<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended October 3, 1999
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
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)
101 Enterprise
Aliso Viejo, California 92656
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number including area code: (949) 425-7600
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
- ----------------------------------- ----------------------
Class A Common Stock $.01 par value Nasdaq National Market
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-K or by
amendment to this Form 10-K. [X]
The aggregate market value of the Class A Common Stock held by
non-affiliates of the registrant based upon the closing sales price of its Class
A Common Stock on December 15, 1999 on the Nasdaq National Market was
$88,114,680. The aggregate market value of the Class B Common Stock (which
converts to Class A upon certain transactions) held by non-affiliates of the
registrant based upon the closing sales price of its Class A Common Stock on
December 15, 1999 on the Nasdaq National Market was $5,640,018.
The number of shares of Class A Common Stock outstanding as of December
15, 1999 was 7,058,196 and the number of shares of Class B Common Stock
outstanding as of December 15, 1999 was 1,803,539.
DOCUMENTS INCORPORATED BY REFERENCE
Part I and Part II of this report incorporate information by reference
from the Company's Annual Report to Shareholders for the fiscal year ended
October 3, 1999. The Company's Annual Report to Shareholders will be mailed to
the Securities and Exchange Commission and the Company's shareholders in
connection with the Company's Annual Meeting of Shareholders scheduled to be
held on February 29, 2000 (the "Annual Meeting"). The registrant will file a
definitive Proxy Statement pursuant to Regulation 14A within 120 days of the end
of the fiscal year end October 3, 1999. Portions of the Company's Proxy
Statement, to be mailed to the shareholders in connection with the Annual
Meeting, are incorporated by reference in Part III of this report. Except for
the portions expressly incorporated by reference, the Company's Proxy Statement
and Annual Report shall not be deemed to be part of this report.
<PAGE> 2
REMEDYTEMP, INC.
1999 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
Item 1 Business 3
Item 2 Properties 9
Item 3 Legal Proceedings 9
Item 4 Submission of Matters to a Vote of Security Holders 10
Executive Officers of the Registrant 10
PART II
Item 5 Market for Registrant's Common Equity and Related Shareholder
Matters 11
Item 6 Selected Financial Data 11
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
Item 7A Quantitative and Qualitative Disclosures About Market Risk *
Item 8 Financial Statements and Supplementary Data 11
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 11
PART III
Item 10 Directors and Executive Officers of the Registrant 12
Item 11 Executive Compensation 12
Item 12 Security Ownership of Certain Beneficial Owners and Management 12
Item 13 Certain Relationships and Related Transactions 12
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K 13
Signatures 15
</TABLE>
- --------------
* No information provided due to inapplicability of item.
2
<PAGE> 3
PART I
ITEM 1. BUSINESS
In addition to historical information, management's discussion and
analysis includes certain forward-looking statements, including, but not limited
to, those related to the growth and strategies, future operating results and
financial position as well as economic and market events and trends of Remedy
Temp Inc., including its wholly-owned subsidiaries (collectively the "Company").
All forward-looking statements made by the Company, including such statements
herein, include material risks and uncertainties and are subject to change based
on factors beyond the control of the Company. Accordingly, the Company's actual
results and financial position could differ materially from those expressed or
implied in any forward-looking statement as a result of various factors,
including without limitation, Year 2000 issues, changes in general or local
economic conditions, the availability of sufficient personnel, increased costs
of personnel and the potential negative impact on margins, the Company's ability
to attract and retain clients and franchisees/licensees and other factors
described in the Company's filings with the Securities and Exchange Commission
regarding risks affecting the Company's financial conditions and results of
operations. The Company does not undertake to publicly update or revise its
forward-looking statements even if experience or future changes make it clear
that any projected results expressed or implied therein will not be realized.
The following should be read in conjunction with the Consolidated Financial
Statements of the Company and Notes thereto.
GENERAL
RemedyTemp, Inc., founded in 1965 and incorporated in California in
1974, is a rapidly growing national provider of clerical and light industrial
temporary staffing services to industrial, service and e-commerce companies,
professional organizations and governmental agencies. The Company provides its
services in 40 states and Puerto Rico through a network of 251 offices, of which
101 are Company-owned and 150 are independently-managed. During the twelve
months ended October 3, 1999, the Company placed approximately 162,000 temporary
workers, known as "associates," and provided over 45.3 million hours of staffing
services to approximately 17,000 clients. From the beginning of fiscal 1995
through the end of fiscal 1999, the Company added 132 offices and increased
revenues and income before taxes at compound annual growth rates of 27.4% and
45.4% respectively, to $513.5 million and $24.7 million, respectively.
The consolidated financial statements include the accounts of the
Company, including its wholly-owned subsidiaries.
The Company has positioned itself to take advantage of trends in the
temporary staffing industry, such as increased integration of temporary workers
as a significant, long-term workforce component in both manufacturing and
service-oriented companies and increased outsourcing by clients of certain
staffing functions. Historically, the Company focused on the clerical and light
industrial sectors of the nation's temporary workforce. Beginning in November
1998, the Company began also to service the information technology sector. The
clerical, light industrial and information technology sectors comprise
approximately 79.7% of the nation's temporary staffing industry revenues,
according to the Staffing Industry Analysts, Inc. ("SIA"), an independent
staffing industry publication. Additionally, the Company intends to continue to
increase its efforts in the call center and logistics areas of its clerical and
light industrial sectors, respectively. During fiscal 1999, the Company built
upon its strengths in these areas to meet the staffing needs of its e-commerce
clients. Through the use of innovative technologies and value-added services,
the Company strives to partner with its clients to deliver total solutions to
their temporary staffing needs. The Company's expertise in providing associates
who possess the skills and attitudinal characteristics necessary to "fit" into
clients' organizations and perform at a superior level distinguishes the Company
as a premium provider of temporary staffing services and technologies.
Over the past five years, the Company has invested significant human
and financial resources in the development of proprietary technologies designed
to enable the Company to provide its clients with premium temporary workers and
unique value-added services. The Company's primary proprietary technologies are
maintained and offered in the following four interactive systems: Market
Analysis Profiling Sourcing ("MAPS(SM)"), a demographic system that assists
branch personnel in finding associates to meet certain criteria; Human
Performance Technology ("HPT(R)"), an innovative series of multimedia
evaluations used to profile the attitudinal characteristics of the Company's
associates; IntelliSearch(R), a computer database used to classify, search and
match the Company's associates to job openings using parameters based upon
client needs, and Employee Data Gathering and Evaluation ("EDGE(R)"), a
proprietary computer system installed at client locations to coordinate
scheduling and track job performance of the client's entire temporary workforce.
EDGE(R) also has the capability to customize invoices and utilization reports.
The Company is currently in the process of implementing its new information
technology system, i/search 2000(TM), which is intended to replace
Intellisearch(R). The Company believes that i/search 2000(TM) will enable its
Company-owned and independently-managed offices to streamline operational
efficiencies and enhance client service levels. Implementation of i/search
2000(TM) is scheduled to be completed by June 2000. Management believes that the
Company's proprietary technologies give the Company advantages over competing
temporary staffing companies that do not provide similar value-added services.
3
<PAGE> 4
THE STAFFING INDUSTRY
Revenues for the United States temporary staffing services industry
were projected by SIA to have exceeded $62.0 billion in 1998. This represents an
increase of approximately 13.8% over 1997 and, since 1994, industry revenues
have increased at a compound annual rate of approximately 14.8%. Economic and
social factors have increased the portion of the non-farm U.S. workforce working
on a temporary basis from 1.7% in 1994 to 2.2% in 1998, according to the
National Association of Temporary and Staffing Services ("NATSS"), an
independent trade organization for the staffing industry. NATSS estimates that
there are now approximately 2.7 million workers employed nationwide by temporary
staffing service providers.
The staffing services industry was once used predominately as a
short-term solution for greater workforce needs during peak production periods
and to replace workers who were abruptly terminated or who were absent due to
illness or vacation. Since the late 1980s, the use of temporary services has
evolved into a permanent and significant component of the staffing plans of many
employers. Corporate restructuring, government regulations, advances in
technology, and the desire by many business entities to shift employee costs
from a fixed to a variable expense have resulted in the use of a wide range of
staffing alternatives by businesses. In addition, the high cost of recruitment
and the risk of employment litigation have led to increasing use of temporary
staffing as a means of evaluating the qualifications of personnel before hiring
them on a full-time basis, as well as accomplishing reductions in workforce
without the risk of wrongful termination liability.
The clerical, light industrial and information technology sectors
represent the largest three sectors of the temporary staffing industry. A
staffing industry report by SIA, based on 1998 revenues, reported that the
office and clerical sector accounted for $17.1 billion or approximately 27.6% of
the temporary staffing industry revenues, while the light industrial sector
accounted for $14.1 billion or approximately 22.7% of industry revenues, and the
information technology sector accounted for $18.2 billion or approximately 29.4%
of industry revenues. According to SIA, from 1994 through 1998, industry
revenues for the office and clerical sector increased by approximately $5.4
billion, representing a compound annual growth rate of approximately 10.0% and
industry revenues for the light industrial sector increased by approximately
$3.9 billion, representing a compound annual growth rate of approximately 8.4%.
Industry revenues for the information technology sector increased by
approximately $11.1 billion, representing a compound annual growth rate of
approximately 26.5%. In the aggregate, these three sectors constituted
approximately 77.6% of the $26.3 billion increase in industry revenues during
the period.
OPERATIONS
The Company provides temporary personnel in the following three
industry sectors: clerical, light industrial and information technology.
Clerical Services. As use of temporary staffing has become more
prevalent, the range of clerical positions provided by the Company has expanded
beyond traditional secretarial staff to include a broad range of general
business environment personnel. Clerical services include executive assistants,
word processors, customer service representatives, data entry operators,
accountants, bookkeepers, hosts, telemarketers, computer operators, and other
general office staff.
Within the clerical services sector, the Company's Caller Access
division addresses the needs of clients for call center agents. Caller Access
services include customer service, help desk/product support, order takers,
market surveyors, collection agents and telesales.
Light Industrial Services. Light industrial services personnel are
furnished for a variety of assignments including assembly work (such as
mechanical assemblers, general assemblers, solderers and electronic assemblers),
factory work (including merchandise packagers, machine operators, and pricing
and tagging personnel), warehouse work (such as general laborers, stock clerks,
material handlers, order pullers, forklift operators, palletizers and
shipping/receiving clerks), technical work (such as lab technicians, quality
control technicians, bench technicians, test operators, electronic technicians,
inspectors, drafters, checkers, designers, expediters and buyers) and general
services (such as maintenance and repair personnel, janitors and food service
workers).
In August 1998, the Company created the Remedy Logistics Group to
provide solutions for clients' logistics staffing needs. Logistics is the
management of inventory, and includes warehousing, transportation, distribution
and supply of goods. Remedy Logistics Group supplies temporary associates in the
following categories: inventory takers, forklift operators, shipping clerks,
material processors, warehouse workers, boxers, mail clerks, expeditors and
inventory control clerks.
The Company has utilized its experience gained from the Caller Access
and Logistices divisions to offer an integrated e-commerce solution to
businesses and intends to continue to develop such business niches. The Company
supplies customer service representatives, help desk specialists, email response
agents, distribution and fulfillment workers.
4
<PAGE> 5
Information Technology Services. In November 1998, the Company's newest
division, RemX Technology Group(SM), began providing information technology
temporary staffing and consulting services. RemX Technology Group(SM) supplies
contract staffing and consulting professionals in key technology categories
including hardware and software engineering, database design development,
Internet/Intranet site development, networking, software quality assurance, and
technical support.
Office Organization.
The Company provides its services through a network of 251 office
locations, 101 of which are owned and operated by the Company and 150 of which
are operated as franchised or licensed offices. The table below sets forth the
geographic distribution of the Company-owned and independently-managed offices
as of October 3, 1999.
COMPANY-OWNED LICENSED AND TOTAL
OFFICES FRANCHISED OFFICES OFFICES
------------- ------------------ -------
California................. 82 2 84
Western Region(1).......... 6 21 27
Midwestern Region(2)....... 6 35 41
Southeastern Region(3)..... 6 71 77
Northeastern Region(4)..... 1 20 21
Puerto Rico................ 0 1 1
--- --- ---
Total...................... 101 150 251
=== === ===
- ------------
(1) Includes Arizona, Colorado, Hawaii, Idaho, Nevada, New Mexico, Oregon, Utah
and Washington.
(2) Includes Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri,
Nebraska, Ohio and Wisconsin.
(3) Includes Alabama, Arkansas, Florida, Georgia, Kentucky, Louisiana,
Mississippi, North Carolina, Oklahoma, South Carolina, Tennessee, Texas and
Virginia.
(4) Includes Connecticut, Delaware, Maryland, Massachusetts, New Jersey, New
York and Pennsylvania.
Company-Owned Offices.
The Company-owned offices are concentrated in California, with
locations in 11 other states. These offices are organized into five regions,
each managed by an Operational Vice President and other regional staff who
provide operational support for the offices in their regions. Each Company-owned
office has an office manager who is accountable for the day-to-day operations
and profitability of that office.
Managers report to their Operational Vice Presidents, and together they
are responsible for sales, client development and retention, recruitment,
placement and retention of associates, and general administration for their
respective offices and regions. The Company believes that its decentralized
structure contributes to the initiative and commitment of its management team
and that its incentive compensation approach motivates managers to increase
profits.
Company-owned offices had average sales per office of approximately
$2.8 million for fiscal 1999. The Company often pursues a "fill-in" strategy to
expand its market penetration by transferring clients on the periphery of an
existing office's territory to a newly-opened office, which can then use those
established accounts as a base for further expansion. The density of
Company-owned offices in certain areas also enables the Company to spread fixed
costs such as advertising, recruiting and administration over a larger revenue
base, and also to share associates and provide clients with superior coverage
and service capabilities. In addition, the Company has divided highly successful
Company-owned offices into separate clerical and light industrial offices,
allowing each to specialize and further penetrate its market.
Independently-Managed Offices.
Independently-managed offices, structured in either franchise or
license format, have been an important element of the Company's growth strategy
for more than a decade. Such offices have enabled the Company to expand into new
markets with highly qualified franchisees and licensees, without significant
capital expenditures. Most of the Company's offices outside California are
independently-managed. Independent office agreements have ten year terms and are
renewable for successive five-year or ten-year terms, depending upon when such
agreements were originally entered into. Such agreements cover exclusive
geographic territories and contain minimum revenue performance standards.
Franchises. The Company employed a traditional franchise model from
1987 until 1990. As of October 3, 1999, 20 of the Company's 150
independently-managed offices were franchises. Franchisees pay all lease and
working capital costs, fund payroll and collect clients' accounts. Franchisees
pay the Company an initial franchise fee and royalties equal to approximately 7%
of gross billings. Royalty fees are reduced when the franchisee serves a
national client, since they typically have lower margins. Franchisees employ all
office management staff and all temporary personnel affiliated with
5
<PAGE> 6
their offices. The Company provides training, the right to use the Company's
service marks, trademarks and business model, proprietary computer programs and
operational support.
Licenses. Since 1990, the Company has recruited new independent office
managers as licensees. The Company switched from franchise to license format to
exercise more control over the collection and tracking of the receivables of the
independently-managed offices and to allow the Company to grow without being
limited by the financial resources of franchisees. As of October 3, 1999, 130 of
the Company's 150 independently-managed office locations were licensed offices.
The license format differs from the franchise format in that the Company acts as
the employer of all temporary personnel affiliated with the office. The Company
funds payroll, collects clients' accounts, and remits to the licensee 60%-70% of
the office's gross profit, based on the level of hours billed during the
contract year. To reflect the increased value-added services and proprietary
technologies provided by the Company, beginning in April 1999 and only for new
licensees, the Company remits to such licensees 60%-65% of the office's gross
profit, based on the level of hours billed during the contract year.
CLIENTS
During the twelve months ended October 3, 1999, the Company served
approximately 17,000 clients nationwide. The Company's ten highest volume
clients in fiscal 1999 accounted for approximately 13.6% of the Company's
system-wide gross billings. No single client accounted for more than 2.9% of the
Company's system-wide gross billings for fiscal 1999.
COMPETITION
The temporary services industry is highly competitive with limited
barriers to entry. The Company believes that its largest competitors in the
clerical and light industrial sectors include Adecco Employment Services,
Interim Services, Inc., Kelly Services, Inc., Manpower Inc. and Robert Half
International, Inc. These and other large competitors have nationwide operations
with substantially greater resources than the Company, which among other things
could enable them to attempt to maintain or increase their market share by
reducing prices. In addition, there are a number of other medium-sized firms
that are regional or emphasize specialized niches and compete with the Company
in certain markets where they have a stronger presence. Finally, numerous small
or single-office firms compete effectively with the Company's offices in their
limited areas. In the information technology sector, the Company believes that
its competitors include Alternative Resources, Hall Kinion, Metamor Worldwide
and Modis Professional Services.
The Company's management believes that the most important competitive
factors in obtaining and retaining its targeted clients are an understanding of
a customer's specific job requirements, the ability to provide qualified
temporary personnel in a timely manner and the quality and price of services.
The primary competitive factors in obtaining qualified candidates for temporary
employment assignments are wages, benefits and responsiveness to work schedules.
The Company expects ongoing vigorous competition and pricing pressure
from both national, regional and local providers, and there is no assurance that
the Company will be able to maintain or increase its market share or
profitability.
WORKERS' COMPENSATION
From July 22, 1997 through March 31, 1999, the Company utilized an
insured workers' compensation program for Company-owned and licensed offices,
administered through its wholly-owned subsidiary, Remedy Insurance Group, LTD.
("RIG"). Under this program the Company paid a deductible of up to $250,000 per
individual claim and purchased excess liability coverage for individual claims
greater than $250,000 and aggregate claims greater than $7.5 million for the
twelve months ended July 1998, and $7.0 million for the nine months ended March,
1999.
