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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
For the year ended December 31, 1998.
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OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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)
Washington 91-1287341
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(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)
(253) 383-9101
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(Registrant's Telephone Number)
Securities Registered Under Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, No Par Value The New York Stock Exchange
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Securities Registered Under Section 12(g) of the Act:
Title of each class Name of each exchange on which registered
None None
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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. / /
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 .
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The aggregate market value (based on the NYSE quoted closing price) of the
common stock held by non-affiliates (24,477,289 shares) of the Registrant at
March 15, 1999 was approximately $654.8 million. As of March 15, 1999, there
were 28,218.982 shares of the Registrant's common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
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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 freight handling,
warehousing, landscaping, construction 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 486 dispatch offices at December
31, 1998. 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 $606.9 million in 1998. This revenue
growth has been generated both by opening new dispatch offices and by continuing
to increase sales at existing dispatch offices. In 1998, the average cost to
open a new dispatch office was approximately $45,000 and dispatch offices opened
in 1998 typically generated revenues sufficient to cover their operating costs
within six months. In 1998, the average revenue per dispatch office open for
more than one full year was approximately $1.6 million ($1.4 million in 1997).
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
1998), 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
17% from approximately $6.0 billion in 1992 to an estimated $14.6 billion in
1998. 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 compete effectively, 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.
From January 1, 1999 to March 15, 1999, the Company has opened 142 new
dispatch offices and plans to open approximately 58 additional dispatch
offices during the first half of the year. The Company plans to open 200
dispatch offices in 2000.
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- - INCREASE REVENUES FROM EXISTING 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
also employs coordinated sales and marketing strategies designed to
complement these efforts, including the development of national accounts,
and targeted direct mail and telemarketing 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 administer effectively 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, timely 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. and
extending hours of operation to 24 hours, 7 days per week where the market
demands. One of the Company's competitive advantages is that it is able to
provide workers on short notice (often the same day as requested) and
offers 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 find the Company's policy of "Work Today, Cash Today" even more
appealing.
- - AGGRESSIVELY RECRUIT TEMPORARY WORKERS. During 1998, the Company installed
a cash dispensing machine in all of its dispatch offices in the United
States. With the CDMs in operation, workers 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 1998, the Company wrote approximately 6.5 million payroll
checks for its temporary workers. Implementation of the CDMs has
significantly reduced the number of payroll checks the Company would have
otherwise processed.
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 486
dispatch offices at December 31, 1998. 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.
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LABOR READY DISPATCH OFFICES
BY GEOGRAPHIC REGION
<TABLE>
<CAPTION>
AT DECEMBER 31,
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1994 1995 1996 1997 1998
------------ ----------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Northwest . . . . . . . . . . . . . . . . . . . . . . 17 25 27 42 51
California . . . . . . . . . . . . . . . . . . . . . 9 22 30 43 72
Central . . . . . . . . . . . . . . . . . . . . . . . 10 23 40 51 70
Midwest . . . . . . . . . . . . . . . . . . . . . . 2 6 26 45 69
Mid-Atlantic . . . . . . . . . . . . . . . . . . . . 8 14 38 54 70
Southeast . . . . . . . . . . . . . . . . . . . . . 1 11 29 45 66
Northeast . . . . . . . . . . . . . . . . . . . . . . 0 1 2 22 50
Atlantic . . . . . . . . . . . . . . . . . . . . . . 0 0 4 6 27
Canada . . . . . . . . . . . . . . . . . . . . . . . 4 4 4 8 11
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Total. . . . . . . . . . . . . . . . . . . . 51 106 200 316 486
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</TABLE>
The Company currently anticipates opening 200 dispatch offices during the
first half of 1999, and 200 dispatch offices in 2000. Dispatch office openings
in 1999 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 1998, the average aggregate cost of opening a new
dispatch office was approximately $45,000. Approximately $13,000 of these costs
includes salaries, recruiting, testing, training, lease and other related costs,
which have been capitalized as dispatch office pre-opening costs and amortized
using the straight-line method over two years. The remaining approximately
$32,000 of the cost of opening a dispatch office includes computer systems and
other equipment related costs, leasehold improvements and a cash dispensing
machine and related equipment. These costs are not expected to increase
significantly in 1999. New dispatch offices are expected to generate revenue
sufficient to cover their operating costs within six months. On average, the
volume necessary for profitable operations is approximately $12,000 per week.
In 1998, dispatch offices open for at least one full year generated average
annual revenue of approximately $1.6 million ($1.4 million in 1997) or
approximately $31,000 per dispatch office, per week ($27,000 per dispatch
office, per week in 1997).
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.
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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.
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 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 prints a
payroll voucher which contains a unique security code. The worker enters the
code into the CDM and is disbursed his or her 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 market demand, 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 freight handling, warehousing, landscaping, construction 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 direct mail and telemarketing campaigns. Dispatch office
general managers, and the regional and national sales force are responsible for
following up the marketing campaigns 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 1998, the Company's ten largest customers
accounted for sales of $28.5 million, or 4.7% of total revenues ($20.9 million,
or 6.2% of total revenues in 1997). 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
1998, the Company provided temporary workers to in excess of 190,000 customers.
Labor Ready filled more than 4.8 million work orders in 1998 (2.8 million in
1997).
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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
monitor more closely the activity of the customer.
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.
The Company currently employs approximately 70 sales personnel at the
dispatch offices and 3 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 telemarketing and 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 or a CDM voucher
for cash 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.
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 prescreens 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 job site. Any use of obscene language, alcohol or drugs
on the dispatch office premises or at the customers' job sites are grounds for
immediate dismissal. The Company lists workers who were terminated in a central
database to prevent rehire by other dispatch offices.
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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 maintains federal and state
unemployment insurance, and workers' compensation coverage for its temporary
employees.
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 areas convenient for its
workers, 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 is 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, 1998, the Company
employed a total of 121 administrative and executive staff in the corporate
office, and 2,185 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 district and general
managers undergo approximately two weeks of training at the Company's training
center which is located at the corporate office in Tacoma, Washington and two
weeks of on-the-job training at a dispatch office. The training center is
charged with providing the managers with all of the skills necessary for
operating a dispatch office. Staffed by experienced training professionals, the
training center has developed a curriculum, training manuals, and instruction
modules for the 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. Customer service
representatives receive on-the-job training at the branch where they work.
MANAGEMENT INFORMATION SYSTEMS. The Company has developed its own
proprietary system to process all required credit, billing, collection,
temporary worker payroll and related payroll tax returns, together with other
management information and reporting systems 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 1999. 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 directors. 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 purchasing
management, property and equipment accounting, enable real-time management
reporting for district managers and transition to electronic data interchange
with the Company's customers and vendors.
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During 1998, the Company increased its MIS department to twenty 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.
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 the field. 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 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
or CDM voucher is issued, the customer's weekly invoice and the dispatch office
receivables ledger are automatically updated. Printed checks have watermarks and
computer-generated signatures that are difficult to duplicate. The Company has
developed a proprietary system, which beginning in 1998 allows 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.
WORKERS' COMPENSATION PROGRAM. The Company provides workers' compensation
insurance to its temporary workers and regular employees. For workers'
compensation claims originating in the majority of states (the 43
non-monopolistic states), the Company has purchased a deductible insurance
policy. Under terms of the policy, the Company's workers' compensation exposure
is limited to a deductible amount per occurrence and a maximum aggregate
stop-loss limit. Should any single occurrence exceed the deductible amount per
occurrence, all losses and expenses beyond the deductible amount are paid by
independent insurance companies unrelated to the Company. Similarly, should the
total of paid losses related to any one year period exceed the maximum aggregate
stop-loss limit for that year, all losses beyond the maximum aggregate stop-loss
limit are paid by independent insurance companies unrelated to the Company. In
1997, the per occurrence deductible amount was $250,000 per claim, to an
aggregate maximum of $11.60 per $100 of temporary worker payroll, or $18.8
million. For claims arising in 1998, the per occurrence deductible amount was
increased to $350,000 and the maximum aggregate stop-loss limit was reduced to
$10.41 per $100 of temporary worker payroll, or $31.7 million.
For claims arising in years prior to 1997, the Company has insured all losses
beyond amounts reserved in its financial statements with independent insurance
companies unrelated to the Company. The difference between the discounted
maximum aggregate stop-loss limit for claims arising in 1997 and 1998 and the
total of claims paid and reserved for in the Company's financial statements for
the same periods is $4.0 million. This amount represents the discounted maximum
additional exposure, net of tax, to the Company before its maximum aggregate
stop-loss limits are met for all periods before December 31, 1998.
The Company establishes its reserve for workers' compensation claims using
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 claims reserve are charged or credited to expense in the
periods in which they occur. Included in the accompanying consolidated balance
sheets as of December 31, 1998 and 1997, are workers' compensation claims
reserves in the non-monopolistic states of $24.4 million and $12.9 million,
respectively. The claims reserves were computed using a discount rate of 6.0% at
December 31, 1998 and 1997.
Workers' compensation expense totaling $30.6 million, $19.2 million and $10.0
million was recorded as a component of cost of services in each of the years
ended December 31, 1998, 1997 and 1996, respectively.
For the 1997 and 1998 program years, the Company is required to provide
collateral in the amount of the maximum aggregate stop-loss limits, less claims
paid to date. The Company provides approximately 50% of the required collateral
in the form of a surety bond, and 50% in letters of credit. Accordingly, at
December 31, 1998, $14.5 million of the collateral was satisfied with surety
bonds and $12.6 million was satisfied with letters of credit for the years ended
December 31, 1998 and 1997.
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<PAGE>
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For workers' compensation claims originating in Washington, Ohio, and
West Virginia (the monopolistic states), and Canada and Puerto Rico, the
Company pays workers' compensation insurance premiums as required by state
administered programs. The insurance premiums are established by each
jurisdiction, generally 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, 1998 and 1997, the Company recorded workers'
compensation credit receivables of $1.4 million and $1.1 million respectively,
and workers' compensation liabilities of $1.2 million and $0.6 million
respectively, related to the monopolistic states.
In December 1998, the Company purchased a deductible insurance policy for
the non-monopolistic states covering the years ended 1999 and 2000. The policy
includes substantially the same terms and limitations as the 1998 policy
described above except that the Company is required to provide collateral in the
amount of 60% of claims reserves. The collateral for the 1999 program will
consist of 50% letters of credit and 50% surety bond. Accordingly, subsequent to
year end, the Company provided the insurance carrier with a letter of credit
totaling $4 million and a surety bond for $12.5 million. During 1999, the total
amount of the letters of credit and surety bonds for the 1999 program year will
increase to approximately $24.0 million.
The Company has established a risk management department at its corporate
headquarters to manage its insurers, third party claims administrators, and
medical service providers. To reduce wage-loss compensation claims, the Company
employs claims coordinators throughout the United States. The claims
coordinators manage the acceptance, processing and final resolution of claims
and administer the Company's return to work program. Workers in the program are
employed on customer assignments that require minimal physical exertion or
within the Company in the local dispatch office. The Company has an on-line
connection with its third party administrator that allows the claims
coordinators 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 job site
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 job site
for the purpose of applicable safety standards compliance.
In 1998, the Company's accident rate was approximately one incident per
7,853 man hours worked, an improvement over the Company's accident rate of
approximately one incident per 7,764 per man hours worked in 1997. 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 promote job site
safety. 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 customers' job site.
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 job site 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.
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<PAGE>
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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.
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 corporate headquarters
and administrative offices. Additionally, the Company owns a dispatch office in
Kansas City, Missouri. During 1997 and 1998, the Company sold two buildings
formerly used as a dispatch offices for proceeds of $120,000 and $185,000,
respectively. 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.
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, 1998.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock commenced trading on the New York Stock Exchange
("NYSE") on October 28, 1998. Beginning on June 12, 1996, the Company's common
stock was traded on the Nasdaq National Market and prior to that date, the
Company's common stock was traded over-the-counter. The high and low bids (for
periods before October 28, 1998) and sale prices (for periods after October 28,
1998) were as follows:
<TABLE>
<CAPTION>
QUARTER ENDED HIGH* LOW*
------------- ----- ----
<S> <C> <C>
March 31, 1997 6.17 3.33
June 30, 1997 4.56 2.89
September 30, 1997 10.94 4.50
December 31, 1997 17.17 9.11
March 31, 1998 23.67 10.17
June 30, 1998 30.63 17.50
September 30, 1998 40.50 11.38
December 31, 1998 24.50 11.50
</TABLE>
*Dollar amounts are adjusted to reflect the three-for-two stock
splits which were effective on October 24, 1997 and May 11, 1998.
The Company had 690 shareholders of record as of December 31, 1998. The
quotation information has been derived from the NYSE and Nasdaq Stock Market and
information for periods prior to October 28, 1998 does not include retail
markups, markdowns or commissions and may not be reflective of actual
transactions. 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.
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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, 1998 and 1997, and the
Consolidated Statements of Income, Shareholders' Equity, and Cash Flows for the
years then ended were audited by Arthur Andersen LLP, whose report thereon
appears elsewhere herein. The Consolidated Statements of Income, Shareholders'
Equity, and Cash Flows for the year ended December 31, 1996 were audited by BDO
Seidman, LLP, whose report thereon appears elsewhere herein. The Statement of
Operations Data for the years ended December 31, 1995 and 1994, and the balance
Sheet Data at December 31, 1996, 1995 and 1994 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
(IN THOUSANDS, EXCEPT PER SHARE DATA AND NUMBER OF OFFICES)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1994 1995 1996 1997 1998
----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues from services . . . . . . . . . . . . . . . $38,951 $94,362 $163,450 $335,409 $606,895
Gross profit . . . . . . . . . . . . . . . . . . . . 12,095 29,479 47,919 98,742 183,971
Income before taxes and extraordinary item . . . . . 1,188 3,214 3,506 12,522 33,390
Extraordinary item, net of income tax . . . . . . . . -- -- (1,197) -- --
Net income . . . . . . . . . . . . . . . . . . . . . 852 2,062 724 6,963 19,799
Earnings per common share
Basic. . . . . . . . . . . . . . . . . . . . . . . $0.05 $0.11 $0.03 $0.25 $0.71
Diluted. . . . . . . . . . . . . . . . . . . . . . $0.05 $0.10 $0.03 $0.25 $0.69
Weighted average shares outstanding (1)
Basic. . . . . . . . . . . . . . . . . . . . . . . 14,727 18,650 23,798 27,669 27,796
Diluted. . . . . . . . . . . . . . . . . . . . . . 14,727 19,559 24,433 28,167 28,666
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------------------------------------------
1994 1995 1996 1997 1998
------------ ----------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets . . . . . . . . . . . . . . . . . . . $7,572 $20,730 $48,534 $65,617 $105,933
Total assets . . . . . . . . . . . . . . . . . . . . 8,912 26,182 64,125 80,367 130,736
Current liabilities . . . . . . . . . . . . . . . . 5,631 7,956 10,961 15,788 34,842
Long-term liabilities . . . . . . . . . . . . . . . . 319 9,695 1,572 6,538 15,397
Total liabilities . . . . . . . . . . . . . . . . . 5,950 17,650 12,533 22,326 50,239
Shareholders' equity . . . . . . . . . . . . . . . . 2,962 8,532 51,592 58,041 80,497
Cash dividends declared (2) . . . . . . . . . . . . 43 43 43 43 43
Working capital . . . . . . . . . . . . . . . . . . 1,941 12,774 37,573 49,829 71,091
OPERATING DATA: (UNAUDITED)
Revenues from dispatch offices open for full year . . $27,311 $65,798 $133,156 $280,538 $508,980
Revenues from dispatch offices opened during year. . $11,640 $28,564 $30,294 $54,871 $97,915
Dispatch offices open at period end. . . . . . . . . 51 106 200 316 486
</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, October 24, 1997 and May 11, 1998.
(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 Item 5 "Market for Registrant's
Common Equity and Related Stockholder Matters".
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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 freight handling,
warehousing, landscaping, construction, light manufacturing, and other light
industrial businesses. The Company has rapidly grown from 17 dispatch offices in
1993 to 486 dispatch offices at December 31, 1998. 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 $39.0 million in
1994 to $606.9 million in 1998. This revenue growth has been generated both by
opening new dispatch offices and by continuing to increase sales at existing
dispatch offices. In 1998, the average annual revenue per dispatch office open
for more than a full year was approximately $1.6 million (approximately $1.4
million in 1997).
The Company expects to open 200 new dispatch offices in the first half of
1999 and 200 dispatch offices in 2000. In 1998, the Company incurred costs of
approximately $7.6 million to open 170 new dispatch offices, an average of
approximately $45,000 per dispatch office. Approximately $13,000 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 $32,000 of
the cost of opening a dispatch office includes computer systems and other
equipment related costs, leasehold improvements and a cash dispensing machine
and related equipment. 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 within 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 1998 was approximately 39 days. Consequently, the Company historically
has experienced significant negative cash flow from operations and investment
activities during periods of high growth. While the Company has generated net
positive cash flows from operations in each of the two years ended December 31,
1998 and 1997, the Company may 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 -- 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.
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 were not material during any period presented herein.
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<PAGE>
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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 1998,
the Company provided temporary workers to in excess of 190,000 customers and
filled more than 4.8 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,
---------------------------------------------------
1996 1997 1998
---------------- ------------- ------------
<S> <C> <C> <C>
Revenues from services . . . . . . . . . . . . . 100.0% 100.0% 100.0%
Cost of services . . . . . . . . . . . . . . . 70.7 70.6 69.7
Selling, general and administrative expenses. . 26.3 25.1 23.8
Depreciation and amortization. . . . . . . . . . 1.1 1.2 1.0
Interest (income) expense and other, net . . . . (.2) (.6) .04
Income before taxes on income and
extraordinary item . . . . . . . . . . . . . 2.1 3.7 5.5
Net income . . . . . . . . . . . . . . . . . . . .4 2.1 3.2
</TABLE>
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
DISPATCH OFFICES. The number of offices grew to 486 at December 31, 1998
from 316 locations at December 31, 1997, a net increase of 170 dispatch offices
or 53.8%. The Company estimates that its aggregate costs of opening 170 new
dispatch offices in 1998 was $7.6 million, an average of approximately $45,000
per dispatch office, compared to aggregate costs of approximately $3.8 million,
an average of approximately $33,000 per dispatch office, to open 116 new stores
in 1997. The increase in per-store costs in 1998 was primarily the result of the
addition of a cash dispensing machine and related equipment. Approximately
$13,000 of 1998 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
$32,000 of pre-opening costs includes computer systems and other equipment
related costs, leasehold improvements and a cash dispensing machine and related
equipment. The number of dispatch 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 approximately $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.
REVENUES FROM SERVICES. Revenues from services increased to $606.9 million
in 1998 as compared to $335.4 million in 1997, an increase of $271.5 million or
80.9%. 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
170 new dispatch offices in 1998 and increased its average revenues per new
dispatch office from approximately $473,000 in 1997 to approximately $576,000 in
1998. In 1998, the Company opened 161 of its 170 new dispatch offices in the
first half of the year, compared to 97 dispatch offices opened in the first half
and 19 opened in the second half of 1997. 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. Included in revenues from
services for the years ended December 31, 1998 and 1997 were CDM fees of $3.6
million and $0, respectively.
