WARRANT PURCHASE AGREEMENT
WARRANT PURCHASE AGREEMENT (the "Agreement") made as of
October 31, 1995, by and among LABOR READY, INC., a Washington
corporation (the "Company"), SEACOAST CAPITAL PARTNERS LIMITED
PARTNERSHIP, a Delaware limited partnership ("Seacoast"), and
ALLIED INVESTMENT CORPORATION, a Maryland corporation, ALLIED
INVESTMENT CORPORATION II, a Maryland corporation, and ALLIED
CAPITAL CORPORATION II, a Maryland corporation (collectively, the
"Allied Investors") (Seacoast and the Allied Investors are
collectively referred to herein as the "Purchaser").
W I T N E S S E T H:
WHEREAS, the Company and the Purchaser have entered into a
Note Purchase Agreement (the "Note Agreement") dated of even date
with this Agreement; and
WHEREAS, the Company, the Purchaser and Glenn A. Welstad,
John R. Coghlan and Coghlan Family Corporation, a Washington
corporation (collectively the "Shareholders"), have entered into
a Shareholder Agreement (the "Shareholder Agreement") dated of
even date with this Agreement; and
WHEREAS, the Purchaser is willing to enter into and
consummate the transactions contemplated by the Note Agreement
only if, among other things, the Company enters into, and
performs under, this Agreement, and the Company and the
Shareholders enter into, and perform under, the Shareholder
Agreement.
NOW, THEREFORE, in consideration of the foregoing, the
mutual covenants contained in this Agreement, and other good and
valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Purchaser and the Company, intending to
be legally bound, agree as follows:
Article I
Definitions
As used in this Agreement, the following terms have the
meanings indicated:
Act. This term is defined in Section 3.01(k).
Additional Securities. This term is defined in Section
2.08(a)(iv).
Affiliate. With respect to any Person, (a) a Person that,
directly or indirectly or through one or more intermediaries,
controls, is controlled by, or is under common control with, such
Person; (b) any Person of which such Person or such Person's
spouse is an officer, director, security holder, partner, or, in
the case of a trust, the beneficiary or trustee, and (c) any
Person that is an officer, director, security holder, partner,
or, in the case of a trust, the beneficiary or trustee of such
Person. The term "control" as used with respect to any Person,
means the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of
such Person, whether through the ownership of voting securities,
by contract, or otherwise.
Agreement. This term is defined in the preamble.
Allied Investors. This term is defined in the preamble.
Appraised Value. The value determined in accordance with
the following procedures. For a period of 30 days after the date
of a Valuation Event (the "Negotiation Period"), each party to
this Agreement agrees to negotiate in good faith to reach
agreement upon the Appraised Value of the securities or property
at issue, as of the date of the Valuation Event, which will be
the fair market value of such securities or property, without
premium for control or discount for minority interests,
illiquidity, or restrictions on transfer. In the event that the
parties are unable to agree upon the Appraised Value of such
securities or other property by the end of the Negotiation
Period, then the Appraised Value of such securities or property
will be determined for purposes of this Agreement by a recognized
appraisal or investment banking firm mutually agreeable to the
Holders and the Company (the "Appraiser"). If the Holders and
the Company cannot agree on an Appraiser within fifteen (15) days
after the end of the Negotiation Period, the Company, on the one
hand, and the Holders, on the other hand, shall each select an
Appraiser within twenty-one (21) days after the end of the
Negotiation Period and those two Appraisers shall select within
twenty-five (25) days after the end of the Negotiation Period an
independent Appraiser to determine the fair market value of such
securities or property, without premium for control or discount
for minority interests. Such independent Appraiser shall be
directed to determine fair market value of such securities or
property as soon as practicable, but in no event later than
thirty (30) days from the date of its selection. The
determination by an Appraiser of the fair market value will be
conclusive and binding on all parties to this Agreement.
Appraised Value of each share of Common Stock at a time when (i)
the Company is not a reporting company under the Exchange Act and
(ii) the Common Stock is not traded in the organized securities
markets, will, in all cases, be calculated by determining the
Appraised Value of the entire Company taken as a whole and
dividing that value by the sum of (x) the number of shares of
Common Stock then outstanding plus (y) the number of shares of
Common Stock Equivalents, without premium for control or discount
for minority interests, illiquidity, or restrictions on transfer.
The costs of the Appraiser will be borne equally by the Company
and the Purchaser. In no event will the Appraised Value of the
Common Stock or Other Securities be less than the per share
consideration received or receivable with respect to the Common
Stock or securities or property of the same class as the Other
Securities, as the case may be, in connection with a pending
transaction involving a sale, merger, recapitalization,
reorganization, consolidation, or share exchange, dissolution of
the Company, sale or transfer of all or a majority of its assets
or revenue or income generating capacity, or similar transaction.
The prevailing market prices for any security or property will
not be dispositive of the Appraised Value thereof.
Appraiser. This term is defined in the definition of
Appraised Value.
Average Market Value. The average of the Closing Price for
the security in question for the thirty (30) trading days
immediately preceding the date of determination.
Capital Stock. As to any Person, its common stock and any
other capital stock of such Person authorized from time to time,
and any other shares, options, interests, participations, or
other equivalents (however designated) of or in such Person,
whether voting or nonvoting, including, without limitation,
common stock, options, warrants, preferred stock, phantom stock,
stock appreciation rights, preferred stock, convertible notes or
debentures, stock purchase rights, and all agreements,
instruments, documents, and securities convertible, exercisable,
or exchangeable, in whole or in part, into any one or more of the
foregoing.
Closing Date. October 31, 1995.
Closing Price.
(a) If the primary market for the security in question is
a national securities exchange registered under the Exchange Act,
the National Association of Securities Dealers Automated
Quotation System -- National Market System, or other market or
quotation system in which last sale transactions are reported on
a contemporaneous basis, the last reported sales price, regular
way, of such security for such day, or, if there has not been a
sale on such trading day, the highest closing or last bid
quotation therefor on such trading day (excluding, in any case,
any price that is not the result of bona fide arm's length
trading); or
(b) If the primary market for such security is not an
exchange or quotation system in which last sale transactions are
contemporaneously reported, the highest closing or last bona fide
bid or asked quotation by disinterested Persons in the over-the-
counter market on such trading day as reported by the National
Association of Securities Dealers through its Automated Quotation
System or its successor or such other generally accepted source
of publicly reported bid quotations as the Holders designate.
Common Stock. The common stock, no par value, of the
Company.
Common Stock Equivalent. Any option, warrant, right, or
similar security exercisable into, exchangeable for, or
convertible to Common Stock.
Commission. The Securities and Exchange Commission and any
successor federal agency having similar powers.
Company. Labor Ready, Inc. and any successor or assign,
and, unless the context requires otherwise, the term Company
includes any Subsidiary.
Dilution Fee. This term is defined in Article VII.
Exchange Act. The Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder.
Exercise Price. The price per share specified in Section
2.03 as adjusted from time to time pursuant to the provisions of
this Agreement.
Fair Market Value.
(a) As to securities regularly traded in the organized
securities markets, the Average Market Value; and
(b) As to all securities (including, without
limitation, the Issuable Warrant Shares) not regularly traded in
the securities markets and other property, the fair market value
of such securities or property as determined in good faith by the
board of directors of the Company at the time it authorizes the
transaction or if no authorization is required, at the time of
the transaction requiring valuation, (a "Valuation Event")
requiring a determination of Fair Market Value under this
Agreement; provided, however, that, at the election of the
Holders, the Fair Market Value of such securities and other
property will be the Appraised Value.
Forced Exercise Date. This term is defined in Section 8.04.
Forced Exercise Option. This term is defined in Section
8.01.
Forced Exercise Period. This term is defined in Section
8.01.
Holders. The Purchaser, and all Persons holding Registrable
Securities, except that neither the Company nor any Shareholder
nor any Affiliate of the Company or any Shareholder will at any
time be a Holder. Unless otherwise provided in this Agreement,
in each instance that either of the Purchasers is required to
request or consent to an action, such Purchaser will be deemed to
have requested or consented to such action if (a) with respect to
Seacoast, the Holders of a majority in interest of the
Registrable Securities initially issued to Seacoast on the date
hereof so requests or consents and (b) with respect to the Allied
Investors, the Holders of a majority in interest of the
Registrable Securities initially issued to the Allied Investors
on the date hereof so requests or consents.
Indemnified Party. This term is defined in Section 10.01.
Initial Holders. Seacoast, the Allied Investors and any
Affiliate of Seacoast or the Allied Investors to which any of the
Warrants or any part of or interest in the Warrants is assigned.
Intellectual Property. This term is defined in Section
3.01(g).
Issuable Warrant Shares. Shares of Common Stock or Other
Securities issuable on exercise of the Warrants.
Issued Warrant Shares. Shares of Common Stock or Other
Securities issued on exercise of the Warrants.
Kemper Agreement. That certain agreement between the
Company and Everen Securities, Inc., formerly known as Kemper
Securities, Inc., dated as of February 21, 1995, as amended on
October 3, 1995, providing for the payment by the Company to
Everen Securities, Inc. of a private placement fee and for the
issuance by the Company to Everen Securities, Inc. of warrants to
purchase 40,000 shares of Common Stock pursuant to the terms and
conditions thereof.
Material Adverse Effect. (a) a material adverse effect upon
the business, operations, properties, assets or condition
(financial or otherwise) of the Company taken as a whole or (b)
the impairment of the ability of the Company to perform its
obligations under this Agreement. In determining whether any
individual event would result in a Material Adverse Effect,
notwithstanding that such event does not of itself have such
effect, a Material Adverse Effect shall be deemed to have
occurred if such event and all other then existing events would
result in a Material Adverse Effect.
Negotiation Period. This term is defined in the definition
of Appraised Value.
New Securities. Any Capital Stock other than Warrant Shares
and other than the Permitted Stock.
Non-Compete Agreements. Collectively, (a) those certain
Employment and Non-Compete Agreements dated as of October 31,
1995, by and between the Company and each of Glenn A. Welstad and
Scott Sabo, (b) that certain Consulting and Non-Compete Agreement
on or about the Closing Date, by and between the Company and John
R. Coghlan, and (c) any other non-compete agreement hereinafter
entered into by and between the Company and any other officer,
employee or consultant of the Company, and all renewals,
modifications, amendments and supplements thereto.
Note Agreement. This term is defined in the preamble and
includes the Note Purchase Agreement of even date with this
Agreement among the Company, the Purchaser and the other entities
a party thereto, and all documents evidencing indebtedness
thereunder or otherwise related to the Note Agreement as the same
may be amended from time to time, and any refinancing, refunding,
or replacements of the indebtedness under the Note Agreement.
Notes. All or any portion of any of the Senior Subordinated
Notes (as defined in the Note Agreement) and any and all
documents evidencing the indebtedness under the Notes and any
refinancing, refunding, or replacement of the Notes.
Offering Price. This term is defined in Section
2.08(a)(iv).
Other Securities. Any stock, other securities, property, or
other property or rights (other than Common Stock) that the
Holders become entitled to receive upon exercise of the Warrants.