Effective April 1, 1999, the Company entered into a reinsurance
contract with Reliance National Insurance Company ("Reliance") whereby Reliance
assumed the Company's remaining deductible liability for all open claims
incurred during the period July 22, 1997 to March 31, 1999. Additionally, the
Company entered into a one-year fully insured workers' compensation program with
Reliance. This program has a fixed cost for payroll up to $295.0 million (the
"Base Rate") and for payroll exceeding $295.0 million, the premium is at a
lesser rate than the Base Rate. The Company paid the aggregate cost of both the
reinsurance contract and the one-year premium, a total of $18.9 million, to
Reliance on April 16, 1999. The reinsurance contract includes a provision for
additional payments up to $700,000 in the event that ultimate losses exceed the
projected losses as of April 1, 1999. At fiscal year end, the Company provided
for the additional $700,000 due to current projected ultimate claims. See "Notes
to Consolidated Financial Statements-Note 1."
6
<PAGE> 7
EMPLOYEES
As of October 3, 1999, the Company employed a staff of approximately
500 individuals (excluding temporary associates). During fiscal 1999,
approximately 163,000 temporary associates were placed by the Company through
Company-owned and independently-managed offices. Approximately 75,000 of the
temporary associates were employed by Company-owned offices and approximately
88,000 were employed through licensed offices. Approximately 12,000 of the
temporary associates were placed by franchised offices, and are not employed by
the Company but are legal employees of the franchised offices. At any given time
during 1999, only a portion of these employees were assigned to temporary
assignments. The Company has no collective bargaining agreements and believes
its employee relations are good.
GOVERNMENTAL REGULATION
The Company's marketing and sale of franchises and licenses is
regulated by the Federal Trade Commission and by authorities in 19 states.
Additionally, 15 of the 40 states in which the Company provides its services
require franchisers to file a registration application, provide notice or
qualify for an exemption. The Company has filed the appropriate registration
application or provided notice in seven of these states and has obtained an
exemption from such registration requirements in the remaining eight states. The
Company files and distributes to prospective franchisees and licensees Franchise
Offering Circulars and other materials in order to comply with such registration
and disclosure requirements. In addition, the Company's ongoing relationships
with its franchisees and licensees are regulated by applicable federal and state
franchise laws.
PROPRIETARY RIGHTS AND SYSTEMS
The Company has developed, either internally or through hired
consultants, its MAPS(SM), HPT(R), EDGE(R), IntelliSearch(R), and i/search
2000(TM) computer systems. These proprietary systems are trade secrets of the
Company and the Company has copyrights to certain software used in these
systems.
The Company has registered the following trademarks and service marks
with the U.S. Patent & Trademark Office: REMEDY(R), REMEDY TEMPORARY
SERVICES(R), REMEDYTEMP(R), CALLER ACCESS(R), INTELLISEARCH(R), INTELLIGENT
STAFFING(R), HIRE INTELLIGENCE(R), EDGE(R), VSM(R), HPT(R), and THE INTELLIGENT
TEMPORARY(R). In addition, the Company asserts ownership of, and has filed
applications with the U.S. Patent & Trademark Office to register the following
trademarks and service marks: MAPS(SM), i/search 2000(TM), REMX TECHNOLOGY
GROUP(SM), REMX(SM), STARS(SM), NON-STOP(SM), and WE WON'T SEND YOU A DUMMY(SM).
In general, these marks are used by the Company and its licensees and
franchisees, except that REMX TECHNOLOGY GROUP(SM) and REMX(SM) are used
exclusively by the Company.
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 been historically strong as a result of manufacturing
and retail emphasis on holiday sales. The second fiscal quarter, from January
through March, historically shows little to no growth 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.
RISK FACTORS
Among the risks affecting the Company are the following:
Fluctuations in the General Economy. Demand for temporary services is
significantly affected by the general level of economic activity. As economic
activity slows, companies may reduce their use of temporary employees before
undertaking layoffs of their full-time employees. Further, in an economic
downturn, the Company may face pricing pressure from its customers and increased
competition from other staffing companies, which could have a material adverse
effect on the Company's business. Because the Company currently derives more
than half of its system-wide billings from the California market (approximately
46.5% in fiscal 1999), an economic downturn in California would have a greater
impact on the Company than if the Company had a more widely dispersed revenue
base.
Competitive Market. The temporary services industry is highly
competitive with limited barriers to entry. The Company competes in national,
regional and local markets with full service agencies and with specialized
temporary services agencies. Many competitors are smaller than the Company but
have an advantage over the Company in discrete geographic markets because of
their stronger local presence. Other competitors are more well-known and have
greater marketing and financial resources than the Company, which among other
things could enable them to attempt to maintain or increase their market share
by reducing prices. The Company expects the level of competition to remain high,
and competitive pricing pressures may have an adverse effect on the Company's
operating margins.
7
<PAGE> 8
Ability to Continue Company Growth. The Company has grown rapidly in
recent years by opening new offices and increasing the volume of services
provided through existing offices. There can be no assurance that the Company
will continue to be able to maintain or expand its market presence in its
current locations, successfully enter other markets or successfully enter and
compete in new industry sectors. The ability of the Company to continue its
growth will depend on a number of factors including existing and emerging
competition, the availability of working capital to support such growth, and the
Company's ability to: maintain margins in the face of pricing pressures, find
and retain new qualified licensees and office managers, recruit and train
additional qualified temporary personnel, find and retain clients and manage
costs. Other factors that may impact the Company's future growth or
profitability include the availability of sufficient personnel, increased costs
of personnel (due to various factors including workers' compensation insurance
costs or increased wage rates) and the potential negative impact on margins.
Franchising and Licensing Risks. The Company derives a substantial
amount of its billings (approximately 49.7% in fiscal 1999) from franchised and
licensed operations. The ownership of the Company's franchised and licensed
offices is concentrated, with the ten largest franchisees and licensees together
accounting for approximately 23.1% of the Company's system-wide billings in
fiscal 1999. The loss of one or more of these relationships, or other
franchisees or licensees who may in the future account for a significant portion
of the Company's revenues, could have a material adverse effect on the Company's
results of operations.
YEAR 2000
The Company's State of Readiness
Many computer systems and other equipment with embedded chips or
processors use only two digits to represent the year and may be unable to
process accurately certain data before, during or after the Year 2000.
Consequently, business and governmental entities are at risk for possible
miscalculations or systems failures causing disruptions in their business
operation. Furthermore, the Year 2000 is a leap year, which may present
additional issues for computer systems and other equipment with embedded chips
or processors.
Year 2000 issues may affect the Company's internal systems, including
information technology ("IT") and non-IT systems. The Company assessed the
readiness of its systems for handling the Year 2000 and developed a process to
replace all of its material IT systems with a new IT system. The Company
believes that the new IT system and the computer hardware used to operate the
system will be Year 2000 compliant and that partial implementation of the new IT
system will be completed by the end of calendar year 1999. In conjunction with
such partial implementation of the new IT system, the Company has begun to
modify its existing IT systems to avoid a material impact on the Company's
ability to conduct business. Accordingly, the Company believes that partial
implementation of the new IT system, together with the modifications of the
Company's current IT systems, will allow the Company to operate on and after
Year 2000 without a material adverse effect on the Company's financial condition
and results of operations.
Based on information currently available, the Company believes that it
does not have any material-specific dependencies on its non-IT systems (devices
that have imbedded microprocessors). Accordingly, the Company believes that the
Year 2000 poses no material risk to the Company's non-IT systems. The Company
contacted its material clients and vendors to determine whether such clients'
and vendors' operations and the products and services they provide are Year 2000
compliant and has evaluated their progress toward Year 2000 compliance. There
can be no assurance that the Company's material clients, vendors or other third
parties will not suffer a Year 2000 business disruption. Such failures could
have a material adverse affect on the Company's financial condition and results
of operations.
The Costs to Address the Company's Year 2000 Issues
The Company's new IT system is being implemented for strategic business
reasons unrelated to Year 2000 issues and the implementation schedule was not
accelerated due to Year 2000 issues. The Company is in the process of modifying
the Company's existing IT systems to avoid a material impact on the Company's
ability to conduct business by using such IT systems on and after Year 2000.
Currently, the Company estimates that the total expected costs relating to this
effort will be $200,000.
The Risks to the Company of Year 2000 Issues
Although unclear at this time, exposure to Year 2000 risks are unlikely
to have a material effect on the Company's results of operations, liquidity and
financial condition. The Company anticipates that partial implementation of the
new IT system, which is believed to be Year 2000 compliant, together with the
modification of the Company's current IT systems, will enable the Company to
operate on and after Year 2000 without a material adverse effect on the
Company's financial condition and results of operations. The Company believes
that its most reasonably likely worst case Year 2000 scenario is that certain
functions of its new IT system are not implemented on time and the Company's
efforts to make Year 2000
8
<PAGE> 9
modifications to the existing IT systems fail. Such a scenario could disrupt the
Company's business and, therefore, could have a material adverse effect on the
financial condition and results of operations. Additionally, if any third
parties that provide goods or services that are critical to the Company's
business fail to appropriately address their Year 2000 issues, there could be a
material adverse effect on the Company's financial condition and results of
operations.
The Company's Contingency Plans
The Company continues to modify existing IT systems, which will enable
the Company to use such systems without a material adverse effect on the
Company's financial condition and results of operations before, on and after
Year 2000. The likely impact of Year 2000 failure on such existing IT systems
would be in "from-to" reporting and date printing which the Company believes it
can correct without material loss in business operation or function. The Company
has developed a strategy, including using certain available resources and hiring
additional personnel, in formulating its contingency plans for failure of the
existing IT systems. Additionally, the Company has identified and contacted its
franchisees, licensees, and material vendors and clients and has formulated a
system to understand such material third parties' ability to continue providing
services and products after the Year 2000, including formulating contingency
plans, where appropriate. However, the Company can neither predict nor assure
the successful outcome of such third parties' remediation efforts.
ITEM 2. PROPERTIES
The Company does not own any real property. The Company leases its
corporate headquarters in Aliso Viejo, California, from Parker-Summit, LLC. The
lease agreement provides for leased premises, totaling approximately 52,500
square feet in size, at a fixed rate of $1.93 per square foot per month, for a
fixed term of five and one-half years from the date of occupancy. The base rent
includes amounts for operating costs, which include, but are not limited to,
property taxes, utilities, supplies, repairs and maintenance, janitorial staff,
security staff and insurance premiums on the building. In addition to base rent,
after the first year of occupancy the Company is obligated to pay a portion of
the increase in operating costs and real property taxes for the leased premises.
The Company has an option to renew the lease after the initial term for an
additional term of five years. The Company moved into its current corporate
headquarters in September 1998.
As of October 3, 1999, the Company leased the space occupied by all of
its 101 Company-owned offices. The Company selects the sites for these offices
by evaluating proximity to potential clients and available temporary personnel.
The Company assists its franchisees and licensees in selecting sites for
independently-managed offices, but presently does not own and is not obligated
under any leases at these sites.
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company becomes a party to litigation incidental
to its business. The Company maintains insurance coverage that management
believes is reasonable and prudent for the business risks that the Company
faces. In management's opinion, no pending legal proceeding is likely to have a
material adverse effect on the Company.
9
<PAGE> 10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the Company's fourth quarter of the fiscal year ended October 3, 1999.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officer employees of the Company and their respective
ages as of October 3, 1999, are set forth below.
<TABLE>
<CAPTION>
NAME AGE POSITION(S) HELD
---- --- ----------------
<S> <C> <C>
Robert E. McDonough, Sr. 77 Chairman of the Board of Directors
Paul W. Mikos 54 Chief Executive Officer, President and Director
Greg Palmer 43 Executive Vice President and Chief Operations Officer
Alan M. Purdy 59 Senior Vice President and Chief Financial Officer
Jeffrey A. Elias 42 Senior Vice President, Human Resources and Administration
William M. Herbster 47 Vice President, Marketing
Norman H. Leibson 54 Vice President, Information Technology
</TABLE>
Robert E. McDonough, Sr. has served as Chairman of the Board of
Directors of the Company (the "Board") since August 1978. Mr. McDonough founded
the Company in 1965 and has been continuously involved in the management and
long-term operation and strategic planning of the Company since that time. For
29 years, until May 1994, he served as the Company's Chief Executive Officer.
Mr. McDonough is the father-in-law of Paul W. Mikos.
Paul W. Mikos has served in various positions in the Company since
1977, including as President since 1985. Mr. Mikos has served as Chief Executive
Officer of the Company since January 1996 and as a Director of the Company since
May 1993. From May 1994 until January 1996, he served as Co-Chief Executive
Officer of the Company. Prior to joining the Company, Mr. Mikos worked for ARA
as a Regional Sales Director from August 1976 until October 1977. From July 1968
until August 1976, Mr. Mikos worked for IBM in sales management. Mr. Mikos is
the son-in-law of Robert E. McDonough, Sr.
Greg Palmer has served as Executive Vice President and Chief Operations
Officer of the Company since January 1998. From 1985 to December 1997, Mr.
Palmer served in senior level management positions in the southeast and
northeast divisions and previously as Senior Vice President in charge of
managing operations in the western United States for Olsten Corporation,
formerly a provider of staffing and health care services.
Alan M. Purdy has served as Senior Vice President and Chief Financial
Officer since November 1996 and prior to that as Vice President and Chief
Financial Officer since February 1994. From January 1993 until December 1993, he
was Senior Vice President and Chief Financial Officer of Builder's Emporium, a
division of Collins and Aikman Group, Inc. From March 1988 until August 1992, he
was Senior Vice President and Chief Financial Officer of HUB Distributing, Inc.
(dba Millers Outpost), a subsidiary of American Retail Group.
Jeffrey A. Elias, Ph.D. has served as Senior Vice President, Human
Resources and Administration since November 1996 and prior to that as Vice
President, Human Resources and Risk Management since December 1992. From January
1991 to December 1992, he was Director, Human Resources and Risk Management for
Adia Services, Inc.
William M. Herbster has served as Vice President, Marketing since
January 1994. From January 1985 until January 1994, he was with Manpower, Inc.,
a temporary staffing company, as Director of U.S. Marketing from April 1990 to
January 1994, Manager of Office Automation Services from September 1987 to April
1990, and Marketing Manager, Great Lakes and Northeast Region from January 1985
to September 1987.
Norman H. Leibson has served as Vice President, Information Technology
Systems since November 1994. From March 1992 until November 1994, Mr. Leibson
was a Vice President of HUB Distributing, Inc. (dba Millers Outpost), a
subsidiary of American Retail Group, and from November 1983 until August 1992,
he was a Vice President of Carter Hawley Hale.
10
<PAGE> 11
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Since July 11, 1996, the Company's Class A Common Stock has been traded
on the Nasdaq National Market under the symbol "REMX." Prior to July 11, 1996,
the Company's stock was not publicly traded. The following table sets forth the
high and low sales prices for the Class A Common Stock for fiscal 1999 and
fiscal 1998:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
----------------------------------------------------------
DECEMBER 27, MARCH 28, JUNE 27, OCTOBER 3,
1998 1999 1999 1999
------------ --------- -------- ----------
<S> <C> <C> <C> <C>
High $22.13 $18.75 $15.00 $19.50
Low $11.13 $12.00 $ 9.81 $13.00
DECEMBER 28, MARCH 29, JUNE 28, SEPTEMBER 27,
1997 1998 1998 1998
------------ --------- -------- -------------
High $28.13 $32.63 $36.25 $29.25
Low $20.00 $18.75 $23.69 $17.50
</TABLE>
As of December 15, 1999, there were an estimated 1,900 shareholders of
record of the Company's Class A Common Stock and ten shareholders of record of
the Company's Class B Common Stock.
Except for the S corporation distributions prior to the initial public
offering (the "Offering") and the declared dividend to the Company's
pre-Offering shareholders as discussed in Note 5 to the Consolidated Financial
Statements, the Company has not paid cash dividends on its Class A or Class B
Common Stock and does not anticipate that it will do so in the foreseeable
future. The present policy of the Company is to retain earnings for use in its
operations and the expansion of its business.
ITEM 6. SELECTED FINANCIAL DATA
Information as to Selected Financial Data required by this item is
incorporated by reference from the Company's Annual Report to Shareholders for
the fiscal year ended October 3, 1999, under the heading "Selected Financial
Data," to be mailed to the Securities and Exchange Commission (the "Commission")
and the Company's shareholders prior to the Company's Annual Meeting of
Shareholders, which is scheduled to be held on February 29, 2000.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Information as to Management's Discussion and Analysis of Financial
Condition and Results of Operations required by this item is incorporated by
reference from the Company's Annual Report to Shareholders for the fiscal year
ended October 3, 1999 under the heading "Management's Discussion and Analysis"
to be mailed to the Commission and the Company's shareholders prior to the
Company's Annual Meeting of Shareholders, which is scheduled to be held on
February 29, 2000.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information as to Financial Statements and Supplementary Data required
by this item is incorporated by reference from the Company's Annual Report to
Shareholders for the fiscal year ended October 3, 1999, under the section
"Consolidated Financial Statements and Notes thereto," to be mailed to the
Commission and the Company's shareholders prior to the Company's Annual Meeting
of Shareholders, which is scheduled to be held on February 29, 2000.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
11
<PAGE> 12
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Information as to the officers of the Company required by this item is
set forth at the end of Part I of this report under the caption "Executive
Officers of the Registrant." Information as to the Board of Directors of the
Company required by this item is incorporated by reference from the portion of
the Company's definitive Proxy Statement under the caption "Proposal 1 --
Election of Directors." Information as to the Company's reporting persons'
compliance with Section 16(a) of the Exchange Act, required by this item, is
incorporated by reference from the portion of the Company's definitive Proxy
Statement under the caption "Section 16(A) Beneficial Ownership Reporting
Compliance" to be filed with the Commission pursuant to Regulation 14A under the
Exchange Act and mailed to the Company's shareholders prior to the Company's
Annual Meeting of Shareholders, which is scheduled to be held on February 29,
2000.
