, no two of which need
be consecutive, during which time his compensation shall be paid in full. The
length of annual vacation time shall increase by one day for every year of
service to the Company after 1995 to a maximum of 35 days per year. Such
vacation time shall be accrued and may be taken by executive in accordance
standard Company policy governing Corporate executives..
10. Liability Insurance. The Company shall procure and maintain
throughout the term of this Agreement a policy or policies of liability
insurance for the protection and benefit of directors and officers of the
Company. Such insurance shall have a combined limit of not less than
$2,000,000.00 and may have a deductible of not more than $100,000.00.
11. Other Benefits. Nothing in this Agreement shall be construed as
limiting or restricting any benefit of Executive, under any pension,
profit-sharing or similar retirement plan, or under any group life or group
health or accident or other plan of the Company, for the benefit of its
employees generally or a group of them, now or hereafter in existence, nor
shall any payment under this Agreement be deemed to constitute payment to
Executive, in lieu of or in reduction of any benefit or payment under any such
plan.
12. Termination by Company. Company may terminate this Agreement for
cause at any time upon thirty (30) days written notice to Executive. Cause
shall exist if the Company's Board of Directors determines, in good faith,
that Executive has been dishonest, has grossly neglected his duties
hereunder, or has committed some other act or omission which substantially
impairs Company's ability to conduct its ordinary business in its usual
manner. The notice of termination shall specify with particularity the
actions or inaction's constituting such cause. In the event of termination
under this section, Company shall pay Executive all amounts due hereunder
which are then accrued but unpaid within thirty (30) days after Executive's
last day of employment.
13. Termination by Executive. If Company shall cease conducting its
business, take any action looking toward its dissolution or liquidation, make
an assignment for the benefit of its creditors, admit in writing its inability
to pay its debts as they become due, file a voluntary petition or be the
subject of an involuntary petition in bankruptcy, or be the subject of any
state or federal insolvency proceeding of any kind, then Executive may, in his
sole discretion, by written notice to Company, terminate his employment and
Company hereby consents to the release of Executive under such circumstances
and agrees that if Company ceases to operate or to exist as a result of such
event, the non-competition and other provisions of Paragraph 17 of this
Agreement shall terminate. In the event of termination by executive pursuant
to this Paragraph 13, executive shall be entitled to payment of salary and
other benefits and expense reimbursements accrued up to the date of such
termination, and any outstanding stock options shall be exercisable for six
months in accordance with Paragraph 6 of this Agreement, but Executive shall
not be entitled to any other termination payments under this Agreement.
14. Communications to Company. Executive shall communicate and
channel to Company all knowledge, business, and customer contacts and any
other matters of information that could concern or be in any way beneficial to
the business of Company, whether acquired by Executive before or during the
term of this Agreement shall be construed as requiring such communications
where the information is lawfully protected from disclosure as a trade secret
of a third party.
15. Binding Effect. This Agreement shall be binding on and shall
inure to tile benefit of any successor or successors of employer and the
personal representatives of Executive.
16. Non-Competition after Termination. Executive agrees that, in
addition to any other limitation, for a period of two years after the
termination of his employment under this Agreement (except a termination
pursuant to an event described in Paragraph 14, above), Executive will not
directly or indirectly engage, or in any manner be connected with or employed
by any person, firm, corporation, or other entity in competition with Company
or engaged in providing unskilled or semi-skilled temporary workers within the
United States, Canada, and in such foreign jurisdictions as the Company now
conducts business or hereafter, during the term of this Agreement,
contemplates conducting business. If the provisions set forth are determined
to be too broad to be enforceable at law, then the area and/or length of time
shall be reduced to such area and time that shall be enforceable.
17. Use of Confidential Information. Executive agrees that, in
addition to any other limitation contained in this Agreement, regardless of
the circumstances of the termination of employment, he will not use for his
own benefit or communicate to any person, firm, corporation, or other entity
any information relating to customer lists, prices, advertising, nor any
confidential knowledge or secrets that Executive might from time to time
acquire with respect to the business of the Company, or any of its affiliates
or subsidiaries. If the provisions set forth herein are determined to be too
broad to be enforceable at law, then such provisions shall be limited in
application so that they shall be enforceable.