Permitted Stock. Common Stock or options or warrants to
acquire Common Stock issued or reserved for issuance to (a)
Everen Securities, Inc. pursuant to the terms of the Kemper
Agreement, and (b) present and future key management of the
Company pursuant to a management incentive program, constituting,
in the aggregate, ten percent (10%) or less of the outstanding
Common Stock. In no event will (a) the number of shares of
Permitted Stock issued or reserved for issuance, in the
aggregate, exceed the lesser of the number of shares constituting
ten percent (10%) of the outstanding Common Stock on (i) the date
of this Agreement or (ii) the date issued, (b) the number of
shares of Permitted Stock issued or reserved for issuance to any
present and future key management of the Company during any
calendar year exceed, in the aggregate, the lesser of the number
of shares constituting two percent (2%) of the outstanding Common
Stock on (i) the date of this Agreement or (ii) the date issued
and (c) any shares of Permitted Stock issued to present and
future key management of the Company be exercisable for a per
share consideration less than eighty-five percent (85%) of the
Fair Market Value per share of the Common Stock determined as of
the date of issuance of such Permitted Stock.
Person. This term will be interpreted broadly to include
any individual, sole proprietorship, partnership, joint venture,
trust, unincorporated organization, association, corporation,
company, institution, entity, party, or government (whether
national, federal, state, county, city, municipal, or otherwise,
including, without limitation, any instrumentality, division,
agency, body, or department of any of the foregoing).
Purchaser. This term is defined in the preamble.
Qualifying Holder. The Initial Holders and any transferee
of fifty percent (50%) or more of an Initial Holder's Issued
Warrant Shares or Issuable Warrant Shares.
"Register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration
statement in compliance with the Securities Act, and the
declaration or ordering of the effectiveness of such registration
statement.
Registrable Securities. (a) the Issuable Warrant Shares and
(b) the Issued Warrant Shares that have not been previously sold
to the public.
SEC Filings. This term is defined in Section 3.01(l).
Securities Act. The Securities Act of 1933, as amended, and
the rules and regulations thereunder.
Senior Lender. This term means Concord Growth Corporation,
a California corporation, and its successors and assigns, and any
Person who replaces or refinances the Senior Loans (as defined in
the Note Agreement) under the terms set forth in Section 7.1(c)
of the Note Agreement.
Shareholders. This term is defined in the preamble.
Shareholder Agreement. This term is defined in the preamble
and includes the Shareholder Agreement dated as of the Closing
Date between the Company, the Purchaser and the Shareholders in
substantially the form attached to this Agreement as Annex A and
incorporated in this Agreement by reference.
Subsidiary. Each Person of which or in which the Company or
its other Subsidiaries own directly or indirectly fifty-one
percent (51%) or more of (i) the combined voting power of all
classes of stock having general voting power under ordinary
circumstances to elect a majority of the board of directors or
equivalent body of such Person, if it is a corporation or similar
person; (ii) the capital interest or profits interest of such
Person, if it is a partnership, joint venture, or similar entity;
or (iii) the beneficial interest of such Person, if it is a
trust, association, or other unincorporated organization.
Valuation Event. This term is defined in the definition of
Fair Market Value.
Warrants. The Warrants referred to in Section 2.01, dated
as of the Closing Date, issued to Initial Holders, and all
Warrants issued upon the transfer or division of, or in
substitution for, such Warrants.
Warrant Shares. The Issued Warrant Shares and the Issuable
Warrant Shares.
Article II
The Warrant
2.01 The Warrant. On the Closing Date, each Purchaser
severally agrees to purchase from the Company at the purchase
price set forth beneath the name of such Purchaser on the
signature page of this Agreement, and the Company agrees to issue
to each Purchaser, a Warrant in substantially the form attached
to this Agreement as Annex A and incorporated in this Agreement
by reference to purchase the number of shares of Common Stock set
forth beneath the name of each such Purchaser on the signature
page of this Agreement, all in accordance with the terms and
conditions of this Agreement.
2.02 Legend. The Company will deliver to each Purchaser
on the Closing Date one or more certificates representing the
Warrant purchased by such Purchaser in such denominations as such
Purchaser requests. Such certificates will be issued in the
Purchaser's name or in the name or names of its designee or
designees, as the case may be. It is understood and agreed that
the certificates evidencing the Warrants will bear the following
legend:
"THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE
HEREOF HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO
OR FOR SALE IN CONNECTION WITH THE DISTRIBUTION HEREOF. THIS
WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY STATE SECURITIES LAWS, AND MAY NOT BE PLEDGED, SOLD, OFFERED
FOR SALE, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF
REGISTRATION UNDER OR EXEMPTION FROM SUCH ACT AND ALL APPLICABLE
STATE SECURITIES LAWS".
"THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE
HEREOF ARE SUBJECT TO THE TERMS AND PROVISIONS OF A WARRANT
PURCHASE AGREEMENT, DATED AS OF OCTOBER 31, 1995, BY AND AMONG
LABOR READY, INC. (THE "COMPANY"), SEACOAST CAPITAL PARTNERS
LIMITED PARTNERSHIP ("SEACOAST"), ALLIED INVESTMENT CORPORATION
("AIC"), ALLIED INVESTMENT CORPORATION II ("AIC II") AND ALLIED
CAPITAL CORPORATION II ("ACC II") AND A SHAREHOLDER AGREEMENT,
DATED AS OF OCTOBER 31, 1995, BY AND AMONG THE COMPANY, SEACOAST,
AIC, AIC II, ACC II AND THE SHAREHOLDERS OF THE COMPANY LISTED ON
THE SIGNATURE PAGES THERETO (AS SUCH AGREEMENTS MAY BE
SUPPLEMENTED, MODIFIED, AMENDED, OR RESTATED FROM TIME TO TIME,
THE "AGREEMENTS"). COPIES OF THE AGREEMENTS ARE AVAILABLE AT THE
EXECUTIVE OFFICES OF THE COMPANY."
2.03 Exercise Price. The Exercise Price per share will be
$17.50 for each share of Common Stock covered by the Warrants,
subject to adjustment as provided in this Section 2.03 and in
Section 2.08. In the event the Company fails to employ a Chief
Financial Officer reasonably acceptable to the Purchaser on or
before the one hundred eightieth (180th) day of the Closing Date,
the Exercise Price for each share of Common Stock covered by the
Warrants shall be reduced by $1.00 per share on such date (i.e.
reduced from $17.50 to $16.50 per share). The Exercise Price for
each share of Common Stock covered by the Warrants shall continue
to be reduced by an additional $1.00 per share upon the
expiration of each successive ninety (90) day period thereafter
until such time as the Company has employed a Chief Financial
Officer reasonably acceptable to the Purchaser.
2.04 Exercise.
(a) Each of the Warrants may be exercised at any
time or from time to time on or after the Closing Date and prior
to the earlier of (i) the seventh (7th) anniversary of the
Closing Date and (ii) six (6) years from the date the Notes are
paid in full, on any day that is a business day, for all or any
part of the number of Issuable Warrant Shares purchasable upon
its exercise. In order to exercise any Warrant, in whole or in
part, the Holder will deliver to the Company at the address
designated by the Company pursuant to Section 10.06, (i) a
written notice of such Holder's election to exercise its Warrant,
which notice will specify the number of Issuable Warrant Shares
to be purchased pursuant to such exercise, (ii) payment of the
Exercise Price, in an amount equal to the aggregate purchase
price for all Issuable Warrant Shares to be purchased pursuant to
such exercise, and (iii) the Warrant. Such notice will be
substantially in the form of the Subscription Form appearing at
the end of the Warrants. Upon receipt of such notice, the
Company will, as promptly as practicable, and in any event within
five (5) business days, execute, or cause to be executed, and
deliver to such Holder a certificate or certificates representing
the aggregate number of full shares of Common Stock and Other
Securities issuable upon such exercise, as provided in this
Agreement. The stock certificate or certificates so delivered
will be in such denominations as may be specified in such notice
and will be registered in the name of such Holder, or such other
name as designated in such notice. A Warrant will be deemed to
have been exercised, such certificate or certificates will be
deemed to have been issued, and such Holder or any other Person
so designated or named in such notice will be deemed to have
become a holder of record of such shares for all purposes, as of
the date that such notice, together with payment of the Exercise
Price and the Warrant, is received by the Company. If the Warrant
has been exercised in part, the Company will, at the time of
delivery of such certificate or certificates, deliver to such
Holder a new Warrant evidencing the rights of such Holder to
purchase a number of Issuable Warrant Shares with respect to
which the Warrant has not been exercised, which new Warrant will,
in all other respects, be identical with the Warrants, or, at the
request of such Holder, appropriate notation may be made on the
Warrant and the Warrant returned to such Holder.
(b) Payment of the Exercise Price will be made, at
the option of the Holder, by (i) company or individual check,
certified or official bank check, (ii) cancellation of any debt
owed by the Company to the Holder, or (iii) cancellation of
Warrants, valued at Fair Market Value. If the Holder surrenders
a combination of cash or cancellation of any debt owed by the
Company to the Holder or Warrants, the Holder will specify the
respective number of shares of Common Stock to be purchased with
each form of consideration, and the foregoing provisions will be
applied to each form of consideration with the same effect as if
the Warrant were being separately exercised with respect to each
form of consideration; provided, however, that a Holder may
designate that any cash to be remitted to a Holder in payment of
debt be applied, together with other monies, to the exercise of
the portion of the Warrant being exercised for cash.
2.05 Taxes. The issuance of any Common Stock or Other
Securities upon the exercise of the Warrant will be made without
charge to any Holder for any tax, other than income taxes
assessed on such Holder, in respect of such issuance.
2.06 Warrant Register. The Company will, at all times
while any of the Warrants remain outstanding and exercisable,
keep and maintain at its principal office a register in which the
registration, transfer, and exchange of the Warrants will be
provided for. The Company will not at any time, except upon the
dissolution, liquidation, or winding up of the Company, close
such register so as to result in preventing or delaying the
exercise or transfer of any Warrant.
2.07 Transfer and Exchange. Subject to compliance with
the restrictions on transfer set forth in the legend prescribed
by Section 2.02, the Warrants and all options and rights under
the Warrants are transferable, as to all or any part of the
number of Issuable Warrant Shares purchasable upon its exercise,
by the Holders of the Warrants, in person or by duly authorized
attorney, on the books of the Company upon surrender of the
Warrants at the principal offices of the Company, together with
the form of transfer authorization attached to the Warrants duly
executed and, if requested by the Company, an opinion of Hughes &
Luce, L.L.P. (or other counsel reasonably acceptable to the
Company) to the effect that such transfer does not violate the
registration requirements of the Securities Act. Absent any such
transfer and subject to the terms and conditions of this
Agreement, the Company may deem and treat the registered Holders
of the Warrants at any time as the absolute owners of the
Warrants for all purposes and will not be affected by any notice
to the contrary. If any Warrant is transferred in part, the
Company will, at the time of surrender of such Warrant, issue to
the transferee a Warrant covering the number of Issuable Warrant
Shares transferred and to the transferor a Warrant covering the
number of Issuable Warrant Shares not transferred.