ITEM 11. EXECUTIVE COMPENSATION
Information as to Executive Compensation required by this item is
incorporated by reference from the Company's definitive Proxy Statement, under
the caption "Executive Compensation and Other Information," to be filed with the
Commission pursuant to Regulation 14A under the Exchange Act and mailed to the
Company's shareholders prior to the Company's Annual Meeting of Shareholders,
which is scheduled to be held on February 29, 2000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information as to Security Ownership of Certain Beneficial Owners and
Management required by this item is incorporated by reference from the Company's
definitive Proxy Statement, under the caption "Security Ownership of Certain
Beneficial Owners and Management," to be filed with the Commission pursuant to
Regulation 14A under the Exchange Act and mailed to the Company's shareholders
prior to the Company's Annual Meeting of Shareholders, which is scheduled to be
held on February 29, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information as to Certain Relationships and Certain Transactions
required by this item is incorporated by reference from the Company's definitive
Proxy Statement, under the caption "Certain Transactions," to be filed with the
Commission pursuant to Regulation 14A under the Exchange Act and mailed to the
Company's shareholders prior to the Company's Annual Meeting of Shareholders,
which is scheduled to be held on February 29, 2000.
12
<PAGE> 13
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
(a) Financial Statements. PAGE NUMBER
IN ANNUAL
REPORT TO
SHAREHOLDERS
------------
<S> <C>
(1) Consolidated Financial Statements. (Data incorporated by
reference from the attached Annual Report to Shareholders):
Consolidated Balance Sheets as of October 3, 1999 and
September 27, 1998 20
Consolidated Statements of Income for the three fiscal years
ended October 3, 1999, September 27, 1998 and September 28,
1997 21
Consolidated Statements of Shareholders' Equity for the
three fiscal years ended October 3, 1999, September 27, 1998
and September 28, 1997 22
Consolidated Statements of Cash Flows for three fiscal years
ended October 3, 1999, September 27, 1998 and September 28,
1997 23
Notes to Consolidated Financial Statements 24-34
(2) Financial Statement Schedule.
Report of Independent Accountants on Financial Statement
Schedule
SCHEDULE II - Valuation and Qualifying Accounts
(3) The following Exhibits are filed as part of this Report.
</TABLE>
NUMBER
EXHIBIT DESCRIPTION
------- -----------
3.1 Amended and Restated Articles of Incorporation of the Company(a)
3.2 Amended and Restated Bylaws of the Company(h)
4.1 Specimen Stock Certificate(a)
4.2 Shareholder Rights Agreement(a)
10.1 Robert E. McDonough, Sr. Amended and Restated Employment
Agreement(i)
10.2 Paul W. Mikos Employment Agreement(k)
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 Alan M. Purdy Change in Control Severance Agreement(k)
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)
10.11 Amended and restated RemedyTemp, Inc. 1996 Stock Incentive Plan
10.12 Amended and restated RemedyTemp, Inc. 1996 Employee Stock Purchase
Plan
10.13 Form of Franchising Agreement for Licensed Offices(h)
10.14 Form of Franchising Agreement for Franchised Offices(a)
13
<PAGE> 14
10.15 Form of Licensing Agreement for IntelliSearch(R)(a)
10.18 Additional Deferred Compensation Agreement for Alan M. Purdy(b)
10.19 Lease Agreement between RemedyTemp, Inc. and Parker-Summit, LLC(c)
10.20 Lease Agreement between RemedyTemp, Inc. and Mitchell Land &
Improvement Company(d)
10.21 Credit Agreement among Bank of America National Trust and Savings
Association and RemedyTemp, Inc.(e)
10.22 RemedyTemp, Inc. Deferred Compensation Plan(e)
10.23 Greg Palmer Employment Agreement(f)
10.24 1998 RemedyTemp, Inc. Deferred Compensation and Stock Ownership Plan
for Outside Directors(g)
10.25 Form of Licensing Agreement for i/search 2000(TM)(h)
10.26 Credit Agreement among Bank of America National Trust and Savings
Association and RemedyTemp, Inc.(j)
13.1 RemedyTemp, Inc. 1999 Annual Report to Shareholders
23.1 Consent of Independent Accountants
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 Quarterly Report on Form 10-Q for the quarterly period
ended December 29, 1996.
(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 March 30, 1997.
(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 June 29, 1997.
(e) 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.
(f) 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 28, 1997.
(g) 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, 1998.
(h) 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 27, 1998.
(i) 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 27, 1998.
(j) 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 28, 1999.
(k) 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 28, 1999.
(b) Reports on Form 8-K.
No reports on Form 8-K have been filed during the last quarter of the
period covered by this Report.
14
<PAGE> 15
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
REMEDYTEMP, INC.
/s/ PAUL W. MIKOS
- ------------------
Paul W. Mikos
President and Chief Executive Officer
December 28, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ ROBERT E. MCDONOUGH Chairman of the Board of Directors December 28, 1999
- --------------------------------------
Robert E. McDonough, Sr.
/s/ PAUL W. MIKOS President and Chief Executive Officer December 28, 1999
- --------------------------------------
Paul W. Mikos
/s/ ALAN M. PURDY Senior Vice President and Chief December 28, 1999
- ------------------------------------- Financial Officer (Principal Financial
Alan M. Purdy and Accounting Officer)
/s/ WILLIAM D. CVENGROS Director December 28, 1999
- -------------------------------------
William D. Cvengros
/s/ JAMES L. DOTI Director December 28, 1999
- --------------------------------------
James L. Doti, Ph.D.
/s/ ROBERT A. ELLIOTT Director December 28, 1999
- -------------------------------------
Robert A. Elliott
/s/ MARY GEORGE Director December 28, 1999
- -------------------------------------
Mary George
/s/ J. MICHAEL HAGAN Director December 28, 1999
- -------------------------------------
J. Michael Hagan
/s/ JOHN B. ZAEPFEL Director December 28, 1999
- -------------------------------------
John B. Zaepfel
</TABLE>
15
<PAGE> 16
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
of RemedyTemp, Inc.:
Our audits of the consolidated financial statements referred to in our report
dated November 12, 1999 appearing in the Annual Report to Shareholders of
RemedyTemp, Inc. (which report and consolidated financial statements are
incorporated by reference in this Annual Report on Form 10-K) also included an
audit of the financial statement schedule listed in Item 14(a)(2) of this Form
10-K. In our opinion, this financial statement schedule presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements.
/s/ PRICEWATERHOUSECOOPERS LLP
- ------------------------------
PricewaterhouseCoopers LLP
Costa Mesa, California
November 12, 1999
<PAGE> 17
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING OF END OF
DESCRIPTION PERIOD ADDITIONS DEDUCTIONS(1) PERIOD
- ----------- ------ --------- ------------- ------
<S> <C> <C> <C> <C>
Allowance for Doubtful Accounts Receivable:
Year ended October 3, 1999 $2,647 $ 413 $1,022 $2,038
Year ended September 27, 1998 $2,612 $1,519 $1,484 $2,647
Year ended September 28, 1997 $2,111 $1,276 $ 775 $2,612
- -----------
(1) Represents write-offs of bad debts
</TABLE>
17
<PAGE> 18
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(h)
4.1 Specimen Stock Certificate(a)
4.2 Shareholder Rights Agreement(a)
10.1 Robert E. McDonough, Sr. Amended and Restated Employment
Agreement(i)
10.2 Paul W. Mikos Employment Agreement(k)
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 Alan M. Purdy Change in Control Severance Agreement(k)
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)
10.11 Amended and restated RemedyTemp, Inc. 1996 Stock Incentive Plan
10.12 Amended and restated RemedyTemp, Inc. 1996 Employee Stock Purchase
Plan
10.13 Form of Franchising Agreement for Licensed Offices(h)
10.14 Form of Franchising Agreement for Franchised Offices(a)
10.15 Form of Licensing Agreement for IntelliSearch(R)(a)
10.18 Additional Deferred Compensation Agreement for Alan M. Purdy(b)
10.19 Lease Agreement between RemedyTemp, Inc. and Parker-Summit, LLC(c)
10.20 Lease Agreement between RemedyTemp, Inc. and Mitchell Land &
Improvement Company(d)
10.21 Credit Agreement among Bank of America National Trust and Savings
Association and RemedyTemp, Inc.(e)
10.22 RemedyTemp, Inc. Deferred Compensation Plan(e)
10.23 Greg Palmer Employment Agreement(f)
10.24 1998 RemedyTemp, Inc. Deferred Compensation and Stock Ownership Plan
for Outside Directors(g)
10.25 Form of Licensing Agreement for i/search 2000(TM)(h)
10.26 Credit Agreement among Bank of America National Trust and Savings
Association and RemedyTemp, Inc.(j)
13.1 RemedyTemp, Inc. 1999 Annual Report to Shareholders
23.1 Consent of Independent Accountants
27.1 Financial Data Schedule
<PAGE> 19
------------------
(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 Quarterly Report on Form 10-Q for the quarterly period
ended December 29, 1996.
(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 March 30, 1997.
(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 June 29, 1997.
(e) 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.
(f) 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 28, 1997.
(g) 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, 1998.
(h) 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 27, 1998.
(i) 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 27, 1998.
(j) 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 28, 1999.
(k) 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 28, 1999.
<PAGE> 1
EXHIBIT 10.11
REMEDYTEMP, INC.
(THE "COMPANY")
1996 STOCK INCENTIVE PLAN
(AMENDED AND RESTATED EFFECTIVE AS OF AUGUST 16, 1999)
ARTICLE I
DEFINITIONS
1.01 DEFINITIONS. Capitalized terms used in the Plan and not otherwise
defined shall have the meanings set forth below:
(a) "AWARD" means an Incentive Award or a Non-employee Director's
Option.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended from
time to time. Where the context so requires, a reference to a particular Code
section or regulation thereunder shall also be a reference to any successor
provision of the Code to such section or regulation.
(d) "COMMISSION" means the Securities and Exchange Commission.
(e) "COMMITTEE" means the committee appointed by the Board to
administer the Plan and, to the extent required to comply with Rule 16b-3 under
the Exchange Act, consisting of two or more Board members, each of whom shall be
a "Non-Employee Director" within the meaning of Rule 16b-3 under the Exchange
Act. In addition, if Incentive Awards are to be made to persons subject to
Section 162(m) of the Code and such awards are intended to constitute
Performance-Based Compensation, then each of the Committee's members shall also
be an "outside director," as such term is defined in the regulations under
Section 162(m) of the Code.
(f) "COMMON STOCK" means the Class A Common Stock of the Company, $0.01
par value.
(g) "DIVIDEND EQUIVALENT" means a right granted by the Company under
Section 3.07 to a holder of a Stock Option, Stock Appreciation Right, or other
Award denominated in shares of Common Stock to receive from the Company during
the Applicable Dividend Period (as defined in Section 3.07) payments equivalent
to the amount of dividends payable to holders of the number of shares of Common
Stock underlying such Stock Option, Stock Appreciation Right, or other Award.
(h) "ELIGIBLE PERSON" shall include, as determined by the Committee,
officers or key employees, consultants, and advisors of the Company or a
Subsidiary other than Non-Employee Directors."
<PAGE> 2
(i) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended. Where the context so requires, a reference to a particular section of
the Exchange Act or rule thereunder shall also refer to any successor provision
to such section or rule.
(j) "FAIR MARKET VALUE" of a share of the Company's capital stock as of
a particular date shall be: (i) if the stock is listed on an established stock
exchange or exchanges (including, for this purpose, The Nasdaq National Market),
the mean between the highest and lowest sale prices of the stock quoted for such
date in the Transactions Index of each such exchange as averaged with such mean
price as reported on any and all other exchanges, as published in The Wall
Street Journal and determined by the Committee, or, if no sale price was quoted
in any such Index for such date, then as of the next preceding date on which
such a sale price was quoted; or (ii) if the stock is not then listed on an
exchange, the average of the closing bid and asked prices per share for the
stock in the over-the-counter market as quoted on the NASDAQ system on such date
(in the case of (i) or (ii), subject to adjustment as and if necessary and
appropriate to set an exercise price not less than 100% of the fair market value
of the stock on the date an option is granted); or (iii) if the stock is not
then listed on an exchange or quoted in the over-the-counter market, an amount
determined in good faith by the Committee; provided, however, that when
appropriate, the Committee in determining Fair Market Value of capital stock of
the Company may take into account such other factors as it may deem appropriate
under the circumstances. Notwithstanding the foregoing, the Fair Market Value of
capital stock for purposes of grants of Incentive Stock Options shall be
determined in compliance with applicable provisions of the Code. The Fair Market
Value of rights or property other than capital stock of the Company means the
fair market value thereof as determined by the Committee on the basis of such
factors as it may deem appropriate.
(k) "INCENTIVE AWARD" means any Stock Option, Restricted Stock, Stock
Appreciation Right or Dividend Equivalent granted or sold to an Eligible Person
under the Plan, but not a Non-employee Director's Option.
(l) "INCENTIVE STOCK OPTION" means a Stock Option that qualifies as an
incentive stock option under Section 422 of the Code and the regulations
thereunder.
(m) "JUST CAUSE DISMISSAL" means a termination of a Recipient's
employment for any of the following reasons: (i) the Recipient violates any
reasonable rule or regulation of the Board or the Recipient's superiors or the
Chief Executive Officer or President of the Company that results in damage to
the Company or which the Recipient fails to correct within a reasonable time
after written notice; (ii) any willful misconduct or gross negligence by the
Recipient in the discharge of the responsibilities assigned to him or her; (iii)
any willful failure to perform his or her job as required to meet Company
objectives; (iv) any wrongful conduct of a Recipient which has an adverse impact
on the Company or which constitutes a misappropriation of Company assets; (v)
the Recipient's performing services for any other person or entity which
competes with the Company while he or she is employed by the Company, without
the written approval of the Chief Executive Officer or President of the Company;
or (vi) any other conduct that the Board or Committee determines constitutes
Just Cause for Dismissal, provided, however, that if a Recipient is party to an
employment agreement with the Company providing for just cause dismissal (or
some comparable notion) of Recipient from his or her employment with the
Company, "Just Cause Dismissal" purposes of the Plan shall have the same meaning
as ascribed thereto or to such comparable notion in such employment agreement.
(n) "NON-EMPLOYEE DIRECTOR" means a director of the Company who
qualifies as a "Non-Employee Director" under Rule 16b-3 under the Exchange Act.
2
<PAGE> 3
(o) "NON-EMPLOYEE DIRECTOR'S OPTION" means a Stock Option granted to a
Non-employee Director pursuant to Article IV of the Plan.
(p) "NON-QUALIFIED STOCK OPTION" means a Stock Option that is not an
Incentive Stock Option.
(q) "OPTION" or "STOCK OPTION" means a right to purchase Common Stock
granted under the Plan, and can be an Incentive Stock Option or a Non-qualified
Stock Option.
(r) "PAYMENT EVENT" means the event or events giving rise to the right
to payment of a Performance Award.
(s) "PERFORMANCE AWARD" means an award granted under Section 3.03,
payable in cash, Common Stock or a combination thereof, which vests and becomes
payable over a period of time upon attainment of performance criteria
established in connection with the grant of the award.
(t) "PERFORMANCE-BASED COMPENSATION" means performance-based
compensation as described in Section 162(m) of the Code and the regulations
thereunder. If the amount of compensation a Recipient will receive under any
Incentive Award is not based solely on an increase in the value of Common Stock
after the date of grant or award, the Committee, in order to qualify an
Incentive Award as performance-based compensation under Section 162(m) of the
Code and the regulations thereunder, can condition the grant, award, vesting, or
exercisability of such an award on the attainment of a preestablished, objective
performance goal. For this purpose, a preestablished, objective performance goal
may include one or more of the following performance criteria: (i) cash flow,
(ii) earnings per share (including earnings before interest, taxes, and
amortization), (iii) return on equity, (iv) total stockholder return, (v) return
on capital, (vi) return on assets or net assets, (vii) income or net income,
(viii) operating margin, (ix) return on operating revenue, and (x) any other
similar performance criteria contemplated by the regulations under Section
162(m).
(u) "PERMANENT DISABILITY" means that the Recipient becomes physically
or mentally incapacitated or disabled so that he or she is unable to perform
substantially the same services as he or she performed prior to incurring such
incapacity or disability (the Company, at its option and expense, being entitled
to retain a physician to confirm the existence of such incapacity or disability,
and the determination of such physician to be binding upon the Company and the
Recipient), and such incapacity or disability continues for a period of three
consecutive months or six months in any 12-month period or such other period(s)
as may be determined by the Committee with respect to any Option, provided that
for purposes of determining the period during which an Incentive Stock Option
may be exercised pursuant to Section 3.02(g)(ii) hereof, Permanent Disability
shall mean "permanent and total disability" as defined in Section 22(e) of the
Code.
(v) "PURCHASE PRICE" means the purchase price (if any) to be paid by a
Recipient for Restricted Stock as determined by the Committee (which price shall
be at least equal to the minimum price required under applicable laws and
regulations for the issuance of Common Stock which is nontransferable and
subject to a substantial risk of forfeiture until specific conditions are met).
(w) "RECIPIENT" means a recipient of an Award hereunder.
3
<PAGE> 4
(x) "RESTRICTED STOCK" means Common Stock that is the subject of an
award made under Section 3.04 and which is nontransferable and subject to a
substantial risk of forfeiture until specific conditions are met as set forth in
this Plan and in any statement evidencing the grant of such Award.
(y) "SECURITIES ACT" means the Securities Act of 1933, as amended.
(z) "STOCK APPRECIATION RIGHT" or "SAR" means a right granted under
Section 3.05 to receive a payment that is measured with reference to the amount
by which the Fair Market Value of a specified number of shares of Common Stock
appreciates from a specified date, such as the date of grant of the SAR, to the
date of exercise.
(aa) "STOCK PAYMENT" means a payment in shares of the Company's Common
Stock to replace all or any portion of the compensation (other than base salary)
that would otherwise become payable to a Recipient.
"(bb) "SUBSIDIARY" has the meaning as set forth under Section 424(f) of
the Code."
ARTICLE II
GENERAL
2.01 ADOPTION. The Plan has been adopted by the Board and approved by
the shareholders of the Company and is effective immediately prior to the
closing of the initial public offering of the Company's securities.
