Document:

REVOLVING REDUCING NOTE

EXHIBIT

10.54

 

REVOLVING REDUCING NOTE

 

	

  $10,000,000.00

  	

   

  	

  Tacoma, Washington

  
	

   

  	

   

  	

  January 4, 2002

  

 

FOR VALUE

RECEIVED, the undersigned LABOR READY, INC. (“Borrower”) promises to pay to the

order of WELLS FARGO BANK, NATIONAL ASSOCIATION (“Bank”) at its office at 1201

Pacific Ave., 3rd Floor Tacoma, Washington 98402, or at such other

place as the holder hereof may designate, in lawful money of the United States

of America and in immediately available funds, the principal sum of Ten Million

Dollars ($10,000,000.00), or so much thereof as may be advanced and be

outstanding, with interest thereon, to be computed on each advance from the

date of its disbursement as set forth herein.

 

DEFINITIONS:

 

As used herein, the following terms shall have the

meanings set forth after each, and any other term defined in this Note shall

have the meaning set forth at the place defined:

 

(a)           “Business

Day” means any day except a Saturday, Sunday or any other day on which

commercial banks in Washington are authorized or required by law to close.

 

(b)           “Fixed Rate Term” means a period

commencing on a Business Day and continuing for 1,2,3 or 6 months as designated

by Borrower, during which all or a portion of the outstanding principal balance

of this Note bears interest determined in relation to LIBOR; provided however,

that no Fixed Rate Term may be selected for a principal amount less than One

Hundred Thousand Dollars ($100,000.00); and provided further, that no Fixed

Rate Term shall extend beyond the scheduled maturity date hereof.  If any Fixed Rate Term would end on a day

which is not a Business Day, then such Fixed Rate Term shall be extended to the

next succeeding Business Day.

 

(c)           “LIBOR” means the rate per annum

(rounded upward, if necessary, to the nearest whole 1/8 of 1 %) and determined

pursuant to the following formula:

 

	

  LIBOR =

  	

   

  	

  Base LIBOR

  
	

   

  	

   

  	

  100% - LIBOR Reserve

  Percentage

  

 

(i)            “Base

LIBOR” means the rate per annum for United States dollar deposits quoted by

Bank as the Inter-Bank Market Offered Rate, with the understanding that such

rate is quoted by Bank for the purpose of calculating effective rates of

interest for loans making reference thereto, on the first day of a Fixed Rate

Term for delivery of funds on said date for a period of time approximately

equal to the number of days in such Fixed Rate Term and in an amount

approximately equal to the principal amount to which such Fixed Rate Term

applies.  Borrower understands and

agrees that Bank may base its quotation of the Inter-Bank Market Offered Rate

upon such offers or other market indicators of the Inter-Bank Market as Bank in

its discretion deems appropriate including, but not limited to, the rate

offered for U.S. dollar deposits on the London Inter-Bank Market.

 

 

(ii)           “LIBOR

Reserve Percentage” means the reserve percentage prescribed by the Board of

Governors of the Federal Reserve System (or any successor) for “Eurocurrency

Liabilities” (as defined in Regulation D of the Federal Reserve Board, as

amended), adjusted by Bank for expected changes in such reserve percentage

during the applicable Fixed Rate Term.

 

(d)           “Prime Rate” means at any time the

rate of interest most recently announced within Bank at its principal office as

its Prime Rate, with the understanding that the Prime Rate is one of Bank’s

base rates and serves as the basis upon which effective rates of interest are

calculated for those loans making reference thereto, and is evidenced by the

recording thereof after its announcement in such internal publication or

publications as Bank may designate.

 

INTEREST:

 

(a)           Interest.  The outstanding principal balance of this

Note shall bear interest (computed on the basis of a 360-day year, actual days

elapsed) either (i) at a fluctuating rate per annum three quarters of one

percent (0.75%) below the Prime Rate in effect from time to time, or (ii) at a

fixed rate per annum determined by Bank to be one and eighty five hundredths

percent (1.85%) above LIBOR in effect on the first day of the applicable Fixed

Rate Term.  When interest is determined

in relation to the Prime Rate, each change in the rate of interest hereunder

shall become effective on the date each Prime Rate change is announced within

Bank.  With respect to each LIBOR

selection hereunder, Bank is hereby authorized to note the date, principal

amount, interest rate and Fixed Rate Term applicable thereto and any payments

made thereon on Bank’s books and records (either manually or by electronic

entry) and/or on any schedule attached to this Note, which notations shall be

prima facie evidence of the accuracy of the information noted.

 

(b)           Selection of Interest Rate Options.  At any time any portion of this Note bears

interest determined in relation to LIBOR, it may be continued by Borrower at

the end of the Fixed Rate Term applicable thereto so that all or a portion

thereof bears interest determined in relation to the Prime Rate or to LIBOR for

a new Fixed Rate Term designated by Borrower. 

At any time any portion of this Note bears interest determined in

relation to the Prime Rate, Borrower may convert all or a portion thereof so

that it bears interest determined in relation to LIBOR for a Fixed Rate Term

designated by Borrower.  At such time as

Borrower requests an advance hereunder or wishes to select a LIBOR option for

all or a portion of the outstanding principal balance hereof, and at the end of

each Fixed Rate Term, Borrower shall give Bank notice specifying: (i) the

interest rate option selected by Borrower; (ii) the principal amount subject

thereto; and (iii) for each LIBOR selection, the length of the applicable Fixed

Rate Term.  Any such notice may be given

by telephone (or such other electronic method as Bank may permit) so long as,

with respect to each LIBOR selection, (A) if requested by Bank, Borrower

provides to Bank written confirmation thereof not later than three (3) Business

Days after such notice is given, and (B) such notice is given to Bank prior to

10:00 a.m. on the first day of the Fixed Rate Term, or at a later time during

any Business Day if Bank, at it’s sole option but without obligation to do so,

accepts Borrower’s notice and quotes a fixed rate to Borrower.  If Borrower does not immediately accept a

fixed rate when quoted by Bank, the quoted rate shall expire and any subsequent

LIBOR request from Borrower shall be subject to a 

 

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redetermination by Bank of the applicable fixed rate.  If no specific designation of interest is

made at the time any advance is requested hereunder or at the end of any Fixed

Rate Term, Borrower shall be deemed to have made a Prime Rate interest

selection for such advance or the principal amount to which such Fixed Rate

Term applied.

 

(c)           Taxes and Regulatory Costs.  Borrower shall pay to Bank immediately upon

demand, in addition to any other amounts due or to become due hereunder, any

and all (i) withholdings, interest equalization taxes, stamp taxes or other

taxes (except income and franchise taxes) imposed by any domestic or foreign

governmental authority and related in any manner to LIBOR, and (ii) future,

supplemental, emergency or other changes in the LIBOR Reserve Percentage,

assessment rates imposed by the Federal Deposit Insurance Corporation, or

similar requirements or costs imposed by any domestic or foreign governmental

authority or resulting from compliance by Bank with any request or directive

(whether or not having the force of law) from any central bank or other

governmental authority and related in any manner to LIBOR to the extent they

are not included in the calculation of LIBOR. 

In determining which of the foregoing are attributable to any LIBOR

option available to Borrower hereunder, any reasonable allocation made by Bank

among its operations shall be conclusive and binding upon Borrower.

 

(d)           Payment of Interest.  Interest accrued on this Note shall be

payable on the last day of each month, commencing January 31, 2002.

 

(e)           Default Interest.  From and after the maturity date of this

Note, or such earlier date as all principal owing hereunder becomes due and

payable by acceleration or otherwise, the outstanding principal balance of this

Note shall bear interest until paid in full at an increased rate per annum

(computed on the basis of a 360-day year, actual days elapsed) equal to four

percent (4%) above the rate of interest from time to time applicable to this

Note.

 

BORROWING AND

REPAYMENT:

 

(a)           Borrowing and Repayment.  Borrower may from time to time during the

term of this Note borrow, partially or wholly repay its outstanding borrowings,

and reborrow, subject to all of the limitations, terms and conditions of this

Note and of any document executed in connection with or governing this Note;

provided however, that the total outstanding borrowings under this Note shall

not at any time exceed the principal amount set forth above or such lesser amount

as shall at any time be available hereunder. 

The unpaid principal balance of this obligation at any time shall be the

total amounts advanced hereunder by the holder hereof less the amount of

principal payments made hereon by or for any Borrower, which balance may be

endorsed hereon from time to time by the holder.  The outstanding principal balance of this Note shall be due and

payable in full on January 31, 2006.

 

(b)           Reductions in Availability.  Notwithstanding the principal amount set

forth above, the maximum principal amount available under this Note shall be

reduced automatically and without further notice on the last day of each

October, January, April and July, commencing April 30, 2002, by the amount of

One Hundred Twenty Five Thousand Dollars ($125,000.00).  If the outstanding principal balance of this

Note on any such date is greater than 

 

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the new maximum principal amount then available hereunder, Borrower

shall make a principal reduction on this Note on such date in an amount

sufficient to reduce the then outstanding principal balance hereof to an amount

not greater than said new maximum principal amount.

 

(c)           Advances.  Advances hereunder, to the total amount of

the principal sum stated above, may be made by the holder at the oral or

written request of (i) Joseph P. Sambataro, Jr., Steven C. Cooper, Bruce H.

Marley, Kay Ward or Timothy Adams, any one acting alone, who are authorized to

request advances and direct the disposition of any advances until written

notice of the revocation of such authority is received by the holder at the

office designated above, or (ii) any person, with respect to advances deposited

to the credit of any deposit account of any Borrower, which advances, when so deposited,

shall be conclusively presumed to have been made to or for the benefit of each

Borrower regardless of the fact that persons other than those authorized to

request advances may have authority to draw against such account.  The holder shall have no obligation to

determine whether any person requesting an advance is or has been authorized by

any Borrower.

 

(d)           Application of Payments.  Each payment made on this Note shall be

credited first, to any interest then due and second, to the outstanding principal

balance hereof.  All payments credited

to principal shall be applied first, to the outstanding principal balance of

this Note which bears interest determined in relation to the Prime Rate, if

any, and second, to the outstanding principal balance of this Note which bears

interest determined in relation to LIBOR, with such payments applied to the

oldest Fixed Rate Term first.

 

PREPAYMENT:

 

(a)           Prime

Rate.  Borrower may prepay principal

on any portion of this Note which bears interest determined in relation to the

Prime Rate at any time, in any amount and without penalty.

 

(b)           LIBOR.  Borrower may prepay principal on any portion

of this Note which bears interest determined in relation to LIBOR at any time

and in the minimum amount of One Hundred Thousand Dollars ($100,000.00);

provided however, that if the outstanding principal balance of such portion of

this Note is less than said amount, the minimum prepayment amount shall be the

entire outstanding principal balance thereof. 

In consideration of Bank providing this prepayment option to Borrower,

or if any such portion of this Note shall become due and payable at any time

prior to the last day of the Fixed Rate Term applicable thereto by acceleration

or otherwise, Borrower shall pay to Bank immediately upon demand a fee which is

the sum of the discounted monthly differences for each month from the month of

prepayment through the month in which such Fixed Rate Term matures, calculated

as follows for each such month:

 

(i)                                     Determine the amount of interest which would have accrued each

month on the amount prepaid at the interest rate applicable to such amount had

it remained outstanding until the last day of the Fixed Rate Term applicable

thereto.