2.08 Adjustments to Number of Shares Purchasable.
(a) The Warrants will be exercisable for the
number of shares of Common Stock in such manner that, following
the complete and full exercise of the Warrant of each Holder, the
amount of Common Stock issued to all Holders will equal the
aggregate number of shares of Common Stock set forth beneath the
names of the Purchaser on the signature pages of this Agreement,
as adjusted, to the extent necessary, to give effect to the
following events:
(i) In case at any time or from time to time,
the holders of any class of Common Stock or Common Stock
Equivalent have received, or (on or after the record date fixed
for the determination of shareholders eligible to receive) have
become entitled to receive, without payment therefor:
(A) consideration (other than cash) by
way of dividend or distribution; or
(B) consideration (including cash) by way
of spin-off, split-up, reclassification (including any
reclassification in connection with a consolidation or merger in
which the Company is the surviving corporation),
recapitalization, combination of shares into a smaller number of
shares, or similar corporate restructuring;
other than additional shares of Common Stock issued as
a stock dividend or in a stock-split (adjustments in respect of
which are provided for in Sections 2.08(a)(ii) and (iii)), then,
and in each such case, the Holders, on the exercise of the
Warrants, will be entitled to receive for each share of Common
Stock issuable under the Warrants as of the record date fixed for
such distribution, the greatest per share amount of consideration
received by any holder of any class of Common Stock or Common
Stock Equivalent or to which such holder is entitled less the
amount of any Dilution Fee actually and irrevocably paid to such
Holders. All such consideration receivable upon exercise of the
Warrant with respect to such a distribution will be deemed to be
outstanding and owned by such Holder for purposes of determining
the amount of consideration to which such Holder is entitled upon
exercise of the Warrant with respect to any subsequent
distribution.
(ii) If at any time there occurs any stock
split, stock dividend, reverse stock split, or other subdivision
of the Common Stock, then the number of shares of Common Stock to
be received by the Holder of the Warrant and the Exercise Price,
subject to the limitations set forth in this Agreement, will be
proportionately adjusted.
(iii) In case of any reclassification or
change of outstanding shares of any class of Common Stock or
Common Stock Equivalent (other than a change in par value, or
from par value to no par value, or from no par value to par
value), or in the case of any consolidation of the Company with,
or merger or share exchange of the Company with or into, another
Person, or in case of any sale of all or a majority of the
property, assets, business, income or revenue generating
capacity, or goodwill of the Company, the Company, or such
successor or other Person, as the case may be, will provide in
writing that the Holder of this Warrant will thereafter be
entitled to receive, upon exercise of a Warrant, in lieu of each
share of Common Stock otherwise issuable under this Warrant, the
highest per share kind and amount of consideration received or
receivable (including cash) upon such reclassification, change,
consolidation, merger, share exchange, or sale by any holder of
any class of Common Stock or Common Stock Equivalent that the
Holder would have been entitled to receive if, immediately prior
to such reclassification, change, consolidation, merger, share
exchange, or sale (as adjusted pursuant to Section 2.08(a)(i) and
otherwise in this Agreement) the Holder had exercised its
Warrants in full. Any such successor Person, which thereafter
will be deemed to be the Company for purposes of the Warrants,
will provide for adjustments that are as nearly equivalent as may
be possible to the adjustments provided for by this Section 2.08.
(iv) If at any time the Company issues or
sells any shares of any Common Stock or any Common Stock
Equivalent (the "Additional Securities") at a per unit or share
consideration which consideration will include the price paid
upon issuance plus the minimum amount of any exercise,
conversion, or similar payment made upon exercise or conversion
of any Common Stock Equivalent (the "Offering Price"), less than
the Exercise Price or the then current Fair Market Value per
share of Common Stock immediately prior to the time such
Additional Securities are issued or sold, then:
(A) the Exercise Price will be reduced to
the lower of:
(I) the Offering Price; and
(II) the price determined by
multiplying the then existing Exercise Price by a fraction, the
numerator of which is (x) the sum of (1) the number of shares of
Common Stock outstanding on a fully diluted basis immediately
prior to such issuance or sale, multiplied by the Fair Market
Value per share of Common Stock immediately prior to such
issuance or sale, plus (2) the aggregate net consideration
received by the Company upon such issuance or sale, divided by
(y) the total number of shares of Common Stock outstanding on a
fully diluted basis immediately after such issuance or sale, and
the denominator of which is the Fair Market Value per share of
Common Stock immediately prior to such issuance or sale (for
purposes of this subsection (II), the date as of which the Fair
Market Value per share of Common Stock will be computed will be
the earlier of the date upon which the Company (aa) enters into a
firm contract for the issuance of such shares, or (bb) issues
such shares); and
(B) the number of shares of Common Stock
for which any of the Warrants may be exercised at the Exercise
Price resulting from the adjustment described in subsection (A)
above will be equal to the product of the number of shares of
Common Stock purchasable under such Warrants immediately prior to
such adjustment multiplied by a fraction, the numerator of which
is the Exercise Price in effect immediately prior to such
adjustment and the denominator of which is the Exercise Price
resulting from such adjustment.
(v) In case any event occurs as to which the
preceding Sections 2.08(a)(i) through (iv) are not strictly
applicable, but as to which the failure to make any adjustment
would not fairly protect the purchase rights represented by the
Warrants in accordance with the essential intent and principles
of this Agreement, then, in each such case, the Company may
appoint an independent investment bank or firm of independent
public accountants acceptable to the Holder in good faith, which
will give its opinion as to the adjustment, if any, on a basis
consistent with the essential intent and principles established
in this Agreement, necessary to preserve the purchase rights
represented by the Warrants. Upon receipt of such opinion, the
Company will promptly deliver a copy of such opinion to the
Holder and will make the adjustments described in such opinion.
The fees and expenses of such investment bank or independent
public accountants will be borne by the Company.
(b) The Company will not by any action including,
without limitation, amending, or permitting the amendment of, the
charter documents, bylaws, or similar instruments of the Company
or through any reorganization, reclassification, transfer of
assets, consolidation, merger, share exchange, dissolution, issue
or sale of securities, or any other similar voluntary action,
avoid or seek to avoid the observance or performance of any of
the terms of this Agreement or the Warrants, but will at all
times in good faith assist in the carrying out of all such terms
and in the taking of all such actions as may be necessary or
appropriate to protect the rights of the Holders against
impairment or dilution. Without limiting the generality of the
foregoing, the Company will (i) take all such action as may be
necessary or appropriate in order that the Company may validly
and legally issue fully paid and nonassessable shares of Common
Stock and Other Securities, free and clear of all liens,
encumbrances, equities, and claims and (ii) use its best efforts
to obtain all such authorizations, exemptions, or consents from
any public regulatory body having jurisdiction as may be
necessary to enable the Company to perform its obligations under
the Warrants. Without limiting the generality of the foregoing,
the Company represents and warrants that the board of directors
of the Company has determined the Exercise Price to be adequate
and the issuance of the Warrants to be in the best interests of
the Company.
(c) Any calculation under this Section 2.08 will be
made to the nearest one ten-thousandth of a share and the number
of Issuable Warrant Shares resulting from such calculation will
be rounded up to the next whole share of Common Stock or Other
Securities comprising Issuable Warrant Shares.
(d) The Company will not, and will not permit any
Subsidiary to, issue any Capital Stock other than Common Stock
and Common Stock Equivalents.
(e) If the Company pays in full the Notes,
including all principal and interest thereon, prior to the third
anniversary of the Closing Date, the aggregate number of Issuable
Warrant Shares shall be reduced by twenty percent (20%) (with
such reduction calculated based upon the number of Issuable
Warrant Shares at January 1, 1996), as adjusted from time to time
consistent with the adjustments set forth in Section 2.08(a).
2.09 Lost, Stolen, Mutilated, or Destroyed Warrants. If
any Warrant is lost, stolen, mutilated, or destroyed, the Company
will issue a new Warrant of like denomination, tenor, and date as
the Warrant so lost, stolen, mutilated, or destroyed. Any such
new Warrant will constitute an original contractual obligation of
the Company, whether or not the allegedly lost, stolen,
mutilated, or destroyed Warrant is at any time enforceable by any
Person.
2.10 Stock Legend. The Warrants and the Warrant Shares
have not been registered under the Securities Act or qualified
under applicable state securities laws. Accordingly, unless
there is an effective registration statement and qualification
respecting the Warrants and the Warrant Shares under the
Securities Act or under applicable state securities laws at the
time of exercise of a Warrant, any stock certificate issued
pursuant to the exercise of a Warrant will bear the following
legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE (A) HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY STATE SECURITIES LAWS, AND MAY NOT BE PLEDGED, SOLD,
OFFERED FOR SALE, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF REGISTRATION UNDER OR EXEMPTION FROM SUCH ACT AND ALL
APPLICABLE STATE SECURITIES LAWS AND (B) ARE SUBJECT TO THE TERMS
OF AND PROVISIONS OF A WARRANT PURCHASE AGREEMENT, DATED AS OF
OCTOBER 31, 1995 BY AND AMONG LABOR READY, INC. (THE "COMPANY"),
SEACOAST CAPITAL PARTNERS LIMITED PARTNERSHIP ("SEACOAST"),
ALLIED INVESTMENT CORPORATION ("AIC"), ALLIED INVESTMENT
CORPORATION II ("AIC II") AND ALLIED CAPITAL CORPORATION II ("ACC
II") AND A SHAREHOLDER AGREEMENT, DATED AS OF OCTOBER 31, 1995,
BY AND AMONG THE COMPANY, SEACOAST, AIC, AIC II, ACC II AND THE
SHAREHOLDERS OF THE COMPANY LISTED ON THE SIGNATURE PAGES THERETO
(AS SUCH AGREEMENTS MAY BE SUPPLEMENTED, MODIFIED, AMENDED, OR
RESTATED FROM TIME TO TIME, THE "AGREEMENTS"). COPIES OF THE
AGREEMENTS ARE AVAILABLE AT THE OFFICES OF THE COMPANY."
Article III
Representations and Warranties
3.01 Representations and Warranties of the Company. The
Company represents and warrants to the Purchaser that:
(a) The Company is a corporation duly organized and
existing and in good standing under the laws of its state of
incorporation and is qualified or licensed to do business in all
other countries, states, and jurisdictions the laws of which
require it to be so qualified or licensed and where the failure
to be so qualified or licensed would have a Material Adverse
Effect. Except as set forth on Schedule I, the Company has no
Subsidiaries or debt or equity investment in any Person. Each
Shareholder owns the equity interest of the Company set forth on
Schedule II, free and clear of all liens, claims, and
encumbrances, and no Person has any rights, whether granted by
the Company or any other Person, to acquire any portion of the
equity interest of the Company or the assets of the Company
except pursuant to this Agreement or pursuant to the agreements
described on Schedule III which grant warrants or options to any
Persons other than Purchaser.
(b) The Company has, and at all times that this
Agreement is in force will have, the right and power, and is duly
authorized, to enter into, execute, deliver, and perform this
Agreement, the Shareholder Agreement and the Warrants, and the
officers of Company executing and delivering this Agreement, the
Shareholder Agreement and the Warrants are duly authorized to do
so. This Agreement, the Shareholder Agreement and the Warrants
have been duly and validly executed, issued, and delivered and
constitute the legal, valid, and binding obligations of Company
and the Shareholders, enforceable in accordance with their
respective terms.
(c) The execution, delivery, and performance of
this Agreement, the Shareholder Agreement and the Warrants will
not, by the lapse of time, the giving of notice, or otherwise,
constitute a violation of any applicable provision contained in
the charter, bylaws, or organizational documents of the Company
or contained in any agreement, instrument, or document to which
the Company is a party or by which it is bound.
