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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)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
- --- ACT OF 1934 [FEE REQUIRED]
For the year ended December 31, 1997.
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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
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Commission File Number 0-23828
LABOR READY, INC.
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(Exact name of registration as specified in its Charter)
<TABLE>
<S> <C>
Washington 91-1287341
- ---------------------------------------- ---------------------------------------
(State of Incorporation of Organization) (I.R.S. Employer Identification Number)
1016 S. 28th Street, Tacoma, Washington 98409
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(Address of Principal Executive Offices) (Zip Code)
</TABLE>
(253) 383-9101
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(Registrant's Telephone Number)
Securities Registered Under Section 12(b) of the Act:
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<S> <C>
Title of each class Name of each exchange on which registered
None None
- ----------------------------------------------------------------------------------------
Securities Registered Under Section 12(g) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, No Par Value The Nasdaq Stock Market
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</TABLE>
Indicated 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. /X/
---
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 x NO .
--- ---
The aggregate market value (based on the Nasdaq quoted closing price) of the
common stock held by non-affiliates (15,250,459 shares) of the Registrant at
March 18, 1998 was approximately $514,702,991. As of March 18, 1997, there were
18,461,072 shares of the Registrant's common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's Form 10 filed on July 5, 1994 and the Current Reports on
Form 8-K filed on September 25, 1997 and January 6, 1998 are incorporated by
reference into Parts II and IV.
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LABOR READY, INC.
FORM 10-K
PART I.
ITEM 1. BUSINESS
Information in this Annual Report on Form 10-K includes forward-looking
statements, which are often identified by the words "believes", "anticipates"
and similar expressions. Such statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
projected. Factors which could affect the Company's financial results are
described below and in Item 7 of this report. Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of the
date hereof. The Company undertakes no obligation to publicly release the
results of any revisions to these forward-looking statements that may be made to
reflect events or circumstances after the date hereof or to reflect the
occurrences of unanticipated events.
INTRODUCTION
Labor Ready, Inc. (the "Company"), incorporated in Washington in 1985, is
a leading, national provider of temporary workers for manual labor jobs. The
Company's customers are primarily businesses in the construction, freight
handling, warehousing, landscaping and light manufacturing industries. These
businesses require workers for lifting, hauling, cleaning, assembling,
digging, painting and other types of manual or unskilled work. The Company
has rapidly grown from eight dispatch offices in 1991 to 316 dispatch offices
at December 31, 1997. All of the growth in dispatch offices was achieved by
opening Company-owned locations rather than through acquisitions. The
Company's revenues have grown from $6.0 million in 1991 to $335.4 million in
1997. This revenue growth has been generated both by opening new dispatch
offices and by continuing to increase sales at existing dispatch offices. In
1997, the average cost to open a new dispatch office was approximately
$33,000 and dispatch offices opened in 1997 typically generated revenues
sufficient to cover their operating costs in two to six months. In 1997, the
average revenue per dispatch office open for more than one full year was
approximately $1.4 million ($1.3 million in 1996).
INDUSTRY OVERVIEW
The temporary staffing industry has grown rapidly in recent years as
companies have used temporary employees to control personnel costs and to
meet fluctuating personnel needs. According to the Staffing Industry Report
(May 1997), the United States' market for the industrial segment of the
temporary staffing marketplace (which includes the short-term, light
industrial market that the Company serves) grew at a compound annual growth
rate of approximately 18% from approximately $5.0 billion in 1991 to
approximately $13 billion in 1997. The Company believes the short-term light
industrial segment of the temporary staffing industry is highly fragmented
and presents opportunities for larger, well capitalized companies to
effectively compete, mainly through the development of information systems
which efficiently process a high volume of transactions and coordinate
multi-location activities, and the management of workers' compensation costs.
Historically, the demand for temporary workers has been driven primarily by
the need to satisfy peak production requirements and to temporarily replace
full-time employees absent due to illness, vacation or abrupt termination. More
recently, competitive pressures have forced businesses to focus on reducing
costs, including converting fixed, permanent labor costs to variable or flexible
costs. The use of temporary workers typically shifts employment costs and risks,
such as workers' compensation and unemployment insurance and the possible
adverse effects of changing employment regulations, to temporary staffing
companies, which can allocate those costs and risks over a larger pool of
employees and customers. In addition, through the use of temporary employees,
businesses avoid the inconvenience and expense of hiring and firing regular
employees.
COMPANY STRATEGY
The Company's goal is to maintain and enhance its status as a leading,
national provider of temporary workers for manual labor jobs. Key elements of
the Company's strategy to achieve this objective are as follows:
- Aggressively Open New Dispatch Offices. The Company's strategy is to
increase revenues by rapidly expanding its network of dispatch offices.
The Company plans to open approximately 167 additional dispatch offices
prior to the end of 1998, and an additional 200 dispatch offices in
1999.
2
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- Increase Revenues from Exsisting Dispatch Offices. As each dispatch
office matures, the Company attempts to increase its revenues by
expanding sales to existing customers and by aggressively expanding the
number and mix of customers served. More experienced area directors
and district managers assist the dispatch office general manager in
this process. The Company is also developing and implementing
coordinated sales and marketing strategies designed to complement
these efforts, including the development of national accounts, and
targeted direct mail campaigns.
- Improve Operating Efficiencies and Reduce Operating Costs. Due to the
short-term temporary labor market's extensive fragmentation, the
Company believes its national presence provides it with key operating
efficiencies, competitive advantages (including an ability to target
national accounts and to effectively administer workers' compensation
programs) and access to capital markets to provide needed working
capital. The Company has standardized the operation, general design,
staffing and equipment of its dispatch offices. In addition, the
Company has designed and implemented a proprietary management
information system that efficiently manages an extensive, Company-wide
employee, payroll, sales and customer database and provides management
with valuable real-time management reporting.
- Provide Superior Service. The Company emphasizes customer
responsiveness and maintains a commitment to providing a superior
quality of service through policies such as opening offices no later
than 5:30 a.m., providing workers on short notice (often the same day
as requested) and offering a "satisfaction guaranteed" policy. The
Company is committed to supplying motivated workers to its customers.
Most workers find the Company's "Work Today, Paid Today" policy
appealing and arrive at the dispatch office early in the morning
motivated to put in a good day's work and receive a paycheck at the end
of the day. With the introduction of an automated Cash Dispensing
Machine ("CDM") at each dispatch office in 1998, workers' will find the
Company's policy of "Work Today, Cash Today" even more appealing.
- Aggressively Recruit Temporary Workers. Beginning in 1998, the Company
will offer cash dispensing machines at all of its dispatch offices.
With the CDMs in operation, workers will have a choice of a daily
paycheck or cash payment through the CDM. The Company retains the
change on each worker's daily pay plus $1 for the service. Management
believes the CDM program will enhance the Company's ability to attract
temporary workers. In 1997, the Company wrote approximately 3.8 million
payroll checks for its temporary workers. Implementation of the CDMs is
expected to significantly reduce the number of payroll checks processed
by the Company.
The Company intends to continue to focus on the short-term, light
industrial manual labor niche of the temporary labor market. The Company
believes other national and international temporary labor businesses have not
aggressively pursued this market. Management believes that it can gain
significant advantages by capturing market share, achieving economies of
scale and other operating efficiencies not available to its smaller
competitors and by rapidly expanding through opening new dispatch offices and
increasing revenue at existing dispatch offices.
DISPATCH OFFICE EXPANSION
The Company has rapidly grown from 17 dispatch offices in 1993 to 316
dispatch offices at December 31, 1997. The Company's expansion has been
achieved primarily by opening Company-owned dispatch offices. The following
table sets forth the number and location of dispatch offices by geographic
region open at the end of each of the last five years. The information below
does not include four Labor Ready franchised dispatch offices located in the
Minneapolis/St. Paul, Minnesota metropolitan area and one franchised dispatch
office located in Fargo, North Dakota.
Labor Ready Dispatch Offices
by Geographic Region
<TABLE>
<CAPTION>
AT DECEMBER 31,
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<C> <C> <C> <C> <C>
<S> 1993 1994 1995 1996 1997
----- ----- ----- ----- -----
Central............ 4 12 28 45 64
Midwest............ -- 9 17 47 74
Northeast.......... -- -- 1 10 27
Southeast.......... -- 1 11 34 56
West............... 13 25 45 60 87
Canada............. -- 4 4 4 8
----- ----- ----- ----- -----
Total.......... 17 51 106 200 316
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
3
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The Company currently anticipates opening 167 dispatch offices during
1998, and 200 dispatch offices in 1999. Dispatch office openings will be
primarily in the Northeast, Southeast, Midwest and California. The Company
analyzes acquisition opportunities, and from time to time, may pursue
acquisitions in certain circumstances and may also accelerate expansion based
on future developments.
In 1994, the Company licensed one franchisee in Minnesota, who now
operates five locations, four in Minneapolis/St. Paul and one in Fargo, North
Dakota. The Company has not pursued, and does not intend to grant, any
additional franchises. Revenues generated from franchised dispatch offices
have not been significant during the periods presented herein.
ECONOMICS OF DISPATCH OFFICES. The Company has standardized the process
of opening dispatch offices. In 1997, the average aggregate cost of opening a
new dispatch office was approximately $33,000. Approximately $18,000 of these
costs includes salaries, recruiting, testing, training, lease and other
related costs, which are capitalized as dispatch office pre-opening costs and
amortized using the straight-line method over two years. The remaining
approximately $15,000 of the cost of opening a dispatch office includes
computer systems and other equipment related costs and leasehold
improvements. These costs are expected to increase in 1998 to approximately
$50,000 per dispatch office as the Company adds a CDM to each dispatch
office, purchases more sophisticated computer and other office systems, and
leases larger dispatch offices. New dispatch offices are expected to generate
revenue sufficient to cover their operating costs within two to six months.
On average, the volume necessary for profitable operations is approximately
$12,000 per week. In 1997, dispatch offices open for at least one full year
generated average annual revenue of approximately $1.4 million ($1.3 million
in 1996) or approximately $27,000 per dispatch office, per week ($25,000 per
dispatch office, per week in 1996).
CRITERIA FOR NEW DISPATCH OFFICES. Labor Ready identifies desirable
areas for locating new dispatch offices with an economic model that analyzes
the potential supply of temporary workers and customer demand based on a zip
code resolution of employment figures, demographics and the relative distance
to the nearest Labor Ready dispatch office. In addition, the Company locates
dispatch offices in areas convenient for its temporary workers, which are on
or near public transportation, and have parking available. After the Company
establishes a dispatch office in a metropolitan area, the Company usually
clusters additional locations within the same area. Multiple locations in a
market reduce both opening costs and operating risk for new dispatch offices
because direct mail and other advertising costs are spread among more
dispatch offices and because the new dispatch office benefits from existing
customer relationships and established Labor Ready brand recognition.
DISPATCH OFFICE MANAGEMENT. The Company believes that the key factor
determining the success of a new dispatch office is identifying and retaining
an effective dispatch office general manager. Each general manager has
primary responsibility for managing the operations of the dispatch office,
including the recruiting and daily dispatch of temporary workers, sales and
accounts receivable collection. The Company pays monthly bonuses to its
general managers based on accounts receivable collections during the month.
Each general manager has primary responsibility for customer service and
the dispatch office's sales efforts, including identifying and soliciting
local businesses likely to have a need for temporary manual workers. The
Company's experience is that certain types of individuals are better suited
to perform the critical management functions necessary for the dispatch
office to generate the revenues required to achieve profitability, regardless
of the size of the metropolitan area. The Company has refined its criteria
for selecting general managers and uses a profiling system to screen, test,
and qualify prospective general managers. The Company commits substantial
resources to the training, development, and operational support of its
general managers.
OPERATIONS
DISPATCH OFFICES. Dispatch offices are locations where workers (and
prospective workers) report prior to being assigned to jobs, including those
being called back to the same employer. Workers are required to report to the
dispatch office in order to minimize "no-shows" to the customer's job site.
If a worker fails to report to the dispatch office as scheduled, the Company
identifies a replacement so that the customer has the number of workers
expected at the job site, on time, and ready to work.
During the early morning hours, the general manager and an assistant
coordinate incoming customer work orders, assign the available workers to the
job openings for the day, and arrange transportation to the job site. Prior
to dispatch, a branch employee checks to make sure workers have the basic
safety equipment required for the job, such as boots, back braces, hard hats,
or safety goggles, all of which are provided at no charge to the worker and
the customer. The customer provides additional safety and other equipment, if
required. New assignments are filled from a daily sign-in sheet, considering
customer requests for specific temporary workers on repeat work orders or new
engagements.
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Workers who pass on a particular job are moved to the bottom of the list.
Most work assignments have been scheduled in advance; a majority of which are
repeat work orders from customers. However, a significant portion of job
openings are requested on short notice, often the same day as the workers are
needed at the job site.
The workers are provided with a work order, which is endorsed by the
customer to confirm work performance, and which must be presented at the
dispatch office in order to receive payment for the hours worked. Workers are
generally paid daily by check, and with the addition of a CDM at each
dispatch office, workers will have the choice of being paid each day in cash.
Computer systems at each dispatch office perform the calculations necessary
to determine the wages, less taxes and applicable withholdings, and print
security-controlled checks, which are distributed to each worker.
Alternatively, the system will enable a disbursement from the CDM for the
worker's net pay, less the change and $1 for the CDM service.
Dispatch offices generally open early, usually by 5:30 a.m., with some
open 24 hours (depending on volume), and generally remain open until the last
temporary laborer is paid. Dispatch offices are generally staffed with at
least two full-time employees, including the general manager and a customer
service representative. General managers manage the daily dispatch of
temporary workers, and are responsible for monitoring and collecting
receivables, managing the credit application process for each customer,
inspecting customer job sites for site safety, as necessary, and managing the
sales and marketing efforts of the dispatch office.
Employment applications are taken throughout the day for potential new
temporary employees. Applications are used to facilitate workers'
compensation safeguards and quality control systems by permitting the Company
to test for alcohol or drugs in case of a work-related illness or injury, to
obtain a signed "Condition of Employment" statement, and to comply with
applicable immigration requirements.
CUSTOMERS. The Company's customers are primarily businesses that require
workers for lifting, hauling, cleaning, assembling, digging, painting and
other types of manual or unskilled work. The Company's customers are
primarily businesses in the construction, freight handling, warehousing,
landscaping and light manufacturing industries. Over the past several years,
the Company has been diversifying its customer base to include more customers
in the retail, wholesale, sanitation, printing, and hospitality industries.
New dispatch offices initially target virtually all businesses in its
market area with a direct mail campaign. Dispatch general managers, and the
regional and national sales force are responsible for following up the direct
mail campaign with telephone or personal calls. Frequently, a new dispatch
office will have a high concentration of customers in the construction
industry. As dispatch offices mature, the customer base broadens and the mix
of work diversifies. Many customers have elements of seasonality in their
workflow, especially customers in the construction and landscaping
industries. The Company currently derives its business from a large number of
customers, and is not dependent on any single large customer for more than 2%
of its revenues. During 1997, the Company's ten largest customers accounted
for sales of $20.9 million, or 6.2% of total revenues ($10.3 million, or 6.3%
of total revenues in 1996). While a single dispatch office may derive a
substantial percentage of its revenues from a single customer, the loss of
that customer would not have a significant impact on the Company's revenues.
During 1997, the Company provided temporary workers to in excess of 70,000
customers. Labor Ready filled more than 2.8 million work orders in 1997 (1.4
million in 1996).
Many customers use Labor Ready to screen prospective employees for future
permanent hires. Because Labor Ready does not charge a fee if a customer
hires a Company worker, customers on occasion send prospective employees to
the Company with a specific request for temporary assignment to their
business. Customers thereby have the opportunity to observe the prospective
employee in an actual working situation, minimizing the expense of employee
turnover and personnel agency fees.
BILLING AND COLLECTIONS. The Company has implemented an automated credit
and collections system that allows each dispatch office to establish a credit
limit for new customers by telephonically accessing a computer based credit
system. Initial credit limits are based on a credit-scoring matrix developed
by the Company. No workers are dispatched without using this system. Credit
limits range from COD to $100,000. The credit department, using other credit
reporting agencies, bank/trade references and balance sheet analysis, reviews
and approves additional credit extensions beyond those recommended by this
system. Once a customer has reached 75% of its credit limit, the customer
screen on the Company's information system has a red warning to alert the
dispatch office to more closely monitor the activity of the customer.
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SALES AND MARKETING. Each dispatch office is responsible for its own
sales and marketing efforts in its local market area. The dispatch office
general manager is primarily responsible for sales and customer service, with
all branch employees being involved in sales and customer relations. The
Company purchases a direct marketing database, and from a centralized direct
mail department, conducts an intensive direct-mail campaign in the local
market area of each dispatch office. For new dispatch offices, the
direct-mail campaign targets virtually all businesses in its local market
area. Follow-up mailings target business in the Company's traditional market
niche. Follow-up telephone and personal calls on qualified leads are made by
the dispatch office general manager and the Company's sales force. To support
new branch openings, the direct-mail department processes an initial mailing
of virtually all businesses in the each new dispatch office's market area.
During 1997, the Company has placed more emphasis on recruiting and
retaining professional sales personnel. The primary focus of these
individuals is to increase sales for offices that are in the more mature
phase of their marketing life cycles. The Company currently employs
approximately 105 sales personnel at the dispatch offices and 6 sales
professionals who focus exclusively on sales to customers whose operations
are national in scope and who therefore need workers in multiple locations
throughout the United States and Canada. Additionally, the Company employs
one sales professional whose efforts are devoted to developing new customers
in the marine industry.
When entering new markets, the Company allows for an initial advertising
budget to generate an awareness of the new dispatch office. When opening
additional offices as warranted, based on area demographics, the Company can
also expand and coordinate its marketing efforts to the benefit of other
established offices in the local area. Marketing is accomplished primarily
through direct-mail campaigns, yellow-page advertising, personal sales
contacts, word of mouth, and billboard advertising.
TEMPORARY WORKERS. Most workers find the Company's "Work Today, Paid
Today" policy appealing and arrive at the dispatch office early in the
morning motivated to put in a good day's work and receive a paycheck at the
end of the day. Labor Ready's temporary workers are frequently persons who
are unemployed or in between jobs. The majority of the workers are male and
most are between the ages of 18 and 40 and live in low-income neighborhoods.
Most temporary workers have phone numbers, and own cars.
The Company's daily pool of temporary workers at each dispatch office
generally numbers between 40 and 200, depending upon the time of year.
Because of increasing diversification of the Company's customer base and a
wider dispersion of dispatch offices in different geographic areas of the
United States, the Company is less dependent on weather than in its early
years. Good weather, nevertheless, brings incrementally more job orders and
workers. Consequently, the Company is busiest in the late spring, summer and
early fall.
After reviewing work orders for that day's customer requests, the
dispatch office general manager pre-screens the qualifications of the
available temporary workers to assure that they can perform the work
required. Additionally, the individual must be at least 18 years old,
physically capable and in apparent good health. The main objective is to
dispatch the most suitable workers for the positions available. Dispatch
office employees over time come to know most workers at the dispatch office
and their capabilities. The Company is an equal opportunity employer.
Under the Company's "satisfaction guaranteed" policy, replacements for
all unsatisfactory workers are promptly provided if the customer notifies the
Company within the first two hours of work. Employees who receive two
complaints from customers are generally reprimanded or terminated. The
Company will immediately terminate any employee who agrees to take a work
order and does not report at the customer's jobsite. Any use of obscene
language, alcohol or drugs on the dispatch office premises or at the
customers' jobsites are grounds for immediate dismissal. The Company lists
workers who were terminated in a central database to prevent rehire by other
dispatch offices.
The Company withholds FICA and federal, state, and, where applicable,
city and county income taxes from its temporary workers' wages for
disbursement to governmental agencies. Additionally, the Company pays federal
and state unemployment insurance premiums, and workers' compensation expenses
for its temporary employees.
6
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RECRUITMENT OF TEMPORARY WORKERS. The Company attracts its pool of
temporary workers through billboard advertisements, flyers, newspaper
advertisements, dispatch office displays, and word of mouth. The Company
believes its strategy of locating dispatch offices in lower income
neighborhoods, with ready access to public transportation, is particularly
important in attracting workers.
The Company's "Work Today, Paid Today" policy is prominently displayed at
most dispatch offices and, in the Company's experience, is a highly effective
method of attracting temporary workers. With the addition of a CDM at each
dispatch office, management believes that the Company's "Work Today, Cash
Today" policy will be an added incentive for temporary workers. Workers also
find other Company policies attractive, such as the emphasis on worker
safety, including Company provided safety training and equipment, and modest
cash advances for lunch or gas to workers short on cash. Temporary workers
are also aware of the Company's no-fee policy toward customers who offer
temporary workers a regular position. The possibility of landing a regular
position serves as an added incentive to the Company's workers.
Management believes that Labor Ready has earned a good reputation with
its temporary laborers because the Company consistently has jobs available
and treats its workers with respect. The Company believes this also helps
attract a motivated and responsive workforce. As a result, the Company
believes referrals by current or former temporary workers who have had good
experience with the Company account for a significant percentage of its
recruiting successes.
The Company experiences from time to time, during peak periods, shortages
of available temporary workers. Dispatch offices with a shortage of workers
attempt to fill work orders by asking temporary workers to inform friends,
relatives and neighbors of job openings and by identifying prospective
workers from the Company's employee data base. On occasion, work orders
requiring large numbers of temporary workers will be filled through
coordination with other local dispatch offices.
MANAGEMENT, EMPLOYEES AND TRAINING. At December 31, 1997, the Company
employed a total of 76 administrative and executive staff in the corporate
office, and 1,162 people as supervisors, general managers, customer service
representatives, district managers, area directors and support staff. General
managers report to district managers who in turn report to area directors.
The Company's recruiting focus is on hiring additional management and
supervisory personnel with experience in managing multi-location operations.
After extensive interviews and tests, prospective general managers and
customer service representatives undergo four weeks of training at an
existing, high-volume dispatch office which has been certified as a Labor
Ready Training Center. Currently, the Company has 20 such Training Centers
across the United States. The Company has developed a curriculum, training
manuals, and instruction modules for the four-week training program, which
include rigorous sessions on topics such as marketing and direct mail, credit
and collections, payroll and personnel policies, workers' compensation
management and safety. By operating the Training Center as part of an ongoing
dispatch office, the managers and customer service representatives receive
training under both actual and simulated dispatch office conditions.
MANAGEMENT INFORMATION SYSTEMS. The Company has developed its own
proprietary system to process all required credit, billing, collection,
payroll and related payroll tax returns, together with other management
information and reporting necessary for the management of hundreds of
thousands of workers and staff in multiple locations. The Company plans to
complete the installation of the next generation, client server version of
this software in all dispatch offices in 1998. The upgrade of hardware at all
dispatch offices, to dedicated servers running Microsoft's Windows NT Server
Version 3.51 and multiple stations running Microsoft's Windows '95, was
completed in 1996 in preparation of the new client server software. During
1997, the Company added a third workstation to most dispatch offices and
provided laptop computers to all its area and district managers.
Additionally, during 1997, the Company successfully implemented a new client
server based financial reporting and management information system which
includes general ledger and accounts payable modules, and budget/actual
comparison reporting by dispatch office. Further add-on systems and programs
are planned and in process to enhance property and equipment accounting,
enable real-time management reporting and transition to electronic data
interchange with the Company's largest vendors.
During 1997, the Company increased its MIS department to eleven full-time
professionals who continually upgrade the systems and add features and
enhance operations and reliability. The operations and financial reporting
systems will continue to require additional hardware and software to
accommodate the Company's operating and information needs while the Company
conducts its rapid expansion program.
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The system maintains all of the Company's key databases from the tracking
of work orders to payroll processing to maintaining worker records. The
system regularly exchanges all point of sale information between the
corporate headquarters and the dispatch offices, including customer credit
information and outstanding receivable balances. Dispatch offices can run a
variety of reports on demand, such as receivables aging, margin reports, and
customer activity reports. Area directors and district managers can also call
into the system and monitor their territories from their laptops. The Company
believes its proprietary software system provides Labor Ready with
significant competitive advantages over competitors that utilize less
sophisticated systems.
The Company's information system also provides the Company with its key
internal controls. All work order tickets are entered into the system at the
dispatch office level. No payroll check can be issued at a dispatch office
without a corresponding work ticket on the computer system. When a payroll
check is issued the customer's weekly bill and the dispatch office
receivables are automatically updated. Printed checks have watermarks and
computer-generated signatures that are extremely difficult to duplicate. The
Company has developed a proprietary system, which beginning in 1998 will
allow the payroll software to generate either a payroll check, or at the
workers' option, a cash withdrawal from the dispatch office's CDM. The
Company has filed a patent application for this system of controlling the
CDMs for the disbursement of payroll funds. All cash receipts are received in
lockbox accounts and are matched to customers' receivable records using an
automated data capture system, implemented in 1997.
WORKERS' COMPENSATION PROGRAM. The Company provides workers' compensation
insurance to its temporary workers and regular employees. In Washington, Ohio
and West Virginia, (the monopolistic states), the Company is required to make
payments into state administered programs, at rates established by each state
based upon the job classification of the insured workers and the previous
claims experience of the Company. The Washington program provides for a
retroactive adjustment of workers' compensation payments based upon actual
claims experience. Upon adjustment, overpayments to the program are returned
to the Company and underpayments, if any are assessed. At December 31, 1996
and 1997, the Company recorded workers' compensation credit receivables of
$835,566 and $1,081,813 and workers' compensation liabilities of $587,411 and
$606,354 related to the monopolistic states.
For workers' compensation claims originating in the remaining states (the
non-monopolistic states), the Company self-insures the deductible amount per
claim to a maximum aggregate stop loss limit and has engaged a third party
administrator to manage the claims and an off-shore captive insurance company
for the payment of claims and related expenses. The deductible amount was
$250,000 per claim to an aggregate maximum of approximately $5.0 million,
$6.5 million and $19.0 million in 1995, 1996 and 1997. In January 1998, the
Company renewed its insurance program, the terms of which included a
reduction of the 1995 and 1996 aggregate maximums to $4.5 million and $5.2
million, respectively.
During 1997, the Company deposited $13.9 million with the offshore
company for the payment of workers' compensation claims and related expenses
originating in the non-monopolistic states and $7.4 million was paid on these
claims. As discussed further in Note 3 to the consolidated financial
statements, the Company replaced these deposits with letters of credit as
collateral to the offshore company for the payment of future non-monopolistic
claims and related expenses.
The Company establishes provisions for future claim liabilities based
upon actuarial estimates of the future cost of claims and related expenses
that have been reported but not settled, and that have been incurred but not
reported. Adjustments to the claim reserve are charged or credited to expense
in the periods in which they occur. At December 31, 1996 and 1997, the
Company had recorded a reserve for claims and claim related expenses arising
in non-monopolistic states of $4,449,986 and $12,686,860. The reserve for
workers' compensation claims was computed using a discount rate of 7.5% and
6.0% at December 31, 1996 and 1997.
Workers' compensation expense totaling $5,907,771, $9,981,411 and
$19,245,733 was recorded as a component of cost of services for the years
ended December 31, 1995, 1996 and 1997, respectively.
The Company has formed a wholly-owned, offshore captive, Labor Ready
Assurance Company for the management and payment of workers' compensation
claims and claim related expenses. During 1996, the Company deposited
$1,714,744 for the statutory capitalization of Labor Ready Assurance and
during 1997, increased that capitalization by $750,000. As discussed further
in Note 3 to the consolidated financial statements, during 1997 the Company
replaced these deposits with letters of credit as collateral for the
statutory capitalization of Labor Ready Assurance. At December 31, 1997,
$135,929 remains on deposit with Labor Ready Assurance and is recorded as
restricted cash in the accompanying consolidated balance sheets.
8
<PAGE>
The Company has established a risk management department at its corporate
headquarters to manage its insurers, third party administrators, and the
medical service providers. To reduce wage-loss compensation claims, the
Company has established a "light duty" transitional return to work program.
Workers in the program are employed within the Company in the local dispatch
office or on customer assignments that require minimal physical exertion. The
Company's information system generates weekly workers' compensation loss
minimization reports for both corporate and dispatch office use. The Company
has an on-line connection with its third party administrator that allows the
Company to maintain visibility of all claims, manage their progress and
generate required management information.
GOVERNMENT REGULATIONS.
SAFETY PROGRAMS. As an employer, the Company is subject to applicable
state and/or federal statutes and administrative regulations pertaining to
jobsite safety. Where states do not have a safety program certified by the
federal Occupational Safety & Health Administration ("OSHA"), the Company is
subject to the standards prescribed by the federal Occupational Safety &
Health Act and rules promulgated by OSHA. However, the Company's temporary
workers are generally considered the customer's employees while on the
customer's jobsite for the purpose of applicable safety standards compliance.
In 1997, the Company's accident rate was approximately one incident per
7,764 man hours worked, an improvement over the Company's accident rate of
approximately one incident per 7,400 per man hours worked in 1996. The
Company continues to emphasize safety awareness, which helps control workers'
compensation costs, through training of its management employees and office
staff, safety sessions with temporary workers, issuing safety equipment,
monitoring job sites, and communicating with customers to assure that job
orders can be safely accomplished. Temporary workers are trained in safety
procedures primarily by showing safety tapes at the beginning of each day.
Bulletin boards with safety-related posters are prominently displayed.
Additionally, "Tailgate" safety training sessions are conducted at the
manager's and regional safety director's discretion.
The Company maintains its own inventory of safety equipment at each
dispatch office. Standard equipment includes hard hats, metal-toed boots,
gloves, back braces, earplugs, and safety goggles. Equipment is checked out
to workers as appropriate. All construction jobs require steel-toed boots and
a hard hat. The dispatch office general manager ensures that workers take
basic safety equipment to job sites.
Dispatch office personnel are trained to discuss job safety parameters
with customers on incoming work order requests. Managers conduct jobsite
visits for new customer job orders and periodic "spot checks" of existing
customers to review safety conditions at job sites. Workers are encouraged to
report unsafe working conditions to the Company.
WAGE AND HOUR REGULATION. Labor Ready is required to comply with
applicable state and federal wage and hour laws. These laws require that the
Company pay its employees minimum wage and overtime at applicable rates when
the employee works more than forty hours in a workweek. In some states,
overtime pay may be required after eight or ten hours of work in a single day.
COMPETITION
The short-term, light industrial manual labor sector of the temporary
services industry is highly fragmented and highly competitive, with limited
barriers to entry. A large percentage of temporary staffing companies serving
this sector of the industry are local operations with fewer than five
offices. Within local or regional markets, these firms actively compete with
the Company for business. The primary basis of competition among local firms
is service and the ability to provide the requested amount of workers on
time, and to a lesser extent, price. While entry into the market has limited
barriers, lack of working capital frequently limits growth of smaller
competitors.
9
<PAGE>
Although there are several very large full-service and specialized
temporary labor companies competing in national, regional and local markets,
to date, those companies have not aggressively expanded in the Company's
targeted market segment. However, many of these competitors have
substantially greater financial and marketing resources than those of the
Company. One or more of these competitors may decide at any time to enter or
expand their existing activities in the short-term, light industrial market
and provide new and increased competition to Labor Ready. The Company
believes that, among the larger competitors, the primary competitive factors
in obtaining and retaining customers are the cost of temporary labor, the
quality of the temporary workers provided, the responsiveness of the
temporary labor company, and the number and location of offices. The
availability to the Company's customers of multiple temporary service
providers can create significant pricing pressure as competitors compete for
the available customers, and this pricing pressure could adversely impact
profit margins.