 

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(ii)                                  Subtract from the amount determined in (i) above the amount of

interest which would have accrued for the same month on the amount prepaid for

the remaining term of such Fixed Rate Term at LIBOR in effect on the date of

prepayment for new loans made for such term and in a principal amount equal to

the amount prepaid.

 

(iii)                               If the result obtained in (ii) for any

month is greater than zero, discount that difference by LIBOR used in (ii)

above.

 

Each Borrower

acknowledges that prepayment of such amount may result in Bank incurring

additional costs, expenses and/or liabilities, and that it is difficult to

ascertain the full extent of such costs, expenses and/or liabilities.  Each Borrower, therefore, agrees to pay the

above-described prepayment fee and agrees that said amount represents a

reasonable estimate of the prepayment costs, expenses and/or liabilities of

Bank.  If Borrower fails to pay any

prepayment fee when due, the amount of such prepayment fee shall thereafter

bear interest until paid at a rate per annum two percent (2.0%) above the Prime

Rate in effect from time to time (computed on the basis of a 360-day year,

actual days elapsed).  Each change in

the rate of interest on any such past due prepayment fee shall become effective

on the date each Prime Rate change is announced within Bank.

 

EVENTS OF DEFAULT:

 

This Note is made pursuant to and is subject to the

terms and conditions of that certain Credit Agreement between Borrower and Bank

dated as of January 4, 2002, as amended from time to time (the “Credit Agreement”).  Any default in the payment or performance of

any obligation under this Note, or any defined event of default under the

Credit Agreement, shall constitute an “Event of Default” under this Note.

 

MISCELLANEOUS:

 

(a)           Remedies.  Upon the sale, transfer, hypothecation,

assignment or other encumbrance, whether voluntary, involuntary or by operation

of law, of all or any interest in any real property securing this Note, or upon

the occurrence of any Event of Default, the holder of this Note, at the holder’s

option, may declare all sums of principal and interest outstanding hereunder to

be immediately due and payable without presentment, demand, notice of

nonperformance, notice of protest, protest or notice of dishonor, all of which

are expressly waived by each Borrower, and the obligation, if any, of the

holder to extend any further credit hereunder shall immediately cease and

terminate.  Each Borrower shall pay to

the holder immediately upon demand the full amount of all payments, advances,

charges, costs and expenses, including reasonable attorneys’ fees (to include

outside counsel fees and all allocated costs of the holders in-house counsel),

expended or incurred by the holder in connection with the enforcement of the

holder’s rights and/or the collection of any amounts which become due to the

holder under this Note, and the prosecution or defense of any action in any way

related to this Note, including without limitation, any action for declaratory

relief, whether incurred at the trial or appellate level, in an arbitration

proceeding or otherwise, and including any of the foregoing incurred in

connection with any bankruptcy proceeding (including 

 

5

 

without limitation, any adversary proceeding, contested matter or

motion brought by Bank or any other person) relating to any Borrower or any

other person or entity.

 

(b)           Obligations Joint and Several.  Should more than one person or entity sign

this Note as a Borrower, the obligations of each such Borrower shall be joint

and several.

 

(c)           Governing Law.  This Note shall be governed by and construed

in accordance with the laws of the State of Washington.

 

ORAL

AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR  TO FORBEAR ENFORCING REPAYMENT OF A DEBT ARE NOT

ENFORCEABLE UNDER  WASHINGTON LAW.

 

This Note is

secured by, among other collateral, a Deed of Trust dated January 4, 2002.

 

IN WITNESS

WHEREOF, the undersigned has executed this Note as of the date first written

above.

 

LABOR READY, INC.

 

	

  By:

  	

  /s/ Steve C. Cooper

  	

   

  
	

   

  	

  Steve C. Cooper, CFO

  

 

6

 

CREDIT AGREEMENT

 

THIS AGREEMENT is entered into as of January 4, 2002,

by and between LABOR READY, INC., a Washington corporation (“Borrower”), and

WELLS FARGO BANK, NATIONAL ASSOCIATION (“Bank”).

 

RECITALS

 

Borrower has

requested that Bank extend or continue credit to Borrower as described below,

and Bank has agreed to provide such credit to Borrower on the terms and

conditions contained herein.

 

NOW, THEREFORE,

for valuable consideration, the receipt and sufficiency of which are hereby

acknowledged, Bank and Borrower hereby agree as follows:

 

ARTICLE I

CREDIT TERMS

 

SECTION 1.1.

REVOLVING REDUCING LOAN.

 

(a)           Revolving Reducing Loan.  Subject to the terms and conditions of this

Agreement, Bank hereby agrees to make advances to Borrower from time to time up

to and including January 31, 2006, not to exceed at any time the aggregate

principal amount of Ten Million Dollars ($10,000,000.00) or such lesser amount

as shall from time to time be available (“Revolving Reducing Loan”), the

proceeds of which shall be used for working capital and general corporate

purposes.  Borrower’s obligation to

repay advances under the Revolving Reducing Loan shall be evidenced by a promissory

note substantially in the form of Exhibit A attached hereto (“Revolving

Reducing Note”), all terms of which are incorporated herein by this reference.

 

(b)           Borrowing and Repayment.  Borrower may from time to time during the

term of the Revolving Reducing Loan borrow, partially or wholly repay its

outstanding borrowings, and reborrow, subject to all of the limitations, terms

and conditions contained herein or in the Revolving Reducing Note; provided

however, that the total outstanding borrowings under the Revolving Reducing

Loan shall not at any time exceed the maximum principal amount available

thereunder, as set forth above and as reduced from time to time in accordance

with the terms of the Revolving Reducing Note.

 

SECTION 1.2.

INTEREST/FEES.

 

(a)           Interest.  The outstanding principal balance of the

Revolving Reducing Loan shall bear interest at the rate of interest set forth

in the Revolving Reducing Note.

 

(b)           Computation and Payment.  Interest shall be computed on the basis of a

360-day year, actual days elapsed. 

Interest shall be payable at the times and place set forth in each

promissory note or other instrument required hereby.

 

(c)           Unused Commitment Fee.  Borrower shall pay to Bank a fee equal to

three hundred fifty thousandths percent (0.350%) per annum (computed on the

basis of a 360-day year, actual days elapsed) on the average daily unused

amount of the Revolving Reducing Loan, which fee shall be calculated on a

quarterly basis by Bank and shall be due and payable by Borrower in arrears within

thirty (30) days after each billing is sent by Bank.

 

7

 

SECTION 1.3.

COLLATERAL.

 

As security for

all indebtedness of Borrower to Bank under the Revolving Reducing Loan,

Borrower hereby grants to Bank a lien of not less than first priority on that

certain real property located at 1015 A Street, Tacoma, WA 98402.

 

All of the

foregoing shall be evidenced by and subject to the terms of such security

agreements, financing statements, deeds of trust and other documents as Bank

shall reasonably require, all in form and substance satisfactory to Bank.  Borrower shall reimburse Bank immediately

upon demand for all costs and expenses incurred by Bank in connection with any

of the foregoing security, including without limitation, filing and recording

fees and costs of appraisals, audits and title insurance.

 

ARTICLE II

REPRESENTATIONS

AND WARRANTIES

 

Borrower makes the

following representations and warranties to Bank, which representations and

warranties shall survive the execution of this Agreement and shall continue in

full force and effect until the full and final payment, and satisfaction and

discharge, of all obligations of Borrower to Bank subject to this Agreement.

 

SECTION 2.l. LEGAL

STATUS.  Borrower is a corporation, duly

organized and existing and in good standing under the laws of the State of

Washington, and is qualified or licensed to do business (and is in good

standing as a foreign corporation, if applicable) in all jurisdictions in which

such qualification or licensing is required or in which the failure to so

qualify or to be so licensed could have a material adverse effect on Borrower.

 

SECTION 2.2.

AUTHORIZATION AND VALIDITY.  This

Agreement and each promissory note, contract, instrument and other document

required hereby or at any time hereafter delivered to Bank in connection

herewith (collectively, the “Loan Documents”) have been duly authorized, and

upon their execution and delivery in accordance with the provisions hereof will

constitute legal, valid and binding agreements and obligations of Borrower or

the party which executes the same, enforceable in accordance with their

respective terms.

 

SECTION 2.3. NO

VIOLATION.  The execution, delivery and

performance by Borrower of each of the Loan Documents do not violate any

provision of any law or regulation, or contravene any provision of the Articles

of Incorporation or By-Laws of Borrower, or result in any breach of or default

under any contract, obligation, indenture or other instrument to which Borrower

is a party or by which Borrower may be bound.

 

SECTION 2.4.

LITIGATION.  There are no pending, or to

the best of Borrower’s knowledge threatened, actions, claims, investigations,

suits or proceedings by or before any governmental authority, arbitrator, court

or administrative agency which could have a material adverse effect on the

financial condition or operation of Borrower other than those disclosed by

Borrower to Bank in writing prior to the date hereof.

 

SECTION 2.5.

CORRECTNESS OF FINANCIAL STATEMENT.  The

financial statement of Borrower dated June 30, 2001, a true copy of which has

been delivered by 

 

8

 

Borrower to Bank prior to the date hereof, (a) is complete and correct

in all material respects and presents fairly the financial condition of

Borrower, (b) discloses all liabilities of Borrower that are required to be

reflected or reserved against under generally accepted accounting principles,

whether liquidated or unliquidated, fixed or contingent, and (c) has been

prepared in accordance with generally accepted accounting principles

consistently applied.  Since the date of

such financial statement there has been no material adverse change in the

financial condition of Borrower, nor has Borrower mortgaged, pledged, granted a

security interest in or otherwise encumbered any of its assets or properties

except in favor of Bank or as otherwise permitted by Bank in writing.

 

SECTION 2.6.

INCOME TAX RETURNS.  Borrower has no

knowledge of any pending assessments or adjustments of its income tax payable

with respect to any year.

 

SECTION 2.7. NO

SUBORDINATION.  There is no agreement,

indenture, contract or instrument to which Borrower is a party or by which

Borrower may be bound that requires the subordination in right of payment of

any of Borrower’s obligations subject to this Agreement to any other obligation

of Borrower.

 

SECTION 2.8.

PERMITS, FRANCHISES.  Borrower

possesses, and will hereafter possess, all permits, consents, approvals,

franchises and licenses required and rights to all trademarks, trade names,

patents, and fictitious names, if any, necessary to enable it to conduct the

business in which it is now engaged in compliance with applicable law.

 

SECTION 2.9.

ERISA.  Borrower is in compliance in all

material respects with all applicable provisions of the Employee Retirement

Income Security Act of 1974, as amended or recodified from time to time

(“ERISA”); Borrower has not violated any provision of any defined employee

pension benefit plan (as defined in ERISA) maintained or contributed to by

Borrower (each, a “Plan”); no Reportable Event as defined in ERISA has occurred

and is continuing with respect to any Plan initiated by Borrower; Borrower has

met its minimum funding requirements under ERISA with respect to each Plan; and

each Plan will be able to fulfill its benefit obligations as they come due in

accordance with the Plan documents and under generally accepted accounting

principles.

 

SECTION 2.10. OTHER OBLIGATIONS.  Borrower is not in default on any obligation

for borrowed money, any purchase money obligation or any other material lease,

commitment, contract, instrument or obligation.