2.02 PURPOSE. The purpose of the Plan is to promote the interests of
the Company and its shareholders by using investment interests in the Company to
attract and retain key personnel, to encourage and reward their contributions to
the performance of the Company, and to align their interests with the interests
of Company's shareholders.
2.03 ADMINISTRATION OF THE PLAN. The Plan shall be administered by the
Committee, which, subject to the express provisions of the Plan, shall have the
power to construe the Plan and any agreements or memoranda defining the rights
and obligations of the Company and Recipients thereunder, to determine all
questions arising thereunder, to adopt and amend such rules and regulations for
the administration thereof as it may deem desirable, and otherwise to carry out
the terms of the Plan and such agreements and confirming memoranda. The
interpretation and construction by the Committee of any provisions of the Plan
or of any Award granted under the Plan shall be final. Any action taken by, or
inaction of, the Committee relating to the Plan or Awards shall be within the
absolute discretion of the Committee and shall be conclusive and binding upon
all persons. No member of the Committee shall be liable for any such action or
inaction except in circumstances involving bad faith of himself or herself.
Subject only to compliance with the express provisions hereof, the Committee may
act in its absolute discretion in matters related to the Plan or Awards,
provided, however, that notwithstanding anything herein to the contrary, the
Committee shall have no authority or discretion as to the selection of persons
eligible to receive Non-employee Director's Options or the timing, exercise
price, or number of shares covered by Non-employee Director's Options, which
matters are specifically governed by the Plan. Any action of the Committee with
respect to administration of the Plan shall be taken pursuant to a majority vote
or unanimous written consent of its members. Subject to the requirements of
Section 1.01(e), the Board may from time to time increase or
4
<PAGE> 5
decrease the number of members of the Committee, remove from membership on the
Committee all or any portion of its members, and appoint such person or persons
as it desires to fill any vacancy existing on the Committee, whether caused by
removal, resignation or otherwise.
2.04 PARTICIPATION. A person shall be eligible to receive grants of
Incentive Awards under the Plan if, at the time of the Award's grant, he or she
is an Eligible Person.
2.05 SHARES OF COMMON STOCK SUBJECT TO PLAN.
(a) Plan Limit and Counting. The shares that may be issued upon
exercise of or in the form of Awards under the Plan shall be authorized and
unissued shares of Common Stock, previously issued shares of Common Stock
reacquired by the Company, and unused Award shares pursuant to the final
sentence of this Section 2.05(a). The aggregate number of shares that may be
issued pursuant to Awards under the Plan shall not exceed 1,800,000 shares of
Common Stock, subject to adjustment in accordance with Article V. Shares of
Common Stock subject to unexercised portions of any Award granted under the Plan
that expire, terminate or are cancelled, and shares of Common Stock issued
pursuant to an Award under the Plan that are reacquired by the Company pursuant
to the terms of the Award under which such shares were issued, will again become
available for the grant of further Awards under this Plan.
(b) Annual Limit. Notwithstanding any other provision of this Plan, no
Eligible Person shall be granted Incentive Awards with respect to more than
100,000 shares of Common Stock in any one calendar year; provided, however, that
this limitation shall not apply if it is not required in order for the
compensation attributable to Incentive Awards hereunder to qualify as
Performance-Based Compensation. The limitation set forth in this Section 2.05(b)
shall be subject to adjustment as provided in Article V, but only to the extent
such adjustment would not affect the status of compensation attributable to
Incentive Awards hereunder as Performance-Based Compensation.
2.06 AWARDS SUBJECT TO PLAN.
(a) Terms. Each Award shall be subject to the terms and conditions of
the Plan and such other terms and conditions (whether or not applicable to any
other award) established by the Committee as are not inconsistent with the
purpose and provisions of the Plan including, without limitation, provisions to
assist the Recipient in financing the purchase of Common Stock through the
exercise of Stock Options, provisions for the forfeiture of or restrictions on
resale or other disposition of shares of Common Stock acquired under any Award,
provisions giving the Company the right to repurchase shares of Common Stock
acquired under any Award in the event the Recipient elects to dispose of such
shares, and provisions to comply with federal and state securities laws and
federal and state income tax withholding requirements.
(b) Award Documents. Each Award granted under the Plan shall be
evidenced by an award agreement duly executed on behalf of the Company and by
the Recipient or, in the Committee's discretion, a confirming memorandum issued
by the Company to the Recipient, setting forth such terms and conditions
applicable to the Award as the Committee may in its discretion determine. Such
option agreements or confirming memoranda may but need not be identical and
shall comply with and be subject to the terms and conditions of the Plan, a copy
of which shall be provided to each Recipient and incorporated by reference into
each option agreement or confirming memorandum. Any award agreement or
confirming memorandum may contain such other terms, provisions and conditions
not inconsistent with the Plan as may be determined by the Committee.
5
<PAGE> 6
2.07 AMENDMENTS.
(a) Amendment and Suspension of the Plan. The Board or the Committee
may, insofar as permitted by applicable laws and regulations, from time to time
suspend or discontinue the Plan or revise or amend it in any respect whatsoever,
and the Plan as so revised or amended will govern all options thereunder,
including those granted before such revision or amendment, except that no such
amendment shall impair or diminish in any material respect any rights or impose
additional material obligations under any Award theretofore granted under the
Plan without the consent of the person to whom such Award was granted.
Amendments shall be subject to approval by the Company's shareholders only to
the extent required to comply with the express provisions of the Plan and
applicable laws or regulations.
(b) Amendment of Incentive Awards. Subject to the requirements set
forth in the Plan for amendment of particular Incentive Awards, the Committee
may, with the consent of a Recipient, make such modifications in the terms and
conditions of an Incentive Award as it deems advisable. Without limiting the
generality of the foregoing, the Committee may, in its discretion with the
consent of the Recipient, at any time and from time to time after the grant of
any Incentive Award accelerate or extend the vesting or exercise period of the
Incentive Award in whole or part. Notwithstanding the above, upon obtaining
prior approval by the Company's shareholders, the Committee may adjust or reduce
the purchase or exercise price of Incentive Awards by cancellation of such
Incentive Awards and granting of Incentive Awards at lower purchase or exercise
prices or by modification, extension or renewal of such Incentive Awards.
(c) Other Rights. Except as otherwise provided in this Plan or in the
applicable award agreement or confirming memorandum, no amendment, suspension or
termination of the Plan will, without the consent of the Recipient, alter,
terminate, impair or adversely affect any right or obligation under any Award
previously granted under the Plan.
2.08 TERM OF PLAN. Awards may be granted under the Plan until the tenth
anniversary of the effective date of the Plan, whereupon the Plan shall
terminate. No Awards may be granted during any suspension of the Plan or after
its termination for any reason. Notwithstanding the foregoing, each Award
properly granted under the Plan shall remain in effect until such Award has been
exercised or terminated in accordance with its terms and the terms of the Plan.
2.09 RESTRICTIONS. All Awards granted under the Plan shall be subject
to the requirement that, if at any time the Company shall determine, in its
discretion, that the listing, registration or qualification of the shares
subject to Awards granted under the Plan upon any securities exchange or under
any state or federal law, or the consent or approval of any government or
regulatory body or authority, is necessary or desirable as a condition of, or in
connection with, the granting of such an Award or the issuance, if any, or
purchase of shares in connection therewith, such Award may not be exercised in
whole or in part unless such listing, registration, qualification, consent or
approval shall have been effected or obtained free of any conditions not
acceptable to the Company. Unless the shares of stock covered by an Award
granted under the Plan have been effectively registered under the Securities
Act, the Company shall be under no obligation to issue such shares unless the
Recipient shall give a written representation and undertaking to the Company
satisfactory in form and scope to counsel to the Company and upon which, in the
opinion of such counsel, the Company may reasonably rely, that he or she is
acquiring such shares for his or her own account as an investment and not with a
view to, or for sale in connection with, the distribution of any such shares of
stock, and that he or she will make no transfer of the same except in compliance
with any rules and regulations in force at the time of such transfer under the
Securities Act, or any other applicable law or regulation, and that if shares of
stock are issued without such registration, a legend to this effect may be
endorsed upon the securities so issued, and the Company may order its transfer
agent to stop transfers of such shares.
6
<PAGE> 7
2.10 NONASSIGNABILITY. No Award granted under the Plan shall be
assignable or transferable except (a) by will or by the laws of descent and
distribution, or (b) subject to the final sentence of this Section 2.10, upon
dissolution of marriage pursuant to a qualified domestic relations order or, in
the discretion of the Committee and under circumstances that would not adversely
affect the interests of the Company, pursuant to a nominal transfer that does
not result in a change in beneficial ownership. During the lifetime of a
Recipient, an Award granted to him or her shall be exercisable only by the
Recipient (or the Recipient's permitted transferee) or his or her guardian or
legal representative. Notwithstanding the foregoing, (x) no Award owned by a
Recipient subject to Section 16 of the Exchange Act may be assigned or
transferred in any manner inconsistent with Rule 16b-3 as interpreted and
administered by the Commission and its staff, and (y) Incentive Stock Options
(or other Awards subject to transfer restrictions under the Code) may not be
assigned or transferred in violation of Section 422(b)(5) of the Code or the
Treasury Regulations thereunder, and nothing herein is intended to allow such
assignment or transfer.
2.11 WITHHOLDING TAXES. Whenever shares of stock are to be issued upon
exercise of or in connection with an Award granted under the Plan or
subsequently transferred, the Committee shall have the right to require the
Recipient to remit to the Company an amount sufficient to satisfy any federal,
state and local withholding tax requirements prior to issuance of such shares.
The Committee may, in the exercise of its discretion, allow satisfaction of tax
withholding requirements by accepting delivery of stock of the Company or by
withholding a portion of the stock otherwise issuable in connection with an
Award.
2.12 RIGHTS OF ELIGIBLE PERSONS AND RECIPIENTS. Except as otherwise set
forth herein, a Recipient or a permitted transferee of an Award shall have no
rights as a shareholder with respect to any shares issuable or issued in
connection with the Award until the date of the receipt by the Company of all
amounts payable in connection with exercise of the Award and performance by the
Recipient of all obligations thereunder. Status as an Eligible Person shall not
be construed as a commitment that any Award will be granted under this Plan to
an Eligible Person or to Eligible Persons generally. Nothing contained in this
Plan (or in award agreements or confirming memoranda or in any other documents
related to this Plan or to Awards granted hereunder) shall confer upon any
Eligible Person or Recipient any right to continue in the employ of the Company
or any of its subsidiaries or affiliates or constitute any contract or agreement
of employment or engagement, or interfere in any way with the right of the
Company or any of its subsidiaries or affiliates to reduce such person's
compensation or other benefits or to terminate the employment of such Eligible
Person or Recipient, with or without cause. No person shall have any right,
title or interest in any fund or in any specific asset (including shares of
capital stock) of the Company or any of its subsidiaries or affiliates by reason
of any Award granted hereunder. Neither this Plan (or any documents related
hereto) nor any action taken pursuant hereto shall be construed to create a
trust of any kind or a fiduciary relationship between the Company or any of its
subsidiaries or affiliates and any person. To the extent that any person
acquires a right to receive an Award hereunder, such right shall be no greater
than the right of any unsecured general creditor of the Company.
2.13 OTHER COMPENSATION PLANS. The adoption of the Plan shall not
affect any other stock option, incentive or other compensation plans in effect
for the Company, and the Plan shall not preclude the Company from establishing
any other forms of incentive or other compensation for employees, directors, or
advisors of the Company, whether or not approved by shareholders.
7
<PAGE> 8
2.14 PLAN BINDING ON SUCCESSORS. The Plan shall be binding upon the
successors and assigns of the Company.
2.15 PARTICIPATION BY FOREIGN EMPLOYEES. Notwithstanding anything to
the contrary herein, the Committee may, consistent with the purposes of the
Plan, modify grants of Awards to confer the intended benefits of the Plan upon
Recipients who are foreign nationals or employed outside of the United States to
recognize differences in applicable law, tax policy or local custom.
ARTICLE III
AWARDS
3.01 GRANTS OF AWARDS. Subject to the express provisions of the Plan,
the Committee may from time to time in its discretion select the Eligible
Persons to whom, and the time or times at which, Incentive Awards shall be
granted or sold, the nature of each Incentive Award, the number of shares of
Common Stock or the number of rights that make up or underlie each Incentive
Award, the period for the exercise of each Incentive Award, the performance
criteria (which need not be identical) utilized to measure the value of
Performance Awards, and such other terms and conditions applicable to each
individual Incentive Award as the Committee shall determine. The Committee may
grant at any time new Incentive Awards to an Eligible Person who has previously
received Incentive Awards or other grants (including other stock options)
whether such prior Incentive Awards or such other grants are still outstanding,
have previously been exercised in whole or in part, or are cancelled in
connection with the issuance of new Incentive Awards. The Committee may grant
Incentive Awards singly or in combination or in tandem with other Incentive
Awards as it determines in its discretion. The purchase price or initial value
and any and all other terms and conditions of the Incentive Awards may be
established by the Committee without regard to existing Incentive Awards or
other grants. Further, the Committee may amend in a manner not inconsistent with
the Plan the terms of any existing Incentive Award previously granted to such
Eligible Person, provided that the consent of the Recipient shall be required
for amendments that impair or diminish in any material respect any rights or
impose additional material obligations under the Incentive Award to be amended.
Notwithstanding the foregoing, however, members of the Committee shall not be
eligible to receive Incentive Awards.
3.02 STOCK OPTIONS.
(a) Nature of Stock Options. Stock Options may be Incentive Stock
Options or Non-qualified Stock Options; Stock Options granted as Incentive Stock
Options that fail or cease to qualify as such shall be treated as Non-qualified
Stock Options hereunder.
(b) Setting the Exercise Price. The exercise price for each Option
shall be determined by the Committee at the date such Option is granted. The
exercise price may be less than the Fair Market Value of the Common Stock
subject to the Option, provided that in no event shall the exercise price be
less than the par value of the shares of Common Stock subject to the Option, and
provided further that the exercise price of an Incentive Stock Option shall be
not less than such amount as is necessary to enable such Option to be treated as
an "incentive stock option" within the meaning of Section 422 of the Code. Upon
obtaining prior approval by the Company's shareholders, the Committee, with the
consent of the Recipient, and subject to compliance with statutory or
administrative requirements applicable to Incentive Stock Options,
8
<PAGE> 9
may amend the terms of any Option (other than a Non-employee Director's Option)
to provide that the exercise price of the shares remaining subject to the Option
shall be reestablished at a price below the existing exercise price thereof or
effect a reduction in exercise price by cancellation of an existing option and
grant of a replacement option at an exercise price below the existing exercise
price thereof. If the exercise price of an Option is reduced (or such Option is
canceled for a new Option), and such Option is Performance-Based Compensation,
the reduction of the Option's price (or the cancellation and grant of a new
Option) shall be treated as the grant of a new Option and both the old and new
Option shall be taken into account for purposes of applying the stock limit of
Section 2.05(b). No modification of any other term or provision of any Option
which is amended in accordance with the foregoing shall be required, although
the Committee may, in its discretion, make such further modifications of any
such Option (other than Non-employee Director's Options) as are not inconsistent
with the Plan.
(c) Payment of the Exercise Price. The exercise price shall be payable
upon the exercise of an Option in legal tender of the United States or capital
stock of the Company delivered in transfer to the Company by or on behalf of the
person exercising the Option and duly endorsed in blank or accompanied by stock
powers duly endorsed in blank, with signatures guaranteed in accordance with the
Exchange Act if required by the Committee, or retained by the Company from the
Stock otherwise issuable upon exercise or surrender of vested and/or exercisable
Awards or other equity incentive awards previously granted to the Recipient and
being exercised (if applicable) (in either case valued at Fair Market Value as
of the exercise date); or such other consideration as the Committee may from
time to time in the exercise of its discretion deem acceptable in any particular
instance, provided, however, that the Committee may, in the exercise of its
discretion, (i) allow exercise of an Option in a broker-assisted or similar
transaction in which the exercise price is not received by the Company until
promptly after exercise, and/or (ii) allow the Company to loan the exercise
price to the person entitled to exercise the Option, if the exercise will be
followed by a prompt sale of some or all of the underlying shares and a portion
of the sales proceeds is dedicated to full payment of the Exercise Price and
amounts required pursuant to Section 2.11.
(d) Option Period and Vesting. Options granted hereunder (other than
Non-employee Director's Options) shall vest and may be exercised as determined
by the Committee, except that exercise of such Options after termination of the
Recipient's employment shall be subject to Section 3.02(g). Each Option granted
hereunder (other than a Non-employee Director's Option) and all rights or
obligations thereunder shall expire on such date as shall be determined by the
Committee, but not later than ten years after the date the Option is granted, or
five years after the date of grant in the case of a Recipient of an Incentive
Stock Option who at the time of grant owns more than 10% of the combined voting
power of the Company (after application of the constructive ownership rules of
Section 424(d) of the Code), or any Parent or Subsidiary (as defined in Sections
424(e) and (f) of the Code, respectively), and shall be subject to earlier
termination as herein provided.
(e) Exercise of Options. Except as otherwise provided herein, an Option
may become exercisable, in whole or in part, on the date or dates specified by
the Committee (or, in the case of Non-employee Director's Options, the Plan) and
thereafter shall remain exercisable until the expiration or earlier termination
of the Option. No Option shall be exercisable except in respect of whole shares,
and fractional share interests shall be disregarded. Not less than 100 shares of
stock (or such other amount as is set forth in the applicable option agreement
or confirming memorandum) may be purchased at one time and Options must be
exercised in multiples of 100 unless the number purchased upon exercise is the
total number at the time available for purchase under the terms of the Option.
An Option shall be deemed to be exercised when the Secretary or other designated
official of the Company receives written notice of such
9
<PAGE> 10
exercise from the Recipient, together with payment of the exercise price and any
amounts required under Section 2.11. Notwithstanding any other provision of the
Plan, the Committee may impose, by rule and in option agreements or confirming
memoranda, such conditions upon the exercise of Options (including, without
limitation, conditions limiting the time of exercise to specified periods) as
may be required to satisfy applicable regulatory requirements, including without
limitation Rule 10b-5 or Rule 16b-3 (or any successor rule) under the Exchange
Act and any applicable section of or regulation under the Code.