TRADEMARKS
The Company's business is not presently dependent on any patents,
licenses, franchises, or concessions. "Labor Ready," and the service mark
"Work Today, Paid Today" are registered with the U.S. Patent and Trademark
Office. The Company has filed with the U.S. Patent and Trademark Office, for
registration of the service mark "Work Today, Cash Today" and has commenced a
patent application for the system of controlling a network of CDMs for the
disbursement of payroll.
ITEM 2. PROPERTIES
The company leases virtually all of its dispatch offices. Dispatch office
leases generally permit the Company to terminate the lease on 30 days notice
and upon payment of three months rent. Certain leases have a minimum one-year
term and require additional payments for taxes, insurance, maintenance and
renewal options.
In February 1995, the Company purchased a labor dispatch building that
also serves as a warehouse facility for supplies and storage in Tacoma,
Washington. The Company also owns a 24,000 square foot facility in Tacoma,
Washington that is currently listed as available for lease or sale. In August
1996, the Company purchased a 44,000 square foot office building and
adjoining 10,000 square foot print shop in Tacoma, Washington to accommodate
the Company's continuing expansion. The building currently serves as Labor
Ready's headquarters and administrative offices. Additionally, the Company
owns a dispatch office in Kansas City, Missouri. During 1997, the Company
sold a building formerly used as a dispatch office in Kent, Washington for
proceeds of $120,000. Management believes all of the Company's facilities are
currently suitable for their intended use. At present growth rates,
management believes that its headquarters facility will be adequate through
the year 2000.
ITEM 3. LEGAL PROCEEDINGS
The Company is not currently subject to any material legal proceedings.
The Company may from time to time become a party to various legal proceedings
arising in the normal course of its business. These actions could include
employee-related issues and disputes with customers. The Company carries
insurance for actions or omissions of its temporary employees. Since the
temporary workers are under the supervision of the customer or its employees,
the Company believes the terms of its contracts with its customers, which
provide that the customers are responsible for all actions or omissions of
the temporary workers, limit the Company's liability. Nevertheless, any
future claims are subject to the uncertainties related to litigation and the
ultimate outcome of any such proceedings or claims cannot be predicted. See
"Risk Factors -Liability for Acts of Temporary Workers."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter ended December 31, 1997.
10
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock commenced trading on the Nasdaq National Market
on June 12, 1996. Prior to that date, the Company's common stock was traded
over-the-counter. The high and low bids for the last two years were as follows:
<TABLE>
<CAPTION>
QUARTER ENDED HIGH* LOW*
- ----------------------------------------------------- --------- ---------
<S> <C> <C>
March 31, 1996....................................... 9.77 6.00
June 30, 1996........................................ 12.45 12.00
September 30, 1996................................... 16.67 11.00
December 31, 1996.................................... 11.83 7.17
March 31, 1997....................................... 9.25 5.04
June 30, 1997........................................ 6.83 4.71
September 30, 1997................................... 15.50 7.08
December 31, 1997.................................... 25.38 14.75
</TABLE>
- ------------------------
* Dollar amounts are adjusted to reflect the three-for-two stock splits which
were effective on July 7, 1996 and October 24, 1997.
The Company had 631 shareholders of record as of December 31, 1997. The
quotation information has been derived from the Nasdaq Stock Market and does not
include retail markups or markdowns or commissions. No cash dividends have been
declared on the Company's 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.
11
<PAGE>
ITEM 6. SELECTED FINANCIAL INFORMATION.
The following selected consolidated financial information of the Company has
been derived from the Company's audited Consolidated Financial Statements. The
Consolidated Balance Sheet as of December 31, 1997, and the Consolidated
Statements of Income, Shareholders' Equity, and Cash Flows for the year then
ended were audited by Arthur Andersen LLP, whose report thereon appears
elsewhere herein. The Consolidated Balance Sheet as of December 31, 1996, and
the Consolidated Statements of Income, Shareholders' Equity, and Cash Flows for
the years ended December 31, 1995 and 1996 were audited by BDO Seidman, LLP,
whose report thereon appears elsewhere herein. The Statement of Operations Data
for the years ended December 31, 1993 and 1994, and the balance Sheet Data at
December 31, 1993, 1994 and 1995 are derived from the Company's audited
financial statements which do not appear 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.
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1993 1994 1995 1996 1997
--------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues from services.................................. $ 15,659 $ 38,951 $ 94,362 $ 163,450 $ 335,409
Gross profit............................................ 4,917 12,095 29,479 47,919 98,742
Income before taxes and extraordinary item.............. 253 1,188 3,214 3,507 12,522
Extraordinary item, net of income tax................... 48 -- -- (1,197) --
Net income.............................................. 269 852 2,062 724 6,963
Earnings per common share
Basic................................................. $ 0.03 $ 0.08 $ 0.16 $ 0.04 $ 0.38
Diluted............................................... $ 0.03 $ 0.08 $ 0.15 $ 0.04 $ 0.37
Weighted average shares outstanding (1)
Basic................................................. 8,255 9,818 12,433 15,865 18,446
Diluted............................................... 8,255 9,818 13,039 16,288 18,778
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------------------------
1993 1994 1995 1996 1997
--------- --------- --------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Current assets.......................................... $ 2,313 $ 7,572 $ 20,730 $ 48,534 $ 65,617
Total assets............................................ 3,153 8,912 26,182 64,125 80,367
Current liabilities..................................... 1,706 5,631 7,956 10,961 15,788
Long-term liabilities................................... 777 319 9,695 1,572 6,538
Total liabilities....................................... 2,483 5,950 17,650 12,533 22,326
Shareholders' equity.................................... 670 2,962 8,532 51,592 58,041
Cash dividends declared (2)............................. 50 43 43 43 43
Working capital......................................... 607 1,941 12,774 37,573 49,829
Operating Data: (unaudited)
Revenues from dispatch offices open for full year....... $ 12,960 $ 27,311 $ 65,798 $ 133,156 $ 280,538
Revenues from dispatch offices opened during year....... $ 2,699 $ 11,640 $ 28,564 $ 30,294 $ 54,871
Dispatch offices open at period end..................... 17 51 106 200 316
</TABLE>
- ------------------------
(1) The weighted average shares outstanding have been adjusted to reflect the
three for two stock splits which were each effective on November 22, 1995,
July 7, 1996 and October 24, 1997.
(2) Represents cash dividends on the Preferred Stock. The Company has never paid
cash dividends on its Common Stock and does not anticipate that it will do
so in the foreseeable future. See "Price Range of Common Stock and Dividend
Policy."
12
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in connection with the
Company's Consolidated Financial Statements and the notes thereto and other
financial information included elsewhere in this document.
OVERVIEW
Labor Ready is a leading, national provider of temporary workers for manual
labor jobs. The Company's customers are primarily in construction, freight
handling, warehousing, landscaping, light manufacturing, and other light
industrial businesses. The Company has rapidly grown from 17 dispatch offices in
1993 to 316 dispatch offices at December 31, 1997. All of the growth in dispatch
offices was achieved by opening Company-owned locations rather than through
acquisitions. The Company's revenues grew from approximately $15.6 million in
1993 to $335.4 million in 1997. This revenue growth has been generated both by
opening new dispatch offices and by continuing to increase sales at existing
dispatch offices. In 1997, the average annual revenue per dispatch office open
for more than a full year was approximately $1.4 million (approximately $1.3
million in 1996).
The Company expects to open 167 new dispatch offices in 1998 and 200
dispatch offices in 1999. In 1997, the Company incurred costs of approximately
$3.8 million to open 116 new dispatch offices, an average of approximately
$33,000 per dispatch office. Approximately $18,000 of these costs includes
salaries, recruiting, testing, training, lease and other related costs, which
are capitalized as dispatch office pre-opening costs and amortized using the
straight-line method over two years. The remaining approximately $15,000 of the
cost of opening a dispatch office includes computer systems and other equipment
related costs and leasehold improvements. The Company expects the average cost
of opening a dispatch office in 1998 to increase to approximately $50,000 due
primarily to the addition of a CDM to each dispatch office. Further, once open,
the Company invests significant amounts of additional cash into the operations
of new dispatch offices until they begin to generate sufficient revenue to cover
their operating costs, generally in two to six months. The Company pays its
temporary workers on a daily basis, and bills its customers on a weekly basis.
The average collection cycle for 1997 was approximately 40 days. Consequently,
the Company historically has experienced significant negative cash flow from
operations and investment activities during periods of high growth. The Company
may continue to experience periods of negative cash flow from operations and
investment activities while it rapidly opens dispatch offices and may require
additional sources of working capital in order to continue to grow. See
"Liquidity and Capital Resources" and "Outlook: Issues and Uncertainties --
Working Capital Requirements."
Construction and landscaping businesses and, to a lesser degree, other
customer businesses typically increase activity in spring, summer and early fall
months and decrease activity in late fall and winter months. Inclement weather
can slow construction and landscaping activities in such periods. As a result,
the Company has generally experienced a significant increase in temporary labor
demand in the spring, summer and early fall months, and lower demand in the late
fall and winter months.
Depending upon location, new dispatch offices initially target the
construction industry for potential customers. As dispatch offices mature, the
customer base broadens and the mix of work diversifies. From time to time during
peak periods, the Company experiences shortages of available temporary workers.
See "Outlook: Issues and Uncertainties--Dependence on Availability of Temporary
Workers."
Cost of services includes the wages and related payroll taxes of temporary
workers, workers' compensation expense, unemployment compensation insurance, and
transportation. Cost of services as a percentage of revenues has historically
been affected by numerous factors, including the use of lower introductory rates
to attract new customers at new dispatch offices.
Temporary workers assigned to customers remain labor ready employees.
Labor Ready is responsible for employee-related expenses of its temporary
workers, including workers' compensation, unemployment compensation
insurance, and Medicare and Social Security taxes. The Company does not
provide health, dental, disability or life insurance to its temporary
workers. Generally, the Company bills its customers for the hours worked by
the temporary workers assigned to the customer. Because the Company pays its
temporary workers only for the hours actually worked, wages for the Company's
temporary workers are a variable cost that increases or decreases directly in
proportion to revenue. The Company has one franchisee which operates five
dispatch offices. The Company does not intend to grant additional franchises.
Royalty revenues from the franchised dispatch offices are included in
interest income and other in the consolidated financial statements and were
not material during any period presented herein.
13
<PAGE>
The typical customer order is for two temporary workers and the typical
payroll check paid by the Company is less than $50. The Company is not
dependent on any individual customer for more than 2% of its annual revenues.
During 1997, the Company provided temporary workers to in excess of 70,000
customers and filled more than 2.8 million work orders.
RESULTS OF OPERATIONS
The following table sets forth the percentage of revenues represented by
certain items in the Company's Consolidated Statements of Operations for the
periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Revenues from services............................................. 100.0% 100.0% 100.0%
Cost of services................................................... 68.8 70.7 70.6
Selling, general and administrative expenses....................... 26.4 26.3 25.1
Depreciation and amortization...................................... .6 1.1 1.2
Interest (income) expense and other, net........................... .9 (.2) (.6)
Income before taxes on income and extraordinary item............... 3.4 2.1 3.7
Net income......................................................... 2.2 .4 2.1
</TABLE>
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
DISPATCH OFFICES. The number of offices grew to 316 at December 31, 1997
from 200 locations at December 31, 1996, a net increase of 116 dispatch offices,
or 58.0%. The Company estimates that its aggregate costs of opening 116 new
dispatch offices in 1997 was $3.8 million, an average of approximately $33,000
per dispatch office, compared to aggregate costs of approximately $5.6 million,
an average of approximately $60,000 per dispatch office, to open 94 new stores
in 1996. The decrease in per-store costs in 1997 was primarily the result of a
shorter manager training period and the use of regional training centers.
Approximately $18,000 of 1997 pre-opening costs includes salaries, recruiting,
testing, training, lease and other related costs, which are capitalized and
amortized using the straight-line method over two years. The remaining
approximately $15,000 of pre-opening costs includes computer systems and other
equipment related costs and leasehold improvements. The number of dispatch
offices grew to 200 at December 31, 1996 from 106 locations at December 31,
1995, a net increase of 94 dispatch offices, or 88.7%. The Company estimates
that its aggregate costs of opening 94 new dispatch offices in 1996 was
approximately $5.6 million (an average of approximately $60,000 per dispatch
office) compared to aggregate costs of approximately $2.0 million (an average of
approximately $35,000 per dispatch office) to open 57 new stores in 1995. The
increases in 1996 were primarily the result of a longer manager training period,
the establishment of Labor Ready University and the added opening costs related
to the use of more sophisticated computer and other office systems.
REVENUES FROM SERVICES. Revenues from services increased to $335.4 million
in 1997 as compared to $163.5 million in 1996, an increase of $171.9 million or
105.2%. The increase in revenues is primarily due to continued increases in
revenues from mature dispatch offices as the Company consolidates its position
in the marketplace and builds brand awareness. Additionally, the Company opened
116 new dispatch offices in 1997 and increased its average revenues per new
dispatch office from approximately $322,000 in 1996 to approximately $473,000 in
1997. In 1997, the Company opened 97 of its 116 new dispatch offices in the
first half of the year, compared to 45 dispatch offices opened in the first half
and 49 opened in the second half of 1996. Opening dispatch offices in the first
half of the year enables each new dispatch office to realize higher revenues
during the Company's busiest time of the year. Additionally, the minimum wage
rate was increased from $4.75 per hour to $5.15 per hour in October 1997.
Revenues from services increased to $163.5 million for 1996 from $94.4
million for 1995, an increase of $69.1 million, or 73.2%. This increase in
revenues from services resulted primarily from increases in revenues from
dispatch offices open for the full period, as indicated below, and to a lesser
extent from revenues from dispatch offices open for less than a year. This
difference from prior years was the result of the timing of dispatch office
openings in 1996 as 45 dispatch offices were opened in the first half of 1996.
The Company opened 94 offices in 1996 as compared to 55 new dispatch offices
opened in 1995. Additionally, the minimum wage rate was increased from $4.25 per
hour to $4.75 per hour in October 1996.
14
<PAGE>
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Increase in revenues from dispatch offices open for full year................... $ 26,847 $ 38,794 $ 117,088
Revenues from new dispatch offices opened during year........................... $ 28,564 $ 30,294 $ 54,871
--------- --------- ----------
Total increase over prior year.................................................. $ 55,411 $ 69,088 $ 171,959
--------- --------- ----------
--------- --------- ----------
</TABLE>
COST OF SERVICES. Cost of services increased to $236.7 million in 1997 from
$115.5 million in 1996, an increase of $121.2 million or 104.9%. The increase in
cost of services was due largely to the 105.2% increase in revenue from 1996 to
1997. Cost of services was 70.6% of revenue in 1997 compared to 70.7% of revenue
in 1996. Cost of services as a percentage of revenues remained approximately
constant as compared to 1996 levels as the Company is generally no longer
required to use introductory lower rates to attract new customers in new
dispatch offices. Additionally, cost increases including minimum wage increases,
workers' compensation and unemployment insurance rate increases are passed
through to customers as higher billing rates.
Cost of services increased to $115.5 million in 1996 from $64.9 million in
1995, an increase of $50.6 million, or 78.1%. Cost of services as a percentage
of revenues increased to 70.7% in 1996 as compared to 68.8% in 1995, an increase
of 1.9%. This increase in costs as a percentage of revenues reflected the use of
lower introductory rates to attract new customers at new dispatch offices.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $84.1 million in 1997 as compared to $42.9
million in 1996, an increase of $41.2 million or 95.7%. The increase was
largely due to a 105.2% increase in revenue from 1996 to 1997. Selling,
general and administrative expenses were 25.1% of revenues in 1997 as
compared to 26.3% of revenues in 1996. The decrease in selling, general and
administrative expenses as a percentage of revenue is due mainly to economies
of scale on fixed and semi-fixed administrative costs. The Company expects
that selling, general and administrative expenses as a percentage of revenues
may fluctuate in future periods as the Company from time to time upgrades its
administrative capabilities to accommodate anticipated revenue growth.
Selling, general, and administrative expenses increased to $42.9 million in
1996 from $24.9 million in 1995, an increase of $18.0 million, or 72.7%. The
increase was largely due to a 73.2% increase in revenue from 1995 to 1996. As a
percentage of revenues, selling, general, and administrative expenses decreased
to 26.3% in 1996 from 26.4% in 1995. The relatively small decrease was primarily
the result of economies of scale on fixed and semi-fixed administrative costs
offset by new management, operational and sales personnel hired to effectively
manage the Company's anticipated growth over the next several years.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expenses were $4.0 million in 1997 and $1.8 million in 1996, an increase of $2.2
or 123.2%. The increase in depreciation and amortization expense is the result
of amortization of dispatch office pre-opening costs as the Company continued
its rapid expansion by adding 116 stores in 1997. Additionally, the Company
added approximately $4.0 million in property and equipment during the year
including information systems and equipment for the new stores and enhanced
management information systems hardware and software.
In April 1997, the Accounting Standards Executive Committee (the "AcSEC")
issued an exposure draft of a Proposed Statement of Position, "Reporting on the
Costs of Start-up Activities". The proposed statement would establish new rules
for the financial reporting of start-up costs, and if adopted, would require the
Company to expense dispatch office pre-opening costs as incurred and write off
any capitalized pre-opening costs in the first quarter of the year adopted. The
AcSEC expects to issue a final statement in 1998, which will likely be effective
for the Company's 1999 year. As of December 31, 1997 the Company had recorded
pre-opening costs of $2.6 million, net of accumulated amortization.
Depreciation and amortization expenses were $1,796,618 in 1996 and $522,436
in 1995, an increase of $1,274,182 or 243.9%. The increase in depreciation and
amortization expense is the result of amortization of dispatch pre-opening costs
as the Company began its rapid expansion by adding 94 stores in 1996, and the
addition of approximately $5.7 million in property and equipment during the year
including equipment for the new stores and the Company's headquarters building
in Tacoma, Washington.
INTEREST AND OTHER, NET. Interest income and other, net was $1,871,066 in
1997 compared to $339,769 in 1996, an increase of $1,531,297 or 450.7%.
Approximately $1.2 million of the increase was due to investment income
earned during 1997 on the Company's workers' compensation deposits. Because
the Company has replaced its workers' compensation deposits with letters of
credit, investment income is likely to decrease significantly in future
years.
15
<PAGE>
Interest income and other, net, was a positive contribution to income of
$339,769 in 1996, compared to an expense of $866,113 in 1995, an increase of
$1,205,882 or 354.9%. This reversal resulted from the Company's completion of
the public offering in June 1996, the subsequent prepayment of substantially
all debt, including the subordinated debentures, the investment of surplus
funds in short-term corporate debt obligations, and investment income on the
Company's workers' compensation deposits. As a percentage of revenues,
interest income and other expenses, net, increased from an expense of 0.9% in
1995 to a positive contribution to income of 0.2% in 1996.
TAXES ON INCOME. Taxes on income increased to $5,558,890 in 1997 from
$881,828 in 1996, an increase of $4,677,062 or 530.3%. The increase in taxes was
largely due to the increase in pretax income to $12.5 million in 1997 from $3.5
million in 1996. The Company's effective tax rate was 44.4% in 1997 as compared
to 54.9% in 1996. The decrease in the effective income tax rate was due
primarily to the decrease in prior period amounts as a percentage of total tax
provision. The principal difference between the effective income tax rate and
the statutory rate are adjustments to taxes resulting from prior years. Prior
year amounts primarily represent corrections of state tax rates and results of
revenue agent reviews of the 1995 and 1996 federal income tax returns.
Taxes on income increased to $1,585,028 in 1996 (before adjustment for the
tax effect of the 1996 extraordinary item) from $1,151,713 in 1995, an increase
of approximately $433,315, or 37.6%. This increase was the direct result of the
corresponding increase in the Company's pretax income in 1996, the expense
incurred related to a change in the prior year's estimated deferred tax asset
and the higher overall effective tax rates as the Company expanded into more
states and cities which impose a local income tax.
The Company had a net deferred tax asset of approximately $4.4 million at
December 31, 1997, resulting primarily from workers' compensation deposits,
credits and reserves. 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 tax benefits will be realized in the future based on
the historical levels of pre-tax income and expected future taxable income.
NET INCOME. Net income in 1997 increased to $6,963,021 from 1996 net income
of $724,283, an increase of $6,238,738 or 861.4%. The increase was largely due
to a 105.2% increase in revenues in 1997 to $335.4 million from 1996 revenues of
$163.5 million. Contributing to the increase in net income was a decrease in
selling, general and administrative costs as a percentage of revenues to 25.1%
of revenues in 1997 from 26.3% of revenues in 1996, and recognition of $1.2
million of investment interest on the Company's workers' compensation deposits.
Additionally, in 1996, the Company incurred an extraordinary charge of
$1,197,400 related to the retirement of its subordinated debt.
Net income for 1996 decreased to $724,283 from $2,061,807 in 1995, a
decrease of $1,337,524 or 64.9%. The decrease was primarily the result of an
increase in cost of services as a percentage of revenue to 70.7% of revenue in
1996 from 68.7% of revenue in 1995, an increase in depreciation and amortization
as a percentage of revenue to 1.1% of revenue in 1996 from .6% of revenue in
1995 and the recognition of an extraordinary loss on retirement of the Company's
subordinated debt in 1996. Retirement of the debt required that the deferred
financing costs and the debt discount, which were previously being amortized
over the original life of the debt, be immediately charged to expense.
LIQUIDITY AND CAPITAL RESOURCES
Net cash (used in) provided by operating activities was ($3.7) million,
($7.1) million and $11.3 million, in 1995, 1996 and 1997, respectively. The
increase in cash flows from operations in 1997 as compared to 1996 is largely
due to net income for the year, increases in non-cash expenses including
depreciation and amortization and the provision for doubtful accounts, offset by
an increase in the Company's net deferred tax asset during the year.
Additionally, the reserve for workers' compensation claims grew by $8.5 million,
due mainly to the increase in revenues over 1996, and workers' compensation
deposits and credits declined by $7.2 million when the Company replaced its cash
deposits with letters of credits (see Note 2 to the consolidated financial
statements). Finally, income taxes payable, net of income taxes receivable,
increased by $2.1 million as a result of the Company's increased profitability
over 1996. These increases were offset by the increase in accounts receivable of
$21.3 million over 1996. The increase in accounts receivable is a result of the
Company's growth and because of seasonal fluctuations, accounts receivable
balances are historically higher in the fourth quarter. Net cash used in
operating activities in 1996 increased as compared to 1995, principally due to
the significant growth in the Company's revenues and accounts receivable, an
increase in workers' compensation deposits, and an increase in income taxes
receivable.
16
<PAGE>
The Company used net cash in investing activities of $2.5 million in 1995,
$11.0 million in 1996 and $4.9 million in 1997. The decrease in cash used in
investing activities in 1997 as compared to 1996 is due primarily to the
purchase and improvement of the corporate office building in 1996 and the
replacement of $1.6 million of restricted cash held by the Company's captive
insurance subsidiary with a letter of credit in 1997 (see Note 2 to the
consolidated financial statements). Additionally, the Company's expenditures for
new dispatch office pre-opening costs declined to $2.6 million in 1997 compared
to $3.6 million in 1996. Net cash used in investing activities increased in 1996
as compared to 1995 due mainly to the acquisition and improvement of the
Company's corporate office building, an increase in restricted cash held by the
captive insurance subsidiary and expenditures for new dispatch office
pre-opening costs.
Net cash provided by (used in) financing activities was $11.0 million, $30.4
million and ($1.9) million in 1995, 1996 and 1997 respectively. The decrease in
cash provided by financing activities in 1997 as compared to 1996 is due mainly
to the Company's sale of common stock for net proceeds of $33.6 million in 1996.
Additionally, in 1997, checks issued against future deposits decreased by $1.1
million and the Company used cash of $1.4 million to repurchase 229,256 shares
of its common stock on the open market. Net cash provided by financing
activities increased in 1996 compared to 1995 principally due to the Company's
common stock offering completed in 1996 for net proceeds of $33.6 million. This
increase was offset in part by the repayment of a note payable and the
subordinated debt.
During 1997, the Company entered into a line-of-credit agreement with U.S.
Bank with interest at the bank's prime rate (8.5% at December 31, 1997). The
agreement allows the company to borrow up to the lesser of $30 million or 80% of
eligible accounts receivable, as defined by the bank. The line-of-credit is
secured primarily by the Company's accounts receivable and expires in June 1999.
The line-of-credit agreement requires that the Company maintain minimum net
worth and working capital amounts. The Company was in compliance with the
requirements at December 31, 1997.
As discussed further in Note 2 to the consolidated financial statements,
the Company replaced the cash deposits required by its workers' compensation
program with irrevocable letters of credit totaling $15.9 million. The
letters of credit bear fees of .75% and are supported by an equal amount of
available borrowings on the line-of-credit. Accordingly, at December 31,
1997, no borrowings were outstanding on the line-of-credit, $15.9 million was
committed by the letters of credit and $14.1 million was available for
borrowing.
Historically, the Company has financed its operations through cash generated
by external financing including term loans, lines-of-credit and the common stock
offering. The principal use of cash is to finance the growth in receivables and
the cost of opening new dispatch offices. The Company may experience cash flow
deficits from operations and investing activities while the Company expands its
operations, including the acceleration of opening new dispatch offices.
Management expects cash flow deficits to be financed by profitable operations,
the use of the Company's line of credit, and may consider other equity or debt
financings as necessary. The Company analyzes acquisition opportunities from
time to time and may pursue acquisitions in certain circumstances. Any
acquisitions the Company enters into may require additional equity or debt
financing.
OUTLOOK: ISSUES AND UNCERTAINTIES
Labor Ready does not provide forecasts of future financial performance.
While Labor Ready's management is optimistic about the Company's long-term
prospects, the following issues and uncertainties, among others, should be
considered in evaluating its growth outlook.
MANAGE GROWTH. The Company's growth is dependent upon such factors as its
ability to attract and retain sufficient qualified management personnel to
manage multiple and individual dispatch offices, the availability of sufficient
temporary workers to meet customer needs, workers' compensation costs,
collection of accounts receivable and availability of working capital, all of
which are subject to uncertainties. The Company must continually adapt its
management structure and internal control systems as it continues its rapid
growth.
KEY PERSONNEL. The Company's success depends to a significant extent upon
the continued service of its Chief Executive Officer and other members of the
Company's executive management. Future performance depends on its ability to
recruit, motivate and retain key management personnel.
17
<PAGE>
GOVERNMENT REGULATIONS AND WORKERS' COMPENSATION. The Company incurs
significant costs to comply with all applicable federal and state laws and
regulations relating to employment, including occupational safety and health
provisions, wage and hour requirements (including minimum wages), workers'
compensation and unemployment insurance. The Company attempts to increase fees
charged to its customers to offset increased costs relating to these laws and
regulations, but may be unable to do so. If Congress or state legislatures adopt
laws specifying benefits for temporary workers, demand for the Company's
services may be adversely affected. In addition, workers' compensation expenses
are based on the Company's actual claims experiences in each state and the
actual aggregate workers' compensation costs may exceed estimates.
QUALIFIED MANAGERS. The Company relies heavily on the performance and
productivity of its dispatch office general managers, who manage the operation
of the dispatch offices, including recruitment and daily dispatch of temporary
workers, marketing and providing quality customer service. The Company opened
116 dispatch offices in 1997 and plans to open 167 new offices in 1998 and 200
in 1999. The Company must therefore recruit a sufficient number of managers to
staff each new office and to replace managers lost through turnover, attrition
or termination. The Company's future growth and performance depends on its
ability to hire, train and retain qualified managers from a limited pool of
qualified candidates who frequently have no prior experience in the temporary
employment industry.
COMPETITION. The short-term, light industrial niche of the temporary
services industry is highly fragmented and highly competitive, with limited
barriers to entry. Several very large full-service and specialized temporary
labor companies, as well as small local operations, compete with the Company
in the staffing industry. Competition in some markets is intense,
particularly for provision of light industrial personnel, and price pressure
from both competitors and customers is increasing.
WORKING CAPITAL REQUIREMENTS. The Company has historically experienced
significant negative cash flow from operations and investment activities
resulting from the rapid growth in dispatch offices. In 1997, the Company
incurred costs of approximately $3.8 million to open 116 new dispatch offices,
an average of approximately $33,000 per dispatch office. The Company expects the
cost of opening a dispatch office in 1998 to increase to approximately $50,000,
due primarily to the addition of a CDM in each office. Once open, the Company
invests significant additional cash into the operations of new dispatch offices
until they begin to generate sufficient revenue to cover their operating costs.
In addition, the Company pays its temporary personnel on a daily basis and bills
its customers on a weekly basis. The Company expects to require additional
sources of capital in order to continue to grow especially during seasonal peaks
in revenue experienced in the third and fourth quarter of the year.
INDUSTRY RISKS. Temporary staffing companies employ people in the workplace
of their customers. Attendant risks include potential litigation based on claims
of discrimination and harassment, violations of health and safety and wage and
hour laws, criminal activity, and other claims. While the Company tries to limit
its liability by contract, it may be held responsible for the actions at a
jobsite of workers not under the Company's direct control. Temporary staffing
companies are also affected by fluctuations and interruptions in the business of
their customers.
ECONOMIC FLUCTUATIONS. The general level of economic activity, interest
rates and unemployment in the U.S. and specifically within the construction,
landscaping and light industrial trades may significantly affect demand for the
Company's services.
SEASONALITY. Many of the Company's customers are in the construction and
landscaping industries, which are significantly affected by seasonal factors
such as the weather. The Company generally experiences increased demand in the
spring, summer and early fall, while inclement weather is generally coupled with
lower demand for the Company's services.
AVAILABILITY OF TEMPORARY WORKERS. The Company competes with other
temporary personnel companies to meet its customer needs. The Company must
continually attract reliable temporary workers to fill positions and may from
time to time experience shortages of available temporary workers.
18
<PAGE>
INFORMATION PROCESSING. The Company's management information systems,
located at its headquarters, are essential for communication with dispatch
offices throughout the country. Any interruption, impairment or loss of data
integrity or malfunction of these systems could severely hamper the Company's
business.
As the year 2000 approaches, there are uncertainties concerning whether
computer systems will properly recognize date-sensitive information when the
year changes to 2000. Systems that do not properly recognize such information
could generate erroneous data or fail. Management believes that the year 2000
does not pose a significant operational problem for the Company's computer
systems. The Company has completed its assessment of its significant systems and
believes them to be year 2000 compliant. Management has not completed its
assessment of the systems of third parties with which it deals. While it is not
possible at this time to assess the effect of a third party's inability to
adequately address year 2000 issues, management does not believe the potential
problems associated with year 2000 will have a material effect on its financial
condition or results of operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required hereunder are
included in the Annual Report as set forth in Item 14 hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company filed a report on Form 8-K on September 25, 1997 that
reported a change in the Company's independent auditor to Arthur Andersen
LLP, replacing BDO Seidman, LLP which is hereby incorporated by reference.
19
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
TENURE OF DIRECTORS AND OFFICERS
The names, ages and positions of the directors, executive officers and
certain key employees of the Company as of March 1, 1998 are listed below along
with their business experience during the past five years. No family
relationships exist among any of the directors or executive officers of the
Company, except that Todd A. Welstad is the son of Glenn A. Welstad.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Glenn A. Welstad..................................... 54 Chairman of the Board, Chief Executive Officer and
President
Ralph E. Peterson.................................... 63 Director and Executive Vice President -- Corporate
and Business Development
Ronald L. Junck...................................... 49 Director, General Counsel and Secretary
Richard W. Gasten.................................... 60 Director and Vice President and Secretary of Labour
Ready Temporary Services, Ltd.