 

SECTION 2.11.  ENVIRONMENTAL MATTERS.  Except as disclosed by Borrower to Bank in

writing prior to the date hereof, Borrower, to the best of its knowledge, is in

compliance in all material respects with all applicable federal or state

environmental, hazardous waste, health and safety statutes, and any rules or

regulations adopted pursuant thereto, which govern or affect any of Borrower’s

operations and/or properties, including without limitation, the Comprehensive

Environmental Response, Compensation and Liability Act of 1980, the Superfund

Amendments and Reauthorization Act of 1986, the Federal Resource Conservation

and Recovery Act of 1976, and the Federal Toxic Substances Control Act, as any

of the same 

 

9

 

may be amended, modified or supplemented from time to

time.  None of the operations of

Borrower is the subject of any federal or state investigation evaluating

whether any remedial action involving a material expenditure is needed to

respond to a release of any toxic or hazardous waste or substance into the

environment.  Borrower has no material

contingent liability in connection with any release of any toxic or hazardous

waste or substance into the environment.

 

SECTION 2.12. REAL

PROPERTY COLLATERAL.  Except as

disclosed by Borrower to Bank in writing prior to the date hereof, with respect

to any real property collateral required hereby:

 

(a)           All taxes, governmental assessments,

insurance premiums, and water, sewer and municipal charges, and rents (if any)

which previously became due and owing in respect thereof have been paid as of

the date hereof.

 

(b)           There are no mechanics’ or similar

liens or claims which have been filed for work, labor or material (and no

rights are outstanding that under law could give rise to any such lien except

for the rights of workers and suppliers in connection with the improvements to

the first floor, the work on which commenced on or about April 1, 2001 and is

expected to be completed by December 31, 2001) which affect all or any interest

in any such real property and which are or may be prior to or equal to the lien

thereon in favor of Bank.

 

(c)           None of the improvements which were

included for purpose of determining the appraised value of any such real

property lies outside of the boundaries and/or building restriction lines

thereof, and no improvements on adjoining properties materially encroach upon

any such real property.

 

(d)           There is no pending, or to the best

of Borrower’s knowledge threatened, proceeding for the total or partial

condemnation of all or any portion of any such real property, and all such real

property is in good repair and free and clear of any damage that would

materially and adversely affect the value thereof as security and/or the

intended use thereof.

 

SECTION 2.13. GECC

LETTER OF CREDIT DOCUMENTATION. 

Borrower has heretofore delivered to Bank, or will deliver to Bank upon

Bank’s written request, true and correct copies of: (a) the Letter of Credit

Agreement dated as of March 1, 2001, between Borrower, as “Debtor,” and General

Electric Capital Corporation, as “Creditor” (“GECC”), and any amendments

thereto, which are in effect as of the date of this Agreement (the “GECC Letter

of Credit Agreement”), and (b) all material documents related to the GECC

Letter of Credit Agreement which are in effect as of the date of this Agreement

(the “Related GECC Letter of Credit Documents”) (with the GECC Letter of Credit

Agreement and the Related GECC Letter of Credit Documents which are in effect

as of the date of this Agreement referred to herein collectively as the “GECC

Letter of Credit Documents”).

 

SECTION 2.14. GECC

RECEIVABLES FUNDING DOCUMENTATION. 

Borrower has heretofore delivered to Bank, or will deliver to Bank upon

Bank’s written request, true and correct copies of: (a) the Receivables Funding

Agreement dated as of March 1, 2001, by and among Labor Ready Funding

Corporation, as “Borrower,” Redwood Receivables Corporation as “Conduit

Lender,” Borrower as “Servicer,” and GECC as “Committed Lender and as

Administrative Agent, which is in effect as of the date of this Agreement (the

“GECC Receivables Agreement”), and (b) all material documents related to the

GECC Receivables Agreement which are in effect as of the date of this Agreement

(the “Related GECC Receivables Documents”) (with the GECC Receivables Agreement

and 

 

10

 

the Related GECC Receivables Documents” which are in effect as of the

date of this Agreement referred to collectively as the “GECC Receivables

Documents”).

 

ARTICLE III

CONDITIONS

 

SECTION 3.1.

CONDITIONS OF INITIAL EXTENSION OF CREDIT. 

The obligation of Bank to extend any credit contemplated by this

Agreement is subject to the fulfillment to Bank’s satisfaction of all of the

following conditions:

 

(a)           Approval of Bank Counsel.  All legal matters incidental to the

extension of credit by Bank shall be satisfactory to Bank’s counsel.

 

(b)           Documentation.  Bank shall have received, in form and

substance satisfactory to Bank, each of the following, duly executed:

 

(i)                           This Agreement and each promissory note

or other instrument required hereby.

(ii)                        Corporate Borrowing Resolution.

(iii)                     Certificate of Incumbency.

(iv)                    Deed of Trust.

(v)                       Such other documents as Bank may require

under any other Section of this Agreement.

 

(c)           Financial Condition.  There shall have been no material adverse

change, as determined by Bank, in the financial condition or business of

Borrower, nor any material decline, as determined by Bank, in the market value

of any collateral required hereunder or a substantial or material portion of

the assets of Borrower.

 

(d)           Insurance.  Borrower shall have delivered to Bank

evidence of insurance coverage on all real property collateral required hereby,

in form, substance, amounts, covering risks and issued by companies

satisfactory to Bank, and where required by Bank, with loss payable endorsements

in favor of Bank, including without limitation, policies of fire and extended

coverage insurance covering all real property collateral required hereby, with

replacement cost and mortgagee loss payable endorsements, and such policies of

insurance against specific hazards affecting any such real property as may be

required by governmental regulation or Bank.

 

(e)           Appraisals.  Bank shall have obtained, at Borrower’s

cost, an appraisal of all real property collateral required hereby, and all

improvements thereon, issued by an appraiser acceptable to Bank and in form,

substance and reflecting values satisfactory to Bank, in its discretion.

 

(f)            Title Insurance.  Bank shall have received an ALTA Policy of

Title Insurance, with such endorsements as Bank may require, issued by a

company and in form and substance satisfactory to Bank, in an amount equal to

the principal amount of Ten Million Dollars ($10,000,000.00) for the Revolving

Reducing Loan, insuring Bank’s lien on the real property collateral required hereby

to be of first priority, subject only to such exceptions as Bank shall approve

in its discretion, with all costs thereof to be paid by Borrower.

 

11

 

SECTION 3.2. CONDITIONS OF EACH EXTENSION OF

CREDIT.  The obligation of Bank to make

each extension of credit requested by Borrower hereunder shall be subject to

the fulfillment to Bank’s satisfaction of each of the following conditions:

 

(a)           Compliance.  The representations and warranties contained

herein and in each of the other Loan Documents shall be true on and as of the

date of the signing of this Agreement and on the date of each extension of

credit by Bank pursuant hereto, with the same effect as though such

representations and warranties had been made on and as of each such date, and

on each such date, no Event of Default as defined herein, and no condition,

event or act which with the giving of notice or the passage of time or both

would constitute such an Event of Default, shall have occurred and be continuing

or shall exist.

 

(b)           Documentation.  Bank shall have received all additional

documents which may be required in connection with such extension of credit.

 

ARTICLE IV

AFFIRMATIVE

COVENANTS

 

Borrower covenants

that so long as Bank remains committed to extend credit to Borrower pursuant

hereto, or any liabilities (whether direct or contingent, liquidated or

unliquidated) of Borrower to Bank under any of the Loan Documents remain

outstanding, and until payment in full of all obligations of Borrower subject

hereto, Borrower shall, unless Bank otherwise consents in writing:

 

SECTION 4.1.

PUNCTUAL PAYMENTS.  Punctually pay all

principal, interest, fees or other liabilities due under any of the Loan

Documents at the times and place and in the manner specified therein.

 

SECTION 4.2.

ACCOUNTING RECORDS.  Maintain adequate

books and records in accordance with generally accepted accounting principles

consistently applied, and permit any representative of Bank, at any reasonable

time, to inspect, audit and examine such books and records, to make copies of

the same, and to inspect the properties of Borrower.

 

SECTION 4.3.

FINANCIAL STATEMENTS.  Provide to Bank

all of the following, in form and detail satisfactory to Bank:

 

(a)           not later than 90 days after and as of

the end of each fiscal year, a copy of 10K report filed with the Securities

Exchange Commission of Borrower, prepared by Certified Public Accountant, to

include balance sheet, income statement, statement of cash flows, management

report, auditor’s report with unqualified opinion, all supporting schedules and

footnotes;

 

(b)           not later than 45 days after and as

of the end of each quarter end, a copy of 10Q report filed with Securities

Exchange Commission of Borrower, prepared by Certified Public Accountant, to

include balance sheet, income statement and statement of cash flows;

 

(c)           not later than each December 31,

Borrower’s company prepared annual and monthly projections for the following

year (Bank acknowledges that said projections may contain non-public

information, the confidentiality of which will be maintained by Bank in

accordance with Section 7.13 below);

 

12

 

(d)           contemporaneously with each annual

and quarterly financial statement of Borrower required hereby, a certificate of

the president or chief financial officer of Borrower that said financial

statements are accurate and that there exists no Event of Default nor any

condition, act or event which with the giving of notice or the passage of time or

both would constitute an Event of Default;

 

(e)           upon written request by Bank, a

certificate of the president or chief financial officer of Borrower that any

property taxes due in connection with the real property collateral required

hereby have been paid;

 

(f)            from time to time such other

information as Bank may reasonably request.

 

SECTION 4.4.

COMPLIANCE.  Preserve and maintain all

licenses, permits, governmental approvals, rights, privileges and franchises

necessary for the conduct of its business; and comply with the provisions of

all documents pursuant to which Borrower is organized and/or which govern

Borrower’s continued existence and with the requirements of all laws, rules,

regulations and orders of any governmental authority applicable to Borrower

and/or its business.

 

SECTION 4.5.

INSURANCE.  Maintain and keep in force

insurance of the types, and in amounts reasonably similar to the amounts,

currently carried by Borrower, including but not limited to fire, extended

coverage, public liability, property damage and workers’ compensation, and

deliver to Bank from time to time at Bank’s request schedules setting forth all

insurance then in effect.

 

SECTION 4.6.

FACILITIES.  Keep all properties useful

or necessary to Borrower’s business in good repair and condition, and from time

to time make necessary repairs, renewals and replacements thereto so that such

properties shall be fully and efficiently preserved and maintained.

 

SECTION 4.7. TAXES

AND OTHER LIABILITIES.  Pay and

discharge when due any and all indebtedness, obligations, assessments and

taxes, both real or personal, including without limitation federal and state

income taxes and state and local property taxes and assessments, except such

(a) as Borrower may in good faith contest or as to which a bona fide dispute

may arise, and (b) for which Borrower has made provision, to Bank’s

satisfaction, for eventual payment thereof in the event Borrower is obligated

to make such payment.

 

SECTION 4.8.

LITIGATION.  Promptly give notice in

writing to Bank of any litigation pending or threatened against Borrower with a

claim in excess of $1,000,000.00.

 

SECTION 4.9.

