<PAGE> 1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM 10-Q
--------------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 28, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
------------------- --------------------
COMMISSION FILE NUMBER 0-5260
REMEDYTEMP, INC.
- --------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 95-2890471
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
32122 CAMINO CAPISTRANO
SAN JUAN CAPISTRANO, CALIFORNIA 92675
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 661-1211
--------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
As of February 1, 1998 there were 6,066,333 shares of Class A Common Stock
and 2,880,733 shares of Class B Common Stock outstanding.
================================================================================
<PAGE> 2
REMEDYTEMP, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet as of December 28, 1997 and September 28, 1997...... 2
Consolidated Statement of Income for the three fiscal months ended
December 28, 1997 and December 29, 1996...................................... 3
Consolidated Statement of Cash Flows for the three fiscal months ended
December 28, 1997 and December 29, 1996...................................... 4
Notes to Consolidated Financial Statements..................................... 5
Item 2. Management's Discussion and Analysis of Consolidated Financial
Condition and Results of Operations..................................... 7
Item 3. Quantitative and Qualitative Disclosure About Market Risk................. *
PART II--OTHER INFORMATION
Item 1. Legal Proceedings......................................................... *
Item 2. Changes In Securities and Use of Proceeds................................. *
Item 3. Defaults Upon Senior Securities........................................... *
Item 4. Submission of Matters to a Vote of Security Holders....................... *
Item 5. Other Information......................................................... 9
Item 6. Exhibits and Reports on Form 8-K.......................................... 10
SIGNATURES............................................................................. 11
</TABLE>
* No information provided due to inapplicability of item.
1
<PAGE> 3
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 28, SEPTEMBER 28,
1997 1997
------------ -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents ........................................................... $ 141 $ 5,128
Accounts receivable, net of allowance for doubtful accounts of
$2,928 and $2,612 ................................................................. 60,068 55,751
Prepaid expenses and other current assets ........................................... 1,774 1,987
Deferred income taxes ............................................................... 349 349
------- -------
Total current assets .......................................................... 62,332 63,215
Fixed assets, net of accumulated depreciation of $11,219 and $10,583.............. 8,124 7,184
Other assets .......................................................................... 2,854 2,502
Goodwill, net of accumulated amortization of $43 and $20 .............................. 882 905
------- -------
$74,192 $73,806
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................................................... $ 2,750 $ 4,082
Accrued workers' compensation ...................................................... 4,323 2,905
Accrued payroll, benefits and related costs ........................................ 8,065 11,489
Accrued licensees' share of gross profit ........................................... 2,007 2,225
Other accrued expenses ............................................................. 779 1,148
Income taxes payable ............................................................... 3,182 1,783
Current portion of capitalized lease obligation .................................... 428 453
------- -------
Total current liabilities .................................................... 21,534 24,085
Deferred income taxes ................................................................ 1,629 2,379
Capitalized lease obligation ......................................................... 196 281
------- -------
23,359 26,745
------- -------
Commitments and contingent liabilities
Shareholders' equity:
Preferred Stock, $.01 par value; authorized 5,000 shares;
none outstanding
Class A Common Stock, $.01 par value; authorized 50,000
shares; 6,036 and 5,930 issued and outstanding at December 28, 1997
and September 28, 1997, respectively ............................................. 61 60
Class B Non-Voting Common Stock, $.01 par value; authorized
4,530 shares; 2,911 and 2,997 issued and outstanding at
December 28, 1997 and September 28, 1997, respectively............................ 29 30
Additional paid-in capital ........................................................... 33,519 33,262
Retained earnings .................................................................... 17,224 13,709
------- -------
Total shareholders' equity ........................................................... 50,833 47,061
------- -------
$74,192 $73,806
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 4
REMEDYTEMP, INC.
CONSOLIDATED STATEMENT OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 29,
1997 1996
------------ ------------
<S> <C> <C>
Direct sales ........................... $ 69,431 $ 54,463
Licensed sales ......................... 40,939 29,336
Franchise royalties .................... 775 764
-------- --------
Total revenues ................... 111,145 84,563
Cost of direct sales ................... 54,643 42,431
Cost of licensed sales ................. 30,657 21,882
Licensees' share of gross profit ....... 6,936 5,015
Selling and administrative expenses .... 12,634 10,670
Depreciation and amortization .......... 660 610
-------- --------
Income from operations ........... 5,615 3,955
Other income:
Interest income, net ................. 48 123
Other, net ........................... 346 293
-------- --------
Income before provision for income taxes 6,009 4,371
Provision for income taxes ............. 2,494 1,814
-------- --------
Net income ............................. $ 3,515 $ 2,557
======== ========
Net income per share, basic (Note 2) ... $ .39 $ .29
======== ========
Weighted-average number of shares ...... 8,947 8,888
======== ========
Net income per share, diluted (Note 2) . $ .38 $ .28
======== ========
Weighted-average number of shares ...... 9,221 9,020
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 5