(d) As of the Closing Date, the authorized capital
stock of the Company consists of (i) 25,000,000 shares of Common
Stock, no par value, of which 3,878,415 shares are issued and
outstanding, and (ii) 5,000,000 shares of Preferred Stock
consisting of 1,052,242 authorized shares of Series A Cumulative
Preferred Stock, of which 854,082 shares are issued and
outstanding. 454,912 shares of Common Stock are reserved for
issuance on exercise of the Warrants. All such issued and
outstanding shares have been duly authorized and validly issued,
are fully paid and nonassessable, and have been offered, issued,
sold, and delivered by Company free from preemptive rights,
rights of first refusal, or similar rights and in compliance with
applicable federal and state securities laws. Except pursuant to
this Agreement and except for the Permitted Stock, the Company is
not obligated to issue or sell any Capital Stock, and neither the
Company nor the Shareholders are party to, or otherwise bound by,
any agreement affecting the voting of any Capital Stock. Except
for this Agreement, the Company is not, a party to, or otherwise
bound by, any agreement obligating it to register any of its
Capital Stock.
(e) The shares of Common Stock and other
consideration issuable on exercise of the Warrants have been duly
and validly authorized and reserved for issuance and, when issued
in accordance with the terms of the Warrants will be validly
issued, fully paid, and nonassessable and free of preemptive
rights, rights of first refusal, or similar rights.
(f) The Company has good, indefeasible,
merchantable, and marketable title to, and ownership of, all of
its assets free and clear of all liens, pledges, security
interests, claims, or other encumbrances except those in favor of
the Senior Lender, and those pursuant to the Note Agreement.
(g) The Company has the exclusive right to use all
patents, patent rights, patent applications, licenses,
inventions, trade secrets, know-how, proprietary techniques,
including processes and substances, trademarks, service marks,
trade names, and copyrights used in or necessary or desirable to
its business as presently, or presently proposed to be, conducted
(the "Intellectual Property"), and, to the best of the Company's
knowledge, the use by the Company of the Intellectual Property
does not infringe the rights of any other Person. No other
Person is infringing the rights of the Company in any of the
Intellectual Property. The Company owes no royalties, honoraria,
or fees to any Person by reason of its use of any of Intellectual
Property.
(h) There is not now, and at no time during the
term of this Agreement will there be, any agreement, arrangement,
or understanding involving the Company or the Shareholders, other
than this Agreement and the documents contemplated hereby and
thereby, modifying, restricting, or in any way affecting the
rights of any security holder to vote securities of the Company.
(i) Each of the representations and warranties made
by the Company pursuant to the Note Agreement is true and
correct.
(j) None of the documents, instruments, or other
information furnished to the Purchaser by the Company, contains
any untrue statement of a material fact or omits to state any
material fact necessary in order to make any statements made
therein not misleading. No representation, warranty, or
statement made by the Company in this Agreement, the Note
Agreement or in any document, certificate, exhibit or schedule
attached hereto or thereto or delivered in connection herewith or
therewith, contains or will contain any untrue statement of a
material fact, or omits or will omit to state a material fact
necessary to make any statements made herein or therein not
misleading. There is no fact that materially and adversely
affects the condition (financial or otherwise), results of
operations, business, properties, or prospects of the Company or
any of its Subsidiaries that has not been disclosed in the
documents provided to the Purchaser.
(k) The Company is a "small business concern" as
defined in Section 103(5) of the Small Business Investment Act of
1958, as amended and in effect from time to time, and the
regulations promulgated thereunder (the "Act"), which for
purposes of size eligibility meets the applicable criteria set
forth in Section 121.802(a)(3) of Title 13 of the Code of Federal
Regulations.
(l) The Company has delivered to the Purchaser
copies of (a) the Company's annual report on Form 10-K for the
fiscal years ended December 31, 1993 and 1994, (b) the Company's
quarterly reports on Form 10-Q for the periods ended March 31,
1995 and June 30, 1995, and (c) the Company's registration
statement on Form S-1 dated August 11, 1995, and (d) the
Company's proxy statement dated June 26, 1995, ((a), (b), (c) and
(d) are collectively referred to herein as the "SEC Filings").
All reports and filings required to be filed by the Company with
the Commission during the last twelve (12) months have been
timely filed with the Commission. The SEC Filings (a) were
prepared in all material respects in accordance with the
requirements of the Exchange Act, and the rules and regulations
thereunder, and (b) did not at the time of filing contain any
untrue statement of material fact necessary to make the
statements therein, in light of the circumstances under which
they were made, not misleading. The financial statements
contained in the Company's SEC Filings present fairly in all
material respects the consolidated financial position and results
of operations and changes in shareholders' equity and changes in
cash flow of the Company and its subsidiaries as of the dates and
for the periods indicated therein in accordance with GAAP
throughout the periods indicated. The Company has no outstanding
liabilities or indebtedness not reflected on the balance sheet
(known or unknown, absolute, accrued, contingent or otherwise)
which are material to the financial condition or operating
results of the Company on a consolidated basis.
3.02 Representations and Warranties of the Purchaser.
Each Purchaser, severally and not jointly, represents and
warrants to the Company with respect to itself and not with
respect to any other Purchaser:
(a) It is a limited partnership or corporation, as
the case may be, duly incorporated and existing and in good
standing under the laws of the state of its organization.
(b) It has the right and power and is duly
authorized to enter into, execute, deliver, and perform this
Agreement and the Shareholder Agreement, and its partners,
officers or agents executing and delivering this Agreement and
the Shareholder Agreement are duly authorized to do so. This
Agreement and the Shareholder Agreement have been duly and
validly executed, issued, and delivered and constitute the legal,
valid, and binding obligation of the Purchaser, enforceable in
accordance with their terms.
(c) It (i) is an "accredited investor," as that term
is defined in Regulation D under the Securities Act; and (ii) has
such knowledge, skill, and experience in business and financial
matters, based on actual participation, that it is capable of
evaluating the merits and risks of an investment in the Company
and the suitability thereof as an investment for the Purchaser.
(d) Except as otherwise contemplated by this
Agreement, it is acquiring its Warrant and any securities
issuable upon exercise of its Warrant for investment for its own
account and not with a view to any distribution thereof in
violation of applicable securities laws.
(e) It agrees that the certificates representing
its Warrant and any Issued Warrant Shares will bear the legends
referenced in this Agreement, and such Warrant or securities
issuable upon exercise of the Warrant will not be offered, sold,
or transferred in the absence of registration or exemption under
applicable securities laws.
(f) It has had the opportunity to ask questions of
and receive answers from officers of the Company, including Glen
A. Welstad and John R. Coghlan, the Company's President and Chief
Executive Officer and Secretary and Treasurer, respectively, and
the Company's accountants and legal counsel concerning the
transactions contemplated hereby and by the Note Agreement.
Purchaser's principal place of business is set forth in Section
10.06. Notwithstanding anything in this Section 3.2(f) to the
contrary, nothing in this Section 3.2(f) shall affect any
representation or warranty made by the Company in Section 3.1.
Article IV
Covenants
The Company covenants and agrees as follows:
4.01 Financial Statements. The Company will keep books
of account and prepare financial statements and will cause to be
furnished to the Purchaser or other Holder (all of the foregoing
and following to be kept and prepared in accordance with United
States generally accepted accounting principles applied on a
consistent basis):
(a) As soon as available, and in any event within
ninety (90) days after the end of each fiscal year, beginning
with the fiscal year ending December 31, 1995, a certificate of
an authorized officer of the Company in the form of the officer's
certificate attached as Exhibit B to the Note Agreement.
(b) As soon as available, a copy of each (i)
financial statement, report, notice, or proxy statement sent by
the Company to its shareholders; (ii) regular, periodic, or
special report, registration statement, or prospectus filed by
the Company with any securities exchange, state securities
regulator, or the Commission; (iii) material order issued by any
court, governmental authority, or arbitrator in any material
proceeding to which the Company is a party or to which any of its
assets is subject; (iv) press release or other statement made
available generally by the Company or the Shareholders to the
public generally concerning material developments in the business
of the Company; and (v) a copy of all material correspondence,
reports, and other information sent by the Company to any holder
of any indebtedness, including, without limitation the Senior
Lender.
(c) Promptly, such additional information
concerning the Company as any Holder may reasonably request,
including, without limitation, (i) auditor management reports and
audit "waive" lists and (ii) at any time that the Company fails
to comply or is not required to comply with the financial
reporting requirements of the Securities Act, copies of the
financial statements and other information required under Section
6.1 of the Note Agreement, which financial statements and other
information shall be delivered in the same form, for the same
periods, and at the same intervals as required under Section 6.1
of the Note Agreement.
4.02 Laws. The Company and the Shareholders will comply
with all applicable statutes, regulations, and orders of the
United States, domestic and foreign states, and municipalities,
agencies, and instrumentalities of the foregoing applicable to
the Company and the Shareholders.
4.03 Board Observation and Membership. The Company will
deliver to Purchaser a copy of the minutes of and all materials
distributed at or prior to all meetings of the board of directors
of the Company (including, without limitation, meetings of the
executive committee), certified as true and accurate by the
Secretary of the Company, promptly following each such meeting.
The Company will (a) permit Seacoast, so long as Seacoast owns at
least twenty percent (20%) or more of the Warrant Shares owned by
it on January 1, 1996, to designate one (1) person to attend all
meetings of the Company's board of directors and shareholders as
an observer, (b) permit the Allied Investors, collectively, so
long as the Allied Investors own, in the aggregate, at least
twenty percent (20%) or more of the Warrant Shares owned by them
on January 1, 1996, to designate one (1) person to attend all
meetings of the Company's board of directors and shareholders as
an observer (provided that if a representative of the Purchaser
is serving as a member of the Company's board of directors,
Purchaser shall be allowed to collectively designate only one (1)
person to attend such meetings of the Company's board of
directors and shareholders as an observer), (c) provide such
designees not less than twenty-one (21) calendar days' actual
notice of all regular meetings of the Company's board of
directors and shareholders and two (2) business days' actual
notice via facsimile of all special meetings of the Company's
board of directors (provided that the approval at a duly-called
meeting of the Company's Board of Directors of a schedule of
dates of future regular meetings of the Company's Board of
Directors shall satisfy the notice requirements of this
Subsection (c) if (i) the Observer(s) is/are in attendance at
such meeting and (ii) the approved schedule of dates is clearly
reflected in the minutes of the meeting), (d) permit Purchaser,
so long as Purchaser owns, in the aggregate, at least twenty
percent (20%) or more of the Warrant Shares owned by it on
January 1, 1996, to collectively designate one (1) person to
serve as a member of the Company's board of directors provided,
however, that the Purchaser will not have any obligation to
designate or cause such individuals to serve on the Company's
board of directors, and (e) provide to such designees a copy of
all materials distributed at such meetings or otherwise to the
Company's directors. Any failure by the Purchaser to designate
such persons pursuant to Subsection (d) above will not constitute
a failure to comply with this Agreement or result in any
liability to the Purchaser. Such meetings shall be held in
person at least quarterly, and the Company will cause its board
of directors to call a meeting at any time upon the request of
any such designated observer on two (2) occasions per calendar
year on seven (7) calendar days' actual notice to the Company.
The Company agrees to compensate such individuals referred to in
Subsection (d) above in the same manner as each of the other
members of the Company's board of directors and agrees to
reimburse each individual referred to in Subsections (a), (b) and
(d) above for all reasonable expenses incurred in traveling to
and from such meetings and attending such meetings.