18. Law to Govern Contract. It is agreed that this Agreement shall be
governed by, construed, and enforced in accordance with the laws of the
Washington.
19. Entire Agreement. This Agreement shall constitute the
entire agreement between the parties and any prior understanding or
representation of any kind preceding the date of this Agreement shall not be
binding upon either party except to the extent incorporated in this
Agreement.
20. Modification of Agreement. Any modification of this Agreement or
additional obligation assumed by either party in connection with this
Agreement shall be binding only if evidenced in writing signed by each party
or an authorized representative of each party. This Agreement may not be
modified without the written consent of the Seacoast Capital Partners Limted
Partnership, Allied Investment Corporation, Allied Investment Corporation II,
and Allied Capital Corporation II (hereafter collectively the "Purchasers"),
so long as the provisions governing Executive Compensation of that certain
Note Purchase Agreement dated October ___, 1995, between Labor Ready, Inc., et
al., and Purchasers, and that certain Warrant Purchase Agreement dated October
___, 1995, between Labor Ready, Inc., et al., and Purchasers shall survive.
21. No Waiver. The failure of either party to this Agreement to
insist upon the performance of any of the terms and conditions of this
Agreement, or the waiver of any breach of any of the terms and conditions of
this Agreement, shall not be construed as thereafter waiving any such terms
and conditions, but the same shall continue and remain in full force and
effect as if no such forbearance or waiver had occurred.
22. Attorney Fees. In the event that any action is filed in relation
to this Agreement, the unsuccessful party in the action shall pay to the
successful party, in addition to all other required sums, a reasonable sum for
the successful party's attorneys' fees
23. Notices. Any notice provided for or concerning this Agreement
shall be in writing and shall be deemed sufficiently given when personally
delivered or when sent by certified or registered, return receipt requested
mail if sent to the respective address of each party shall designate by
notice.
IN WITNESS WHEREOF, each party to this Agreement has caused it to
be executed at Tacoma, Washington on the date first above written.
COMPANY: LABOR READY, INC.
By:____________________________
John R. Coghlan, Secretary
EXECUTIVE: GLENN WELSTAD
_____________________________
<PAGE>
INDEPENDENT CONTRACTOR AGREEMENT
This Independent Contractor Agreement (the "Agreement), is entered into
by and between Labor Ready, Inc., (the "Company") and John R. Coghlan
("Contractor"). In consideration of the promises set forth in this Agreement,
Contractor and the Company hereby agree as follows:
AGREEMENTS:
1. Engagement of Contractor. Commencing on November 1, 1995, the
Company engages Contractor to consult on such projects as are assigned to
Contractor, from time to time by the Company's Chief Executive Officer. This
Agreement shall terminate on December 31, 1998, unless renewed by agreement of
the Company and Contractor.
2. Responsibilities of Contractor. Contractor agrees to provide the
services described in paragraph 1. Contractor agrees that during the term of
this Agreement, Contractor shall not engage in any activity that conflicts
with the Company's business interests or interferes with the independent
exercise of Contractor's judgment in the Company's best interests; provided
that nothing in this provision is intended to preclude Contractor from
providing services to other entities and individuals during the term of this
Agreement. Notwithstanding this right to perform services for others,
Contractor agrees to devote as much of his time and attention to Company
matters as shall be necessary to accomplish the tasks assigned in an efficient
and timely manner.
3. Independent Contractor Status. Contractor acknowledges and agrees
that Contractor is an independent contractor and not an agent or an employee
of the Company. The amount of time and effort devoted by Contractor to the
services provided under this Agreement shall be within the sole discretion and
control of Contractor. Furthermore, Contractor shall be free to determine, in
his sole discretion, the methods and techniques, that in Contractor's opinion,
will best accomplish the services; provided, however, that such methods and
techniques shall be in accordance with good and reputable business practices.