REMEDYTEMP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 29,
1997 1996
------------ ------------
<S> <C> <C>
Cash flows (used in) provided by operating activities:
Net income ..................................... $ 3,515 $ 2,557
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization .............. 660 610
Provision for losses on accounts receivable 388 410
Deferred taxes ............................. (750) (750)
Changes in assets and liabilities:
Accounts receivable ...................... (4,705) (676)
Prepaid expenses and other current assets 213 304
Other assets ............................. (352) 65
Accounts payable ......................... (1,332) 611
Accrued workers' compensation ............ 1,418 847
Accrued payroll, benefits and related
costs .................................. (3,424) (2,235)
Accrued licensees' share of gross profit . (218) (310)
Other accrued expenses ................... (369) (1,054)
Income taxes payable ..................... 1,399 1,138
-------- --------
Net cash (used in) provided by operating
activities .................................. (3,557) 1,517
-------- --------
Cash flows used in investing activities:
Purchase of fixed assets ....................... (1,577) (914)
Sale of investments ............................ -- (2,034)
-------- --------
Net cash used in investing activities .......... (1,577) (2,948)
-------- --------
Cash flows (used in) provided by financing
activities:
Borrowings under line of credit agreement ...... 1,000 100
Repayments under line of credit agreement ...... (1,000) (100)
Repayments under capital lease obligation ...... (110) (101)
Proceeds from stock option activity ............ 108
Proceeds from Employee Stock Purchase Plan
activity ..................................... 149
Distributions to pre-offering shareholders ..... -- (357)
-------- --------
Net cash provided by (used in) financing
activities ................................... 147 (458)
-------- --------
Net decrease in cash and cash equivalents ....... (4,987) (1,889)
Cash and cash equivalents at beginning of period 5,128 10,959
-------- --------
Cash and cash equivalents at end of period ...... $ 141 $ 9,070
======== ========
Other cash flow information:
Cash paid during the period for interest .......... $ 28 $ 44
Cash paid during the period for income taxes ...... $ 1,846 $ 1,427
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 6
REMEDYTEMP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of
RemedyTemp, Inc. (the "Company") including its wholly-owned subsidiary, Remedy
Insurance Group, LTD ("RIG"). All significant intercompany transactions and
balances have been eliminated.
The accompanying consolidated balance sheet at December 28, 1997, and
the consolidated statements of income and of cash flows for the three fiscal
months ended December 28, 1997 and December 29, 1996, are unaudited. These
statements have been prepared on the same basis as the Company's audited
consolidated financial statements and in the opinion of management reflect all
adjustments, which are only of a normal recurring nature, necessary for a fair
presentation of the consolidated financial position and results of operations
for such periods. These unaudited consolidated financial statements should be
read in conjunction with the audited consolidated financial statements included
in the Company's Form 10-K as filed with the Securities and Exchange Commission
on December 23, 1997.
Certain reclassifications, which have no effect on retained earnings,
have been made to conform the fiscal 1997 information to the fiscal 1998
presentation.
2. EARNINGS PER SHARE DISCLOSURE
During the first fiscal quarter of 1998, the Company adopted Statement
of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS No. 128")
which became effective for financial statements issued for periods ending after
December 15, 1997. SFAS No. 128 replaces the previous presentation of earnings
per share on the Statement of Income with a dual presentation of Basic Earnings
Per Share ("Basic EPS") and Diluted Earnings Per Share ("Diluted EPS"). Basic
EPS excludes dilution and is computed by dividing net income by the weighted
average number of common shares outstanding during the period. Diluted EPS
reflects the potential dilution that could occur if stock options and other
commitments to issue common stock were exercised, resulting in the issuance of
common stock that then shared in the earnings of the Company. Basic and Diluted
EPS under SFAS No. 128 do not differ materially from Primarily Earnings Per
Share as previously presented. As required by SFAS 128, all prior period EPS
data has been restated to conform with the provisions of this statement. The
following table sets forth the computation of Basic and Diluted EPS under SFAS
128:
<TABLE>
<CAPTION>
THREE FISCAL MONTHS ENDED
DECEMBER 28, 1997
-----------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNTS
<S> <C> <C> <C>
BASIC EPS
Income available to common stockholders............ $3,515 8,947 $ 0.39
=======
EFFECT OF DILUTIVE SECURITIES
Stock options...................................... $ -- 274
------ -----
DILUTED EPS
Income available to common stockholders, plus
assumed conversions.............................. $3,515 9,221 $ 0.38
====== ===== =======
</TABLE>
<TABLE>
<CAPTION>
THREE FISCAL MONTHS ENDED
DECEMBER 29, 1996
-----------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNTS
----------- ------------ ---------
<S> <C> <C> <C>
BASIC EPS
Income available to common stockholders............ $2,557 8,888 $ 0.29
=======
EFFECT OF DILUTIVE SECURITIES
Stock options...................................... $ - 132
------ -----
DILUTED EPS
Income available to common stockholders, plus
assumed conversions.............................. $2,557 9,020 $ 0.28
====== ===== =======
</TABLE>
5
<PAGE> 7
REMEDYTEMP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
3. STOCK OPTIONS
In accordance with the terms of the Company's 1996 Stock Incentive
Plan, on December 8, 1997, the Company granted options to purchase 10 shares of
Class A Common Stock to its newly elected non-employee director at $24.56, the
fair market value of the Class A Common Stock on such grant date. Additionally,
on December 18, 1997, the Company granted options to purchase 109 shares of
Class A Common Stock to certain of its executive officers and employees at
$20.25 per share, the fair market value of the Class A Common Stock on such
grant date. This plan is "non-compensatory" under APB No. 25, and accordingly,
no compensation expense was recorded in connection with this grant.