Notwithstanding anything to the contrary contained in this
Agreement or in the Note Agreement, Company and Purchaser hereby
agree and acknowledge that the number of persons who may be
appointed by Purchaser to attend meetings of the Company's board
of directors pursuant to this Section 4.03 (whether as observers
or as members of the Company's board of directors) shall not be
cumulative of the number of persons who may be appointed to by
Purchaser to attend meetings of the Company's board of directors
pursuant to Section 6.19 of the Note Agreement. Furthermore,
this Section 4.03 shall not become effective until the payment in
full of the Notes (prior to which time Section 6.19 of the Note
Agreement shall govern Purchaser's board observation and
membership rights).
4.04 Certain Actions. Without the prior written consent
of the Holders, which consent may be withheld in the sole
discretion of the Holders, the Company will not:
(a) permit to occur any amendment, alteration, or
modification of the Articles of Incorporation or Bylaws of the
Company, as constituted on the date of this Agreement, the effect
of which, in the sole judgment of the Holders, would be to alter,
impair, or affect adversely, either the rights and benefits of
the Holders or the duties and obligations of Company or the
Shareholders under this Agreement or the Warrants;
(b) redeem, retire, purchase, or otherwise acquire,
directly or indirectly, any of the Capital Stock or capital stock
or securities of any Affiliate of the Company, or any securities
convertible or exchangeable into Capital Stock or capital stock
or securities of any Affiliate of the Company;
(c) dissolve or liquidate, or effect any
consolidation or merger involving the Company or any Subsidiary
(other than a merger in which the Company or its Subsidiary, as
the case may be, is the surviving entity and the holders of each
class of voting securities of the Company continue to hold a
majority of each class of voting securities of the Company);
(d) except for the issuance of Permitted Stock,
enter into any transaction or transactions with any director,
officer, employee, or shareholder of the Company, or any
Affiliate or relative of the foregoing except upon terms that are
fair and reasonable and that are, in any event, at least as
favorable as would result in a comparable arm's-length
transaction with a Person not a director, officer, employee,
shareholder, or Affiliate of the Company or any Affiliate or
related party of the foregoing, or advance any monies to any such
Persons, except for travel advances in the ordinary course of
business;
(e) materially modify or amend, or terminate or
waive any provision of the Non-Compete Agreements or require
Glenn A. Welstad to cease to perform the functions of chief
executive office of the Company for reasons other than permanent
disability;
(f) allow the aggregate par value of the Capital
Stock subject to the Warrants from time to time to exceed the
price payable upon exercise of the Warrants, as adjusted from
time to time; or
(g) obligate itself or otherwise agree to take,
permit or enter into any of the events described in subsections
(a) through (f) above.
4.05 Records. The Company and each of its Subsidiaries
will keep books and records of account in which full, true, and
correct entries will be made of all dealings and transactions in
relation to its business and affairs in accordance with generally
accepted accounting principles applied on a consistent basis.
4.06 Accountants. The Company will retain independent
public accountants who will certify the consolidated and
consolidating financial statements of the Company at the end of
each fiscal year, and in the event that the services of the
independent public accountants so selected, or any firm of
independent public accounts hereafter employed by Company, are
terminated, the Company will promptly thereafter notify each
Holder and upon the Holders' request, the Company will request
the firm of independent public accountants whose services are
terminated to deliver (without liability for such firm) to each
Holder a letter of such firm setting forth the reasons for the
termination of their services and in its notice to each Holder
the Company will state whether the change of accountants was
recommended or approved by the board of directors of the Company
or any committee thereof.
4.07 Existence. The Company will maintain in full force
and effect its corporate existence, rights, and franchises and
all licenses and other rights to use Intellectual Property.
4.08 Notice.
(a) In the event of (i) any setting by the Company
of a record date with respect to the holders of any class of
Capital Stock for the purpose of determining which of such
holders are entitled to dividends, repurchases of securities or
other distributions, or any right to subscribe for, purchase or
otherwise acquire any shares of Capital Stock or other property
or to receive any other right; or (ii) any capital reorganization
of the Company, or reclassification or recapitalization of the
Capital Stock or any transfer of all or a majority of the assets,
business, or revenue or income generating capacity of the
Company, or consolidation, merger, share exchange,
reorganization, or similar transaction involving the Company; or
(iii) any voluntary or involuntary dissolution, liquidation, or
winding up of the Company; or (iv) any proposed issue or grant by
the Company of any Capital Stock, or any right or option to
subscribe for, purchase, or otherwise acquire any Capital Stock
(other than the issue of Permitted Stock or Issuable Warrant
Shares upon exercise of the Warrants), then, in each such event,
the Company will deliver or cause to be delivered to the Holders
a notice specifying, as the case may be, (A) the date on which
any such record is to be set for the purpose of such dividend,
distribution, or right, and stating the amount and character of
such dividend, distribution, or right; (B) the date as of which
the holders of record will be entitled to vote on any
reorganization, reclassification, recapitalization, transfer,
consolidation, merger, share exchange, conveyance, dissolution,
liquidation, or winding-up; (C) the date on which any such
reorganization, reclassification, recapitalization, transfer,
consolidation, merger, share exchange, conveyance, dissolution,
liquidation, or winding-up is to take place and the time, if any
is to be fixed, as of which the holders of record of any class of
Capital Stock will be entitled to exchange their shares of
Capital Stock for securities or other property deliverable upon
such event; (D) the amount and character of any Capital Stock,
property, or rights proposed to be issued or granted, the
consideration to be received therefor, and, in the case of rights
or options, the exercise price thereof, and the date of such
proposed issue or grant and the Persons or class of Persons to
whom such proposed issue or grant will be offered or made; and
(E) such other information as the Holders may reasonably request.
Any such notice will be deposited in the United States mail,
postage prepaid, at least twenty (20) days prior to the date
therein specified, and notwithstanding anything in this Agreement
or the Warrants to the contrary the Holders may exercise the
Warrants within thirty (30) days from the receipt of such notice.
(b) If there is any adjustment as provided above in
Article II, or if any Other Securities become issuable in lieu of
shares of such Common Stock upon exercises of the Warrants, the
Company will immediately cause written notice thereof to be sent
to the each Holder, which notice will be accompanied by a
certificate of the chief financial officer of the Company setting
forth in reasonable detail the basis for the Holders' becoming
entitled to receive such Other Securities, the facts requiring
any such adjustment in the number of shares receivable after such
adjustment, or the kind and amount of any Other Securities so
purchasable upon the exercise of the Warrants, as the case may
be. At the request of any Holder and upon surrender of the
Warrant of such Holder, the Company will reissue the Warrant of
such Holder in a form conforming to such adjustments.
4.09 Taxes. The Company will file all required tax
returns, reports, and requests for refunds on a timely basis and
will pay on a timely basis all taxes imposed on either of it or
upon any of its assets, income, or franchises.
4.10 Warrant Rights. The Company covenants and agrees
that during the term of this Agreement and so long as any Warrant
is outstanding, (a) the Company will at all times have authorized
and reserved a sufficient number of shares of Common Stock and
Other Securities, to provide for the exercise in full of the
rights represented by the Warrants and the exercise in full of
the rights of the Holders under this Agreement; (b) the Company
will not increase or permit to be increased the par value per
share or stated capital of the Issuable Warrant Shares or the
consideration receivable upon issuance of its Issuable Warrant
Shares; and (c) in the event that the exercise of the Warrant
would require the payment by the Holder of consideration for the
Common Stock or Other Securities receivable upon such exercise of
less than the par or stated value of such Issuable Warrant
Shares, the Company and the Shareholders will promptly take such
action as may be necessary to change the par or stated value of
such Issuable Warrant Shares to an amount less than or equal to
such consideration.
4.11 Inspection. Subject to Section 10.17, at any
reasonable time and from time to time, the Company will permit
representatives of Purchaser to examine and make copies of the
books and records of, and visit and inspect the properties of,
the Company, and to discuss the business, operations, and
financial condition of the Company with its respective officers
and employees and with its independent certified public
accountants The Company will promptly reimburse Purchaser for
all reasonable expenses incurred by representatives of Purchaser
in connection with such inspections.
4.12 Small Business Investment Act. At the request of
any Holder, the Company will promptly correct any defect, error
or omission with respect to the Act that may be discovered in the
contents of this Agreement or the documents executed in
connection herewith or in the execution or acknowledgment
thereof, and will execute, acknowledge and deliver such further
instruments and do such further acts as may be necessary for this
Agreement and such other documents, and all transactions
contemplated thereby, to comply with the Act.
Article V
Conditions
The obligations of the Purchaser to effect the transactions
contemplated by this Agreement are subject to the following
conditions precedent:
5.01 Opinion. The Purchaser will have received
favorable opinions, dated the Closing Date, from Brad E. Herr,
P.S., general counsel to the Company, and Preston Gates & Ellis,
special counsel to the Company, covering matters raised by this
Agreement and the Shareholder Agreement and such other matters as
the Purchaser or their counsel may request, and otherwise in form
and substance satisfactory to the Purchaser and its counsel.
5.02 Note Agreement Conditions. All of the conditions
precedent to the obligations of the Purchaser under the Note
Agreement will have been satisfied in full.
5.03 Material Change. There will have occurred no
material adverse change in the business, prospects, results,
operations, or condition, financial or otherwise, of the Company.
5.04 Representations and Agreements. Each
representation and warranty of the Company set forth in this
Agreement will be true and correct when made and as of the
Closing Date, and the Company will have fully performed all
covenants and agreements set forth in this Agreement to be
performed by the Company on or prior to the date hereof.
5.05 Proceedings; Consents. All proceedings taken in
connection with the transactions contemplated by this Agreement,
and all documents necessary to the consummation of this
Agreement, will be satisfactory in form and substance to the
Purchaser and their counsel, and the Purchaser and their counsel
will have received certificates of compliance and copies
(executed or certified as may be appropriate) of all documents,
instruments, and agreements that the Purchaser or such counsel
may request in connection with the consummation of such
transactions. All consents of any Person necessary to the
consummation of the transactions contemplated by this Agreement
will have been received, be in full force and effect, and not be
subject to any onerous condition.
5.06 Small Business Concern Documents. The Company will
have completed, executed and delivered to the Purchaser a Size
Status Declaration on SBA Form 480, a Non-Discrimination
Certificate on SBA Form 652-D and shall have provided the
Purchaser the information necessary to complete the Portfolio
Financing Report on SBA Form 1031.
5.07 Shareholder Agreement. The Company and the
Shareholders will have entered into the Shareholder Agreement
with Purchaser.
Article VI
Holders' Right to Purchase New Securities
6.01 Right to Purchase New Securities. The Company will
not issue or sell any New Securities without first complying with
this Article VI. The Company hereby grants to each Holder the
right to purchase, pro rata, all or any part of the New
Securities that the Company may, from time to time, propose to
sell or issue. In the event New Securities are offered or sold as
part of a unit with other New Securities, the right granted by
this Article VI will apply to such units and not to the
individual New Securities composing such units. Each Holder's
pro rata share for purposes of Article VI is the ratio that the
number of shares of Common Stock issuable to such Holder upon
exercise of its Warrant plus the number of shares of Common Stock
that are Issued Warrant Shares owned by such Holder immediately
prior to the issuance of the New Securities, bears to the sum of
(x) the total number of shares of Common Stock then outstanding,
plus (y) the number of shares of Common Stock issuable upon
exercise of all Warrants then outstanding.