Contractor acknowledges that Contractor is responsible to pay and agrees to
pay any and all applicable federal and state self-employment taxes and/or
fees, in connection with his activities under this Agreement, and that
Contractor will abide by all applicable federal, state, and local laws in
connection with the services provided.
4. No Agency. Contractor is authorized to represent himself or
herself as an independent contractor of the Company, but shall have no
authority to and shall not represent that he has authority to bind the Company
in any manner.
Payment. Contractor shall be compensated on an as billed basis for
services performed pursuant to this Agreement. Contractor may bill an amount
not in excess of $12,500 per month, and invoices may be submitted no more
frequently than two times per month, with such invoice periods falling on the
15th day and the last days of each month. The maximum dollar amount limitation
set forth herein shall be increased 10% on January 1 of 1997, and by an
additional 10% for each subsequent calendar year over the preceding years
billing limitation.
As additional compensation under this Agreement, Contractor shall be
entitled to such stock options, cash bonuses, or other compensation, as the
Company's Board of Directors shall, in their sole discretion, from time to
time determine. Such additional compensation shall be considered on a project
by project basis taking into account the value of the services performed in
completing a project pursuant to this Agreement. If granted, it shall be a
condition of any stock options that they expire if not exercised within six
months of termination of this Agreement.
This Agreement shall be further subject to the terms of a Conditional
Promissory Note of even date between the Company and Contractor, which
Conditional Promissory Note is attached hereto as Exhibit A and incorporated
herein by this reference.
6. Expenses of Contractor. Contractor shall maintain separate and
independent offices in his Home, at his expense for performing the services
hereunder. In addition, Company agrees to make an office available at the
Company's Headquarters building, 2156 Pacific Avenue, Tacoma, Washington, on
an as needed basis in order to allow the efficient use of Contractor's time
when working on site. Contractor shall be liable and responsible for the
payment of any and all expenses incurred under this Agreement, except for
expenses incurred at the request of and in connection with the specific
projects being undertaken by Contractor.
7. Support Services. The Company agrees that it shall provide
Contractor with certain administrative support services, including secretarial
services for invoicing and dispatching, and pager and voice mail systems, to
assist Contractor in accomplishing the services required by this Agreement.
8. Insurance. Contractor agrees to maintain liability insurance
covering any liabilities resulting or arising from the performance or failure
of Contractor to perform any activities undertaken pursuant to this Agreement.
9. Indemnification. Contractor agrees to indemnify and hold the
Company harmless from any and all claims, judgments, costs, suits, debts or
liabilities, including attorney's fees, resulting from Contractor's
performance or failure to perform any activities hereunder or in relation to
this Agreement. In addition thereto, Contractor shall hold the Company
harmless from any workmen's compensation claim or unemployment insurance claim
made by Contractor or made on Contractor's behalf.
10. Confidential Information. Contractor hereby covenants and agrees
that at any time following execution of this Agreement, Contractor shall not
use or disclose, directly or indirectly for any reason whatsoever or in any
way, other than at the direction of the Company, any confidential information
or trade secrets of the Company, including but not limited to, information
with respect to the Company as follows: (i) the identity, list and/or
descriptions of any customers of the Company; (ii) financial statements of the
Company or of its customers; (iii) cost reports, proposals, sales, and bidding
information; (iv) rate and fee structure information; (v) policies and
procedure developed by the Company; and (vi) management systems and
procedures, including manuals and supplements thereto (collectively, the
"Confidential Information"). The obligation not to use or disclose any of the
Confidential Information shall not apply to any information that is or becomes
public knowledge in the industry, through no fault of the Contractor, and that
may be utilized by the public without any direct or indirect obligation to the
Company, but the termination of the obligation for non-use or non-disclosure
by reason of such information becoming public shall be only from the date such
information becomes public knowledge. Furthermore, Contractor agrees that
upon termination of Contractor's relationship with the Company, he shall
surrender and deliver to the Company all records, files or other documents, or
copies thereof relating to the business of the Company or the Confidential
Information.