In accordance with the employment agreement with the Company's Chief
Operating Officer, on December 16, 1997, the Company granted options to purchase
125 shares of Class A Common Stock at $20.72, the fair market value of the Class
A Common Stock on that date. This grant is subject to approval by the Company's
shareholders at the Annual Meeting of Shareholders to be held February 18, 1998.
These options are not granted under the terms of the Company's 1996 Stock
Incentive Plan and do not reduce the number of shares which may be granted under
the terms of the Plan.
4. SUBSEQUENT EVENT
During the fiscal month of January, 1998 the Company acquired two
franchised offices, located in Orlando, Florida. The combined purchase price
will be allocated primarily to goodwill and amortized over a twenty-year life.
The Company is contemplating the continued selective repurchase of licensed and
franchised offices in certain territories with the intent of expanding the
Company's market presence in such regions.
6
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
In addition to historical information, management's discussion and
analysis includes certain forward-looking statements, including those related to
the Company's growth and strategies, regarding events and financial trends that
may affect the Company's future operating results and financial position. The
Company's actual results and financial position could differ materially from
those anticipated in the forward-looking statements as a result of competition,
the availability of sufficient personnel, and other risks and uncertainties as
described in detail under the "Risk Factors" section and elsewhere in the
Company's Form 10-K as filed with the SEC on December 23, 1997.
RESULTS OF OPERATIONS
For the Three Fiscal Months Ended December 28, 1997 Compared to the Three Fiscal
Months Ended December 29, 1996
Total revenues increased 31.4% or $26.6 million to $111.1 million for
the three fiscal months ended December 28, 1997 from $84.6 million for the three
fiscal months ended December 29, 1996, due primarily to volume increases
attributable to increased billings at existing offices, expansion of services
and the opening of 38 new offices since the prior period. Future revenue
increases depend to a significant extent on the Company's ability to continue to
open new offices and manage newly opened offices to maturity.
Total cost of direct and licensed sales, which consists of wages and
other expenses related to the temporary associates, increased 32.6% or $21.0
million to $85.3 million for the three fiscal months ended December 28, 1997
from $64.3 million for the three fiscal months ended December 29, 1996, due to
increased revenues as discussed above. Total cost of direct and licensed sales
as a percentage of revenues was 76.7% for the three fiscal months ended December
28, 1997 compared to 76.1% for the three fiscal months ended December 29, 1996.
This increase was largely due to the expansion of revenue growth from one high
volume, lower gross margin client. The Company's cost of licensed sales as a
percentage of licensed sales remained relatively stable.
Licensees' share of gross profit represents the net payments to
licensees based upon a percentage of gross profit generated by the licensed
operation. The percentage of gross profit earned by the licensee generally is
based on the number of hours billed. Pursuant to terms of the franchise
agreement for licensed offices, the Company's share of gross profit cannot be
less than 7.5% of the licensed operation sales, with the exception of national
accounts on which the Company's fee is reduced to compensate for lower gross
margins. Licensees' share of gross profit increased 38.3% or $1.9 million to
$6.9 million for the three fiscal months ended December 28, 1997 from $5.0
million for the three fiscal months ended December 29, 1996. Licensees' share of
gross profit as a percentage of total revenues increased to 6.2% for the three
fiscal months ended December 28, 1997 from 5.9% for the three fiscal months
ended December 29, 1996. This increase resulted from licensed revenue increasing
more rapidly than direct revenue. Licensees' share of gross profit as a
percentage of licensed revenue decreased to 16.9% for the fiscal months ended
December 28, 1997 from 17.1% for the three fiscal months ended December 29, 1996
due to a reduction in the gross margin percentage earned by some of the larger
licensed offices, resulting in the Company being paid 7.5% of the licensed
office sales, which is more than the usual rate of 30% of licensed gross margin.
Selling, general and administrative expenses (including depreciation
and amortization) increased 17.9% or $2.0 million to $13.3 million for the three
fiscal months ended December 28, 1997 from $11.3 million for the three fiscal
months ended December 29, 1996. Selling, general and administrative expenses as
a percentage of total revenues decreased to 12.0% for the three fiscal months
ended December 28, 1997 from 13.3% for the three fiscal months ended December
29, 1996. The Company has controlled growth in selling, general and
administrative expenses by tightening cost controls through budgetary analysis
and implementing more stringent hiring and compensation guidelines. There can be
no assurance that selling, general and administrative expenses will not increase
in the future, both in absolute terms and as a percentage of total revenues, and
increases in these expenses could adversely affect the Company's profitability.
Operating income increased 42.0% or $1.7 million to $5.6 million for
the three fiscal months ended December 28, 1997 from $4.0 million for the three
fiscal months ended December 29, 1996 due to the factors described above.
Operating income as a percentage of revenues increased to 5.1% for the three
fiscal months ended December 28, 1997 from 4.7% for the three fiscal months
ended December 29, 1996.
Income before income taxes increased 37.5% or $1.6 million to $6.0
million for the three fiscal months ended December 28, 1997 from $4.4 million
for the three fiscal months ended December 29, 1996 due to the factors described
7
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
above. As a percentage of total revenues, income before income taxes increased
to 5.4% in the three fiscal months ended December 28, 1997 from 5.2% in the
three fiscal months ended December 29, 1996.
LIQUIDITY AND CAPITAL RESOURCES
Cash used in operating activities was $3.6 million for the three fiscal
months ended December 28, 1997, and cash provided by operating activities was
$1.5 million for the three fiscal months ended December 29, 1996. Cash provided
by operating activities was significantly impacted by changes in working capital
primarily resulting from a substantial increase in business volumes.