(f) Limitation on Exercise of Incentive Stock Options. The aggregate
Fair Market Value (determined as of the respective date or dates of grant) of
the stock for which one or more Options granted to any Recipient under the Plan
(or any other option plan of the Company or any of its subsidiaries or
affiliates) may for the first time become exercisable as Incentive Stock Options
under the federal tax laws during any one calendar year shall not exceed
$100,000. Any Options granted as Incentive Stock Options pursuant to the Plan in
excess of such limitation shall be treated as Non-qualified Stock Options.
(g) Termination of Employment.
(i) Termination for Cause. Except as otherwise provided in a
written agreement between the Company and the Recipient, which may be entered
into at any time before or after termination, in the event of a Just Cause
Dismissal of a Recipient all of the Recipient's unexercised Options, whether or
not vested, shall expire and become unexercisable as of the date of such Just
Cause Dismissal.
(ii) Termination other than Just Cause Dismissal. Subject to
subsection (i) above and subsection (iii) below, and except as otherwise
provided in a written agreement between the Company and the Recipient, or a
confirming memorandum issued by the Company to the Recipient with the
Recipient's consent, which may be entered into or delivered at any time before
or after termination, in the event of a Recipient's termination of employment
for:
(A) any reason other than Just Cause Dismissal, death, or
Permanent Disability, the Recipient's unexercised Options, whether or
not vested, shall expire and become unexercisable as of the earlier of
(1) the date such Options would expire in accordance with their terms
if the Recipient remained employed or (2) three calendar months after
the date of termination in the case of Incentive Stock Options, or six
months after the date of termination in the case of Non-qualified Stock
Options.
(B) death or Permanent Disability, the Recipient's unexercised
Options, whether or not vested, shall expire and become unexercisable
as of the earlier of (1) the date such Options would expire in
accordance with their terms if the Recipient remained employed or (2)
12 months after the date of termination.
(iii) Alteration of Vesting and Exercise Periods. Notwithstanding
anything to the contrary in subsections (i) or (ii) above, the Committee may in
its discretion pursuant to Section 2.07(b) designate shorter or longer periods
to exercise Options following a Recipient's termination of employment. Options
shall be exercisable by a Recipient (or his successor in interest) following
such Recipient's termination of employment only to the extent that installments
thereof had become exercisable on or prior to the date of such termination
unless the Company has a written agreement with the Recipient of the Option
providing otherwise or the vesting period is extended pursuant to Section
2.07(b).
10
<PAGE> 11
3.03 PERFORMANCE AWARDS.
(a) Grant of Performance Award. The Committee shall determine the
performance criteria (which need not be identical and may be established on an
individual or group basis) governing Performance Awards, the terms thereof, and
the form and time of payment of Performance Awards.
(b) Payment of Award; Limitation. Upon satisfaction of the conditions
applicable to a Performance Award, payment will be made to the Recipient in cash
or in shares of Common Stock valued at Fair Market Value or a combination of
Common Stock and cash, as the Committee in its discretion may determine.
(c) Annual Limit. Notwithstanding any other provision of this Plan, no
Eligible Person shall be paid a Performance Award in excess of $250,000 in any
one calendar year; provided, however, that this limitation shall not apply to
the extent it is not required in order for the compensation attributable to the
Performance Award hereunder to qualify as Performance-Based Compensation.
(d) Expiration of Performance Award. If any Recipient's employment with
the Company is terminated for any reason other than normal retirement, death, or
Permanent Disability prior to the time a Performance Award or any portion
thereof becomes payable, all of the Recipient's rights under the unpaid portion
of the Performance Award shall expire and terminate unless otherwise determined
by the Committee. In the event of termination of employment by reason of death,
Permanent Disability or normal retirement, the Committee, in its discretion, may
determine what portions, if any, of the Performance Award should be paid to the
Recipient.
3.04 RESTRICTED STOCK.
(a) Award of Restricted Stock. The Committee shall determine the
Purchase Price (if any) applicable to Restricted Stock, the terms of payment of
the Purchase Price, the restrictions upon the Restricted Stock, and when such
restrictions shall lapse.
(b) Requirements of Restricted Stock. All shares of Restricted Stock
granted or sold pursuant to the Plan will be subject to the following
conditions:
(i) No Transfer. The shares may not be sold, assigned, transferred,
pledged, hypothecated or otherwise disposed of, alienated or encumbered until
the restrictions are removed or expire;
(ii) Certificates. The Committee may require that the certificates
representing Restricted Stock granted or sold to a Recipient pursuant to the
Plan remain in the physical custody of an escrow holder or the Company until all
restrictions are removed or expire;
(iii) Restrictive Legends. Each certificate representing Restricted
Stock granted or sold to a Recipient pursuant to the Plan will bear such legend
or legends making reference to the restrictions imposed upon such Restricted
Stock as the Committee in its discretion deems necessary or appropriate to
enforce such restrictions; and
(iv) Other Restrictions. The Committee may impose such other
conditions on Restricted Stock as the Committee may deem advisable including,
without limitation, restrictions under the Securities Act, under the Exchange
Act, under the requirements of any stock exchange upon which such Restricted
Stock or shares of the same class are then listed and under any blue sky or
other securities laws applicable to such shares.
11
<PAGE> 12
(c) Lapse of Restrictions. The restrictions imposed upon Restricted
Stock will lapse in accordance with such schedule or other conditions as are
determined by the Committee.
(d) Rights of Recipient. Subject to the provisions of Section 3.04(b)
and any restrictions imposed upon the Restricted Stock, the Recipient will have
all rights of a shareholder with respect to the Restricted Stock granted or sold
to such Recipient under the Plan, including the right to vote the shares and
receive all dividends and other distributions paid or made with respect thereto.
(e) Termination of Employment. Unless the Committee in its discretion
determines otherwise, upon a Recipient's termination of employment for any
reason, all of the Recipient's Restricted Stock remaining subject to
restrictions imposed pursuant to the Plan on the date of such termination of
employment shall be repurchased by the Company at the Purchase Price (if any)
paid therefor by the Recipient.
3.05 STOCK APPRECIATION RIGHTS.
(a) Granting of Stock Appreciation Rights. The Committee may approve
the grant to Eligible Persons of Stock Appreciation Rights, related or unrelated
to Options, at any time.
(b) SARs Related to Options.
(i) A Stock Appreciation Right granted in connection with an Option
granted under this Plan will entitle the holder of the related Option, upon
exercise of the Stock Appreciation Right, to surrender such Option, or any
portion thereof to the extent unexercised, with respect to the number of shares
as to which such Stock Appreciation Right is exercised, and to receive payment
of an amount computed pursuant to Section 3.05(b)(iii). Such Option will, to the
extent surrendered, then cease to be exercisable.
(ii) A Stock Appreciation Right granted in connection with an
Option hereunder will be exercisable at such time or times, and only to the
extent that, the related Option is exercisable, and will not be transferable
except to the extent that such related Option may be transferable.
(iii) Upon the exercise of a Stock Appreciation Right related to an
Option, the Holder will be entitled to receive payment of an amount determined
by multiplying: (i) the difference obtained by subtracting the Exercise Price of
a share of Common Stock specified in the related Option from the Fair Market
Value of a share of Common Stock on the date of exercise of such Stock
Appreciation Right (or as of such other date or as of the occurrence of such
event as may have been specified in the instrument evidencing the grant of the
Stock Appreciation Right), by (ii) the number of shares as to which such Stock
Appreciation Right is exercised.
12
<PAGE> 13
(c) SARs Unrelated to Options. The Committee may grant Stock
Appreciation Rights unrelated to Options to Eligible Persons. Section
3.05(b)(iii) shall be used to determine the amount payable at exercise under
such Stock Appreciation Right, except that in lieu of the Option Exercise Price
specified in the related Option the initial base amount specified in the Award
shall be used.
(d) Limits. Notwithstanding the foregoing, the Committee, in its
discretion, may place a dollar limitation on the maximum amount that will be
payable upon the exercise of a Stock Appreciation Right under the Plan.
(e) Payments. Payment of the amount determined under the foregoing
provisions may be made solely in whole shares of Common Stock valued at their
Fair Market Value on the date of exercise of the Stock Appreciation Right or,
alternatively, at the sole discretion of the Committee, in cash or in a
combination of cash and shares of Common Stock as the Committee deems advisable.
The Committee has full discretion to determine the form in which payment of A
Stock Appreciation Right will be made and to consent to or disapprove the
election of a Recipient to receive cash in full or partial settlement of a Stock
Appreciation Right. If the Committee decides to make full payment in shares of
Common Stock, and the amount payable results in a fractional share, payment for
the fractional share will be made in cash.
(f) Rule 16b-3. The Committee may, at the time a Stock Appreciation
Right is granted, impose such conditions on the exercise of the Stock
Appreciation Right as may be required to satisfy the requirements of Rule 16b-3
under the Exchange Act (or any other comparable provisions in effect at the time
or times in question).
(g) Termination of Employment. Section 3.02(g) will govern the
treatment of Stock Appreciation Rights upon the termination of a Recipient's
employment with the Company.
3.06 STOCK PAYMENTS. The Committee may approve Stock Payments of the
Company's Common Stock to any Eligible Person for all or any portion of the
compensation (other than base salary) or other payment that would otherwise
become payable by the Company to the Eligible Person in cash.
3.07 DIVIDEND EQUIVALENTS. The Committee may grant Dividend Equivalents
to any Recipient who has received a Stock Option, SAR, or other Award
denominated in shares of Common Stock. Such Dividend Equivalents shall be
effective and shall entitle the recipients thereof to payments during the
"APPLICABLE DIVIDEND PERIOD," which shall be (i) the period between the date the
Dividend Equivalent is granted and the date the related Stock Option, SAR, or
other Award is exercised, terminates, or is converted to Common Stock, or (ii)
such other time as the Committee may specify in the written instrument
evidencing the grant of the Dividend Equivalent. Dividend Equivalents may be
paid in cash, Common Stock, or other Awards; the amount of Dividend Equivalents
paid other than in cash shall be determined by the Committee by application of
such formula as the Committee may deem appropriate to translate the cash value
of dividends paid to the alternative form of payment of the Dividend Equivalent.
Dividend Equivalents shall be computed as of each dividend record date and shall
be payable to recipients thereof at such time as the Committee may determine.
Notwithstanding the foregoing, if it is intended that an Incentive Award qualify
as Performance-Based Compensation and the amount of the compensation the
Eligible Person could receive under the award is based solely on an increase in
value of the underlying stock after the date of grant or award (i.e., the grant,
vesting, or exercisability of the award is not conditioned upon the attainment
of a preestablished, objective performance goal described in Section 1.01(t)),
then the payment of any Dividend Equivalents related to the award shall not be
made contingent on the exercise of the award.
13
<PAGE> 14
ARTICLE IV
NON-EMPLOYEE DIRECTOR'S OPTIONS
4.01 GRANTS OF ORIGINAL AND INITIAL OPTIONS.
(a) Original Options. Persons serving as Non-employee Directors as of
the closing of the initial public offering of the Company's securities shall,
upon such closing, receive a one-time grant of an option to purchase up to
10,000 shares (or 15,000 shares if such person has served as a director of the
Company for at least two years) of the Company's Common Stock at an exercise
price per share equal to the price to the public in such initial public
offering, subject to adjustment as set forth in Article V. Options granted under
this Section 4.01(a) are "ORIGINAL OPTIONS" for purposes hereof.
(b) Initial Options. Each Non-employee Director who joins the Board
after the consummation of the initial public offering of the Company's
securities shall, upon first becoming a Non-employee Director ("Eligible
Director"), receive a one-time grant of an option to purchase up to 5,000 shares
of the Company's Common Stock at an exercise price per share equal to the Fair
Market Value of the Company's Common Stock on the date of grant, subject to (a)
vesting as set forth in Section 4.03, and (b) adjustment as set forth in Article
V. Options granted under this Section 4.01(b) are "INITIAL OPTIONS" for purposes
hereof.
4.02 GRANTS OF ADDITIONAL OPTIONS. Immediately following the annual
meeting of shareholders of the Company next following an Eligible Director's
becoming an Eligible Director, and immediately following each subsequent annual
meeting of shareholders of the Company, in each case if the Eligible Director
has served as a director since his or her election or appointment and has been
re-elected as a director at such annual meeting or is continuing as a director
without being re-elected due to the classification of the board, such Eligible
Director shall automatically receive an option to purchase up to 2,500 shares of
the Company's Common Stock (an "ADDITIONAL OPTION"). In addition to the
Additional Options described above, an individual who was previously an Eligible
Director and received an initial grant of stock options under the Plan or
pursuant to a prior option plan for the Company's directors, who then ceased to
be a director for any reason, and who then again becomes an Eligible Director,
shall upon again becoming an Eligible Director automatically receive an
Additional Option. The exercise price per share for all Additional Options shall
be equal to the fair market value of the Company's Common Stock on the date of
grant, subject to (a) vesting as set forth in Section 4.03, and (b) adjustment
as set forth in Article V. No individual may receive Additional Options to
purchase more than an aggregate of 20,000 shares of the Company's Common Stock,
less the number of additional options received under any other option plan for
the Company's directors.
4.03 VESTING. Original Options shall vest and become exercisable with
respect to all underlying shares upon grant. Initial Options shall vest and
become exercisable with respect to 50% of the underlying shares upon the date of
grant and 50% of the underlying shares immediately prior to the next annual
shareholders' meeting following the date of grant (or, if an annual meeting of
shareholders occurs within six months after the grant date, then immediately
prior to the second annual shareholders' meeting after the date of grant), if
the Recipient has remained a director from the grant date to such vesting time.
Additional Options shall vest and become exercisable with respect to all
underlying shares upon the earlier of (y) the first anniversary the grant date
or (z) immediately prior to the annual meeting of shareholders of the Company
next following the grant date, if the optionee has served as a director from the
grant date to such earlier date. Notwithstanding the foregoing, however, Initial
Options and Additional Options that have not vested and become exercisable at
the time the optionee ceases to be a director shall terminate.
14
<PAGE> 15
4.04 EXERCISE. The exercise price for Non-employee Directors' Options
shall be payable as set forth in Section 3.02(c). Non-employee Directors'
Options shall be exercised in the manner provided in Section 3.02(e).
4.05 TERM OF OPTIONS AND EFFECT OF TERMINATION. Notwithstanding any
other provision of the Plan, no Non-employee Director's Option granted under the
Plan shall be exercisable after the expiration of ten years from the effective
date of its grant. In the event that the recipient of any Non-employee
Directors' Options granted under the Plan shall cease to be a director of the
Company, (a) all Original Options and Initial Options granted under this plan to
such recipient shall be exercisable, to the extent already exercisable at the
date such recipient ceases to be a director and regardless of the reason the
recipient ceases to be a director, for a period of 365 days after that date (or,
if sooner, until the expiration of the option according to its terms), and shall
then terminate; and (b) all Additional Options granted under this Plan to such
recipient shall be exercisable, to the extent already exercisable at the date
such recipient ceases to be a director, for a period of 365 days after that date
(or, if sooner, until the expiration of the option according to its terms) if he
or she ceases to be a director because of death or permanent disability, or for
a period of 90 days after that date (or, if sooner, until the expiration of the
option according to its terms) if he or she ceases to be a director for any
other reason, and shall then terminate. In the event of the death of an optionee
while such optionee is a director of the Company or within the period after
termination of such status during which he or she is permitted to exercise an
option, such option may be exercised by any person or persons designated by the
optionee on a beneficiary designation form adopted by the Plan administrator for
such purpose or, if there is no effective beneficiary designation form on file
with the Company, by the executors or administrators of the optionee's estate or
by any person or persons who shall have acquired the option directly from the
optionee by his or her will or the applicable laws of descent and distribution.
ARTICLE V
CORPORATE TRANSACTIONS
5.01 ANTI-DILUTION ADJUSTMENTS. The number of shares of Common Stock
available for issuance upon exercise of Awards granted under the Plan, the
number of shares for which each Award can be exercised, and the exercise price
per share of Awards shall be appropriately and proportionately adjusted for any
increase or decrease in the number of issued and outstanding shares of Common
Stock resulting from a subdivision or consolidation of shares or the payment of
a stock dividend or any other increase or decrease in the number of issued and
outstanding shares of capital stock of the Company effected without receipt of
consideration by the Company. No fractional interests will be issued under the
Plan resulting from any such adjustments. The preceding sentence shall not
result in an adjustment to the terms of an Incentive Stock Option unless such
adjustment either (a) would not cause the Option to lose its status as an
Incentive Stock Option or (b) is agreed to in writing by the Committee and the
Recipient.