Revenues from services increased to $335.4 million for 1997 as compared to
$163.5 million for 1996, an increase of $171.9 million or 105.2%. The increase
in revenues was 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. Additionally, the minimum wage rate was increased from
$4.75 per hour to $5.15 per hour in October 1997.
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<TABLE>
<CAPTION>
(IN THOUSANDS)
1996 1997 1998
---------------- ------------------ --------------
<S> <C> <C> <C>
Increase in revenues from dispatch offices open for full year . . . $38,794 $117,088 $173,571
---------------- ------------------ --------------
Revenues from new dispatch offices opened during year. . . . . . . . 30,294 54,871 97,915
---------------- ------------------ --------------
Total increase over prior year . . . . . . . . . . . . . . . . . . $69,088 $171,959 $271,486
---------------- ------------------ --------------
---------------- ------------------ --------------
</TABLE>
COST OF SERVICES. Cost of services increased to $422.9 million in 1998 from
$236.7 million in 1997, an increase of $186.2 million or 78.7%. The increase in
cost of services was due largely to the 80.9% increase in revenue from 1997 to
1998. Cost of services was 69.7% of revenue in 1998 compared to 70.6% of revenue
in 1997, an improvement of .9%. Cost of services as a percentage of revenues
decreased as compared to 1997 levels as the Company's workers' compensation
claims experience continues to improve. Additionally, the Company continues to
increase sales in mature stores and improve margins as it consolidates its
position in the marketplace. Finally, the inclusion of CDM fees in revenues from
services contributed .4% to the improvement in cost of services as a percentage
of revenue from 1998 to 1997.
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 was 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.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $144.2 million in 1998 as compared to $84.1 million
in 1997, an increase of $60.1 million, or 71.5%. The increase was largely due to
increases in personnel and infrastructure to support a 80.9% increase in revenue
from 1997 to 1998. Selling, general and administrative expenses were 23.8% of
revenues in 1998 as compared to 25.1% of revenues in 1997. 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.
Included in selling, general and administrative costs for the years ended
December 31, 1998 and 1997 are CDM related expenses of $1.9 million and $0,
respectively. 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 were $84.1 million in 1997 as
compared to $42.9 million in 1996, an increase of $41.2 million or 96.0%. The
increase was largely due to increases in personnel and infrastructure to support
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 was due mainly to economies of scale on fixed and
semi-fixed administrative costs.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expenses were $6.1 million in 1998 and $4.0 million in 1997, an increase of $2.1
million or 52.5%. 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 170 stores in 1998. Additionally, the
Company added approximately $13.2 million in property and equipment during the
year, including information systems and equipment for the new stores, cash
dispensing machines for all of its United States' stores and enhanced management
information systems hardware and software. Included in depreciation and
amortization expense for the years ended December 31, 1998 and 1997 is
depreciation on CDMs of $.6 million and $0, respectively.
Depreciation and amortization expenses were $4.0 million in 1997 and $1.8
million in 1996, an increase of $2.2 or 122.2%. 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.
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<PAGE>
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In March 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-5, "Reporting on the Costs of Start-up Activities" (the
"Statement"). The Statement establishes new rules for the financial reporting of
start-up costs, and will require the Company to expense the cost of establishing
new dispatch offices as incurred and write off, as a cumulative effect of
adopting the Statement, any remaining capitalized pre-opening costs in the first
quarter of the year adopted. The Statement is effective for years beginning
after December 31, 1998 and the Company will adopt it in the first quarter of
1999. The effect of adopting the Statement will be to recognize a non-operating
expense, net of tax, of approximately $1.4 million.
INTEREST (INCOME) EXPENSE AND OTHER, NET. Interest (income) expense and
other, net was an expense of $.3 million in 1998 compared to income of $1.9
million in 1997, an increase in expense of $2.2 million. Approximately $1.2
million of the difference was due to investment income earned during 1997 on the
Company's workers' compensation deposits, which were replaced by letters of
credit and surety bonds in 1998. Additionally, the Company had lower cash
balances available for investing in 1998 due to cash balances of approximately
$15.2 million held in the CDMs at December 31, 1998 for payment of temporary
worker payroll. Finally, included in interest (income) expense and other, net is
interest expense on the CDM capital leases of $.5 million and $0 for the years
ended December 31, 1998 and 1997, respectively.
Interest (income) expense and other, net was income of $1.9 million in
1997 compared to income of $.3 million in 1996, an increase of $1.6 million or
533.3%. Approximately $1.2 million of the increase was due to investment
income earned during 1997 on the Company's workers' compensation deposits.
TAXES ON INCOME. Taxes on income increased to $13.6 million in 1998 from
$5.6 million in 1997, an increase of $8.0 million or 142.9%. The increase in
taxes was largely due to the 167.2% increase in pretax income to $33.4 million
in 1998 from $12.5 million in 1997. The Company's effective tax rate was 40.7%
in 1998 as compared to 44.8% in 1997. The decrease in the effective income tax
rate was due primarily to prior period amounts included in the 1997 tax
provision. The principal difference between the statutory federal income tax
rate and the Company's effective income tax rate result from state income taxes
and certain non-deductible expenses.
Taxes on income increased to $5.6 million in 1997 from $1.6 million (before
adjustment for the tax effect of the extraordinary item) in 1996, an increase of
$4.0 million or 250.0%. The increase in taxes was largely due to the 257.1%
increase in pretax income to $12.5 million in 1997 from $3.5 million in 1996.
The Company's effective tax rate was 44.8% in 1997 as compared to 45.7% in 1996.
The decrease in the effective income tax rate was due primarily to the decrease
in prior period amounts as a percentage of the 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.
The Company had a net deferred tax asset of approximately $8.4 million at
December 31, 1998, 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 increased to $19.8 million in 1998 from net income
of $7.0 million in 1997, an increase of $12.8 million or 182.9%. The increase
was largely due to an 80.9% increase in revenues in 1998 from 1997..
Contributing to the increase in net income was a decrease in costs of services
as a percentage of revenue to 69.7% in 1998 from 70.6% in 1997 and a decrease in
selling, general and administrative costs as a percentage of revenues to 23.8%
of revenues in 1998 from 25.1% of revenues in 1997.
Net income increased to $7.0 million in 1997 from net income of $.7 million
in 1996, an increase of $6.3 million or 900.0%. The increase was largely due to
a 105.2% increase in revenues in 1997 from 1996.. 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 $1.2 million related to the retirement of its
subordinated debt.
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LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by (used in) operating activities was $13.3 million,
$11.3 million and ($7.1) million, in 1998, 1997 and 1996, respectively. The
increase in cash flows from operations in 1998 as compared to 1997 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 $12.1
million, due mainly to the increase in revenues over 1997. Finally, income taxes
payable, net of income taxes receivable, increased by $5.7 million as a result
of the Company's increased profitability over 1997. These increases were offset
by the increase in accounts receivable of $37.1 million over 1997. 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.
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. 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.
The Company used net cash in investing activities of $9.2 million in 1998,
$4.9 million in 1997 and $11.0 million in 1996. The increase in cash used in
investing activities in 1998 as compared to 1997 is due primarily to the
increase in capital expenditures incurred to open 170 new dispatch offices in
1998 as compared to 116 in 1997. These expenditures include primarily store
pre-opening costs, computer systems and related equipment, and leasehold
improvements. Additionally, the Company continued to acquire additional hardware
and software to accommodate the Company's information needs during its rapid
expansion program.
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.
Additionally, the Company's expenditures for new dispatch office pre-opening
costs declined to $2.6 million in 1997 compared to $3.6 million in 1996.
Net cash (used in) provided by financing activities was ($.1) million,
($1.9) million and $30.4 million in 1998, 1997 and 1996, respectively. The
decrease in cash used by financing activities in 1998 as compared to 1997 is due
mainly to the increase in proceeds from the sale of stock through the Company's
employee stock option and employee stock purchase plans. Additionally, in 1998,
the Company made payments of $.6 million on the CDM capital leases and used cash
of $1.9 million to repurchase 106,116 shares of its common stock on the open
market.
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 343,884 shares of its common stock on the open market.
During 1998, the Company entered into a line-of-credit agreement with U.S.
Bank with interest at the bank's prime rate (7.75% at December 31, 1998). The
agreement allows the company to borrow up to the lesser of $40 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 2000.
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, 1998. Subsequent to year end, the Company entered
into a new line-of-credit agreement with the bank which increases the Company's
borrowing limit to $60 million.
As discussed further in Note 2 to the consolidated financial statements,
the Company is required by the workers' compensation program to collateralize a
portion its workers' compensation liability with irrevocable letters of credit.
At December 31, 1998, the Company had provided its insurance carriers with
letters of credit totaling $12.6 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, 1998, no borrowings were
outstanding on the line-of-credit, $12.6 million was committed by the letters of
credit and $27.4 million was available for borrowing. Subsequent to year end,
the Company increased its outstanding letters of credit by $4.0 million.
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Historically, the Company has financed its operations through cash
generated by external financing including term loans, lines-of-credit and the
1996 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.
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk related to changes in interest rates,
and to a minor extent, foreign currency exchange rates, each of which could
adversely affect the value of the Company's investments. The Company does not
currently use derivative financial instruments. At December 31, 1998, the
Company's investments have maturities when purchased of less than 90 days. As
such, an increase in interest rates immediately and uniformly by 10% from levels
at December 31, 1998 would not have a material affect upon the Company's cash
and cash equivalent balances. Because of the relative short maturities of
investments held by the Company, it does not expect its operating results or
cash flows to be affected to any significant degree by a sudden change in market
interest rates on its cash and cash equivalents portfolio.
The Company has a minor amount of assets and liabilities denominated in
certain foreign currencies related to the Company's international operations.
The Company has not hedged its translation risk on these currencies and the
Company has the ability to hold its foreign-currency denominated assets
indefinately and does not expect that a sudden or significant change in foreign
exchange rates would have a material impact on future net income or cash flows.
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.
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
170 dispatch offices in 1998 and plans to open 200 new offices in the first half
of 1999 and 200 in 2000. The Company must therefore recruit a sufficient number
of managers to staff each new office and to replace managers lost through
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.
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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. While the Company has generated positive cash
flows from operations in each of the two years ended December 31, 1998 and 1997,
the Company has historically experienced significant negative cash flow from
operations and investment activities resulting from the rapid growth in dispatch
offices. In 1998, the Company incurred costs of approximately $7.6 million to
open 170 new dispatch offices, an average of approximately $45,000 per dispatch
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 job
site 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.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The information
required by this item is incorporated by reference from the section titled
"Quantitative and Qualitative Disclosures About Market Risk" in Item 7A.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" of this Form 10-K.
INFORMATION PROCESSING. The Company's management information systems,
located at its headquarters, are essential for data exchange and operational
communications 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.
YEAR 2000 ISSUES. As the Year 2000 approaches, there are uncertainties
concerning whether computer systems and electronic equipment with date functions
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. Due to the Company's reliance on its management
information systems, failure of the management information systems for any
reason (including Year 2000 noncompliance) could result in the loss of
communications with its dispatch offices and could result in unforeseeable but
potentially material losses to the Company. However, management believes that
the Year 2000 does not pose a significant operational problem for the Company's
computer systems.
The Company has developed and is currently implementing a significant
upgrade to its proprietary management information systems to address the
dramatic growth (and expected future growth) in the number of the Company's
dispatch offices and provide certain enhanced features. The software upgrade is
Year 2000 compliant. Through December 31, 1998, the Company has incurred
approximately $1.2 million in development costs which is included in the
accompanying consolidated balance sheets in "Computers and Software". The
Company expects that the upgrade will be installed Company-wide not later than
September 30, 1999.
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Management has identified three systems with potential Year 2000 problems:
(1) the existing management information system, which is being replaced as
discussed above, (2) the communication system currently used to exchange point
of sale information between corporate headquarters and the dispatch offices and,
(3) the payroll system for corporate employees (but not for temporary employees
dispatched to customers). The Company expects to correct the Year 2000 problem
related to its system for communicating point of sale information with an
upgrade supplied by the vendor. Alternatively, the Company believes that it
could implement an alternative, Year 2000 compliant system with minimal cost.
The Company expects to upgrade the payroll system by year-end, but will use, if
necessary, a third party capable of providing payroll services. The Company has
not negotiated the cost of such services but believes there are alternative
providers to assure that any costs incurred are at competitive rates.
The Company has tested and will continue to test other computer components
and software including its non-information processing systems such as its data
and phone communications systems for Year 2000 compliance. Based on such
testing, the Company expects to replace its voice mail system for a total cost
of approximately $75,000. Testing has indicated no other year 2000 compliance
problems. If other systems fail, the Company will be required to replace them.
Replacement systems are mass produced and available from a large number of
vendors and would constitute an immaterial expense relative to the operating
budget of the Company.
Management believes that as a result of the nature of the Company's
business the Company bears little exposure to risk of Year 2000 non-compliance
by third parties. The Company acquires supplies (e.g., personal safety
equipment, office supplies) that are mass-produced and readily available from a
large number of suppliers. None of the Company's customers represent more than
2% of the Company's revenues, so that, unless a significant number of the
Company's customers experience complete disruptions to their business, the
Company is unlikely to experience significant loss of revenue. Nevertheless, the
Company is currently conducting a survey of its largest vendors and customers in
order to assess the readiness of these third parties with which it deals. If the
Company determines that any of its vendors are unable to adequately address Year
2000 issues, the Company believes that alternatives could be found before the
Year 2000.
The Company believes that its systems will be Year 2000 compliant by year
end, if not before, and that the Year 2000 issue will not materially impact the
Company. The forward looking statements referenced above, including the
preceding sentence, are subject to a number of risks and uncertainties,
including the ability of customers, vendors and other third parties to solve
timely their Year 2000 issues, the accuracy of Year 2000 testing methods and
that remediation of Year 2000 issues will be correctly implemented. The Company
does not have a contingency plan to address unexpected Year 2000 issues; however
the Company has taken steps to develop a contingency plan for certain Year 2000
issues and anticipates completion by April 30, 1999.
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
None.
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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 15, 1999 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 . . . . . . . . . . . . . . . . . . . 55 Chairman of the Board, Chief Executive Officer and
President
Ronald L. Junck . . . . . . . . . . . . . . . . . . . . 51 Director, Executive Vice President, General Counsel and
Secretary
Richard W. Gasten . . . . . . . . . . . . . . . . . . . 61 Director and Vice President and Secretary of Labour
Ready Temporary Services, Ltd.
Thomas E. McChesney . . . . . . . . . . . . . . . . . . 52 Director
Robert J. Sullivan . . . . . . . . . . . . . . . . . . 68 Director
Joseph P. Sambataro, Jr.. . . . . . . . . . . . . . . . 48 Executive Vice President, Chief Financial Officer,
Treasurer and Assistant Secretary
Dennis Diamond . . . . . . . . . . . . . . . . . . . . 38 Chief Operating Officer
Robert H. Sovern . . . . . . . . . . . . . . . . . . . 50 Assistant Treasurer
Robert F. Groen . . . . . . . . . . . . . . . . . . . 48 Director of Risk Management
Todd A. Welstad . . . . . . . . . . . . . . . . . . . . 29 Chief Information Officer
Joseph L. Havlin . . . . . . . . . . . . . . . . . . . 44 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.
RONALD L. JUNCK has served as a Director and Secretary of the Company since
November 1995. In February 1998, Mr. Junck joined the Company as Executive Vice
President and General Counsel. From 1974 until 1998, Mr. Junck practiced law in
Phoenix, Arizona, specializing in business law and commercial transactions and
serving as the Company's outside counsel. As an attorney, he has extensive trial
experience in a variety of commercial cases and has lectured widely at a number
of colleges and universities.
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 is also
a director of Firstlink Communications, Inc. and Nations Express, Inc.
Previously, Mr. McChesney was an officer and director of Paulson Investment Co.
and Paulson Capital Corporation from March 1977 to June 1995.
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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. Mr. Sambataro obtained a degree in
accounting from Fordham University in 1972 and is a member of the American
Institute of Certified Public Accountants.
DENNIS DIAMOND has served as Chief Operating Officer since June 1998. Since
joining the Company in 1993, Mr. Diamond has served in a variety of positions of
increasing responsibility, most recently, as Executive Vice President of
Operations since March 1998 and 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.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities and Exchange Act of 1934, as amended,
requires the Company's officers and directors and certain other persons to file
timely certain reports regarding ownership of, and transactions in, the
Company's securities with the Securities and Exchange Commission. Copies of the
required filings must also be furnished to the Company. Based solely on its
review of such forms received by it or representations from certain reporting
persons, the Company believes that during 1998 all applicable Section 16(a)
filing requirements were met, except that a Form 4 was not filed timely with
respect to Ralph E. Peterson's exercise on November 5, 1998 of an option to
acquire 50,253 shares of the Company's common stock. This event was reported on
a Form 5 dated February 12, 1999.
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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.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE (1)
--------------------------- ---------------------- ----------------------
LONG -TERM ALL OTHER
ANNUAL COMPENSATION COMPENSATION AWARDS COMPENSATION
--------------------------- ---------------------- ----------------------
Securities
Underlying Options/ Matching 401(k)
Name and Position Year Salary ($) SARs(#) Contributions
- ---------------------------------------- ----------- ------------- ----------------------- ----------------------
<S> <C> <C> <C> <C>
Glenn A. Welstad 1998 497,380 30,000 $2,500
Chairman of the Board, Chief 1997 452,958 - $2,375
Executive Officer and President 1996 401,486 -
Ralph E. Peterson (2) 1998 240,000 30,000 -
Executive Vice President - Corporate 1997 265,026 1,125 -
And Business Development 1996 154,772 506,250 -
Dennis D. Diamond 1998 198,692 30,000 $2,484
Chief Operating Officer 1997 172,917 79,875 $2,195
1996 170,233 -
Joseph P. Sambataro, Jr. 1998 192,692 30,000 $1,731
Executive Vice President Chief 1997 53,328 270,000 -
Financial Officer, Treasurer and
Assistant Secretary
Thomas E. Gilbert 1998 168,000 6,369 $2,500
Vice President - Western Region 1997 153,577 23,625 $1,487
1996 86,263 13,500 -
- ---------------------------------------- ----------- ------------- ----------------------- ----------------------
</TABLE>
(1) None of the named executives received compensation reportable under the
Restricted Stock Awards or Long-Term Incentive Plan Payouts columns.
(2) Effective December 31, 1998, Mr. Peterson resigned as Executive Vice
President Corporate and Business Development and effective March 12,
1999, he resigned as Director.
- --------------------------------------------------------------------------------
Page-23
<PAGE>
- --------------------------------------------------------------------------------
OPTION GRANTS DURING 1998 FISCAL YEAR
The following table provides information related to options granted to the
named executive officers during 1998.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM (1)
- ------------------------------------------------------------------------------------------ -----------------------
Number of % of total
Securities Options/SARS Exercise
Underlying Granted to or Base
Options/SARS Employees in Price Expiration
Name Granted (2) Fiscal Year ($/Sh)(3) Date 5% 10%
- ------------------------------------ --------------- -------------- ---------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Glenn Welstad
Chairman of the Board, Chief 30,000 2% 18.08 2/27/03 149,910 331,110
Executive Officer and President
- ------------------------------------ --------------- -------------- ---------- ----------- ------------ ----------
Ralph E. Peterson
Executive Vice President- Corporate 30,000 2% 18.08 2/27/03 149,910 331,110
and Business Development
- ------------------------------------ --------------- -------------- ---------- ----------- ------------ ----------
Dennis D. Diamond
Chief Operating Officer 30,000 2% 18.08 2/27/03 149,910 331,110
- ------------------------------------ --------------- -------------- ---------- ----------- ------------ ----------
Joseph P. Sambataro, Jr.