Cash used for purchases of fixed assets was $1.6 million for the three
fiscal months ended December 28, 1997, and $0.9 million for the three fiscal
months ended December 29, 1996. The increase in fiscal 1998 primarily resulted
from expenditures associated with the Company's management information system.
Implementation of this system is expected to begin in mid-fiscal 1998. During
fiscal 1998, the Company anticipates capital expenditures associated with direct
office openings, new corporate headquarters and further investments in the
Company's computer-based technologies to approximate $5.5 million.
Prior to the Company's initial public offering (the "Offering") on July
11, 1996, the Company declared distributions to its pre-Offering shareholders.
In accordance with the declaration, distributions of $357,000 were paid to the
pre-Offering shareholders during the first quarter of 1997.
In connection with the Offering, the Company terminated its S
corporation status and, as a result, was required to change its overall method
of accounting for tax reporting purposes from the cash method to the accrual
method, resulting in a one-time charge to earnings in the fourth quarter of
fiscal 1996 of approximately $7.8 million. The Internal Revenue Code allows the
Company to recognize the effects of this termination in its tax returns over a
four year period. This resulted in additional quarterly installments of $750,000
in the first quarter of 1998 and 1997, respectively.
The Company has a revolving line of credit agreement with Bank of
America providing for aggregate borrowings and letters of credit of $30.0
million. Interest on outstanding borrowings is payable monthly at the bank's
reference rate or, at the Company's discretion, LIBOR plus 1.5%. The line of
credit is unsecured and expires on February 28, 1999. The principal use of the
line of credit has been to finance receivables, to provide a letter of credit
required in connection with the Company's workers' compensation self-insurance
program and to finance prior S corporation distributions made to pre-Offering
shareholders. The Company had no balance outstanding under its line of credit
and $2.7 million in undrawn letters of credit as of December 28, 1997. The bank
agreement governing the line of credit requires the Company to maintain certain
financial ratios and comply with certain restrictive covenants.
Additionally, RIG has a letter of credit agreement with Bank of Bermuda
(New York) Limited in the amount of $80,000. The letter of credit is unsecured,
expires on July 22, 1998, and is required in connection with the Company's
workers' compensation self-insurance program.
The Company believes that its levels of working capital and line of
credit are adequate to support present operations and to fund future growth and
business opportunities.
SEASONALITY
The Company's quarterly operating results are affected by the number of
billing days in the quarter and the seasonality of its clients' businesses. The
first fiscal quarter has historically been strong as a result of manufacturing
and retail emphasis on holiday sales. The second fiscal quarter historically
shows little to no growth, and in some years a decline, in comparable revenues
from the first fiscal quarter. Revenue growth has historically accelerated in
each of the third and fourth fiscal quarters as manufacturers, retailers and
service businesses increase their level of business activity.
8
<PAGE> 10
REMEDYTEMP, INC.
PART II--OTHER INFORMATION
ITEM 5. OTHER INFORMATION
During the fiscal month of January, 1998 the Company acquired two
franchised offices, located in Orlando, Florida. The combined purchase price
will be allocated primarily to goodwill and amortized over a twenty-year life.
The Company is contemplating the continued selective repurchase of licensed and
franchised offices in certain territories with the intent of expanding the
Company's market presence in such regions.
9
<PAGE> 11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Set forth below is a list of the exhibits included as part of this
Quarterly Report:
Number
Exhibit Description
- ------- ------------
3.1 Amended and Restated Articles of Incorporation of the Company (a)
3.2 Amended and Restated Bylaws of the Company (a)
4.1 Specimen Stock Certificate (a)
4.2 Shareholder Rights Agreement (a)
10.1 Robert E. McDonough, Sr. Amended and Restated Employment
Agreement (a)
10.2 Paul W. Mikos Employment Agreement (a)
10.3 R. Emmett McDonough Employment Agreement (a)
10.4 Allocation Agreement with R. Emmett McDonough and Related Trusts
(a)
10.5 Registration Rights Agreement with R. Emmett McDonough and
Related Trusts (a)
10.6 Letter regarding terms of employment and potential severance of
Alan M. Purdy (a)
10.7 Deferred Compensation Agreement for Alan M. Purdy (a)
10.8 Letter regarding potential severance of Jeffrey A. Elias (a)
10.9 Form of Indemnification Agreement (a)
10.10 Lease Agreement between RemedyTemp, Inc. and Robert E. McDonough,
Sr. (b)
10.11 RemedyTemp, Inc. 1996 Stock Incentive Plan (a)
10.12 RemedyTemp, Inc. 1996 Employee Stock Purchase Plan (a)
10.13 Form of Franchising Agreement for Licensed Offices (a)
10.14 Form of Franchising Agreement for Franchised Offices (a)
10.15 Form of Licensing Agreement for IntelliSearch(R) (a)
10.16 Credit Agreement among Bank of America National Trust and Savings
Association, Union Bank and RemedyTemp, Inc. as amended (f)
10.17 Paul W. Mikos Promissory Note (a)
10.18 Additional Deferred compensation Agreement for Alan M. Purdy (c)
10.19 Lease Agreement between RemedyTemp, Inc. and Parker-Summit, LLC
(d)
10.20 Lease Agreement between RemedyTemp, Inc. and Mitchell Land &
Improvement Company (e)
10.21 Credit Agreement among Bank of America National Trust and Savings
Association and RemedyTemp, Inc. (g)
10.22 RemedyTemp, Inc. Deferred Compensation Plan (g)
10.23 Greg Palmer Employment Agreement
27.1 Financial Data Schedule
- ----------------
(a) Incorporated by reference to the exhibit of same number to the Registrant's
Registration Statement on Form S-1 (Reg. No. 333-4276), as amended.