Thomas E. McChesney.................................. 51 Director
Robert J. Sullivan................................... 67 Director
Joseph P. Sambataro, Jr.............................. 47 Executive Vice President, Chief Financial Officer,
Treasurer and Assistant Secretary
Dennis Diamond....................................... 37 Executive Vice President of Operations
Robert H. Sovern..................................... 49 Assistant Treasurer
Robert F. Groen...................................... 47 Director of Risk Management
Todd A. Welstad...................................... 28 Chief Information Officer
Joseph L. Havlin..................................... 43 Corporate Controller
</TABLE>
BUSINESS EXPERIENCE
The business experience and brief resumes on each of the Directors,
Executive Officers, and significant employees are as follows:
Glenn A. Welstad has served as the Company's Chairman of the Board of
Directors, Chief Executive Officer and President since February 1988. Prior to
joining the Company, Mr. Welstad was an officer of Body Toning, Inc., W.I.T.
Enterprises, and Money Mailer from February 1987 to March 1989. In 1969 Mr.
Welstad founded Northwest Management Corporation, a holding company for
restaurant operations. Over the course of 15 years, Mr. Welstad expanded the
operations to twenty-two locations in five states, which included eight Hardee's
Hamburger Restaurants as well as pizza and Mexican restaurants. In March 1984,
Mr. Welstad sold his ownership interest in Northwest Management Corporation.
Ralph E. Peterson has served the Company as Executive Vice President
- -Corporate and Business Development since August 1997 and has served as a
Director of the Company since January 1996. From January 1996 through September
1996, Mr. Peterson served as Chief Financial Officer, Treasurer and Assistant
Secretary. From September 1996 until August 1997, Mr. Peterson was Executive
Vice President and Chief Operating Officer. Prior to joining Labor Ready, from
December 1991 through August 1995, Mr. Peterson was Executive Vice President and
Chief Financial Officer of Rax Restaurants, Inc. From March 1974 to February
1979 and from April 1983 through his retirement in December 1991, Mr. Peterson
was Executive Vice President and Chief Financial Officer and a Director of
Hardee's Food Systems, Inc., a restaurant company operating and franchising over
4,000 locations throughout the United States and abroad.
Ronald L. Junck has served as a Director and Secretary of the Company since
November 1995. He is an attorney in Phoenix, Arizona where he has specialized in
business law and commercial transactions since 1974. Additionally, Mr. Junck
serves as general counsel to the Company.
20
<PAGE>
Richard W. Gasten has served as a Director of the Company since August 1996.
Mr. Gasten has also served as a Director of Labour Ready Temporary Services,
Ltd., the Company's Canadian subsidiary and as a consultant to the Company since
September 1995. In June 1997, Mr. Gasten was appointed to the position of Vice
President and Secretary of Labour Ready. With this appointment, the consulting
agreement with Mr. Gasten terminated. Mr. Gasten has over 25 years experience as
a member of executive management with Western Capital Trust Company, Vancouver,
B.C., Unity Bank of Canada and The Bank of Nova Scotia.
Thomas E. McChesney has served as a director of the Company since July 1995.
In September 1996, Mr. McChesney became associated with Blackwell Donaldson and
Company, as director of investment banking. Mr. McChesney was associated with
Bathgate and McColley Capital, L.L.C, from January 1996 to September 1996. Mr.
McChesney is also a director of Firstlink Communications, Inc. and THISoftware
Co., Inc. Previously, Mr. McChesney was an officer and director of Paulson
Investment Co. and Paulson Capital Corporation from March 1977 to June 1995.
Robert J. Sullivan has served as a director of the Company since November
1994. Prior to joining the Company he served as a financial consultant of the
Company from July 1993 to June 1994. Mr. Sullivan served as Chief Financial
Officer of Unifast Industries, Inc. from June 1990 to November 1991, and General
Manager of Reserve Supply Company of Long Island from July 1992 to December
1993. Additionally, Mr. Sullivan has an extensive career of over 33 years in
financial management, as both a CPA and audit manager with Price Waterhouse &
Co. and as a member of executive management with companies listed on NYSE and
AMEX such as American Express Company, Bush Universal, Inc., Cablevision
Systems, Inc. and Micron Products, Inc.
Joseph P. Sambataro, Jr. has served as Executive Vice President, Treasurer,
Chief Financial Officer and Assistant Secretary of the Company since August
1997. Prior to joining the Company, he served as the Managing Partner of the
Seattle office of BDO Seidman, LLP an accounting and consulting firm from 1990
to 1997. In 1985 Mr. Sambataro was co-founder, and served as Director and
Officer of Ecova Corporation, an on-site toxic waste remediation company until
1989. From 1972 until 1985 Mr. Sambataro was a Partner with KPMG Peat Marwick in
the New York, Miami and Seattle offices.
Dennis Diamond has served as executive Vice President of Operations since
March 10, 1998. Since joining the Company in 1993, Mr. Diamond has served in a
variety of positions of increasing responsibility, most recently, as Vice
President of Operations for the Western Division (since October 1997). Mr.
Diamond started with Labor Ready in 1993 as a dispatch office general manager
and has served as a District Manager and Area Director in various locations with
the Company. Mr. Diamond received his Masters of Business Administration from
Kansas State University in 1991 and his Bachelor's Degree in Political Science
from Clemson University in 1982.
Robert H. Sovern has served as Assistant Treasurer of the Company since June
1996. Mr. Sovern joined the Company in March 1996 as Director of Accounts
Receivable, Credit and Collection. Prior to joining the Company he was an
entrepreneur operating Hallmark gift shops. Mr. Sovern was President and Chief
Executive Officer of Heritage Savings and Loan Association, Olympia, Washington
from December 1984 to July 1989 and served as an executive with Great Northwest
Federal Savings, Bremerton and Poulsbo, Washington from July 1977 to December
1984. Mr. Sovern also served as a banking officer for three years with Federal
Home Loan Bank and University Federal Savings.
Robert F. Groen has served the Company as Director of Risk Management since
March 1998. From March 1989 to August 1997, Mr. Groen was employed by Humana,
Inc. as Director of Corporate Insurance and Risk Management. Mr. Groen also
served as Chief Operating Officer of Illinois Providence Trust and Illinois
Compensation Trust from October 1980 to March 1989.
Todd A. Welstad has served as Chief Information Officer of the Company since
August 1997. Mr. Welstad joined the Company in January 1994 as the manager of
the Tacoma dispatch office and in August 1994 was promoted to Systems Analyst in
the MIS Department. From October 1994 until August 1997, Mr. Welstad served as
Director of the MIS Department. From February 1989 to December 1994, Mr. Welstad
was employed as a Technical Supervisor at Micro-Rel, a division of Medtronics.
Joseph L. Havlin has served as Corporate Controller of the Company since
September 1997. Prior to joining the Company he served as Chief Financial
Officer for West 175 Enterprises, Inc. from July 1996 to September 1997 and as
Audit Partner in the Seattle office of BDO Seidman, LLP from October 1993 to
July 1996. Mr. Havlin served as Chief Financial Officer of the United States
operations of a large Chinese trading company from 1989 to 1991 and from 1984 to
1989 he served as audit manager in the Seattle office of Arthur Young & Co. Mr.
Havlin obtained a degree in accounting from Western Washington University in
1984 and is a member of the American Institute of Certified Public Accountants.
21
<PAGE>
Item 11. Executive Compensation
The following table sets forth the compensation earned by the Chief
Executive Officer and the next four most highly compensated executive officers
of the Company. None of the other executive officers of the Company received
compensation in excess of $100,000 in 1997.
SUMMARY COMPENSATION TABLE (1)
<TABLE>
<CAPTION>
LONG -TERM
COMPENSATION AWARDS
--------------------
ANNUAL COMPENSATION SECURITIES
---------------------- UNDERLYING OPTIONS/
NAME AND POSITION YEAR SALARY ($) SARS(#)
- ------------------------------------------------------------------------ --------- ----------- --------------------
<S> <C> <C> <C>
Glenn A. Welstad 1997 452,958 --
Chairman of the Board, Chief 1996 401,486 --
Executive Officer and President 1995 375,000 --
Ralph E. Peterson 1997 265,026 337,500
Executive Vice President--Corporate 1996 154,772 --
And Business Development 1995 -- --
Dennis D. Diamond 1997 172,917 60,225
Executive Vice President of Operations 1996 170,233 --
1995 88,481 --
Ralph A. Peterson 1997 172,739 62,250
Executive Vice President of Operations 1996 94,402 --
Eastern Division 1995 -- --
Todd A. Welstad 1997 102,211 78,950
Chief Information Officer 1996 78,105 --
1995 52,456 --
</TABLE>
- ------------------------
(1) None of the named executives received compensation reportable under the
Restricted Stock Awards or Long-Term Incentive Plan Payouts columns.
22
<PAGE>
Option Grants During 1997 Fiscal Year
The following table provides information related to options granted to the
named executive officers during 1997.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
--------------------------------------------------------- ANNUAL RATES OF
NUMBER OF % OF TOTAL STOCK PRICE
SECURITIES OPTIONS/ SARS EXERCISE APPRECIATION FOR
UNDERLYING GRANTED TO OR BASE OPTION TERM (1)
OPTIONS/ SARS EMPLOYEES IN PRICE EXPIRATION --------------------------
NAME GRANTED (2) FISCAL YEAR ($/ SH)(3) DATE 5% 10%
- ---- -------------- -------------- ---------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Dennis D. Diamond 750 -- 6.58 3/11/02 $ 1,363 $ 3,013
Executive Vice President of 15,000 2% 6.00 5/13/02 $ 24,900 $ 54,900
Operations 37,500 4% 13.33 9/16/02 $ 137,888 $ 796,388
Ralph A. Peterson 750 -- 6.58 3/11/02 $ 1,363 $ 3,013
Executive Vice President of 15,000 2% 6.00 5/13/02 $ 24,900 $ 54,900
Operations--Eastern Division 37,500 4% 13.33 9/16/02 $ 137,888 796,388
Todd A. Welstad 225 -- 6.58 3/11/02 $ 409 $ 904
Chief Information Officer 15,000 2% 6.00 5/13/02 $ 24,900 $ 54,900
50,000 6% 19.56 12/19/02 $ 270,350 $ 597,350
</TABLE>
(1) The potential realizable value portion of the table illustrates value that
might be realized upon exercise of the options immediately prior to the
expiration of their term, assuming the specified compounded rates of
appreciation on the Company's Common Stock over the term of the options.
These numbers do not take into account certain provisions of the options
providing for cancellation of the option following termination of
employment.
(2) Options to acquire shares of Common Stock. The options expiring on 5/13/02
vest 25% on date of grant and 25% annually over the next three years. All
other options vest 25% per year over four years.
(3) The option exercise price may be paid in shares of Common Stock owned by the
executive officer, in cash, or in any other form of valid consideration or a
combination of any of the foregoing, as determined by the Compensation
Committee in its discretion.
23
<PAGE>
Option Exercises During 1997 and Year End Option Values
The following table provides information related to options exercised by
the named executive officers during 1997 and the number and value of options
held at year-end. The Company does not have any outstanding stock
appreciation rights ("SARs").
(AGGREGATE)OPTION/SAR EXERCISES IN 1997 AND
YEAR END OPTION/SAR VALUE
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
SHARES DECEMBER 31, 1997 (#) DECEMBER 31, 1997 ($) (1)
ACQUIRED ON VALUE -------------------------- ---------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------------- -------------- ------------ ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Ralph E. Peterson Executive Vice
President Corporate and Business
Development.......................... -- -- 135,000 202,500 $ 1,558,215 $ 2,337,323
Dennis D. Diamond Executive Vice
President of Operations.............. -- -- 8,081 52,144 $ 118,205 $ 420,105
Ralph A. Peterson Executive Vice
President of Operations-- Eastern
Division............................. -- -- 6,000 56,250 $ 65,001 $ 426,391
Todd A. Welstad Chief Information
Officer.............................. -- -- 13,144 65,806 $ 211,048 $ 222,503
</TABLE>
- ------------------------
(1) The closing price for the Company's common stock as reported by Nasdaq on
December 31, 1997, was $19.25.
Compensation Committee:
The Company's executive compensation is determined by a compensation
committee comprised of two outside members of the Board of Directors. Messrs.
Sullivan and McChesney (who serves as the Committee's Chairman) are members
of the Compensation Committee. Compensation is determined by the Directors
using comparative statistics from other temporary labor service businesses.
Employment Agreements:
On October 31, 1995, the Company entered into an
employment agreement with Glenn Welstad, the Company's Chairman and Chief
Executive Officer, which provides for annual compensation of $31,250 per
month at inception of the agreement, subject to annual increases on the
anniversary date of the agreement of 10% of the prior period's 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. The term of Mr. Welstad's employment
agreement runs from October 31, 1995 through December 31, 1998.
In March 1997, the Company entered into an employment agreement with
Ralph E. Peterson, the Company's Executive Vice President -- Corporate and
Business Development, which provides for annual compensation of $20,000 per
month at inception of the agreement, subject to annual increases on the
anniversary date of the agreement at the discretion of the Board of
Directors. In addition, the employment agreement provides for a bonus, as
determined by the compensation committee, based on Mr. Peterson's
performance, and the overall performance of the Company. The agreement
provides Mr. Peterson with options to purchase 225,000 of the Company's
common stock at its fair market value at date of grant of $8.92. 45,000 of
the options vest on the date of grant and the balance in equal annual amounts
to 2000. The agreement expires in 2000 unless extended by mutual agreement
between Mr. Peterson and the Board of Directors or is terminated pursuant to
its terms.
24
<PAGE>
In August 1997, the Company entered into an employment agreement with
Joseph P. Sambataro, Jr., the Company's Executive Vice President, Chief
Financial Officer, Treasurer and Assistant Secretary, which provides for
annual compensation of $13,500 per month, subject to annual increases on the
anniversary date of the agreement at the discretion of the Board of
Directors. In addition, the employment agreement provides for a bonus, as
determined by the compensation committee, based on Mr. Sambataro's
performance, and the overall performance of the Company. The agreement
provides Mr. Sambataro with options to purchase 180,000 of the Company's
common stock at its fair market value at date of grant of $8.33. 45,000 of
the options vest on the date of grant and 22,500 options vest semi-annually
to 2000. The agreement expires in 2001 unless extended by mutual agreement
between Mr. Sambataro and the Board of Directors or is terminated pursuant to
its terms.
Item 12. Principal Shareholders
The following table sets forth certain information regarding the
beneficial ownership of each class of equity securities of the Company as of
December 31, 1997 for (i) each person known to the Company to own
beneficially 5% or more of any such class as of December 31, 1997, (ii) each
director of the Company, (iii) each executive officer of the Company required
to be identified as a Named Executive Officer pursuant to Item 402 of
Regulation S-K and (iv) all officers and directors of the Company as a group.
Except as otherwise noted, the named beneficial owner has sole voting and
investment power. See "Management" for a description of each individual's
position with the Company, if any.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL
OWNERSHIP
NAME & ADDRESS (NUMBER OF PERCENT
OF BENEFICIAL OWNER TITLE OF CLASS SHARES)(1) OF CLASS
- -------------------------------------------- -------------------------------------------- ----------- -----------
<S> <C> <C> <C>
Glenn A. Welstad (2)........................ Common Stock 2,633,808 14.0%
............................................ Preferred Stock 1,962,732 68.1%
Ralph E. Peterson (3)....................... Common Stock 135,000 *
Ronald L. Junck (4)......................... Common Stock 107,206 *
Richard W. Gasten (4)....................... Common Stock 2,850 *
Thomas E. McChesney (5)..................... Common Stock 60,950 *
Robert J. Sullivan (6)...................... Common Stock 30,950 *
All Officers and Directors as............... Common Stock 3,210,613 17.3%
Group (10 Individuals)...................... Preferred Stock 1,962,732 68.1%
</TABLE>
- ------------------------
* Less then 1%
(1) Beneficial ownership is calculated in accordance with Rule 13d-3(d)(1) of
the Securities Exchange Act of 1934, as amended and includes shares of
Common Stock issuable upon exercise of options, warrants, and other
securities convertible into or exchangeable for Common Stock currently
exercisable or exercisable within 60 days of December 31, 1997.
(2) The business address of Mr. Welstad is 1016 S. 28th Street, Tacoma, WA.,
98409.
(3) Includes currently exercisable options to purchase 45,000 shares of Common
Stock at $5.29 per share and 90,000 shares of Common Stock at $8.92 per
share.
(4) Includes currently exercisable options to purchase 1,350 shares of Common
Stock at $6.05 per share and 1,500 shares of Common Stock at $8.67 per
share.
(5) Includes currently exercisable options to purchase 1,350 shares of Common
Stock at $3.32 per share, 12,500 shares of Common Stock at $19.56 per share
and 1,500 shares of Common Stock at $6.00 per share.
(6) Includes currently exercisable options to purchase 12,500 shares of Common
Stock at $19.56 per share and 1,500 shares of Common Stock at $8.67 per
share.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Junck is a member of the board of directors, and is also a shareholder
in a law firm that received approximately $176,000, $337,000 and $587,000 in
payment for legal services performed for the Company in 1995, 1996 and 1997,
respectively.
25
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
The Financial Statements are found on pages F-1 through F-20 of this Form
10-K. The Financial Statement Table of Contents is on Page F-1. The Exhibit
Index is found on Page 27 of this Form 10-K.
No reports on Form 8-K were filed during the quarter ended December 31,
1997.
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 A. WELSTAD 3/30/98
--------------------------------------
Signature Date
BY: Glenn A. Welstad, Chairman of The
Board, Chief Executive Officer and
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 A. Welstad 3/30/98
- -------------------------------------
Signature Date
Glenn A. Welstad, Chairman of the
Board, Chief Executive Officer and
President
/s/ Ralph E. Peterson 3/30/98
- -------------------------------------
Signature Date
Ralph E. Peterson, Executive Vice
President--Corporate and Business
Development and Director
/s/ Joseph P. Sambataro, Jr. 3/30/98
- -------------------------------------
Signature Date
Joseph P. Sambataro, Jr., Executive
Vice President, Chief Financial
Officer, Treasurer and Assistant
Secretary
/s/ Ronald L. Junck 3/30/98
- -------------------------------------
Signature Date
Ronald L. Junck, Secretary, General
Counsel and Director
/s/ Robert J. Sullivan 3/30/98
- -------------------------------------
Signature Date
Robert J. Sullivan, Director
/s/ Richard W. Gasten 3/30/98
- -------------------------------------
Signature Date
Richard W. Gasten, Vice President and
Secretary, Labour Ready Temporary
Services, Ltd. and Director
/s/ Thomas E. McChesney 3/30/98
- -------------------------------------
Signature Date
Thomas E. McChesney, Director
26
<PAGE>
EXHIBIT INDEX
FORM 10-K
LABOR READY, INC.
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- ----------------- --------------------------------------------------------------------------------------------
<C> <S> <C>
3 Articles of Incorporation (1)
3.1 Articles of Amendment to Articles of Incorporation (1)
3.2 Bylaws (1)
4 Instruments Defining Rights of Security Holders (1)
4.1 Rights Agreement Dated January 6, 1998 (2)
10 Material Contracts
10.1 Warrant Purchase Agreements (1)
10.2 Executive Employment Agreement between Labor Ready, Inc. And Glenn A. Welstad (1)
10.3 Employment Agreement between Labor Ready, Inc. and Joseph P. Sambataro, Jr. dated August 1,
1997
10.4 Business Loan Agreement between Labor Ready, Inc. and U.S. Bank of Washington, N.A., dated
November 10, 1997
10.5 Form of Lease for Labor Ready, Inc. dispatch office (1)
10.6 1996 Employee Stock Option and Incentive Plan (1)
10.7 1996 Employee Stock Purchase Plan (1)
10.8 Employment Agreement between Labor Ready, Inc. and Ralph E. Peterson dated March 19, 1997
16 Letter re change in certifying accountant (3)
23 Consents of Independent Certified Public Accountants
23.1 Consent of Arthur Andersen LLP -- Independent Public Accountants
23.2 Consent of BDO Seidman, LLP -- Independent Certified Public Accountants
27 Financial Data Schedules
27.1 December 31, 1997 and for the year then ended
27.2 December 31, 1995 and 1996, for each of the two years in the period ended December 31, 1996
27.3 March 31, June 30 and September 26, 1997 and for each of the three, six and nine month
periods then ended
</TABLE>
- ------------------------
(1) Incorporated by reference to the Company's Form 10 Registration Statement,
SEC File No. 0-2382.
(2) Incorporated by reference to the Company's Current Report on Form 8-K Filed
on January 16, 1998.
(3) Incorporated by reference to the Company's Current Report on Form 8-K filed
on September 26, 1997.
COPIES OF EXHIBITS MAY BE OBTAINED UPON REQUEST DIRECTED TO MR. JOSEPH P.
SAMBATARO, JR., LABOR READY, INC., 1016 S. 28TH STREET, TACOMA, WASHINGTON,
98409.
27
<PAGE>
LABOR READY, INC.
CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Reports of Independent Certified Public Accountants........................................................ F-2
Consolidated Balance Sheets December 31, 1996 and 1997..................................................... F-4
Consolidated Statements of Income Years Ended December 31, 1995, 1996 and 1997............................. F-6
Consolidated Statements of Shareholders' Equity Years Ended December 31, 1995, 1996 and 1997............... F-7
Consolidated Statements of Cash Flows Years Ended December 31, 1995, 1996 and 1997......................... F-8
Notes to Consolidated Financial Statements................................................................. F-10
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders of
Labor Ready, Inc.
We have audited the accompanying consolidated balance sheet of Labor Ready,
Inc. and subsidiaries as of December 31, 1997, and the related consolidated
statements of income, shareholders' equity and cash flows for the year 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 audit. The financial statements of Labor Ready, Inc. as
of December 31, 1996, were audited by other auditors whose report dated February
24, 1997, expressed an unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides 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 as of December 31, 1997, and the consolidated
results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Seattle, Washington
February 24, 1998
F-2
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders of
Labor Ready, Inc.
We have audited the accompanying consolidated balance sheet of Labor Ready,
Inc. and subsidiaries as of December 31, 1996 and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the two
years in the period ended December 31, 1996. 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
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Labor Ready, Inc. and subsidiaries as of December 31, 1996 and the consolidated
results of their operations and their cash flows for each of the two years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
/s/ BDO Seidman, LLP
Spokane, Washington
February 24, 1997
F-3
<PAGE>
LABOR READY, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1997
ASSETS
<TABLE>
<CAPTION>
1996 1997
------------- -------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.......................................................... $ 17,597,821 $ 22,116,633
Accounts receivable, less allowance for doubtful accounts of $1,236,776 and
$2,851,226....................................................................... 21,010,653 36,614,156
Workers' compensation deposits and credits......................................... 5,285,552 1,081,813
Prepaid expenses and other......................................................... 1,983,961 2,659,789
Income taxes receivable............................................................ 1,194,633 --
Deferred income taxes.............................................................. 1,461,731 3,144,202
------------- -------------
Total current assets............................................................... 48,534,351 65,616,593
------------- -------------
PROPERTY AND EQUIPMENT:
Buildings and land................................................................. 3,733,202 4,448,135
Computers and software............................................................. 5,036,410 8,219,832
Furniture and equipment............................................................ 486,524 497,516
------------- -------------
9,256,136 13,165,483
Less accumulated depreciation...................................................... 1,431,562 2,839,004
------------- -------------
Property and equipment, net........................................................ 7,824,574 10,326,479
------------- -------------
OTHER ASSETS:
Intangible assets and other, less accumulated amortization of $979,572 and
$3,568,849....................................................................... 3,071,933 3,076,638
Workers' compensation deposits and credits, less current portion................... 2,979,018 --
Deferred income taxes.............................................................. -- 1,211,747
Restricted cash in captive insurance subsidiary.................................... 1,714,744 135,929
------------- -------------
Total other assets................................................................. 7,765,695 4,424,314
------------- -------------
Total assets....................................................................... $ 64,124,620 $ 80,367,386
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
LABOR READY, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1997
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
1996 1997
------------- -------------
<S> <C> <C>
CURRENT LIABILITIES:
Checks issued against future deposits.............................................. $ 1,139,555 $ --
Accounts payable................................................................... 2,230,721 3,711,141
Accrued wages and benefits......................................................... 3,046,084 4,080,366
Workers' compensation claims reserve, current portion.............................. 4,532,625 7,108,723
Income taxes payable............................................................... -- 874,948
Current maturities of long-term debt............................................... 11,905 12,979
------------- -------------
Total current liabilities.......................................................... 10,960,890 15,788,157
------------- -------------
LONG-TERM LIABILITIES:
Long-term debt, less current maturities............................................ 90,352 76,337
Workers' compensation claims reserve, less current portion......................... 544,061 6,461,780
Deferred income taxes.............................................................. 937,401 --
------------- -------------
Total long-term liabilities........................................................ 1,571,814 6,538,117
------------- -------------
Total liabilities.................................................................. 12,532,704 22,326,274
------------- -------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, $0.296 par value 5,000,000 shares authorized; 2,882,530 shares
issued and outstanding........................................................... 854,082 854,082
Common stock, no par value 25,000,000 shares authorized; 18,560,364 and 18,441,530
shares issued and outstanding.................................................... 49,516,834 49,693,433
Cumulative foreign currency translation adjustment................................. (50,126) 86,221
Retained earnings.................................................................. 1,271,126 7,407,376
------------- -------------
Total shareholders' equity......................................................... 51,591,916 58,041,112
------------- -------------
Total liabilities and shareholders' equity......................................... $ 64,124,620 $ 80,367,386
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
LABOR READY, INC.
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1995, 1996 and 1997
<TABLE>
<CAPTION>
1995 1996 1997
------------- -------------- --------------
<S> <C> <C> <C>
Revenues from services........................................... $ 94,361,629 $ 163,449,620 $ 335,408,832
Cost of services................................................. 64,881,955 115,531,110 236,666,368
------------- -------------- --------------
Gross profit..................................................... 29,479,674 47,918,510 98,742,464
Selling, general and administrative expense...................... 24,877,605 42,954,950 84,080,568
Depreciation and amortization.................................... 522,436 1,796,618 4,011,051
------------- -------------- --------------
Income from operations........................................... 4,079,633 3,166,942 10,650,845
Interest (income) expense and other, net......................... 866,113 (339,769) (1,871,066)
------------- -------------- --------------
Income before taxes on income and extraordinary item............. 3,213,520 3,506,711 12,521,911
Taxes on income.................................................. 1,151,713 1,585,028 5,558,890
------------- -------------- --------------
Income before extraordinary item................................. 2,061,807 1,921,683 6,963,021
Extraordinary item, net of income tax benefit of $703,200........ -- (1,197,400) --
------------- -------------- --------------
Net income....................................................... $ 2,061,807 $ 724,283 $ 6,963,021
------------- -------------- --------------
------------- -------------- --------------
Basic income per common share:
Income before extraordinary item................................. $ 0.16 $ 0.12 $ 0.38
Extraordinary item, net.......................................... -- (0.08) --
------------- -------------- --------------
Net income....................................................... $ 0.16 $ 0.04 $ 0.38
Diluted income per common share:
Income before extraordinary item................................. $ 0.15 $ 0.12 $ 0.37
Extraordinary item, net.......................................... -- (0.08) --
------------- -------------- --------------
Net income....................................................... $ 0.15 $ 0.04 $ 0.37
------------- -------------- --------------
------------- -------------- --------------
Weighted average shares outstanding
Basic............................................................ 12,432,540 15,865,221 18,446,113
------------- -------------- --------------
------------- -------------- --------------
Diluted.......................................................... 13,038,540 16,288,613 18,778,202
------------- -------------- --------------
------------- -------------- --------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
LABOR READY, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Year Ended December 31, 1995, 1996 and 1997
<TABLE>
<CAPTION>
CUMULATIVE
RETAINED FOREIGN
COMMON STOCK PREFERRED STOCK EARNINGS CURRENCY
--------------------------- ---------------------- (ACCUMULATED TRANSLATION
SHARES AMOUNT SHARES AMOUNT DEFICIT) ADJUSTMENT
------------ ------------- ---------- ---------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1995................ 11,187,435 $ 3,540,187 2,882,530 $ 854,082 $ (1,429,556) $ (2,853)
Net income for the year................. -- -- -- -- 2,061,807
Common stock issued on conversionof
debt.................................. 336,154 382,364 -- -- -- --
Common stock issued for 401(k) Plan..... 2,693 7,679 -- -- -- --
Common stock issued from private
placement............................. 31,500 69,998 -- -- -- --
Common stock issued on the exercise of
warrants.............................. 1,602,990 1,781,100 -- -- -- --
Common stock issued on the exercise of
options............................... 67,500 45,000 -- -- -- --
Detachable stock warrants issued........ -- 1,290,094 -- -- -- --
Preferred stock dividend................ -- -- -- -- (42,704) --
Foreign currency translation............ -- -- -- -- -- (25,854)
------------ ------------- ---------- ---------- ------------- -----------
BALANCE, January 1, 1996................ 13,228,272 7,116,422 2,882,530 854,082 589,547 (28,707)
Net income for the year................. -- -- -- -- 724,283 --
Common stock issued for 401(k) Plan..... 7,707 48,250 -- -- -- --
Common stock issued from public stock
offering.............................. 3,363,750 33,586,259 -- -- -- --
Common stock issued on debt
extinguishment and warrants
exercised............................. 1,535,328 7,961,074 -- -- -- --
Common stock issued on the exercise of
options............................... 425,307 804,829 -- -- -- --
Preferred stock dividend................ -- -- -- -- (42,704) --
Foreign currency translation............ -- -- -- -- -- (21,419)
------------ ------------- ---------- ---------- ------------- -----------
BALANCE, January 1, 1997................ 18,560,364 49,516,834 2,882,530 854,082 1,271,126 (50,126)
Net income for the year................. -- -- -- -- 6,963,021 --
Common stock repurchased................ (229,256) (611,454) (784,067)
Common stock issued for 401(k)Plan...... 9,054 81,485 -- -- -- --
Common stock acquired through Employee
Stock Purchase Plan................... 52,899 375,032 -- -- -- --
Common stock issued on the exercise of
warrants.............................. 21,300 110,460 -- -- -- --
Common stock issued on theexercise of
options............................... 27,169 221,076 -- -- -- --
Preferred stock dividend................ -- -- -- -- (42,704) --
Foreign currency translation............ -- -- -- -- -- 136,347
------------ ------------- ---------- ---------- ------------- -----------
BALANCE, December 31, 1997.............. 18,441,530 $ 49,693,433 2,882,530 $ 854,082 $ 7,407,376 $ 86,221
------------ ------------- ---------- ---------- ------------- -----------
------------ ------------- ---------- ---------- ------------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
LABOR READY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1995, 1996 and 1997
<TABLE>
<CAPTION>
1995 1996 1997
------------ ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income............................................................ $ 2,061,807 $ 724,283 $ 6,963,021
Adjustments to reconcile net income to net cash (used in) provided by
operating activities:
Depreciation and amortization......................................... 522,436 1,796,618 4,011,051
Loss (gain) on capital assets sold.................................... -- 3,729 (75,577)
Provision for doubtful accounts....................................... 1,084,526 2,078,489 5,761,610
Extinguishment of debt, extraordinary item............................ -- 1,900,601 --
Deferred income taxes................................................. (502,451) 191,077 (3,831,619)
Changes in assets and liabilities
Accounts receivable................................................... (8,104,502) (10,906,336) (21,279,041)
Workers' compensation deposits and credits............................ (1,871,348) (4,950,021) 7,182,757
Prepaid expenses and other............................................ (324,697) (1,381,909) (675,828)
Accounts payable...................................................... 753,442 1,160,890 1,605,274
Accrued wages and benefits............................................ 774,339 1,457,937 1,034,284
Workers' compensation claims reserve.................................. 1,234,469 3,133,348 8,493,817
Income taxes payable (receivable)..................................... 664,000 (2,355,633) 2,120,669
------------ ------------- -------------
Net cash (used in) provided by operating activities................... (3,707,979) (7,146,927) 11,310,418
------------ ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................................................. (2,471,001) (5,749,935) (3,967,448)
Proceeds from sale of capital assets.................................. -- 8,891 120,000
(Increase) decrease in restricted cash................................ -- (1,714,744) 1,578,815
Additions to intangible assets and other.............................. -- (3,558,609) (2,594,638)
------------ ------------- -------------
Net cash used in investing activities................................. (2,471,001) (11,014,397) (4,863,271)
------------ ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments on note payable.......................................... (1,569,374) (1,591,206) --
Checks issued against future deposits................................. 514,842 624,713 (1,139,555)
Proceeds from issuance of common stock................................ 69,998 -- --
Net proceeds from public offering..................................... -- 33,586,259 --
Proceeds from warrants exercised...................................... 1,781,100 -- 110,460
Proceeds from options exercised....................................... 45,000 804,829 169,988
Proceeds from sale of stock through employee stock purchase plan...... -- -- 375,032
Purchase and retirement of treasury stock............................. -- -- (1,395,521)
Debt issue costs...................................................... (816,769) -- --
Repayment of subordinated debt........................................ -- (2,069,643) --
Borrowings on long-term debt.......................................... 11,529,951 -- --
Payments on long-term debt............................................ (552,074) (890,797) (12,941)
Preferred stock dividends paid........................................ (42,704) (42,704) --
------------ ------------- -------------
Net cash provided by financing activities............................. 10,959,970 30,421,451 (1,892,537)
Effect of exchange rates on cash...................................... (25,854) (21,419) (35,798)
------------ ------------- -------------
Net increase in cash and cash equivalents............................. 4,755,136 12,238,708 4,518,812
CASH AND CASH EQUIVALENTS, beginning of year.......................... 603,977 5,359,113 17,597,821
------------ ------------- -------------
CASH AND CASH EQUIVALENTS, end of year................................ $ 5,359,113 $ 17,597,821 $ 22,116,633
------------ ------------- -------------
------------ ------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
LABOR READY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1995, 1996 and 1997
<TABLE>
<CAPTION>
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the year for:
Interest................................................................ $ 1,302,929 $ 332,479 $ 30,387
Income taxes............................................................ $ 990,164 $ 2,858,941 $ 7,972,732
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Contribution of common stock to 401(k) Plan............................. $ 7,679 $ 48,250 $ 81,485
Debentures converted to common stock.................................... $ 75,000 -- --
Issuance of a note receivable on the sale of capital assets............. -- $ 23,250 --
Issuance of common stock on debt retirement............................. -- $ 7,961,074 --
Preferred stock dividends accrued....................................... -- -- $ 42,704
Tax effect of disqualifying dispositions on options exercised........... -- -- $ 51,088
</TABLE>
See accompanying notes to consolidated financial statements.