Executive Vice President, Chief 30,000 2% 18.08 2/27/03 149,910 331,110
Financial Officer, Treasurer and
Assistant Secretary
- ------------------------------------ --------------- -------------- ---------- ----------- ------------ ----------
Thomas E. Gilbert
Vice President - Western Region 6,369 .3% 18.08 2/27/03 31,826 70,295
- ------------------------------------ --------------- -------------- ---------- ----------- ------------ ----------
</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 vest 25%
annually over the next 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.
- --------------------------------------------------------------------------------
Page-24
<PAGE>
- --------------------------------------------------------------------------------
OPTION EXERCISES DURING 1998 AND YEAR END OPTION VALUES
The following table provides information related to options exercised by
the named executive officers during 1998 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 1998 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
DECEMBER 31, 1998 (#) DECEMBER 31, 1998 ($) (1)
-------------------------------- ---------------------------------
SHARES
ACQUIRED ON VALUE
NAME EXERCISE (#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------- -------------- ------------ ------------ -- --------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Glenn Welstad
Chairman of the Board,
Chief Executive Officer
And President -- -- -- 30,000 -- $48,135
- ----------------------------- -- -------------- -- ------------ -- ------------ -- --------------- -- ------------- -- -------------
Ralph E. Peterson
Executive Vice President
Corporate and Business
Development 50,835 $1,980,236 152,529 233,343 $2,096,569 $3,007,170
- ----------------------------- -- -------------- -- ------------ -- ------------ -- --------------- -- ------------- -- -------------
Dennis D. Diamond
Chief Operating Officer
-- -- 34,706 85,632 $490,651 $714,963
- ----------------------------- -- -------------- -- ------------ -- ------------ -- --------------- -- ------------- -- -------------
Joseph P. Sambataro, Jr.
Executive Vice President
Chief Financial Officer
Treasurer and Assistant
Secretary -- $1,000,552 75,000 165,000 $1,059,938 $1,956,023
- ----------------------------- -- -------------- -- ------------ -- ------------ -- --------------- -- ------------- -- -------------
Thomas E. Gilbert
Vice President - Western
Region 9,281 -- -- 25,213 -- $276,508
</TABLE>
(1) The closing price for the Company's common stock as reported by the
New York Stock Exchange on December 31, 1998, was $19.69.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Company's executive compensation is determined by a compensation
committee comprised of two members of the Board of Directors, Messrs. McChesney
and Sullivan. The philosophy of the Company's executive compensation program is
that compensation of executive officers should be directly and materially linked
both to the operating performance of the Company and to the interests of
Shareholders.
Annual cash compensation, together with stock options, is designed to
attract and retain qualified executives and to ensure that such executives have
a continuing stake in the long term success of the Company. Beginning in 1998,
the Compensation Committee developed more formal policies with respect to
executive compensation through the use of a consulting firm. In 1998, the Board
of Directors approved guidelines for annual grants of stock options to
management and administrative personnel. Under the plan as approved, each of the
executive officers of the Company receives a grant of 20,000 options per year,
subject to annual approval by the Compensation Committee.
With respect to compensation for the Company's CEO, base salary for 1998
and prior years has been set by a contract that expired December 31, 1998. The
Company has reached an agreement, and expects to finalize a new contract as
described below, with Mr. Welstad early in 1999. With respect to both base
salary and incentive compensation, the Compensation Committee believes that
there is substantial basis for increasing the CEO's compensation. The Company's
common stock price has increased dramatically in the past four and a half years
(more than 1,400%), many times the Company's peer group and the Nasdaq
Composite. In addition, revenue growth during the last year and last five years
increased 81% and 1,458%, respectively, while earnings have increased in the
same periods 183% and 2,224%, respectively.
- --------------------------------------------------------------------------------
Page-25
<PAGE>
- --------------------------------------------------------------------------------
The Compensation Committee believes that, as the Company's single largest
shareholder, the CEO's interests are already aligned with the interests of all
shareholders. However, based on the Company's outstanding performance for the
last year and the prior five years, the Committee believes that there is a
significant basis for increasing the CEO's compensation. The Committee would
view favorably increasing the CEO's cash compensation through salary adjustments
or bonuses or granting additional stock-based compensation, or both. Instead,
the CEO has requested, and the Committee has given preliminary approval, to (1)
entering into a split dollar insurance policy with a trust for his estate
planning purposes; and (2) increasing his salary the same as in past years, by
10%.
With respect to other executive officers, the Compensation Committee sets
salary based on recommendations of the CEO, unless the officer's salary is
established by written contract. With respect to officers that have recently
joined the Company, the recommendations are based on the CEO's negotiations with
the officer as necessary to attract such persons to become officers of the
Company. With respect to other officers, especially the CEO's son, the
Compensation Committee reviews the salaries for officers with comparable duties
at the median of companies of comparable revenue size in the Pacific Northwest.
These companies are selected informally without the use of a compensation
consultant. Annual salary increases are typically modest, except to reflect
changes in responsibilities.
In 1997, the Company began developing a cash incentive bonus plan for
management employees. The draft plans were rejected and, in early 1998, the
Company engaged a consultant to assist it in developing a plan for incentive
cash compensation. At this time, both the Company's CEO and the Compensation
Committee believe that stock option grants provide an adequate incentive for
management employees. As a result, the Compensation Committee does not at this
time anticipate adopting an incentive cash compensation plan. The Compensation
Committee intends to review periodically the need for and benefits of such a
plan.
Members of the Compensation Committee
Thomas E. McChesney, Chair
Robert J. Sullivan
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. The Company has reached an agreement with Mr. Welstad for the renewal
of his employment agreement through December 31, 2003. Under terms of the
agreement, Mr Welstad will receive his current salary, with scheduled annual
increases of 10%, 20,000 stock options annually as provided by the Company's
Employee Stock Option and Incentive Plan and an Executive Split Dollar Plan
("the Plan"). Under terms of the Plan, a family trust established by Mr. Welstad
will purchase a $15 million life insurance policy on the life of Mr. Welstad and
his spouse. The Company will advance annual premiums of approximately $167,000
and will receive repayment of these premium advances upon surrender of the
policy, the death of the insured or at the end of the tenth policy year.
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
337,500 of the Company's common stock at its fair market value at date of grant
of $5.95. 67,500 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. Effective December 31, 1998, Mr. Peterson and
the Company agreed to terminate his employment agreement and Mr. Peterson
resigned his duties as Executive Vice President Corporate and Business
Development. Effective March 12, 1999, Mr. Peterson resigned as Director. The
Company has entered into an employment agreement with Mr. Peterson through April
30, 2002 which provides for a salary of $2,000 per month and continuation of the
vesting schedule for options which had been previously granted. Mr. Peterson
will continue to assist the company with business development and other special
projects as directed by its President and CEO.
- --------------------------------------------------------------------------------
Page-26
<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 270,000 of the Company's common stock at its fair market value at date
of grant of $5.55. 67,500 of the options vest on the date of grant and 33,750
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,
1998 for (i) each person known to the Company to own beneficially 5% or more of
any such class as of December 31, 1998, (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 (1) (2). . . . . . . . Common Stock 3,509,888 12.4%
Preferred Stock 3,209,826 74.2%
Ralph E. Peterson (1) . . . . . . . . . Common Stock 263,101 *
Joseph P. Sambataro, Jr (1). . . . . . . Common Stock 116,250 *
Dennis Diamond (1) . . . . . . . . . . . Common Stock 47,269 *
Ronald L. Junck (1). . . . . . . . . . Common Stock 224,801 *
Richard W. Gasten (1) . . . . . . . . . Common Stock 21,675 *
Thomas E. McChesney (1). . . . . . . . . Common Stock 89,959 *
Robert J. Sullivan (1) . . . . . . . . Common Stock 65,737 *
All Officers and Directors as. . . . . . Common Stock 4,349,618 15.4%
Group (11 Individuals) (1) . . . . . . Preferred Stock 3,209,826 74.2%
</TABLE>
* Less than 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, 1998.
(2) The business address of Mr. Welstad is 1016 S. 28th Street, Tacoma,
Washington, 98409.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Junck is an employee of the Company, a member of its board of
directors, and is also a shareholder in a law firm that received approximately
$429,000, $587,000 and $337,000 in payment for legal services performed for the
Company in 1998, 1997 and 1996, respectively.
- --------------------------------------------------------------------------------
Page-27
<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-21 of this
Form 10-K. The Financial Statement Table of Contents is on Page F-1. The Exhibit
Index is found on Page 29 and 30 of this Form 10-K.
The Company filed a Current Report on Form 8-K on November 5, 1998
which reported under Item 5 "Other Events" that 1) the Company commenced trading
on the NYSE on October 27, 1998, 2) American Stock Transfer and Trust had been
appointed as the Company's transfer agent, and 3) the number of Preferred Shares
purchasable upon exercise of a Purchase Right had been adjusted 6.7/1000 of a
Preferred Share.
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 3/30/99
--------------------------------------------
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 3/30/99
Signature Date
- ----------------------------------------------------------
Glenn A. Welstad, Chairman of the Board, Chief Executive
Officer and President
/s/ Joseph P. Sambataro, Jr. 3/30/99
- ----------------------------------------------------------
Signature Date
Joseph P. Sambataro, Jr., Executive Vice President, Chief
Financial Officer, Treasurer and Assistant Secretary
/s/ Ronald L. Junck 3/30/99
- ----------------------------------------------------------
Signature Date
Ronald L. Junck, Executive Vice President, Secretary,
General Counsel and Director
/s/ Robert J. Sullivan 3/30/99
- ----------------------------------------------------------
Signature Date
Robert J. Sullivan, Director
/S/ Richard W. Gasten 3/30/99
- ----------------------------------------------------------
Signature Date
Richard W. Gasten, Vice President and Secretary, Labour
Ready Temporary Services, Ltd. and Director
/s/ Thomas E. Mcchesney 3/30/99
- ----------------------------------------------------------
Signature Date
Thomas E. McChesney, Director
- --------------------------------------------------------------------------------
Page-28
<PAGE>
- --------------------------------------------------------------------------------
EXHIBIT INDEX
FORM 10-K
LABOR READY, INC.
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- -----------
<S> <C> <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 February 3, 1999
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 February 10, 1999
10.9 Form of equipment lease and related schedules at various dates between
the Company as lessor, T&W Financial Corporation as Lessee and Diebold
Corporation as Vendor
10.10 Business Loan Agreement between Labor Ready, Inc. and U.S. Bank of
Washington N.A., dated June 18, 1998
10.11 Excess Bond to Secure Premium and Deductible Obligations between Labor
Ready, Inc., Travelers Casualty and Surety Company of America, Mutual
Indemnity (U.S.) Ltd., and Legion Insurance Company dated September 1,
1998
10.12 Employment Agreement between Labor Ready, Inc. and Ronald L. Junck
dated March 20, 1998
10.13 Bond to Secure Premium and Deductible Obligations between Labor Ready,
Inc. Travelers Casualty and Surety Company of America, Reliance
National Indemnity Company dated February 16, 1999
</TABLE>
- --------------------------------------------------------------------------------
Page-29
<PAGE>
- --------------------------------------------------------------------------------
EXHIBIT INDEX (CONTINUED)
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- -----------
<S> <C> <C>
16 Letter re change in certifying accountant (3)
21 Subsidiaries of Labor Ready, Inc.
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, 1998 and for the year then ended
27.2 December 31, 1996 and 1997, for each of the two
years in the period ended December 31, 1997
27.3 March 31, 1998 and for the three month period then ended
(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.
</TABLE>
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.
- --------------------------------------------------------------------------------
Page-30
<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, 1998 and 1997 ....................................................... F-4
Consolidated Statements of Income
Years Ended December 31, 1998, 1997 and 1996 ..................................... F-6
Consolidated Statements of Shareholders' Equity
Years Ended December 31, 1998, 1997 and 1996 ..................................... F-7
Consolidated Statements of Cash Flows
Years Ended December 31, 1998, 1997 and 1996 ..................................... 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 sheets of Labor Ready,
Inc. and subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of income, shareholders' equity and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. The financial statements of Labor
Ready, Inc. for the year ended December 31, 1996, were audited by other auditors
whose report dated February 24, 1997, expressed an unqualified opinion on those
statements.
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 financial statements referred to above present fairly, in
all material respects, the financial position of Labor Ready, Inc. and
subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
Seattle, Washington /s/ Arthur Andersen LLP
February 12, 1999
- --------------------------------------------------------------------------------
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 statements of income,
shareholders' equity and cash flows of Labor Ready, Inc. and subsidiaries for
the year 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 audit.
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 results of operations and
cash flows of Labor Ready, Inc. and subsidiaries for the year ended December 31,
1996 in conformity with generally accepted accounting principles.
Spokane, Washington /s/ BDO Seidman, LLP
February 24, 1997
- --------------------------------------------------------------------------------
F-3
<PAGE>
- --------------------------------------------------------------------------------
LABOR READY, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
1998 1997
---------------------- ------------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . . $25,940 $22,117
Accounts receivable, less allowance for doubtful accounts
of $4,218 and $2,851. . . . . . . . . . . . . . . . . . . 65,484 36,614
Workers' compensation deposits and credits. . . . . . . . . 2,961 1,082
Prepaid expenses and other . . . . . . . . . . . . . . . . 4,947 2,660
Deferred income taxes. . . . . . . . . . . . . . . . . . . 6,601 3,144
-------------------- -----------------
Total current assets . . . . . . . . . . . . . . . . . . . 105,933 65,617
-------------------- -----------------
PROPERTY AND EQUIPMENT:
Buildings and land. . . . . . . . . . . . . . . . . . . . . 4,854 4,448
Computers and software . . . . . . . . . . . . . . . . . 13,443 8,220
Cash dispensing equipment. . . . . . . . . . . . . . . . . 7,376 --
Furniture and equipment . . . . . . . . . . . . . . . . . 667 497
-------------------- -----------------
26,340 13,165
Less accumulated depreciation . . . . . . . . . . . . . . . 6,069 2,839
-------------------- -----------------
Property and equipment, net . . . . . . . . . . . . . . 20,271 10,326
-------------------- -----------------
OTHER ASSETS:
Intangible assets and other, less accumulated amortization
of $6,383 and $3,569. . . . . . . . . . . . . . . . . . . 2,630 3,076
Deferred income taxes. . . . . . . . . . . . . . . . . . . 1,751 1,212
Restricted cash in captive insurance subsidiary. . . . . . 151 136
-------------------- -----------------
Total other assets . . . . . . . . . . . . . . . . . . . . 4,532 4,424
-------------------- -----------------
Total assets. . . . . . . . . . . . . . . . . . . . . . . . $130,736 $80,367
-------------------- -----------------
-------------------- -----------------
</TABLE>
See accompanying notes to consolidated financial statements.
- --------------------------------------------------------------------------------
F-4
<PAGE>
- --------------------------------------------------------------------------------
LABOR READY, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
(IN THOUSANDS EXCEPT PER SHARE DATA)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
1998 1997
------------------ ----------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . $ 6,889 $ 3,711
Accrued wages and benefits . . . . . . . . . . . . . . . . . . . 7,544 4,080
Workers' compensation claims reserve, current portion . . . . . . 15,300 7,109
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . 4,355 875
Current maturities of long-term debt. . . . . . . . . . . . . . . 754 13
----------------- ----------------
Total current liabilities . . . . . . . . . . . . . . . . . . . 34,842 15,788
----------------- ----------------
LONG-TERM LIABILITIES:
Long-term debt, less current maturities . . . . . . . . . . . . . 5,073 76
Workers' compensation claims reserve, less current portion . . . 10,324 6,462
----------------- ----------------
Total long-term liabilities . . . . . . . . . . . . . . . . . . 15,397 6,538
----------------- ----------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . 50,239 22,326
----------------- ----------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, $0.197 par value, 20,000 shares authorized;
4,324 shares issued and outstanding . . . . . . . . . . . . . . 854 854
Common stock, no par value, 100,000 shares authorized;
27,974 and 27,662 shares issued and outstanding . . . . . . . . . 54,131 49,694
Cumulative foreign currency translation adjustment . . . . . . . (159) 86
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . 25,671 7,407
----------------- ----------------
Total shareholders' equity . . . . . . . . . . . . . . . . . . 80,497 58,041
----------------- ----------------
Total liabilities and shareholders' equity. . . . . . . . . . . $130,736 $80,367
----------------- ----------------
----------------- ----------------
</TABLE>
See accompanying notes to consolidated financial statements.
- --------------------------------------------------------------------------------
F-5
<PAGE>
- --------------------------------------------------------------------------------
LABOR READY, INC.
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1998 1997 1996
----------------------- ------------------ ---------------------
<S> <C> <C> <C>
Revenues from services . . . . . . . . . $606,895 $335,409 $163,450
Cost of services . . . . . . . . . . 422,924 236,666 115,532
--------------------- ------------------- --------------------
Gross profit. . . . . . . . . . . . . . 183,971 98,743 47,918
Selling, general and
administrative expense . . . . . . . 144,249 84,081 42,955
Depreciation and amortization. . . . . 6,076 4,011 1,797
--------------------- ------------------- --------------------
Income from operations. . . . . . . . . 33,646 10,651 3,166
Interest (income) expense
and other, net . . . . . . . . . . . 256 (1,871) (340)
--------------------- ------------------- --------------------
Income before taxes on income
and extraordinary item . . . . . . . . 33,390 12,522 3,506
Taxes on income . . . . . . . . . . . 13,591 5,559 1,585
--------------------- ------------------- --------------------
Income before extraordinary
item . . . . . . . . . . . . . . . . 19,799 6,963 1,921
Extraordinary item, net of income
tax benefit of $703 . . . . . . . . . -- -- (1,197)
--------------------- ------------------- --------------------
Net income . . . . . . . . . . . . . . $19,799 $6,963 $ 724
--------------------- ------------------- --------------------
--------------------- ------------------- --------------------
Basic income per common share:
Income before extraordinary item . . . $0.71 $0.25 $0.08
Extraordinary item, net. . . . . . . . -- -- (0.05)
--------------------- ------------------- --------------------
Net income . . . . . . . . . . . . . $0.71 $0.25 $0.03
--------------------- ------------------- --------------------
--------------------- ------------------- --------------------
Diluted income per common share:
Income before extraordinary item . . . $0.69 $0.25 $0.08
Extraordinary item, net. . . . . . . . -- -- (0.05)
--------------------- ------------------- --------------------
Net income . . . . . . . . . . . . . $0.69 $0.25 $0.03
--------------------- ------------------- --------------------
Weighted average shares
outstanding:
Basic . . . . . . . . . . . . . . . . 27,796 27,669 23,798
--------------------- ------------------- --------------------
--------------------- ------------------- --------------------
Diluted . . . . . . . . . . . . . . . 28,666 28,167 24,433
--------------------- ------------------- --------------------
--------------------- ------------------- --------------------
</TABLE>
See accompanying notes to consolidated financial statements.