6.02 Notice to Holders. In the event the Company
proposes to issue or sell New Securities, it will give each
Holder written notice of its intention, describing the type of
New Securities and the price and terms upon which the Company
proposes to issue or sell the New Securities. Each Holder will
have fifteen (15) days from the date of receipt of any such
notice and such information as the Holders may reasonably request
to facilitate their investment decision to agree to purchase up
to its respective pro rata share of the New Securities for the
price (valued at Fair Market Value for any noncash consideration)
and upon the terms specified in the notice by giving written
notice to the Company stating the quantity of New Securities
agreed to be purchased.
6.03 Allocation of Unsubscribed New Securities. In the
event a Holder fails to exercise such right to purchase within
such fifteen (15) day period, the other Holders, if any, will
have an additional five (5) day period to purchase such Holder's
portion not so agreed to be purchased in the same proportion in
which such other Holders were entitled to purchase the New
Securities (excluding for such purposes such nonpurchasing
Holder). Thereafter, the Company will have ninety (90) days to
sell the New Securities not elected to be purchased by the
Holders at the same price and upon the same terms specified in
the Company's notice described in Section 6.02. In the event the
Company has not sold the New Securities within such ninety (90)
day period, the Company will not thereafter issue or sell any New
Securities without first offering such securities in the manner
provided above.
Article VII
Dilution Fee
In the event that, during the term of the Warrants, the
Company pays any cash dividend or makes any cash distribution to
any holder of any class of its Capital Stock with respect to such
Capital Stock, each Holder of the Warrants will be entitled to
receive in respect of its Warrant a dilution fee in cash (the
"Dilution Fee") on the date of payment of such dividend or
distribution, which Dilution Fee will be equal to the highest
amount per share paid to any class of Capital Stock times the
number of Issued Warrant Shares then owned by such Holder plus
the number if Issuable Warrant Shares then owned by such Holder,
less the amount of such dividend or distribution otherwise paid
to such Holder as a result of its ownership of Common Stock.
Article VIII
Forced Exercise Option
8.01 Grant of Option. Each Holder hereby severally
grants to the Company an option to require such Holder to
exercise, and each Holder is obligated to exercise under this
option (the "Forced Exercise Option"), its Warrant. The Forced
Exercise Option shall only be effective (i) after the fourth
anniversary of the Closing Date, (ii) after the Notes have been
paid in full, and (iii) if the closing price of the Common Stock
has exceeded two hundred percent (200%) of the Exercise Price for
the thirty (30) trading days ending five (5) days prior to the
Company giving notice to each Holder pursuant to Section 8.03
hereof (the "Forced Exercise Period").
8.02 Exercise Price. In the event that the Company
exercises the Forced Exercise Option, each Holder shall pay to
the Company, at the Forced Exercise Date (as defined below), the
Exercise Price for each Issuable Warrant Share covered by its
Warrant. The Exercise Price shall be paid, at the option of each
Holder, in the same form(s) of consideration permitted under
Section 2.04(b) hereof; provided, however, that if any Holder
fails to designate the form of consideration to be utilized to
pay the Exercise Price, such Holder shall pay the Exercise Price
by cancellation of its Warrant, valued at Fair Market Value.
8.03 Exercise of Forced Exercise Option. The Forced
Exercise Option may be exercised during the Forced Exercise
Period with respect to all of the Warrants of all Holders, by the
Company giving notice to each Holder during the Forced Exercise
Period of the election of the Company to exercise the Forced
Exercise Option, and the date of the Forced Exercise Date, which
in any event shall be the thirtieth (30th) day after the date of
such notice (unless such thirtieth day is not a business day in
which case the Forced Exercise Date shall be held on the next
succeeding business day). Notwithstanding anything contained in
this Article VIII to the contrary, each Holder shall be permitted
to exercise its Warrants pursuant to Section 2.04 at any time
following receipt of notice that the Company intends to exercise
the Forced Exercise Option and prior to the Forced Exercise Date.
8.04 Forced Exercise Date. The closing for the forced
exercise of all of the Warrants will take place at the office of
the Company, on the date specified in such notice of exercise
(the "Forced Exercise Date"). At the Forced Exercise Date, the
Holders of the Warrants will deliver the Warrants to the Company.
In consideration therefor, the Company will deliver to each
Holder a certificate or certificates representing the aggregate
number of full shares of Common Stock and Other Securities
issuable upon the exercise of such Holder's Warrant. The Stock
certificate or certificates so delivered will be in such
denominations as may be specified by each Holder and will be
registered in the name of such Holder, or such other name as
designated by such Holder prior to the Forced Exercise Date. A
Warrant will be deemed to have been exercised, such certificate
or certificates will be deemed to have been issued, and such
Holder or any other person so designated will be deemed to have
become a holder of record of such shares for all purposes, as of
the date of the Forced Exercise Date.
8.05 Holdback Agreement. The Company agrees (i) not to
effect any public sale or distribution during the period thirty
(30) days prior to the Forced Exercise Date and ending on the
sixtieth (60th) day after the Forced Exercise Date, and (ii) to
use their best efforts to cause each holder of the Company's
equity securities or any securities convertible into or
exchangeable or exercisable for any of such securities, in each
case purchased from the Company at any time after the date of
this Agreement (other than in a public offering), to agree not to
effect any such public ale or distribution of such securities
during such period.
Article IX
Liquidity
9.01 Required Registration. At any time, each
Qualifying Holder may, upon not more than one (1) occasion, make
a written request to the Company requesting that the Company
effect the registration of Registrable Securities. After receipt
of such a request, the Company will, as soon as practicable,
notify all Holders of such request and use its best efforts to
effect the registration of all Registrable Securities that the
Company has been so requested to register by any Qualifying
Holder for sale, all to the extent required to permit the
disposition (in accordance with the intended method or methods
thereof) of the Registrable Securities so registered. In no
event will any Person other than a Holder be entitled to include
any shares of Capital Stock in any registration statement filed
pursuant to this Section 9.01.
9.02 Incidental Registration. If the Company at any
time proposes to file on its behalf or on behalf of any of its
security holders a registration statement under the Securities
Act on any form (other than a registration statement on Form S-4
or S-8 or any successor form unless such forms are being used in
lieu of or as the functional equivalent of, registration rights)
for any class that is the same or similar to Registrable
Securities, it will give written notice setting forth the terms
of the proposed offering and such other information as the
Holders may reasonably request to all holders of Registrable
Securities at least thirty (30) days before the initial filing
with the Commission of such registration statement, and offer to
include in such filing such Registrable Securities as any Holder
may request. Each Holder of any such Registrable Securities
desiring to have Registrable Securities registered under this
Section 9.02 will advise the Company in writing within thirty
(30) days after the date of receipt of such notice from the
Company, setting forth the amount of such Registrable Securities
for which registration is requested. The Company will thereupon
include in such filing the number of Registrable Securities for
which registration is so requested, and will use its best efforts
to effect registration under the Securities Act of such
Registrable Securities.
Notwithstanding the foregoing, if the managing underwriter
or underwriters, if any, of such offering deliver a written
opinion to each Holder of such Registrable Securities that the
success of the offering would be materially and adversely
affected by the inclusion of the Registrable Securities requested
to be included, then the amount of securities to be offered for
the accounts of Holders will be reduced pro rata (according to
the Registrable Securities proposed for registration) to the
extent necessary to reduce the total amount of securities to be
included in such offering to the amount recommended by such
managing underwriter or underwriters; provided, however, that if
securities are being offered for the account of other persons as
well as the Company, then with respect to the Registrable
Securities intended to be offered to Holders, the proportion by
which the amount of such class of securities intended to be
offered by Holders is reduced will not exceed the proportion by
which the amount of such class of securities intended to be
offered by such other Persons (other than the Company) is
reduced.
9.03 Form S-3 Registrations. In addition to the
registration rights provided in Sections 9.01 and 9.02 above, if
at any time the Company is eligible to use Form S-3 (or any
successor form) for registration of secondary sales of
Registrable Securities, any Holder of Registrable Securities may
request in writing that the Company register shares of
Registrable Securities on such form. Upon receipt of such
request, the Company will promptly notify all holders of
Registrable Securities in writing of the receipt of such request
and each such Holder may elect (by written notice sent to the
Company within thirty (30) days of receipt of the Company's
notice) to have its Registrable Securities included in such
registration pursuant to this Section 9.03. Thereupon, the
Company will, as soon as practicable, use its best efforts to
effect the registration on Form S-3 of all Registrable Securities
that the Company has so been requested to register by such Holder
for sale. The Company will use its best efforts to qualify and
maintain its qualification for eligibility to use Form S-3 for
such purposes.
9.04 Registration Procedures. In connection with any
registration of Registrable Securities under this Article IX, the
Company will, as soon as practicable:
(a) prepare and file with the Commission a
registration statement with respect to such Registrable
Securities and use its best efforts to cause such registration
statement to become and remain effective until the earlier of
such time as all Registrable Securities subject to such
registration statement have been disposed of or the expiration of
two hundred seventy (270) days (except with respect to
registrations effected on Form S-3 or any successor form, as to
which no such period shall apply);
(b) prepare and file with the Commission such
amendments and supplements to such registration statement and the
prospectus used in connection therewith as may be necessary to
keep such registration statement effective and to comply with the
provisions of the Securities Act with respect to the sale or
other disposition of all Registrable Securities covered by such
registration statement until the earlier of such time as all of
such Registrable Securities have been disposed of or the
expiration of two hundred seventy (270) days (except with respect
to registrations effected on Form S-3 or any successor form, as
to which no such period shall apply);
(c) furnish to each Holder such number of copies of
the registration statement and prospectus (including, without
limitation, a preliminary prospectus) in conformity with the
requirements of the Securities Act (in each case including all
exhibits) and each amendment or supplement thereto, together with
such other documents as any Holder may reasonably request;
(d) use its best efforts to register or qualify the
Registrable Securities covered by such registration statement
under such other securities or blue sky laws of such
jurisdictions within the United States and Puerto Rico as each
Holder reasonably requests, and do such other acts and things as
may be reasonably required of it to enable such holder to
consummate the disposition in such jurisdiction of the securities
covered by such registration statement;
(e) otherwise use its best efforts to comply with
all applicable rules and regulations of the Commission, and make
available to its securities holders, as soon as practicable, an
earnings statement covering the period of at least twelve months
beginning with the first month after the effective date of such
registration statement, which earnings statement will satisfy the
provisions of Section 11(a) of the Securities Act;
(f) provide and cause to be maintained a transfer
agent and registrar for Registrable Securities covered by such
registration statement from and after a date not later than the
effective date of such registration statement;
(g) if requested by the underwriters for any
underwritten offering or Registrable Securities on behalf of a
Holder of Registrable Securities pursuant to a registration
requested under Section 9.01, the Company will enter into an
underwriting agreement with such underwriters for such offering,
such agreement to contain such representations and warranties by
the Company and such other terms and provisions as are
customarily contained in underwriting agreements with respect to
secondary distributions, including, without limitation,
provisions with respect to indemnities and contribution as are
reasonably satisfactory to such underwriters and the Holders; the
Holders on whose behalf Registrable Securities are to be
distributed by such underwriters will be parties to any such
underwriting agreement and the representations and warranties by,
and the other agreements on the part of, the Company to and for
the benefit of such underwriters, will also be made to and for
the benefit of such Holders of Registrable Securities; and no
Holder of Registrable Securities will be required by the Company
to make any representations or warranties to or agreements with
the Company or the underwriters other than reasonable and
customary representations, warranties, or agreements regarding
such Holder, such Holder's Registrable Securities, such Holder's
intended method or methods of disposition, and any other
representation required by law;
(h) furnish, at the written request of any Holder,
on the date that such Registrable Securities are delivered to the
underwriters for sale pursuant to such registration, or, if such
Registrable Securities are not being sold through underwriters,
on the date that the registration statement with respect to such
Registrable Securities becomes effective, (i) an opinion in form
and substance reasonably satisfactory to such Holders, and
addressing matters customarily addressed in underwritten public
offerings, of the counsel representing the Company for the
purposes of such registration (who will not be an employee of the
Company and who will be satisfactory to such Holders), addressed
to the underwriters, if any, and to the selling Holders; and (ii)
a letter (the "comfort letter") in form and substance reasonably
satisfactory to such Holders, from the independent certified
public accountants of the Company, addressed to the underwriters,
if any, and to the selling Holders making such request (and, if
such accountants refuse to deliver the comfort letter to such
Holders, then the comfort letter will be addressed to the Company
and accompanied by a letter from such accountants addressed to
such Holders stating that they may rely on the comfort letter
addressed to the Company); and
(i) during the period when the registration
statement is required to be effective, notify each selling Holder
of the happening of any event as a result of which the prospectus
included in the registration statement contains an untrue
statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading, and prepare a supplement or amendment to
such prospectus so that, as thereafter delivered to the
purchasers of such Registrable Securities, such prospectus will
not contain an untrue statement of a material fact or omit to
state any material fact required to be stated therein or
necessary to make the statements therein not misleading.