FINANCIAL CONDITION.  Maintain

Borrower’s financial condition as follows using generally accepted accounting

principles consistently applied and used consistently with prior practices

(except to the extent modified by the definitions herein), with compliance

determined commencing with Borrower’s financial statements for the period

ending September 30, 2001:

 

(a)           Tangible Net Worth not at any time less

than the Minimum Amount, with “Tangible Net Worth” defined as the aggregate of

total stockholders’ equity plus subordinated debt less any intangible assets,

and with “Minimum Amount” defined as follows: As of September 30, 2001, the

“Minimum Amount” shall be $85,000,000.00. After September 30, 2001 the “Minimum

Amount shall be adjusted upward on a cumulative basis as follows: Commencing as

of the December 31, 2001 fiscal year end and continuing on each fiscal year end

thereafter, the Minimum Amount shall be increased by the sum of fifty percent

(50%) of Borrower’s net income after taxes for the fiscal year ending on such

date (with no reduction in the event of a loss for any such year) plus

one hundred percent (100%) of the 

 

13

 

proceeds of any stock of Borrower issued during such year (with no

reduction for any repurchase or redemption of such stock).

 

(b)           Net

income after taxes not less than $1.00 on an annual basis determined as of each

fiscal year end, commencing with the December 31, 2001 fiscal year end.

 

(c)           Net income before taxes not less than

$1.00 for any two consecutive fiscal quarters, determined as of each fiscal

quarter end commencing with the fiscal quarter ending September 30, 2001.

 

(d)           EBITDA Coverage Ratio not less than

2.00 to 1.0 determined on a rolling four fiscal quarter basis as of each fiscal

quarter end, commencing with the four fiscal quarter period ending on September

30, 2001, with “EBITDA” defined as net profit before tax plus interest

expense (net of capitalized interest expense), depreciation expense and

amortization expense, less unfinanced capital expenditures made during said

period and cash taxes paid during said period, and with “EBITDA Coverage Ratio”

defined as EBITDA divided by the aggregate of total interest expense, plus

letter of credit fees paid during said period, plus said period’s

current maturity of long-term debt, plus said period’s current maturity

of capital leases, plus scheduled principal reductions in the Revolving

Reducing Loan during said period; provided, however, that when

calculating the EBITDA Coverage Ratio for the four fiscal quarter period ending

as of September 30, 2001, only unfinanced capital expenditures made during such

period in excess of $4,400,000.00 shall be subtracted from the numerator, and

when calculating the EBITDA Coverage Ratio for the four fiscal quarter period

ending as of December 31, 2001, only unfinanced expenditures made during such

period in excess of $2,200,000.00 shall be subtracted from the numerator.

 

SECTION 4.10.

NOTICE TO BANK.  Promptly (but in no

event more than five (5) days after the occurrence of each such event or

matter) give written notice to Bank in reasonable detail of: (a) the occurrence

of any Event of Default, or any condition, event or act which with the giving

of notice or the passage of time or both would constitute an Event of Default;

(b) any change in the name or the organizational structure of Borrower; (c) the

occurrence and nature of any Reportable Event or Prohibited Transaction, each

as defined in ERISA, or any funding deficiency with respect to any Plan; or (d)

any termination or cancellation of any insurance policy which Borrower is

required to maintain, or any uninsured or partially uninsured loss through

liability or property damage, or through fire, theft or any other cause

affecting Borrower’s property in excess of an aggregate of $1,000,000.00.

 

ARTICLE V

NEGATIVE COVENANTS

 

Borrower further

covenants that so long as Bank remains committed to extend credit to Borrower

pursuant hereto, or any liabilities (whether direct or contingent, liquidated

or unliquidated) of Borrower to Bank under any of the Loan Documents remain

outstanding, and until payment in full of all obligations of Borrower subject

hereto, Borrower will not without Bank’s prior written consent:

 

SECTION 5.1. USE

OF FUNDS.  Use any of the proceeds of

any credit extended hereunder except for the purposes stated in Article I

hereof.

 

SECTION 5.2. OTHER

INDEBTEDNESS.  Create, incur, assume or

permit to exist any indebtedness or liabilities resulting from borrowings,

loans or advances, whether secured or unsecured, matured or unmatured,

liquidated or unliquidated, joint or several, except (a) the liabilities of

Borrower 

 

14

 

to Bank, (b) any other liabilities of Borrower existing as of, and

disclosed to Bank prior to, the date hereof, and (c) any liabilities of

Borrower incurred hereafter which are permitted under the terms and provisions

of the GECC Letter of Credit Documents, as same may be amended by any amendment

consented to by Bank.

 

SECTION 5.3.

MERGER, CONSOLIDATION, TRANSFER OF ASSETS. 

Merge into or consolidate with any other entity, except for the merger

of a subsidiary of Borrower into Borrower that is permitted under the terms and

provisions of the GECC Letter of Credit Documents, as same may be amended by

any amendment consented to by Bank; make any substantial change in the nature

of Borrower’s business as conducted as of the date hereof; acquire all or

substantially all of the assets of any other entity, except for acquisitions

permitted under the terms and provisions of the GECC Letter of Credit

Documents, as same may be amended by any amendment consented to by Bank; nor

sell, lease, transfer or otherwise dispose of all or a substantial or material

portion of Borrowers assets except in the ordinary course of its business and

except for other dispositions permitted under the terms and provisions of the

GECC Letter of Credit Documents, as same may be amended by any amendment

consented to by Bank, provided, however, that in no event shall any of

Bank’s collateral hereunder be sold, leased, transferred or otherwise disposed

of without the prior written consent of Bank and in the event of any conflict

between the provisions of the GECC Letter of Credit Documents regarding the

disposition of assets and the provisions of this Agreement or any other Loan

Document regarding the disposition of any of Bank’s collateral, the provisions

of this Agreement and the other Loan Documents shall prevail.

 

SECTION 5.4.

GUARANTIES.  Guarantee or become liable

in any way as surety, endorser (other than as endorser of negotiable

instruments for deposit or collection in the ordinary course of business), accommodation

endorser or otherwise for, nor pledge or hypothecate any assets of Borrower as

security for, any liabilities or obligations of any other person or entity,

except (a) any of the foregoing in favor of Bank, (b) any of the foregoing

existing as of, and disclosed to Bank prior to, the date hereof, (c) any of the

foregoing done hereafter which are permitted under the terms and provisions of

the GECC Letter of Credit Documents, as same may be amended by any amendment

consented to by Bank, and (d) other unsecured guarantees by Borrower granted

hereafter in the ordinary course of business to guarantee obligations of

subsidiaries of Borrower which are controlled by Borrower and organized under

the laws of, and operating in, Canada or the United Kingdom, provided that

Borrower’s liabilities under such guarantees which are permitted under this

paragraph (d) at no time exceed $2,500,000 in the aggregate.

 

SECTION 5.5.

LOANS, ADVANCES, INVESTMENTS.  Make any

loans or advances to or investments in any person or entity, except for (a) any

of the foregoing existing as of, and disclosed to Bank prior to, the date

hereof, and (b) any of the foregoing made hereafter which are permitted under

the terms and provisions of the GECC Letter of Credit Documents, as same may be

amended by any amendment consented to by Bank.

 

SECTION 5.6.

PLEDGE OF ASSETS.  Mortgage, pledge,

grant or permit to exist a security interest in, or lien upon, all or any

portion of Borrower’s assets now owned or hereafter acquired, except (a) any of

the foregoing in favor of Bank or which is existing as of, and disclosed to

Bank in writing prior to, the date hereof, and (b) any of the foregoing done or

incurred hereafter which are permitted under the terms and provisions of the

GECC Letter of Credit Documents, as same may be amended by any amendment

consented to by Bank.

 

SECTION 5.7.  DIVIDENDS, DISTRIBUTIONS.  Declare or pay any dividend or distribution

either in cash, stock or any other property on Borrowers stock now or hereafter

outstanding, nor 

 

15

 

redeem, retire, repurchase or otherwise acquire any shares of any class

of Borrower’s stock now or hereafter outstanding, except for any of the

foregoing which are permitted under the terms of the GECC Letter of Credit

Documents, as same may be amended by any amendment consented to by Bank.

 

ARTICLE VI

EVENTS OF DEFAULT

 

SECTION 6.l.  The occurrence of any of the following shall

constitute an “Event of Default” under this Agreement (as used herein, “Business

Day” means any day except a Saturday, Sunday or   any

other day on which commercial banks in Washington are authorized or required by

law to close):

 

(a)           Borrower shall fail to pay within

five (5) Business Days of the date when due, any principal, interest or fees

payable under any of the Loan Documents.

 

(b)           Borrower shall fail to pay within

five (5) Business Days after demand by Bank, any expense reimbursement or other

amount (other than an amount covered in (a) above) payable under any of the

Loan Documents.

 

(c)           Any financial statement or

certificate furnished to Bank in connection with, or any representation or

warranty made by Borrower or any other party under this Agreement or any other

Loan Document shall prove to be incorrect, false or misleading in any material

respect when furnished or made.

 

(d)           Any default in the performance of or

compliance with any obligation, agreement or other provision contained herein

or in any other Loan Document (other than those referred to in subsections (a),

(b) and (c) above), and with respect to any such default which by its nature

can be cured, such default shall continue for a period of thirty (30) days from

its occurrence.

 

(e)           Any

default in the payment or performance of any obligation, or any defined event

of default, under the terms of any contract or instrument (other than any of

the Loan Documents) pursuant to which Borrower has incurred any debt or other

liability to any person or entity, including Bank; provided, however,

that any cure period applicable thereto has expired and in the case of a

default or defined event of default to a person or entity other than Bank, such

indebtedness is in excess of $1,000,000.00, individually or in the aggregate

for all such defaults combined.

 

(f)            The filing of a notice of judgment

lien against Borrower; or the recording of any abstract of judgment against

Borrower in any county in which Borrower has an interest in real property; or

the service of a notice of levy and/or of a writ of attachment or execution, or

other like process, against the assets of Borrower; or the entry of a judgment

against Borrower; provided, however, that such judgments, liens, levies,

executions and other process involve debts of or claims against Borrower in

excess of $1,000,000.00, individually or in the aggregate for all such matters

combined, and within thirty (30) days after the creation thereof, or at least

ten (10) days prior to the date on which any assets could be lawfully sold in

satisfaction thereof, such debt or claim is not satisfied or stayed pending

appeal and insured against in a manner satisfactory to Bank.

 

(g)           Borrower

shall become insolvent, or shall suffer or consent to or apply for the

appointment of a receiver, trustee, custodian or liquidator of itself or any of

its property, or shall generally fail to pay its debts as they become due, or

shall make a general assignment for the benefit of 

 

16

 

creditors; Borrower shall file a voluntary petition in bankruptcy, or

seeking reorganization, in order to effect a plan or other arrangement with

creditors or any other relief under the Bankruptcy Reform Act, Title 11 of the

United States Code, as amended or recodified from time to time (“Bankruptcy

Code”), or under any state or federal law granting relief to debtors, whether

now or hereafter in effect; or any involuntary petition or proceeding pursuant

to the Bankruptcy Code or any other applicable state or federal law relating to

bankruptcy, reorganization or other relief for debtors is filed or commenced

against Borrower, and such involuntary petition or proceeding is unopposed or

is not dismissed within sixty (60) days of its commencement; or Borrower shall

file an answer admitting the jurisdiction of the court and the material allegations

of any involuntary petition; or Borrower shall be adjudicated a bankrupt, or an

order for relief shall be entered against Borrower by any court of competent

jurisdiction under the Bankruptcy Code or any other applicable state or federal

law relating to bankruptcy, reorganization or other relief for debtors.

 

(h)           The

dissolution or liquidation of Borrower; or Borrower, or any of its directors,

stockholders or members, shall take action seeking to effect the dissolution or

liquidation of Borrower.

 

SECTION 6.2.