- --------------------------------------------------------------------------------
F-6
<PAGE>
- --------------------------------------------------------------------------------
LABOR READY, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS)
<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, 1996 . . . . . . . 19,842 $ 7,117 4,324 $854 $590 $ (29)
Net income for the year . . . . . . -- -- -- -- 724 --
Common stock issued for 401(k)Plan. 12 48 -- -- -- --
Common stock issued from public
stock offering . . . . . . . . . 5,046 33,586 -- -- -- --
Common stock issued on debt
extinguishment and warrants
exercised . . . . . . . . . . . 2,303 7,961 -- -- -- --
Common stock issued on the exercise
of options . . . . . . . . . . . 638 805 -- -- -- --
Preferred stock dividend . . . . . -- -- -- -- (43) --
Foreign currency translation . . . -- -- -- -- -- (21)
----------- ------------- ---------- ------------ ------------- ------------
BALANCE, January 1, 1997 . . . . . . . 27,841 49,517 4,324 854 1,271 (50)
Net income for the year . . . . . . -- -- -- -- 6,963 --
Common stock repurchased . . . . . (344) (611) -- -- (784) --
Common stock issued for 401(k)Plan. 13 81 -- -- -- --
Common stock acquired through
Employee Stock Purchase Plan . . 79 375 -- -- -- --
Common stock issued on the
exercise of warrants . . . . . . 32 111 -- -- -- --
Common stock issued on the exercise
of options . . . . . . . . . . . 41 221 -- -- -- --
Preferred stock dividend . . . . . -- -- -- -- (43) --
Foreign currency translation . . . -- -- -- -- -- 136
----------- ------------- ---------- ------------ ------------- ------------
BALANCE, January 1, 1998 . . . . . . 27,662 49,694 4,324 854 7,407 86
Net income for the year . . . . . -- -- -- -- 19,799 --
Common stock repurchased . . . . . (106) (424) -- -- (1,492) --
Common stock issued for 401(k)Plan. 9 116 -- -- -- --
Common stock acquired through
Employee Stock Purchase Plan . . 56 838 -- -- -- --
Common stock issued on the
exercise of warrants . . . . . . 6 22 -- -- -- --
Common stock issued on the
exercise of options . . . . . . . 347 3,885 -- -- -- --
Preferred stock dividend. . . . . . -- -- -- -- (43) --
Foreign currency translation. . . . -- -- -- -- -- (245)
----------- -------------- ---------- ---------- -------------- -----------
BALANCE, December 31, 1998 . . . . . 27,974 $54,131 4,324 $ 854 $25,671 $ (159)
----------- -------------- ---------- ---------- -------------- -----------
----------- -------------- ---------- ---------- -------------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
- --------------------------------------------------------------------------------
F-7
<PAGE>
- --------------------------------------------------------------------------------
LABOR READY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
--------------- -- ---------------- -- -----------------
1998 1997 1996
--------------- ---------------- -----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income . . . . . . . . . . . . . . . . . . . . $19,799 $ 6,963 $ 724
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization . . . . . . . . . . . 6,076 4,011 1,797
Loss (gain) on capital assets sold . . . . . . . . (14) (76) 4
Provision for bad debts. . . . . . . . . . . . . . . 8,274 5,761 2,078
Extinguishment of debt, extraordinary item . . . . . -- -- 1,901
Deferred income taxes. . . . . . . . . . . . . . . . (3,996) (3,832) 191
Changes in assets and liabilities
Accounts receivable . . . . . . . . . . . . . . . . (37,157) (21,279) (10,906)
Workers' compensation deposits and credits . . . . . (1,880) 7,183 (4,950)
Prepaid expenses and other . . . . . . . . . . . . . (2,304) (676) (1,382)
Accounts payable . . . . . . . . . . . . . . . . . 3,306 1,605 1,161
Accrued wages and benefits. . . . . . . . . . . . . 3,492 1,035 1,458
Workers' compensation claims reserve. . . . . . . . 12,053 8,494 3,133
Income taxes payable (receivable) . . . . . . . . . 5,715 2,121 (2,356)
--------------- ---------------- -----------------
Net cash provided by (used in) operating activities . . 13,364 11,310 (7,147)
--------------- ---------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures. . . . . . . . . . . . . . . . (9,452) (3,967) (5,750)
Proceeds from sale of capital assets . . . . . . . 160 120 9
(Increase) decrease in restricted cash. . . . . . . (15) 1,579 (1,715)
(Increase) decrease in intangible assets and other. 143 (2,595) (3,558)
--------------- ---------------- -----------------
Net cash used in investing activities . . . . . . . . . (9,164) (4,863) (11,014)
--------------- ---------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments on note payable. . . . . . . . . . . . -- -- (1,591)
Checks issued against future deposits . . . . . . . -- (1,139) 625
Payments on capital leases . . . . . . . . . . . . . (565) -- --
Net proceeds from public offering. . . . . . . . . . -- -- 33,586
Proceeds from warrants exercised . . . . . . . . . . 22 110 --
Proceeds from options exercised . . . . . . . . . . 1,650 170 805
Proceeds from sale of stock through employee stock
purchase plan . . . . . . . . . . . . . . . . . . 838 375 --
Purchase and retirement of treasury stock . . . . . (1,916) (1,395) --
Repayment of subordinated debt . . . . . . . . . . -- -- (2,070)
Payments on long-term debt . . . . . . . . . . . . . (89) (13) (891)
Preferred stock dividends paid. . . . . . . . . . . (86) -- (43)
--------------- ---------------- -----------------
Net cash (used in) provided by financing activities (146) (1,892) 30,421
Effect of exchange rates on cash . . . . . . . . . . (231) (36) (21)
--------------- ---------------- -----------------
Net increase in cash and cash equivalents . . . . . 3,823 4,519 12,239
CASH AND CASH EQUIVALENTS, beginning of year . . . . . 22,117 17,598 5,359
--------------- ---------------- -----------------
CASH AND CASH EQUIVALENTS, end of year. . . $25,940 $22,117 $17,598
--------------- ---------------- -----------------
--------------- ---------------- -----------------
</TABLE>
See accompanying notes to consolidated financial statements.
- --------------------------------------------------------------------------------
F-8
<PAGE>
- --------------------------------------------------------------------------------
LABOR READY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
---------------- -- ---------------- -- ----------------
1998 1997 1996
---------------- ---------------- ----------------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest . . . . . . . . . . . . . . . . . . $ 813 $ 30 $ 332
Income taxes . . . . . . . . . . . . . . . . $11,882 $7,979 $2,859
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Contribution of common stock to 401(k) Plan $ 116 $ 81 $ 48
Issuance of a note receivable on the sale of
capital assets . . . . . . . . . . . . . . . -- -- $ 23
Issuance of common stock on debt retirement -- -- $7,961
Preferred stock dividends accrued . . . . . . -- $ 43 --
Tax effect of disqualifying dispositions on
options exercised. . . . . . . . . . . . . . $2,235 $ 51 --
Assets acquired with capital lease obligations $6,393 -- --
</TABLE>
See accompanying notes to consolidated financial statements.
- --------------------------------------------------------------------------------
F-9
<PAGE>
- --------------------------------------------------------------------------------
LABOR READY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS EXCEPT PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. BASIS OF PRESENTATION
Labor Ready, Inc. and its wholly-owned subsidiaries Labour Ready Temporary
Services Ltd., Labor Ready Puerto Rico, Inc., Labor Ready Assurance Company and
Workers' Assurance Corporation of Hawaii, Inc. (together, "the Company") provide
temporary staffing for manual labor jobs to customers primarily in the
industrial and small business markets from 486 offices located throughout the
United States, Canada and Puerto Rico. 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 and cash
dispensing machine 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, 7 years for cash dispensing machines 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, 1998, 1997 AND 1996
(IN THOUSANDS EXCEPT PER SHARE DATA)
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
In March 1998, the Accounting Standards Executive Committee issued Statement
of Position 98-5, "Reporting on the Costs of Start-up Activities" ("the
Statement"). The Statement establishes new rules for the financial reporting of
start-up costs, and will require the Company to expense the cost of establishing
new dispatch offices as incurred and write off, as a cumulative effect of
adopting the Statement, any remaining capitalized pre-opening costs in the first
quarter of the year adopted. The Statement is effective for years beginning
after December 31, 1998 and the Company will adopt it in the first quarter of
1999. The effect of adopting the Statement will be to recognize a non-operating
expense, net of tax, of approximately $1.4 million.
SFAS No. 130 "Reporting Comprehensive Income" establishes standards for
reporting and disclosure of comprehensive income. SFAS No. 130 became effective
during 1998. Comprehensive income for the Company includes charges or credits to
equity resulting from foreign currency translation adjustments. Net income and
comprehensive income were not significantly different in 1998, 1997 and 1996.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information", requires the Company to report certain information about operating
segments. SFAS No. 131 became effective for the Company's year ended December
31, 1998. The Company provides services to customers primarily in the freight
handling, warehousing, landscaping, construction and light manufacturing
industries, none of which indiviually comprise a significant portion of revenues
within a geographic region for the Company as a whole. Virtually all of the
Company's sales are made to customers in the United States. The remaining sales
are made to customers in Canada and Puerto Rico.
- --------------------------------------------------------------------------------
F-11
<PAGE>
- --------------------------------------------------------------------------------
LABOR READY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS EXCEPT PER SHARE DATA)
2. WORKERS' COMPENSATION
The Company provides workers' compensation insurance to its temporary workers
and regular employees. For workers' compensation claims originating in the
majority of states (the 43 non-monopolistic states), the Company has purchased a
deductible insurance policy. Under terms of the policy, the Company's workers'
compensation exposure is limited to a deductible amount per occurrence and a
maximum aggregate stop-loss limit. Should any single occurrence exceed the
deductible amount per occurrence, all losses and expenses beyond the deductible
amount are paid by independent insurance companies unrelated to the Company.
Similarly, should the total of paid losses related to any one year period exceed
the maximum aggregate stop-loss limit for that year, all losses beyond the
maximum aggregate stop-loss limit are paid by independent insurance companies
unrelated to the Company. In 1997, the per occurrence deductible amount was
$250,000 per claim, to an aggregate maximum of $11.60 per $100 of temporary
worker payroll, or $18.8 million. For claims arising in 1998, the per occurrence
deductible amount was increased to $350,000 and the maximum aggregate stop-loss
limit was reduced to $10.41 per $100 of temporary worker payroll, or $31.7
million.
For claims arising in years prior to 1997, the Company has insured all losses
beyond amounts reserved in its financial statements with independent insurance
companies unrelated to the Company. The difference between the discounted
maximum aggregate stop-loss limit for claims arising in 1997 and 1998 and the
total of claims paid and reserved for in the Company's financial statements for
the same periods is $4.0 million. This amount represents the discounted maximum
additional exposure, net of tax, to the Company before its maximum aggregate
stop-loss limits are met for all periods before December 31, 1998.
The Company establishes its reserve for workers' compensation claims using
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 claims reserve are charged or credited to expense in the
periods in which they occur. Included in the accompanying consolidated balance
sheets as of December 31, 1998 and 1997, are workers' compensation claims
reserves in the non-monopolistic states of $24.4 million and $12.9 million,
respectively. The claims reserves were computed using a discount rate of 6.0% at
December 31, 1998 and 1997.
Workers' compensation expense totaling $30.6 million, $19.2 million and $10.0
million was recorded as a component of cost of services in each of the years
ended December 31, 1998, 1997 and 1996, respectively.
For the 1997 and 1998 program years, the Company is required to provide
collateral in the amount of the maximum aggregate stop-loss limits, less claims
paid to date. The Company provides approximately 50% of the required collateral
in the form of a surety bond, and 50% in letters of credit. Accordingly, at
December 31, 1998, $14.5 million of the collateral was satisfied with surety
bonds and $12.6 million was satisfied with letters of credit for the years ended
December 31, 1998 and 1997.
For workers' compensation claims originating in Washington, Ohio, and West
Virginia (the monopolistic states), and Canada and Puerto Rico, the Company
pays workers' compensation insurance premiums as required by state
administered programs. The insurance premiums are established by each
jurisdiction, generally 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, 1998 and 1997, the Company recorded workers'
compensation credit receivables of $1.4 million and $1.1 million respectively,
and workers' compensation liabilities of $1.2 million and $0.6 million
respectively, related to the monopolistic states.
- --------------------------------------------------------------------------------
F-12
<PAGE>
- --------------------------------------------------------------------------------
LABOR READY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS EXCEPT PER SHARE DATA)
2. WORKERS' COMPENSATION (CONTINUED)
In December 1998, the Company purchased a deductible insurance policy for the
non-monopolistic states covering the years ended 1999 and 2000. The policy
includes substantially the same terms and limitations as the 1998 policy
described above except that the Company is required to provide collateral in the
amount of 60% of claims reserves. The collateral for the 1999 program will
consist of 50% letters of credit and 50% surety bond. Accordingly, subsequent to
year end, the Company provided the insurance carrier with a letter of credit
totaling $4 million and a surety bond for $12.5 million. During 1999, the total
amount of the letters of credit and surety bonds for the 1999 program year will
increase to approximately $24.0 million.
The Company has established a risk management department at its corporate
headquarters to manage its insurers, third party claims administrators, and
medical service providers. To reduce wage-loss compensation claims, the Company
employs claims coordinators throughout the United States. The claims
coordinators manage the acceptance, processing and final resolution of claims
and administer the Company's return to work program. Workers in the program are
employed on customer assignments that require minimal physical exertion or
within the Company in the local dispatch office. The Company has an on-line
connection with its third party administrator that allows the claims
coordinators to maintain visibility of all claims, manage their progress and
generate required management information.
3. NOTE PAYABLE
During 1998, the Company entered into a line-of-credit agreement with a bank
with interest at the bank's prime rate (7.75% at December 31, 1998). The
agreement allows the company to borrow up to the lesser of $40.0 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 2000. 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, 1998. Subsequent to year end, the Company entered into a new
line-of-credit agreement with the bank on substantially the same terms but which
increases the Company's borrowing limit to $60.0 million.
As discussed further in Note 2, the Company is required by the workers'
compensation program to collateralize a portion its workers' compensation
liability with irrevocable letters of credit. At December 31, 1998, the Company
had provided its insurance carriers with letters of credit totaling $12.6
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, 1998, no borrowings were outstanding on the line-of-credit, $12.6
million was committed by the letters of credit and $27.4 million was available
for borrowing. Subsequent to year end, the Company increased its letters of
credit outstanding by $4.0 million.
During the years ended December 31, 1998 and 1997, short-term borrowing
activity was as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------
1998 1997
----------- ---------
<S> <C> <C>
Balance outstanding at year-end ........................................... $ -- $ --
Stated interest rate at year-end, including applicable fees ............... 7.75% 8.63%
Maximum amount outstanding during the year ................................ $ 19,475 $ 1,700
Average amount outstanding ................................................ $ 5,486 $ 1,200
Weighted average interest rate during the year, including applicable fees . 8.10% 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.
- --------------------------------------------------------------------------------
F-13
<PAGE>
- --------------------------------------------------------------------------------
LABOR READY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS EXCEPT PER SHARE DATA)
4. 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 July 1996, October 1997 and May 1998, the Company declared three-for-two
stock splits which have each been retroactively applied in the determination of
weighted average shares outstanding.
Basic and diluted earnings per share were calculated as follows:
<TABLE>
<CAPTION>
---------------- -- ---------------- -- ----------------
1998 1997 1996
---------------- ---------------- ----------------
<S> <C> <C> <C>
Basic:
Income before extraordinary item . . . . . . . $ 19,799 $ 6,963 $ 1,922
Less preferred stock dividends. . . . . . . . 43 43 43
---------------- ---------------- ----------------
Income before extraordinary item available to
common shareholders . . . . . . . . . . . . $ 19,756 $ 6,920 $ 1,879
---------------- ---------------- ----------------
Weighted average shares outstanding . . . . . 27,796 27,669 23,798
---------------- ---------------- ----------------
Income before extraordinary item per share . $ .71 $ .25 $ .08
---------------- ---------------- ----------------
---------------- ---------------- ----------------
Diluted.:
Income before extraordinary item available to
common shareholders. . . . . . . . . . . . . $ 19,756 $ 6,920 $ 1,879
Weighted average shares outstanding . . . . . 27,796 27,669 23,798
Plus options to purchase common stock
outstanding at end of year. . . . . . . . . 2,182 2,033 937
Less shares assumed repurchased . . . . . . . (1,312) (1,535) (302)
---------------- ---------------- ----------------
Weighted average shares outstanding, including
dilutive effect of options. . . . . . . 28,666 28,167 24,433
---------------- ---------------- ----------------
Income before extraordinary item per share . $ .69 $ .25 $ .08
---------------- ---------------- ----------------
---------------- ---------------- ----------------
</TABLE>
5. SUBORDINATED DEBT
In October 1995, the Company issued subordinated debt with detachable stock
warrants for the purchase of 2,505 shares at an exercise price of $3.46 per
share, in exchange for $10,000. 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 $3.46
per share. Upon pre-payment, 2,303 shares of common stock were purchased through
the exercise of detachable stock warrants and the cancellation of $7,961 of
subordinated debt. The remaining $2,039 of debt was paid by the Company in cash.
An extraordinary loss of $1,197 (net of the related income tax benefit of $703)
was recorded on the write-off of the unamortized debt discount and debt issue
costs. As of December 31, 1998, warrants to purchase 43 shares of common stock
at an exercise price of $3.46 per share remained outstanding.
- --------------------------------------------------------------------------------
F-14
<PAGE>
- --------------------------------------------------------------------------------
LABOR READY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS EXCEPT PER SHARE DATA)
6. RELATED PARTY TRANSACTIONS
A member of the board of directors, is also a shareholder in a law firm
that received approximately $429, $587 and $337 in payment for legal services
performed for the Company in 1998, 1997 and 1996, respectively.
7. PREFERRED STOCK
The Company has authorized 20,000 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, 1998
and 1997, the Company had 4,324 outstanding shares of $0.197 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 July 1996, October 1997 and May 1998, 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, 375 shares of
preferred stock have been reserved for issuance under terms of the Plan.
A preferred stock dividend in the amount of $43 was accrued and paid at
December 31, 1998 and 1996. The 1997 preferred stock dividend in the amount of
$43 was accrued at December 31, 1997 and paid in January 1998.
8. COMMON STOCK
In July 1996, October 1997 and May 1998, 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 subordinated debt in 1995, the
Company issued options and warrants to purchase 2,505 shares of Common Stock at
an exercise price of $3.46 per share. 2,303 of these warrants were exercised as
a result of the Company's prepayment of the subordinated debt in September 1996
(see Note 5).