5.02 REORGANIZATIONS; MERGERS; CHANGES IN CONTROL. Subject to the other
provisions of this Section 5.02, if the Company shall consummate any
reorganization or merger or consolidation in which holders of shares of the
Company's Common Stock are entitled to receive in respect of such shares any
other consideration (including, without limitation, a different number of such
shares), each Award outstanding under the Plan exercisable for Common Stock
shall thereafter be exercisable, in accordance with the Plan, only for the kind
and
15
<PAGE> 16
amount of securities, cash and/or other property receivable upon such
reorganization or merger or consolidation by a holder of the same number of
shares of Common Stock as are subject to that Award immediately prior to such
reorganization or merger or consolidation, and any appropriate adjustments will
be made to the exercise price thereof. In addition, if a Change in Control (as
defined below) occurs and in connection with such Change in Control any
Recipient's employment with the Company is terminated, then subject to the terms
of any written employment agreement between the Company and the Recipient and
the specific terms of any Award, such Recipient shall have the right to exercise
or receive the full benefit of his or her Awards granted under the Plan in whole
or in part during the applicable time period provided in Section 3.02(g) without
regard to any vesting or performance requirements or other milestones. For
purposes hereof, but without limitation, a Recipient's employment with the
Company will be deemed to have been terminated in connection with a Change of
Control if (i) the Recipient is removed from his or her employment with the
Company by or resigns his or her employment with the Company upon request of a
Person (as defined in paragraph (a) below) exercising practical voting control
over the Company following the Change in Control or a person acting upon
authority or at the instruction of such Person, or (ii) the Recipient's position
is eliminated as a result of a reduction in force within 150 days after the
consummation of the Change in Control. In addition, if a Change in Control
occurs and in connection with such Change in Control any recipient of a
Non-employee Director's Option granted under the Plan ceases to be a director of
the Company or its successor, then such recipient shall have the right to
exercise his or her Non-Employee Director's Options granted under the Plan in
whole or in part during the applicable time period provided in Section 4.05
without regard to any vesting requirements. For purposes hereof, but without
limitation, a director will be deemed to have ceased to be a director of the
Company or its successor in connection with a Change in Control if such director
(i) is removed by or resigns upon request of a Person (as defined in paragraph
(a) below) exercising practical voting control over the Company following the
Change in Control or a person acting upon authority or at the instruction of
such Person, or (ii) is willing and able to continue as a director of the
Company or its successor but is not re-elected to or retained on the Company's
board of directors by the Company's shareholders through the shareholder vote or
consent action for election of directors that precedes and is taken in
connection with, or next follows, the Change in Control, and is not elected or
appointed to the board of directors of the successor. For purposes hereof, a
"CHANGE IN CONTROL" means the following and shall be deemed to occur if any of
the following events occur:
(a) Any person, entity or group, within the meaning of Section 13(d) or
14(d) of the Exchange Act, but excluding the Company, its subsidiaries, any
employee benefit or stock ownership plan of the Company or its subsidiaries, and
any shareholder of the Company who, together with such shareholder's Affiliates,
owned at least 25% of the Common Stock prior to the effective date of the Plan
("affiliate" being defined for such purpose as an entity controlled by or under
common control with such shareholder), and also excluding an underwriter or
underwriting syndicate that has acquired the Company's securities solely in
connection with a public offering thereof (such person, entity or group being
referred to herein as a "Person"), becomes the beneficial owner (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or more of
either the then outstanding shares of Common Stock or the combined voting power
of the Company's then outstanding securities entitled to vote generally in the
election of directors; or
(b) Individuals who, as of the effective date hereof, constitute the
Board of Directors of the Company (the "Incumbent Board") cease for any reason
to constitute at least a majority of the Board of Directors of the Company,
provided that any individual who becomes a director after the effective date
hereof whose election, or nomination for election by the
16
<PAGE> 17
Company's shareholders, is approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered to be a member
of the Incumbent Board; or
(c) Consummation by the Company of the sale or other disposition by the
Company of all or substantially all of the Company's assets or a reorganization
or merger or consolidation of the Company with any other person, entity or
corporation, other than
(i) a reorganization or merger or consolidation that would result
in the voting securities of the Company outstanding immediately prior thereto
(or, in the case of a reorganization or merger or consolidation that is preceded
or accomplished by an acquisition or series of related acquisitions by any
Person, by tender or exchange offer or otherwise, of voting securities
representing 5% or more of the combined voting power of all securities of the
Company, immediately prior to such acquisition or the first acquisition in such
series of acquisitions) continuing to represent, either by remaining outstanding
or by being converted into voting securities of another entity, more than 50% of
the combined voting power of the voting securities of the Company or such other
entity outstanding immediately after such reorganization or merger or
consolidation (or series of related transactions involving such a reorganization
or merger or consolidation), or
(ii) a reorganization or merger or consolidation effected to
implement a recapitalization or reincorporation of the Company (or similar
transaction) that does not result in a material change in beneficial ownership
of the voting securities of the Company or its successor; or
(d) Approval by the shareholders of the Company or an order by a court
of competent jurisdiction of a plan of liquidation of the Company.
5.03 DETERMINATION BY THE COMMITTEE. To the extent that the foregoing
adjustments relate to stock or securities of the Company, such adjustments shall
be made by the Committee, whose determination in that respect shall be final,
binding and conclusive. The grant of an Award pursuant to the Plan shall not
affect in any way the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure or to merge or to consolidate or to dissolve, liquidate or sell, or
transfer all of any part of its business or assets.
17
<PAGE> 1
EXHIBIT 10.12
REMEDYTEMP, INC.
1996 EMPLOYEE STOCK PURCHASE PLAN
(AMENDED AND RESTATE EFFECTIVE AS OF AUGUST 16, 1999)
The following constitutes the provisions of the RemedyTemp, Inc. 1996
Employee Stock Purchase Plan (the "PLAN").
1. PURPOSE.
The purpose of the Plan is to maintain competitive equity compensation
programs and to provide employees of the Company with an opportunity and
incentive to acquire a proprietary interest in the Company through the purchase
of the Company's Class A Common Stock, thereby more closely aligning the
interests of the Company's employees and shareholders. It is the intention of
the Company to have the Plan qualify as an "Employee Stock Purchase Plan" under
Section 423 of the Internal Revenue Code of 1986, as amended ("SECTION 423").
Accordingly, the provisions of the Plan shall be construed to extend and limit
participation consistent with the requirements of Section 423.
2. DEFINITIONS.
Capitalized terms used in this Plan and not otherwise defined have the
meanings set forth below.
"ADMINISTRATOR" means the Committee, or the Board if the Board asserts
administrative authority over the Plan pursuant to Section 13.
"BOARD" means the Board of Directors of the Company.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" means a committee of members of the Board meeting the
qualifications described in Section 12 and appointed by the Board to administer
the Plan.
"COMMON STOCK" shall mean the Class A Common Stock of the Company.
"COMPANY" means RemedyTemp, Inc., a California corporation, and other
subsidiaries or affiliated companies of RemedyTemp, Inc. that have been or are
in the future permitted by RemedyTemp, Inc. to join the Plan as an additional
Company in accordance with this Plan. Notwithstanding any other provision in the
Plan to the contrary, the first listed Company, RemedyTemp, Inc. shall have the
power, acting alone and without the consent of any other entity or person, to
amend or terminate the Plan, to appoint the Trustee and members of the Board or
to exercise other powers reserved to the Company, and such act by RemedyTemp,
Inc. shall be binding on the other Companies that have adopted the Plan and all
other persons interested in the Plan. The Company shall act through a resolution
of its Board of Directors or the executive committee of its Board of Directors,
or, if applicable, may act through a delegatee of its Board or executive
committee. A reference to "Company" shall be deemed to include RemedyTemp, Inc.,
provided that notwithstanding anything in the Plan to the contrary, any power
reserved to the Company may be exercised by RemedyTemp, Inc. acting alone,
without the necessity of further action or consent by the Trustee, other
Companies, the Board, or any other person."
<PAGE> 2
"COMPENSATION" means, with respect to each participant for each pay
period, the full base salary or hourly compensation and any cash bonus paid to
such participant. Except as otherwise determined by the Committee for all
participants, "Compensation" does not include (i) commissions, overtime pay or
shift premiums, (ii) any amount contributed on behalf of a participant to any
pension plan or plan of deferred compensation, (iii) any automobile or
relocation allowances (or reimbursement for any such expenses), (iv) any amounts
realized as compensation from the exercise of qualified or nonqualified stock
options, (v) any amounts paid as a starting bonus or finder's fee, (vi) any
amounts paid to a participant in the form of fringe benefits, such as health and
welfare, hospitalization, and group life insurance benefits, or perquisites, or
paid in lieu of such benefits, such as cash-out credits generated under a plan
qualified under Code Section 125, or (vii) other similar forms of extraordinary
compensation.
"ELIGIBLE EMPLOYEE" means an Employee who has been an Employee for at
least six months.
"EMPLOYEE" means any individual who is customarily employed for at
least fifteen (15) hours per week and more than five (5) months in a calendar
year by the Company or a Subsidiary that is permitted to participate in the Plan
under Section 15(b). For purposes of the Plan, the employment relationship shall
be treated as continuing while the individual is on sick leave or other leave of
absence approved by the Company, except that when the period of leave exceeds 90
days and the individual's right to reemployment is not guaranteed either by
statute or by contract, the employment relationship will be deemed to have
terminated on the 91st day of such leave.
"ENROLLMENT DATE" means the first day of each Offering Period, i.e.
October 1, 1996 and each April 1 and October 1 thereafter for the duration of
the Plan.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXERCISE DATE" means the last day of each Offering Period, i.e. March
31, 1997 and each September 30 and March 31 thereafter for the duration of the
Plan.
"FAIR MARKET VALUE" of the Common Stock on any date means the value of
Common Stock determined as follows:
(1) If the Common Stock is listed on any established stock exchange
or a national market system, including, without limitation, the Nasdaq National
Market, its Fair Market Value shall be the closing sales price for such stock
(or the closing bid, if no sales were reported), as quoted on such exchange or
system (or the exchange or system with the greatest volume of trading in the
Common Stock) on the date of such determination (or, if such date is not a
Trading Day, then on the next preceding Trading Day), as reported in the Wall
Street Journal or such other source as the Administrator deems reliable; or
(2) If the Common Stock is quoted on the National Association of
Securities Dealers Automated Quotation System (but not on the Nasdaq National
Market) or is regularly quoted by a recognized securities dealer but selling
prices are not reported, its Fair Market Value shall be the mean between the
high and low asked prices for the Common Stock on the date of such determination
(or, if such date is not a Trading Day, then on the next preceding Trading Day),
as reported in the Wall Street Journal or such other source as the Administrator
deems reliable; or
2
<PAGE> 3
(3) In the absence of an established market for the Common Stock,
the Fair Market Value of the Common Stock shall be determined in good faith by
the Administrator.
"OFFERING PERIOD" means each period of six (6) months, either (i)
commencing on October 1, 1996 and each October 1 thereafter for the duration of
the Plan and terminating on the March 31 six (6) months later, or (ii)
commencing on April 1, 1997 and each April 1 thereafter for the duration of the
Plan and terminating on the September 30 six (6) months later. The Administrator
shall have the power to change the duration of Offering Periods without
shareholder approval as set forth in Section 11 or if such change is announced
at least fifteen (15) days prior to the scheduled beginning of the first
Offering Period to be affected.
"OPTION" means the option granted to each participant pursuant to
Section 4 upon enrollment in an Offering Period.
"PERIODIC EXERCISE LIMIT" has the meaning set forth in Section 4(a).
"PLAN ACCOUNT" means an account maintained by the Company for each
participant in the Plan, to which are credited the payroll deductions made for
such participant pursuant to Section 5 and from which are debited amounts paid
for the purchase of shares upon exercise of such participant's Option pursuant
to Section 6.
"PURCHASE PRICE" as of any Exercise Date means an amount equal to 85%
of the Fair Market Value of a share of Common Stock on the Exercise Date or on
the Enrollment Date for the Offering Period in which such Exercise Date occurs,
whichever is lower.
"RESERVES" means the number of shares of Common Stock covered by each
Option that have not yet been exercised and the number of shares of Common Stock
that have been authorized for issuance under the Plan, but not yet placed under
Option.
"RULE 16B-3" means Rule 16b-3 under the Exchange Act and any successor
provision.
"SUBSIDIARY" has the meaning as set forth under Section 424(f) of the
Code.
"TRADING DAY" means a day on which national stock exchanges and the
National Association of Securities Dealers Automated Quotation System are open
for trading.
3. OFFERING PERIODS AND PARTICIPATION.
The Plan shall be implemented through a series of consecutive Offering
Periods. An Eligible Employee may enroll in an Offering Period by delivering a
subscription agreement in the form of Exhibit A hereto to the Company's payroll
office at least five (5) business days prior to the Enrollment Date for that
Offering Period. A subscription agreement in effect for a Plan participant for a
particular Offering Period shall continue in effect for subsequent Offering
Periods if the participant remains an Eligible Employee and has not withdrawn
pursuant to Section 7.
3
<PAGE> 4
4. OPTIONS.
(a) Grants. On the Enrollment Date for each Offering Period, each
Eligible Employee participating in such Offering Period shall be granted an
Option to purchase on the Exercise Date of such Offering Period (at the
applicable Purchase Price) up to that number of shares of Common Stock
determined by dividing $12,500 by the Fair Market Value of a share of Common
Stock on the Enrollment Date (such number of shares being the "PERIODIC EXERCISE
LIMIT"). The Option shall expire immediately after the Exercise Date of the
Offering Period.
(b) Grant Limitations. Any provisions of the Plan to the contrary
notwithstanding, no participant shall be granted an Option under the Plan:
(i) if, immediately after the grant, such participant (taking into
account stock held by other persons that is attributed to such Employee
pursuant to Section 424(d) of the Code) would own stock and/or hold
outstanding options to purchase stock possessing five percent (5%) or
more of the total combined voting power or value of all classes of
stock of the Company or of any Subsidiary (as determined under Treasury
Regulations Section 1.423-2(d)); or
(ii) which permits such participant's rights to purchase stock
under all employee stock purchase plans of the Company and its
Subsidiaries to accrue at a rate that exceeds Twenty-Five Thousand
Dollars ($25,000) worth of stock (determined at the Fair Market Value
of the shares at the time such Option is granted) in any calendar year.
(c) No Rights in Respect of Underlying Stock. The participant will have
no interest or voting right in shares covered by an Option until such Option has
been exercised.
5. PAYROLL DEDUCTIONS.
(a) Participant Designations. The subscription agreement applicable to
an Offering Period shall designate payroll deductions to be made on each payday
during the Offering Period as a whole number percentage not exceeding ten
percent (10%) of such Eligible Employee's Compensation for the pay period
preceding such payday, provided that the aggregate of such payroll deductions
during the Offering Period shall not exceed ten percent (10%) of the
participant's Compensation during said Offering Period.
(b) Plan Account Balances. The Company shall make payroll deductions as
specified in each participant's subscription agreement on each payday during the
Offering Period and credit such payroll deductions to such participant's Plan
Account. A participant may not make any additional payments into such Plan
Account. No interest will accrue on any payroll deductions. All payroll
deductions received or held by the Company under the Plan may be used by the
Company for any corporate purpose, and the Company shall not be obligated to
segregate such payroll deductions.
(c) Participant Changes. A participant may discontinue his or her
participation in the Plan as provided in Section 7, or may increase or decrease
(subject to such limits as the Administrator may impose) the rate of his or her
payroll deductions during any Offering Period by filing with the Company a new
subscription agreement authorizing such a change in the payroll deduction rate.
The change in rate shall be effective with the first full payroll period
following five (5) business days after the Company's receipt of the new
subscription agreement, unless the Company elects to process a given change in
participation more quickly.
4
<PAGE> 5
(d) Decreases. Notwithstanding the foregoing, to the extent necessary
to comply with Section 423(b)(8) of the Code and Section 4(b) herein, a
participant's payroll deductions may be decreased to 0% at such time during any
Offering Period that is scheduled to end during a calendar year (the "CURRENT
PURCHASE PERIOD") when the aggregate of all payroll deductions previously used
to purchase stock under the Plan in a prior Offering Period which ended during
that calendar year plus all payroll deductions accumulated with respect to the
Current Purchase Period equal $21,250. Payroll deductions shall recommence at
the rate provided in such participant's subscription agreement at the beginning
of the first Offering Period that is scheduled to end in the following calendar
year, unless terminated by the participant as provided in Section 7.
(e) Tax Obligations. At the time of each exercise of a participant's
Option, and at the time any Common Stock issued under the Plan to a participant
is disposed of, the participant must adequately provide for the Company's
federal, state, or other tax withholding obligations, if any, that arise upon
the exercise of the Option or the disposition of the Common Stock. At any time,
the Company may, but will not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefit attributable to sale or early disposition of
Common Stock by the Employee.
(f) Statements of Account. The Company shall maintain each
participant's Plan Account and shall give each Plan participant a statement of
account at least annually. Such statements will set forth the amounts of payroll
deductions, the Purchase Price, the number of shares purchased and the remaining
cash balance, if any, for the period covered.
6. EXERCISE OF OPTIONS.
(a) Automatic Exercise on Exercise Dates. Unless a participant
withdraws as provided in Section 7, his or her Option for the purchase of shares
will be exercised automatically on the Exercise Date of the Offering Period in
which such participant is enrolled for the maximum number of shares of Common
Stock, including fractional shares, as can then be purchased at the applicable
Purchase Price with the payroll deductions accumulated in such participant's
Plan Account and not yet applied to the purchase of shares under the Plan,
subject to the Periodic Exercise Limit. During a participant's lifetime, a
participant's Options to purchase shares hereunder are exercisable only by the
participant.
(b) Delivery of Shares. As promptly as practicable after each Exercise
Date on which a purchase of shares occurs, the Company shall arrange the
delivery to each participant, as appropriate, of a certificate or book entry
transfer representing the shares purchased upon exercise of his or her Option,
provided that the Company may in its discretion hold fractional shares for the
accounts of the participants pending aggregation to whole shares.
(c) Compliance with Law. Shares shall not be issued with respect to an
Option unless the exercise of such Option and the issuance and delivery of such
shares pursuant thereto comply with all applicable provisions of law, domestic
or foreign, including, without limitation, the Securities Act of 1933, as
amended, the Exchange Act, the rules and regulations promulgated thereunder, and
the requirements of any stock exchange upon which the shares may then be listed,
and shall be further subject to the approval of counsel for the Company
5
<PAGE> 6
with respect to such compliance. As a condition to the exercise of an Option,
the Company may require the participant for whom an Option is exercised 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 any of the aforementioned applicable provisions of
law. Shares issued upon purchase under the Plan may be subject to such transfer
restrictions and stop-transfer instructions as the Administrator deems
appropriate.
(d) Excess Plan Account Balances. If, due to application of the
Periodic Exercise Limit, there remains in a participant's Plan Account
immediately following exercise of such participant's Option on an Exercise Date
any cash accumulated during the Purchase Period immediately preceding such
Exercise Date and not applied to the purchase of shares under the Plan, such
cash shall promptly be returned to the participant.