REMEDIES.  Upon the occurrence of any

Event of Default: (a) all indebtedness of Borrower under each of the Loan

Documents, any term thereof to the contrary notwithstanding, shall at Bank’s

option and without notice become immediately due and payable without

presentment, demand, protest or notice of dishonor, all of which are hereby

expressly waived by each Borrower; (b) the obligation, if any, of Bank to

extend any further credit under any of the Loan Documents shall immediately

cease and terminate; and (c) Bank shall have all rights, powers and remedies

available under each of the Loan Documents, or accorded by law, including

without limitation the right to resort to any or all security for any credit

subject hereto and to exercise any or all of the rights of a beneficiary or

secured party pursuant to applicable law. 

All rights, powers and remedies of Bank may be exercised at any time by

Bank and from time to time after the occurrence of an Event of Default, are

cumulative and not exclusive, and shall be in addition to any other rights,

powers or remedies provided by law or equity.

 

ARTICLE VII

MISCELLANEOUS

 

SECTION 7.1.

RELATIONSHIP WITH GECC DOCUMENTS.  In

each case in Sections 5.2, 5.3, 5.4, 5.5, 5.6 and 5.7 of this Agreement where

it is indicated that something may be done by Borrower if such action is

permitted under the terms and provisions of the GECC Letter of Credit

Documents, it is acknowledged that (a) to the extent the consent of the

“Creditor” under the GECC Letter of Credit Documents is required as a condition

to taking such action thereunder, then the consent of Bank shall be required

for such action to be permitted hereunder, and (b) to the extent Borrower would

be required to give the “Creditor” under the GECC Letter of Credit Documents

certain notices or information as a condition to taking such action thereunder,

then Borrower shall be required to give Bank such notices and information for

such action to be permitted hereunder.

 

SECTION 7.2. NO

WAIVER.  No delay, failure or discontinuance

of Bank in exercising any right, power or remedy under any of the Loan

Documents shall affect or operate as a waiver of such right, power or remedy;

nor shall any single or partial exercise of any such right, power or remedy

preclude, waive or otherwise affect any other or further exercise thereof or

the exercise of any other right, power or remedy.  Any waiver, permit, consent or approval of any kind by Bank of

any breach of 

 

17

 

or default under any of the Loan Documents must be in writing and shall

be effective only to the extent set forth in such writing.

 

SECTION 7.3.

NOTICES.  All notices, requests and

demands which any party is required or may desire to give to any other party

under any provision of this Agreement must be in writing delivered to each

party at the following address:

 

	

  BORROWER:

  	

  LABOR READY, INC.

  
	

   

  	

  ATTN: 

  General Counsel

  
	

   

  	

  P.O. Box 2910

  
	

   

  	

  Tacoma, WA 98402-2910

  
	

   

  
	

  BANK:

  	

  WELLS FARGO BANK, NATIONAL ASSOCIATION

  
	

   

  	

  1201 Pacific Avenue, 3rd Floor

  
	

   

  	

  Tacoma, WA 98402

  
			

 

or to such other

address as any party may designate by written notice to all other parties; provided,

however, that Bank may also deliver notices, requests and demands to

Borrower under this Agreement by hand delivery to Borrower at the following

street address or to such other street address as Borrower may designate by

written notice to Bank:

 

	

   

  	

  LABOR READY, INC.

  
	

   

  	

  ATTN: General Counsel

  
	

   

  	

  1015 A Street

  
	

   

  	

  Tacoma, Washington 98402

  

 

Each such notice,

request and demand shall be deemed given or made as follows: (a) if sent by

hand delivery, upon delivery; (b) if sent by mail, upon the earlier of the date

of receipt or three (3) days after deposit in the U.S. mail, first class and

postage prepaid; and (c) if sent by telecopy, upon receipt.

 

SECTION 7.4.

COSTS, EXPENSES AND ATTORNEYS’ FEES. 

Borrower shall pay to Bank immediately upon demand the full amount of

all payments, advances, charges, costs and expenses, including reasonable

attorneys’ fees (to include outside counsel fees and all allocated costs of

Bank’s in-house counsel), expended or incurred by Bank in connection with (a)

the negotiation and preparation of this Agreement and the other Loan Documents,

Bank’s continued administration hereof and thereof, and the preparation of any

amendments and waivers hereto and thereto, (b) the enforcement of Bank’s rights

and/or the collection of any amounts which become due to Bank under any of the

Loan Documents, and (c) the prosecution or defense of any action in any way

related to any of the Loan Documents, including without limitation, any action

for declaratory relief, whether incurred at the trial or appellate level, in an

arbitration proceeding or otherwise, and including any of the foregoing

incurred in connection with any bankruptcy proceeding (including without

limitation, any adversary proceeding, contested matter or motion brought by

Bank or any other person) relating to any Borrower or any other person or

entity.

 

SECTION 7.5.  SUCCESSORS, ASSIGNMENT.  This Agreement shall be binding upon and

inure to the benefit of the heirs, executors, administrators, legal

representatives, successors and assigns of the parties; provided however, that

Borrower may not assign or transfer its interest hereunder without Bank’s prior

written consent.  Bank reserves the

right to sell, assign, transfer, negotiate or grant participations in all or

any part of, or any interest in, Bank’s rights and benefits under each of the

Loan Documents.  In connection

therewith, Bank may disclose all documents and information which Bank 

 

18

 

now has or may hereafter acquire relating to any credit subject hereto,

Borrower or its business, or any collateral required hereunder.

 

SECTION 7.6.

ENTIRE AGREEMENT; AMENDMENT.  This

Agreement and the other Loan Documents constitute the entire agreement between

Borrower and Bank with respect to each credit subject hereto and supersede all

prior negotiations, communications, discussions and correspondence concerning

the subject matter hereof.  This

Agreement may be amended or modified only in writing signed by each party

hereto.

 

SECTION 7.7. NO

THIRD PARTY BENEFICIARIES.  This

Agreement is made and entered into for the sole protection and benefit of the

parties hereto and their respective permitted successors and assigns, and no

other person or entity shall be a third party beneficiary of, or have any

direct or indirect cause of action or claim in connection with, this Agreement

or any other of the Loan Documents to which it is not a party.

 

SECTION 7.8.

TIME.  Time is of the essence of each

and every provision of this Agreement and each other of the Loan Documents.

 

SECTION 7.9.

SEVERABILITY OF PROVISIONS.  If any

provision of this Agreement shall be prohibited by or invalid under applicable

law, such provision shall be ineffective only to the extent of such prohibition

or invalidity without invalidating the remainder of such provision or any

remaining provisions of this Agreement.

 

SECTION 7.10.

COUNTERPARTS.  This Agreement may be executed

in any number of counterparts, each of which when executed and delivered shall

be deemed to be an original, and all of which when taken together shall

constitute one and the same Agreement.

 

SECTION 7.11.

GOVERNING LAW.  This Agreement shall be

governed by and construed in accordance with the laws of the State of

Washington.

 

SECTION 7.12.

ARBITRATION.

 

(a)           Arbitration.  The parties hereto agree, upon demand by any

party, to submit to binding arbitration all claims, disputes and controversies

between or among them (and their respective employees, officers, directors,

attorneys, and other agents), whether in tort, contract or otherwise arising

out of or relating to in any way (i) the loan and related Loan Documents which

are the subject of this Agreement and its negotiation, execution,

collateralization, administration, repayment, modification, extension,

substitution, formation, inducement, enforcement, default or termination; or

(ii) requests for additional credit.

 

(b)           Governing Rules.  Any arbitration proceeding will (i) proceed

in a location in WashingtoVn selected by the American Arbitration Association

(“AAA”); (ii) be governed by the Federal Arbitration Act (Title 9 of the United

States Code), notwithstanding any conflicting choice of law provision in any of

the documents between the parties; and (iii) be conducted by the AAA, or such

other administrator as the parties shall mutually agree upon, in accordance

with the AAA’s commercial dispute resolution procedures, unless the claim or

counterclaim is at least $1,000,000.00 exclusive of claimed interest,

arbitration fees and costs in which case the arbitration shall be conducted in

accordance with the AAA’s optional procedures for large, complex commercial

disputes (the commercial dispute resolution procedures or the optional

 

19

 

procedures for large, complex commercial disputes to be referred to, as

applicable, as the “Rules”).  If there

is any inconsistency between the terms hereof and the Rules, the terms and

procedures set forth herein shall control. 

Any party who fails or refuses to submit to arbitration following a

demand by any other party shall bear all costs and expenses incurred by such

other party in compelling arbitration of any dispute.  Nothing contained herein shall be deemed to

be a waiver by any party that is a bank of the protections afforded to it under

12 U.S.C. §91 or any similar applicable state law.

 

(c)           No Waiver of Provisional Remedies,

Self-Help and Foreclosure.  The

arbitration requirement does not limit the right of any party to (i) foreclose

against real or personal property collateral; (ii) exercise self-help remedies

relating to collateral or proceeds of collateral such as setoff or

repossession; or (iii) obtain provisional or ancillary remedies such as

replevin, injunctive relief, attachment or the appointment of a receiver,

before during or after the pendency of any arbitration proceeding.  This exclusion does not constitute a waiver

of the right or obligation of any party to submit any dispute to arbitration or

reference hereunder, including those arising from the exercise of the actions

detailed in sections (i), (ii) and (iii) of this paragraph.

 

(d)           Arbitrator Qualifications and

Powers.  Any arbitration proceeding

in which the amount in controversy is $5,000,000.00 or less will be decided by

a single arbitrator selected according to the Rules, and who shall not render

an award of greater than $5,000,000.00. Any dispute in which the amount in

controversy exceeds $5,000,000.00 shall be decided by majority vote of a panel

of three arbitrators; provided however, that all three arbitrators must

actively participate in all hearings and deliberations.  The arbitrator will be a neutral attorney

licensed in the State of Washington or a neutral retired judge of the state or

federal judiciary of Washington, in either case with a minimum of ten years

experience in the substantive law applicable to the subject matter of the

dispute to be arbitrated.  The

arbitrator will determine whether or not an issue is arbitratable and will give

effect to the statutes of limitation in determining any claim.  In any arbitration proceeding the arbitrator

will decide (by documents only or with a hearing at the arbitrator’s

discretion) any pre-hearing motions which are similar to motions to dismiss for

failure to state a claim or motions for summary adjudication.  The arbitrator shall resolve all disputes in

accordance with the substantive law of Washington and may grant any remedy or

relief that a court of such state could order or grant within the scope hereof

and such ancillary relief as is necessary to make effective any award.  The arbitrator shall also have the power to

award recovery of all costs and fees, to impose sanctions and to take such other

action as the arbitrator deems necessary to the same extent a judge could

pursuant to the Federal Rules of Civil Procedure, the Washington Rules of Civil

Procedure or other applicable law. 

Judgment upon the award rendered by the arbitrator may be entered in any

court having jurisdiction.  The

institution and maintenance of an action for judicial relief or pursuit of a

provisional or ancillary remedy shall not constitute a waiver of the right of

any party, including the plaintiff, to submit the controversy or claim to

arbitration if any other party contests such action for judicial relief.

 

(e)           Discovery.  In any arbitration proceeding discovery will

be permitted in accordance with the Rules. 