- --------------------------------------------------------------------------------
F-15
<PAGE>
- --------------------------------------------------------------------------------
LABOR READY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS EXCEPT PER SHARE DATA)
8. COMMON STOCK (CONTINUED)
In June 1996, the Company successfully completed the sale of 5,046 shares of
common stock, through an underwritten public offering, at a price of $7.26 per
share ($6.77 net of underwriting costs). In connection with the public offering,
the Company incurred costs of approximately $574, which were offset against the
common stock sale proceeds. These net proceeds were used to prepay debt,
purchase the home office building in Tacoma, Washington, fund workers'
compensation deposits, and fund the opening of new dispatch offices.
During 1998 and 1997, the Company repurchased 106 and 344 shares of common
stock on the open market for cash consideration of $1,916 and $1,395,
respectively. 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 375 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,
1998 1997
-------------------- ------------------
<S> <C> <C>
Allowance for doubtful accounts. . . . . . . . . . . . . . . $1,587 $1,072
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . (456) (216)
Workers' compensation credits receivable . . . . . . . . . (527) (433)
Workers' compensation claims reserve. . . . . . . . . . . . 8,724 5,075
Net operating loss carry-forwards, net of valuation
allowances of $489 and $691. . . . . . . . . . . . . . . . 468 115
Depreciation and amortization expenses . . . . . . . . . . . (1,666) (1,478)
Vacation accrual. . . . . . . . . . . . . . . . . . . . . . 344 228
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . (122) (7)
------------------ ------------------
Net tax deferrals. . . . . . . . . . . . . . . . . . . . . . 8,352 4,356
Non-current deferred tax (liabilities) assets, net. . . . . 1,751 1,212
------------------ ------------------
Current deferred tax assets, net . . . . . . . . . . . . . . $6,601 $3,144
------------------ ------------------
------------------ ------------------
</TABLE>
- --------------------------------------------------------------------------------
F-16
<PAGE>
- --------------------------------------------------------------------------------
LABOR READY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS EXCEPT PER SHARE DATA)
9. INCOME TAXES (CONTINUED)
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.
At December 31, 1998, Labour Ready Temporary Services, Limited has federal
net operating loss carryforwards of approximately $1.0 million with expiration
dates through 2005. During 1998, the Company reduced the valuation allowance
related to the net operating loss carryforwards recorded in prior years by $177.
The reduction reflects the Company's expectation that it is more likely than not
that it will generate future taxable income in Canada to utilize the
carryforwards.
As of December 31, 1998, Labor Ready, Inc. has net operating loss
carry-forwards of approximately $590, the majority of which expire in 2006 as
applicable federal tax regulations limit the Company to an annual deduction of
approximately $26. The company has recognized a valuation allowance on the
portion expiring in 2006.
Taxes on income consists of:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------
1998 1997 1996
-------------------- --------------- --------------
<S> <C> <C> <C>
Current:
Federal . . . . . . . . . . . . . . . . . . . $14,077 $7,603 $603
State . . . . . . . . . . . . . . . . . . . . 3,510 1,788 88
------------------ ----------------- ----------------
Total Current . . . . . . . . . . . . . . . . . . 17,587 9,391 691
------------------ ----------------- ----------------
Deferred
Federal . . . . . . . . . . . . . . . . . . . (3,454) (3,259) 167
State. . . . . . . . . . . . . . . . . . . . . (542) (573) 24
------------------- ---------------- ----------------
Total deferred . . . . . . . . . . . . . . . . . (3,996) (3,832) 191
------------------- ---------------- ----------------
Total taxes on income, including $703 tax benefit
of extraordinary item in 1996 . . . . . . . . $13,591 $5,559 $882
------------------ ----------------- ----------------
------------------ ----------------- ----------------
</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,
1998 1997 1996
---------------------- --------------------- --------------------
AMOUNT % AMOUNT % AMOUNT %
----------- ----- ------------- ---- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Income tax expense based on statutory rate . $11,686 35 $4,383 35 $546 34
Increase (decrease) resulting from:
State income taxes, net of federal benefit. . 1,740 5 697 6 59 4
Prior year amounts. . . . . . . . . . . . . . -- -- 487 4 169 11
Other, net 165 1 (8) (1) 108 6
----------- ----- ------------- ----- ----------- -----
----------- ----- ------------- ----- ----------- -----
Total taxes on income. . . . . . . . . . . . $13,591 41 $5,559 44 $882 55
----------- ----- ------------- ----- ----------- -----
----------- ----- ------------- ----- ----------- -----
</TABLE>
- --------------------------------------------------------------------------------
F-17
<PAGE>
- --------------------------------------------------------------------------------
LABOR READY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS EXCEPT PER SHARE DATA)
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.
Many leases require additional payments for taxes, insurance, maintenance and
renewal options. Minimum lease commitments under terms of the leases at December
31, 1998 total approximately $4.2 million, substantially all of which would be
payable in 1999. Rent expense for the years ended December 31, 1998, 1997 and
1996 was $9,019, $5,026 and $2,347, respectively.
In December 1997, the Company entered into a lease agreement for automated
Cash Dispensing Machines ("CDM") for installation in the Company's dispatch
offices. The lease, which is classified as a capital lease, is payable over 84
months with an imputed interest rate of 9.2% and is secured by the CDMs.
Cost and accumulated amortization of the CDMs are as follows at December 31,
1998:
<TABLE>
<CAPTION>
<S> <C>
Cash dispensing machines . . . . . . . . . . . $6,393
Less accumulated amortization . . . . . . . . 604
----------------
$5,789
----------------
----------------
</TABLE>
Future minimum lease payments under capital leases together with the present
value of the minimum lease payments as of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Year ended December 31:. . . . . . . . . . .
<S> <C>
1999. . . . . . . . . . . . . . . . . . . . $1,304
2000. . . . . . . . . . . . . . . . . . . . 1,304
2001. . . . . . . . . . . . . . . . . . . . 1,304
2002. . . . . . . . . . . . . . . . . . . . 1,304
2003. . . . . . . . . . . . . . . . . . . . 1,304
Thereafter 1,690
----------------
Total minimum lease payments. . . . . . . . . 8,210
Less executory costs. . . . . . . . . . . . . 399
----------------
Net minimum lease payments. . . . . . . . . . 7,811
Less imputed interest . . . . . . . . . . . . 1,984
----------------
$5,827
----------------
----------------
</TABLE>
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 its President
and CEO, which provides for annual compensation of $31 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 President's performance, and the overall performance of the
Company. The agreement expired in 1998, and subsequent to year end, the Company
reached an agreement with its President for the renewal of his employment
agreement on substantially similar terms through December 31, 2003.
- --------------------------------------------------------------------------------
F-18
<PAGE>
- --------------------------------------------------------------------------------
LABOR READY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS EXCEPT PER SHARE DATA)
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 $178,
$118 and $82 for the years ended December 31, 1998, 1997 and 1996, respectively.
12. VALUATION AND QUALIFYING ACCOUNTS
Allowance for doubtful accounts activity was as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1998 1997 1996
-------------------- --------------- --------------
<S> <C> <C> <C>
Balance, beginning of year . . . . . . . . . . . $2,851 $1,237 $ 869
Charged to expense . . . . . . . . . . . . . . . 8,274 5,761 2,078
Write-offs, net of recoveries . . . . . . . . . (6,907) (4,147) (1,710)
------------------ ----------------- ----------------
------------------ ----------------- ----------------
Balance, end of year. . . . . . . . . . . . . . . $4,218 $2,851 $1,237
------------------ ----------------- ----------------
------------------ ----------------- ----------------
</TABLE>
13. 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. 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 each month. The ESPP provides
that no participant shall purchase stock that the aggregate fair market value
exceeds $25 during any calendar year. The ESPP expires on June 30, 2001. 1,238
shares of common stock have been reserved for purchase under the ESPP. During
1998 and 1997, 56 and 79 shares were purchased by participants in the plan for
cash proceeds of $838 and $375, respectively.
14. 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.
2,888 shares of common stock have been reserved for issuance under terms of the
Plan.
- --------------------------------------------------------------------------------
F-19
<PAGE>
- --------------------------------------------------------------------------------
LABOR READY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS EXCEPT PER SHARE DATA)
14. STOCK COMPENSATION PLANS (CONTINUED)
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 1998, 1997
and 1996, respectively: expected life of options of 5 years, expected volatility
of 88%, 67%, and 11%, risk-free interest rates of 5.0%, 6.0% and 6.0%, and a 0%
dividend yield.
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>
1998 1997 1996
--------------------- -------------------- ---------------------
<S> <C> <C> <C>
Net Income
As reported $19,799 $6,963 $724
Pro forma $16,401 $6,159 $352
Pro forma earnings
per share
Basic $ 0.59 $ 0.22 $ 0.01
Diluted $ 0.57 $ 0.22 $ 0.01
</TABLE>
The following table summarizes stock option activity:
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996
---------------------- --------------------- --------------------
(1) (1) (1)
SHARES PRICE SHARES PRICE SHARES PRICE
--------- ------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year . . . . . . 2,033 $6.97 937 $5.43 3,400 $3.19
Granted 782 $19.44 1,276 $8.31 628 $6.49
Exercised. . . . . . . . . . . . . . . . . . (281) $5.04 (73) $3.86 (2,941) $2.94
Expired or canceled. . . . . . . . . . . . . (356) $13.10 (107) $5.03 (150) $1.30
--------- ------- --------- ------- --------- -------
Outstanding at end of year. . . . . . . . . . 2,178 $10.98 2,033 $6.97 937 $5.43
--------- ------- --------- ------- --------- -------
--------- ------- --------- ------- --------- -------
Exercisable at end of year. . . . . . . . . . 572 $6.63 477 $4.65 98 $2.44
--------- ------- --------- ------- --------- -------
--------- ------- --------- ------- --------- -------
Weighted average fair value of options
granted. . . . . . . . . . . . . . . . . . . $14.08 $7.86 $9.72
------- ------- -------
------- ------- -------
</TABLE>
(1) Weighted average exercise price.
At December 31, 1998, 710,000 shares of the Company's common stock were
available for future grant under the Company's stock option plan.
- --------------------------------------------------------------------------------
F-20
<PAGE>
- --------------------------------------------------------------------------------
LABOR READY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS EXCEPT PER SHARE DATA)
14. STOCK COMPENSATION PLANS (CONTINUED)
Information relating to stock options outstanding and exercisable at December
31, 1998 is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------- ----------------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
RANGE OF PRICES NUMBER AVERAGE CONTRACTUAL AVERAGE EXERCISE NUMBER AVERAGE
OUTSTANDING LIFE PRICE EXERCISABLE EXERCISE PRICE
- ------------------ ------------ ---------------------- ----------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
$0.88 - 8.89 1,205 3.10 5.71 479 5.25
12.33 - 18.08 813 4.10 16.10 91 13.58
21.61 - 29.53 160 4.38 24.64 2 21.61
------------ -------------
------------ -------------
$0.88 - 29.53 2,178 3.57 $10.98 572 $6.63
------------ -------------
------------ -------------
</TABLE>
- --------------------------------------------------------------------------------
F-21
<PAGE>
LOAN AND SECURITY AGREEMENT
This Agreement is between the undersigned Borrower and the undersigned
Lender concerning loans and other credit accommodations to be made by Lender to
Borrower.
SECTION 1. PARTIES
1.1 The "BORROWER" is the person, firm, corporation or other entity
identified as the Borrower in Section 15 and its successors and assigns. If more
than one Borrower is specified in Section 15, all references to Borrower shall
mean each of them, jointly and severally, individually and collectively, and the
successors and assigns of each. Furthermore, if more than one Borrower is
specified in Section 15, the terms of this Agreement shall be binding on each
Borrower and may be enforced as if there was a separate agreement with each
Borrower, regardless of the enforceability of the Agreement as against other
Borrowers.
1.2 The "LENDER" is U.S. BANK NATIONAL ASSOCIATION and its successors and
assigns.
SECTION 2. 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.
(a) AGREEMENT. The word "Agreement" means this Loan and Security Agreement,
as this Loan and Security Agreement may be amended or modified from time to
time, together with all exhibits and schedules attached to this Loan and
Security Agreement from time to time.
(b) ACCOMMODATIONS. The word "Accommodations" means credit accommodations
extended by the Lender, consisting of letters of credit, merchandise purchase
guaranties or other guaranties or indemnities for Borrower's account.
(c) ACCOUNT. 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).
(d) ACCOUNT DEBTOR. The words "Account Debtor" mean the person or entity
obligated upon an Account.
-1-
<PAGE>
(e) ADVANCE. The word "Advance" means a disbursement of Loan funds under
this Agreement.
(f) BORROWING BASE. The words "Borrowing Base" mean, as determined by
Lender from time to time, the lesser of (a) $60,000,000.00; or (b) 80.000% of
the aggregate amount of Eligible Accounts.
(g) BUSINESS DAY. The words "Business Day" mean 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.
(h) CASH FLOW. The words "Cash Flow" mean earnings before interest expense,
income tax, depreciation, amortization, and any non-cash extraordinary items.
(i) CERCLA. The word "CERCLA" means the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended.
(j) 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."
(k) DEBT. The word "Debt" means all of Borrower's liabilities which bear
interest, plus the amount of outstanding Accommodations.
(l) 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 income 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: (i)
Accounts with respect to which the Account Debtor is an officer, an employee or
agent of Borrower; (ii) Accounts with respect to which the Account Debtor is a
Subsidiary of, or affiliated with or related to Borrower or its officers, or
directors; (iii) 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; (iv) Accounts with respect to which Borrower is or
may become liable to the Account Debtor for goods sold or
-2-
<PAGE>
services rendered by the Account Debtor to borrower; (v) Accounts which are
subject to dispute, counterclaim, or setoff; (vi) Accounts with respect to which
the goods have not been shipped or delivered, or the services have not been
rendered, to the Account Debtor; (vii) Accounts with respect to which Lender, in
its sole discretion, deems the creditworthiness or financial condition of the
Account Debtor to be unsatisfactory; (viii) 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 had 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; (ix) Accounts which
had not been paid in full within sixty (60) days from the invoice date; (x)
Datings; Progress Billings; Retainages; Cash Sales; C.O.D.; Service Charges;
(xi) any Account of an Account Debtor that is not a resident of the United
States, Puerto Rico, and Canada; or (xii) Accounts which are not Collateral.
(m) ERISA. The word "ERISA" means the Employee Retirement Income Security
Act of 1974, as amended.
(n) 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 12,
titled "EVENTS OF DEFAULT.
(o) EXPIRATION DATE. The words "Expiration Date" mean the earlier of the
date of termination of Borrower's obligations to Lender under this Agreement, or
June 30, 2000.
(p) 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.
(q) 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.
(r) INDEBTEDNESS. The word "Indebtedness" means any and all Loans,
Advances, Accommodations, if any, and all other indebtedness, liabilities and
obligations of every kind, nature and description owing by Borrower to Lender
and/or its affiliates, including principal, interest, charges, fees and
expenses, however evidenced, whether as principal, surety, endorser, guarantor
or otherwise, whether arising under this Agreement or otherwise, whether now
existing or hereafter arising, whether arising
-3-
<PAGE>
before, during or after the initial or any renewal Term or after the
commencement of any case with respect to Borrower under the United States
Bankruptcy Code or any similar statute, whether direct or indirect, absolute or
contingent, joint or several, due or not due, primary or secondary, liquidated
or unliquidated, secured or unsecured, original, renewed or extended and whether
arising directly or howsoever acquired by Lender including from any other entity
outright, conditionally or as collateral security, by assignment, merger with
any other entity, participations or interests of Lender in the obligations of
Borrower to others, assumption, operation of law, subrogation or otherwise and
shall also include all amounts chargeable to Borrower under this Agreement or in
connection with any of the foregoing;
(s) INTEREST RATE. The words "Interest Rate" mean the interest rate on the
Principal Balance.
(t) LIBOR. The word "LIBOR" 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, 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 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.
(u) LIBOR AMOUNT. The words "LIBOR Amount" mean each principal amount for
which Borrower chooses to have the LIBOR Borrowing Rate apply for any specified
LIBOR Interest Period.
(v) LIBOR INTEREST PERIOD. The words ""LIBOR Interest Period" mean as to
any LIBOR Amount, a period of one, two, three, six or twelve months commencing
on the date the LIBOR Borrowing Rate 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, 2000; (iii) no LIBOR Interest Period shall extend beyond the
date of any principal payment required under this Agreement, 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
-4-
<PAGE>
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.
(w) LINE OF CREDIT. The words "Line of Credit" mean the credit facility
described in the Section 3.1, titled "LINE OF CREDIT" below.
(x) LIQUID ASSETS. The words "Liquid Assets" mean Borrower's cash on hand
plus Borrower's readily marketable securities.
(y) 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.
(z) 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.
(aa) 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.
(bb) PRIME RATE. The words "Prime Rate" mean 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(a) or 13. 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.
(cc) PRIME RATE AMOUNT. The words "Prime Rate Amount" mean any portion of
the Principal Balance bearing interest at the Prime Borrowing Rate.
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(dd) PRINCIPAL BALANCE. The words "Principal Balance" mean the unpaid
principal balance of all Advances outstanding at any one time.
(ee) 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.
(ff) SECURITY AGREEMENT. The words "Security Agreement" mean and include
without limitations any agreements, promises, covenant, arrangements,
understandings or other agreements, whether created by law, contract, or
otherwise, evidencing, governing, representing, or creating a Security Interest.
(gg) 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.
(hh) SARA. The word "SARA" means the Superfund Amendments and
Reauthorization Act of 1986 as now or hereafter amended.
(ii) 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.
(jj) SUBSIDIARY. The word "Subsidiary" means a subsidiary of the Borrower,
which includes, but is not limited to, a corporation, partnership, limited
liability company, or other entity in which the Borrower directly or indirectly
owns or controls the shares of stock or other ownership interests having
ordinary voting power to elect a majority of the board of directors (or appoint
other comparable managers) of such corporation, partnership, limited liability
company, or other entity.
(kk) TANGIBLE NET WORTH. The words "Tangible Net Worth" mean Borrower's
total shareholders' equity, excluding all intangible assets (i.e., goodwill,
trademarks, patents, copyrights, organizational expenses, and similar intangible
items, but including leaseholds and leasehold improvements).
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(ll) TOTAL FUNDED DEBT. The words "Total Funded Debt" mean Debt, plus all
capital lease obligations of the Borrower.
(mm) WORKING CAPITAL. The words "Working Capital" mean Borrower's current
assets, excluding prepaid expenses, less Borrower's current liabilities.
SECTION 3. LOANS AND OTHER CREDIT ACCOMMODATIONS.
3.1 LINE OF CREDIT. Lender agrees to make Advances to Borrower from time to
time from the date of this Agreement to its expiration, provided that the
aggregate amount of outstanding Indebtedness at any one time does not exceed the
Borrowing Base.
(a) 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:
(i) Lender shall have received evidence that this Agreement and
all Related Documents have been duly authorized, executed, and delivered by
Borrower to Lender.
(ii) Lender shall have received such opinions of counsel,
supplemental opinions, and documents as Lender may request.
(iii) 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.
(iv) 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.
(v) Borrower shall have paid to Lender all fees, costs, and
expenses specified in this Agreement and the Related Documents as are then due
and payable.
(vi) 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 Section
7.15 below, titled "Compliance Certificate."
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(b) REQUESTS FOR ADVANCES.
(i) 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 (ii) of this 3.1(b), and any person or persons otherwise authorized
to execute and deliver promissory notes to Lender on behalf of Borrower.