F-9
<PAGE>
LABOR READY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1995, 1996 and 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. BASIS OF PRESENTATION
Labor Ready, Inc. and its wholly-owned subsidiaries Labour Ready Temporary
Services Ltd. and Labor Ready Assurance Company (together, "the Company")
provide temporary staffing for manual labor jobs to customers primarily in the
construction, landscaping and light manufacturing industries from 316 offices
located throughout the United States and Canada. The Company provides services
to a wide variety of customers, none of which individually comprise a
significant portion of revenues within a geographic region or for the Company
as a whole. The consolidated financial statements include the accounts of
Labor Ready, Inc. and its subsidiaries. All significant intercompany balances
and transactions have been eliminated in consolidation.
B. REVENUE RECOGNITION
Revenue from the sale of services is recognized at the time the service is
performed. A portion of the Company's income is derived from franchise fees,
which are insignificant for all years presented.
C. COST OF SERVICES
Cost of services includes the wages of temporary workers, related payroll
taxes, workers' compensation expenses and transportation.
D. CASH AND CASH EQUIVALENTS
The Company considers all highly liquid instruments purchased with a
maturity of three months or less at date of purchase to be cash equivalents.
E. 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, which are 31 to 39 years for buildings and improvements, 3 to 5 years
for computers and software and 5 to 7 years for furniture and equipment.
F. INTANGIBLE ASSETS AND OTHER
Intangible and other assets consist primarily of dispatch office pre-opening
costs and acquired customer lists and non-compete agreements. Dispatch office
pre-opening costs are capitalized until such facilities become operational and
are amortized using the straight-line method over an estimated useful life of 2
years. Other intangible assets are stated at cost and are amortized using the
straight-line method over periods not exceeding ten years. Management evaluates,
on an ongoing basis, the carrying value of intangible assets and makes a
specific provision against the asset when an impairment is identified.
G. INCOME TAXES
Deferred income taxes are provided for temporary differences between the
financial statement and income tax bases of assets and liabilities using enacted
tax rates in effect for the year in which the temporary differences are expected
to reverse. If it is more likely than not that some portion of a deferred tax
asset will not be realized, a valuation allowance is recorded.
F-10
<PAGE>
LABOR READY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 1995, 1996 and 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
H. FOREIGN CURRENCY TRANSLATION
Cumulative foreign currency translation adjustment relates to the Company's
consolidated foreign subsidiary, Labour Ready Temporary Services, Ltd. Foreign
currency translation is calculated by application of the current rate method and
is included in the determination of consolidated shareholders' equity at the
respective balance sheet dates.
I. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
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.
J. NEW ACCOUNTING STANDARDS
The Company is required to adopt SFAS No. 130, "Reporting Comprehensive
Income" effective January 1, 1998. Comprehensive income and its components will
be required to be to be presented for each year for which an income statement is
presented. It is expected that the adoption of SFAS No. 130 will not have a
significant impact on the Company's consolidated results of operations or
financial condition.
In April 1997, the Accounting Standards Executive Committee (the "AcSEC")
issued an exposure draft of a Proposed Statement of Position, "Reporting on the
Costs of Start-up Activities". The proposed statement would establish new rules
for the financial reporting of start-up costs, and if adopted, would require the
Company to expense the cost of establishing new dispatch offices as incurred and
write off any capitalized pre-opening costs in the first quarter of the year
adopted. The AcSEC expects to issue a final statement in 1998, which will likely
be effective for the Company's 1999 year. Currently, the Company capitalizes
certain dispatch office pre-opening costs, and amortizes them using the
straight-line method over two years. As of December 31, 1997 the Company had
recorded pre-opening costs of $2,643,641, net of accumulated amortization.
K. RECLASSIFICATION
Certain items in the 1996 and 1995 consolidated financial statements have
been reclassified to conform to the 1997 presentation.
F-11
<PAGE>
LABOR READY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 1995, 1996 and 1997
2. WORKERS' COMPENSATION
The Company provides workers' compensation insurance to its temporary workers
and office staff. In Washington, Ohio and West Virginia, (the monopolistic
states), the Company is required to make payments into state administered
programs, at rates established by each state based upon the job classification
of the insured workers and the previous claims experience of the Company. The
Washington program provides for a retroactive adjustment of workers'
compensation payments based upon actual claims experience. Upon adjustment,
overpayments to the program are returned to the Company and underpayments, if
any, are assessed. At December 31, 1996 and 1997, the Company recorded
workers' compensation credit receivables of $835,566 and $1,081,813 and
workers' compensation liabilities of $587,411 and $606,354 related to the
monopolistic states.
For workers' compensation claims originating in the remaining states (the
non-monopolistic states), the Company self-insures the deductible amount per
claim to a maximum aggregate stop loss limit and has engaged a third party
administrator to manage the claims and an off-shore company for the payment of
claims and related expenses. The deductible amount was $250,000 per claim to an
aggregate maximum of approximately $5.0 million, $6.5 million and $19.0 million
in 1995, 1996 and 1997. In January 1998, the Company renewed its insurance
program, the terms of which included a reduction of the 1995 and 1996 aggregate
maximums to $4.5 million and $5.2 million, respectively.
During 1997, the Company deposited $13.9 million with the off-shore company
for the payment of workers' compensation claims and related expenses originating
in the non-monopolistic states and $7.4 million was paid on these claims. As
discussed further in Note 3, the Company replaced these deposits with letters of
credit as collateral to the off-shore company for the payment of future
non-monopolistic claims and related expenses.
The Company establishes provisions for future claim liabilities based upon
actuarial estimates of the future cost of claims and related expenses that have
been reported but not settled, and that have been incurred but not reported.
Adjustments to the claim reserve are charged or credited to expense in the
periods in which they occur. At December 31, 1996 and 1997, the Company had
recorded a reserve for claims and claim related expenses arising in
non-monopolistic states of $4,449,986 and $12,686,860. The reserve for workers'
compensation claims was computed using a discount rate of 7.5% and 6.0% at
December 31, 1996 and 1997.
Workers' compensation expense totaling $5,907,771, $9,981,411 and
$19,245,733 was recorded as a component of cost of services for the years ended
December 31, 1995, 1996 and 1997, respectively.
The Company has formed a wholly-owned, off-shore captive, Labor Ready
Assurance Company for the management and payment of workers' compensation claims
and claim related expenses. During 1996, the Company deposited $1,714,744 for
the statutory capitalization of Labor Ready Assurance and during 1997, increased
that capitalization by $750,000. As discussed further in Note 3, during 1997,
the Company replaced these deposits with letters of credit as collateral for the
statutory capitalization of Labor Ready Assurance Company. At December 31, 1997,
$135,929 remains on deposit with Labor Ready Assurance and is recorded as
restricted cash in the accompanying consolidated balance sheets.
F-12
<PAGE>
LABOR READY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 1995, 1996 and 1997
3. NOTE PAYABLE
In 1996, the Company had a line-of-credit agreement with a bank with
interest at the bank's prime rate (8.25% at December 31, 1996). The agreement
allowed the Company to borrow up to the lesser of $20 million or 80% of eligible
accounts receivable as defined by the bank. At December 31, 1996, no borrowings
were outstanding and $20 million was available for borrowing. The line-of-credit
was secured primarily by the Company's accounts receivable.
During 1997, the Company entered into a line-of-credit agreement with the
bank with interest at the bank's prime rate (8.5% at December 31, 1997). The
agreement allows the company to borrow up to the lesser of $30 million or 80% of
eligible receivables as defined by the bank. The line-of-credit is secured
primarily by the Company's accounts receivable and expires in June 1999. The
line-of-credit agreement requires that the Company maintain minimum net worth
and working capital amounts. The Company was in compliance with the requirements
at December 31, 1997.
As discussed further in Note 2, the Company replaced its cash deposits
required by the workers' compensation program with irrevocable letters of credit
totaling $15.9 million. The letters of credit bear fees of .75% per year and are
supported by an equal amount of available borrowings on the line-of-credit.
Accordingly, at December 31, 1997, no borrowings were outstanding on the
line-of-credit, $15.9 million was committed by the letters of credit and $14.1
million was available for borrowing.
During the years ended December 31, 1996 and 1997, short-term borrowing
activity was as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1997
------------ ------------
<S> <C> <C>
Balance outstanding at year-end....................................................... $ -- $ --
Stated interest rate at year-end, including applicable fees........................... 8.63% 8.63%
Maximum amount outstanding during the year............................................ $ 8,018,974 $ 1,700,000
Average amount outstanding............................................................ $ 2,387,188 $ 1,200,000
Weighted average interest rate during the year, including applicable fees............. 10.87% 11.50%
</TABLE>
The average amount outstanding and the weighted average interest rate during
the year were computed based upon the average daily balances and rates.
4. EARNINGS PER SHARE
The Company has adopted Statement of Financial Accounting Standards ("SFAS")
No. 128, "Earnings Per Share" which replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Basic earnings per share is computed by dividing net income less preferred stock
dividends by the weighted average number of common shares outstanding during the
year. Diluted earnings per share is computed by dividing net income less
preferred stock dividends by the weighted average number of common shares and
common stock equivalents outstanding during the year. Common stock equivalents
for the Company include the dilutive effect of outstanding options. In November
1995, July 1996 and October 1997, the Company declared three-for-two stock
splits which have each been retroactively applied in the determination of
weighted average shares outstanding. All earnings per share amounts for all
years presented have been restated to conform to the provisions of SFAS No. 128.
F-13
<PAGE>
LABOR READY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 1995, 1996 and 1997
Basic and diluted earnings per share were calculated as follows:
<TABLE>
<CAPTION>
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Basic:
Income before extraordinary item........................................ $ 2,061,807 $ 1,921,683 $ 6,963,021
Less preferred stock dividends.......................................... 42,704 42,704 42,704
------------ ------------ ------------
Income before extraordinary item available to common shareholders....... $ 2,019,103 $ 1,878,979 $ 6,920,317
------------ ------------ ------------
Weighted average shares outstanding..................................... 12,432,540 15,865,221 18,446,113
------------ ------------ ------------
Income before extraordinary item per share.............................. $ .16 $ .12 $ .38
------------ ------------ ------------
------------ ------------ ------------
Diluted:
Income before extraordinary item available to common shareholders....... $ 2,019,103 $ 1,878,979 $ 6,920,317
Weighted average shares outstanding..................................... 12,432,540 15,865,221 18,446,113
Plus options to purchase common stock outstanding at end of year........ 2,266,803 624,711 1,355,170
Less shares assumed repurchased......................................... (1,660,803) (201,319) (1,023,081)
------------ ------------ ------------
Weighted average shares outstanding, including dilutive effect of
options............................................................... 13,038,540 16,288,613 18,778,202
------------ ------------ ------------
Income before extraordinary item per share.............................. $ .15 $ .12 $ .37
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
5. SUBORDINATED DEBT
In October 1995, the Company issued subordinated debt with detachable stock
warrants for the purchase of 1,670,328 shares at an exercise price of $5.19 per
share, in exchange for $10,000,000. The debt had a stated interest rate of 13%,
was secured by substantially all assets of the Company, and was to be repaid in
17 quarterly installments commencing in October 1998. The Company recorded a
debt discount and allocated $1,290,094 of the proceeds to the value of the
detachable stock warrants. In connection with arranging the debt agreement, the
Company incurred costs of approximately $800,000 which were capitalized as
intangible assets and other, for amortization over the life of the debt.
In September 1996, the Company repaid the outstanding balance of the
subordinated debt and accelerated the exercise date of the detachable stock
warrants to allow immediate exercise at a price of $5.19 per share. Upon
pre-payment, 1,535,328 shares of common stock were purchased through the
exercise of detachable stock warrants and the cancellation of $7,961,073 of
subordinated debt. The remaining $2,038,927 of debt was paid by the Company in
cash. An extraordinary loss of $1,197,400 (net of the related income tax benefit
of $703,200) was recorded on the write-off of the unamortized debt discount and
debt issue costs. As of December 31, 1997, warrants to purchase 32,700 shares of
common stock at an exercise price of $5.19 per share remained outstanding.
6. RELATED PARTY TRANSACTIONS
A member of the board of directors, is also a shareholder in a law firm that
received approximately $176,000, $337,000 and $587,000 in payment for legal
services performed for the Company in 1995, 1996 and 1997, respectively.
F-14
<PAGE>
LABOR READY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 1995, 1996 and 1997
7. PREFERRED STOCK
The Company has authorized 5,000,000 shares of blank check preferred stock.
The blank check 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 blank check preferred stock of the corporation
authorized by the board of directors in accordance with the articles of
incorporation, was designated as Series A preferred stock. At December 31, 1996
and 1997, the Company had 2,882,530 outstanding shares of $0.296 par value
Series A preferred stock.
Each share of Series A preferred stock is 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.
In November 1995, July 1996 and October 1997, the board of directors
authorized three-for-two preferred stock splits. These preferred stock splits
were effected in the form of three shares of preferred stock issued for every
two shares of preferred stock outstanding as of each date of declaration. All
applicable share and per share data have been adjusted for the effect of the
stock splits.
Pursuant to the Rights Plan discussed further in Note 8, 250,000 shares of
preferred stock have been reserved for issuance under terms of the Plan.
A preferred stock dividend in the amount of $42,704 was accrued and paid at
December 31, 1995 and 1996. The 1997 preferred stock dividend in the amount of
$42,704 was accrued at December 31, 1997 and paid in January 1998.
8. COMMON STOCK
In November 1995, July 1996 and October 1997, the Board of Directors
authorized three-for-two common stock splits. These common stock splits were
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 effect of each of these stock
splits.
In connection with the issuance of the $10,000,000 subordinated debt in
1995, the Company issued options and warrants to purchase 1,670,328 shares of
Common Stock at an exercise price of $5.19 per share. 1,535,328 of these
warrants were exercised as a result of the Company's prepayment of the
subordinated debt in September 1996 (see Note 5).
In June 1996, the Company successfully completed the sale of 2,925,000
shares of common stock, through an underwritten public offering, at a price of
$10.89 per share ($10.15 net of underwriting costs). An additional 438,750
shares of common stock were sold pursuant to an underwriters over-allotment
option, also at the same price per share. Upon the commencement of this
offering, the Company's common stock was approved for quotation on the Nasdaq
National Market. In connection with the public offering, the Company incurred
costs of approximately $574,000 which were offset against the common stock sale
proceeds. These net proceeds were used to prepay debt, purchase of an office
building in Tacoma, Washington, fund workers' compensation deposits, and fund
the opening of new dispatch offices.
F-15
<PAGE>
LABOR READY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 1995, 1996 and 1997
8. COMMON STOCK (CONTINUED)
During 1997, the Company repurchased 229,256 shares of common stock on the
open market for cash consideration of $1,395,521. The repurchased shares were
retired and are not available for reissuance. Excess acquisition cost over the
average per share carrying value of common stock is charged to retained
earnings.
In 1998, the board of directors adopted a Shareholders Rights Plan ("the
Rights Plan") and declared a dividend distribution of one right for each
outstanding share of the Company's common stock. Under the terms of the Rights
Plan, each Right entitles the holder to purchase one one-hundredth of a share of
the Series A preferred stock at an exercise price of $113.06. The rights are
exerciseable a specified number of days following (1) the acquisition by a
person or group of persons of 15% or more of the Company's common stock, or (2)
the commencement of a tender or exchange offer for 15% or more of the Company's
common stock. The Company has reserved 250,000 shares of the Series A Preferred
stock for issuance upon exercise of the rights. The rights may be redeemed by
the Company, subject to the approval of the board of directors, for $.01 cents
per right in accordance with the provisions of the Rights Plan. If any group or
person acquires 50% or more of the Company's common stock, the holders of the
unredeemed rights (except for the acquiring group or person) may purchase for
the exercise price, the number of common shares having a market value equal to
two times the exercise price. The rights expire in January 2008, unless redeemed
earlier by the Company.
9. INCOME TAXES
Temporary differences, which give rise to deferred tax assets (liabilities)
consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1997
----------- ------------
<S> <C> <C>
Allowance for doubtful accounts....................................................... $ 469,975 $ 1,071,624
Prepaid expenses...................................................................... (272,595) (216,337)
Workers' compensation credits receivable.............................................. (317,515) (432,725)
Workers' compensation claims reserve.................................................. 1,690,995 5,074,744
Net operating loss carry-forwards, net of valuation allowances of $690,833 and
$682,268............................................................................ 119,417 115,227
Depreciation and amortization expenses................................................ (1,126,603) (1,477,717)
Vacation accrual...................................................................... 69,160 228,141
Other, net............................................................................ (108,504) (7,008)
----------- ------------
Net tax deferrals..................................................................... 524,330 4,355,949
Non-current deferred tax (liabilities) assets net..................................... (937,401) 1,211,747
----------- ------------
Current deferred tax assets, net...................................................... $ 1,461,731 $ 3,144,202
----------- ------------
----------- ------------
</TABLE>
The Company has assessed its past earnings history and trends, budgeted
sales, expiration dates of loss carry-forwards, 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 on net deferred
tax assets has been established for Labor Ready, Inc. as management believes
that it is more likely than not that the net deferred tax assets will be
realized.
F-16
<PAGE>
LABOR READY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 1995, 1996 and 1997
9. INCOME TAXES (CONTINUED)
At December 31, 1997, Labour Ready Temporary Services, Limited has federal
net operating loss carryforwards of approximately $182,400 with expiration dates
through 2010. The Company has recognized a valuation allowance on the entire
related deferred tax asset due to the uncertainty of realizing the benefits
thereof.
As of December 31, 1997, Labor Ready, Inc. has net operating loss
carry-forwards of approximately $620,000, the majority of which expire in 2006
as applicable federal tax regulations limit the Company to an annual deduction
of approximately $26,000. The company has recognized a valuation allowance on
the portion expiring in 2006.
Taxes on income consists of:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1995 1996 1997
------------ ---------- ------------
<S> <C> <C> <C>
Current:
Federal................................................................... $ 1,419,728 $ 602,942 $ 7,602,257
State..................................................................... 234,436 87,809 1,788,252
------------ ---------- ------------
Total Current............................................................... 1,654,164 690,751 9,390,509
------------ ---------- ------------
Deferred
Federal................................................................... (482,051) 166,579 (3,258,890)
State..................................................................... (20,400) 24,498 (572,729)
------------ ---------- ------------
Total deferred.............................................................. (502,451) 191,077 (3,831,619)
------------ ---------- ------------
Total taxes on income, including $703,200 tax benefit of extraordinary
item in 1996.............................................................. $ 1,151,713 $ 881,828 $ 5,558,890
------------ ---------- ------------
------------ ---------- ------------
</TABLE>
The differences between income taxes at the statutory federal income tax
rate and income taxes reported in the consolidated income statement are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1995 1996 1997
------------------- ----------------- -----------------
AMOUNT % AMOUNT % AMOUNT %
------------ --- ---------- --- ------------ ---
<S> <C> <C> <C> <C> <C> <C>
Income tax expense based on statutory rate........................ $ 1,092,597 34 $ 546,078 34 $ 4,382,669 35
Increase (decrease) resulting from:
State income taxes, net of federal benefit........................ 106,046 3 59,089 4 696,808 6
Utilization of net operating losses not previously benefited...... (46,930) (1) (9,768) (1) -- --
Prior year amounts................................................ -- -- 169,129 11 487,255 4
Other, net........................................................ -- -- 117,300 7 (7,842) (1)
------------ --- ---------- --- ------------ ---
Total taxes on income............................................. $ 1,151,713 36 $ 881,828 55 $ 5,558,890 44
------------ --- ---------- --- ------------ ---
------------ --- ---------- --- ------------ ---
</TABLE>
Prior year amounts primarily represent corrections of state tax rates and
results of revenue agent reviews of the 1995 and 1996 federal income tax
returns.
F-17
<PAGE>
LABOR READY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 1995, 1996 and 1997
10. COMMITMENTS AND CONTINGENCIES
The Company leases substantially all of its dispatch offices. These leases
generally provide for termination on 30 days notice and upon payment of three
months rent. Certain of these leases have 1 year minimum terms and are
cancelable thereafter upon 30 days notice and the payment of three months rent.
Most leases require additional payments for taxes, insurance, maintenance and
renewal options. Minimum lease commitments under terms of the leases at December
31, 1997 total approximately $3.3 million, substantially all of which would be
payable in 1998. Rent expense for the years ended December 31, 1995, 1996 and
1997 was $1,113,000, $2,347,000 and $5,025,697, respectively.
The Company is, from time to time, involved in various lawsuits arising in
the ordinary course of business. Although there can be no absolute assurance, in
the opinion of management, these will not have a material effect on the
Company's consolidated results of operations or financial condition.
In 1995, the Company entered into an employment agreement with a key officer
of the Company, which provides for annual compensation of $31,250 per month at
inception of the agreement, subject to annual increases on the anniversary date
of the agreement of 10% of the prior period's base salary. In addition, the
employment agreement provides for a bonus, as determined by the compensation
committee, based on the officer's performance, and the overall performance of
the Company. The employment agreement expires in 1998.
In December 1997, the Company entered into a lease agreement for 450
automated Cash Dispensing Machines ("CDM") for installation in all of the
Company's dispatch offices. The fair market value of the CDMs at inception of
the lease is approximately $6.2 million. The lease is payable over 84 months
with an imputed interest rate of 9.6% and is secured by the CDMs. At December
31, 1997, the Company had not installed any of the CDMs.
11. RETIREMENT PLAN
In 1994, the Company established a 401(k) savings plan ("the Plan").
Qualifying employees can elect to contribute up to 15% of their annual
compensation to the Plan. Profit sharing contributions are made at the
discretion of the Company's Board of Directors and have been made in the form of
the Company's common stock. Employees are eligible to participate in the Plan
the calendar quarter following the completion of one year of service. Employees
are fully vested in matching contributions made to the Plan after completing
five years of service. The amount charged to expense under the Plan was $48,250,
$81,700 and $118,145 for the years ended December 31, 1995, 1996 and 1997,
respectively.
12. VALUATION AND QUALIFYING ACCOUNTS
Allowance for doubtful accounts activity was as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1995 1996 1997
---------- ----------- ------------
<S> <C> <C> <C>
Balance, beginning of year............................................... $ 365,927 $ 868,607 $ 1,236,776
Charged to expense....................................................... 1,084,526 2,078,489 5,761,610
Write-offs, net of recoveries............................................ (581,846) (1,710,320) (4,147,160)
---------- ----------- ------------
Balance, end of year..................................................... $ 868,607 $ 1,236,776 $ 2,851,226
---------- ----------- ------------
---------- ----------- ------------
</TABLE>
F-18
<PAGE>
LABOR READY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 1995, 1996 and 1997
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of cash and cash
equivalents, trade receivables, trade payables and long term debt. The book
values of cash and cash equivalents, trade receivables and trade payables are
considered to approximate their respective fair values. None of the Company's
long term debt instruments outstanding at December 31, 1996 and 1997 have
readily ascertainable market values, however, the carrying values are considered
to approximate their respective fair values.
14. EMPLOYEE STOCK PURCHASE PLAN
In November, 1996, the Company adopted an
Employee Stock Purchase Plan (the "ESPP") to provide substantially all
employees who have completed six months of service and meet certain limited
qualifications, relative to weekly total hours and calendar months worked, an
opportunity to purchase shares of its common stock through payroll deductions.
The ESPP permits payroll deductions up to 10% of eligible after-tax
compensation. On January 1 and July1, participant account balances are used to
purchase shares of common stock at the lesser of 85% of the fair market value
of shares on either the first day or the last day of the six-month period. The
ESPP provides that no participant shall purchase stock that the aggregate fair
market value exceeds $25,000 during any calendar year. The ESPP expires on
June 30, 2001. 225,000 shares of common stock have been reserved for purchase
under the ESPP. During 1997, 52,899 shares were purchased by participants in
the plan for cash proceeds of $375,032.
15. STOCK COMPENSATION PLANS
In June, 1996, the Company adopted the 1996 Employee Stock Option and
Incentive Plan (the "Plan"). In accounting for the Plan, the Company applied APB
Opinion No. 25, "Accounting for Stock Issued to Employees", and related
Interpretations. Under APB Opinion No. 25, because the exercise price of the
Company's employee stock options is not less than the market price of the
underlying stock at the date of grant, no compensation cost is recognized.
The Plan states that the exercise price of each option may or may not be
granted at an amount that equals the market value at the date of grant. The
majority of the options vest evenly over a four year period from the date of
grant and then expire if not exercised within five years from the date of grant.
525,000 shares of common stock have been reserved for issuance under terms of
the Plan.
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation", requires the Company to provide pro forma information
regarding net income and earnings per share as if compensation cost for the
Company's stock option plans had been determined in accordance with the fair
value based method prescribed in SFAS No. 123. The fair value of option grants
is estimated on the date of grant utilizing the Black-Scholes option pricing
model with the following weighted average assumptions for grants in 1995, 1996
and 1997, respectively: expected life of options of 5 years, expected volatility
of 11.6%, 11.2% and 66.7%, risk-free interest rates of 6.1%, 6.0% and 6.0%, and
a 0% dividend yield. The weighted average fair value at date of grant for
options granted during 1995, 1996 and 1997 approximated $5.13, $9.72 and
$7.86 per option.
F-19
<PAGE>
LABOR READY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 1995, 1996 and 1997
15. STOCK COMPENSATION PLANS (CONTINUED)
Under the provisions of SFAS No. 123, the Company's net income and earnings
per share would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1995 1996 1997
------------ ---------- ------------
<S> <C> <C> <C>
Net Income
As reported............................................................... $ 2,061,807 $ 724,283 $ 6,963,021
Pro forma................................................................. $ 1,957,946 $ 352,222 $ 6,159,194
Pro forma earnings per share
Basic..................................................................... $ 0.15 $ 0.02 $ 0.33
Diluted................................................................... $ 0.15 $ 0.02 $ 0.33
</TABLE>
The following table summarizes stock option activity:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
STOCK OPTIONS PRICE PER SHARE
------------- -----------------
<S> <C> <C>
Outstanding at January 1, 1995................................................... 509,625 $ 1.05
Granted.......................................................................... 1,794,303 5.13
Expired or canceled.............................................................. (37,125) 1.39
Exercised........................................................................ -- --
------------- ------
Outstanding at January 1, 1996................................................... 2,266,803 4.78
Granted.......................................................................... 418,500 9.73
Expired or canceled.............................................................. (100,125) 1.95
Exercised........................................................................ (1,960,467) 4.41
------------- ------
Outstanding at January 1, 1997................................................... 624,711 8.15
Granted.......................................................................... 850,664 12.46
Expired or canceled.............................................................. (71,736) 7.55
Exercised........................................................................ (48,469) 5.79
------------- ------
Outstanding at December 31, 1997................................................. 1,355,170 $ 10.46
------------- ------
------------- ------
</TABLE>
The following table summarizes information about fixed-price stock options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------- ---------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
---------- ----------- -------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$1.32--5.29.... 257,196 2.87 4.43 108,686 4.05
6.00--10.08... 654,224 4.23 8.25 200,579 8.34
12.44--13.33... 213,750 4.55 13.99 8,438 12.44
19.56--25.13... 230,000 4.99 21.83 -- --
--------- -------
$1.32--25.13... 1,355,170 4.19 $ 10.46 317,703 $ 6.98
--------- -------
--------- -------
</TABLE>
F-20
<PAGE>
EXHIBIT 10.3
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement supersedes that Executive Employment
Agreement entered into on July 12, 1997, by and between Labor Ready, Inc. and
Joseph P. Sambataro, Jr.
This Executive Employment Agreement is made and entered into by and
between Labor Ready, Inc., a Washington corporation, including its
subsidiaries ("Company") and Joseph P. Sambataro, Jr. ("Executive").
RECITALS
WHEREAS, Company believes that Executive's experience, knowledge of
corporate affairs, reputation and industry contacts are of great potential
value to Company's future growth and profits; and
WHEREAS, Company wishes to employ Executive and Executive is willing to
be employed by Company; and
WHEREAS, the parties anticipate that Company's Board of Directors will
elect Executive to the office of Executive Vice President and Chief Financial
Officer of the Company.
NOW, THEREFORE, in consideration of the mutual promises and covenants
set forth herein, the Company and Executive agree as follows:
1. Employment. The Company agrees to and hereby does employ Executive,
and Executive agrees to and hereby does become employed by the Company,
subject to the supervision and direction of the Chairman, President and Chief
Executive Officer and of the Board of Directors. Executive's employment shall
be for a period commencing on August 1, 1997 and ending on July 31, 2001,
unless such period is extended by written agreement of the parties or is
sooner terminated pursuant to the provisions of Paragraphs 4, 11 or 12.
2. Duties of Executive. Executive agrees to devote the necessary time,
attention, skill, and efforts to the performance of his duties as Executive
Vice President and Chief Financial Officer of the Company or such other
duties as may be assigned by the Chairman, President and Chief Executive
Officer or the Board of Directors in their discretion.