All discovery shall be expressly limited to matters directly relevant 

 

20

 

to the dispute being arbitrated and must be completed no later than 20

days before the hearing date and within 180 days of the filing of the dispute

with the AAA.  Any requests for an

extension of the discovery periods, or any discovery disputes, will be subject

to final determination by the arbitrator upon a showing that the request for

discovery is essential for the party’s presentation and that no alternative

means for obtaining information is available.

 

(f)            Class

Proceedings and Consolidations.  The

resolution of any dispute arising pursuant to the terms of this Agreement shall

be determined by a separate arbitration proceeding and such dispute shall not

be consolidated with other disputes or included in any class proceeding.

 

(g)           Payment

of Arbitration Costs And Fees.  The

arbitrator shall award all costs and expenses of the arbitration proceeding.

 

(h)           Miscellaneous.  To the maximum extent practicable, the AAA,

the arbitrators and the parties shall take all action required to conclude any

arbitration proceeding within 180 days of the filing of the dispute with the

AAA.  No arbitrator or other party to an

arbitration proceeding may disclose the existence, content or results thereof,

except for disclosures of information by a party required in the ordinary

course of its business or by applicable law or regulation.  If more than one agreement for arbitration

by or between the parties potentially applies to a dispute, the arbitration

provision most directly related to the Loan Documents or the subject matter of

the dispute shall control.  This

arbitration provision shall survive termination, amendment or expiration of any

of the Loan Documents or any relationship between the parties.

 

SECTION 7.13.

CONFIDENTIALITY.

 

(a)           Confidential Information.  As used herein, the term “Confidential

Information” shall mean all non-public, confidential and/or proprietary

information of Borrower, now or at any time hereafter provided to Bank by

Borrower, or any of Borrower’s officers, employees, agents or representatives,

in connection with this Agreement.

 

(b)           Use of Information.  The Confidential Information will be used by

Bank solely for the purpose of evaluating Borrower’s credit requests and/or

Bank’s ongoing credit accommodations to Borrower.

 

(c)           Confidentiality.  Bank will keep all the Confidential

Information confidential, and will not disclose any of the Confidential

Information to any person or entity, except disclosures: (i) to federal and

state bank examiners, and other regulatory officials having jurisdiction over

Bank, (ii) to Bank’s legal counsel and auditors, (iii) to other professional

advisors to Bank, (iv) to Bank’s representatives (which shall include, without

limitation, all other banks and companies affiliated with Wells Fargo &

Company) who need to know the Confidential Information for the purpose of

evaluating Borrower’s credit requests and/or Bank’s ongoing credit

accommodations to Borrower, it being expressly understood and agreed that such

representatives shall be informed of the confidential nature of the

Confidential Information, and shall be required by Bank to treat the

Confidential Information as confidential in accordance with the terms and

conditions hereof; (v) as otherwise required by law or legal process, (vi) to

any actual or potential assignee of or participant in Bank’s rights and

interests under the Loan Documents, so long as such person or entity agrees in

writing to be bound by the provisions of this Section 7.13, (vii) to the extent

reasonably required in connection with the exercise of any remedy hereunder, or

(viii) as otherwise authorized by Borrower in writing.

 

21

 

(d)           Legal Process.  In the event that Bank or any of its representatives

becomes legally compelled to disclose any of the Confidential Information

pursuant to Section 7.13(c)(v) above, hereof, then Bank, except as otherwise

required by law, will provide notice thereof to Borrower so that Borrower, at

its sole option (but without obligation to do so), may attempt to seek a

protective order or other appropriate remedy and/or waive compliance with the

provisions of this Agreement.

 

(e)           Public Information.  The confidentiality requirement set forth

herein shall not extend to any portion of the Confidential Information that:

(a) is or becomes generally available to the public other than as a result of a

disclosure by Bank or its representatives; (b) is or becomes available to Bank

on a non-confidential basis by Borrower or any officer, employee, agent or

representative of Borrower prior to its disclosure by Bank; or (c) is or

becomes available to Bank on a non-confidential basis from a source other than

Borrower.

 

ORAL AGREEMENTS OR  ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR

TO

FORBEAR ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER  WASHINGTON

LAW.

 

IN WITNESS

WHEREOF, the parties hereto have caused this Agreement to be executed as of the

day and year first written above.

 

	

   

  	

   

  	

  WELLS FARGO BANK,

  
	

  LABOR READY, INC.

  	

   

  	

  NATIONAL ASSOCIATION

  
	

   

  
	

  /s/ Steve C. Cooper

  	

   

  	

  By:

  	

  /s/ Edward Forman

  	

   

  
	

   

  	

  Title:  Vice

  President

  
							

 

222001 Employee Stock Option Plan

LATITUDE

COMMUNICATIONS, INC.

 

2001 EMPLOYEE STOCK OPTION PLAN

 

1.             Purposes of the Plan.  The purposes of this 2001 Employee Stock

Option Plan are to attract and retain the best available personnel for

positions of substantial responsibility, to provide additional incentive to the

Employees and Consultants of the Company and to promote the success of the

Company’s business. Options granted hereunder shall be Nonstatutory Stock

Options.

 

2.             Definitions.  As used herein, the following definitions

shall apply:

 

(a)           “Administrator” shall mean the Board or

any of its Committees appointed pursuant to Section 4 of the Plan.

 

(b)           “Affiliate” means an entity other than a

Subsidiary (as defined below) in which the Company owns an equity interest or

which, together with the Company, is under common control of a third person or

entity.

 

(c)           “Applicable Laws” means the legal

requirements relating to the administration of stock option plans under

applicable U.S. state corporate laws, U.S. federal and applicable state securities

laws, the Code, any Stock Exchange rules and regulations and the applicable

laws of any other country or jurisdiction where Options are granted under the

Plan, as such laws, rules, regulations and requirements shall be in place from

time to time.

 

(d)           “Board” shall mean the Board of

Directors of the Company.

 

(e)           “Change of Control” means a sale of

all or substantially all of the Company’s assets, or any merger or

consolidation of the Company with or into another corporation other than a

merger or consolidation in which the holders of more than 50% of the shares of

capital stock of the Company outstanding immediately prior to such transaction

continue to hold (either by the voting securities remaining outstanding or by

their being converted into voting securities of the surviving entity) more than

50% of the total voting power represented by the voting securities of the

Company, or such surviving entity, outstanding immediately after such

transaction.

 

(f)            “Code” shall mean the

Internal Revenue Code of 1986, as amended.

 

(g)           “Committee” shall mean the Committee

appointed by the Board of Directors in accordance with paragraph (a) of

Section 4 of the Plan, if one is appointed.

 

(h)           “Common Stock” shall mean the Common

Stock of the Company.

 

(i)            “Company” shall mean

Latitude Communications, Inc., a Delaware corporation.

 

 

(j)            “Consultant” shall mean

any person who is engaged by the Company or any Parent, Subsidiary or Affiliate

to render consulting services and is compensated for such consulting services,

excluding any Officers and Directors.

 

(k)           “Continuous Service Status” means

the absence of any interruption or termination of service as an Employee or

Consultant to the Company or a Parent, Subsidiary or Affiliate.  Continuous Service Status shall not be

considered interrupted in the case of: 

(i) sick leave; (ii) military leave; (iii) any other

leave of absence approved by the Administrator, provided that such leave is for

a period of not more than 90 days, unless reemployment upon the expiration of

such leave is guaranteed by contract or statute, or unless provided otherwise

pursuant to Company policy adopted from time to time; or (iv) in the case

of transfers between locations of the Company or between the Company, its

Parents, Subsidiaries or Affiliates or their respective successors. A change in

status from an Employee to a Consultant or from a Consultant to an Employee

will not constitute an interruption of Continuous Service Status.

 

(l)            “Corporate Transaction” means a sale

of all or substantially all of the Company’s assets, or a merger, consolidation

or other capital reorganization of the Company with or into another

corporation.

 

(m)          “Director” shall mean a member of the

Board.

 

(n)           “Employee” shall mean any person who is

employed by the Company or any Parent, Subsidiary or Affiliate of the Company,

excluding any Officer and Director.

 

(o)           “Exchange Act” shall mean the Securities

Exchange Act of 1934, as amended.

 

(p)           “Fair Market Value” shall mean, as of

any date, the value of Common Stock determined as follows:

 

(i)            If the Common Stock is listed on any

established stock exchange or a national market system including without

limitation the National Market of the National Association of Securities

Dealers, Inc. Automated Quotation (“Nasdaq”) System, its Fair Market Value

shall be the closing sales price for such stock as quoted on such system on the

date of determination (if for a given day no sales were reported, the closing

bid on that day shall be used), as such price is reported in The Wall Street

Journal or such other source as the Administrator deems reliable;

 

(ii)           If the Common Stock is quoted on the

Nasdaq System (but not on the National Market thereof) or regularly quoted by a

recognized securities dealer but selling prices are not reported, its Fair

Market Value shall be the mean between the bid and asked prices for the Common

Stock or;

 

(iii)          In the absence of an established

market for the Common Stock, the Fair Market Value thereof shall be determined

in good faith by the Administrator.

 

2

 

(q)           “Nonstatutory Stock Option” shall mean

an Option not intended to qualify as an Incentive Stock Option, as designated

in the applicable Option Agreement. “Incentive Stock Option” shall mean

an Option intended to qualify as an incentive stock option within the meaning

of Section 422 of the Code, as designated in the applicable Option

Agreement.

 

(r)            “Officer” shall mean a

person who is appointed or elected by the Board of Directors as an officer of

the Company and who is an “officer” within the meaning of Section 16 of the

Exchange Act and the rules and regulations promulgated thereunder.

 

(s)           “Option” shall mean a stock option

granted pursuant to the Plan.

 

(t)            “Option Agreement” means a written

document, the form(s) of which shall be approved from time to time by the

Administrator, reflecting the terms of an Option granted under the Plan and

includes any documents attached to or incorporated into such Option Agreement,

including, but not limited to, a notice of stock option grant and a form of

exercise notice.

 

(u)           “Optioned Stock” shall mean the Common

Stock subject to an Option.

 

(v)           “Option Exchange Program”

means a program approved by the Administrator whereby outstanding Options are

exchanged for Options with a lower exercise price or are amended to decrease

the exercise price as a result of a decline in the Fair Market Value of the

Common Stock.

 

(w)          “Optionee” shall mean an Employee or

Consultant who receives an Option.

 

(x)            “Parent” shall mean a “parent

corporation,” whether now or hereafter existing, as defined in

Section 424(e) of the Code.

 

(y)           “Plan” shall mean this 2001 Employee

Stock Option Plan.

 

(z)            “Rule 16b-3” shall mean

Rule 16b-3 promulgated under the Exchange Act as the same may be amended from

time to time, or any successor provision.

 

(aa)         “Share” shall mean a share of the Common

Stock, as adjusted in accordance with Section 12 of the Plan.

 

(bb)         “Subsidiary” shall mean a “subsidiary

corporation,” whether now or hereafter existing, as defined in

Section 424(f) of the Code.

 

3.             Stock Subject to the Plan.  Subject to the provisions of Section 12

of the Plan, the maximum aggregate number of shares which may be sold under the

Plan is 800,000  shares of Common Stock. 

The Shares may be authorized, but unissued, or reacquired Common Stock.

 

3

 

If an

award should expire or become unexercisable for any reason without having been

exercised in full, or is surrendered pursuant to an Option Exchange Program,

the unpurchased Shares that were subject thereto shall, unless the Plan shall

have been terminated, become available for future grant under the Plan.  In addition, any Shares of Common Stock

which are retained by the Company upon exercise of an Option in order to

satisfy any withholding taxes due with respect to such exercise or purchase

shall be treated as not issued and shall continue to be available under the

Plan.  Shares issued under the Plan and

later repurchased by the Company pursuant to any repurchase right which the

Company may have shall not be available for future grant under the Plan.