(ii) Borrower hereby authorizes any one of the following
individuals to request Advances and to select interest rate options: Glenn
Welstad, Bob Sovern, Joseph Havlin, Bob Breen and Joseph P. Sambataro, Jr.,
unless Lender is otherwise instructed in writing.
(iii) All Advances shall be disbursed by deposit directly to
Borrower's account number 153501534249 at a branch of Lender, or by cashier's
check issued to Borrower.
(iv) Borrower agrees that Lender shall have no obligation to
verify the identity of any person making any request pursuant to this Section
3.1(b), 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, in accordance with
the provisions of this Agreement, 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.
(c) MANDATORY LOAN REPAYMENTS. If at any time the aggregate principal
amount of the outstanding Indebtedness 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 Indebtedness 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.
(d) 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.
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(d) 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.
3.2 ACCOMMODATIONS.
(a) Lender may, in its sole discretion, issue or cause Accommodations
to be issued, from time to time, at Borrower's request and on terms and
conditions and for purposes satisfactory to Lender. 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 amount of outstanding Accommodations to
exceed at any time the Accommodation Sublimit of $40,000,000.00.
(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 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 or to
the goods or documents relating thereto.
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(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 gross negligence or 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
non-compliance 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 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 (g) may be taken by Borrower without Lender's express written
consent.
SECTION 4. INTEREST AND FEES.
4.1. INTEREST RATE. The interest rate on the Principal Balance outstanding
may vary from time to time pursuant to the provisions of this Agreement. Subject
to the provisions of this Agreement, 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 its selection of the LIBOR Borrowing Rate
option chosen in accordance with the provisions of this Agreement, such notice
shall be irrevocable. The rate options are the Prime Borrowing Rate and the
LIBOR Borrowing Rate, each as defined in Section 2
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hereof. Interest shall be computed at the applicable rate based upon a three
hundred sixty (360) day year and applied to the actual days applicable. Interest
shall be paid on the first (1st) day of each month until the Expiration Date, at
which time the Principal Balance and all accrued interest will be due.
(a) THE PRIME BORROWING RATE.
(i) The Prime Borrowing Rate is a per annum rate equal to the
Prime Rate.
(ii) Whenever Borrower desires to use the Prime Borrowing Rate
option, Borrower shall give Lender notice orally or in writing in accordance
with Section 3.1(b) of this Agreement, 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 13 of this Agreement, interest shall
accrue on the unpaid Principal Balance at the Prime Borrowing Rate unless and
except to the extent that the LIBOR is in effect.
(b) THE LIBOR BORROWING RATE.
(i) The LIBOR Borrowing Rate is the LIBOR plus 1.25% per annum.
(ii) Borrower may obtain LIBOR Borrowing Rate quotes from Lender
between 8:00 a.m. and 1:00 p.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(b)(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 1:00 p.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 3.1(b)(iii) of this Agreement, and shall
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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. Notwithstanding any other term of this Agreement,
Borrower may elect the LIBOR Borrowing Rate in the minimum principal amount of
$500,000.00 and in multiples of $100,000.00 above such amount.
(iv) If at any time the LIBOR is unascertainable or unavailable
to Lender or if LIBOR 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 13 of this Agreement, 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 interpretation 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, 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 directly (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 Agreement 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(b)(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(b)(vi). Subject to Section 13 of this
Agreement, 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.
(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
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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
(b)(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 Agreement or the
Related Documents, Borrower may not select the LIBOR Borrowing Rate if an event
of default hereunder has occurred and is continuing.
(ix) Nothing contained in this Agreement or the Related
Documents, including without limitation the determination of any LIBOR Interest
Period or Lender's quotation 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.
4.2 UNUSED LINE FEE. Borrower shall pay Lender quarterly, on the first day
of each quarter, in arrears, an Unused Line Fee of .15% for each quarter,
calculated upon the amount, if any, by which the $60,000,000.00 exceeds the
average daily balance outstanding on the Indebtedness during the preceding
quarter.
4.3 ACCOUNT SERVICING FEE. The Borrower shall pay to the Lender an Account
Servicing Fee of $20,000.00. The Account Servicing Fee shall be paid in two
equal installments. The first installment shall be due February 16, 1999. The
second installment shall be due January 31, 2000.
SECTION 5. GRANT OF SECURITY INTEREST.
5.1 GRANT OF SECURITY INTEREST. To secure the payment and performance in
full of all Indebtedness, Borrower hereby grants to Lender a continuing security
interest in and lien upon, and a right of setoff against, and Borrower hereby
assigns and pledges to Lender, all of the Collateral, including any Collateral
not deemed eligible for lending purposes.
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5.2 "COLLATERAL" shall mean all of the following property of Borrower:
All now owned and hereafter acquired right, title and interest of Borrower
in, to and in respect of all: accounts, contract rights; chattel paper;
investment property; general intangibles (including, but not limited to, tax and
duty refunds, registered and unregistered patents, trademarks, service marks,
copyrights, trade names, applications for the foregoing, trade secrets,
goodwill, processes, drawings, blueprints, customer lists, licenses, whether as
licensor or licensee, choses in action and other claims, and existing and future
leasehold interests in equipment and fixtures); documents; instruments; letters
of credit, bankers' acceptances or guaranties; cash monies, deposits,
securities, bank accounts, deposit accounts, credits and other property now or
hereafter held in any capacity by Lender, its affiliates or any entity which, at
any time, participates in Lender's financing of Borrower or at any other
depository or other institution; agreements or property securing or relating to
any of the items referred to above;
All present and future books and records relating to any of the above
including, without limitation, all computer programs, printed output and
computer readable data in the possession or control of the Borrower, any
computer service bureau or other third party; and
All products and proceeds of the foregoing in whatever form and wherever
located, including, without limitation, all insurance proceeds and all claims
against third parties for loss or destruction of or damage to any of the
foregoing.
5.3 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
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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.
5.4 COLLATERAL RECORDS. Borrower does now, and 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.
5.5 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. Supplemental
schedules shall be delivered according to the following schedule: BORROWER TO
FURNISH LENDER WITH ACCOUNTS RECEIVABLE AGINGS ON A MONTHLY BASIS, IN SUMMARY
FORM, ON THE BORROWING BASE CERTIFICATE, BROKEN OUT AS FOLLOWS: INVOICE DATE TO
30 DAYS FROM INVOICE DATE; 31 DAYS TO 60 DAYS FROM INVOICE DATE; TOTAL ELIGIBLE
ACCOUNTS; ALL OTHER ACCOUNTS; TOTAL ACCOUNTS. BORROWER TO SUBMIT A BORROWER'S
CERTIFICATE WITHIN 15 DAYS OF EACH MONTH-END.
5.6 COLLATERAL AUDITS. Borrower agrees to undergo annual collateral audits,
to be performed by Lender or Lender approved auditors. Direct verifications will
be required, to be performed by certified public accountants via audited
statements.
SECTION 6. REPRESENTATIONS AND WARRANTIES.
Borrower represents and warrants to Lender, as of the date of this
Agreement, as of the date on each disbursement of Loan proceeds, as of the day
of any renewal, extension or modification of any Loan, and all times any
Indebtedness exists:
6.1 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.
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6.2 ORGANIZATION. Borrower is a corporation, limited liability company, or
limited partnership, which is duly organization, validly existing, and in good
standing under the laws of the State of Washington and is validly existing and
in good standing in all jurisdictions in which Borrower is doing business.
Borrower has the full power and authority to own its properties and to transact
the business in which it is presently engaged or presently proposes to engage.
Borrower also is duly qualified as a foreign corporation, limited liability
company, or limited liability partnership and is in good standing in all states
in which the failure to so qualify would have a material adverse effect on its
business or financial condition.
6.3 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
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.
6.4 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.
6.5 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.
6.6 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.
6.7 HAZARDOUS SUBSTANCES. 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
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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 shall 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.
6.8 LITIGATION AND CLAIMS. No 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.
6.9 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.
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6.10 LIEN PRIORITY. Unless otherwise previously disclosed to Lender in
writing, Borrower has not entered into or granted any Security Agreements, or
permitted the titling 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.
6.11 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.
6.12 COMMERCIAL PURPOSES. Borrower intends to use the Loan proceeds solely
for business or commercial related purposes.
6.13 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 unfunded liabilities other than those previously disclosed to
Lender in writing.
6.14 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.
6.15 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.
6.16 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.
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SECTION 7. AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender,
while this Agreement is in effect, Borrower will:
7.1 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.
7.2 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.
7.3 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.
7.4 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 Security 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.
7.5 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.
7.6 FINANCIAL COVENANTS AND RATIOS. Comply with the following covenants and
ratios:
(a) TANGIBLE NET WORTH. Maintain a minimum Tangible Net Worth of not
less than $50,000,000.00.
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(b) CURRENT RATIO. Maintain a ratio of current assets to current
liabilities of not less than 1.75 to 1.00.
(c) WORKING CAPITAL. Maintain Working Capital in excess of
$40,000,000.00.
(d) DEBT TO CASH FLOW RATIO. Maintain a ratio of Debt to Cash Flow of
no more than 2.50 to 1.00. This ratio will be measured on a trailing
four-quarter basis.
(e) INTEREST COVERAGE RATIO. Maintain a ratio of Cash Flow to Interest
Expense of not less than 4.00 to 1.00. This ratio will be defined as Cash Flow
plus Accommodation fees and commitment fees paid, divided by gross interest
expense, plus Accommodation fees and commitment fees paid. This ratio will be
measured on a trailing four-quarter basis.
The following provisions shall apply for purposes of determining compliance with
the foregoing financial covenants and ratios: MINIMUM TANGIBLE NET WORTH
COVENANT WILL INCREASE BY 50.00% OF BORROWER'S NET PROFIT AFTER TAXES FOR THE
PREVIOUS FISCAL YEAR END. THIS INCREASE WILL BE EFFECTIVE JUNE 30 ANNUALLY.
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 to the
consolidated financial statements of Labor Ready, Inc., and all of its
Subsidiaries, and certified by Borrower as being true and correct.
7.7 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.
7.8 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
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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.
7.9 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.
7.10 LOAN PROCEEDS. Use all Loan proceeds solely for Borrower's business
operations, unless specifically consented to the contrary by Lender in writing.
7.11 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, in 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.
7.12 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.
7.13 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 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.
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7.14 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.
7.15 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.
7.16 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 any 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.
7.17 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.
SECTION 8. RECOVERY OF ADDITIONAL 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 directly (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
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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.
SECTION 9. 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:
9.1 INDEBTEDNESS AND LIENS: (a) Except as allowed as a Permitted Lien,
mortgage, assign, pledge, lease, grant a security interest in, or encumber any
of Borrower's assets, (b) sell or transfer any of Borrower's assets outside the
ordinary course of Borrower's business, or (c) sell with recourse any of
Borrower's accounts, except to Lender.
9.2 CONTINUITY OF OPERATIONS. (a) Engage in any business activities
substantially different than those in which Borrower is presently engaged, or
(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.
9.3 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.
SECTION 10. 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.
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SECTION 11. 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.
SECTION 12. EVENTS OF DEFAULT.
Each of the following shall constitute an Event of Default under this
Agreement:
12.1 DEFAULT ON INDEBTEDNESS. Failure of Borrower to make any payment when
due on the Loans.
12.2 OTHER MATERIAL DEFAULTS. Failure of Borrower or any Grantor to comply
with or to perform when due any other material 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 material term,
obligation, covenant or condition contained in any other agreement between
Lender and Borrower; provided, however, that Borrower shall have five (5)
business days from the receipt of notice of breach to cure non-monetary
breaches, except in situations which, in Lender's judgment, such notice or
opportunity to cure would have a material adverse effect on Lender or the
Collateral. Lender shall use its best efforts to notify Borrower promptly of the
occurrence of any Event of Default.
12.3 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.
12.4 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 in any
material respect at any time thereafter.
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12.5 DEFECTIVE COLLATERALIZATION. 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.
12.6 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.
12.7 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
if the successful prosecution of such proceeding would have a material adverse
effect on the Borrower or its business operations. This includes a garnishment,
attachment, or levy on or of any of Borrower's deposit accounts with Lender.
12.8 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.
12.9 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.
SECTION 13. 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.
Furthermore, upon the occurrence of an Event of Default, including failure to
pay upon final maturity, the Lender, at its option, may also, if permitted under
applicable law, increase the Interest Rate 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. 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
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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 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.
SECTION 14. TERM OF AGREEMENT; MISCELLANEOUS.
14.1 TERM. This Agreement shall only become effective upon execution and
delivery by Borrower and Lender and shall continue in full force and effect
until June 30, 2000.
14.2 AMENDMENTS. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to the
matters set forth in the 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.
14.3 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.
14.4 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 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 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. The statute of limitations,
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estoppel, waiver, latches, 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.
14.5 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.
14.6 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.
14.7 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 interest. 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 purchase of such a
participation interest and unconditionally agrees that either Lender or such
purchase 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.
14.8 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
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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.
14.9 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 in the
United States mail, via certified mail, return receipt requested, addressed to
the party to whom the notice is to be given at the address shown in Section 16
below. 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 times of Borrower's current address(es).
14.10 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.
14.11 SUBSIDIARIES AND AFFILIATES OF BORROWER. To the extent the context of
any provision 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/or 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 Subsidiary or affiliate of Borrower.
14.12 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.
14.13 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.
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<PAGE>
14.14 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.
14.15 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.
SECTION 15. IDENTIFICATION OF BORROWER(S).
15.1 Borrowers: Labor Ready, Inc.
Labor Ready Northwest, Inc.
Labor Ready Southwest, Inc.
Labor Ready Central, Inc.
Labor Ready Central II, LLC
Labor Ready Central III, LP
Labor Ready Midwest, Inc.
Labor Ready Mid-Atlantic, Inc.
Labor Ready Mid-Atlantic II, Inc.
Labor Ready Mid-Atlantic III, LP
Labor Ready Northeast, Inc.
Labor Ready Southeast, Inc.
Labor Ready Southeast II, Inc.
Labor Ready Southeast III, LP
Labor Ready GP Co., Inc.
Labor Ready Properties, Inc.
15.2 Borrowers' Chief Executive Office: 1016 South 28th Street
Tacoma, WA 98409
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<PAGE>
SECTION 16. BORROWER'S AND LENDER'S ADDRESSES FOR NOTICE PURPOSES.
<TABLE>
<CAPTION>
BORROWER: LENDER:
<S> <C>
Labor Ready, Inc. U.S. Bank National Association
Attention: Chief Financial Officer Attention: Manager
1016 South 28th Street Tacoma Corporate Banking
Tacoma, WA 98409 1145 Broadway, Suite 1100
Tacoma, WA 98402
</TABLE>
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS LOAN AGREEMENT, AND
BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF FEBRUARY 3, 1999.
BORROWER: LENDER:
LABOR READY, INC. U.S. BANK NATIONAL ASSOCIATION
By: /s/ Joseph P. Sambataro, Jr. By: /s/ Bruce H. Marley
----------------------------- -----------------------------
Joseph P. Sambataro, Jr. Authorized Officer
Executive Vice President and
Chief Financial Officer
LABOR READY NORTHWEST, INC.
By: /s/ Joseph P. Sambataro, Jr.
-----------------------------
Joseph P. Sambataro, Jr.
President
LABOR READY SOUTHWEST, INC.
By: /s/ Joseph P. Sambataro, Jr.
-----------------------------
Joseph P. Sambataro, Jr.
President
(SIGNATURES OF BORROWER CONTINUED ON FOLLOWING PAGE)
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<PAGE>
BORROWER (CONTINUED):
LABOR READY CENTRAL, INC.
By: /s/ Joseph P. Sambataro, Jr.
-----------------------------
Joseph P. Sambataro, Jr.
President
LABOR READY CENTRAL II, LLC
By: Labor Ready Central, Inc.,
Its Sole Member
By: /s/ Joseph P. Sambataro, Jr.
-----------------------------
Joseph P. Sambataro, Jr.
President
LABOR READY CENTRAL III, LP
By: Labor Ready GP Co., Inc.,
Its General Partner
By: /s/ Joseph P. Sambataro, Jr.
-----------------------------
Joseph P. Sambataro, Jr.
President
LABOR READY MIDWEST, INC.
By: /s/ Joseph P. Sambataro, Jr.
-----------------------------
Joseph P. Sambataro, Jr.
President
(SIGNATURES OF BORROWER CONTINUED ON FOLLOWING PAGE)
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<PAGE>
BORROWER (CONTINUED):
LABOR READY MID-ATLANTIC, INC.
By: /s/ Joseph P. Sambataro, Jr.
-----------------------------
Joseph P. Sambataro, Jr.
President
LABOR READY MID-ATLANTIC II, INC.
By: /s/ Joseph P. Sambataro, Jr.
-----------------------------
Joseph P. Sambataro, Jr.
President
LABOR READY MID-ATLANTIC III, LP
By: Labor Ready GP Co., Inc.,
Its General Partner
By: /s/ Joseph P. Sambataro, Jr.
-----------------------------
Joseph P. Sambataro, Jr.
President
LABOR READY NORTHEAST, INC.
By: /s/ Joseph P. Sambataro, Jr.
-----------------------------
Joseph P. Sambataro, Jr.
President
LABOR READY SOUTHEAST, INC.
By: /s/ Joseph P. Sambataro, Jr.
-----------------------------
Joseph P. Sambataro, Jr.
President
(SIGNATURES OF BORROWER CONTINUED ON FOLLOWING PAGE)
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<PAGE>
BORROWER (CONTINUED):
LABOR READY SOUTHEAST II, INC.
By: /s/ Joseph P. Sambataro, Jr.
-----------------------------
Joseph P. Sambataro, Jr.
President
LABOR READY SOUTHEAST III, LP
By: Labor Ready GP Co., Inc.
Its General Partner
By: /s/ Joseph P. Sambataro, Jr.
-----------------------------
Joseph P. Sambataro, Jr.
President
LABOR READY GP CO., INC.
By: /s/ Joseph P. Sambataro, Jr.
-----------------------------
Joseph P. Sambataro, Jr.
President
LABOR READY PROPERTIES, INC.
By: /s/ Joseph P. Sambataro, Jr.
-----------------------------
Joseph P. Sambataro, Jr.
President
-33-
<PAGE>
Exhibit 10.4.2
ALTERNATIVE RATE OPTIONS
PROMISSORY NOTE
(PRIME RATE, LIBOR)
$60,000,000.00 Dated as of: February 3, 1999
Labor Ready, Inc.
Labor Ready Northwest, Inc.
Labor Ready Southwest, Inc.
Labor Ready Central, Inc.
Labor Ready Central II, LLC
Labor Ready Central III, LP
Labor Ready Midwest, Inc.
Labor Ready Mid-Atlantic, Inc.
Labor Ready Mid-Atlantic II, Inc.
Labor Ready Mid-Atlantic III, LP
Labor Ready Northeast, Inc.
Labor Ready Southeast, Inc.
Labor Ready Southeast II, Inc.
Labor Ready Southeast III, LP
Labor Ready GP Co., Inc.