It will be a condition precedent to the obligation of the
Company to take any action pursuant to this Article IX in respect
of the Registrable Securities that are to be registered at the
request of any Holder of Registrable Securities that such Holder
furnish to the Company such information regarding the Registrable
Securities held by such Holder and the intended method of
disposition thereof as is legally required in connection with the
action taken by the Company. The managing underwriter or
underwriters, if any, for any offering of Registrable Securities
to be registered pursuant to Section 9.01 or 9.03 will be
selected by the Holders of a majority of the Registrable
Securities being so registered.
9.05 Allocation of Expenses. Except as provided in the
following sentence, the Company will bear all expenses arising or
incurred in connection with any of the transactions contemplated
by this Article IX, including, without limitation, (a) all
expenses incident to filing with the National Association of
Securities Dealers, Inc.; (b) registration fees; (c) printing
expenses; (d) accounting and legal fees and expenses; (e)
expenses of any special audits or comfort letters incident to or
required by any such registration or qualification; and (f)
expenses of complying with the securities or blue sky laws of any
jurisdictions in connection with such registration or
qualification. Each Holder will severally bear the expense of
its underwriting fees, discounts, or commissions relating to its
sale of Registrable Securities.
9.06 Listing on Securities Exchange. If the Company
lists any shares of Capital Stock on any securities exchange or
on the National Association of Securities Dealers, Inc. Automated
Quotation System or similar system, it will, at its expense, list
thereon, maintain and, when necessary, increase such listing of,
all Registrable Securities.
9.07 Holdback Agreements.
(a) If any registration pursuant to Section 9.02 is
in connection with an underwritten public offering, each Holder
of Registrable Securities agrees, if so required by the managing
underwriter, not to effect any public sale or distribution of
Registrable Securities (other than as part of such underwritten
public offering) during the period beginning seven (7) days prior
to the effective date of such registration statement and ending
on the one hundred eightieth (180th) day after the effective date
of such registration statement; provided, however, that the
Shareholders and each Person that is an officer, director, or
beneficial owner of five percent (5%) or more of the outstanding
shares of any class of Capital Stock enters into such an
agreement.
(b) The Company and the Shareholders agree (i) not
to effect any public sale or distribution during the period seven
(7) days (or such longer period as may be prescribed by Rule 10b-
6 under the Exchange Act) prior to the effective date of the
registration statement employed in any underwritten public
offering and ending on the one hundred eightieth (180th) day
after any such registration statement contemplated by Sections
9.01 or 9.03 has become effective, except as part of such
underwritten public offering pursuant to such registration
statement and except pursuant to securities registered on Forms
S-4 or S-8 of the Commission or any successor forms, and (ii) use
their best efforts to cause each holder of its equity securities
or any securities convertible into or exchangeable or exercisable
for any of such securities, in each case purchased from the
Company at any time after the date of this Agreement (other than
in a public offering), to agree not to effect any such public
sale or distribution of such securities during such period.
9.08 Rule 144. The Company will, at all times during
the terms of this Agreement, take such action as any Holder may
reasonably request, all to the extent required from time to time,
to enable such Holder to sell shares of Registrable Securities
without registration pursuant to and in accordance with (a) Rule
144 under the Securities Act, as such Rule may be amended from
time to time, or (b) any similar rule or regulation adopted by
the Commission. Upon the request of any Holder of Registrable
Securities, the Company will deliver to such Holder a written
statement as to whether it has complied with such requirements.
9.09 Rule 144A. The Company agrees that, upon the
request of any Holder or any prospective purchaser of a Warrant
or Warrant Shares designated by a Holder, the Company will
promptly provide (but in any case within fifteen (15) days of a
request) to such Holder or potential purchaser, the following
information:
(a) a brief statement of the nature of the business
of the Company and any Subsidiaries and the products and services
they offer;
(b) the most recent consolidated balance sheets and
profit and losses and retained earnings statements, and similar
financial statements of the Company for such part of the two
preceding fiscal years prior to such request as the Company has
been in operation (such financial information will be audited, to
the extent reasonably available); and
(c) such other information about the Company, any
Subsidiaries, and their business, financial condition, and
results of operations as the requesting Holder or purchaser of
such Warrants requests in order to comply with Rule 144A, as
amended, and the antifraud provisions of the federal and state
securities laws.
The Company hereby represents and warrants to any such requesting
Holder and any prospective purchaser of Warrants or Warrant
Shares from such Holder that the information provided by the
Company pursuant to this Section 9.09 will not contain any untrue
statement of a material fact or omit to state a material fact
necessary in order to make the statements made, in light of the
circumstances under which they were made, not misleading.
9.10 Form S-3 Required Registration. As soon as the
Company is eligible to use Form S-3 (or any successor form) for
registration of secondary sales of Registrable Securities, the
Company will register all shares of Registrable Securities owned
by the Holders on such form. The Company will promptly notify
all holders of Registrable Securities in writing at such time
that it is eligible to use Form S-3 (or any successor form) for
registration of Secondary Sales of Registrable Securities, and
thereafter, upon the request of Holders representing a majority
in interest of the Registrable Securities, the Company will, as
soon as practicable, use its best efforts to effect the
registration on Form S-3 of all Registrable Securities owned by
the Holders. The Company will use its best efforts to qualify
and maintain its qualification for eligibility to use Form S-3
for such purposes. In connection with any registration of
Registrable Securities under this Section 9.10, the Company will
comply with Section 9.04 hereof.
9.11 Limitations on Subsequent Registration Rights.
From and after the date of this Agreement, the Company will not,
without the prior written consent of the Holders of a majority of
the outstanding Registrable Securities, enter into any agreement
with any holder or prospective holder of any securities of the
Company that would allow such holder or prospective holder (a) to
include such securities in any registration filed under Section
9.01, unless under the terms of such agreement, such holder or
prospective holder may include such securities in any such
registration only to the extent that the inclusion of its
securities will not reduce the amount of the Registrable
Securities of the Holders that is included or (b) to make a
demand registration that could result in such registration
statement being declared effective prior to the effectiveness of
the first registration statement effected under Section 9.01 or
within one hundred twenty (120) days of the effective date of any
registration effected pursuant to Section 9.01.
9.12 No Impairment of Registration Rights. The Company
and the Shareholders will not avoid or seek to avoid the
observance or performance of any of the terms of this Article IX,
but will at all times in good faith assist in the carrying out of
all such terms and in the taking of all such actions as may be
necessary or appropriate in order to protect the rights of the
Holders under this Article IX from dilution or impairment.
9.13 Survivability of Demand Registration Rights.
Notwithstanding anything contained herein to the contrary, if the
Company has registered all shares of Registrable Securities owned
by the Holders on Form S-3 pursuant to Section 9.10 and for so
long as the Company is complying with all of its obligations
under Section 9.10, no Holder shall be entitled to the benefits
of Sections 9.01, 9.02 or 9.03 hereof.
Article X
Miscellaneous
10.01 Indemnification. In addition to any other rights
or remedies to which the Purchaser and the Holders may be
entitled, the Company agrees to and will indemnify and hold
harmless the Purchaser, the Holders, and their Affiliates and
their respective successors, assigns, officers, directors,
employees, attorneys, and agents (individually and collectively,
an "Indemnified Party") from and against any and all losses,
claims, obligations, liabilities, deficiencies, diminutions in
value, penalties, causes of action, damages, costs, and expenses
(including, without limitation, costs of investigation and
defense, attorneys' fees, and expenses), including, without
limitation, those arising out of the sole or contributory
negligence of any Indemnified Party, that the Indemnified Party
may suffer, incur, or be responsible for, arising or resulting
from any misrepresentation, breach of warranty, or nonfulfillment
of any covenant or agreement on the part of the Company under
this Agreement, the Shareholder Agreement, or under any other
agreement to which the Company is a party in connection with this
transaction, or from any misrepresentation in or omission from
any certificate or other instrument furnished or to be furnished
to the Purchaser or the Holders under this Agreement.
10.02 Default. It is agreed that a violation by any
party of the terms of this Agreement cannot be adequately
measured or compensated in money damages, and that any breach or
threatened breach of this Agreement by a party to this Agreement
would do irreparable injury to the nondefaulting party. It is,
therefore, agreed that in the event of any breach or threatened
breach by a party to this Agreement of the terms and conditions
set forth in this Agreement, the nondefaulting party will be
entitled, in addition to any and all other rights and remedies
that it may have in law or in equity, to apply for and obtain
injunctive relief requiring the defaulting party to be restrained
from any such breach or threatened breach or to refrain from a
continuation of any actual breach.
10.03 Integration. This Agreement constitutes the
entire agreement between the parties with respect to the subject
matter hereof and thereof and supersede all previous written, and
all previous or contemporaneous oral, negotiations,
understandings, arrangements, and agreements. This Agreement may
not be amended or supplemented except by a writing signed by
Company, the Shareholders, and each Holder.
10.04 Headings. The headings in this Agreement are for
convenience and reference only and are not part of the substance
of this Agreement. References in this Agreement to Sections and
Articles are references to the Sections and Articles of this
Agreement unless otherwise specified.
10.05 Severability. The parties to this Agreement
expressly agree that it is not the intention of any of them to
violate any public policy, statutory or common law rules,
regulations, or decisions of any governmental or regulatory body.