 

4.             Administration of the Plan.

 

(a)           Composition of Administrator.  The Plan shall be administered by (A) the

Board or (B) a Committee designated by the Board, which Committee shall be

constituted in such a manner as to satisfy the Applicable Laws.  If a Committee has been appointed pursuant

to this Section 4(a), such Committee shall continue to serve in its designated

capacity until otherwise directed by the Board.  From time to time the Board may increase the size of any

Committee and appoint additional members thereof, remove members (with or

without cause) and appoint new members in substitution therefor, fill vacancies

(however caused) and remove all members of a Committee and thereafter directly

administer the Plan, all to the extent permitted by the Applicable Laws.

 

(b)           Powers of the Administrator.  Subject to the provisions of the Plan, and

in the case of a Committee, the specific duties delegated by, or limitations of

authority imposed by, the Board to or on such Committee, the Administrator

shall have the authority, in its discretion:

 

(i) to grant Options under the Plan;

 

(ii) to determine, upon review of relevant

information and in accordance with Section 2(p) of the Plan, the Fair

Market Value of the Common Stock;

 

(iii) to determine the exercise price per share

of Options to be granted, which exercise price shall be determined in

accordance with Section 8(a) of the Plan;

 

(iv) to determine the Employees or Consultants to

whom, and the time or times at which, Options shall be granted and the number

of shares to be represented by each Option;

 

(v) to interpret the Plan;

 

(vi) to approve forms of agreement for use under

the Plan;

 

(vii) to determine the terms and provisions of

each Option granted (which need not be identical) and, with the consent of the

holder thereof, modify or amend each Option;

 

4

 

(viii) to accelerate or defer (with the consent

of the Optionee) the exercise date of any Option;

 

(ix) to authorize any person to execute on behalf

of the Company any instrument required to effectuate the grant of an Option

previously granted by the Administrator;

 

(x)  to

implement an Option Exchange Program on such terms and conditions as the

Administrator in its discretion deems appropriate, provided that no amendment

or adjustment to an Option that would materially and adversely affect the

rights of any Optionee shall be made without the prior written consent of the

Optionee;

 

(xi) to adjust the vesting of an Option held by an

Employee or Consultant as a result of a change in the terms or conditions under

which such person is providing services to the Company;

 

(xii) to determine whether and under what circumstances

an Option may be settled in cash under Section 9(f) instead of Common Stock;

 

(xiii)  in

order to fulfil the purposes of the Plan and without amending the Plan, to

modify grants of Options to Employees or Consultants who are foreign nationals

or employed outside the United States in order to recognize differences in

local law, tax policies or customs; and

 

(xiv) to make all other determinations deemed

necessary or advisable for the administration of the Plan.

 

(c)           Effect of Administrator’s Decision.  All decisions, determinations and

interpretations of the Administrator shall be final and binding on all

Optionees and any other holders of any Options granted under the Plan.

 

5.             Eligibility.

 

(a)           Recipients of Grants.  Options may be granted only to Employees and

Consultants. An Employee or Consultant who has been granted an Option may, if

he is otherwise eligible, be granted an additional Option or Options.

 

(b)           Type of Option.  Each Option shall be designated in the

Option Agreement as a Nonstatutory Stock Option.

 

(c)           At-Will Relationship.  The Plan shall not confer upon any Optionee

any right with respect to continuation of employment or consulting relationship

with the Company, nor shall it interfere in any way with his right or the

Company’s right to terminate his or her employment or consulting relationship

at any time, with or without cause.

 

6.             Term of Plan.  The Plan shall become effective upon its

adoption by the Board of Directors.  It

shall continue in effect for a term of ten (10) years unless sooner terminated

under Section 14 of the Plan.

 

5

 

7.             Term of Option. The

term of each Option shall be ten (10) years from the date of grant thereof or

such shorter term as may be provided in the Option Agreement.

 

8.             Exercise Price and Consideration.

 

(a)           The per Share exercise price for the

Shares to be issued pursuant to exercise of an Option shall be such price as is

determined by the Administrator.

 

(b)           The consideration to be paid for the

Shares to be issued upon exercise of an Option, including the method of

payment, shall be determined by the Administrator and may consist entirely of

(1) cash, (2) check, (3) promissory note with a fair market value interest rate

specific to the optionee at the date of exercise, (4) other Shares of Common

Stock which (i) either have been owned by the Optionee for more than six

(6) months on the date of surrender or were not acquired, directly or

indirectly, from the Company, and (ii) have a fair market value on the

date of surrender equal to the aggregate exercise price of the Shares as to

which said Option shall be exercised, (5) delivery of a properly executed

exercise notice together with irrevocable instructions to a broker to deliver

promptly to the Company the amount of sale or loan proceeds required to pay the

exercise price, (6) any combination of such methods of payment, or (7) such

other consideration and method of payment for the issuance of Shares to the

extent permitted under the Applicable Laws. 

In making its determination as to the type of consideration to accept,

the Administrator shall consider if acceptance of such consideration may be

reasonably expected to benefit the Company, and the Administrator may refuse to

accept a particular form of consideration at the time of any Option exercise

if, in its sole discretion, acceptance of such form of consideration is not in

the best interests of the Company at such time.

 

9.             Exercise of Option.

 

(a)           Procedure for Exercise; Rights as a Stockholder.  Any Option granted hereunder shall be

exercisable at such times and under such conditions as determined by the

Administrator, consistent with the terms of the Plan and reflected in the

Option Agreement, including vesting requirements and/or performance criteria

with respect to the Company and/or the Optionee.  Unless otherwise determined by the Administrator, the vesting of

Options shall be tolled during any unpaid leave of absence.

 

An Option may not

be exercised for a fraction of a Share.

 

An Option shall be

deemed to be exercised when written notice of such exercise has been given to

the Company in accordance with the terms of the Option by the per­son entitled

to exercise the Option and full payment for the Shares with respect to which

the Option is exercised has been received by the Company.  Full payment may, as authorized by the

Administrator, consist of any consideration and method of payment allowable

under Section 8(b) of the Plan. 

Until the issuance (as evidenced by the appropriate entry on the books of

the Company or of a duly authorized transfer agent of the Company) of the stock

certificate evidencing such Shares, no right to vote or receive dividends or

any other rights as a stockholder shall exist with respect to the Optioned

Stock, notwithstanding the exercise of the Option.  The Company shall issue (or cause to be issued) such stock

certificate promptly upon exercise of the 

 

6

 

Option.  No

adjustment will be made for a dividend or other right for which the record date

is prior to the date the stock certificate is issued, except as provided in

Section 12 of the Plan.

 

Exercise of an

Option in any manner shall result in a decrease in the number of Shares which

thereafter may be avail­able, both for purposes of the Plan and for sale under

the Option, by the number of Shares as to which the Option is exercised.

 

(b)           Termination of Employment or Consulting Relationship.  In the event of termination of an Optionee’s

Continuous Service Status with the Company, such Optionee may, but only within

three (3) months (or such other period of time, not less than 30 days, as is

determined by the Administrator) after the date of such termination (but in no

event later than the date of expiration of the term of such Option as set forth

in the Option Agreement), exercise his Option to the extent that he was

entitled to exercise it at the date of such termination.  To the extent that the Optionee was not

entitled to exercise the Option at the date of such termination, or if the

Optionee does not exercise the Option to the extent so entitled within the time

specified above, the Option shall terminate and the Optioned Stock underlying

the unexercised portion of the Option shall revert to the Plan.  No termination shall be deemed to occur and

this Section 9(b) shall not apply if (i) the Optionee is a Consultant who

becomes an Employee, or (ii) the Optionee is an Employee who becomes a

Consultant.

 

(c)           Disability of Optionee.  Notwithstanding the provisions of

Section 9(b) above, in the event of termination of an Optionee’s

Continuous Service Status as a result of Optionee’s total and permanent

disability (as defined in Section 22(e)(3) of the Code), Optionee may, but only

within twelve (12) months (or such other period of time as is determined by the

Administrator) from the date of such termination (but in no event later than

the date of expiration of the term of such Option as set forth in the Option

Agreement), exercise the Option to the extent otherwise entitled to exercise it

at the date of such termination.  To the

extent that Optionee was not entitled to exercise the Option at the date of

termination, or if Optionee does not exercise such Option (to the extent so

entitled) within the time specified above, the Option shall terminate, and the

Optioned Stock underlying the unexercised portion of the Option shall revert to

the Plan.

 

(d)           Death of Optionee. Notwithstanding the

provisions of Section 9(b) above, in the event of the death of an Optionee

during the period of Continuous Service Status since the date of grant of the

Option, or within 30 days following termination of the Optionee’s Continuous

Service Status, the Option may be exercised, at any time within twelve (12)

months following the date of death (but in no event later than the expiration

date of the term of such Option as set forth in the Option Agreement), by such

Optionee’s estate or by a person who acquired the right to exercise the Option

by bequest or inheritance, but only to the extent of the right to exercise that

had accrued at the date of death or, if earlier, the date of termination of the

Optionee’s Continuous Service Status. 

To the extent that the Optionee was not entitled to exercise the Option

at the date of death or termination, as the case may be, or if the Optionee

does not exercise such Option to the extent so entitled within the time

specified above, the Option shall terminate and the Optioned Stock underlying

the unexercised portion of the Option shall revert to the Plan.

 

7

 

(e)           Extension of Exercise Period.  The Administrator shall have full power and

authority to extend the period of time for which an Option is to remain

exercisable following termination of an Optionee’s Continuous Service Status

from the periods set forth in Sections 9(b), 9(c) and 9(d) above or in the

Option Agreement to such greater time as the Board shall deem appropriate,

provided, that in no event shall such Option be exercisable later than the date

of expiration of the term of such Option as set forth in the Option Agreement.

 

(f)            Buy-Out Provisions.  The Administrator may at any time offer to

buy out for a payment in cash or Shares an Option previously granted under the

Plan, based on such terms and conditions as the Administrator shall establish

and communicate to the Optionee at the time such offer is made.

 

10.           Taxes.

 

(a)           As a condition of the exercise of an

Option granted under the Plan, the Optionee (or in the case of the Optionee’s

death, the person exercising the Option) shall make such arrangements as the

Administrator may require for the satisfaction of any applicable federal,

state, local or foreign withholding tax obligations that may arise in

connection with the exercise of an Option and the issuance of Shares.  The Company shall not be required to issue

any Shares under the Plan until such obligations are satisfied.  If the Administrator allows the withholding

or surrender of Shares to satisfy a Participant’s tax withholding obligations

under this Section 10 (whether pursuant to Section 10(c), (d) or (e), or

otherwise), the Administrator shall not allow Shares to be withheld in an

amount that exceeds the minimum statutory withholding rates for federal and

state tax purposes, including payroll taxes.

 

(b)           In the case of an Employee and in the

absence of any other arrangement, the Employee shall be deemed to have directed

the Company to withhold or collect from his or her compensation an amount

sufficient to satisfy such tax obligations from the next payroll payment

otherwise payable after the date of an exercise of the Option.