Labor Ready Properties, Inc. (Collectively, "Borrower")
U.S. BANK NATIONAL ASSOCIATION ("Lender")
1. TYPE OF CREDIT. This note is given to evidence Borrower's obligation to repay
all Indebtedness of Borrower to Lender pursuant to the terms of a Loan and
Security Agreement dated as of February 3, 1999 ("Agreement"). Under the terms
of the Agreement, Lender has agreed to make Advances to Borrower under a Line of
Credit. No Advances shall be made which would cause the aggregate amount of
outstanding Indebtedness at any one time to exceed Sixty Million and No/100
Dollars ($60,000,000.00). However, Advances hereunder may be borrowed, repaid
and reborrowed. Capitalized terms not defined herein shall have the meaning
assigned to them in the Agreement.
2. PROMISE TO PAY. For value received Borrower promises to pay to Lender or
order at 1145 Broadway, Suite 1100, Tacoma, WA. the Principal Balance of this
note, with interest thereon at the rate(s) specified in Sections 3 and 7 below.
3. 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 its selection of the LIBOR Borrowing Rate option
chosen in accordance with the provisions of this note, such notice shall be
irrevocable.
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<PAGE>
The rate options are the Prime Borrowing Rate and the LIBOR Borrowing Rate, each
as defined herein. Interest shall be computed at the applicable rate based upon
a three hundred sixty (360) day year and applied to the actual days applicable.
Interest shall be paid on the first (1st) day of each month until the Expiration
Date, at which time the Principal Balance and all accrued interest will be due.
(a) THE PRIME BORROWING RATE.
(i) The Prime Borrowing Rate is a per annum rate equal to the Prime Rate.
(ii) Whenever Borrower desires to use the Prime Borrowing Rate option,
Borrower shall give Lender notice orally or in writing in accordance with
Section 9 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
the Line of Credit or conversion of a LIBOR Amount to the Prime Borrowing Rate.
(iii) Subject to Section 7 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.
(b) THE LIBOR BORROWING RATE.
(i) The LIBOR Borrowing Rate is LIBOR, plus 1.25% per annum.
(ii) Borrower may obtain LIBOR Borrowing Rate quotes from Lender between
8:00 a.m. and 1:00 p.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 3 (b) (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 1:00 p.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 9 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 the 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. Notwithstanding 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 $100,000.00 above such amount.
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<PAGE>
(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 7, 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 interpretation 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 directly (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 3(b)(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 3(b)(vi). Subject to Section 7, 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.
(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 3 (b) (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.
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<PAGE>
(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 quotation 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.
4. COMPUTATION OF INTEREST. All interest under Section 3 and Section 7 will be
computed at the applicable rate based on a 360-day year and applied to the
actual number of days elapsed.
5. 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 specifically 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.
6. PAYMENT BY AUTOMATIC DEBIT. Borrower hereby authorizes Lender to
automatically deduct the amount of all principal and interest payments from
account number 153501534249 at a branch of Lender. If 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.
7. 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 material term, covenant or obligation in this
note, the Agreement, or the Related Documents, 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, the Agreement, or the 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 the time made or furnished, (v) Borrower becomes insolvent. liquidates or
dissolves. a receiver is appointed for any part of Borrower's property, (vi)
Borrower makes an assignment for
-4-
<PAGE>
the benefit of creditors, or any proceeding is commenced either by Borrower or
against Borrower under any bankruptcy or insolvency laws, (vii) There is any
material adverse change in the financial condition or management of Borrower.
(b) Upon the occurrence of an event of default and after such notice, if any, as
may be required under the Agreement, Lender may declare the entire unpaid
Principal Balance and all accrued unpaid interest immediately due and payable.
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.
8. 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 in the absence of manifest error. Notwithstanding any other
provisions of this note, in the event holder makes Advances hereunder which
cause the aggregate amount of the Indebtedness at any time to exceed Sixty
Million and No/100 Dollars ($60,000,000.00), Borrower agrees that all such
Advances, with interest, shall be payable on demand.
9. REQUESTS FOR ADVANCES.
(a) Any Advance may be made or interest rate option selected upon the request of
any of the undersigned, any person or persons authorized in subsection (b) of
this Section 9, 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, Bob Breen, Bob
Sovern, Joseph Havlin and Joseph P. Sambataro, Jr., unless Lender is otherwise
instructed in writing.
(c) All Advances shall be disbursed by deposit directly to Borrower's account
number 153501534249 at a branch of Lender, or by cashier's 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 9, 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, in 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.
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<PAGE>
10. NOTICES. Any notice hereunder shall be given in accordance with Section 14.9
of the Agreement.
11. 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
foes, including without limitation, costs and attorney fees incurred in any
appellate court, in any proceeding under the bankruptcy code, or in any
receivership and post-judgment attorney fees incurred in enforcing any judgment.
12. 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.
13. JOINT AND SEVERAL LIABILITY. All undertakings of the undersigned Borrowers
are joint and several. Lender's rights and remedies under this note shall be
cumulative.
14. 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 not 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. In
the event there is a conflict between a provision of this note and a provision
in the Agreement, the provision of the Agreement shall control.
15. GOVERNING LAW. This note shall be governed by and construed and enforced in
accordance with 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 may be available under Federal law.
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<PAGE>
16. 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.
THE UNDERSIGNED BORROWER HEREBY ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS
DOCUMENT.
BORROWER:
LABOR READY, INC.
By: /s/ Joseph P. Sambataro, Jr.
-----------------------------
Joseph P. Sambataro, Jr.
Executive Vice President and
Chief Financial Officer
LABOR READY NORTHWEST, INC.
By: /s/ Joseph P. Sambataro, Jr.
-----------------------------
Joseph P. Sambataro, Jr.
President
LABOR READY SOUTHWEST, INC.
By: /s/ Joseph P. Sambataro, Jr.
-----------------------------
Joseph P. Sambataro, Jr.
President
LABOR READY CENTRAL, INC.
By: /s/ Joseph P. Sambataro, Jr.
-----------------------------
Joseph P. Sambataro, Jr.
President
(SIGNATURES OF BORROWER CONTINUED ON FOLLOWING PAGE)
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<PAGE>
BORROWER (CONTINUED):
LABOR READY CENTRAL II, LLC
By: Labor Ready Central, Inc.,
Its Sole Member
By: /s/ Joseph P. Sambataro, Jr.
-----------------------------
Joseph P. Sambataro, Jr.
President
LABOR READY CENTRAL III, LP
By: Labor Ready GP Co., Inc.,
Its General Partner
By: /s/ Joseph P. Sambataro, Jr.
-----------------------------
Joseph P. Sambataro, Jr.
President
LABOR READY MIDWEST, INC.
By: /s/ Joseph P. Sambataro, Jr.
-----------------------------
Joseph P. Sambataro, Jr.
President
LABOR READY MID-ATLANTIC, INC.
By: /s/ Joseph P. Sambataro, Jr.
-----------------------------
Joseph P. Sambataro, Jr.
President
(SIGNATURES OF BORROWER CONTINUED ON FOLLOWING PAGE)
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<PAGE>
BORROWER (CONTINUED):
LABOR READY MID-ATLANTIC II, INC.
By: /s/ Joseph P. Sambataro, Jr.
-----------------------------
Joseph P. Sambataro, Jr.
President
LABOR READY MID-ATLANTIC III, LP
By: Labor Ready GP Co., Inc.,
Its General Partner
By: /s/ Joseph P. Sambataro, Jr.
-----------------------------
Joseph P. Sambataro, Jr.
President
LABOR READY NORTHEAST, INC.
By: /s/ Joseph P. Sambataro, Jr.
-----------------------------
Joseph P. Sambataro, Jr.
President
LABOR READY SOUTHEAST, INC.
By: /s/ Joseph P. Sambataro, Jr.
-----------------------------
Joseph P. Sambataro, Jr.
President
LABOR READY SOUTHEAST II, INC.
By: /s/ Joseph P. Sambataro, Jr.
-----------------------------
Joseph P. Sambataro, Jr.
President
(SIGNATURES OF BORROWER CONTINUED ON FOLLOWING PAGE)
-9-
<PAGE>
BORROWER (CONTINUED):
LABOR READY SOUTHEAST III, LP
By: Labor Ready GP Co., Inc.
Its General Partner
By: /s/ Joseph P. Sambataro, Jr.
-----------------------------
Joseph P. Sambataro, Jr.
President
LABOR READY GP CO., INC.
By: /s/ Joseph P. Sambataro, Jr.
-----------------------------
Joseph P. Sambataro, Jr.
President
LABOR READY PROPERTIES, INC.
By: /s/ Joseph P. Sambataro, Jr.
-----------------------------
Joseph P. Sambataro, Jr.
President
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<PAGE>
Exhibit 10.8
EMPLOYMENT AGREEMENT
This Employment Agreement is made and entered into by and between Labor
Ready, Inc., a Washington corporation, including its subsidiaries ("Company")
and Ralph E. Peterson ("Employee").
RECITALS
WHEREAS, Employee is a former officer of the Company;
WHEREAS, Company believes that Employee's experience, knowledge of
corporate affairs, reputation and industry contacts are of great value to the
Company; and
WHEREAS, Company wishes to continue to employ Employee and Employee is
willing to continue to be employed by Company on a part-time basis.
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, the Company and Employee agree as follows:
1. PRIOR AGREEMENTS. All prior employment agreements between Company and
Employee shall be superseded and replaced in their entirety by this Agreement,
effective as of May 1, 1999. The letter agreement dated January 6, 1999 is
hereby rescinded and declared to be void, just as though the parties had never
entered into the letter agreement. Employee's resignation as an officer of the
Company shall remain in effect. Stock options previously granted to Employee
shall continue to vest during Employee's employment, according to the original
vesting schedule. Upon Employee's death, all unvested stock options shall
immediately vest.
2. EMPLOYMENT. The Company agrees to and hereby does employ Employee, and
Employee agrees to and hereby does continue to be employed by the Company,
subject to the supervision and direction of the Chairman, President and Chief
Executive Officer. Employee's employment shall be for a period commencing May 1,
1999 and ending on April 30, 2002, unless such period is extended by written
agreement of the parties or is sooner terminated pursuant to the provisions of
Paragraphs 5, 8 or 9.
3. DUTIES OF EMPLOYEE. Employee agrees to devote the necessary time,
attention, skill, and efforts to the performance of his duties as Special
Projects Coordinator for the Company or such other duties as may be assigned by
the Company in its discretion. Employee's work shall be subject to the
supervision and direction of Company. Assignments given to Employee shall be
completed by Employee in the time and manner specified by Company. Company and
Employee agree that the employment of Employee shall be on a part-time basis.
4. COMPENSATION.
Employee's salary shall be at the rate of Two Thousand and No/100 Dollars
($2,000.00) per month.
5. FAILURE TO PAY EMPLOYEE. The failure of Company to pay Employee his
salary as provided in Paragraph 4 may, in Employee'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. Employee's
claims against Company arising out of the nonpayment shall survive termination
of this Agreement.
6. REIMBURSEMENT FOR EXPENSES. Company shall reimburse Employee for
reasonable out-of-pocket expenses that Employee shall incur in connection with
his services for Company contemplated by this Agreement, on presentation by
Employee of appropriate vouchers and receipts for such expenses to Company.
<PAGE>
7. BENEFITS. Employee shall be entitled to all benefits offered generally
to employees of Company who are working on less than a half-time basis.
8. 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 Employee. Cause shall exist if Employee 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 Employee all amounts due hereunder which are then
accrued but unpaid within thirty (30) days after Employee's last day of
employment.
(b) In the event that Employee 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
Employee'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.
9. TERMINATION BY EMPLOYEE. 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 Employee may, in his sole discretion, by
written notice to Company, terminate his employment and Company hereby consents
to the release of Employee 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 13 of this Agreement shall terminate. In addition,
Employee shall have the right to terminate this Agreement upon giving three (3)
months written notice to Company.
10. COMMUNICATIONS TO COMPANY. Employee 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 Employee 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.
11. 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 Employee.
12. CONFIDENTIAL INFORMATION.
(a) As the result of his duties, Employee will necessarily have access
to some or all of the confidential information pertaining to Company's business.
It is agreed that "Confidential Information" of Company includes:
(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
<PAGE>
(5) All information which is marked as confidential or explained
to be confidential or which, by its nature, is confidential.
(b) Employee understands that he will necessarily have access to some
or all of the Confidential Information. Employee recognizes the importance of
protecting the confidentiality and secrecy of the Confidential Information and,
therefore, agrees to use his best efforts to protect the Confidential
Information from unauthorized disclosure to other persons. Employee understands
that protecting the Confidential Information from unauthorized disclosure is
critically important to the success and competitive advantage of Company and
that the unauthorized disclosure of the Confidential Information would greatly
damage Company.
(c) Employee agrees not to disclose any Confidential Information to
others or use any Confidential Information for his own benefit. Employee 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.
13. COVENANTS AGAINST COMPETITION. It is understood and agreed that the
nature of the methods employed in Company's business is such that Employee will
be placed in a close business and personal relationship with the customers of
Company.
Thus, during the term of this Employment Agreement and for a period of two
(2) years immediately following the termination of Employee's employment, for
any reason whatsoever, so long as Company continues to carry on the same
business, said Employee shall not, for any reason whatsoever, directly or
indirectly, for himself or on behalf of, or in conjunction with, or acting
through, 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, loan money to, invest in, advise, consult with,
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 or which competes in any
manner with Company; and
(d) Make any public statement or announcement, or permit anyone else
to make any public statement or announcement that Employee was formerly employed
by or connected with Company.
The time period covered by the covenants contained herein shall not include
any period(s) of violation of any covenant or any period(s) of time required for
litigation to enforce any covenant. If the provisions set forth are determined
to be too broad to be enforceable at law, then the area and/or length of time
shall be reduced to such area and time and that shall be enforceable.
14. ENFORCEMENT OF COVENANTS.
(a) The covenants set forth herein on the part of Employee shall be
construed as an agreement independent of any other provision in this Employment
Agreement and the existence of any claim or cause of action of Employee against
Company, whether predicated on this Employment Agreement or otherwise, shall not
constitute a defense to the enforcement by Company of the covenants contained
herein.
(b) Employee acknowledges that irreparable damage will result to
Company in the event of the breach of any covenant contained herein and Employee
agrees that in the event of any such breach, Company shall be entitled, in
addition to any and all other legal or equitable remedies and damages, to a
temporary and/or permanent injunction to restrain the violation thereof by
Employee and all of the persons acting for or with Employee.
<PAGE>
15. 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.
16. ARBITRATION. Company and Employee agree with each other that any claim
of Employee arising out of or relating to this Agreement or the breach of this
Agreement or Employee'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 Employment 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.
17. 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.
18. 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.
19. 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.
20. 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 addition to all other required sums, a reasonable sum for the
successful party's attorneys' fees.
21. 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.
22. SURVIVAL OF CERTAIN TERMS. The terms and conditions set forth in
Paragraphs 12 through 16 of this Agreement shall survive termination of the
remainder of this Agreement.
IN WITNESS WHEREOF, each party to this Agreement has caused it to be
executed on the date indicated below.
EMPLOYEE: COMPANY:
Ralph E. Peterson Labor Ready, Inc., a Washington corporation
By: /S/ RALPH E. PETERSON By: /S/ GLENN WELSTAD
---------------------- ----------------------------------------
Ralph E. Peterson Glenn Welstad, Chairman, President
and Chief Executive Officer
Date: 2/10/99 Date: 2/10/99
-------------------- --------------------------------------
<PAGE>
Exhibit 10.12
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 Ronald L. Junck ("Executive").
RECITALS
WHEREAS, Executive has been serving as outside legal counsel and Secretary
of the Company;
WHEREAS, Company believes that Executive's experience, knowledge of
corporate and legal affairs, reputation and abilities 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 Company's Board of Directors has elected Executive to the
office of Executive Vice President and General Counsel of the Company in
addition to the office of Secretary.
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 February 3, 1998 and ending on February 2, 2002, 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 General Counsel of the Company and such other duties as may be
assigned by the Chairman, President and General Counsel or the Board of
Directors in their discretion.
Executive may continue to be employed by the Law Offices of Ronald L. Junck,
P.C.
3. COMPENSATION.
(a) Executive's initial salary shall be at the rate of Five Thousand
and No/100 Dollars ($5,000.00) per month, payable semi-monthly, from February 3,
1998, increasing to $16,667 per month on August 1, 1998.
(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 150,000 shares of the Company's common stock. The terms and conditions
of the option are set forth in Exhibit A.
<PAGE>
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 1998 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.
9. LIABILITY 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
$10,000,000.00 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-competition and
<PAGE>
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 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;
<PAGE>
(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.
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.
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.
<PAGE>
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 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.
IN WITNESS WHEREOF, each party to this Agreement has caused it to be
executed on the date indicated below.
EXECUTIVE: COMPANY:
Ronald L. Junck Labor Ready, Inc., a Washington
corporation
By: /s/ Ronald L. Junck By: /s/ Glenn Welstad
------------------- -------------------------------
Ronald L. Junck Glenn Welstad, Chairman, President
and Chief Executive Officer
Date: 3/20/93 Date: 3/20/98
------------------ -------------------------------
<PAGE>
EXHIBIT A
STOCK OPTION GRANT
GRANT DATE: February 3, 1998
GRANT PRICE: $20.750 (Closing price on the Grant Date)
TOTAL NUMBER OF SHARES: 150,000
VESTING SCHEDULE: Options for the specified number of shares shall
vest on the following dates:
<TABLE>
<CAPTION>
DATE NUMBER OF SHARES
<S> <C>
2/3/98 18,750
8/3/98 18,750
2/3/99 18,750
8/3/99 18,750
2/3/00 18,750
8/3/00 18,750
2/3/01 18,750
8/3/01 18,750
</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. If the Executive Employment Agreement is terminated for some reason other
than cause, 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.
<PAGE>
Exhibit 10.13
BOND TO SECURE PREMIUM AND DEDUCTIBLE OBLIGATIONS
Bond Number: 19 S 103144565 BCM
KNOW ALL MEN BY THESE PRESENTS:
That Labor Ready, Inc., as principal ("Principal") and Travelers Casualty and
Surety Company of America as surety ("Surety"), are held and firmly bound unto
Reliance National Indemnity Company, Reliance National Insurance Company,
Reliance Insurance Company, United Pacific Insurance Company, Reliance Insurance
Company of Illinois, and Reliance National Insurance Company of California, and
each of its affiliates and subsidiaries, as obligee (herein collectively and
individually referred to as "Obligee") for the payment of the Obligations
(hereafter defined), up to the maximum penal sum of Twelve Million Five Hundred
Thousand and no/100 dollars ($12,500,000.00) lawful money of the United States
to payment of which sum, Principal and Surety hereby bind themselves, their
successors and assigns, jointly and severally, firmly by these presents.
WHEREAS, Obligee has issued certain insurance policies on behalf of the
Principal and has entered into certain other agreements with the Principal which
are described on Exhibit A hereto and as may be amended and/or renewed from time
to time (herein collectively referred to as the "Agreement(s)"), and:
WHEREAS, the Obligee requires security for all of the Principal's Obligations to
Obligee under each of the Agreements. For purposes of this Bond, "Obligation(s)"
is defined herein the same way as it is in the Agreements.