<PAGE>
3. Compensation.
(a) Executive's initial salary shall be at the rate of Thirteen
Thousand Five Hundred and No/100 Dollars ($13,500.00) per month, payable
semimonthly, from August 1, 1997 until changed by the Board of Directors as
provided herein.
(b) Company, acting through its Board of Directors, may (but shall
not be required to) increase, but may not decrease, Executive's compensation
and award to Executive such bonuses as the board may see fit, in its sole and
unrestricted discretion, commensurate with Executive's performance and the
overall performance of the Company.
4. Failure to Pay Executive. The failure of Company to pay Executive his
salary as provided in Paragraph 3 may, in Executive's sole discretion, be
deemed a breach of this Agreement and, unless such breach is cured within
fifteen days after written notice to Company, this Agreement shall terminate.
Executive's claims against Company arising out of the nonpayment shall
survive termination of this Agreement.
5. Options to Purchase Common Stock. Executive is granted an option to
purchase 120,000 shares of the Company's common stock. The terms and
conditions of the option are set forth in Exhibit A.
6. 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 Chairman, President and Chief Executive
Officer, or in the absence of such guidelines, by Executive's sound
discretion.
7. Vacation. Executive shall be entitled each year during the term of
this Agreement to a vacation of fifteen (15) business 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 1997 to a maximum of 25 business days
per year.
8. Change in Ownership or Control. In the event of a change in the
ownership of Company, effective control of Company, or the ownership of a
substantial portion of Company's assets, all unvested stock options shall
immediately vest.
-2-
<PAGE>
9. Liabilitv Insurance and Indemnification. 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. To the
fullest extent permitted by law, Company shall indemnify and hold harmless
Executive for any and all lost, cost, damage and expense including attorneys'
fees and court costs incurred or sustained by Executive, arising out of the
proper discharge by Executive of his duties hereunder in good faith.
10. Other Benefits. Executive shall be entitled to all benefits offered
generally to employees of Company. Nothing in this Agreement shall be
construed as limiting or restricting any benefit to 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.
11. Termination by Company. Company may terminate this Agreement under
either of the following circumstances:
(a) This Agreement may be terminated for cause at any time upon
thirty (30) days written notice to Executive. Cause shall exist if Executive
is guilty of dishonesty, gross neglect of duty hereunder, or other act or
omission which impairs Company's ability to conduct its ordinary business in
its usual manner. The notice of termination shall specify with particularity
the actions or inactions 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.
(b) In the event that Executive shall, during the term of his
employment hereunder, 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.
12. 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-
-3-
<PAGE>
competition and other provisions of Paragraph 16 of this Agreement shall
terminate. In addition, Executive shall have the right to terminate this
Agreement upon giving three (3) months written notice to Company.
13. 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; provided, however, that nothing under 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.
14. Binding Effect. This Agreement shall be binding on and shall inure
to the benefit of any successor or successors of employer and the personal
representatives of Executive.
15. Confidential Information.
(a) As the result of his duties, Executive 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:
(1) The ideas, methods, techniques, formats, specifications,
procedures, designs, systems, processes, data and software products
which are unique to Company;
(2) All customer, marketing, pricing and financial information
pertaining to the business of Company;
(3) All operations, sales and training manuals;
(4) All other information now in existence or later developed
which is similar to the foregoing; and
(5) All information which is marked as confidential or
explained to be confidential or which, by its nature, is confidential.
(b) Executive understands that he will necessarily have access to
some or all of the Confidential Information. Executive 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.
Executive understands that protecting the Confidential Information from
unauthorized disclosure is critically important to the success and
-4-
<PAGE>
competitive advantage of Company and that the unauthorized disclosure of the
Confidential Information would greatly damage Company.
(c) Executive agrees not to disclose any Confidential Information to
others or use any Confidential Information for his own benefit. Executive
further agrees that upon request of the Chairman, President and Chief
Executive Officer of Company, he shall immediately return all Confidential
Information, including any copies of Confidential Information in his
possession.
16. Covenants Against Competition. It is understood and agreed that the
nature of the methods employed in Company's business is such that Executive
will be placed in a close business and personal relationship with the
customers of Company. Thus, during the term of this Executive Employment
Agreement and for a period of two (2) years immediately following the
termination of Executive's employment, for any reason whatsoever, so long as
Company continues to carry on the same business, said Executive shall not,
for any reason whatsoever, directly or indirectly, for him 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 or customers 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 carried on
by Company within a radius of twenty-five (25) miles from any then existing
or proposed office of Company; and
(d) Make any public statement or announcement, or permit anyone else
to make any public statement or announcement that Executive 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.
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<PAGE>
17. Enforcement of Covenants.
(a) The covenants set forth herein on the part of Executive shall
be construed as an agreement independent of any other provision in this
Executive Employment Agreement and the existence of any claim or cause of
action of Executive against Company, whether predicated on this Executive
Employment Agreement or otherwise, shall not constitute a defense to the
enforcement by Company of the covenants contained herein.
(b) Executive acknowledges that irreparable damage will result to
Company in the event of the breach of any covenant contained herein and
Executive 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 Executive and all of the persons acting for or with Executive.
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 State
of Washington.
19. Arbitration. Company and Executive agree with each other that any
claim of Executive arising out of or relating to this Agreement or the breach
of this Agreement or Executive's employment by Company, including, without
limitation, any claim for compensation due, wrongful termination and any
claim alleging discrimination or harassment in any form shall be resolved by
binding arbitration, except for claims in which injunctive relief is sought
and obtained. The arbitration shall be administered by the American
Arbitration Association under its Commercial Arbitration Rules at the
American Arbitration Association Office nearest the place of employment. The
award entered by the arbitrator shall be final and binding in all respects
and judgment thereon may be entered in any Court having jurisdiction.
20. 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.
21. 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.
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<PAGE>
22. 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.
23. Attoneys' 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.
24. 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 as set forth below, or
such other address as each party shall designate by notice.
25. Survival of Certain Terms. The terms and conditions set forth in
Paragraphs 16, 17 and 18 of this Agreement shall survive termination of the
remainder of this Agreement.
26. Approval of Board of Directors. This Agreement is subject in its
entirety to and contingent upon approval by the Company's Board of Directors.
If this Agreement is not approved by the Board of Directors, this Agreement
and all of the rights, duties and obligations set forth herein shall
terminate.
IN WITNESS WHEREOF, each party to this Agreement has caused it to be
executed on the date indicated below.
EXECUTIVE: COMPANY:
Joseph P. Sambataro, Jr. Labor Ready, Inc., a Washington
corporation
By: Joseph P. Sambataro, Jr. By: /s/ Glenn A. Welstad
------------------------- ------------------------------
Glenn Welstad, Chairman, President
and Chief Executive Officer
Date: August 12, 1997 Date: August 12, 1997
------------------- ------------------
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<PAGE>
EXHIBIT A
Stock Option Grant
------------------
GRANT DATE: August 1, 1997
GRANT PRICE: $12.50 (Closing price on the Grant Date)
TOTAL NUMBER OF SHARES: 120,000
VESTING SCHEDULE: Options for the specified number of shares shall
vest on the following dates:
<TABLE>
<CAPTION>
DATE NUMBER OF SHARES
------ ----------------
<S> <C>
8/1/97 30,000
2/1/98 15,000
8/1/98 15,000
2/1/99 15,000
8/1/99 15,000
2/1/00 15,000
8/1/00 15,000
</TABLE>
TERMS AND CONDITIONS OF THE STOCK OPTION GRANT:
1. Except as otherwise provided herein, all unexercised options shall
expire five (5) years from the Grant Date or upon the termination date,
whichever is earlier, if the Executive Employment Agreement is terminated for
cause or terminated by Executive as provided in the last sentence of
Paragraph 12 of the Agreement. If the Executive Employment Agreement is
terminated for reasons other than specified in the preceding sentence, then
all options shall immediately vest and the exercise date shall be extended to
a date which is five years after the date of termination.
2. Company shall register all shares acquired through the exercise of
Executive's options.
3. Executive shall be responsible for any income tax consequences and
expense associated with the grant or exercise of the options, and is
responsible for consulting his individual tax advisor.
4. As provided in the Employee Stock Option and Incentive Plan, payment
for shares purchased through the exercise of options may be made either in
cash or its equivalent or by tendering previously acquired shares at market
value, or both.
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<PAGE>
Exhibit 10.4
U.S. BANK
LOAN AGREEMENT
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No. Call Collateral Account Officer
<S> <C> <C> <C> <C> <C> <C> <C>
$30,000,000.00 11-04-1997 06-30-1999 397-83 00020 365 4919402202 55640
- -------------------------------------------------------------------------------------------------------
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
Borrower: LABOR READY, INC. Lender: U.S. BANK NATIONAL ASSOCIATION
1016 SOUTH 28TH STREET Tacoma Corporate Bkg.
TACOMA, WA 98409 1145 Broadway
Suite 1100
Tacoma, WA 98402
- --------------------------------------------------------------------------------
THIS LOAN AGREEMENT between LABOR READY, INC. ("Borrower") and U.S. BANK
NATIONAL ASSOCIATION ("Lender") is made and executed on the following terms and
conditions. Borrower has received prior commercial loans from Lender or has
applied to Lender for a commercial loan or loans and other financial
accommodations, including those which may be described on any exhibit or
schedule attached to this Agreement. All such loans and financial
accommodations, together with all future loans and financial accommodations from
Lender to Borrower, are referred to in this Agreement Individually as the "Loan"
and collectively as the "Loans." Borrower understands and agrees that: (a) In
granting, renewing, or extending any Loan, Lender is relying upon Borrower's
representations, warranties, and agreements, as set forth in this Agreement; (b)
the granting, renewing, or extending of any Loan by Lender at all times shall be
subject to Lender's sole judgment and discretion; and (c) all such Loans shall
be and shall remain subject to the following terms and conditions of this
Agreement.
TERM. This Agreement shall be effective as of November 4, 1997, and shall
continue thereafter until all Indebtedness of Borrower to Lender has been
performed in full and the parties terminate this Agreement in writing.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. All references
to dollar amounts shall mean amounts in lawful money of the United States of
America.
Agreement. The word "Agreement" means this Loan Agreement, as this Loan
Agreement may be amended or modified from time to time, together with all
exhibits and schedules attached to this Loan Agreement from time to time.
Account. The word "Account" means a trade account, account receivable, or
other right to payment for goods sold or services rendered owing to
Borrower (or to a third party grantor acceptable to Lender).
Account Debtor. The words "Account Debtor" mean the person or entity
obligated upon an Account.
Advance. The word "Advance" means a disbursement of Loan funds under this
Agreement.
Borrower. The word "Borrower" means LABOR READY, INC. The word "Borrower"
also includes, as applicable, all subsidiaries and affiliates of Borrower
as provided below in the paragraph titled "Subsidiaries and Affiliates."
Borrowing Base. The words "Borrowing Base" mean, as determined by Lender
from time to time, the lesser of (a) $30,000,000.00; or (b) 80.000% of
the aggregate amount of Eligible Accounts.
Business Day. The words "Business Day" means a day on which commercial
banks are open for business in the State of Washington.
CERCLA. The word "CERCLA" means the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended.
Cash Flow. The words "Cash Flow" mean net income after taxes, and exclusive
of extraordinary gains and income, plus depreciation and amortization.
Collateral. The word "Collateral" means and includes without limitation
all property and assets granted as collateral security for a Loan, whether
real or personal property, whether granted directly or indirectly, whether
granted now or in the future, and whether granted in the form of a security
interest, mortgage, deed of trust, assignment, pledge, chattel mortgage,
chattel trust, factor's lien, equipment trust, conditional sale, trust
receipt, lien, charge, lien or title retention contract, lease or
consignment intended as a security device, or any other security or lien
interest whatsoever, whether created by law, contract, or otherwise. The
word "Collateral" includes without limitation all collateral described
below in the section titled "COLLATERAL."
Debt. The word "Debt" means all of Borrower's liabilities excluding
Subordinated Debt.
Eligible Accounts. The words "Eligible Accounts" mean, at any time, all of
Borrower's Accounts which contain selling terms and conditions acceptable
to Lender. The net amount of any Eligible Account against which Borrower
may borrow shall exclude all returns, discounts, credits, and offsets of
any nature. Unless otherwise agreed to by Lender in writing, Eligible
Accounts do not include:
(a) Accounts with respect to which the Account Debtor is an officer,
an employee or agent of Borrower.
(b) Accounts with respect to which the Account Debtor is a
subsidiary of, or affiliated with or related to Borrower or
its shareholders, officers, or directors.
(c) Accounts with respect to which goods are placed on
consignment, guaranteed sale, or other terms by reason of
which the payment by the Account Debtor may be conditional.
(d) Accounts with respect to which Borrower is or may become
liable to the Account Debtor for goods sold or services
rendered by the Account Debtor to Borrower.
(e) Accounts which are subject to dispute, counterclaim, or
setoff.
(f) Account with respect to which the goods have not been
shipped or delivered, or the services have not been
rendered, to the Account Debtor.
(g) Accounts with respect to which Lender, in its sole
discretion, deems the creditworthiness or financial
condition of the Account Debtor to be unsatisfactory.
(h) Accounts of any Account Debtor who has filed or has had
filed against it a petition in bankruptcy or an application
for relief under any provision of any state or federal
bankruptcy, insolvency, or debtor-in-relief acts; or who has
had appointed a trustee, custodian, or receiver for the
assets of such Account Debtor; or who has made an assignment
for the benefit of creditors or has become insolvent or
fails generally to pay its debts (including its payrolls) as
such debts become due.
(i) Accounts which have not been paid in full within 60 days
from the invoice date.
(j) Datings, Progress Billings, Retainages, Cash Sales, Cash
on Delivery, and Service Charges.
(k) Accounts due from Foreign entities or individuals,
except for Canadian accounts.
(l) Accounts which are not collateral.
ERISA. The word "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended.
Event of Default. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section
titled "EVENTS OF DEFAULT."
Expiration Date. The words "Expiration Date" mean the date of termination
of Lender's commitment to lend under this Agreement.
Grantor. The word "Grantor" means and includes without limitation each and
all of the persons or entities granting a Security Interest in any
Collateral for the Indebtedness, including without limitation all Borrowers
granting such a Security Interest.
Guarantor. The word "Guarantor" means and includes without limitation each
and all of the guarantors, sureties, and accommodation parties in
connection with any Indebtedness.
Indebtedness. The word "Indebtedness" means and includes without
limitation all Loans, together with all other obligations, debts and
liabilities of Borrower to Lender, or any one or more of them, as well as
all claims by Lender against Borrower, or any one or more of them, whether
now, hereafter existing, voluntary or involuntary, due or not due, absolute
or contingent, liquidated or unliquidated; whether Borrower may be liable
individually or jointly with others; whether Borrower may be obligated as a
guarantor, surety, or otherwise; whether recovery upon such Indebtedness
may be or hereafter may become barred by any statute of limitations; and
whether such Indebtedness may be or hereafter may become otherwise
unenforceable.
Lender. The word "Lender" means U.S. BANK NATIONAL ASSOCIATION, its
successors and assigns.
<PAGE>
11-04-1997 LOAN AGREEMENT Page 2
Loan No 397-83 (Continued)
Line of Credit. The words "Line of Credit" mean the credit facility
described in the Section titled "LINE OF CREDIT" below.
Liquid Assets. The words "Liquid Assets" mean Borrower's cash on hand plus
Borrower's readily marketable securities.
Loan. The word "Loan" or "Loans" means and includes without limitation any
and all commercial loans and financial accommodations from Lender to
Borrower, whether now or hereafter existing, and however evidenced,
including without limitation those loans and financial accommodations
described herein or described on any exhibit or schedule attached to this
Agreement from time to time.
Note. The word "Note" means and includes without limitation Borrower's
promissory note or notes, if any, evidencing Borrower's Loan obligations in
favor of Lender, as well as any substitute, replacement or refinancing note
or notes therefor.
Permitted Liens. The words "Permitted Liens" mean: (a) liens and security
interests securing Indebtedness owed by Borrower to Lender; (b) liens for
taxes, assessments, or similar charges either not yet due or being
contested in good faith; (c) liens of materialmen, mechanics. warehousemen,
or carriers, or other like liens arising in the ordinary course of business
and securing obligations which are not yet delinquent; (d) purchase money
liens or purchase money security interests upon or in any property acquired
or held by Borrower in the ordinary course of business to secure
indebtedness outstanding on the date of this Agreement or permitted to be
incurred under the paragraph of this Agreement titled "Indebtedness and
Liens"; (e) liens and security interests which, as of the date of this
Agreement, have been disclosed to and approved by the Lender in writing;
and (f) those liens and security interests which in the aggregate
constitute an immaterial and insignificant monetary amount with respect to
the net value of Borrower's assets.
Related Documents. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the Indebtedness.
Security Agreement. The words "Security Agreement" mean and include without
limitation any agreements, promises, covenants, arrangements,
understandings or other agreements, whether created by law, contract, or
otherwise, evidencing, governing, representing, or creating a Security
Interest.
Security Interest. The words "Security Interest" mean and include without
limitation any type of collateral security, whether in the form of a lien,
charge, mortgage, deed of trust, assignment, pledge, chattel mortgage,
chattel trust, factor's lien, equipment trust, conditional sale, trust
receipt, lien or title retention contract, lease or consignment intended as
a security device, or any other security or lien interest whatsoever,
whether created by law, contract, or otherwise.
SARA. The word "SARA" means the Superfund Amendments and Reauthorization
Act of 1986 as now or hereafter amended.
Subordinated Debt. The words "Subordinated Debt" mean Indebtedness and
liabilities of Borrower which have been subordinated by written agreement
to indebtedness owed by Borrower to Lender in form and substance acceptable
to Lender.
Tangible Net Worth. The words "Tangible Net Worth" mean Borrower's total
assets excluding all intangible assets (i.e., goodwill, trademarks,
patents, copyrights, organizational expenses, and similar intangible items,
but including leaseholds and leasehold improvements) less total Debt.
Working Capital. The words "Working Capital" mean Borrower's current
assets, excluding prepaid expenses, less Borrower's current liabilities.
LINE OF CREDIT. Lender agrees to make Advances to Borrower from time to time
from the date of this Agreement to the Expiration Date, provided the aggregate
amount of such Advances outstanding at any time does not exceed the Borrowing
Base. Within the foregoing limits, Borrower may borrow, partially or wholly
prepay, and reborrow under this Agreement as follows.
Conditions Precedent to Each Advance. Lender's obligation to make any
Advance to or for the account of Borrower under this Agreement is subject
to the following conditions precedent, with all documents, instruments,
opinions, reports, and other items required under this Agreement to be in
form and substance satisfactory to Lender:
(a) Lender shall have received evidence that this Agreement and all
Related Documents have been duly authorized, executed, and delivered
by Borrower to Lender.
(b) Lender shall have received such opinions of counsel,
supplemental opinions, and documents as Lender may request.
(c) The security interests in the Collateral shall have been
duly authorized, created, and perfected with first lien
priority and shall be in full force and effect.
(d) All guaranties required by Lender for the Line of Credit
shall have been executed by each Guarantor, delivered to
Lender, and be in full force and effect.
(e) Lender, at its option and for its sole benefit, shall
have conducted an audit of Borrower's Accounts, books,
records, and operations, and Lender shall be satisfied as to
their condition.
(f) Borrower shall have paid to Lender all fees, costs, and
expenses specified in the Agreement and the Related
Documents as are then due and payable.
(g) There shall not exist at the time of any Advance a
condition which would constitute an Event of Default under
this Agreement, and Borrower shall have delivered to Lender
the compliance certificate called for in the paragraph below
titled "Compliance Certificate."
Making Loan Advances. Advances under the Line of Credit may be requested
either orally or in writing by authorized persons. Lender may, but need
not, require that all oral requests be confirmed in writing. Each Advance
shall be conclusively deemed to have been made at the request of and for
the benefit of Borrower (a) when credited to any deposit account of
Borrower maintained with Lender or (b) when advanced in accordance with the
instructions of an authorized person. Lender, at its option, may set a
cutoff time, after which all requests for Advances will be treated as
having been requested on the next succeeding Business Day.
Mandatory Loan Repayments. If at any time the aggregate principal amount of
the outstanding Advances shall exceed the applicable Borrowing Base,
Borrower, immediately upon written or oral notice from Lender, shall pay to
Lender an amount equal to the difference between the outstanding principal
balance of the Advances and the Borrowing Base. On the Expiration Date,
Borrower shall pay to Lender in full the aggregate unpaid principal amount
of all Advances then outstanding and all accrued unpaid interest, together
with all other applicable fees, costs and charges, if any, not yet paid.
Loan Account. Lender shall maintain on its books a record of account in
which Lender shall make entries for each Advance and such other debits and
credits as shall be appropriate in connection with the credit facility.
Lender shall provide Borrower with periodic statements of Borrower's
account, which statements shall be considered to be correct and
conclusively binding on Borrower unless Borrower notifies Lender to the
contrary within thirty (30) days after Borrower's receipt of any such
statement which Borrower deems to be incorrect.
COLLATERAL. To secure payment of the Line of Credit and performance of all other
Loans, obligations and duties owed by Borrower to Lender, Borrower (and others,
if required) shall grant to Lender Security Interests in such property and
assets as Lender may require (the "Collateral"), including without limitation
Borrower's present and future Accounts and general intangibles. Lender's
Security Interests in the Collateral shall be continuing liens and shall include
the proceeds and products of the Collateral, including without limitation the
proceeds of any insurance. With respect to the Collateral, Borrower agrees and
represents and warrants to Lender:
Perfection of Security Interests. Borrower agrees to execute such financing
statements and to take whatever other actions are requested by Lender to
perfect and continue Lender's Security Interests in the Collateral. Upon
request of Lender, Borrower will deliver to Lender any and all of the
documents evidencing or constituting the Collateral, and Borrower will note
Lender's interest upon any and all chattel paper if not delivered to Lender
for possession by Lender. Contemporaneous with the execution of this
Agreement, Borrower will execute one or more UCC financing statements and
any similar statements as may be required by applicable law, and will file
such financing statements and all such similar statements in the
appropriate location or locations. Borrower hereby appoints Lender as its
irrevocable attorney-in-fact for the purpose of executing any documents
necessary to perfect or to continue any Security Interest. Lender may at
any time, and without further authorization from Borrower, file a carbon,
photograph, facsimile, or other reproduction of any financing statement for
use as a financing statement. Borrower will reimburse Lender for all
expenses for the perfection, termination, and the continuation of the
perfection of Lender's security interest in the Collateral. Borrower
promptly will notify Lender of any change in Borrower's name including any
change to the assumed business names of Borrower. Borrower also promptly
will notify Lender of any change in Borrower's Social Security Number or
Employer Identification Number. Borrower further agrees to notify Lender in
writing prior to any change in address or location of Borrower's principal
governance office or should Borrower merge or consolidate with any other
entity.
Collateral Records. Borrower does now, and at all times hereafter shall,
keep correct and accurate records of the Collateral, all of which records
shall be available to Lender or Lender's representative upon demand for
inspection and copying at any reasonable time. With respect to the
Accounts, Borrower agrees to keep and maintain such records as Lender may
require, including without limitation information concerning Eligible
Accounts and Account balances and agings.
Collateral Schedules. Concurrently with the execution and delivery of this
Agreement, Borrower shall execute and deliver to Lender a schedule of
Accounts and Eligible Accounts, in form and substance satisfactory to the
Lender. Thereafter Borrower shall execute and deliver to Lender such
supplemental schedules of Eligible Accounts and such other matters and
information relating to Borrower's Accounts as Lender may request.
<PAGE>
11-04-1997 LOAN AGREEMENT Page 3
Loan No 397-83 (Continued)
Supplemental schedules shall be delivered according to the following
schedule: Borrower agrees to submit to Lender Accounts Receivable aging
within ten (10) days after the end of each month. The format of aging will
by sixty (60) days from Invoice date. Borrower agrees to submit to one
collateral audit per year, performed by Lender's staff or Lender approved
external examiners. Direct verifications will be required. Borrower
agrees to pay all Lender's expenses incurred in connection with the
collateral audit, In addition, Borrower shall submit a Borrower's
Certificate to Lender at each month-end, in a form satisfactory to Lender,
within fifteen (15) days of month-end.
Representations and Warranties Concerning Accounts. With respect to the
Accounts, Borrower represents and warrants to Lender: (a) Each Account
represented by Borrower to be an Eligible Account for purposes of this
Agreement conforms to the requirements of the definition of an Eligible
Account; (b) All Account information listed on schedules delivered to
Lender will be true and correct, subject to immaterial variance; and (c)
Lender, its assigns, or agents shall have the right at any time and at
Borrower's expense to inspect, examine, and audit Borrower's records and to
confirm with Account Debtors the accuracy of such Accounts.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as
of the date of this Agreement, as of the date of each disbursement of Loan
proceeds, as of the date of any renewal, extension or modification of any Loan,
and at all times any indebtedness exists:
Organization. Borrower is a corporation which is duly organized, validly
existing, and in good standing under the laws of the State of Washington
and is validly existing and in good standing in all states in which
Borrower is doing business. Borrower has the full power and authority to
own its properties and to transact the businesses in which it is presently
engaged or presently proposes to engage. Borrower also is duly qualified as
a foreign corporation and is in good standing in all states in which the
failure to so qualify would have a material adverse effect on its
businesses or financial condition.
Authorization. The execution, delivery, and performance of this Agreement
and all Related Documents by Borrower, to the extent to be executed,
delivered or performed by Borrower, have been duly authorized by all
necessary action by Borrower; do not require the consent or approval of any
other person, regulatory authority or governmental body; and do not
conflict with, result in a violation of, or constitute a default under (a)
any provision of its articles of incorporation or organization, or bylaws,
or any agreement or other instrument binding upon Borrower or (b) any law,
governmental regulation, court decree, or order applicable to Borrower.
Financial Information. Each financial statement of Borrower supplied to
Lender truly and completely disclosed Borrower's financial condition as of
the date of the statement, and there has been no material adverse change in
Borrower's financial condition subsequent to the date of the most recent
financial statement supplied to Lender. Borrower has no material contingent
obligations except as disclosed in such financial statements.
Legal Effect. This Agreement constitutes, and any instrument or agreement
required hereunder to be given by Borrower when delivered will constitute,
legal, valid and binding obligations of Borrower enforceable against
Borrower in accordance with their respective terms.
Properties. Except for Permitted Liens, Borrower owns and has good title to
all of Borrower's properties free and clear of all Security Interests, and
has not executed any security documents or financing statements relating to
such properties. All of Borrower's properties are titled in Borrower's
legal name, and Borrower has not used, or filed a financing statement
under, any other name for at least the last five (5) years.
Hazardous Substances. The terms "hazardous waste," " hazardous substance,"
"disposal," "release," and "threatened release," as used in this Agreement,
shall have the same meanings as set forth in the "CERCLA," "SARA," the
Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq.,
the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et
seq., or other applicable state or Federal laws, rules, or regulations
adopted pursuant to any of the foregoing. Except as disclosed to and
acknowledged by Lender in writing, Borrower represents and warrants that:
(a) During the period of Borrower's ownership of the properties, there has
been no use, generation, manufacture, storage, treatment, disposal, release
or threatened release of any hazardous waste or substance by any person on,
under, about or from any of the properties. (b) Borrower has no knowledge
of, or reason to believe that there has been (i) any use, generation,
manufacture, storage, treatment, disposal, release, or threatened release
of any hazardous waste or substance on, under, about or from the properties
by any prior owners or occupants of any of the properties, or (ii) any
actual or threatened litigation or claims of any kind by any person
relating to such matters. (c) Neither Borrower nor any tenant, contractor,
agent or other authorized user of any of the properties shall use,
generate, manufacture, store, treat, dispose of, or release any hazardous
waste or substance on, under, about or from any of the properties; and any
such activity shall be conducted in compliance with all applicable federal,
state, and local laws, regulations, and ordinances, including without
limitation those laws, regulations and ordinances described above. Borrower
authorizes Lender and its agents to enter upon the properties to make such
inspections and tests as Lender may deem appropriate to determine
compliance of the properties with this section of the Agreement. Any
inspections or tests made by Lender shall be at Borrower's expense and for
Lender's purposes only and shal not be construed to create any
responsibility or liability on the part of Lender to Borrower or to any
other person. The representations and warranties contained herein are based
on Borrower's due diligence in investigating the properties for hazardous
waste and hazardous substances. Borrower hereby (a) releases and waives
any future claims against Lender for indemnity or contribution in the event
Borrower becomes liable for cleanup or other costs under any such laws, and
(b) agrees to indemnify and hold harmless Lender against any and all
claims, losses, liabilities, damages, penalties, and expenses which Lender
may directly or indirectly sustain or suffer resulting from a breach of
this section of the Agreement or as a consequence of any use, generation,
manufacture, storage, disposal, release or threatened release occurring
prior to Borrower's ownership or interest in the properties, whether or not
the same was or should have been known to Borrower. The provisions of this
section of the Agreement, including the obligation to indemnify, shall
survive the payment of the indebtedness and the termination or expiration
of this Agreement and shall not be affected by Lender's acquisition of any
interest in any of the properties, whether by foreclosure or otherwise.
Litigation and Claims. No material litigation, claim, investigation,
administrative proceeding or similar action (including those for unpaid
taxes) against Borrower is pending or threatened, and no other event has
occurred which may materially adversely affect Borrower's financial
condition or properties, other than litigation, claims, or other events, if
any, that have been disclosed to and acknowledged by Lender in writing.
Taxes. To the best of Borrower's knowledge, all tax returns and reports of
Borrower that are or were required to be filed, have been filed, and all
taxes, assessments and other governmental charges have been paid in full,
except those presently being or to be contested by Borrower in good faith
in the ordinary course of business and for which adequate reserves have
been provided.
Lien Priority. Unless otherwise previously disclosed to Lender in writing,
Borrower has not entered into or granted any Security Agreements, or
permitted the filing or attachment of any Security Interests on or
affecting any of the Collateral directly or indirectly securing repayment
of Borrower's Loan and Note, that would be prior or that may in any way be
superior to Lender's Security Interests and rights in and to such
Collateral.
Binding Effect. This Agreement, the Note, all Security Agreements directly
or indirectly securing repayment of Borrower's Loan and Note and all of the
Related Documents are binding upon Borrower as well as upon Borrower's
successors, representatives and assigns, and are legally enforceable in
accordance with their respective terms.
Commercial Purposes. Borrower intends to use the Loan proceeds solely for
business or commercial related purposes.
Employee Benefit Plans. Each employee benefit plan as to which Borrower
may have any liability complies in all material respects with all
applicable requirements of law and regulations, and (i) no Reportable Event
nor Prohibited Transaction (as defined in ERISA) has occurred with respect
to any such plan, (ii) Borrower has not withdrawn from any such plan or
initiated steps to do so, (iii) no steps have been taken to terminate any
such plan, and (iv) there are no unfounded liabilities other than those
previously disclosed to Lender in writing.
Location of Borrower's Offices and Records. Borrower's place of business,
or Borrower's Chief executive office, if Borrower has more than one place
of business, is located at 1016 SOUTH 28TH STREET, TACOMA, WA 98409. Unless
Borrower has designated otherwise in writing this location is also the
office or offices where Borrower keeps its records concerning the
Collateral.
Information. All Information heretofore or contemporaneously herewith
furnished by Borrower to Lender for the purposes of or in connection with
this Agreement or any transaction contemplated hereby is, and all
information hereafter furnished by or on behalf of Borrower to Lender will
be, true and accurate in every material respect on the date as of which
such information is dated or certified; and none of such information is or
will be incomplete by omitting to state any material fact necessary to make
such information not misleading.