(b) Incorporated by reference to the exhibit of same number to the Registrant's
Registration Statement on Form S-1 (Reg. No. 333-4276), as amended. This
agreement was terminated July 15, 1997.
(c) Incorporated by reference to the exhibit of same number to the Registrant's
Quarterly Report on Form 10-Q for the quarterly period ended December 29,
1996.
(d) Incorporated by reference to the exhibit of same number to the Registrant's
Quarterly Report on Form 10-Q for the quarterly period ended March 30,
1997.
(e) Incorporated by reference to the exhibit of same number to the Registrant's
Quarterly Report on Form 10-Q for the quarterly period ended June 29, 1997.
(f) Incorporated by reference to the exhibit of same number to the Registrant's
Registration Statement on Form S-1 (Reg. No. 333-4276), as amended. This
agreement was terminated August 24, 1997.
(g) Incorporated by reference to the exhibit of same number to the Registrant's
Annual Report on Form 10-K for the yearly period ended September 28, 1997.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed in the fiscal quarter ended December 28,
1997.
10
<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
REMEDYTEMP, INC.
February 10, 1998 /s/ PAUL W. MIKOS
-----------------------------
Paul W. Mikos
President and Chief
Executive Officer
February 10, 1998 /s/ ALAN M. PURDY
-----------------------------
Alan M. Purdy
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
11
<PAGE> 13
EXHIBIT INDEX
NUMBER
EXHIBIT DESCRIPTION
- ------- -----------
3.1 Amended and Restated Articles of Incorporation of the Company (a)
3.2 Amended and Restated Bylaws of the Company (a)
4.1 Specimen Stock Certificate (a)
4.2 Shareholder Rights Agreement (a)
10.1 Robert E. McDonough, Sr. Amended and Restated Employment Agreement (a)
10.2 Paul W. Mikos Employment Agreement (a)
10.3 R. Emmett McDonough Employment Agreement (a)
10.4 Allocation Agreement with R. Emmett McDonough and Related Trusts (a)
10.5 Registration Rights Agreement with R. Emmett McDonough and Related
Trusts (a)
10.6 Letter regarding terms of employment and potential severance of Alan
M. Purdy (a)
10.7 Deferred Compensation Agreement for Alan M. Purdy (a)
10.8 Letter regarding potential severance of Jeffrey A. Elias (a)
10.9 Form of Indemnification Agreement (a)
10.10 Lease Agreement between RemedyTemp, Inc. and Robert E. McDonough, Sr.
(b)
10.11 RemedyTemp, Inc. 1996 Stock Incentive Plan (a)
10.12 RemedyTemp, Inc. 1996 Employee Stock Purchase Plan (a)
10.13 Form of Franchising Agreement for Licensed Offices (a)
10.14 Form of Franchising Agreement for Franchised Offices (a)
10.15 Form of Licensing Agreement for IntelliSearch(R) (a)
10.16 Credit Agreement among Bank of America National Trust and Savings
Association, Union Bank and RemedyTemp, Inc. as amended (f)
10.17 Paul W. Mikos Promissory Note (a)
10.18 Additional Deferred compensation Agreement for Alan M. Purdy (c)
10.19 Lease Agreement between RemedyTemp, Inc. and Parker-Summit, LLC (d)
10.20 Lease Agreement between RemedyTemp, Inc. and Mitchell Land &
Improvement Company (e)
10.21 Credit Agreement among Bank of America National Trust and Savings
Association and RemedyTemp, Inc. (g)
10.22 RemedyTemp, Inc. Deferred Compensation Plan (g)
10.23 Greg Palmer Employment Agreement
27.1 Financial Data Schedule
<PAGE> 14
- ----------------------------
(a) Incorporated by reference to the exhibit of same number to the
Registrant's Registration Statement on Form S-1 (Reg. No. 333-4276),
as amended.
(b) Incorporated by reference to the exhibit of same number to the
Registrant's Registration Statement on Form S-1 (Reg. No. 333-4276),
as amended. This agreement was terminated July 15, 1997.
(c) Incorporated by reference to the exhibit of same number to the
Registrant's Quarterly Report on Form 10-Q for the quarterly period
ended December 29, 1996.
(d) Incorporated by reference to the exhibit of same number to the
Registrant's Quarterly Report on Form 10-Q for the quarterly period
ended March 30, 1997.
(e) Incorporated by reference to the exhibit of same number to the
Registrant's Quarterly Report on Form 10-Q for the quarterly period
ended June 29, 1997.
(f) Incorporated by reference to the exhibit of same number to the
Registrant's Registration Statement on Form S-1 (Reg. No. 333-4276),
as amended. This agreement was terminated August 24, 1997.
(g) Incorporated by reference to the exhibit of same number to the
Registrant's Annual Report on Form 10-K for the yearly period ended
September 28, 1997.
<PAGE> 1
EXHIBIT 10.23
REMEDYTEMP, INC.