If any provision of this Agreement is judicially or
administratively interpreted or construed as being in violation
of any such policy, rule, regulation, or decision, the provision,
section, sentence, word, clause, or combination thereof causing
such violation will be inoperative (and in lieu thereof there
will be inserted such provision, sentence, word, clause, or
combination thereof as may be valid and consistent with the
intent of the parties under this Agreement) and the remainder of
this Agreement, as amended, will remain binding upon the parties,
unless the inoperative provision would cause enforcement of the
remainder of this Agreement to be inequitable under the
circumstances.
10.06 Notices. Whenever it is provided herein that any
notice, demand, request, consent, approval, declaration, or other
communication be given to or served upon any of the parties by
another, such notice, demand, request, consent, approval,
declaration, or other communication will be in writing and will
be deemed to have been validly served, given or delivered (and
"the date of such notice" or words of similar effect will mean
the date) five (5) days after deposit in the United States mails,
certified mail, return receipt requested, with proper postage
prepaid, or upon receipt thereof (whether by non-certified mail,
telecopy, telegram, express delivery, or otherwise), whichever is
earlier, and addressed to the party to be notified as follows:
If to the Purchaser, at: Seacoast Capital Partners
Limited Partnership
c/o Seacoast Capital
Corporation
55 Ferncroft Road
Danvers, Massachusetts 01923
Attention: Thomas W. Gorman
Facsimile: (508) 750-1301
Allied Investment Corporation
1666 K Street, N.W.
Suite 901
Washington D.C. 20006
Attn: George Stelljes III
Facsimile: (202) 659-2053
Allied Investment Corporation II
1666 K Street, N.W.
Suite 901
Washington D.C. 20006
Attn: George Stelljes III
Facsimile: (202) 659-2053
Allied Capital Corporation II
1666 K Street, N.W.
Suite 901
Washington, D.C. 20006
Attn: George Stelljes III
Facsimile: (201) 659-2053
with courtesy copies to: Hughes & Luce, L.L.P.
1717 Main Street
Suite 2800
Dallas, Texas 75201
Attn: Larry A. Makel, Esq.
Facsimile: 214-939-6100
Dickstein Shapiro & Morin
2101 L Street, N.W.
Suite 800
Washington, D.C. 20037
Attn: David Parker
Facsimile: (202) 887-0689
If to the Company, at: Labor Ready, Inc.
2156 Pacific Avenue South
Tacoma, Washington 98402
Attn: Glenn A. Welstad
Facsimile: (206) 383-9311
with courtesy copies to: Preston Gates & Ellis
701 5th Avenue, Suite 5000
Seattle, Washington 98104
Attn: Mark Beatty, Esq.
Facsimile: (206) 623-7022
Brad E. Herr, P.S.
2150 North Pines, Suite 202
Spokane, Washington 99206
Facsimile: (509) 928-9338
or to such other address as each party may designate for itself
by like notice. Notice to any Holder other than the Purchaser
will be delivered as set forth above to the address shown on the
stock transfer books of the Company or the Warrant Register
unless such Holder has advised the Company in writing of a
different address to which notices are to be sent under this
Agreement.
Failure or delay in delivering courtesy copies of any
notice, demand, request, consent, approval, declaration, or other
communication to the persons designated above to receive copies
of the actual notice will in no way adversely affect the
effectiveness of such notice, demand, request, consent, approval,
declaration, or other communication.
No notice, demand, request, consent, approval, declaration
or other communication will be deemed to have been given or
received unless and until it sets forth all items of information
required to be set forth therein pursuant to the terms of this
Agreement.
10.07 Successors. This Agreement will be binding upon
and inure to the benefit of the parties and their respective
successors and assigns, provided that the Purchaser will have the
right to assign its rights under this Agreement in connection
with any transfer of the Warrants or Warrant Shares to not more
than twenty (20) Persons.
10.08 Remedies. The failure of any party to enforce any
right or remedy under this Agreement, or promptly to enforce any
such right or remedy, will not constitute a waiver thereof, nor
give rise to any estoppel against such party, nor excuse any
other party from its obligations under this Agreement. Any
waiver of any such right or remedy by any party must be in
writing and signed by the party against which such waiver is
sought to be enforced.
10.09 Survival. All warranties, representations, and
covenants made by any party in this Agreement or in any
certificate or other instrument delivered by such party or on its
behalf under this Agreement will be considered to have been
relied upon by the party to which it is delivered and will
survive the Closing Date, regardless of any investigation made by
such party or on its behalf. All statements in any such
certificate or other instrument will constitute warranties and
representations under this Agreement. Notwithstanding anything
to the contrary contained in this Agreement, (a) Seacoast shall
not be entitled to the benefits of this Agreement at such time
that it (i) no longer owns a Warrant and (ii) owns less than
twenty percent (20%) of the Warrant Shares owned by it on the
Closing Date, (b) no Allied Investor shall be entitled to the
benefits of this Agreement at such time that (i) no Allied
Investor holds a Warrant and (ii) the Allied Investors own, in
the aggregate, less than twenty percent (20%) of the Warrant
Shares owned by them, collectively, on the Closing Date, and (c)
a Holder (other than Seacoast or the Allied Investors) shall not
be entitled to the benefits of this Agreement at such time that
it (i) no longer owns a Warrant and (ii) owns less than ten
percent (10%) of the Warrant Shares.
10.10 Fees. Subject to the second sentence of this
Section 10.10, any and all fees, costs, and expenses, of whatever
kind and nature, including attorneys' fees and expenses, incurred
by the Holders in connection with the defense or prosecution of
any actions or proceedings arising out of or in connection with
this Agreement will be borne and paid by the Company within ten
(10) days of demand by the Holders. Notwithstanding the
foregoing, with respect to any actions or proceedings solely
between any Holder and the Company arising out of or in
connection with this Agreement, the prevailing party shall
recover, within ten (10) days of demand, any and all fees, costs,
and expenses, of whatever kind and nature, including attorneys'
fees and expenses, reasonably incurred in connection with the
defense or prosecution of any such actions or proceedings.
10.11 Counterparts. This Agreement may be executed in
any number of counterparts, which will individually and
collectively constitute one agreement.
10.12 Other Business. It is understood and accepted
that the Purchaser, the Holders, and their Affiliates have
interests in other business ventures that may be in conflict with
the activities of the Company and that nothing in this Agreement
will limit the current or future business activities of such
parties whether or not such activities are competitive with those
of the Company. The Company agrees that all business
opportunities in any field substantially related to the business
of the Company will be pursued exclusively through the Company.
10.13 Choice of Law. THIS AGREEMENT HAS BEEN EXECUTED,
DELIVERED, AND ACCEPTED BY THE PARTIES IN THE COMMONWEALTH OF
MASSACHUSETTS, WILL BE DEEMED TO HAVE BEEN MADE IN THE
COMMONWEALTH OF MASSACHUSETTS, AND WILL BE INTERPRETED AND THE
RIGHTS OF THE PARTIES DETERMINED IN ACCORDANCE WITH THE LAWS OF
THE UNITED STATES APPLICABLE THERETO AND THE INTERNAL LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS APPLICABLE TO AN AGREEMENT
EXECUTED, DELIVERED AND PERFORMED THEREIN WITHOUT GIVING EFFECT
TO THE CHOICE-OF-LAW RULES THEREOF OR ANY OTHER PRINCIPLE THAT
COULD REQUIRE THE APPLICATION OF THE SUBSTANTIVE LAW OF ANY OTHER
JURISDICTION.
10.14 Nominees for Beneficial Owners. In the event that
any Registrable Securities are held by a nominee for the
beneficial owner of such Registrable Securities, the beneficial
owner of Registrable Securities may, at its election, be treated
as the Holder of such Registrable Securities for purposes of any
request or other action by any Holder or Holders of Registrable
Securities pursuant to this Agreement or any determination of any
number or percentage of shares of Registrable Securities held by
any Holder or Holders of Registrable Securities contemplated by
this Agreement. If the beneficial owner of any Registrable
Securities so elects, the Company may require assurances
reasonably satisfactory to it of such owner's beneficial
ownership of such Registrable Securities. In no event will a
Holder be required to exercise the Warrants as a condition to the
registration of such Warrant or Registrable Securities
thereunder.
10.15 Duties Among Holders. Each Holder agrees that no
other Holder will by virtue of this Agreement be under any
fiduciary or other duty to give or withhold any consent or
approval under this Agreement or to take any other action or omit
to take any action under this Agreement, and that each other
Holder may act or refrain from acting under this Agreement as
such other Holder may, in its discretion, elect.
10.16 Small Business Investment Act. This Agreement,
the other purchase documents executed in connection herewith, and
all transactions contemplated hereby and thereby are subject to
the provisions of the Act, and shall be governed thereby to the
extent of any conflict therewith.
10.17 Confidentiality. Each Purchaser and each Holder
agrees to keep confidential any information delivered by the
Company to such Person under this Agreement; provided, however,
that nothing in this Section 10.17 will prevent such Person from
disclosing such information (a) to any Affiliate of such Person
or any actual or potential purchaser, participant, assignee, or
transferee of such Person's rights or obligations hereunder that
agrees to be bound by the terms of this Section 10.17, (b) upon
order of any court or administrative agency, (c) upon the request
or demand of any regulatory agency or authority having
jurisdiction over such Person, (d) that is in the public domain
otherwise than through the breach of this Section 10.17 by any
such Person, (e) that has been obtained from any Person that is
not a party to this Agreement or an Affiliate of any such party
without breach by such Person of a confidentiality obligation
known to such Person, (f) in connection with the exercise of any
remedy under this Agreement, (g) to the certified public
accountants of such Person, or (h) to the Senior Lender pursuant
to the terms of the Senior Subordination Agreement (as defined in
the Note Agreement). The Company agrees that such Person will be
presumed to have met its obligations under this Section 10.17 to
the extent that it exercises the same degree of care with respect
to information provided by the Company as it exercises with
respect to its own information of similar character.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the parties have executed and delivered
this Agreement as of the date first above written.
COMPANY:
LABOR READY, INC.
By:
Name: Glenn A. Welstad
Title: Chief Executive Officer
PURCHASER:
SEACOAST CAPITAL PARTNERS
LIMITED PARTNERSHIP
By: Seacoast Capital Corporation,
its general partner
By:
Name: Thomas W. Gorman
Title: Vice President
55 Ferncroft Road
Danvers, Massachusetts 01923
Attn: Thomas W. Gorman
Facsimile: (508) 750-1301
Number of Warrant Shares: 227,456 shares
Purchase Price: $23
ALLIED INVESTMENT CORPORATION
By:
Name: George Stelljes III
Title: Senior Vice President
1666 K Street, N.W., Suite 901
Washington D.C. 20006
Attn: George Stelljes III
Facsimile: (202) 659-2053
Number of Warrant Shares: 120,552 shares
Purchase Price: $12
ALLIED INVESTMENT CORPORATION II
By:
Name: George Stelljes III
Title: Senior Vice President
1666 K Street, N.W., Suite 901
Washington D.C. 20006
Attn: George Stelljes III
Facsimile: (202) 659-2053
Number of Warrant Shares: 59,138 shares
Purchase Price: $6
ALLIED CAPITAL CORPORATION II
By:
Name: George Stelljes III
Title: Senior Vice President
1666 K Street, N.W., Suite 901
Washington D.C. 20006
Attn: George Stelljes III
Facsimile: (202) 659-2053
Number of Warrant Shares: 47,766 shares
Purchase Price: $5