Survival of Representations and Warranties. Borrower understands and agrees
that Lender, without independent investigation, is relying upon the above
representations and warranties in extending Loan Advances to Borrower.
Borrower further agrees that the foregoing representations and warranties
shall be continuing in nature and shall remain in full force and effect
until such time as Borrower's Indebtedness shall be paid in full, or until
this Agreement shall be terminated in the manner provided above, whichever
is the last to occur.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while
this Agreement is in effect, Borrower will:
Litigation. Promptly inform Lender in writing of (a) all material adverse
changes in Borrower's financial condition, and (b) all existing and all
threatened litigation, claims, investigations, administrative proceedings
or similar actions affecting Borrower or any Guarantor which could
materially affect the financial condition of Borrower or the financial
condition of any Guarantor.
Financial Records. Maintain its books and records in accordance with
generally accepted accounting principles, applied on a consistent basis,
and permit Lender to examine and audit Borrower's books and records at all
reasonable times.
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11-04-1997 LOAN AGREEMENT Page 4
Loan No 397-83 (Continued)
Financial Statements. Furnish Lender with, as soon as available, but in no
event later than one hundred twenty (120) days after the end of each fiscal
year, Borrower's balance sheet and income statement for the year ended,
audited by a certified public accountant satisfactory to Lender, and, as
soon as available, but in no event later than forty five (45) days after
the end of each fiscal quarter, Borrower's balance sheet and profit and
loss statement for the period ended, prepared and certified as correct to
the best knowledge and belief by Borrower's chief financial officer or
other officer or person acceptable to Lender. All financial reports
required to be provided under this Agreement shall be prepared in
accordance with generally accepted accounting principles, applied on a
consistent basis, and certified by Borrower as being true and correct.
Additional Information. Furnish such additional information and statements,
lists of assets and liabilities, agings of receivables and payables,
inventory schedules, budgets, forecasts, tax returns, and other reports
with respect to Borrower's financial condition and business operations as
Lender may request from time to time.
Financial Covenants and Ratios. Comply with the following covenants and
ratios:
Tangible Net Worth. Maintain a minimum Tangible Net Worth of not less
than $40,000,000,00.
Working Capital. Maintain Working Capital in excess of
$20,000,000,00.
The following provisions shall apply for purposes of determining compliance
with the foregoing financial covenants and ratios: Borrower's minimum
Tangible Net Worth covenant will increase by 50.000% of the Net profit
after taxes for the prior 12/31 Fiscal year-end, to be effective 3/31 of
each year. Borrower agrees and understands that all covenants and ratios in
this Loan Agreement will be tested quarterly for compliance. Except as
provided above, all computations made to determine compliance with the
requirements contained in this paragraph shall be made in accordance with
generally accepted accounting principles, applied on a consistent basis,
and certified by Borrower as being true and correct.
Insurance. Maintain fire and other risk insurance, public liability
insurance, and such other insurance as Lender may require with respect to
Borrower's properties and operations, in form, amounts, coverages and with
insurance companies reasonably acceptable to Lender. Borrower, upon request
of Lender, will deliver to Lender from time to time the policies or
certificates of insurance in form satisfactory to Lender, including
stipulations that coverages will not be cancelled or diminished without at
least ten (10) days' prior written notice to Lender. Each Insurance policy
also shall include an endorsement providing that coverage in favor of
Lender will not be impaired in any way by any act, omission or default of
Borrower or any other person. In connection with all policies covering
assets in which Lender holds or is offered a security interest for the
Loans, Borrower will provide Lender with such loss payable or other
endorsements as Lender may require.
Insurance Reports. Furnish to Lender, upon request of Lender, reports on
each existing insurance policy showing such information as Lender may
reasonably request, including without limitation the following: (a) the
name of the insurer; (b) the risks insured; (c) the amount of the policy;
(d) the properties insured; (e) the then current property values on the
basis of which insurance has been obtained, and the manner of determining
those values; and (f) the expiration date of the policy. In addition, upon
request of Lender (however not more often than annually), Borrower will
have an independent appraiser satisfactory to Lender determine, as
applicable, the actual cash value or replacement cost of any Collateral.
The cost of such appraisal shall be paid by Borrower.
Other Agreements. Comply with all terms and conditions of all other
agreements, whether now or hereafter existing, between Borrower and any
other party and notify Lender immediately in writing of any default in
connection with any other such agreements.
Loan Proceeds. Use all Loan proceeds solely for Borrower's business
operations, unless specifically consented to the contrary by Lender in
writing.
Taxes, Charges and Liens. Pay and discharge when due all of its
indebtedness and obligations, including without limitation all assessments,
taxes, governmental charges, levies and liens, of every kind and nature,
imposed upon Borrower or its properties, income, or profits, prior to the
date on which penalties would attach, and all lawful claims that, if
unpaid, might become a lien or charge upon any of Borrower's properties,
income, or profits. Provided however, Borrower will not be required to pay
and discharge any such assessment, tax, charge, levy, lien or claim so long
as (a) the legality of the same shall be contested in good faith by
appropriate proceedings, and (b) Borrower shall have established on its
books adequate reserves with respect to such contested assessment, tax,
charge, levy, lien, or claim in accordance with generally accepted
accounting practices. Borrower, upon demand of Lender, will furnish to
Lender evidence of payment of the assessments, taxes, charges, levies,
liens and claims and will authorize the appropriate governmental official
to deliver to Lender at any time a written statement of any assessments,
taxes, charges, levies, liens and claims against Borrower's properties,
income, or profits.
Performance. Perform and comply with all terms, conditions, and provisions
set forth in this Agreement and in the Related Documents in a timely
manner, and promptly notify Lender if Borrower learns of the occurrence of
any event which constitutes an Event of Default under this Agreement or
under any of the Related Documents.
Operations. Maintain executive personnel with substantially the same
qualifications and experience as the present executive and management
personnel; provide written notice to Lender of any change in executive and
management personnel; conduct its business affairs in a reasonable and
prudent manner and in compliance with all applicable federal, state and
municipal laws, ordinances, rules and regulations respecting its
properties, charters, businesses and operations, including without
limitation, compliance with the Americans With Disabilities Act and with
all minimum funding standards and other requirements of ERISA and other
laws applicable to Borrower's employee benefit plans.
Inspection. Permit employees or agents of Lender at any reasonable time to
inspect any and all Collateral for the Loan or Loans and Borrower's other
properties and to examine or audit Borrower's books, accounts, and records
and to make copies and memoranda of Borrower's books, accounts, and
records. If Borrower now or at any time hereafter maintains any records
(including without limitation computer generated records and computer
software programs for the generation of such records) in the possession of
a third party, Borrower, upon request of Lender, shall notify such party to
permit Lender free access to such records at all reasonable times and to
provide Lender with copies of any records it may request, all at Borrower's
expense.
Compliance Certificate. Unless waived in writing by Lender, provide Lender
quarterly and at the time of each disbursement of Loan proceeds with a
certificate executed by Borrower's chief financial officer, or other
officer or person acceptable to Lender, certifying that the representations
and warranties set forth in this Agreement are true and correct as of the
date of the certificate and further certifying that, as of the date of the
certificate, no Event of Default exists under this Agreement.
Environmental Compliance and Reports. Borrower shall comply in all respects
with all environmental protection federal, state and local laws, statutes,
regulations and ordinances; not cause or permit to exist, as a result of an
intentional or unintentional action or omission on its part or on the part
of any third party, on property owned and/or occupied by Borrower, any
environmental activity where damage may result to the environment, unless
such environmental activity is pursuant to and in compliance with the
conditions of a permit issued by the appropriate federal, state or local
governmental authorities; shall furnish to Lender promptly and in any event
within thirty (30) days after receipt thereof a copy of any notice,
summons, lien, citation, directive, letter or other communication from any
governmental agency or instrumentality concerning any intentional or
unintentional action or omission on Borrower's part in connection with any
environmental activity whether or not there is damage to the environment
and/or other natural resources.
Additional Assurances. Make, execute and deliver to Lender such promissory
notes, mortgages, deeds of trust, security agreements, financing
statements, instruments, documents and other agreements as Lender or its
attorneys may reasonably request to evidence and secure the Loans and to
perfect all Security Interests.
RECOVERY OF ADDITONAL COSTS. If the imposition of or any change in any law,
rule, regulation or guideline, or the interpretation or application of any
thereof by any court or administrative or governmental authority (including any
request or policy not having the force of law) shall impose, modify or make
applicable any taxes (except U.S. federal, state or local income or franchise
taxes imposed on Lender), reserve requirements, capital adequacy requirements or
other obligations which would (a) increase the cost to Lender for extending or
maintaining the credit facilities to which this Agreement relates, (b) reduce
the amounts payable to Lender under this Agreement or the Related Documents, or
(c) reduce the rate of return on Lender's capital as a consequence of Lender's
obligations with respect to the credit facilities to which this Agreement
relates, then Borrower agrees to pay Lender such additional amounts as will
compensate Lender therefor, within five (5) days after Lender's written demand
for such payment, which demand shall be accompanied by an explanation of such
imposition or charge and a calculation in reasonable detail of the additional
amounts payable by Borrower, which explanation and calculations shall be
conclusive in the absence of manifest error.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent of
Lender:
Indebtedness and Liens. (a) Except for trade debt incurred in the normal
course of business and indebtedness to Lender contemplated by this
Agreement, create, incur or assume indebtedness for borrowed money,
including capital leases, (b) except as allowed as a Permitted Lien, sell,
transfer, mortgage, assign, pledge, lease, grant a security interest in, or
encumber any of Borrower's assets, or (c) sell with recourse any of
Borrower's accounts, except to Lender.
Continuity of Operations. (a) Engage in any business activities
substantially different than those in which Borrower is presently engaged,
(b) cease operations, liquidate, merge, transfer, acquire or consolidate
with any other entity, change ownership, change its name, dissolve or
transfer or sell Collateral out of the ordinary course of business, (c) pay
any dividends on Borrower's common stock (other than dividends payable in
its stock).
<PAGE>
11-04-1997 LOAN AGREEMENT Page 5
Loan No 397-83 (Continued)
provided, however that notwithstanding the foregoing, but only so long as
no Event of Default has occurred and is continuing or would result from the
payment of dividends, if Borrower is a "Subchapter S Corporation" (as
defined in the Internal Revenue Code of 1986, as amended), Borrower may pay
cash dividends on its stock to its shareholders from time to time in
amounts necessary to enable the shareholders to pay income taxes and make
estimated income tax payments to satisfy their liabilities under federal
and state law which arise solely from their status as Shareholders of a
Subchapter S Corporation because of their ownership of shares of stock of
Borrower, or (d) purchase or retire any of Borrower's outstanding shares or
alter or amend Borrower's capital structure.
Loans, Acquisitions and Guaranties. (a) Loan, invest in or advance money or
assets, (b) purchase, create or acquire any interest in any other
enterprise or entity, or (c) incur any obligation as surety or guarantor
other than in the ordinary course of business.
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to
Borrower, whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan Advances or to disburse Loan proceeds if:
(a) Borrower or any Guarantor is in default under the terms of this Agreement or
any of the Related Documents or any other agreement that Borrower or any
Guarantor has with Lender; (b) Borrower or any Guarantor becomes insolvent,
files a petition in bankruptcy or similar proceedings, or is adjudged a
bankrupt; (c) there occurs a material adverse change in Borrower's financial
condition, in the financial condition of any Guarantor, or in the value of any
Collateral securing any Loan; (d) any Guarantor seeks, claims or otherwise
attempts to limit, modify or revoke such Guarantor's guaranty of the Loan or any
other loan with Lender; or (e) Lender in good faith deems itself insecure, even
though no Event of Default shall have occurred.
ACCESS LAWS. Without limiting the generality of any provision of this agreement
requiring Borrower to comply with applicable laws, rules, and regulations,
Borrower agrees that it will at all times comply with applicable laws relating
to disabled access including, but not limited to, all applicable titles of the
Americans with Disabilities Act of 1990.
STATUTE OF FRAUDS DISCLOSURE. ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY,
EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT
ENFORCEABLE UNDER WASHINGTON LAW.
TOTAL LIABILITIES TO TANGIBLE NET WORTH. Borrower agrees to maintain a Total
Liabilities to Tangible Net Worth ratio of no more than 1.50 to 1.00.
INTEREST COVERAGE. Borrower agrees to maintain an interest coverage at not less
than the following level: 2.50 to 1.00, defined as: (net profit after taxes plus
Non-cash charges plus interest expense) divided by (interest expense), measured
on a trailing four quarter basis.
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA and Keogh accounts,
and all trust accounts for which the grant of a security interest would be
prohibited by law. Borrower authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all sums owing on the indebtedness against
any and all such accounts.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
Default on Indebtedness. Failure of Borrower to make any payment when due
on the Loans.
Other Defaults. Failure of Borrower or any Grantor to comply with or to
perform when due any other term, obligation, covenant or condition
contained in this Agreement or in any of the Related Documents, or failure
of Borrower to comply with or to perform any other term, obligation,
covenant or condition contained in any other agreement between Lender and
Borrower.
Default in Favor of Third Parties. Should Borrower or any Grantor default
under any loan, extension of credit, security agreement, purchase or sales
agreement, or any other agreement, in favor of any other creditor or person
that may materially affect any of Borrower's property or Borrower's or any
Grantor's ability to repay the Loans or perform their respective
obligations under this Agreement or any of the Related Documents.
False Statements. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Borrower or any Grantor under this
Agreement or the Related Documents is false or misleading in any material
respect at the time made or furnished, or becomes false or misleading at
any time thereafter.
Defective Collaterization. This Agreement or any of the Related Documents
ceases to be in full force and effect (including failure of any Security
Agreement to create a valid and perfected Security Interest) at any time
and for any reason.
Insolvency. The dissolution or termination of Borrower's existence as a
going business, the insolvency of Borrower, the appointment of a receiver
for any part of Borrower's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Borrower.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Borrower, any creditor
of any Grantor against any collateral securing the indebtedness, or by any
governmental agency. This includes a garnishment, attachment, or levy on or
of any of Borrower's deposit accounts with Lender.
Events Affecting Guarantor. Any of the preceding events occurs with
respect to any Guarantor of any of the indebtedness or any Guarantor
dies or becomes incompetent, or revokes or disputes the validity of,
or liability under, any Guaranty of the indebtedness.
Change in Ownership. Any change in ownership of twenty-five percent (25%)
or more of the common stock of Borrower.
Adverse Change. A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of the
indebtedness is impaired.
Insecurity. Lender, in good faith, deems itself insecure.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where
otherwise provided in this Agreement or the Related Documents, all commitments
and obligations of Lender under this Agreement or the Related Documents or any
other agreement immediately will terminate (including any obligation to make
Loan Advances or disbursements), and, at Lender's option, all indebtedness
immediately will become due and payable, all without notice of any kind to
Borrower, except that in the case of an Event of Default of the type described
in the "Insolvency" subsection above, such acceleration shall be automatic and
not optional. In addition, Lender shall have all the rights and remedies
provided in the Related Documents or available at law, in equity, or otherwise.
Except as may be prohibited by applicable law, all of Lender's rights and
remedies shall be cumulative and may be exercised singularly or concurrently.
Election by Lender to pursue any remedy shall not exclude pursuit of any other
remedy, and an election to make expenditures or to take action to perform an
obligation of Borrower or of any Grantor shall not affect Lender's right to
declare a default and to exercise its rights and remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
Amendments. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to the
matters set forth in this Agreement. No alteration of or amendment to this
Agreement shall be effective unless given in writing and signed by the
party or parties sought to be charged or bound by the alteration or
amendment.
Applicable Law. This Agreement has been delivered to Lender and accepted by
Lender in the State of Washington. If there is a lawsuit, Borrower agrees
upon Lender's request to submit to the jurisdiction of the courts of King
County, the State of Washington. Subject to the provisions on arbitration,
this Agreement shall be governed by and construed in accordance with the
laws of the State of Washington.
Arbitration. Lender and Borrower agree that all disputes, claims and
controversies between them, whether individual, joint, or class in nature,
arising from this Agreement or otherwise, including without limitation
contract and tort disputes, shall be arbitrated pursuant to the Rules of
the American Arbitration Association, upon request of either party. No act
to take or dispose of any Collateral shall constitute a waiver of this
arbitration agreement or be prohibited by this arbitration agreement. This
includes, without limitation, obtaining injunctive relief or a temporary
restraining order; invoking a power of sale under any deed of trust or
mortgage; obtaining a writ of attachment or imposition of a receiver; or
exercising any rights relating to personal property, including taking or
disposing of such property with or without judicial process pursuant to
Article 9 of the Uniform Commercial Code. Any disputes, claims, or
controversies concerning the lawfulness or reasonableness of any act, or
exercise of any right, concerning any Collateral, including any claim to
rescind, reform, or otherwise modify any agreement relating to the
Collateral, shall be arbitrated, provided however that no arbitrator shall
have the right or the power to enjoin or restrain any act of any party.
Judgment upon any award rendered by any arbitrator may be entered in any
court having jurisdiction. Nothing in this Agreement shall preclude any
party from seeking equitable relief from a court of competent jurisdiction.
The statute of limitations, estoppel, waiver, laches, and similar doctrines
which would otherwise be applicable in an action brought by a party shall
be applicable in any arbitration proceeding, and the commencement of an
arbitration proceeding shall be deemed the commencement of an action for
these purposes. The Federal Arbitration Act shall apply to the
construction, interpretation, and enforcement of this arbitration
provision.
Caption Headings. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Agreement.
Multiple Parties; Corporate Authority. All obligations of Borrower
under this Agreement shall be joint and several, and all references to
Borrower shall mean each and every Borrower.
<PAGE>
11-04-1997 LOAN AGREEMENT Page 6
Loan No 397-83 (Continued)
Consent to Loan Participation. Borrower agrees and consents to Lender's
sale or transfer, whether now or later, of one or more participation
interests in the Loans to one or more purchasers, whether related or
unrelated to Lender. Lender may provide, without any limitation whatsoever,
to any one or more purchasers, or potential purchasers, any information or
knowledge Lender may have about Borrower or about any other matter relating
to the Loan, and Borrower hereby waives any rights to privacy it may have
with respect to such matters. Borrower additionally waives any and all
notices of sale of participation interests, as well as all notices of any
repurchase of such participation interests. Borrower also agrees that the
purchasers of any such participation interests will be considered as the
absolute owners of such interests in the Loans and will have all the rights
granted under the participation agreement or agreements governing the sale
of such participation interests. Borrower further waives all rights of
offset or counterclaim that it may have now or later against Lender or
against any purchaser of such a participation interest and unconditionally
agrees that either Lender or such purchaser may enforce Borrower's
obligation under the Loans irrespective of the failure or insolvency of any
holder of any interest in the Loans. Borrower further agrees that the
purchaser of any such participation interests may enforce its interests
irrespective of any personal claims or defenses that Borrower may have
against Lender.
Costs and Expenses. Borrower agrees to pay upon demand all of Lender's
expenses, including without limitation attorneys' fees, incurred in
connection with the preparation, execution, enforcement, modification and
collection of this Agreement or in connection with the Loans made pursuant
to this Agreement. Lender may pay someone else to help collect the Loans
and to enforce this Agreement, and Borrower will pay that amount. This
includes, subject to any limits under applicable law, Lender's attorneys'
fees and Lender's legal expenses, whether or not there is a lawsuit,
including attorneys' fees for bankruptcy proceedings (including efforts to
modify or vacate any automatic stay or injunction), appeals, and any
anticipated post-judgment collection services. Borrower also will pay any
court costs, in addition to all other sums provided by law.
Notices. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimile (unless otherwise required
by law), and shall be effective when actually delivered or when deposited
with a nationally recognized overnight courier or deposited in the United
States mail, first class, postage prepaid, addressed to the party to whom
the notice is to be given at the address shown above. Any party may change
its address for notices under this Agreement by giving formal written
notice to the other parties, specifying that the purpose of the notice is
to change the party's address. To the extent permitted by applicable law,
if there is more than one Borrower, notice to any Borrower will constitute
notice to all Borrowers. For notice purposes, Borrower will keep Lender
informed at all time of Borrower's current address(es).
Severability. If a court of competent jurisdiction finds any provision of
this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any
such offending provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, if the offending provision
cannot be so modified, it shall be stricken and all other provisions of
this Agreement in all other respects shall remain valid and enforceable.
Subsidiaries and Affiliates of Borrower. To the extent the context of any
provisions of this Agreement makes it appropriate, including without
limitation any representation, warranty or covenant, the word "Borrower" as
used herein shall include all subsidiaries and affiliates of Borrower.
Notwithstanding the foregoing however, under no circumstances shall this
Agreement be construed to require Lender to make any Loan or other
financial accommodation to any subsidiaries or affiliate of Borrower.
Successors and Assigns. All covenants and agreements contained by or on
behalf of Borrower shall bind its successors and assigns and shall inure to
the benefit of Lender, its successors and assigns. Borrower shall not,
however, have the right to assign its rights under this Agreement or any
interest therein, without the prior written consent of Lender.
Survival. All warranties, representations, and covenants made by Borrower
in this Agreement or in any certificate or other instrument delivered by
Borrower to Lender under this Agreement shall be considered to have been
relied upon by Lender and will survive the making of the Loan and delivery
to Lender of the Related Documents, regardless of any investigation made by
Lender or on Lender's behalf.
Waiver. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender of
a provision of this Agreement shall not prejudice or constitute a waiver of
Lender's right otherwise to demand strict compliance with that provision or
any other provision of this Agreement. No prior waiver by Lender, nor any
course of dealing between Lender and Borrower, or between Lender and any
Grantor, shall constitute a waiver of any of Lender's rights or of any
obligations of Borrower or of any Grantor as to any future transactions.
Whenever the consent of Lender is required under this Agreement, the
granting of such consent by Lender in any instance shall not constitute
continuing consent in subsequent instances where such consent is required,
and in all cases such consent may be granted or withheld in the sole
discretion of Lender.
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS LOAN AGREEMENT, AND
BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF NOVEMBER 4, 1997.
BORROWER:
LABOR READY, INC.
By /s/ Joseph P. Sambataro, Jr.
------------------------------------
Title: Executive Vice President and CFO
---------------------------------
LENDER:
U.S. BANK NATIONAL ASSOCIATION
By: /s/ Bruce Marley
-----------------------------------
Authorized Officer
<PAGE>
ADDENDUM TO LOAN AGREEMENT
This Addendum to Loan Agreement supplements the Loan Agreement dated as of
November 4, 1997, by and between LABOR READY, INC., as Borrower, and U.S. BANK
NATIONAL ASSOCIATION, as Lender, to add the following provisions:
1. ACCOMMODATIONS.
(a) Lender may, in its sole discretion, issue or cause to be issued,
from time to time, at Borrower's request and on terms and conditions and
for purposes satisfactory to Lender, credit accommodations consisting of
letters of credit, merchandise purchase guaranties or other guaranties or
indemnities for Borrower's account ("Accommodations"). Borrower shall
execute and perform additional agreements relating to the Accommodations in
form and substance acceptable to Lender and the issuer of any
Accommodations, all of which shall supplement the rights and remedies
granted herein. Any payments made by Lender or any affiliate of Lender in
connection with the Accommodations shall constitute additional Advances to
Borrower.
(b) In addition to the fees and costs of any issuer in connection with
issuing or administering Accommodations, Borrower shall pay to the Lender,
in advance, a charge on open Accommodations at the rate of .75% per annum
(the "Accommodation Charges"). Accommodation Charges shall be due and
payable on the date of issuance of any Accommodation and on the first day
of each calendar quarter thereafter.
(c) No Accommodation will be issued if the Accommodation as requested,
plus fees and costs for issuance, would cause the outstanding Indebtedness
to exceed the Borrowing Base, or cause the open amount of Accommodations to
exceed, at any time, the Accommodation sublimit of $10,000,000.00.
(d) All indebtedness, liabilities and obligations of any sort
whatsoever, however arising, whether present or future, fixed or
contingent, secured or unsecured, due or to become due, paid or
incurred, arising or incurred in connection with any Accommodation
shall be included in the term "Indebtedness," as defined herein, and
shall include, without
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<PAGE>
limitation, (i) all amounts due or which may become due under any
Accommodation; (ii) all amounts charged or chargeable to Borrower or to
Lender by any bank, other financial institution or correspondent bank which
opens, issues or is involved with such Accommodations; (iii) Lender's
Accommodation Charges and all fees, costs and other charges of any issuer
of any Accommodation; and (iv) all duties, freight, taxes, costs, insurance
and all such other charges and expenses which may pertain directly or
indirectly to any Indebtedness or Accommodations are to the goods or
documents relating thereto.
(e) Borrower unconditionally agrees to indemnify and hold Lender
harmless from any and all loss, claim or liability (including reasonable
attorneys' fees) arising from any transactions or occurrences relating to
any Accommodations established or opened for Borrower's account, the
Collateral relating thereto and any drafts or acceptances thereunder,
including any such loss or claim due to any action taken by an issuer of
any Accommodation. Borrower further agrees to indemnify and hold Lender
harmless for any errors or omissions in connection with the Accommodations,
whether caused by Lender, by the issuer of any Accommodation or otherwise.
Borrower's unconditional obligation to indemnify and hold Lender harmless
under this provision shall not be modified or diminished for any reason or
in any manner whatsoever, except for Lender's willful misconduct. Borrower
agrees that any charges made to Lender by any issuer of any Accommodation
shall be conclusive on borrower and may be charged to Borrower's account.
(f) Lender shall not be responsible for: the conformity of any goods
to the documents presented; the validity or genuineness of any documents;
delay, default, or fraud by the Borrower or shipper and/or anyone else in
connection with the Accommodations or any underlying transaction.
(g) Borrower agrees that with respect to any action taken by Lender,
if taken in good faith, or any action taken by an issuer of any
Accommodation, under or in connection with any Lender in furtherance
thereof, Lender shall have the full right and authority to clear and
resolve any questions of noncompliance of documents; to give any
instructions as to acceptance or rejection of any documents or goods; to
execute for Borrower's account any and all applications for
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<PAGE>
steamship or airway guarantees, indemnities or delivery orders; to grant
any extensions of the maturity of time of payment for, or time of
presentation of, any drafts, acceptances or documents; and to agree to any
amendments, renewals, extensions, modifications, changes or cancellations
of any of the terms or conditions of any of the applications or
Accommodations. All of the foregoing actions may be taken in Lender's sole
name, and the issuer thereof shall be entitled to comply with and honor any
and all such documents or instruments executed by or received solely from
Lender, all without any notice to or any consent from Borrower. None of the
foregoing actions described in this subsection (9) may be taken by Borrower
without Lender's express written consent.
2. RESERVES. Lender shall have a continuing right to deduct reserves in
determining the Borrowing Base ("Reserves") and to increase and decrease
such Reserves from time to time, if and to the extent that, in Lender's
reasonable credit judgment, such Reserves are necessary to protect Lender
against any state of facts which does, or would, with notice or passage of
time or both, constitute an Event of Default or have an adverse effect on
any Collateral. Lender may, at its option, implement Reserves by
designating as ineligible a sufficient amount of Accounts which would
otherwise be Eligible Accounts so as to reduce the Borrowing Base by the
amount of the intended Reserve.
3. ACQUISITIONS SUB-LIMIT. Notwithstanding anything to the contrary in the
Agreement, Borrower may use up to $7,500,000.00 of Advances to acquire
other enterprises or companies engaged in the same type of business as the
Borrower without first obtaining Lender's prior approval.
4. UNUSED LINE FEE. Borrower shall pay Lender quarterly, on the first day
of each quarter, in arrears, an Unused Line Fee of .125% for each quarter,
calculated upon the amount, if any, by which the $30,000,000.00 exceeds the
average daily balance outstanding on the Indebtedness during the preceding
quarter.
5. SEC FILINGS. Borrower covenants and agrees to furnish the Lender with,
as soon as available but in no event later than one hundred twenty (120)
days after the end of each fiscal year, a copy of Borrower's 10K report as
filed with the
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<PAGE>
Securities and Exchange Commission and, as soon as possible but in no event
later than forty-five (45) days after the end of each fiscal quarter, a
copy of Borrower's 10Q report as filed with the Security and Exchange
Commission.
6. ARBITRATION PROCEDURE AND VENUE. If either party makes a demand for
arbitration as provided herein and each party's claim is less than
$100,000, one neutral arbitrator will decide all issues. If a party's claim
is $100,000 or more, then in such case, the parties will each select an
arbitrator who will then select a third arbitrator. All arbitration
hearings will be held in Seattle, Washington.
The terms of this Addendum are hereby incorporated into the Loan Agreement,
which Loan Agreement, as supplemented hereby, is hereby confirmed by the parties
in all respects.
NOTICE REGARDING ORAL AGREEMENTS. ORAL AGREEMENTS OR ORAL COMMITMENTS
TO LOAN MONEY, EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT
OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.
Borrower acknowledges having read all the provisions of the Loan Agreement
and this Addendum, and Borrower agrees to their terms.
DATED as of the day and year first above written.
BORROWER: LENDER:
LABOR READY, INC. U.S. BANK NATIONAL ASSOCIATION
By: /s/ Joseph P. Sambataro, Jr. By: /s/ Bruce Marley
---------------------------- --------------------------
Title: Executive Vice President and CFO Authorized Officer
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<PAGE>
ALTERNATIVE RATE OPTIONS
PROMISSORY NOTE
(PRIME RATE, LIBOR)
$30,000,000 00 Dated as of: NOVEMBER 4, 1997
LABOR READY, INC. ("Borrower")
U S. BANK NATIONAL ASSOCIATION ("Lender")
1. TYPE OF CREDIT. This note is given to evidence Borrower's obligation to
repay all sums which Lender may from time to time advance to Borrower
("Advances") under a:
single disbursement loan. Amounts loaned to Borrower hereunder will be
disbursed in a single Advance in the amount shown in Section 2.
X revolving line of credit. No Advances shall be made which create a
maximum amount outstanding at any one time which exceeds the maximum
amount shown in Section 2.
However, Advances hereunder may be borrowed, repaid and reborrowed,
and the aggregate Advances loaned hereunder from time to time may
exceed such maximum amount.
non-revolving line of credit. Each Advance made from time to time
hereunder shall reduce the maximum amount available shown in Section
2. Advances loaned hereunder which are repaid may not be reborrowed.
2. PRINCIPAL BALANCE. The unpaid principal balance of all Advances outstanding
under this note ("Principal Balance") at one time shall not exceed
$30,000,000.00.
3. PROMISE TO PAY. For value received Borrower promises to pay to Lender or
order at 1145 Broadway, Suite 1100, Tacoma, Washington, 98402 the Principal
Balance of this note, with interest thereon at the rate(s) specified in Sections
4 and 11 below.
4. INTEREST RATE. The interest rate on the Principal Balance outstanding may
vary from time to time pursuant to the provisions of this note. Subject to the
provisions of this note, Borrower shall have the option from time to time of
choosing to pay interest at the rate or rates and for the applicable periods of
time based on the rate options provided herein; provided, however, that once
Borrower notifies Lender of the rate option chosen in accordance with the
provisions of this note, such notice shall be irrevocable. The rate options are
the Prime Borrowing Rate and the LIBOR Borrowing Rate, each as defined herein
(a) Definitions. The following terms shall have the following meanings:
"Business Day" means any day other than a Saturday, Sunday, or other
day that commercial banks in Seattle, Washington, Portland, Oregon or New York
City are authorized or required by law to close; provided, however that when
used in connection with a LIBOR Rate, LIBOR Amount or LIBOR Interest Period such
term shall also exclude any day on which dealings in U.S. dollar deposits are
not carried on in the London interbank market.
"LlBOR Amount" means each principal amount for which Borrower chooses
to have the LIBOR Borrowing Rate apply for any specified LIBOR Interest Period.