11. Noncompetition. Contractor agrees that due to the nature of his
engagement under this Agreement, Contractor may have access to, may acquire,
and may assist in developing confidential information relating to the business
and operations of the Company. Contractor acknowledges that such information
is and will continue to be of central importance to the business of the
Company and that disclosure of such confidential information to others or the
unauthorized use of such information by others would cause substantial loss
and harm to the Company. Contractor therefore agrees that during the terms of
Contractor's engagement and for a period of twenty-four months following the
termination of this Agreement, regardless of reason Contractor will (a)
refrain from contacting any of the Company's suppliers and customers for the
purpose of soliciting orders or establishing relationships for any business
enterprise that directly or indirectly competes with the Company's business;
(b) refrain from any public or private statements to such parties that would
be injurious to the Company's business or reputation or in any way interfere,
directly or indirectly, with the business of the Company; and (c) refrain from
developing, marketing and distributing any products that compete in the United
States, Canada, and Foreign Jurisdictions with products or services being
developed and/or sold by the Company or otherwise be engaged in any activity
that competes with the Company. If the noncompetitition provisions set forth
are determined to be too broad to be enforceable at law, then the area and/or
length of time shall be reduced to such area and time that shall be
enforceable.
12. Company's Remedy for Breach and Right to Injunction. Contractor
agrees that the rights covered by this Agreement are unique and special in
nature and that the Company would not have an adequate remedy at law in the
event of Contractor's breach of this Agreement, and money damages will not
compensate the Company for such injury. Contractor agrees, therefore, that
the Company, in addition to and without limiting any other remedy or right it
may have, shall have the right to an immediate injunction or other equitable
relief enjoining any such threatened or actual breach.
13. Termination. This Agreement may be terminated by either party at
any time, with or without cause, upon thirty (30) day's written notice to the
other party. Upon termination of this Agreement, all rights and obligations
under this Agreement shall cease except for the rights and obligations of the
parties under Sections 9, 10, 11, and 12 and all procedural and remedial
provisions of this Agreement. In the event of a termination for cause, Company
shall be obligated to pay Contractor only for amounts invoiced or accrued
through the date of such termination. The obligations of Company to Contractor
under the Conditional Promissory Note attached hereto as Exhibit A, shall also
terminate in the event of termination for cause. Cause shall exist if the
Company's Board of Directors determines, in good faith, that Contractor has
been dishonest, has grossly neglected his duties hereunder, or has committed
some other act or omission which substantially impairs Company's ability to
conduct its ordinary business in its usual manner. Cause shall also exist in
the event Contractor challenges that certain Employment Termination and
General Release Agreement between Labor Ready, Inc. and Contractor of even
date, which is attached hereto as Exhibit B and incorporated herein by
reference.
In the event of termination resulting from death or disability of
Contractor, Company shall be obligated to pay Contractor only for amounts
invoiced or accrued through the date of such termination, plus a lump sum
payment of $30,000 as consideration for the value of services rendered on
projects started but incomplete at the time of such termination, which are
anticipated to have ongoing value to Company. The obligations of Company to
Contractor under the Conditional Promissory Note attached hereto as Exhibit A,
shall also terminate in the event of termination for resulting from death or
disability.
Assignments. This Agreement constitutes a personal contract that may not
be assigned by Contractor without the prior written consent of Company.
Governing Law. This Agreement and all issues relating to the validity,
interpretation, and performance shall be governed by and interpreted under the
laws of the State of Washington.
16. Severability. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable, such provision shall be fully severable
and the remainder of this Agreement shall remain in full force and effect.
17. Binding Affect. This Agreement shall be binding upon and shall
inure to the benefit of each party hereto and each party's respective
successors, heirs, assigns, and legal representatives.
18. Entire Agreement. This Agreement embodies the entire agreement
and understanding between the parties hereto with respect to its subject
matter and supersedes all prior agreements and understanding, whether written
or oral, relating to its subject matter. No amendments, modification, or
termination of this Agreement shall be valid unless made in writing and signed
by each of the parties.
Executed on the ____ day of ______, 1995
COMPANY: LABOR READY, INC. CONTRACTOR: JOHN R. COGHLAN
______________________________ _________________________________
Glenn Welstad, President John R. Coghlan
<PAGE>
PNLF, INC.