32122 CAMINO CAPISTRANO
SAN JUAN CAPISTRANO, CALIFORNIA 92675
December 16, 1997
Mr. Greg Palmer
26481 Broken Bit Lane
Laguna Hills, CA 92653
Dear Greg:
I am delighted to confirm the agreement between you and RemedyTemp,
Inc. (the "Company") as to the terms of your employment with the Company. Those
terms are as follows:
1. POSITION. You will be employed as the Chief Operating Officer of the
Company, subject to the direction, control of, and reporting to, the Chief
Executive Officer of the Company. You agree to devote your full business time
and energies to the business and affairs of the Company, to use your best
efforts, skill and abilities to promote the Company's interests and to perform
your duties in accordance with policies, standards and practices established
from time to time by the Chief Executive Officer, the Board of Directors or a
committee thereof. Your duties may also include serving as an officer and/or
director of any subsidiaries or other affiliates of the Company as reasonably
requested. While employed by the Company, you agree that you will not render
services to others or engage in any other activities that would interfere with
or prevent your fulfilling your obligations to the Company. You agree that you
will not serve on any boards of directors without the prior written approval of
the Company's Board of Directors.
2. BASE SALARY. Your base salary will be at the annual rate of $325,000
per annum. Your effective start date will be on or about January 1, 1998 but no
later than January 12, 1998 (the "Start Date"). Your salary will be payable on
the same date as salaries to other executives of the Company are paid. The
amount of your base salary may be increased annually at the discretion of the
Compensation Committee of the Board of Directors.
3. INCENTIVE COMPENSATION. In addition to your base salary, you will be
paid a cash bonus within one hundred (100) days after the end of each full
fiscal year of the Company in an amount to be determined by the Compensation
Committee of the Board of Directors; provided, however, that there will be a
maximum bonus level of 100% of your base salary with no minimum bonus level. The
exact amount of your bonus will be based upon two factors: (1) the same
objective Company financial criteria applied to determine the bonus for the
Chief Executive Officer; and (2) the MBO objectives established by the Chief
Executive Officer.
4. EQUITY PARTICIPATION.
4.1. INITIAL GRANT. Before or on the Start Date, the Board of
Directors or Compensation Committee will grant to you an initial option grant
(the "Initial Option") to
<PAGE> 2
purchase 125,000 shares of the Company's Class A Common Stock ("Common Stock")
at an exercise price equal to the fair market value of the shares on the date of
grant. The grant of the Initial Option is subject to shareholder approval. The
Initial Option will vest and become exercisable at a rate of twenty percent
(20%) per year over a five (5) year period with the first twenty percent (20%)
becoming first exercisable twelve (12) months from the grant date. The Initial
Option, once vested, will be exercisable until the tenth anniversary from the
date of grant. Unless specifically provided for herein, other terms and
conditions will be the same as those for options under the Company's stock
option plan.
4.2. ADDITIONAL GRANTS. At the first meeting of the Compensation
Committee of the Board of Directors after the end of each fiscal year, you will
receive a regular annual grant of an option to purchase 50,000 shares of Common
Stock, which shall be vested in accordance with the vesting schedule (but no
longer than five (5) years) adopted by the Compensation Committee for all
executive officers who receive options at that time, or pursuant to the
direction of the Compensation Committee if no other options are awarded. The
options, once vested, will be exercisable until the tenth anniversary from the
date of grant. Other terms and conditions will be governed by the Company's
stock option plan.
4.3. OPTIONS UPON TERMINATION. If the Company terminates your
employment without cause, your severance benefits (including vesting of options)
will be governed by Section 8 and Section 9 of this letter agreement. If the
Company terminates your employment "for cause," as defined in Section 8, then
all of your unexercised options, whether or not vested, shall expire and become
unexercisable as of the date of such "for cause" termination.
In order to permit a so called "cashless exercise" of your option,
the Company will cooperate with you to permit you to exercise the option (to the
extent it is then exercisable), immediately sell the shares and apply the
proceeds of sale to the exercise price but only to the extent the Company can do
so without violating any applicable provision of law and only if the shares
purchased are at the time registered under the Securities Act of 1933 and can be
sold by you under Rule 144 of the Securities and Exchange Commission or any
successor provision.
5. INDEMNIFICATION. The Company will enter into its customary form of
indemnification agreement applicable to directors and executive officers of the
Company and will also indemnify you for losses relating to claims against you by
your former employer in connection with your non-compete agreement with your
former employer.
6. PERQUISITES. The Company will provide you with a monthly car
allowance of $1,000 and will reimburse you for your business-related fuel
expenses while you are employed with the Company. In addition, the Company will
provide you with a membership at the Marbella Country Club and will pay the
standard dues and fees with respect to that membership while you are employed
with the Company. You will also be eligible, as of the April 1, 1998, to
participate in the health insurance, disability insurance, life insurance and
retirement programs made available from time to time by the Company to other
executive officers. The Company agrees to reimburse you for any health insurance
expenses incurred by you under COBRA until March 30, 1998. You will be entitled
to four (4) weeks paid vacation each calendar year effective as of the Start
Date. The Company will reimburse you for all reasonable out-of-pocket business
expenses incurred in
2
<PAGE> 3
performing the services contemplated by this letter agreement in accordance with
then prevailing Company policies, provided that reasonable documentation of such
expenses is provided by you.