"LIBOR Interest Period" means as to any LIBOR Amount, a period of one,
two, three, six, or twelve months commencing on the date the LIBOR Borrowing
Rale becomes applicable thereto; provided, however, that: (i) the first day of
each LIBOR Interest Period must be a Business Day; (ii) no LIBOR Interest Period
shall be selected which would extend beyond June 30, 1999; (iii) no LIBOR
Interest Period shall extend beyond the date of any principal payment required
under Section 6 of this note, unless the sum of the Prime Rate Amount, plus
LIBOR Amounts with LIBOR Interest Periods ending on or before the scheduled date
of such principal payment, plus principal amounts remaining unborrowed under a
line of credit, equals or exceeds the amount of such principal payment; (iv) any
LIBOR Interest Period which would otherwise expire on a day which is not a
Business Day, shall be extended to the next succeeding Business Day, unless the
result of such extension would be to extend such LIBOR Interest Period into
another calendar month, in which event the LIBOR Interest Period shall end on
the immediately preceding Business Day; and (v) any LIBOR Interest Period that
begins on the last Business Day of a calendar month (or on a day for which there
is no numerically corresponding day in the calendar month at the end of such
LIBOR Interest Period) shall end on the last Business Day of a calendar month.
"LIBOR Rate" means, for any LIBOR Interest Period, the rate per annum
(computed on the basis of a 360-day year and the actual number of days elapsed
and rounded upward to the nearest 1/16 of 1%) established by Lender as its LIBOR
Rate, based on Lender's determination, on the basis of such factors as Lender
deems relevant, of the rate of interest at which U.S. dollar deposits would be
offered to U.S. Bank National Association in the London interbank market at
approximately 11 a.m. London time on the date which is two Business Days prior
to the first day of such LIBOR Interest Period for delivery on the first day of
such LIBOR Interest Period for the number of months therein; provided, however,
that the LIBOR Rate shall be adjusted to take into account the maximum reserves
required to be maintained for Eurocurrency liabilities by banks during each such
LIBOR Interest Period as specified in Regulation D of the Board of Governors of
the Federal Reserve System or any successor regulation.
<PAGE>
"Prime Rate" means the rate of interest which Lender from time to time
establishes as its prime rate and is not, for example, the lowest rate of
interest which Lender collects from any borrower or class of borrowers. When the
Prime Rate is applicable under Section 4(b) or 11 (b), the interest rate
hereunder shall be adjusted without notice effective on the day the Prime Rate
changes, but in no event shall the rate of interest be higher than allowed by
law.
"Prime Rate Amount" means any portion of the Principal Balance bearing interest
at the Prime Borrowing Rate.
(b) The Prime Borrowing Rate.
(i)The Prime Borrowing Rate is a per annum rate equal to the Prime Rate
plus 0.00 % per annum.
(ii) Whenever Borrower desires to use the Prime Borrowing Rate option,
Borrower shall give Lender notice orally or in writing in accordance with
Section 15 of this note, which notice shall specify the requested effective date
(which must be a Business Day) and principal amount of the Advance or increase
in the Prime Rate Amount, and whether Borrower is requesting a new Advance under
a line of credit or conversion of a LIBOR Amount to the Prime Borrowing Rate.
(iii) Subject to Section 11 of this note, interest shall accrue on the
unpaid Principal Balance at the Prime Borrowing Rate unless and except to the
extent that the LIBOR Borrowing Rate is in effect.
(c) The LIBOR Borrowing Rate.
(i) The LIBOR Borrowing Rate is the LIBOR Rate plus 1.44% per annum.
(ii) Borrower may obtain LIBOR Borrowing Rate quotes from Lender between
8:00 a.m. and 10:00 a.m. (Portland, Oregon time) on any Business Day. Borrower
may request an Advance, conversion of any portion of the Prime Rate Amount to a
LIBOR Amount or a new LIBOR Interest Period for an existing LIBOR Amount, at
such rate only by giving Lender notice in accordance with Section 4 (c) (iii)
before 10:00 a.m. (Portland, Oregon time) on such day.
(iii) Whenever Borrower desires to use the LIBOR Borrowing Rate option,
Borrower shall give Lender irrevocable notice (either in writing or orally and
promptly confirmed in writing) between 8:00 a.m. and 10:00 a.m. (Portland,
Oregon time) two (2) Business Days prior to the desired effective date of such
rate. Any oral notice shall be given by, and any written notice or confirmation
of an oral notice shall be signed by, the person(s) authorized in Section 15 of
this note and shall specify the requested effective date of the rate, LIBOR
Interest Period and LIBOR Amount, and whether Borrower is requesting a new
Advance at the LIBOR Borrowing Rate under a line of credit, conversion of all or
any portion of the Prime Rate Amount to a LIBOR Amount, or a new LIBOR Interest
Period for an outstanding LIBOR Amount. Notwithstandin any other term of this
note, Borrower may elect the LIBOR Borrowing Rate in the minimum principal
amount of $500,000.00 and in multiples of $500,000.00 above such amount;
provided, however, that no more than (not applicable) separate LIBOR Interest
Periods may be in effect at any one time.
(iv) If at any time the LIBOR Rate is unascertainable or unavailable to
Lender or if LIBOR Rate loans become unlawful, the option to select the LIBOR
Borrowing Rate shall terminate immediately. If the LIBOR Borrowing Rate is then
in effect, (A) it shall terminate automatically with respect to all LIBOR
Amounts (i) on the last day of each then applicable LIBOR Interest Period, if
Lender may lawfully continue to maintain such loans, or (ii) immediately if
Lender may not lawfully continue to maintain such loans through such day, and
(B) subject to Section 11, the Prime Borrowing Rate automatically shall become
effective as to such amounts upon such termination.
(v) If at any time after the date hereof (A) any revision in or adoption of
any applicable law, rule, or regulation or in the interpretatlon or
administration thereof (i) shall subject Lender or its Eurodollar lending office
to any tax, duty, or other charge, or change the basis of taxation of payments
to Lender with respect to any loans bearing interest based on the LIBOR Rate, or
(ii) shall impose or modify any reserve, insurance, special deposit, or similar
requirements against assets of, deposits with or for the account of, or credit
extended by Lender or its Eurodollar lending office, or impose on Lender or its
Eurodollar lending office any other condition affecting any such loans, and (B)
the result of any of the foregoing is (i) to increase the cost to Lender of
making or maintaining any such loans or (ii) to reduce the amount of any sum
receivable under this note by Lender or its Eurodollar lending office, Borrower
shall pay Lender within 15 days after demand by Lender such additional amount as
will compensate Lender for such increased cost or reduction. The determination
hereunder by Lender of such additional amount shall be conclusive in the absence
of manifest error. If lender demands compensation under this Section 4(c)(v),
Borrower may upon three (3) Business Days' notice to Lender pay the accrued
interest on all LIBOR Amounts, together with any additional amounts payable
under Section 4(c)(vi). Subject to Section 11, upon Borrower's paying such
accrued interest and additional costs, the Prime Borrowing Rate immediately
shall be effective with respect to the unpaid principal balance of such LIBOR
Amounts.
<PAGE>
(vi) Borrower shall pay to Lender, on demand, such amount as Lender
reasonably determines (determined as though 100% of the applicable LIBOR Amount
had been funded in the London interbank market) is necessary to compensate
Lender for any direct or indirect losses, expenses, liabilities, costs, expenses
or reductions in yield to Lender, whether incurred in connection with
liquidation or re- employment of funds or otherwise, incurred or sustained by
Lender as a result of: (A) Any payment or prepayment of a LIBOR Amount,
termination of the LIBOR Borrowing Rate or conversion of a LIBOR Amount to the
Prime Borrowing Rate on a day other than the last day of the applicable LIBOR
Interest Period (including as a result of acceleration or a notice pursuant to
Section 4 (c) (v)); or (B) Any failure of Borrower to borrow, continue or prepay
any LIBOR Amount or to convert any portion of the Prime Rate Amount to a LIBOR
Amount after Borrower has given a notice thereof to Lender.
(vii) If Borrower chooses the LIBOR Borrowing Rate, Borrower shall pay
interest based on such rate, plus any other applicable taxes or charges
hereunder, even though Lender may have obtained the funds loaned to Borrower
from sources other than the London interbank market. Lender's determination of
the LIBOR Borrowing Rate and any such taxes or charges shall be conclusive in
the absence of manifest error.
(viii) Notwithstanding any other term of this note, Borrower may not
select the LIBOR Borrowing Rate if an event of default hereunder has occurred
and is continuing.
(ix) Nothing contained in this note, including without limitation the
determination of any LIBOR Interest Period or Lender's quofation of any LIBOR
Borrowing Rate, shall be construed to prejudice Lender's right, if any, to
decline to make any requested Advance or to require payment on demand.
5. COMPUTATION OF INTEREST. All interest under Section 4 and Section 11 will
be computed at the applicable rate based on a 360-day year and applied to the
actual number of days elapsed.
6. PAYMENT SCHEDULE.
(a) Principal. Principal shall be paid:
on demand.
X on demand, or if no demand, on June 30, 1999.
on
subject to Section 8, in installments of
each, plus accrued interest, beginning on and on the same day of
each thereafter until when the entire Principal Balance plus
interest thereon shall be
due and payable.
each, including accrued interest, beginning on and on the same day
of each thereafter until when the entire Principal Balance
plus
interest thereon shall be due and payable.
(b) Interest.
(i) Interest on the Prime Rate Amount shall be paid:
X on the 15th day of November, 1997, and on the same day of each month
thereafter prior to maturity and at maturity.
at maturity.
at the time each principal installment is due and at maturity.
(ii) Interest on all LIBOR Amounts shalt be paid:
on the last day of the applicable LIBOR Interest Period, and if such LIBOR
Interest Period is longer than three months, on the last day of each three
month period occurring during such LIBOR Interest Period, and at maturity.
X on the 15th day of November, 1997, and on the same day of each month
thereafter prior to maturity and at maturity.
at maturity.
at the time each principal installment is due and at maturity.
7. PREPAYMENT.
(a) Prepayments of all or any part of the Prime Rate Amount may be made at any
time without penalty.
(b) Except as otherwise specificatly set forth herein, Borrower may not prepay
all or any part of any LIBOR Amount or terminate any LIBOR Borrowing Rate,
except on the last day of the applicable LIBOR Interest Period.
(c) Principal prepayments will not postpone the date of or change the amount of
any regularly scheduled payment. At the time of any principal prepayment, all
accrued interest, fees, costs and expenses shall also be paid.
<PAGE>
8. CHANGE IN PAYMENT AMOUNT. Each time the interest rate on this note changes
the holder of this note may, from time to time, in holder's sole discretion,
increase or decrease the amount of each of the installments remaining unpaid at
the time of such change in rate to an amount holder in its sole discretion deems
necessary to continue amortizing the Principal Balance at the same rate
established by the installment amounts specified in Section 6(a), whether or not
a "balloon" payment may also be due upon maturity of this note. Holder shall
notify the undersigned of each such change in writing. Whether or not the
installment amount is increased under this Section 8, Borrower understands that,
as a result of increases in the rate of interest the final payment due, whether
or not a "balloon" payment, shall include the entire Principle Balance and
interest thereon then outstanding, and may be substantially more than the
installment specified in Section 6.
9. ALTERNATE PAYMENT DATE. Notwithstanding any other term of this note, if in
any month there is no day on which a scheduled payment would otherwise be due
(e.g February 31), such payment shall be paid on the last banking day of that
month.
10. PAYMENT BY AUTOMATIC DEBIT.
Borrower hereby authorizes Lender to automatically deduct the amount of all
principal and interest payments from account number 0547-517821 at Lender's
Pacific Avenue branch. tf there are insufficient funds in the account to pay the
automatic deduction in full, Lender may allow the account to become overdrawn,
or Lender may reverse the automatic deduction. Borrower will pay all the fees on
the account which result from the automatic deductions, including any overdraft
and non-sufficient funds charges. If for any reason Lender does not charge the
account for a payment, or if an automatic payment is reversed the payment Is
still due according to this note. If the account is a Money Market Account, the
number of withdrawals from that account is limited as set out in the account
agreement. Lender may cancel the automatic deduction at any time in its
discretion.
Provided, however, if no account number ts entered above, Borrower does not want
to make payments by automatic debit.
11. DEFAULT.
(a) Without prejudice to any right of Lender to require payment on demand or to
decline to make any requested Advance, each of the following shall be an event
of default: (i) Borrower fails to make any payment when due. (ii) Borrower fails
to perform or comply with any term, covenant or obligation in this note or any
agreement related to this note, or in any other agreement or loan Borrower has
with Lender. (iii) Borrower defaults under any loan, extension of credit
security agreement, purchase or sales agreement, or any other agreement, in
favor of any other creditor or person that may materially affect any of Borrower
s property or Borrower's ability to repay this note or perform Borrower's
obligations under this note or any related documents. (iv) Any representation or
statement made or furnished to Lender by Borrower or on Borrower's behalf is
false or misleading in any material respect either now or at theltime made or
furnished. (v) Borrower dies, becomes insolvent, liquidates or dissolves, a
receiver is appointed for any part of Borrowers property, Borrower makes an
assignment for the benefit of creditors, or any proceeding is commenced either
by Borrower or against Borrower under any bankruptcy or insolvency laws. (vi)
Any creditor tries to take any of Borrower's property on or in which Lender has
a lien or security interest. This includes a garnishment of any of Borrower's
accounts with Lender. (vii) Any of the events described in this default section
occurs with respect to any general partner in Borrower or any guarantor of this
note, or any guaranty of Borrower's indebtedness to Lender ceases to be, or is
asserted not to be, in full force and effect. (viii) There is any material
adverse change in the financial condition or management of Borrower or Lender in
good faith deems itself insecure with respect to the payment or performance of
Borrower's obligations to Lender. If this note is payable on demand, the
inclusion of specific events of default shall not prejudice Lenders right to
require payment on demand or to decline to make any requested Advance.
(b) Without prejudice to any right of Lender to require payment on demand, upon
the occurrence of an event of default, Lender may declare the entire unpaid
Principal Balance on this note and all accrued unpaid interest immediately due
and payable, without notice. Upon default, including failure to pay upon final
maturity, Lender, at its option, may also, if permitted under applicable law,
increase the interest rate on this note to a rate equal to the Prime Borrowing
Rate plus 5%. The interest rate will not exceed the maximum rate permitted by
applicable law. In addition, if any payment of principal or interest is 15 or
more days past due, Borrower will be charged a late charge of 5% of the
delinquent payment.
12. EVIDENCE OF PRINCIPAL BALANCE; PAYMENT ON DEMAND. Holder's records shall, at
any time, be conclusive evidence of the unpaid Principal Balance and interest
owing on this note. Notwithstanding any other provisions of this note, in the
event holder makes Advances hereunder which resutt in an unpaid Principal
Balance on this note which at any time exceeds the maximum amount specified in
Section 2, Borrower agrees that all such Advances, with interest, shall be
payable on demand.
13. LINE OF CREDIT PROVISIONS. If the type of credit indicated in Section 1 is a
revolving line of credit or a non-revolving line of credit, Borrower agrees that
Lender is under no obligation and has not committed to make any Advances
hereunder. Each Advance hereunder shalt be made at the sole option of Lender.
<PAGE>
14. DEMAND NOTE. If this note is payable on demand, Borrower acknowledges and
agrees that (a) Lender is entitled to demand Borrower's immediate payment in
full of all amounts owing hereunder and (b) neither anything to the contrary
contained herein or in any other loan documents (including but not limited to,
provisions relating to defaults, rights of cure, default rate of interest,
Installment payments, late charges, periodic review of Borrower's financial
condition, and covenants) nor any act of Lender pursuant to any such provisions
shall limit or impair Lender's right or ability to require Borrower's payment in
full of all amounts owing hereunder immediately upon Lender's demand.
15. REQUESTS FOR ADVANCES.
(a) Any Advance may be made or Interest rate option selected upon the request of
Borrower (if an individual), any of the undersigned (if Borrower consists of
more than one individual), any person or persons authorized in subsection (b) of
this Section 15, and any person or persons otherwise authorized to execute and
deliver promissory notes to Lender on behalf of Borrower.
(b) Borrower hereby authorizes any one of the following individuals to request
Advances and to select interest rate options: Glenn Welstad; Ralph Peterson; Bob
Sovem; Joseph P. Samataro, Jr.; and/or Misty Cleveland unless Lender is
otherwise instructed in writing.
(c) All Advances shall be disbursed by deposit directly to Borrower's account
number 0547-517821 at Pacific Avenue branch of Lender, or by cashiers check
issued to Borrower.
(d) Borrower agrees that Lender shall have no obligation to verify the identity
of any person making any request pursuant to this Section 15, and Borrower
assumes all risks of the validity and authorization of such requests. in
consideration of Lender agreeing, at its sole discretion, to make Advances upon
such requests, Borrower promises to pay holder, tn accordance with the
provisions of this note, the Principal Balance together with interest thereon
and other sums due hereunder, although any Advances may have been requested by a
person or persons not authorized to do so.
16. PERIODIC REVIEW. Lender will review Borrowers credit accommodations
periodically. At the time of the review, Borrower will furnish Lender with any
additional information regarding Borrower's financiat condition and business
operations that Lender requests. This information may include but is not limited
to, financial statements, tax returns, lists of assets and liabitities, agings
of receivables and payables, inventory schedules, budgets and forecasts. If upon
review, Lender, in its sole discretion, determines that there has been a
material adverse change in Borrower's financial condition, Borrower will be in
default. Upon default, Lender shall have all rights specified herein.
17. NOTICES. Any notice hereunder may be given by ordinary mail, postage paid
and addressed to Borrower at the last known address of Borrower as shown
onholder's records: If Borrower consists of more than one person, notification
of any of said persons shall be complete notification of all.
18. ATTORNEY FEES. Whether or not litigation or arbitration is commenced,
Borrower promises to pay all costs of collecting overdue amounts. Without
limiting the foregoing, in the event that holder consults an attorney regarding
the enforcement of any of its rights under this note or any document securing
the same, or if this note is placed in the hands of an attorney for collection
or if suit or litigation is brought to enforce this note or any document
securing the same, Borrower promises to pay all costs thereof including such
additional sums as the court or arbitrator(s) may adjudge reasonable as attorney
fees, including without limitation, costs and attorney fees incurred in any
appellate court, in any proceeding under the bankruptcy code, or in any
receivership and postjudgment attorney fees incurred in enforcing any judgment.
19. WAIVERS; CONSENT. Each party hereto, whether maker, co-maker, guarantor or
otherwise, waives diligence, demand, presentment for payment, notice of
non-payment, protest and notice of protest and waives all defenses based on
suretyship or impairment of collateral. Without notice to Borrower and without
diminishing or affecting Lender's rights or Borrower's obligations hereunder,
Lender may deal in any manner with any person who at any time is liable for, or
provides any real or personal property collateral for, any indebtedness of
Borrower to Lender, including the indebtedness evidenced by this note. Without
limiting the foregoing, Lender may, in its sole discretion: (a) make secured or
unsecured loans to Borrower and agree to any number of waivers, modifications,
extensions and renewals of any length of such loans, including the loan
evidenced by this note; (b) impair, release (with or without substitution of new
collateral), fail to perfect a security interest in, fail to preserve the value
of, fail to dispose of in accordance with applicable law, any collateral
provided by any person; (c) sue, fail to sue, agree not to sue, release, and
settle or compromise with, any person.
20. JOINT AND SEVERAL LIABILITY. All undertakings of the undersigned Borrowers
are joint and several and are binding upon any marital community of which any of
the undersigned are members. Holder's rights and remedies under this note shall
be cumulative.
21. SEVERABILITY. If any term or provision of this note is declared by a court
of competent jurisdiction to be illegal, invalid or unenforceable for any reason
whatsoever, such Illegality, invalidity or unenforceability shall affect the
balance of the terms and provisions hereof, which terms and provisions shall
remain binding and enforceable, and this note shall be construed as if such
illegal, invalid or unenforceable provision had not been contained herein.
22. GOVERNING LAW. This note shall be governed by and construed and enforced in
accordance with the laws of the State of Washington without regard to conflicts
of law principles; provided however, that to the extent that Lender has greater
rights or remedies under Federal law, this provision shall not be deemed to
deprive Lender of such rights and remedies as may be available under Federal
law.
<PAGE>
24. DISCLOSURE.
Oral agreements or oral commitments to loan money. extend credit, or to forbear
from enforcinq repayment of a debt are not enforceable under Washington law.
EACH OF THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS
DOCUMENT.
LABOR READY, INC.
Borrower Name ,Corporation, Partnership or other Entity)
By: /s/ Joseph P. Sambataro, Jr.
------------------------------
Executive Vice President &
Chief Financial Officer
For valuable consideration, Lender agrees to the terms of the arbitration
provision set forth in this note.
Lender Name: U.S. Bank National Association
By: /s/ Bruce Marley
-------------------
Title: Vice President
Date: December 10, 1997
<PAGE>
COMMERCIAL SECURITY AGREEMENT
References In the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
loan item
Borrower: LABOR READY, INC. -Lender: U.S. BANK NATIONAL ASSOCIATION
1016 SOUTH 28TH STREET Tacoma Corporate Bkg.
TACOMA, WA 98409 1145 Broadway
Suite 1100
Tacoma, WA 98402
THIS COMMERCIAL SECURITY AGREEMENT Is entered Into between LABOR READY, INC.
(referred to below as "Grantor"); and U.S. BANK NATIONAL ASSOCIATION (referred
to below as "Lender"). For valuable consideration, Grantor grants to Lender a
security interestl in the Collateral to secure the Indebtedness and agrees that
Lender shall have the rights stated in this Agreement with respect to the
Collateral, In addition to all other rights which Lender may have by law.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. All references
to dollar amounts shall mean amounts in lawful money of the United States of
America.
Agreement. The word "Agreement" means this Commercial Security Agreement, as
this Commercial Security Agreement may be amended or modified from time to time,
together with all exhibits and schedules attached to this Commercial Security
Agreement from time to time.
Collateral. The word "Collateral" means the following described property of
Grantor, whether now owned or hereafter acquired, whether now existing or
hereafter arising, and whereverr located:
All chattel paper, accounts and general Intangibles
In addition, the word "Collateral" Includes all the following, whether now owned
or hereafter acquired, whether now existing or hereafter acquired, and wherever
located:
(a) All accessions, accessories, increases, and additions to and all
replacements of and substitutions for any property described above.
(b) All products and produce of any of the properly described in this
Collateral section.
(c) All accounts, general intangibles, instruments, rents, monies,
payments, and all other rights, arising out of a sale, lease, or other
disposition of any of the property described in this Collateral section.
(d) All proceeds (Including insurance proceeds) from the sale, destruction,
loss, or other disposition of any of the property described in this
Collateral section.
(e) All records and data relating to any of the property desaibed in this
Collateral section, whether in the form of a writing, photograph,
microfilm, microfiche, or electronic media, together with all of Grantor's
right, title, and interest in and to all computer software required to
utilize, create, maintain, and process any such records or data on
electronic media.
Event of Default. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section
titled "Events of Default".
Grantor. The word "Grantor" means LADOR READY, INC., its successors and
assigns
Guarantor. The word "Guarantor" means and includes without limitation each
and all of the guarantors, sureties, and accommodation parties in
connection with the indebtedness.
Indebtedness. The word "indebtedness" means the Indebtedness evidenced by
the Note, including all principal and Interest, together wilh all other
indebtedness and costs and expenses for which Grantor is responsible under
this Agreement or under any of the Related Documents. In addition, the
word "Indebtedness" includes all other obligations, debts and liabilities,
plus interest thereon, of Grantor, or any one or more of them, to Lender,
as well as all claims by Lender against Grantor, or any one or more of
them, whether existing now or later, whether they are voluntary or
involuntary, due or not due, direct or indirect, absolute or contingent,
liquidated or unliquidated; whether Grantor may be liable individually or
jointly with others, whether Grantor may be obligated as guarantor, surely,
accommodation party or otherwise; whether recovery upon such indebtedness
may be or hereafter may become barred by any statue of limitations; and
whether such indebtedness may be or hereafter may become otherwise
unenforceable.
<PAGE>
Lender. The word "Lender" means U.S. BANK NATIONAL ASSOCIATION, its
successors and assigns.
Note. The word "Note" means the note or credit agreement dated November 4,
1997, in the principal amount of $30,000,000.00 from LABOR READY, INC. to
Lender, together with all renewals of, extensions of, modifications of,
refinancings of, consolidations of and substitutions for the note or credit
agreement.
Related Documents. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection wilh the Indebtedness.
RIGHT OF SETOFF. Grantor hereby grants Lender a contractual possessory security
interest in and hereby assigns, conveys, delivers, pledges, and transfers all of
Grantor's right, title and interest in and to Grantor's accounts with Lender
(whether checking, savings, or some other t including all accounts held jointly
with someone else and all accounts Grantor may open in the future, excluding,
however, all IRA and Keogh accounts, and all trust accounts for which the grant
of a security interest would be prohibiled by law. Grantor authorizes Lender, to
the extent permitted by applicable law, to charge or setoff all indebtedness
against any and all such accounts, and, at Lender's option, to administratively
freeze all such accounts to allow Lender to profect Lender's charge and setoff
rights provided in this paragraph.
OBLIGATIONS OF GRANTOR. Grantor warrants and covenants to Lender as follows:
Perfection of Security Interest. Grantor agrees to execute such financing
statements and to take whatever other actions are requested by Lender to
perfect and continue Lender's security interest in the Collateral. Upon
request of Lender, Grantor will deliver to Lender any and all of the
documents evidencing constituting the Collateral, and Grantor will note
Lender's Interest upon any and all chattel paper if not delivered to Lender
for possession by Lender. Grantor hereby appoints Lender as its irrevocable
attorney-in-fact for the purpose of executing any documents necessary to
perfect or to continue the security interest granted in this Agreement.
Lender may at any time, and without further authorization from Grantor,
file a carbon, phofographic or other reproduction of any financing
statement or of this Agreement for use as a financing statement. Grantor
will reimburse Lender for all expenses for the perfection and the
continuation of the perfection of Lender's security interest in the
Collateral. Grantor promptly will notify Lender before any change In
Grantor's name including any change to the assumed business names of
grantor. This is a continuing Security Agreement and will continue in
effect even though all or any part of the indebtedness is paid in full and
even though for a period of time Grantor may not be indebted to Lender.
No Violation. The execution and delivery of this Agreement will not violate
any law or agreement governing Grantor or to which Grantor is a party, and
Its certificate or articles of incorporation and bylaws do not prohibit any
term or condition of this Agreement.
Enforceability of Collateral. To the extent the Collaleral consists of
accounts, chattel paper, or general intangibles, the Collateral is
enforceable in accordance with its terms, is genuine, and complies wilh
applicable laws conceming form, content and manner of preparation and
execution, and all persons appearing to be obligaled on the Collateral have
authority and capacily to contract and are in fact obligated as they appear
to be on the Collateral, At the time any account becomes subject to a
securily interest in favor of Lender, the account shall be a good and valid
account representng an undisputed, bona fide indebtedness incurred by the
account debtor, for merchandise held subject to delivery instructions or
theretofore shipped or delivered pursuant to a contract of sale, or for
services theretofore peformed by Grantor with or for the account debtor;
there shall be no setoffs or counterclaims against any such account; and no
agreement under which any deductions or discounts may be calmed shall have
been made with the accounl debtor except those disclosed to Lender in
writing.
Removal of Collateral. Grantor shall keep the Collateral (or to the extent
the Collateral consists of intangible property such as accounts, the
records concerning the Collateral) at Grantor's address shown above, or at
such other locations as are acceptable to Lender. Except in the ordinary
course of its business, including the sales of inventory, Grantor shall not
remove the Collateral from its existing locations without the prior written
consent of Lender. To the extent that the Collateral consists of vehicles,
or other titled property, Grantor shall not take or permit any action which
would require application for cerlificates of title for the vehicles
outside the State of Washington, without prior written consent of Lender.
<PAGE>
Transactions involving Collateral. Except for inventory sold or accounts
collected in the ordinary course of Grantor's business, Grantor shall not
sell, offer to sell, or otherwise transfer or dispose of the Collateral.
Grantor shall not pledge, mortgage, encumber or otherwise permit the
Collateral to be subject to any lien, security interest, encumbrance, or
charge, other than the security interest provided for in the Agreement,
without the prior written consent of Lender. This includes security
interests even if junior in right to the security interests granted under
this Agreement. Unless waived by Lender, all proceeds from any disposition
of the Collateral (for whatever reason) shall be held in trust for Lender
and shall not be commingled with any other funds; provided however, this
requirement shall not constitute by lender to any sale or other
disposition. Upon receipt, grantor shall immediately deliver any such
proceeds to Lender.
Title. Grantor represents and warrants to Lender that it holds good and
marketable title to the Collateral, free and clear of all liens and
encumbrances except for the lien of this Agreement. No financing statement
covering any of the Collateral is on file in any public office other than
those which reflect the security interest created by this Agreement or to
which Lender has specifically consented. Grantor shall defend Lender's
rights in the Collateral against the claims and demands of all other
persons.
Collateral Schedules and Locations. As often as Lender shall require, and
insofar as the Collateral consists of accounts and general intangibles,
Grantor shall deliver to Lender schedules of such Collateral, including
such information as Lender may require, including without limitation names
and addresses of account debtors and aging of accounts and general
intangibles. Such information shall be submitted for Grantor and each of
its subsidiaries or related companies.
Maintenance and Inspections of Collateral. Grantor shall maintain all
tangible Collateral in good condition and repair. Grantor will not commit
or permit damage to or destruction of the Collateral or any part of the
Collateral. Lender and its designated representatives and agents shall
have the right at all reasonable times to examine, inspect, and audit the
Collateral wherever located. Grantor shall immediately notify Lender of
all cases involving the return, rejection, repossession, loss or damage of
or to any Collateral; of any request for credit or adjustment or of any
other dispute arising with respect to the Collateral; and generally of all
happenings and events affecting the Collateral or the value or the amount
of the Collateral.
Taxes, Assessments and Liens. Grantor will pay when due all taxes,
assessments and lens upon the Collateral, its use or operation, upon this
Agreement, upon any promissory note or notes evidencing the indebtedness,
or upon any of the other Related Documents. Grantor may withhold any such
payment or may elect to contest any lien if Grantor is in good faith
conducting an appropriate proceeding to contest the obligation to pay and
so long as Lender's interest in the Collateral is not jeopardized in
Lender's sole opinion. If the Collateral is subjected to a lien which is
not discharged within fifteen (15) days, Grantor shall deposit with Lender
cash, a sufficient corporate surety bond or other security satisfactory to
Lender in an amount adequate to provide for the discharge of the lien plus
any interest, costs, attorneys' fees or other charges that could accrue as
a result of foreclosure or sale of the Collateral. Grantor shall name
lender as an additional obligee under any surety bond furnished in the
contest proceedings.
Compliance With Governmental Requirements. Grantor shall comply promptly
with all laws, ordinances, rules and regulations of all governmental
authorities, now or hereafter in effect, applicable to the ownership,
production, disposition, or use of the Collateral. Grantor may contest in
food faith any such law, ordinance or regulation and withhold compliance
during any proceeding, including appropriate appeals, so long as Lender's
interest in the Collateral, in Lender's opinion, is not jeopardized.