EMPLOYMENT CONTRACT
THIS EMPLOYMENT CONTRACT made this 19th day of December, 1994, by and
between PNLF, INC., (hereinafter referred to as "Company" ) and Scott Sabo
(hereinafter referred to as "Employee").
RECITALS
WHEREAS, Company is a Washington corporation engaged in the business of
providing temporary labor to various business, and
WHEREAS, Employee desires to either be or continue as an employee of
Company.
NOW, THEREFORE, in consideration of the mutual covenants herein, it is
agreed as follows:
1. Company hereby employs Employee in the capacity of Regional
Director or such other capacity as Company shall direct; and Employee hereby
accepts such employment upon the terms and conditions hereinafter set forth.
2. Employee agrees during the working hours to devote his full and
undivided time, energy, knowledge, skill and ability exclusively to the
operation, transaction and development of Company's business to the exclusion
of all other business interests unless otherwise agreed to in writing.
Employee will conscientiously and diligently perform all required acts and
duties to the best of his ability and in the manner satisfactory to Company.
Employee will faithfully discharge all responsibilities and duties entrusted
to him.
3. Employee will perform his duties in a careful and workmanlike
manner. Employee agrees to abide by the rules of Company. Employee will so
conduct himself at all times so as to maintain and improve the credit,
reputation and interest of Company. Upon request, Employee agrees to submit
to a physical examination by a physician selected by Company.
4. Employee will truthfully make and maintain such reports as Company
may require. Employee will make available to Company any and all information
which will be of benefits to Company.
5. It is understood that Employee has no authority to impose any
obligation upon Company or to bind Company to the performance of any acts
whatsoever without the prior permission of Company.
6. In consideration of the services to be rendered by Employee,
Company shall pay Employee $_______ semi-monthly, plus commission, if
applicable, to be computed as follows:
______________________________________________________________________________
_____________________________________________________________________________.
This compensation may be altered and revised by Company without affecting the
remainder of the covenants contained herein, all of which shall remain in full
force and effect until termination as provided by this Employment Contract.
7. Employee hereby agrees and understands that commission, if
applicable, paid on Employee's sales are paid normally in advance of the
actual payment by the customer. In the event a customer does not pay its
invoice after ninety (90) days, then the commissions paid to Employee are
considered unearned and commissions paid will be deducted from Employee's next
commission check. Once the customer pays invoices that were charges back to
Employee, then they are considered earned and paid on Employee's next
commission check.
8. All funds in Employee's possession belonging to Company shall be
delivered or transmitted daily to Company's main or home office unless
Employee is otherwise directed in writing.
9. Employee recognizes that the services to be rendered by Employee
under this contract require special training, skills and experience and this
contract is entered into for the purpose of obtaining such services for
Company.
10. As the result of his duties, Employee will necessarily have
access to some or all of the confidential information pertaining to Company's
business. It is agreed that "Confidential Information" of Company includes:
(a) The ideas, methods, techniques, formats, specifications,
procedures, designs, systems, processes, data and software
products which are unique to Company;
(b) All customer, marketing, pricing, and financial information
pertaining to the business of Company;
(c) All operations, sales and training manuals;
(d) All other information now in existence or later developed
which is similar to the foregoing; and
(e) All information which is marked as confidential or explained
to be confidential or which, by it nature is confidential.
11. Employee understands that he will necessarily have access to
some or all of the Confidential Information. Employee recognizes the
importance of protecting the confidentiality and secrecy of the Confidential
Information and, therefore, agrees to use his best efforts to protect the
Confidential Information from unauthorized disclosure to other persons.
Employee understands that protecting the Confidential Information from
unauthorized disclosure is critically important to the success and competitive
advantage of Company and that the unauthorized disclosure of the Confidential
Information would greatly damage Company.
12. Employee agrees not to disclose any confidential Information to
others, use any Confidential Information for his own benefit or make copies of
any Confidential Information without the express written consent of the an
officer of Company. Employee further agrees that upon request of an officer
of Company, he shall immediately return all Confidential Information,
including any copies of Confidential Information in his possession.