7. DEATH AND DISABILITY. If you become disabled and are unable to
perform your duties, the Company will continue to pay your salary and provide
the perquisites referred to in Section 6 for the period of such disability up to
a maximum of 90 days, and the Company will have the right to terminate this
letter agreement effective upon the expiration of said 90-day period. Thereafter
you will be entitled to receive benefits under any then-existing disability
insurance program of the Company. "Disability" means any physical or mental
condition which renders you unable to perform the essential functions of your
position, even with reasonable accommodation. In the event of your death, this
letter agreement shall automatically terminate.
8. SEVERANCE BENEFITS. In the event of termination of your employment
by the Company without cause at any time, the Company will pay you, as a
lump-sum severance benefit, the amount of your annual base salary then in effect
(less appropriate withholding amounts) plus maximum annual bonus equal to 100%
of your then annual salary, and the Company will release any and all shares of
Common Stock held for your benefit in any deferred compensation account with the
Company without penalty. Such severance payments will be made on the normal
salary and bonus payment days of the Company.
For purposes of this Section 8 and Section 4.3, termination for
cause shall mean termination for one of the following reasons: personal
dishonesty; willful misconduct; breach of fiduciary duty involving self-dealing
or personal profit; intentional material failure to perform duties or abide by
Company policies, in each case to the extent such duties or policies have been
communicated to you in writing or their existence is otherwise known to you and
you have not cured such failure within a reasonable time after written notice of
such failure is given to you; conviction, entry of a plea of guilty or nolo
contendere in connection with any alleged violation, or any actual violation, of
any law, rule, regulation (other than traffic violations or similar offenses) or
any cease-and-desist or other court order; involvement in any legal proceeding
which, in the opinion of legal counsel to the Company, would be required to be
disclosed pursuant to rules and regulations of the Securities and Exchange
Commission, other than proceedings under federal bankruptcy laws or state
insolvency laws involving entities in which you have less than a fifty percent
(50%) interest; any intentional material breach of this letter agreement;
non-prescription use of any controlled substance or the use of alcohol or any
other non-controlled substance which the Board of Directors reasonably
determines renders you unfit to serve in your capacity as an officer of the
Company; or any intentional act or omission which the Board of Directors
reasonably determines has a material adverse effect on the public image,
reputation or integrity of the Company. Termination for cause shall not include
termination on account of job performance failing to meet criteria or
expectations of the Board.
If you voluntarily resign, or your employment is terminated by the
Company for cause, or your employment terminates as a result of your death or
disability, you will not be entitled to any severance benefits pursuant to the
first paragraph of this Section 8 except as provided in Section 7 with respect
to disability pay and disability insurance and except in the case of death for
any life insurance benefits. In the event that a voluntary resignation by you is
caused by a substantial reduction in your duties and responsibilities below
those appropriate for your
3
<PAGE> 4
position as provided in Section 1, an intentional material breach of this letter
agreement or material misrepresentation by the Company, or any other material
change in the circumstances of your employment made by the Company for the
purpose and with the intention and effect of causing you to resign, you will be
treated as having been terminated by the Company without cause.
Notwithstanding the above, in lieu of the severance package
described in this Section 8, you will receive a severance package equal in value
to three (3) times your average annual total compensation (subject to the
maximum parachute limitations of the Internal Revenue Code) for the years that
you have been employed by the Company if all of the following three (3)
conditions occur in connection with a Change in Control of the Company:
(a) your employment with the Company is terminated;
(b) the Board of Directors of the Company, in its sole
discretion, determines that the market value of the Company has been adversely
impacted primarily as the result of forces beyond your control; and
(c) the spread between the closing price of the Company's Class A
Common Stock and the exercise price of the Initial Option is negative or zero or
less than $8.00 as of the date of termination of your employment.
9. SPECIAL OPTION VESTING EVENTS.
9.1. CHANGE IN CONTROL. A "Change in Control" of the Company shall
be deemed to have occurred if: (i) there shall be consummated (x) any
consolidation or merger of the Company in which the Company is not the
continuing or surviving corporation or pursuant to which shares of the Company's
Common Stock are converted into cash, securities or other property, other than a
merger of the Company in which the holders of the Company's Common Stock
immediately prior to the merger have the same proportionate ownership of common
stock of the surviving corporation immediately after the merger, or (y) any
sale, lease, exchange or other transfer (in one transaction or a series of
related transactions) of all, or substantially all, of the assets of the
Company, or (ii) the shareholders of the Company shall approve any plan or
proposal for the liquidation or dissolution of the Company, or (iii) any person
(as such term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act")), shall become the beneficial owner
(within the meaning of Rule 13d-3 under the Exchange Act) of 51% or more of the
Company's outstanding Common Stock, or (iv) during any period of two consecutive
years, individuals who at the beginning of such period constitute the entire
Board of Directors shall cease for any reason to constitute a majority thereof
unless the election, or the nomination for election by the Company's
shareholders, of each new director was approved by a vote of at least a majority
of the directors then still in office who were directors at the beginning of the
period.
In the event that there is a Change in Control of the Company and
your employment with the Company is terminated by the Company within one (1)
year of such Change in Control event for any reason, except for cause, all
options to purchase shares of the Common
4
<PAGE> 5
Stock that had been granted to you as of the date of such termination shall
become fully vested and exercisable for the balance of their term; provided that
the Company has the right to cash out these options in a Change in Control
transaction.