7. WITHDRAWAL: TERMINATION OF EMPLOYMENT.
(a) Voluntary Withdrawal. Subject to Section 15(g), a participant may
withdraw from an Offering Period by giving written notice to the Company's
payroll office at least five (5) business days prior to the Exercise Date. Such
withdrawal shall be effective beginning five business days after receipt by the
Company's payroll office of notice thereof. On or promptly following the
effective date of any withdrawal, all (but not less than all) of the withdrawing
participant's payroll deductions credited to his or her Plan Account and not yet
applied to the purchase of shares under the Plan will be paid to such
participant, and on the effective date of such withdrawal such participant's
Option for the Offering Period will be automatically terminated, and no further
payroll deductions for the purchase of shares will be made during the Offering
Period. If a participant withdraws from an Offering Period, payroll deductions
will not resume at the beginning of any succeeding Offering Period unless the
participant delivers to the Company a new subscription agreement with respect
thereto.
(b) Termination of Employment. Promptly after a participant's ceasing
to be an Employee for any reason the payroll deductions credited to such
participant's Plan Account and not yet applied to the purchase of shares under
the Plan will be returned to such participant or, in the case of his or her
death, to the person or persons entitled thereto under Section 9, and such
participant's Option will be automatically terminated, provided that, if the
Company does not learn of such death more than five (5) business days prior to
an Exercise Date, payroll deductions credited to such participant's Plan account
may be applied to the purchase of shares under the Plan on such Exercise Date.
8. TRANSFERABILITY.
Neither payroll deductions credited to a participant's Plan Account nor
any rights with regard to the exercise of an Option or to receive shares under
the Plan may be assigned, transferred, pledged or otherwise disposed of by the
participant in any way other than by will, the laws of descent and distribution
or as provided in Section 9 hereof. Any such attempt at assignment, transfer,
pledge or other disposition shall be without effect, except that the
Administrator may treat such act as an election to withdraw from an Offering
Period in accordance with Section 7. The Administrator may, in its discretion
and consistent with applicable law, restrict the transfer of shares purchased
under the Plan by imposing a holding period not to exceed one year from the date
of issuance.
6
<PAGE> 7
9. DESIGNATION OF BENEFICIARY.
A participant may file a written designation of a beneficiary who is to
receive any cash from the participant's Plan Account in the event of such
participant's death and any shares purchased for the participant upon exercise
of his or her Option but not yet issued. If a participant is married and the
designated beneficiary is not the spouse, spousal consent may be required for
such designation to be effective. A designation of beneficiary may be changed by
a participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the estate
of the participant, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its discretion, may deliver
such shares and/or cash to the spouse or to any one or more dependents or
relatives of the participant, or if no spouse, dependent or relative is known to
the Company, then to such other person as the Company may designate.
10. STOCK.
The maximum number of shares of the Company's Common Stock that shall
be made available for sale under the Plan shall be 250,000 shares, subject to
adjustment upon changes in capitalization of the Company as provided in Section
11. If on a given Enrollment Date or Exercise Date the number of shares with
respect to which Options are to be granted or exercised exceeds the number of
shares then available under the Plan, the Administrator shall make a pro rata
allocation of the shares remaining available for purchase in as uniform a manner
as shall be practicable and as it shall determine to be equitable. Shares of
Common Stock subject to unexercised Options that expire, terminate or are
cancelled will again become available for the grant of further Options under the
Plan.
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, MERGER OR
ASSET SALE.
(a) Changes in Capitalization. Subject to any required action by the
shareholders of the Company, the Reserves as well as the Purchase Price,
Periodic Exercise Limit, and other characteristics of the Options, shall be
appropriately and proportionately adjusted for any increase or decrease or
exchange in the issued shares of Common Stock resulting from a stock split,
reverse stock split, stock dividend, combination or reclassification of the
Common Stock, exchange or any other increase or decrease in the number of 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 issue 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. The Administrator may, if it so determines
in the exercise of its sole discretion, provide for adjusting the Reserves, as
well as the Purchase Price, Periodic Exercise Limit, and other characteristics
of the Options, in the event the Company effects one or more reorganizations,
recapitalizations, rights offerings or other increases or reductions of shares
of its outstanding Common Stock.
7
<PAGE> 8
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the pending Offering Period will
terminate immediately prior to the consummation of such proposed action, unless
otherwise provided by the Administrator, and all Plan Account balances will be
paid to participants as appropriate consistent with applicable law.
(c) Merger or Asset Sale. In the event of a proposed sale of all or
substantially all of the assets of the Company, or the merger or other
combination (the "TRANSACTION") of the Company with or into another entity, each
Option under the Plan shall be assumed or an equivalent option shall be
substituted by such successor entity or a parent or subsidiary of such successor
entity, unless the Administrator determines, in the exercise of its sole
discretion and in lieu of such assumption or substitution, to shorten the
Offering Period then in progress by setting a new Exercise Date (the "NEW
EXERCISE DATE"). If the Administrator shortens the Offering Period then in
progress in lieu of assumption or substitution, the Administrator shall notify
each participant in writing, at least ten (l0) days prior to the New Exercise
Date, that the Exercise Date for such participant's Option has been changed to
the New Exercise Date and that such participant's Option will be exercised
automatically on the New Exercise Date, unless prior to such date the
participant has withdrawn from the Offering Period as provided in Section 8
(provided that, in such case, the participant's withdrawal shall be effective if
notice thereof is delivered to the Company's payroll office at least two (2)
business days prior to the New Exercise Date). For purposes of this Section, an
Option granted under the Plan shall be deemed to be assumed if, following the
Transaction, the Option confers the right to purchase at the Purchase Price
(provided that for such purposes the Fair Market Value of the Common Stock on
the New Exercise Date shall be the value per share of the consideration paid in
the Transaction), for each share of stock subject to the Option immediately
prior to the Transaction, the consideration (whether stock, cash or other
securities or property) received in the Transaction by holders of Common Stock
for each share of Common Stock held on the effective date of the transaction
(and if such holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the outstanding shares of
Common Stock); provided, however, that if such consideration received in the
Transaction was not solely common equity of the successor entity or its parent
(as defined in Section 424(e) of the Code), the Administrator may, with the
consent of the successor entity and the participant, provide for the
consideration to be received upon exercise of the Option to be solely common
equity of the successor entity or its parent equal in fair market value to the
per share consideration received by holders of Common Stock in the Transaction.
12. ADMINISTRATION.
The Plan shall be administered by the Committee, which shall have the
authority to construe, interpret and apply the terms of the Plan and any
agreements defining the rights and obligations of the Company and participants
under the Plan, to prescribe, amend, and rescind rules and regulations relating
to the Plan, to determine eligibility and to adjudicate all disputed claims
filed under the Plan, and to make all other determinations necessary or
advisable for the administration of the Plan. The Administrator may, in its
discretion, delegate ministerial responsibilities under the Plan to the Company.
Every finding, decision and determination made by the Committee shall, to the
full extent permitted by law, be final and binding upon all parties. Any action
of the Committee shall be taken pursuant to a majority vote or by the unanimous
written consent of its members. The Committee shall consist of three or more
members of the Board, each of whom shall be disinterested within the meaning of
Rule 16b-3, provided, however, that the number of members of the Committee may
be reduced or increased from time to time by the Board to the number required or
allowed by Rule 16b-3. The Board may from time to time in its discretion
exercise any responsibilities or authority allocated to the Committee under the
Plan. No member of the Committee or any designee thereof will be liable for any
action or determination made in good faith with respect to the Plan or any
transaction arising under the Plan.
8
<PAGE> 9
13. AMENDMENT OR TERMINATION.
(a) Administrator's Discretion. The Administrator may, at any time and
for any reason, terminate or amend the Plan. Except as provided in Section 11,
no such termination can affect Options previously granted, provided that an
Offering Period may be terminated by the Administrator on any Exercise Date if
the Administrator determines that such termination is in the best interests of
the Company and its shareholders. Except as provided herein, no amendment may
make any change in any Option theretofore granted that adversely affects the
rights of any participant. To the extent necessary to comply with and qualify
under Rule 16b-3 or under Section 423 (or any successor rule or provision or any
other applicable law or regulation), the Administrator shall obtain shareholder
approval of amendments to the Plan in such a manner and to such a degree as
required.
(b) Administrative Modifications. Without shareholder consent (except
as specifically required by applicable law or regulation) and without regard to
whether any participant rights may be considered to have been "adversely
affected," the Administrator shall be entitled to amend the Plan to the extent
necessary to comply with and qualify under Rule 16b-3 and Section 423, change
the duration of the Offering Period, limit the frequency and/or number of
changes in payroll deductions during an Offering Period, establish the exchange
ratio applicable to amounts withheld in a currency other than U.S. dollars,
permit payroll withholding in excess of the amount designated by a participant
to adjust for delays or mistakes in the Company's processing of properly
completed withholding elections, establish reasonable waiting and adjustment
periods and/or accounting and crediting procedures to ensure that amounts
applied toward the purchase of Common Stock for each participant properly
correspond with amounts withheld from the participant's Compensation, and
establish such other limitations or procedures as the Administrator determines
in its sole discretion to be advisable and which are consistent with the Plan.
14. TERM OF PLAN.
The Plan shall become effective upon the first Enrollment Date after
its approval by the shareholders of the Company and shall continue in effect for
a term of twenty (20) years unless sooner terminated pursuant to Section 13.
15. MISCELLANEOUS.
(a) Notices. All notices or other communications by a participant to
the Company under or in connection with the Plan shall be deemed to have been
duly given when received in the form specified by the Company at the location,
or by the person, designated by the Company for the receipt thereof.
(b) Subsidiaries. The Administrator may from time to time in its
discretion permit Employees of any Subsidiary to participate in the Plan on the
same terms as Eligible Employees hereunder.
(c) Shareholder Approval. The Plan shall be subject to approval by the
shareholders of the Company within twelve months before or after the date the
Board adopts the Plan. If such shareholder approval is not obtained, the Plan
and all rights to the Common Stock purchased under the Plan shall be null and
void and shall have no effect.
9
<PAGE> 10
(d) Expenses. All costs and expenses incurred in administering the Plan
shall be paid by the Company, except that any stamp duties or transfer taxes
applicable to participation in the Plan may be charged to the account of such
participant by the Company. Any brokerage fees for the purchase of shares by a
participant shall be paid by the Company, but any brokerage fees for the sale of
shares by a participant shall be borne by the participant.
(e) Equal Rights and Privileges. All Employees of the Company (or of
any Subsidiary that is permitted to participate in the Plan under Section 15(b))
shall have equal rights and privileges under the Plan so that the Plan qualifies
as an "employee stock purchase" within the meaning of Section 423 (or any
successor provision of the Code) and the Treasury regulations thereunder. Any
provision of the Plan which is inconsistent with Section 423 (or any successor
provision of the Code) or applicable Treasury regulations shall, without further
act or amendment by the Company or the Board, be reformed to comply with the
requirements of Section 423 (or any successor provision of the Code) or
applicable Treasury regulations. This Section 15(e) shall take precedence over
all other provisions of the Plan.
(f) Exclusion From Retirement and Fringe Benefit Computation. To the
extent not prohibited by statutory law, no portion of the award of Options under
this Plan shall be taken into account as "wages," "salary," or other
"compensation" for any purpose, whether in determining eligibility, benefits, or
otherwise, under (i) any pension, retirement, profit sharing or other qualified
or nonqualified plan of deferred compensation, (ii) any employee welfare or
fringe benefit plan including, but not limited to, group insurance,
hospitalization, medical, and disability, or (iii) any form of extraordinary pay
including but not limited to, bonuses, sick pay, and vacation pay.
(g) Additional Restrictions of Rule 16b-3. The terms and conditions of
Options granted hereunder to, and the purchase of shares by, persons subject to
Section 16 of the Exchange Act shall comply with the applicable provisions of
Rule 16b-3. This Plan shall be deemed to contain, and such Options shall
contain, and the shares issued upon exercise thereof shall be subject to, such
additional conditions and restrictions as may be required by Rule 16b-3 to
qualify for the maximum exemption from Section 16 of the Exchange Act with
respect to Plan transactions. Without limitation of the foregoing, the election
by a person subject to Section 16 of the Exchange Act to enroll in an Offering
Period may be made irrevocable for specific Purchase Period within the Offering
Period.
(h) No Employment Rights. The Plan does not, directly or indirectly,
create any right for the benefit of an employee or class of employees to
purchase any shares under the Plan, or create in any employee or class of
employees any right with respect to continuation of employment by the Company,
and it shall not be deemed to interfere in any way with the Company's right to
terminate, or otherwise modify, an employee's employment at any time.
(i) Applicable Law. The laws of the State of California shall govern
all matters relating to the Plan, except to the extent (if any) superseded by
the laws of the United States.
(j) Headings. Headings used herein are for convenience of reference
only and do not affect the meaning or interpretation of the Plan.
10
<PAGE> 11
REMEDYTEMP, INC.
1996 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date: ___________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. The undersigned hereby elects to participate in the RemedyTemp, Inc.
1996 Employee Stock Purchase Plan (the "Plan") and subscribes to
purchase shares of the Company's Common Stock in accordance with this
Subscription Agreement and the Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount
of ____% (not to exceed 10%) of my Compensation (as defined in the
Plan) on each payday during the Offering Period in accordance with the
Plan. (Please note that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Plan. I understand that if I do not
withdraw from an Offering Period, any accumulated payroll deductions
will be used to automatically exercise my Option on the Exercise Date
of the Offering Period.
4. I have received a copy of the complete Plan. I understand that my
participation in the Plan is in all respects subject to the terms of
the Plan, that capitalized terms used herein have the same meanings as
ascribed thereto in the Plan, and that in case of any inconsistency
between this Subscription Agreement and the Plan, the Plan shall
govern. I understand that the grant of the Option by the Company under
this Subscription Agreement is subject to shareholder approval of the
Plan.
5. Shares purchased for me under the Plan should be issued in the name(s)
of (employee and/or spouse only): ___________________________________
_______________________________________________________.
6. I understand that if I dispose of any shares received by me pursuant to
the Plan within two years after the Enrollment Date (the first day of
the Offering Period during which I purchased such shares) or within one
year after the Exercise Date (the date I purchased such shares), I will
be treated for federal income tax purposes as having received ordinary
income at the time of such disposition in an amount equal to the excess
of the fair market value of the shares at the time such shares were
delivered to me over the price which I paid for the shares. I hereby
agree to notify the Company in writing within 30 days after the date of
any disposition of my shares, and I will make adequate provision for
Federal, State or other tax withholding obligations, if any, which
arise upon the disposition of the Common Stock. The Company may, but
will not be obligated to, withhold from my Compensation or other
amounts payable to me the amount necessary to meet any applicable
withholding obligation including any withholding necessary to make
available to the Company any tax deductions or benefits attributable to
sale or early disposition of Common Stock by me. If I dispose of such
shares at any time after the expiration of the one-year and two-year
holding periods described above, I understand that I will be treated
for federal income tax purposes as having received income only at the
time of such disposition, and that such income will be taxed as
ordinary income only to the extent of an amount equal to the lesser of
(a) the excess
<PAGE> 12
of the fair market value of the shares at the time of such disposition
over the purchase price which I paid for the shares, or (b) 15% of the
fair market value of the shares on the first day of the Offering
Period. The remainder of the gain, if any, recognized on such
disposition will be taxed as capital gain. I understand that this tax
summary is only a summary for general information purposes and is
subject to change and I agree to consult with my own tax advisors for
definitive advice regarding the tax consequences to me of participation
in the Plan and sale of shares purchased thereunder.
7. I agree to be bound by the terms of the Plan. The effectiveness of this
Subscription Agreement is dependent upon my eligibility to participate
in the Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive (in proportion to the percentages listed
below) all payments and shares due me under the Plan (use additional
sheets to add beneficiaries):
NAME: (Please print) __________________________________________________
(First) (Middle) (Last)
________________________________ ___________________________________
Relationship
Percentage: __________ ___________________________________
(Address)
NAME: (Please print) __________________________________________________
(First) (Middle) (Last)
_________________________________ ___________________________________
Relationship
Percentage: __________ ___________________________________
(Address)
Employee's Social
Security Number: ____________________________________________________________
Employee's Address: ____________________________________________________________
____________________________________________________________
____________________________________________________________
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated: ___________________ ______________________________________
Signature of Employee
______________________________________
Spouse's Signature (If beneficiary
other than spouse)
2
<PAGE> 1
EXHIBIT 13.1
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FISCAL YEAR ENDED(1)
----------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Total revenues ................... $513,536 $451,344 $360,346 $285,519 $209,003
Income before income taxes ....... 24,749 23,177 17,424 12,007 6,497
Provision for income taxes(2)..... 9,528 9,271 7,231 7,794 97
-------- -------- -------- -------- --------
Net income ....................... $ 15,221 $ 13,906 $ 10,193 $ 4,213 $ 6,400
======== ======== ======== ======== ========
Net income per share, basic ...... $ 1.72 $ 1.55 $ 1.15 $ 0.58 $ 0.94
======== ======== ======== ======== ========
Weighted-average number of shares,
basic .......................... 8,864 8,966 8,896 7,225 6,795
Net income per share, diluted .... $ 1.71 $ 1.50 $ 1.13 $ 0.58 $ 0.94
======== ======== ======== ======== ========
Weighted-average number of shares,
diluted ........................ 8,923 9,297 9,042 7,250 6,795
PRO FORMA DATA(2):
Income before income taxes ....... $ 12,007 $ 6,497
Provision for income taxes ....... 4,923 2,599
-------- --------
Net income ....................... $ 7,084 $ 3,898
======== ========
BALANCE SHEET DATA:
Cash and cash equivalents ........ $ 7,887 $ 450 $ 5,128 $ 10,959 $ 2,204
Working capital .................. $ 51,969 $ 42,398 $ 39,130 $ 35,341 $ 14,649
Total assets ..................... $116,721 $ 89,785 $ 73,806 $ 63,906 $ 43,496
Long-term debt ................... $ 0 $ 0 $ 281 $ 734 $ 1,142
Shareholders' equity ............. $ 75,456 $ 62,437 $ 47,061 $ 36,276 $ 19,308
</TABLE>
- -------------------
(1) The fiscal year end of RemedyTemp, Inc., including its wholly-owned
subsidiaries, (collectively the "Company"), is a 52 or 53 week period
ending the Sunday closest to September 30. Thus, "fiscal 1999," "fiscal
1998," "fiscal 1997," "fiscal 1996," and "fiscal 1995" refer to the
Company's fiscal years ending October 3, 1999, September 27, 1998,
September 28, 1997, September 29, 1996 and October 1, 1995, respectively.