13. If at any time Employee has reason to believe that any person,
whether employed by Company or otherwise, has received or disclosed or intends
to receive or disclose Confidential Information without the consent of
Company, he shall immediately notify an officer of Company.
14. It is understood and agreed that the nature of the methods
employed in Company's business is such that Employee will be placed in a close
business and personal relationship with the customers of Company. Thus,
during the terms of this Employment Contract and for a period of (1) one year
immediately following the termination of Employee's employment, for any cause
whatsoever, so long as Company continues to carry on the same business, said
Employee shall not, for any reason whatsoever, directly or indirectly, for
himself or on behalf of, or in conjunction with, any other person, persons,
company, partnership, corporation or business entity:
(a) Call upon, divert, influence, or solicit or attempt to
call, divert, influence or solicit any customer of Company;
(b) Divulge the names and addresses or any information
concerning any customer of Company;
(c) Own, manage, operate, control, be employed by,
participate in or be connected in any manner with the ownership,
management, operation or control of the same, similar, or related
line of business as that carries on now by Company within a radius
of ten (10) miles from Company's office at which Employee was last
employed; and
(d) Make any public statement or announcement, or permit
anyone else to make any public statement or announcement that
Employee was formerly employed by or connected with Company.
The time period covered by the covenants contained herein
shall not include any period(s) of violation of any covenant or
any period(s) of time required for litigation to enforce any
covenant. If the provisions set forth are determined to be too
broad to be enforceable at law, then the area and/or length of
time shall be reduced to such area and time and that shall be
enforceable.
15. The covenants set forth herein on the part of Employee shall be
construed as an agreement independent of any other provision in this
Employment Contract and the existence of any claim or cause of action of
Employee against Company, whether predicted on this Employment Contract or
otherwise, shall not constitute a defense to the enforcement by Company of the
covenants contained herein.
16. Employee acknowledges that irreparable damage will result to
Company in the event of the breach of any covenant contained herein and
Employee agrees that in the event of any such breach, Company shall be
entitled, in addition to any and all other legal or equitable remedies and
damages, to a temporary and/or permanent injunction to restrain the violation
thereof by Employee and all of the persons acting for or with Employee.
17. In the event of the termination of this Employment Contract,
Employee agrees to immediately deliver to Company all correspondence, letters,
manuals, contracts, call reports, price lists, mailing lists, customer lists,
advertising materials, ledgers, supplies, equipment, checks, petty cash, and
all other material and records of any kind that may be in the hands of
Employee.
18. Company reserves the right to assign this Employment Contract to
an affiliated Company or to any successor in interest to its business without
notice to Employee and all the terms and conditions of this Employment
Contract shall remain in full force and effect thereafter.
19. A waiver of any condition or term in the Employment Contract by
Company shall not be construed to have any effect on the remaining terms and
condition, nor shall any waiver be permanent or binding for the future.
20. This Employment Contract shall be governed and construed in
accordance with the laws of the State of Washington.
21. The parties agree that in the event it becomes necessary for
Company to seek judicial remedies for the breach or threatened breach of this
Employment Contract, Company shall be entitled to, in addition to all other
remedies, recover from Employee the costs of such judicial action including
reasonable attorneys' fees.
22. EMPLOYMENT WITH LABOR READY IS ON AN "AT WILL" BASIS. EMPLOYEE
MAY TERMINATE HIS OR HER EMPLOYMENT AND THIS EMPLOYMENT CONTRACT AT ANY TIME.
SIMILARLY, LABOR READY MAY TERMINATE THE EMPLOYMENT RELATIONSHIP AND THIS
EMPLOYMENT CONTRACT AT ANY TIME WHEN IN ITS SOLE DISCRETION IT BELIEVES
TERMINATION IS IN THE COMPANY'S BEST INTEREST. Neither this Employment
Contract nor any communication by a managerial representative is intended in
any way to promise employment for any specific period of time.