9.2. VOLUNTARY TERMINATION OF EMPLOYMENT. If you voluntarily
terminate your employment with the Company, all options granted that are not
vested as of such voluntary termination date will expire. In such case, you will
have the right to exercise your options with respect to the number of shares
that are exercisable on the date of termination (determined without any
acceleration of the exercise dates) at any time within three (3) months after
the date of resignation.
9.3. TERMINATION OF EMPLOYMENT WITHOUT CAUSE. If your employment is
terminated by the Company without cause, your granted options will vest
automatically and will remain exercisable for the balance of their term. Options
that have not been granted as of the date of termination are void and without
legal effect.
10. TERM OF EMPLOYMENT. The term of this letter agreement shall be for
five (5) years, commencing on the Start Date, unless terminated earlier as
provided in this letter agreement.
11. NONDISCLOSURE. You agree that, for so long as you remain in the
employ of the Company and thereafter, you will not disclose to any person or
entity or otherwise use or exploit any proprietary or confidential information
of the Company, including without limitation trade secrets, processes,
proposals, reports, methods, computer software or programming or budgets or
other financial information regarding the Company, its business, properties,
customers or affairs obtained by you while you are employed by the Company,
except to the extent required by you to perform your duties pursuant to this
letter agreement. Information will not be deemed to be confidential for purposes
of this letter agreement if it is or becomes generally available to the public
other than as a result of a disclosure by you. You will have the right to use
any such confidential information to the extent necessary to assert any right or
defend against any claim arising under this letter agreement or pertaining to
confidential information or its use and to the extent necessary to comply within
the applicable provision of law. All files, records, documents, computer
recorded information, specifications and other similar items relating to the
business of the Company, whether prepared by you or otherwise coming into your
possession, shall remain the exclusive property of the Company and shall not be
removed from the premises of the Company except when (and only for the period)
necessary to carry out your duties. If removed, all such materials shall be
immediately returned to the Company upon any termination of your employment, and
no copies thereof shall be kept by you, except that you shall be entitled to
retain documents reasonably related to your rights as an optionholder,
stockholder and former employee of the Company. You acknowledge and agree that
the remedy for any breach of the provisions of this Section 10 may be inadequate
in that the Company may, in addition to all other remedies that may be available
to it at law, seek injunctive relief prohibiting any such breach.
5
<PAGE> 6
12. NONINTERFERENCE WITH BUSINESS. During the period of your employment
and for any one (1) year period thereafter (regardless of the reason for
termination of employment) you agree that you will not participate with or
advise in any capacity any person or entity in any negotiation between such
person or entity and the Company or any affiliate of the Company. In addition,
during such period you agree that you will not, directly or indirectly, solicit
or induce (or assist in or encourage the solicitation of) any employee of the
Company or its affiliated entities to leave the employ of the Company for
purposes of accepting employment with any other person or entity. For purposes
of this letter agreement "affiliate" means the corporation or other entity
controlled by the Company, directly or indirectly, through stock ownership or
any other means.
13. DEFERRED COMPENSATION.
13.1. PARTICIPATION IN COMPANY PLANS. You will be eligible to
participate in any and all of the Company's deferred compensation plans that are
made available to executive officers of the Company.
13.2. SPECIAL DEFERRED COMPENSATION. In addition to participation in
any Company sponsored deferred compensation plan under Section 13.1 of this
letter agreement, you may participate in a special deferred compensation plan
designed for you providing for a one-time deferral of $100,000, which amount
shall be invested in the Common Stock on the Start Date and deferred during the
term of this letter agreement.
14. ASSIGNMENT. This letter agreement is personal to you and is not
assignable by you under any circumstances. Likewise, the Company will not have
the right to assign this letter agreement to any other person or entity except
for any corporation or entity into which the Company may be merged or
consolidated or any person or entity which may acquire all or a substantial
portion of the assets of the Company.
15. ENTIRE AGREEMENT. This letter agreement sets forth the entire
understanding of you and the Company with respect to the subject matter hereof
and supersedes all prior agreements, memoranda, discussions and understandings
of any kind. This letter agreement cannot be amended except in a writing signed
by you and the Company, and no course of dealing contrary to its terms shall
constitute an amendment. No right or obligation hereunder can be waived except
in a writing signed by the party making the waiver.
16. PARTIAL INVALIDITY. If any provision of this letter agreement is
invalid or unenforceable in any jurisdiction that provision shall, as to that
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without in any way affecting the remaining provisions of this
letter agreement.
17. GOVERNING LAW. This letter agreement shall be construed and
enforced in accordance with the substantive law of the State of California
without regard to provisions relating to choice of law or conflict of laws.
6
<PAGE> 7
18. REFERENCE CHECK. This letter agreement shall not become legally
effective or binding until the completion of a reference check by the Company
that is satisfactory to the Chief Executive Officer and the Board of Directors
in their discretion; provided, however, that the reference check will be
completed no later fifteen (15) days after this agreement is signed by both
parties.
If this letter correctly sets forth the terms of our agreement with
respect to your employment, please execute this letter and the enclosed copy in
the place indicated and return the copy to me, and thereupon (subject to Section
18) this letter shall become a binding and enforceable agreement between you and
the Company.
Sincerely,
/s/ PAUL W. MIKOS
--------------------------------------
Paul W. Mikos
Chief Executive Officer and President
AGREED:
/s/ GREG PALMER
- -------------------------------------
Greg Palmer
Dated: December 16, 1997
7
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