Hazardous Substances. Grantor represents and warrants that the Collateral
never has been, and never will be so long as this Agreement remains a lien
on the Collateral, used for the generation, manufacture, storage,
transportation, treatment, disposal, release or threatened release of any
hazardous waste or substance, as those terms are denied in the
Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended, 42 U.S.C. Section 9601, at seq. ("CERCLA"), the Superfund
Amendments and Reauthorization Act of 1986, Pub L. No. 99-499 ("SARA"), the
Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq.,
the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et
seq., or other applicable state or Federal laws, rules, or regulations
adopted pursuant to any of the foregoing. The terms "hazardous waste" and
"hazardous substance" shall also include, without limitation, petroleum and
petroleum by-products or any fraction thereof and asbestos. The
representations and warranties contained herein are based on Grantor's due
diligence in investigating the Collateral for hazardous wastes and
substances. Grantor hereby (a) releases and waives any future claims
against Lender for indemnity or contribution in the event Grantor becomes
liable for cleanup or other costs under any such laws, and (b) agrees to
indemnify and hold harmless Lender against any and all claims and losses
resulting from a breach of this provision of this Agreement. This
obligation to indemnify shall survive the payment of the indebtedness and
the satisfaction of this Agreement.
<PAGE>
Maintenance of Casualty Insurance. Grantor shall procure and maintain all
risks insurance, including without limitation fire, theft and liability
coverage together with such other insurance as Lender may require with
respect to the Collateral, in form, amounts, coverages and basis reasonably
acceptable to Lender and issued by a company or companies reasonably
acceptable to Lender. Grantor, upon request of Lender, will deliver to
Lender from time to time the policies or certificates of insurance in form
satisfactory to Lender, including stipulations that coverages will not be
canceled or diminished without at least ten (10) days' prior written notice
to Lender and not including any disclaimer of the insurer's liability for
failure to give such a notice. Each insurance policy also shall include an
endorsement providing that coverage in favor of Lender will not be impaired
in any way by any act, omission or default of Grantor or any other person.
In connection with all policies covering assets in which Lender holds or is
offered a security interest, Grantor or any other person. In connection
with all policies covering assets in which Lender holds or is offered a
security interest, Grantor will provide Lender with such loss payable or
other endorsements as Lender may require. If Grantor at any time falls to
obtain or maintain any insurance as required under this Agreement, Lender
may (but shall not be obligated to) obtain such insurance as Lender deems
appropriate, including if it so chooses "single interest insurance." Which
will cover only Lender's interest in the Collateral.
Application of Insurance Proceeds. Grantor shall promptly notify Lender
of any loss or damage to the Collateral. Lender may make proof of loss
if Grantor fails to do so within fifteen (15) days of the casualty. All
proceeds of any insurance on the Collateral, including accrued proceeds
thereon, shall be held by Lender as part of the Collateral. If Lender
consents to repair or replacement of the damaged or destroyed
Collateral, thereon, shall upon satisfactory proof of expenditure, pay
or reimburse Grantor from the proceeds for the reasonable cost of repair
or restoration. If Lender does not consent to repair or replacement of
the Collateral, Lender shall retain a sufficient amount of the proceeds
to pay all of the indebtedness, and shall pay the balance to Grantor.
Any proceed which have not been disbursed within (6) months after their
receipt and which Grantor has not committed to the repair or restoration
of the Collateral shall be used to prepay the indebtedness.
Insurance Reserves. Lender may require Grantor to maintain with Lender
reserves for payment of insurance premiums, which reserves shall be created
by monthly payments from Grantor of a sum estimated by Lender to be
sufficient to produce, at least fifteen (15) days before the premium due
date, amounts at least equal to the insurance premiums to be paid. If
fifteen (15) days before payment is due, the reserve funds are
insufficient, Grantor shall upon demand pay any deficiency to Lender. The
reserve funds shall be held by Lender as a general deposit and shall
constitute a non-interest-bearing account which Lender may satisfy by
payment of the insurance premiums required to be paid by Grantor as they
become due. Lender does not hold the reserve funds in trust for Grantor,
and Lender is not the agent of Grantor for payment of the insurance
premiums required to be paid by Grantor. The responsibility for the
payment of premiums shall remain Grantor's sole responsibility.
Insurance Reports. Grantor, upon request of Lender, shall furnish to
Lender report on each existing policy of insurances showing such
information as Lender may reasonable request including the following: (a)
the name of the insurer; (b) the risks insured; (c) the amount of the
policy; (d) the property insured; (e) the then current value on the basis
of which insurance has been obtained and the manner of determining that
value; and (f) the expiration date of the policy. In addition, Grantor
shall upon request by Lender (however not more often than annually) have an
independent appraiser satisfactory to Lender determine, as applicable, the
cash value or replacement cost of the Collateral.
GRANTOR'S RIGHT TO POSSESSION AND TO COLLECT ACCOUNTS. Until default and except
as otherwise provided below with respect to accounts, Grantor may have
possession of the tangible personal property and beneficial use of all the
Collateral and may use it in any lawful manner not inconsistent with this
Agreement or the Related Documents, provided that Grantor's right to possession
and beneficial use shall not apply to any Collateral share possession of the
Collateral by Lender is required by law to perfect Lender's security interest in
such Collateral. Until otherwise notified by Lender, Grantor may collect any of
the Collateral consisting of accounts. At any time and even though no Event of
Default exists, Lender may exercise its rights to collect the accounts and to
notify account debtors to make payments directly to Lender for application to
the indebtedness. If Lender at any time has possession of any Collateral,
whether before or after an Event of Default, Lender shall be deemed to have
exercised reasonable care in the custody and preservation of the Collateral if
Lender takes such action for that purpose as Grantor shall not of itself be
deemed to be a failure to exercise reasonable care. Lender shall not be
required to take any steps necessary to preserve any rights in the Collateral
against prior parties, nor to protect, preserve or maintain any security
interest given to secure the indebtedness.
EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but
shall not be obligated to) discharge or pay any amounts required to be
discharged or paid by Grantor under this Agreement including without limitation
all taxes, liens, security interests, encumbrances, and other claims, at any
time levled or placed on the Collateral. Lender also may (but shall not be
obligated to) pay all costs for insuring, maintaining, and preserving the
Collateral. All such expenditures incurred or paid by Lender for such purposes
will then bear interest at the rate charged under the Note from the date
incurred or paid by Lender to the date of repayment by Grantor. All such
expenses shall become a part of the indebtedness and, at Lender's option, will
(a) be payable on demand, (b) be added to the balance of the Note and be
apportioned among and be payable with any installment payments to become due
during either (I) the term of any applicable insurance policy or (ii) the
remaining term of the Note, or (c) be treated as a balloon payment which will be
due and payable at the Note's maturity. This Agreement also will secure payment
of these amounts. Such
<PAGE>
11-04-1998 COMMERCIAL SECURITY AGREEMENT
Loan No. 397-83 (Continued)
right shall be in addition to all other rights and remedies to which Lender may
be entitled upon the occurrence of an Event of Default.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
Default on Indebtedness. Failure of Grantor to make any payment when due on
the indebtedness.
Other Defaults. Failure of Grantor to comply with or to perform any other
term, obligation, covenant or condition contained in this Agreement or in
any of the Related Documents or In any other note, security agreement,
lease agreement or lease schedule, loan agreement or other agreement,
whether now existing or hereafter made, between Grantor and U.S. Bancorp or
any direct or indirect subsidiary of U.S. Bancorp.
Default in Favor of Third Parties. Should Borrower or any Grantor default
under any loan, extenslon of credit, security agreement, purchase or sales
agreement, or any other agreement, in favor of any other creditor or person
that may materially attect any of Borrower's property or Borrower's or any
Grantor's ability to repay the Loans or perform their respective
obligations under this Agreement or any of the Related Documents.
False Statements. Any warranty, representation or statement made or
furnished to Lender by or on behaft of Grantor under this Agreement, the
Note or the Relaled Documents is false or misleading In any material
respect, either now or at the tine made or furnished.
Defective Collaterilization. This Agreement or any of the Refated Documents
ceases to be In full force and effect (including failure of any collateral
documents to creale a valid and perfected security interest or lien) at any
time and for any reason.
Insolvency. The dissolution or termination of Grantor's existence as a
going business, the insolvency of Grantor, the appointment of a receiver
for any part of Grantor's property, any assignment for the benefit of
creditors, any type of creditor workout, or the conmencement of any
proceeding under any bankruptcy or insolvency laws by or against Grantor.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or
foreclosure proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Grantor or by any
governmental agency against the Collateral or any other collateral securing
indebtedness. This includes a garnishments of any of Grantor's deposit
accounts with Lender.
Events Affecting Guarantor. Any of the preceding events occurs with respect
to any Guarantor of any of the indebtedness or such Guarantor dies or
becomes iricompetent.
Insecurity. Lender, In good faith, deems itself insecure.
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender shall have all the rights of a secured
party under theWashington Uniform Commercial Code. In addition and without
limitation, Lender may exercise any one or more of the following rights and
remedies:
Accerlerate Indebtedness. Lender may declare the entire indebtedness,
including any prepayment penalty which Grantor would be required to pay,
Immediately due and payable, without police.
Assemble Collateral. Lender may require Grantor to deliver to Lender all or
any portion of the Collateral and any and all certificates of title and
other documents relating to the Collateral. Lender may require Grantor to
assemble the Collateral and make it available to Lender at a place to be
designated by Lender. Lender also shall have full power to enter upon the
property of Grantor to take possession of and remove the Collateral. if the
Collateral contains other goods not covered by this Agreement at the time
of repossession, Grantor agrees Lender may take such other goods, provided
that Lender makes reasonable efforts to return them to Grantor after
repossession.
Sell the Collateral. Lender shall have full power to sell, lease, transfer,
or otherwise deal with the Collateral or proceeds thereof in its own name
or that of Grantor. Lender may sell the Collateral at public auction or
privale sale. Unless the Collateral threatens to decline speedily in value
or is of type customarily sold on a recognized market, Lender will give
Grantor reasonable notlice of the time after which any private sale or any
other intended disposition of the Collateral is to be made. The
requirements of reasonable notice shall be met if such notice Iis given at
least ten (10) days before the time of the sale or disposition. All
expenses relating to the disposition of the Collateral, including without
limitation the expenses of retaking, holding, insuring, preparing for sale
and selling the Collateral, shall become a part of the indebtedness secured
by this Agreement and shall be payable on demand, with interest at the Note
rate from date of expenditure until repaid.
Appoint Receiver. To the extent permitted by applicable law, Lender shall
have the following rights and remedies regarding the appointment of a
receiver: (a) Lender may have a receiver appointed as a matter of right,
(b) the receiver may be an employee of Lender and may serve without bond,
and (c) all fees of the receiver and his or her attorney shall become part
of the indebtedness secured by this Agreement and shall be payable on
demand, with Intetest at Note rate from date of expenditure until repaid.
<PAGE>
Collect Revenues, Apply Amounts. Lender, either itself or through a
receiver, may collect the payments, rents, income, and revenues from the
Collateral. Lender may at any tine in its discretion transfer any
Collateral into its own name or that of its nominee and receive the
payments, rents, income, and revenues therefrom and hold the same as
security for the indebtedness or apply it to payment of the indebtedness in
such order of preference as Lender may determine. Insofar as the
Collateral consists of accounts, general intangibles, insurance policies,
instruments, chattel paper, choses in action, or similar property, Lender
may demand, collect, receipt for, settle, compromise, adjust, sue for,
foreclose, or realize on the Collateral as Lender may determine, whether or
not indebtedness or Collateral is then due. For these purposes, Lender
may, on behalf of an in the name of Grantor, receive, open and dispose of
mail addressed to Grantor; change any address to which mail and payments
are to be sent; and endorse notes, checks, drafts, money orders, documents
of title, instruments and items pertaining to payment, shipment, or storage
of any Collateral. To facilitate collection, Lender may notify account
debtors and obligors on any Collateral to make payments directly to Lender.
Obtain Deficiency. If Lender chooses to sell any or all of the Collateral,
Lender may obtain a judgment against Grantor for any deficiency remaining
on the indebtedness due to Lender after application of all amounts received
from the exercise of the rights provided in this Agreement. Grantor shall
be liable for a deficiency even if the transactions described in this
subsection is a sale of accounts or chattel paper.
Other Rights and Remedies. Lender shall have all the rights and remedies
of a secured creditor under the provisions of the Uniform Commercial Code,
as may be amended from time to time. In addition, Lender shall have and
may exercise any or all other rights and remedies it may have available at
law, in equity, or otherwise.
Cumulative Remedies. All of Lender's rights and remedies, whether
evidenced by this Agreement or the Related Documents or by any other
writing, shall be cumulative and may be exercised singularly or
concurrently. Election by Lender to pursue any remedy shall not exclude
pursuit of any other remedy, and an election to make expenditures or to
take action to perform an obligation of Grantor under this Agreement, after
Grantor's failure to perform, shall not affect Lender's rights to declare a
default and to exercise its remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
Amendments. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to the
matters set for the in this Agreement. No alteration of or amendment to
this Agreement shall be effective unless given in writing and signed by the
party or parties sought to be charged or bound by the alteration or
amendment.
Applicable Law. This Agreement has been delivered to Lender and accepted by
Lender in the State of Washington. If there is a lawsuit, Grantor agrees
upon Lender's request to submit to the jurisdiction of the course of King
County, the State of Washington. Subject to the provisions on arbitration,
the Agreement shall be governed by and construed in accordance with the
laws of the State of Washington.
Arbitration. Lender and Grantor agree that all dispute, claims and
controversies between them, whether individual, joint, or class in nature,
arising from this Agreement or otherwise, including without limitation
contract and tort disputes, shall be arbitrated pursuant to the Rules of
the American Arbitration Association, upon request if either party. No act
to take or dispose of any Collateral shall constitute a waiver of this
arbitration agreement or be prohibited by this arbitration agreement. This
includes, without limitation, obtaining injunction relief or a temporary
restraining order; invoking a power of sale under any deed of trust or
mortgage; obtaining a writ of attachment or imposition of a receiver; or
exercising any rights relating to personal property, including taking or
disposing of such property with or without judicial process pursuant to
Article 9 of the Uniform Commercial Code. Any disputes, claims, or
controversies concerning the lawfulness or reasonableness of any act, or
exercise of any right, concerning any Collateral, including any claim to
rescind, reform, or otherwise modify any agreement relating to the
Collateral, shall also be arbitrated, provided however that no arbitrator
shall have the right or the power to enjoin or restrain any act of any
party. Judgment upon any award rendered by any arbitrator may be entered
in any court having jurisdiction. Nothing in this Agreement shall preclude
any preclude any party from seeking equitable relief from a court of
competent jurisdiction. Nothing in this Agreement shall similar doctrines
which would otherwise be applicable in an action brought by a party shall
be applicable in any arbitration proceeding, and the commencement of an
arbitration proceeding shall e deemed the commencement of an action for
these purposes. The Federal Arbitration Act shall apply to the
construction, interpretation, and enforcement of this arbitration
provision.
Attorneys' Fees Expenses. Grantor agrees to pay upon demand all of
Lender's costs and expenses, including attorneys' fees and Lender's legal
expenses, incurred in connection with the enforcement of this Agreement.
Lender may pay someone else to help enforce this Agreement, and Grantor
shall pay the costs and expenses of such enforcement. Costs and expenses
include Lender's attorneys' fees and legal expenses whether or not there is
a lawsuit, including attorneys' fees and legal expenses for bankruptcy
proceedings (and including efforts to modify or vacate any automatic stay
or injunction), appeals, and any anticipated post-judgment collection
services. Grantor also shall pay all court costs and such additional fees
as may be directed by the court.
<PAGE>
Caption Headings. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Agreement.
Multiple Parties; Corporate Authority. All obligations of Grantor under
this Agreement shall be joint and several, and all references to Grantor
shall mean each and every Grantor. This means that each of the persons
signing below is responsible for all obligations in this Agreement.
Notices. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimile (unless otherwise required
by law), and shall be effective when actually delivered or when deposited
with a nationally recognized overnight courier or deposited in the United
States mail, first class, postage prepaid, addressed to the party to whom
the notice is to be given at the address shown above. Any party may change
its address for notices under this Agreement by giving formal written
notice to the other parties, specifying that the purpose of the notice is
to change the party's address. To the extent permitted by applicable law,
if there is more than one Grantor, notice to any Grantor will constitute
notice to all Grantors. For notice purposes, Grantor will keep Lender
informed at all times of Grantor's current address(es).
Power of Attorney. Grantor hereby appoints Lender as its true and lawful
attorney-in-fact, irrevocably, with full power of substitution to do the
following: (a) to demand, collect, receive, receipt for , sue and recover
all sums of money or other property which may now or hereafter become due,
owing or payable from the Collateral; (b) to execute, sign and endorse any
and all claims, instruments, receipts, checks, drafts or warrants issued in
payment for the Collateral; (c) to settle or compromise any and all claims
arising under the Collateral, and, in the place and stead of Grantor, to
execute and deliver its release and settlement for the claim; and (d) to
file any claim or claims or to take any action or institute or take part in
any proceedings, either in its own name or in the name of Grantor, or
otherwise, which in the discretion of Lender may seem to be necessary or
advisable. This power is given as security for the indebtedness, and the
authority hereby conferred is and shall be irrevocable and shall remain in
full force and effect until renounced by Lender.
Preference Payments. Any monies Lender pays because of an asserted
preference claim in Borrower's bankruptcy will become a part of the
indebtedness and , at Lender's option shall be payable by Borrower as
provided above in the "EXPENDITURES BY LENDER" paragraph.
Severability. If a court of competent jurisdiction finds any provision of
this Agreement to be invalid or unenforceable as to any other persons or
circumstances. If feasible, any such offending provision shall be stricken
and all other provisions of this Agreement in all other respects shall
remain valid and enforceable.
Successor Interests. Subject to the limitations set forth above on
transfer of the Collateral, this Agreement shall be binding upon and inure
to the benefit of the parties, their successors and assigns.
Waiver. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender
of a provision of this Agreement shall not prejudice or constitute a waiver
of Lender's right otherwise to demand strict compliance with that provision
or any other provisions of this Agreement. No prior waiver by Lender, nor
any course of dealing between Lender and Grantor, shall constitute a waiver
of any of Lender's rights or of any of Grantor's obligations as to any
future transactions. Whenever the consent of Lender is required under this
Agreement, the granting of such consent by Lender in any instance shall not
constitute continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld in the
sole discretion of Lender.
Waiver of Co-obligor's Rights. If more than one person is obligated for
the indebtedness, Borrower irrevocably waives, declaims and relinquishes
all claims against such other person which Borrower has or would otherwise
have by virtue of payment of the indebtedness or any part thereof,
specifically including but not limited to all rights of indemnity,
contribution or exoneration.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS COMMERCIAL SECURITY
AGREEMENT, AND GRANTOR AGREES TO IS TERMS, THIS AGREEMENT IS DATED NOVEMBER 4,
1997
GRANTOR:
LABOR READY, INC.
BY: /s/ Joseph P. Sambataro, Jr.
----------------------------------
Title: Executive Vice President &
Chief Financial Officer
'<PAGE>
Exhibit 10.8
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement is made and entered into by and
between Labor Ready, Inc., a Washington corporation, including its
subsidiaries ("Company") and Ralph E. Peterson ("Executive").
RECITALS
WHEREAS, Executive is 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 and an invaluable contribution to the
profits and position of the Company. 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; and
WHEREAS, the Board of Directors has elected Executive to the offfices of
Executive Vice President and Chief Operating Officer of the Company.
NOW, THEREFORE, in consideration of the mutual promises and covenants
set forth herein, the Company and Executive agree as follows:
1. Employment. The Company agrees to and hereby does continue Executive
in its employment, and Executive agrees to and hereby does continue in the
employment of the Company, subject to the supervision and direction of the
Chairman, President and Chief Executive Offficer and of the Board of
Directors. Executive's employment shall be for a period commencing on
September 13, 1996 and ending on September 12, 2000, unless such period is
extended by written agreement of the parties or is sooner terminated pursuant
to the provisions of Paragraphs 4, 12 or 13.
2. Duties of Executive. Executive agrees to continue to devote the
necessary time, attention, skill, and efforts to the performance of his
duties as Executive Vice President and Chief Operating Officer of the Company
or such other duties as may be assigned by the Chairman, President and Chief
Executive Offficer or the Board of Directors in their discretion.
<PAGE>
3. Compensation.
(a) Executive's initial salary shall be at the rate of Twenty
Thousand and No/100 Dollars ($20,000.00) per month, payable semi-monthly,
from September 13, 1996 until changed by the Board of Directors as provided
herein.
(b) Company, acting through its Board of Directors, may (but shall
not be required to) increase, but may not decrease, Executive's compensation
and award to Executive such bonuses as the board may see fit, in its sole and
unrestricted discretion, commensurate with Executive's performance and the
overall performance of the Company.
4. Failure to Pay Executive. The failure of Company to pay Executive his
salary as provided in Paragraph 3 may, in Executive's sole discretion, be
deemed a breach of this Agreement and, unless such breach is cured within
fifteen days after written notice to Company, this Agreement shall terminate.
Executive's claims against Company arising out of the nonpayment shall
survive termination of this Agreement.
5. Options to Purchase Common Stock. Executive is granted an option
vesting in annual increments to purchase 150,000 shares of the Company's
common stock.
6. 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 Chairman, President and Chief Executive
Officer, or in the absence of such guidelines, by Executive's sound
discretion.
7. Vacation. Executive shall be entitled each year during the term of
this Agreement to a vacation of twenty-one (21) 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 1996 to a maximum of 35 days per year.
8. Change in Ownership or Control. In the event of a change in the
ownership of Company, effective control of Company, or the ownership of a
substantial portion of Company's assets, all unvested stock options shall
immediately vest.
2
<PAGE>
9. 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 offficers 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.
10. Other genefits. Executive shall be entitled to all benefits offered
generally to employees of Company. Nothing in this Agreement shall be
construed as limiting or restricting any benefit to 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.
11. Termination. Company may terminate this Agreement under either of the
following circumstances:
(a) This Agreement may be terminated for cause at any time upon
thirty (30) days written notice to Executive. Cause shall exist if Executive
is guilty of dishonesty, gross neglect of duty hereunder, or other act or
omission which impairs Company's ability to conduct its ordinary business in
its usual manner. The notice of termination shall specify with particularity
the actions or inactions 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.
(b) In the event that Executive shall, during the term of his
employment hereunder, 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.
12. 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 noncompetition and other provisions of Paragraph 17
of this Agreement shall terminate.
3
<PAGE>
13. 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; provided, however, that nothing under 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.
14. Binding Effect. This Agreement shall be binding on and shall inure to
the benefit of any successor or successors of employer and the personal
representatives of Executive.
15. Confidential Information.
(a) As the result of his duties, Executive 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:
(1) The ideas, methods, techniques, formats, specifications,
procedures, designs, systems, processes, data and software products which
are unique to Company;
(2) All customer, marketing, pricing and financial information
pertaining to the business of Company;
(3) All operations, sales and training manuals;
(4) All other information now in existence or later developed
which is similar to the foregoing; and
(5) All information which is marked as confidential or
explained to be confidential or which, by its nature, is confidential.
(b) Executive understands that he will necessarily have access to
some or all of the Confidential Information. Executive 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.
Executive 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.
4
<PAGE>
(c) Executive agrees not to disclose any Confidential Information to
others or use any Confidential Information for his own benefit. Executive
further agrees that upon request of the Chairman, President and Chief
Executive Offficer of Company, he shall immediately return all Confidential
Information, including any copies of Confidential Information in his
possession.
16. Covenants Against Competition. It is understood and agreed that the
nature of the methods employed in Company's business is such that Executive
will be placed in a close business and personal relationship with the
customers of Company. Thus, during the term of this Executive Employment
Agreement and for a period of two (2) years immediately following the
termination of Executive's employment, for any reason whatsoever, so long as
Company continues to carry on the same business, said Executive shall not,
for any reason whatsoever, directly or indirectly, for him 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 or customers 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 carried on
by Company within a radius of twenty-five (25) miles from any then existing
or proposed offfice of Company; and
(d) Make any public statement or announcement, or permit anyone else
to make any public statement or announcement that Executive 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.
17. Enforcement of Covenants.
(a) The covenants set forth herein on the part of Executive shall be
construed as an agreement independent of any other provision in this
Executive Employment Agreement and the existence of any claim or cause of
action of Executive against Company, whether predicated on this Executive
Employment Agreement or
5
<PAGE>
otherwise, shall not constitute a defense to the enforcement by Company of
the covenants contained herein.
(b) Executive acknowledges that irreparable damage will result to
Company in the event of the breach of any covenant contained herein and
Executive 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 Executive and all of the persons acting for or with Executive.
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 State
of Washington.
19. Arbitration. Company and Executive agree with each other that any
claim of Executive arising out of or relating to this Agreement or the breach
of this Agreement or Executive's employment by Company, including, without
limitation, any claim for compensation due, wrongful termination and any
claim alleging discrimination or harassment in any form shall be resolved by
binding arbitration, except for claims in which injunctive relief is sought
and obtained. The arbitration shall be administered by the American
Arbitration Association under its Commercial Arbitration Rules at the
American Arbitration Association Office nearest the place of employment. The
award entered by the arbitrator shall be final and binding in all respects
and judgment thereon may be entered in any Court having jurisdiction.
20. 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.
21. Modification of Agreement. Any mod)fication 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.
22. 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.
23. Attorneys' 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
6
<PAGE>
addition to all other required sums, a reasonable sum for the successful
party's attorneys' fees.
24. 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 as set forth below, or
such 'other address as each party shall designate by notice.
25. Survival of Certain Term~. The terms and conditions set forth in
Paragraphs 16, 17 and 18 of this Agreement shall survive termination of the
remainder of this Agreement.
26. Approval of Board of Directors. This Agreement is subject in its
entirety to and contingent upon approval by the Company's Board of Directors.
If this Agreement is not approved by the Board of Directors, this Agreement
and all of the rights, duties and obligations set forth herein shall
terminate.
IN WITNESS WHEREOF, each party to this Agreement has caused it to be
executed on the date indicated below.
EXECUTIVE: COMPANY:
RALPH E. PETERSON LABOR READY, INC., a Washington
corporation
By: /s/ Ralph E. Peterson By: /s/ Glenn A. Welstad
---------------------- ----------------------
Ralph E. Peterson Glenn Welstad, Chairman,President
and Chief Executive Officer
1016 South 28th Street
Tacoma, Washington 98409
Date: March 19, 1997 Date: March 19, 1997
-------------------- --------------------
7
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports included in this Form 10-K into the Company's previously filed
Registration Statement No. 333-36191, 333-16455 and 333-16459.
/s/ Arthur Andersen LLP
March 25, 1998
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Labor Ready, Inc.
Tacoma, Washington
We hereby consent to the incorporation by reference of our report, dated
February 24, 1997, relating to the consolidated financial statements of Labor
Ready, Inc. as of December 31, 1996 and for the two year period then ended
included in the Company's Form 10-K for the year ended December 31, 1997, into
the Company's previously filed Registration Statement on Form S-8 Nos.
333-36191, 333-16455 and 333-16459.
/s/ BDO Seidman, LLP
March 25, 1998
Spokane, Washington
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF LABOR READY INC. AT DECEMBER 31, 1997 AND
FOR THE YEAR THEN ENDED.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 22,117
<SECURITIES> 0
<RECEIVABLES> 39,465
<ALLOWANCES> 2,851
<INVENTORY> 0
<CURRENT-ASSETS> 65,617
<PP&E> 13,165
<DEPRECIATION> 2,839
<TOTAL-ASSETS> 80,367
<CURRENT-LIABILITIES> 15,788
<BONDS> 76
0
854
<COMMON> 49,693
<OTHER-SE> 7,494
<TOTAL-LIABILITY-AND-EQUITY> 80,367
<SALES> 335,409
<TOTAL-REVENUES> 335,409
<CGS> 236,667
<TOTAL-COSTS> 236,667
<OTHER-EXPENSES> 82,329
<LOSS-PROVISION> 5,762
<INTEREST-EXPENSE> (1,871)
<INCOME-PRETAX> 12,522
<INCOME-TAX> 5,559
<INCOME-CONTINUING> 6,963
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,963
<EPS-PRIMARY> .38
<EPS-DILUTED> .37
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF LABOR READY, INC. AT DECEMBER 31, 1995 AND
1996 AND FOR EACH OF THE TWO YEARS IN THE PERIOD ENDING DECEMBER 31, 1996.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1995
<PERIOD-END> DEC-31-1995 DEC-31-1996
<CASH> 5,359 17,598
<SECURITIES> 0 0
<RECEIVABLES> 13,051 22,248
<ALLOWANCES> 868 1,237
<INVENTORY> 0 0
<CURRENT-ASSETS> 20,730 48,534
<PP&E> 3,542 9,256
<DEPRECIATION> 691 1,431
<TOTAL-ASSETS> 26,182 64,125
<CURRENT-LIABILITIES> 7,956 10,961
<BONDS> 9,695 90
0 0
854 854
<COMMON> 7,116 49,517
<OTHER-SE> 561 1,221
<TOTAL-LIABILITY-AND-EQUITY> 26,182 64,125
<SALES> 94,362 163,450
<TOTAL-REVENUES> 94,362 163,450
<CGS> 64,882 115,531
<TOTAL-COSTS> 64,882 115,531
<OTHER-EXPENSES> 24,315 42,675
<LOSS-PROVISION> 1,085 2,078
<INTEREST-EXPENSE> 866 (340)
<INCOME-PRETAX> 3,214 3,506
<INCOME-TAX> 1,152 1,585
<INCOME-CONTINUING> 2,062 1,921
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 1,197
<CHANGES> 0 0
<NET-INCOME> 2,062 724
<EPS-PRIMARY> .16<F1> .04<F1>
<EPS-DILUTED> .15<F1> .04<F1>
<FN>
<F1>Adjusted for the Company's 3 for 2 stock split effective 10/24/97 and
restated for the adoption in Fourth Quarter 1997 of FAS 128.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
FINANCIAL STATEMENTS AT MARCH 31, JUNE 30 AND SEPTEMBER 26, 1997 AND FOR THE 3,
6, AND 9 MONTH PERIODS THEN ENDED.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 JAN-01-1997 JAN-01-1997
<PERIOD-END> MAR-31-1997 JUN-30-1997 SEP-26-1997
<CASH> 8,383 4,145 980
<SECURITIES> 0 0 0
<RECEIVABLES> 24,911 34,882 46,290
<ALLOWANCES> 1,401 1,558 2,407
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 43,704 48,035 58,898
<PP&E> 10,634 12,136 12,585
<DEPRECIATION> 1,806 2,220 2,526
<TOTAL-ASSETS> 63,083 68,941 81,853
<CURRENT-LIABILITIES> 11,092 15,992 20,411
<BONDS> 86 83 80
0 0 0
854 854 854
<COMMON> 49,321 49,215 49,244
<OTHER-SE> 79 1,167 4,872
<TOTAL-LIABILITY-AND-EQUITY> 63,083 68,941 81,853
<SALES> 51,714 129,334 231,047
<TOTAL-REVENUES> 51,714 129,334 231,047
<CGS> 44,643 109,530 191,022
<TOTAL-COSTS> 44,643 109,530 191,022
<OTHER-EXPENSES> 7,775 16,999 28,339
<LOSS-PROVISION> 851 2,083 3,873
<INTEREST-EXPENSE> (197) (310) (460)
<INCOME-PRETAX> (1,358) 1,032 8,273
<INCOME-TAX> (565) 446 3,787
<INCOME-CONTINUING> (793) 586 4,486
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (793) 586 4,486
<EPS-PRIMARY> (.04)<F1> .03<F1> .24<F1>
<EPS-DILUTED> (.04)<F1> .03<F1> .24<F1>
<FN>
<F1> Restated for the adoption in Fourth Quarter 1997 of FAS 128, and for the
quarters ended March 31 and June 30, 1997, adjusted for the Company's 3 for 2
stock split effective 10/24/97.
</FN>
</TABLE>