23. No promises or other communications made by either Employee or by
any representatives of Company are intended to be binding unless they are set
forth in this Employment Contract. his Employment Contract contains the
entire agreement between the parties and replaces and supersedes all prior
agreements. This Contract may not be changes, modified, released or otherwise
terminated except by an instrument in writing signed by an officer of Company.
This Contract shall be binding upon Employee's heirs, executors,
administrators and other legal representatives.,
24. Paragraphs 10 through 18 shall survive termination of the
remainder of this Employment Contract.
IN WITNESS WHEREOF, the parties hereto have executed this Employment
Contract as of the day and month first set forth,
COMPANY: EMPLOYEE:
PNLF, INC.
By: Glenn Welstad ____________________________
Its: President J. Scott Sabo
<PAGE>
Labor Ready, Inc.
December 31, 1995
Computation of Earnings Per Share
1995 1994 1993
---- ---- ----
Primary earnings per share
Common stock equivalents
Options and warrants
granted and unexercised (note 3) 335,928 232,998
Total weighted average (Note 1)
shares issued 5,525,572 4,221,885 3,668,585
--------- --------- ---------
Weighted average shares outstanding 5,861,500 4,454,883 3,668,585
--------- --------- ---------
Net Income Reported 2,061,807 851,805 269,008
Less Preferred Dividends (42,704) (42,705) (50,154)
--------- -------- ---------
Net income after preferred dividends 2,019,103 809,100 218,854
--------- -------- ---------
Primary earnings per share $ 0.34 $ 0.18 $ 0.06
========= ======== ==========
Fully diluted earnings per share
Common stock equivalents
Options and warrants
granted and unexercised (note 3) 335,928 232,998
Total weighted average (Note 2)
shares issued 5,525,572 4,221,885 3,668,585
--------- --------- ---------
Weighted average shares outstanding 5,861,500 4,454,883 3,668,585
--------- --------- ---------
Net Income Reported 2,061,807 851,805 269,008
Less Preferred Dividends (42,704) (42,705) (50,154)
--------- -------- ---------
Net income after preferred dividends 2,019,103 809,100 218,854
--------- -------- ---------
Fully diluted earnings per share $ 0.34 $ 0.18 $ 0.06
========= ======== ==========
Note 1:
Total weighted average shares issued
Shares outstanding at
beginning of year 4,972,094 3,904,311 2,524,902
Total weighted average shares
issued (retired) during the year 553,479 317,574 1,143,683
--------- --------- ---------
Total weighted average shares issued
- primary EPS 5,525,572 4,221,885 3,668,585
========= ========= =========
Note 2:
The amount of weighted average shares outstanding is calculated in
the same manner as the primary earnings per share. No other potentially
dilutive securities exist (3% test is not met which would require both
presentations in the financial statements).
Note 3:
Total weighted average options and
warrants granted and unexercised
Options outstanding at beginning
of the year 226,500 -- --
Total weighted average shares
issued (retired) during the year 109,428 232,998 --
--------- --------- ---------
Total weighted average
options/warrants granted 335,928 232,998 --
========= ========= =========
</TEXT/
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S AUDITED FINANCIAL STATEMENTS, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000768899
<NAME> LABOR READY, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 5359113
<SECURITIES> 0
<RECEIVABLES> 13051413
<ALLOWANCES> 868907
<INVENTORY> 0
<CURRENT-ASSETS> 20215626
<PP&E> 3542071
<DEPRECIATION> 690648
<TOTAL-ASSETS> 26181635
<CURRENT-LIABILITIES> 7955731
<BONDS> 9694560
0
854082
<COMMON> 7116422
<OTHER-SE> (28707)
<TOTAL-LIABILITY-AND-EQUITY> 26181635
<SALES> 94361629
<TOTAL-REVENUES> 94361629
<CGS> 76642962
<TOTAL-COSTS> 76642962
<OTHER-EXPENSES> 13639034
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 866113
<INCOME-PRETAX> 3213520
<INCOME-TAX> 1151713
<INCOME-CONTINUING> 2061807
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2061807
<EPS-PRIMARY> .34
<EPS-DILUTED> .34
</TABLE>