 

(c)           In the case of a Optionee other than

an Employee (or in the case of an Employee where the next payroll payment is

not sufficient to satisfy such tax obligations, with respect to any remaining

tax obligations), in the absence of any other arrangement and to the extent

permitted under the Applicable Laws, the Optionee shall be deemed to have

elected to have the Company withhold from the Shares to be issued upon exercise

of the Option that number of Shares having a Fair Market Value determined as of

the applicable Tax Date (as defined below) equal to the minimum statutory

amount required to be withheld.  For

purposes of this Section 10, the Fair Market Value of the Shares to be withheld

shall be determined on the date that the amount of tax to be withheld is to be

determined under the Applicable Laws (the “Tax Date”).

 

(d)           If permitted by the Administrator, in

its discretion, a Optionee may satisfy his or her tax withholding obligations

upon exercise of an Option by surrendering to the Company Shares that

(i) in the case of Shares previously acquired from the Company, have been

owned by the Optionee for more than six months on the date of surrender, and

(ii) have a Fair 

 

8

 

Market Value determined as of the applicable Tax Date

equal to the minimum statutory amount required to be withheld.

 

(e)           Any election or deemed election by a

Optionee to have Shares withheld to satisfy tax withholding obligations under

Section 10(c) or (d) above shall be irrevocable as to the particular Shares as

to which the election is made and shall be subject to the consent or

disapproval of the Administrator.  Any

election by an Optionee under Section 10(d) above must be made on or prior to

the applicable Tax Date.

 

(f)            In the event an election to have

Shares withheld is made by a Optionee and the Tax Date is deferred under

Section 83 of the Code because no election is filed under Section 83(b) of the

Code, the Optionee shall receive the full number of Shares with respect to

which the Option is exercised but such Optionee shall be unconditionally

obligated to tender back to the Company the proper number of Shares on the Tax

Date.

 

11.           Non-Transferability of Options.  The Option may not be sold, pledged,

assigned, hypothecated, transferred, or disposed of in any manner other than by

will or by the laws of descent or distribution; provided, that the

Administrator may in its discretion grant transferable Options pursuant to option

agreements specifying (i) the manner in which such Options are transferable and

(ii) that any such transfer shall be subject to the Applicable Laws.  The designation of a beneficiary by an

Optionee will not constitute a transfer. 

An Option may be exercised, during the lifetime of the Optionee, only by

the Optionee or a transferee permitted by this Section 11.

 

12.           Adjustments Upon Changes in Capitalization, Merger or

Certain Other Transactions.

 

(a)           Changes in Capitalization.  Subject to any required action by the

stockholders of the Company, the number of Shares of Common Stock covered by

each outstanding Option, and the number of Shares of Common Stock that have

been authorized for issuance under the Plan but as to which no Options have yet

been granted or that have been returned to the Plan upon cancellation or

expiration of an Option, as well as the price per Share of Common Stock covered

by each such outstanding Option, shall be proportionately adjusted for any

increase or decrease in the number of issued Shares of Common Stock resulting

from a stock split, reverse stock split, stock dividend, combination,

recapitalization or reclassification of the Common Stock, or any other increase

or decrease in the number of issued Shares of Common Stock effected without

receipt of consideration by the Company; provided, however, that conversion of

any convertible securities of the Company shall not be deemed to have been

“effected without receipt of consideration.” 

Such adjustment shall be made by the Administrator, whose determination

in that respect shall be final, binding and conclusive.  Except as expressly provided herein, no

issuance by the Company of shares of stock of any class, or securities

convertible into shares of stock of any class, shall affect, and no adjustment

by reason thereof shall be made with respect to, the number or price of Shares

of Common Stock subject to an Option.

 

9

 

(b)           Dissolution or Liquidation.  In the event of the dissolution or liquidation

of the Company, each Option will terminate immediately prior to the

consummation of such action, unless otherwise determined by the Administrator.

 

(c)           Change of Control. In the event of a

Change of Control or Corporate Transaction, each outstanding Option shall be

assumed or an equivalent option or right shall be substituted by the successor

corporation or a parent or subsidiary of such successor corporation (such

entity, the “Successor Corporation”). 

For purposes of this Section 12(c), an Option shall be considered

assumed, without limitation, if, at the time of issuance of the stock or other

consideration upon such Change of Control, each holder of an Option would be

entitled to receive upon exercise of the Option the same number and kind of shares

of stock or the same amount of property, cash or securities as such holder

would have been entitled to receive upon the occurrence of such Change of

Control if the holder had been, immediately prior to such Change of Control,

the holder of the number of Shares of Common Stock covered by the Option at

such time (after giving effect to any adjustments in the number of Shares

covered by the Option as provided for in this Section 12).

 

In the event that, following a Change of Control, the

Successor Corporation does not agree to assume the Option or to substitute an

equivalent option, then the unvested shares under such Option shall

automatically be accelerated such that an additional 50% of the total number of

unvested shares as of the effective date of the Change of Control shall

automatically become vested, and the Company shall provide written notice to

the holder of the Option of the termination of such vesting provisions.  The holder of an Option shall be entitled to

exercise such Option for a period of 15 business days following the date that

such notice is given.

 

(d)           Termination Following A Change of Control.  If the holder of an Option is an Employee

and such holder’s employment terminates as a result of Involuntary Termination

other than for Cause (as such terms are defined below) at any time within 24

months following a Change of Control, then, subject to Subsection (e) below,

the unvested shares under such Option shall automatically be accelerated such

that an additional 50% of the total number of unvested shares as of the

effective date of such Involuntary Termination shall automatically become

vested.

 

(e)           Limitation on Payments.  In the event that the vesting acceleration

provided for in Subsection (c) above (i) constitutes “parachute payments” within

the meaning of Section 280G of the Internal Revenue Code of 1986, as amended

(the “Code”), and (ii) but for this Subsection (e), would be subject to the

excise tax imposed by Section 4999 of the Code (or any corresponding provisions

of state income tax law), then the vesting acceleration pursuant to Subsection

(c) above shall be either

 

(i)            delivered in full, or

 

(ii)           delivered as to such lesser extent

which would result in no portion of such severance benefits being subject to

excise tax under Section 4999 of the Code, whichever of the foregoing amounts,

taking into account the applicable federal, state and local income taxes and

the excise tax imposed by Section 4999, results in the receipt by the holder of

an Option or 

 

10

 

Stock Purchase Right on

an after-tax-basis, of the greater amount of severance benefits,

notwithstanding that all or some portion of such severance benefits may be

taxable under Section 4999 of the Code. 

Any determination required under this Subsection (e) shall be made in

writing by the Company’s independent accountants, whose determination shall be

conclusive and binding on the Company and all holders of Options and Stock

Purchase Rights for all purposes. In the event that subdivision (i) above

applies, then the holder of the Option or Stock Purchase Rights shall be

responsible for any excise taxes imposed with respect to such severance and

other benefits.  In the event that

subdivision (ii) above applies, then each benefit provided hereunder shall be

proportionately reduced to the extent necessary to avoid imposition of such

excise taxes.

 

(f)            Definition of Terms.  The following terms used in Subsections (c)

through (d) shall have the following meanings:

 

(i)            Cause.  “Cause” shall mean (i) gross negligence or

willful misconduct in the performance of an employee’s duties to the Company;

(ii) repeated unexplained or unjustified absence from the Company; (iii) a

material and willful violation of any federal or state law; (iv) refusal or

failure to act in accordance with any specific direction or order of the

Company; (v) commission of any act of fraud with respect to the Company; or

(vi) conviction of or plea of no contest to a felony or a crime involving

moral turpitude causing material harm to the standing and reputation of the

Company, in each case as determined by the Board of Directors of the Company.

 

(ii)           Involuntary

Termination. 

“Involuntary Termination” shall mean (i) without an employee’s

express written consent, the significant reduction of such employee’s duties,

authority or responsibilities, relative to the such employee’s duties,

authority or responsibilities as in effect immediately prior to such reduction,

or the assignment to the employee of such reduced duties, authority or

responsibilities, provided, however, that the assignment of the employee to a

position with the same title as the employee then holds, or substantially

similar title, in a business unit, division or subsidiary of the Company

following a Change of Control or a company into which the Company is merged in

a Change of Control or otherwise acquiring assets or voting shares of the

Company in connection with a Change of Control, or a parent of such a company,

shall not constitute a significant reduction of duties, authority or

responsibilities; (ii) a material reduction by the Company in the base salary

of the employee as in effect immediately prior to such reduction; (iii) a

material reduction by the Company in the kind or level of employee benefits,

including bonuses, to which the employee was entitled immediately prior to such

reduction with the result that the employee’s overall benefits package is

significantly reduced; (iv) the relocation of the employee to a facility or a

location more than fifty miles from the employee’s then present location,

without the employee’s express written consent; or (v) any act or set of facts

or circumstances which would, under California case law or statute, constitute

a constructive termination of the employee.

 

(g)           Certain Distributions.  In the event of any distribution to the

Company’s stockholders of securities of any other entity or other assets (other

than dividends payable in cash or stock of the Company) without receipt of

consideration by the Company, the Administrator may, in its discretion,

appropriately adjust the price per Share of Common Stock covered by each

outstanding Option to reflect the effect of such distribution.

 

11

 

13.           Time of Granting Options.  The date of grant of an Option shall, for

all purposes, be the date on which the Administrator makes the determination

granting such Option.  Notice of the

determination shall be given to each Employee or Consultant to whom an Option

is so granted within a reasonable time after the date of such grant.

 

14.           Amendment and Termination of the Plan.

 

(a)           Authority to Amend or Terminate.  The Board may at any time amend, alter,

suspend or discontinue the Plan, but no amendment, alteration, suspension or

discontinuation (other than an adjustment pursuant to Section 12 above) shall

be made that would materially and adversely affect the rights of any Optionee

under any outstanding grant, without his or her consent.

 

(b)           Effect of Amendment or Termination.  No amendment or termination of the Plan

shall materially and adversely affect Options already granted, unless mutually

agreed otherwise between the Optionee and the Administrator, which agreement

must be in writing and signed by the Optionee and the Company.

 

15.           Conditions

Upon Issuance of Shares. Notwithstanding any other provision of

the Plan or any agreement entered into by the Company pursuant to the Plan, the

Company shall not be obligated, and shall have no liability for failure, to

issue or deliver any Shares under the Plan unless such issuance or delivery

would comply with the Applicable Laws, with such compliance determined by the

Company in consultation with its legal counsel.  As a condition to the exercise of an Option, the Company may

require the person exercising the award to represent and warrant at the time of

any such exercise that the Shares are being purchased only for investment and

without any present intention to sell or distribute such Shares if, in the

opinion of counsel for the Company, such a representation is required by law.

 

16.           Reservation of Shares.  The Company, during the term of this Plan,

will at all times reserve and keep available such number of Shares as shall be

sufficient to satisfy the requirements of the Plan.  The inability of the Company to obtain authority from any

regulatory body having jurisdiction, which authority is deemed by the Company’s

counsel to be necessary to the lawful issuance and sale of any Shares

hereunder, shall relieve the Company of any liability in respect of the failure

to issue or sell such Shares as to which such requisite authority shall not

have been obtained.

 

17.           Option Agreements.  Options shall be evidenced by Option

Agreements in such forms as the Administrator shall from time to time approve.

 

18.           Information to Optionees.  The Company shall provide to each Optionee

upon request, during the period for which such Optionee has one or more Options

outstanding, copies of all annual reports and other information which are

provided to all stockholders of the Company.

 

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