NOW, THEREFORE, if and when the Obligations shall be fully and finally paid and
satisfied this Bond shall be null and void; otherwise this Bond shall remain in
full force and effect and Principal and Surety in any event agree as follows:
1) Within ten (10) business days of Surety's receipt of a demand for
payment under this Bond ("Demand"), Surety shall pay to the Obligee the
amount of such Demand. The Obligee's Demand to the Surety of the amount
due, either as security or for payment or for reimbursement pursuant to the
Agreement(s), shall be absolute proof of the existence and extent of the
liability of the Principal and the Surety to the Obligee hereunder. The
Obligee may present one or more Demands at any time in its sole discretion,
provided however, Surety shall not be obligated to pay an aggregate amount
in excess of the penal sum of the bond.
2) In the event that Obligee shall demand the entire penal sum of the Bond
under a Demand (less any previous amounts paid to Obligee under the Bond),
Obligee shall hold all funds ("Bond Collateral") received as security for
the Obligations and shall apply such funds to the Obligations from time to
time in its sole discretion. At such time as Obligee determines in its sole
discretion that all of the Obligations are fully and finally paid and such
payment is not subject to avoidance or other turnover, Obligee shall return
to the Surety the unapplied portion of the Bond Collateral. The Surety,
whether in its capacity as surety or subrogee of the Principal, waives, to
the fullest extent permitted by applicable law each and every right which
it may have to contest Obligee's computation of the Obligations or the
application of the Bond Collateral by the Obligee to the Obligations, and
waives, to the fullest extent permitted by applicable law, each and every
right which it may have to seek reimbursement, restitution or recovery of
any Bond Collateral. Obligee shall rot be required to (i) segregate Bond
Collateral from its general funds, (ii) hold or invest Bond Collateral in
an interest-bearing or income-producing investment or (iii) account to
Surety for interest or income in the event the same would be otherwise
attributable to Bond Collateral. The Principal shall not at any time have
any rights or property interests in this Bond, the Bond Collateral or other
proceeds of this Bond.
3) Failure to pay or reimburse the Obligee as herein provided shall cause
the Surety to be additionally liable for any and all reasonable costs and
expenses, including attorney's fees and interest, incurred by the Obligee
in enforcing this bond, such liability to be in addition to the bond
penalty.
4) Surety's obligations hereunder shall not be affected by (i) any failure
by Obligee to assert any claim or demand or to enforce any right or remedy
against Principal or its property, or any other party liable with respect
to the Obligations, (ii) any failure to perfect an interest in, or any
release, impairment or other diminution of, any collateral (including, but
not limited to, rights of recoupment or setoff) held by Obligee which
secures any of the Obligations, (iii) any matter or proceeding arising in
connection with any modification, limitation, discharge, assumption, or
reinstatement with respect to any Agreements or Obligations, (iv) any
modification of or amendment to any Agreements or Obligations without
Surety's consent or prior notification provided that, the penal sum of the
Bond may not be increased without the consent of Surety; however, failure
to give such consent will not prevent Obligee from drawing up to the full
amount of the Bond (less any previous amounts paid to Obligee under the
Bond) either as security or for payment or for reimbursement under the
Agreements, or (v) any other circumstances which might otherwise constitute
a legal or equitable discharge or defense for Surety.
5) This Bond shall become effective JANUARY 1, 1999 and shall remain in
full force and effect thereafter for a period of one year and will
automatically extend for additional one year periods from the expiry date
hereof, or any future expiration date, unless the Surety provides to the
Obligee not less than ninety (90) days advance written notice of its intent
not to renew this Bond or unless this Bond is earlier canceled pursuant to
the following. This Bond may be canceled at any time upon ninety (90) days
advance written notice from Surety to
<PAGE>
Obligee. It is understood and agreed that the Obligee may recover the full
amount of the Bond (less any previous amounts paid to Obligee under the
Bond) if the Surety cancels or nonrenews the Bond and, within thirty (30)
days prior to the effective date of cancellation or nonrenewal, the Obligee
has not received collateral acceptable to it to replace the Bond.
6) Any notice, Demand, certification or request for payment, given or made
under this Bond shall be made in writing and shall be given by a personal
delivery or expedited delivery service, postage pre-paid, addressed to the
parties at the addresses specified below or to such other address as shall
have been specified by such parties to each of the parties to the
transactions contemplated hereby.
If to the Surety: TRAVELERS CASUALTY AND SURETY COMPANY OF AMERICA
ONE TOWER SQUARE, 3PB
HARTFORD, CT 06183-9062
ATTENTION: BOND CLAIM
If to Obligee:
RELIANCE NATIONAL INDEMNITY COMPANY
77 WATER STREET
NEW YORK, NEW YORK 10005
ATTENTION: JOHN LAZAR, CORPORATE SECRETARY -- RISK MGT.
If to the Principal:
LABOR READY, INC.
1016 SOUTH 28TH STREET
TACOMA, WASHINGTON 98402
ATTENTION. GLEN A. WELSTAD, CHAIRMAN
Notice given under this Bond shall be effective only when received.
In WITNESS THEREOF, the said Principal and Surety have signed and sealed this
instrument on this 16th day of February, 1999.
LABOR READY, INC.
By: /s/ Joseph P. Sambataro, Jr.
----------------------------------
Principal
TRAVELERS CASUALTY AND SURETY COMPANY OF AMERICA
By: /s/ Lora L. Cotrell
----------------------------------
Lora L Cotrell, Attorney-in-Fact
<PAGE>
TRAVELERS CASUALTY AND SURETY COMPANY OF AMERICA
TRAVELERS CASUALTY AND SURETY COMPANY
FARMINGTON CASUALTY COMPANY
HARTFORD, CONNECTICUT 06183-9062
TRAVELERS CASUALTY AND SURETY COMPANY OF ILLINOIS
NAPERVILLE, ILLINOIS 60563-8458
POWER OF ATTORNEY AND CERTIFICATE OF AUTHORITY OF ATTORNEY(S)-IN-FACT
KNOW ALL. PERSONS BY THESE PRESENTS, THAT TRAVELERS CASUALTY AND SURETY COMPANY
OF AMERICA, TRAVELERS CASUALTY AND SURETY COMPANY and FARMINGTON CASUALTY
COMPANY, corporations duly organized under the laws of the State of Connecticut,
and having their principal offices in the City of Hartford, County of Hartford.
State of Connecticut, and TRAVELERS CASUALTY AND SURETY COMPANY OF ILLINOIS a
corporation duly organized under the laws of the State of Illinois, and having
its principal office in the City of Naperville, County of DuPage, State of
Illinois, (hereinafter the "Companies") hath made, constituted and appointed.
and do by these presents make, constitute and appoint RICHARD C. SCHULTZ, LORA
L. COTTRELL, P. J. MCKINNIS, NORA O. GARZA, MARY BESCHER, LISA D. KADEL, MARY
ATHANITES, BRIAN SANDY, KIP R. MCBEAN, MARY E. DAVIS, NEIL L. RANDERSON, JOAN M.
KELLEY, KRISTEN C. FOX or GEORGE J. BOWDOURIS * *
of Englewood, CO, their true and lawful Attorney(s)-in-Fact, with full power and
authority hereby conferred to sign, execute and acknowledge at any place within
the United States, or, if the following line be filled in, within the area there
designated the following instrument(s): by his/her sole signature and act any
and all bonds, recognizances, contracts of indemnity, and other writings
obligatory in the nature of a bond, recognizance, or conditional undertaking and
any and all consents incident thereto
AND TO BIND THE COMPANIES, THEREBY AS FULLY AND TO THE SAME EXTENT AS IF THE
SAME WERE SIGNED BY THE DULY AUTHORIZED OFFICERS OF THE COMPANIES, AND ALL THE
ACTS OF SAID ATTORNEY(S)-IN-FACT, PURSUANT TO THE AUTHORITY HEREIN GIVEN, ARE
HEREBY RATIFIED AND CONFIRMED.
This appointment is made under and by authority of the following Standing
Resolutions of said Companies, which Resolutions are now in full force and
effect:
VOTED: That the Chairman, the President, any Vice Chairman, any Executive Vice
President, any Second Vice President, any Vice President, any Second Vice
President the Treasurer, any Assistant Treasurer, the Corporate Secretary or any
Assistant Secretary may appoint Attorneys-in-Fact and Agents to act for and on
behalf of the company and may give such appointee such authority as his or her
certificate of authority may prescribe to sign with the Company's name and seal
with the Company's seal bonds, recognizances, contracts of indemnity, and other
writings obligatory in the nature of a bond, recognizance, or conditional
undertaking and any of said officers or the Bond of Directors at any time may
remove any such appointee and revoke the power given him or her.
VOTED. That the Chairman, the President, any Vice Chairman, any Executive Vice
President, any Senior Vice President or any Vice President may delegate all or
any part of the foregoing authority to one or more officers or employees of this
Company, provided that each such delegation is in writing and a copy thereof is
filed in the office of the Secretary.
VOTED: That any bond, recognizance, contract of indemnity, or writing obligatory
in the nature of a bond, recognizance, or conditional undertaking shall be valid
and binding upon the Company when (a) signed by the President, any Vice
Chairman, any Executive Vice President, any Senior Vice President or any Vice
President, any Second Vice President, the Treasurer, any Assistant Treasurer,
the Corporate Secretary or any Assistant Secretary and duly attested and sealed
with the Company's seal by a Secretary or Assistant Secretary, or (b) duly
executed (under seal, if required) by one or more Attorneys-in-Fact and Agents
pursuant to the power prescribed in his or her certificate or their certificates
of authority or by one or more Company officers pursuant to a written delegation
of authority.
This Power of Attorney and Certificate of Authority is signed and sealed by
facsimile under and by authority of the following Standing Resolution voted by
the Boards of Directors OF TRAVELERS CASUALTY AND SURETY COMPANY OF AMERICA,
TRAVELERS CASUALTY AND SURETY COMPANY FARMINGTON CASUALTY COMPANY and TRAVELERS
CASUALTY AND SURETY COMPANY OF ILLINOIS, which Resolution is now in full force
and effect:
VOTED: That the signature of each of the following officers: President. any
Executive Vice President, any Senior Vice President, any Vice President, any
Assistant Vice President, any Secretary, any Assistant Secretary, and the seal
of the Company may be affixed by facsimile to any power of attorney or to any
certificate relating thereto appointing Resident Vice Presidents, Resident
Assistant Secretaries or Attorneys-in-Fact for purposes only of executing and
attesting bonds and undertakings and other writings obligatory in the nature
thereof and any such power of attorney or certificate bearing such facsimile
signatures or facsimile seal shall be valid and binding upon
<PAGE>
the Company and any such power so executed and certified by such facsimile
signature and facsimile seal shall be valid and binding upon the Company in the
future with respect to any bond or undertaking to which it Is attached.
IN WITNESS WHEREOF TRAVELERS CASUALTY AND SURETY COMPANY OF AMERICA, TRAVELERS
CASUALTY AND SURETY COMPANY, FARMINGTON CASUALTY COMPANY and TRAVELERS CASUALTY
AND SURETY COMPANY OF ILLINOIS have caused this instrument to be signed by their
Senior Vice President and their corporate seals to be hereto affixed this 14th
day of October, 1998.
STATE OF CONNECTICUT TRAVELERS CASUALTY AND SURETY COMPANY OF AMERICA
TRAVELERS CASUALTY AND SURETY COMPANY
)SS. Hartford FARMINGTON CASUALTY COMPANY
COUNTY OF HARTFORD TRAVELERS CASUALTY AND SURETY COMPANY OF ILLINOIS
By: /s/ George W. Thompson
--------------------------
GEORGE W. THOMPSON
SENIOR VICE PRESIDENT
On this 14th day of October, 1998 before me personally came GEORGE W. THOMPSON
to me known, who, being by me duly sworn, did depose and say: that he/she is
Senior Vice President of TRAVELERS CASUALTY AND SURETY COMPANY OF AMERICA,
TRAVELERS CASUALTY AND SURETY COMPANY, FARMINGTON CASUALTY COMPANY and TRAVELERS
CASUALTY AND SURETY COMPANY OF ILLINOIS, the corporations described in and which
executed the above instrument; that he/she knows the seals of said corporations;
that the seals affixed to the said instrument are such corporate seals; and that
he/she executed the said instrument on behalf' of the corporations by authority
of his/her office under the Standing Resolutions thereof.
/s/ Marie C. Tetreault
-----------------------------
My commission expires
June 30, 2001 Notary Public
Marie C. Tetreault
CERTIFCATE
I, the undersigned, Assistant Secretary of TRAVELERS CASUALTY AND SURETY COMPANY
OF AMERICA, TRAVELERS CASUALTY AND SURETY COMPANY and FARMINGTON CASUALTY
COMPANY, stock corporations of the State of Connecticut, and TRAVELERS CASUALTY
AND SURETY COMPANY OF ILLINOIS, stock corporation of the State of Illinois, DO
HEREBY CERTIFY that the foregoing and attached Power of Attorney and Certificate
of Authority remains in full force and has not been revoked; and furthermore,
that the Standing Resolutions of the Boards of Directors, as set forth in the
Certificate of Authority, are now in force.
Signed and Sealed at the Home Office of the Company, in the City of Hartford,
State of Connecticut. Dated this 16th day of February, 1999.
By: /s/ Brian Hoffman
--------------------------
BRIAN HOFFMAN
ASSISTANT SECRETARY, BOND
<PAGE>
EXHIBIT A TO BOND NUMBER 19 S 103144565 BCM
"Agreement(s)" shall be defined as those Agreements listed below, including any
modifications that may be made from time to time, and the insurance policies
described therein:
1. Agreement(s): Insurance Program Agreement between Reliance National
Indemnity Company and Labor Ready, Inc. Date: January 1, 1999
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF LABOR READY, INC.
<TABLE>
<CAPTION>
INCORPORATED IN
CORPORATE NAME STATE/COUNTRY OF
- -------------- ----------------
<S> <C>
Labor Ready Northwest, Inc. Washington
Labor Ready Southwest, Inc. Washington
Labor Ready Central, Inc. Washington
Labor Ready Central II, LLC Washington
Labor Ready Central III, LP Washington
Labor Ready Midwest, Inc. Washington
Labor Ready Mid-Atlantic, Inc. Washington
Labor Ready Mid-Atlantic II, Inc. Washington
Labor Ready Mid-Atlantic III, LP Washington
Labor Ready Northeast, Inc. Washington
Labor Ready Southeast, Inc. Washington
Labor Ready Southeast II, Inc. Washington
Labor Ready Southeast III, LP Washington
Labor Ready GP Co., Inc. Washington
Labor Ready Properties, Inc. Nevada
Workers Assurance of Hawaii, Inc. Hawaii
Labor Ready Assurance Company Cayman Islands
Labour Ready Temporary Services, Ltd. Canada
Labour Ready Temporary Services UK, Ltd. United Kingdom
Labor Ready Puerto Rico, Inc. Puerto Rico
</TABLE>
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation or our
reports included in this Form 10-K into the Company's previously files
Registration Statement No. 333-36191, 333-16455 and 333-16459.
March 30, 1999
<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.
for the year ended December 31, 1996 included in the Company's Form 10-K for the
year ended December 31, 1998, into the Company's previously filed Registration
Statements on Form S-8 No. 333-36191, 333-16455 and 333-16459.
March 30, 1999
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, 1998
AND FOR THE YEAR THEN ENDED.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 25,940
<SECURITIES> 0
<RECEIVABLES> 69,702
<ALLOWANCES> 4,218
<INVENTORY> 0
<CURRENT-ASSETS> 105,933
<PP&E> 26,340
<DEPRECIATION> 6,069
<TOTAL-ASSETS> 130,736
<CURRENT-LIABILITIES> 34,842
<BONDS> 0
0
854
<COMMON> 54,131
<OTHER-SE> 25,512
<TOTAL-LIABILITY-AND-EQUITY> 130,736
<SALES> 0
<TOTAL-REVENUES> 606,895
<CGS> 0
<TOTAL-COSTS> 422,924
<OTHER-EXPENSES> 142,051
<LOSS-PROVISION> 8,274
<INTEREST-EXPENSE> 256
<INCOME-PRETAX> 33,390
<INCOME-TAX> 13,591
<INCOME-CONTINUING> 19,799
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,799
<EPS-PRIMARY> .71
<EPS-DILUTED> .69
</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, 1997 AND
1996 AND FOR EACH OF THE TWO YEARS IN THE PERIOD ENDING DECEMBER 31, 1997 AND IS
QULAIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> DEC-31-1997 DEC-31-1996
<CASH> 22,117 17,598
<SECURITIES> 0 0
<RECEIVABLES> 39,465 22,248
<ALLOWANCES> 2,851 1,237
<INVENTORY> 0 0
<CURRENT-ASSETS> 65,617 48,534
<PP&E> 13,165 9,256
<DEPRECIATION> 2,839 1,431
<TOTAL-ASSETS> 80,367 64,135
<CURRENT-LIABILITIES> 15,788 10,961
<BONDS> 76 90
0 0
854 854
<COMMON> 49,693 49,517
<OTHER-SE> 7,494 1,221
<TOTAL-LIABILITY-AND-EQUITY> 80,367 64,125
<SALES> 0 0
<TOTAL-REVENUES> 335,409 163,450
<CGS> 0 0
<TOTAL-COSTS> 236,667 115,531
<OTHER-EXPENSES> 82,329 42,675
<LOSS-PROVISION> 5,762 2,078
<INTEREST-EXPENSE> (1,871) (340)
<INCOME-PRETAX> 12,522 3,506
<INCOME-TAX> 5,559 1,585
<INCOME-CONTINUING> 6,963 1,921
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 1,197
<CHANGES> 0 0
<NET-INCOME> 6,963 724
<EPS-PRIMARY> .25<F1> .03<F1>
<EPS-DILUTED> .25<F1> .03<F1>
<FN>
<F1>RESTATED FOR THE COMPANY'S 3 FOR 2 STOCK SPLIT EFFECTIVE MAY 11, 1998.
</FN>
</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 APRIL 3, 1998
AND FOR THE 13 WEEKS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-03-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> APR-03-1998
<CASH> 17,880
<SECURITIES> 0
<RECEIVABLES> 40,113
<ALLOWANCES> 2,963
<INVENTORY> 0
<CURRENT-ASSETS> 63,031
<PP&E> 19,066
<DEPRECIATION> 3,395
<TOTAL-ASSETS> 84,485
<CURRENT-LIABILITIES> 14,535
<BONDS> 86
0
854
<COMMON> 50,539
<OTHER-SE> 7,396
<TOTAL-LIABILITY-AND-EQUITY> 58,789
<SALES> 0
<TOTAL-REVENUES> 94,030
<CGS> 0
<TOTAL-COSTS> 65,695
<OTHER-EXPENSES> 27,153
<LOSS-PROVISION> 1,140
<INTEREST-EXPENSE> (208)
<INCOME-PRETAX> 250
<INCOME-TAX> 105
<INCOME-CONTINUING> 145
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 145
<EPS-PRIMARY> .005<F1>
<EPS-DILUTED> .005<F1>
<FN>
<F1>RESTATED FOR THE COMPANY'S 3 FOR 2 STOCK SPLIT EFFECTIVE MAY 11, 1998.
</FN>
</TABLE>