Fiscal year 1999 consisted of 53 weeks. All other fiscal years consisted
of 52 weeks.
(2) Prior to the Company's initial public offering (the "Offering") in July
1996, the Company operated as an S corporation under Subchapter S of the
Internal Revenue Code and comparable provisions of certain state income
tax laws. The pro forma income statement data reflects provisions for
federal and state income taxes as if the Company had been subject to
federal and state income taxation as a C corporation during each of the
periods presented. The termination of the Company's S corporation status
in connection with the Offering resulted in a non-recurring net charge to
actual earnings of $7.8 million in the fourth quarter of fiscal 1996.
1
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
In addition to historical information, management's discussion and
analysis includes certain forward-looking statements, including, but not limited
to, those related to the Company's growth and strategies, future operating
results and financial position as well as economic and market events and trends.
All forward-looking statements made by the Company, including such statements
herein, include material risks and uncertainties and are subject to change based
on factors beyond the control of the Company. Accordingly, the Company's actual
results and financial position could differ materially from those expressed or
implied in any forward-looking statement as a result of various factors,
including without limitation, Year 2000 issues, changes in general or local
economic conditions, the availability of sufficient personnel, increased costs
of personnel and the potential negative impact on margins, the Company's ability
to attract and retain clients and franchisees/licensees and other factors
described in the Company's filings with the Securities and Exchange Commission
regarding risks affecting the Company's financial conditions and results of
operations. The Company does not undertake to publicly update or revise its
forward-looking statements even if experience or future changes make it clear
that any projected results expressed or implied therein will not be realized.
The following should be read in conjunction with the Consolidated Financial
Statements of the Company and Notes thereto.
GENERAL
The Company provides temporary staffing services to industrial, service
and e-commerce companies, professional organizations and governmental agencies.
During the twelve fiscal months ended October 3, 1999, the Company placed
approximately 162,000 temporary workers and provided over 45.3 million hours of
staffing services to approximately 17,000 clients. From the beginning of fiscal
1995 through the end of fiscal 1999, the Company added 132 offices, for a total
of 251 offices and increased revenues and income before taxes at compound annual
growth rates of approximately 27.4% and 45.4%, respectively, to $513.5 million
and $24.7 million, respectively.
OPERATIONS
The Company's revenues are derived from Company-owned offices (direct
sales) and independently-managed offices (licensed sales and franchise
royalties). Under the Company's franchise arrangements, the franchisee pays all
lease and working capital costs relating to its office, including funding
payroll and collecting clients' accounts. The franchisee pays the Company an
initial franchise fee and royalties equal to 7% of its gross billings (except
for national accounts on which royalties are paid at a reduced rate). The
Company processes payroll and invoices clients, and the franchisee employs all
management staff and temporary personnel affiliated with its office. Under the
Company's license arrangements, the licensee pays the Company an initial license
fee and pays all lease and operating costs relating to its office. The licensee
employs all management staff affiliated with its office, but the Company employs
all temporary personnel affiliated with the licensed office, handles invoicing
and collecting clients' accounts, and remits to the licensee 60% - 70% of the
office's gross profit. However, the Company's share of the licensed gross profit
is not less than 7.5% of licensee's gross billings, with the exception of
national accounts on which the Company's fee is reduced to compensate for lower
gross margins. The amount of gross profit paid to the licensee is based on the
level of hours billed during the contract year.
As of October 3, 1999, there were 20 independently-managed offices
operating as franchises and 130 operating as licensed offices. In general,
independently-managed offices opened from 1987 to 1990 are operated as
franchises, and independently-managed offices opened since 1990 are operated as
licensed offices. The Company moved from franchise to license format to exercise
more control over the collection and tracking of the receivables of the
independently-managed offices and to allow the Company to grow without being
limited by the financial resources of franchisees. The number of licensed
offices is expected to increase because new independently-managed offices will
be opened in license format and offices currently operated as franchises may,
depending upon various factors, be converted to license format upon renewal of
their franchise agreements. However, existing franchisees have the option under
their contract to open new franchise offices within their territory. If the
number of franchise offices is reduced, royalty income will decrease.
The table on the following page sets forth for the last five fiscal
years, the number of Company-owned, franchised and licensed offices and customer
billings associated with each. Total system-wide billings consist of all
services billed to clients by all Company-owned and independently-managed
offices. For the Company-owned offices and licensed offices, all billings are
Company revenues; for franchised offices, Company revenues are royalties.
Average billings per office is computed by dividing the relevant billings by the
number of related offices. The Company's long-term revenue growth depends in
part upon its ability to continue to attract new clients, retain existing
clients and open new offices, as well as its ability to enhance the sales of
existing offices beyond historical levels.
2
<PAGE> 3
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
COMPANY-OWNED OFFICES
Number of offices ............. 101 98 86 68 63
Average hours billed per office 241,108 241,216 233,233 248,062 217,907
Total billings ................ $279,206 $274,577 $221,679 $184,564 $144,646
Average billings per office ... $ 2,764 $ 2,802 $ 2,578 $ 2,714 $ 2,296
LICENSED OFFICES
Number of offices ............. 130 117 93 73 58
Average hours billed per office 137,065 118,494 123,813 117,373 96,545
Total billings ................ $231,480 $173,764 $135,532 $ 98,003 $ 61,377
Average billings per office ... $ 1,781 $ 1,485 $ 1,457 $ 1,343 $ 1,058
FRANCHISED OFFICES
Number of offices ............. 20 19 20 20 21
Average hours billed per office 158,713 184,679 190,345 190,674 175,699
Total billings ................ $ 43,845 $ 45,371 $ 46,526 $ 44,304 $ 41,095
Average billings per office ... $ 2,192 $ 2,388 $ 2,326 $ 2,215 $ 1,957
Royalties ..................... $ 2,689 $ 2,812 $ 2,948 $ 2,811 $ 2,751
TOTAL OFFICES ................. 251 234 199 161 142
TOTAL SYSTEM-WIDE BILLINGS .... $554,531 $493,712 $403,737 $326,871 $247,118
AVERAGE HOURS BILLED PER OFFICE 180,656 175,265 177,786 181,677 162,096
TOTAL COMPANY REVENUES ........ $513,536 $451,344 $360,346 $285,519 $209,003
</TABLE>
WORKERS' COMPENSATION
From July 22, 1997 through March 31, 1999, the Company utilized an
insured workers' compensation program for Company-owned and licensed offices,
administered through its wholly-owned subsidiary, Remedy Insurance Group, LTD
("RIG"). Under this program the Company paid a deductible of up to $250,000 per
individual claim and purchased excess liability coverage for individual claims
greater than $250,000 and aggregate claims greater than $7.5 million for the
twelve months ended July, 1998, and $7.0 million for the nine months ended
March, 1999.
Effective April 1, 1999, the Company entered into a reinsurance
contract with Reliance National Insurance Company ("Reliance") whereby Reliance
assumed the Company's remaining deductible liability for all open claims
incurred during the period July 22, 1997 to March 31, 1999. Additionally, the
Company entered into a one-year fully insured workers' compensation program with
Reliance. This program has a fixed cost for payroll up to $295.0 million (the
"Base Rate") and for payroll exceeding $295.0 million, the premium is at a
lesser rate than the Base Rate. The Company paid the aggregate cost of both the
reinsurance contract and the one-year premium, a total of $18.9 million, to
Reliance on April 16, 1999. The reinsurance contract includes a provision for
additional payments up to $700,000 in the event that ultimate losses exceed the
projected losses as of April 1, 1999. At fiscal year end, the Company provided
for the additional $700,000 due to current loss projections.
RESULTS OF OPERATIONS
Fiscal 1999 Compared to Fiscal 1998
Total revenues increased 13.8% or $62.2 million to $513.5 million for
fiscal 1999 from $451.3 million for fiscal 1998. Direct revenues increased 1.7%
to $279.2 million from $274.6 million, while licensed revenues increased 33.2%
to $231.5 million from $173.8 million for fiscal 1999 compared to fiscal 1998,
respectively. During fiscal year 1998, the Company elected not to renew a
contract in which the client requested a substantially reduced gross margin. As
of December 1998, the Company discontinued providing service to this high
volume, low gross margin client, which had primarily been serviced by the
Company's direct offices. Excluding this client, revenues at the direct offices
increased 15.2% and total Company revenue increased 22.6% for fiscal 1999
compared to fiscal 1998. The expansion of business at existing licensed offices
as well as the opening of 13 new licensed offices since the prior year account
for the increase in licensed revenue. Future licensed office growth may be
affected by office conversions subsequent to October 3, 1999. The Company
repurchased six licensed offices in the Reston and Richmond, Virginia areas.
Additionally, four licensed offices in the Charlotte, North Carolina area
converted to franchise offices subsequent to October 3, 1999. The Company's
future revenue increases depend significantly on the Company's ability to
continue to attract new clients and licensees, retain existing clients and
licensees, open new offices and manage newly opened offices to maturity. There
can be no assurances that the Company's revenues will continue to increase.
3
<PAGE> 4
Total cost of direct and licensed sales, which consists of wages and
other expenses related to the temporary associates, increased 14.4% or $49.7
million to $393.8 million for fiscal 1999 from $344.1 million for fiscal 1998.
Such increase was primarily due to increased revenues as discussed above. Total
cost of direct and licensed sales as a percentage of revenues was 76.7% for
fiscal 1999 compared to 76.2% for fiscal 1998. The increase is due in part to a
shift in the mix of business to an increased percentage of light industrial and
technical business, which tends to have lower gross margins than clerical
business. Many factors, including increased wage costs or other employment
expenses, could adversely affect the Company's cost of direct and licensed
sales.
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 is based on the
number of hours billed. In general, pursuant to terms of the Company's franchise
agreement for licensed offices executed prior to March 31, 1999, 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. For franchise agreements for licensed
offices executed on or after April 1, 1999, the Company's share of gross profit
cannot be less than 8.75% of the licensed operation's sales. Licensees' share of
gross profit increased 31.4% or $9.5 million to $39.6 million for fiscal 1999
from $30.1 million for fiscal 1998, however licensees' share of gross profit as
a percentage of licensed revenue decreased to 17.1% in fiscal 1999 from 17.3% in
fiscal 1998. Licensees' share of gross profit as a percentage of total revenues
increased to 7.7% for fiscal 1999 from 6.7% for fiscal 1998. This change
resulted from an increase to 45.1% in fiscal 1999 from 38.5% for the previous
fiscal year in the amount of licensed revenues as a percentage of total revenue.
Selling, general and administrative expenses, including depreciation
and amortization, increased 1.4% or $0.8 million to $56.1 million for fiscal
1999 from $55.3 million for fiscal 1998. Selling, general and administrative
expenses as a percentage of total revenues decreased to 10.9% for fiscal 1999
from 12.3% for fiscal 1998. This reduction was due in part to a decrease in
profit sharing and bonus expense to $5.1 million for fiscal 1999 compared to
$6.1 million for fiscal 1998 and to a reduction in bad debt expense of $1.1
million in fiscal 1999. In general, the Company has continued to control growth
in selling, general and administrative expenses by tightening cost controls
through budgetary analysis, implementing more stringent hiring and compensation
guidelines and variable compensation. 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. Increases in these
expenses could adversely affect the Company's profitability.
Income from operations increased 10.3% or $2.2 million to $24.1 million
for fiscal 1999 from $21.8 million for fiscal 1998 due to the factors described
above. Operating income as a percentage of revenues decreased to 4.7% for fiscal
1999 from 4.8% for fiscal 1998.
Net income increased 9.5% or $1.3 million to $15.2 million for fiscal
1999 from $13.9 million for fiscal 1998 due to the factors described above. Net
income was also favorably impacted by a decrease in the Company's effective tax
rate. The lower rate reflects the expected tax savings from Work Opportunity Tax
Credits. As a percentage of total revenues, net income decreased to 3.0% in 1999
from 3.1% in fiscal 1998. All revenues and results have been internally
generated by the Company.
Fiscal 1998 Compared to Fiscal 1997
Total revenues increased 25.3% or $91.0 million to $451.3 million for
fiscal 1998 from $360.3 million for fiscal 1997. This increase was primarily
attributable to volume increases that resulted from increased billings at
existing offices and expansion of services, including EDGE(R) and call center
activity, and from 35 new offices opened during fiscal 1998.
Total cost of direct and licensed sales, which consists of wages and
other expenses related to the temporary associates, increased 25.4% or $69.6
million to $344.1 million for fiscal 1998 from $274.5 million for fiscal 1997.
Total cost of direct and licensed sales as a percentage of revenues remained
constant.
Licensees' share of gross profit represents the net payments to
licensees based upon a percentage of gross profit generated by the licensed
operation. Licensees' share of gross profit increased 31.2% or $7.2 million to
$30.1 million for 1998 from $23.0 million for fiscal 1997. Licensees' share of
gross profit as a percentage of total revenues increased to 6.7% for fiscal 1998
from 6.4% for fiscal 1997. This change resulted from an increase to 38.5% from
37.6% in the amount of licensed revenues as a percentage of total revenue.
Licensees' share of gross profit as a percentage of licensees' total gross
profit increased by 0.5% during fiscal 1998 due to an increase in hours billed
at existing licensed offices.
4
<PAGE> 5
Selling, general and administrative expenses, which include
depreciation and amortization, increased 17.3% or $8.2 million to $55.3 million
for fiscal 1998 from $47.1 million for fiscal 1997. Selling, general and
administrative expenses as a percentage of total revenues decreased to 12.3% for
fiscal 1998 from 13.1% for fiscal 1997, due to the Company's total revenues
expanding more rapidly than selling, general and administrative expenses.
Operating income increased 38.5% or $6.1 million to $21.8 million for
fiscal 1998 from $15.8 million for fiscal 1997 due to the factors described
above. Operating income as a percentage of revenues increased to 4.8% for fiscal
1998 from 4.4% for fiscal 1997.
Income before income taxes increased 33.0% or $5.8 million to $23.2
million for fiscal 1998 from $17.4 million for fiscal 1997 due to the factors
described above. As a percentage of total revenues, income before income taxes
increased to 5.1% in 1998 from 4.8% in fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
Cash used in operating activities was $0.9 million in fiscal 1999 and
cash provided by operating activities was $6.2 million in fiscal 1998. Cash used
in operating activities was significantly impacted by transactions related to
workers' compensation in fiscal 1999, as discussed below. Additionally, the
Company was required to pay $3.0 million in additional tax installments during
both fiscal years 1999 and 1998 resulting from the termination of its
S corporation status in fiscal year 1996.
Prior to April 1, 1999 the Company had an insured workers' compensation
program through RIG whereby the Company paid a deductible of $250,000 per
individual claim with third party insurance covering individual claims in excess
of the deductible amount. Under this program, the Company accrued for individual
claims at the expected ultimate loss amount based upon current information and
historical loss experience. The deductible was paid, and the liability reduced,
as claims were processed. As a result, the Company had an accrued workers'
compensation liability of $5.2 million under this program at September 28, 1998.
Effective April 1, 1999, the Company entered into a reinsurance contract with
Reliance whereby Reliance assumed the Company's remaining deductible liability
for all open claims incurred during the period July 22, 1997 to March 31, 1999,
thereby accelerating the projected deductible payment and reducing the accrued
workers' compensation liability. Additionally, the Company entered into a
one-year fully insured workers' compensation program with Reliance for the
following year. The Company paid the aggregate cost of both the reinsurance
contract and the one-year premium, a total of $18.9 million, to Reliance on
April 16, 1999 with borrowings under its line of credit agreement. The cost of
the one-year fully insured program was capitalized as a prepaid cost and is
being amortized over twelve months. As a result, the Company has a prepaid
workers' compensation insurance balance of $4.5 million at October 3, 1999.
The Company has a revolving line of credit agreement with Bank of
America providing for aggregate borrowings and letters of credit of $40.0
million. Interest on outstanding borrowings is payable monthly. The interest
rate is the bank's reference rate minus up to 0.25%, based upon certain
financial covenants or, at the Company's discretion, LIBOR plus a range of 1.0%
to 1.375%, based upon financial covenants. The line of credit is unsecured and
expires on February 28, 2002. The Company had $17.5 million outstanding under
its line of credit and $0 in undrawn letters of credit as of October 3, 1999.
The agreement governing the line of credit requires the Company to maintain
certain financial ratios and comply with certain restrictive covenants. The
Company is in compliance with these covenants.
Cash used for purchases of fixed assets was $6.6 million and $10.6
million in fiscal 1999 and fiscal 1998, respectively. The purchases in fiscal
1999 primarily resulted from expenditures associated with the Company's new
management information system and branch office openings. Upgrades of computers
and hardware to support the new system were begun and completed during fiscal
year 1999. Implementation of the related software began during fiscal 1999 and
is expected to be completed during fiscal 2000. In fiscal 2000, the Company
anticipates capital expenditures associated with direct office openings and
further investments in the Company's computer-based technologies will
approximate $5.0 million.
Prior to the Offering on July 11, 1996, the Company declared
distributions to its pre-Offering shareholders, and in accordance with the
declaration, the final distributions of $3.7 million were paid to the
pre-Offering shareholders during fiscal 1997.
During fiscal 1999, the Company acquired two licensed offices in
Stockbridge and College Park, Georgia and during fiscal 1998, the Company
acquired two franchised offices in Orlando, Florida. Subsequent to October 3,
1999, the Company repurchased six licensed offices in the Reston and Richmond,
Virginia areas. 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.
The Company is contemplating certain other strategic acquisitions. Such
acquisitions may have an impact on liquidity depending on the size of the
acquisition.
5
<PAGE> 6
On October 2, 1998, the Board of Directors authorized the Company to
repurchase its outstanding Class A and/or Class B Common Stock in the open
market or in privately negotiated transactions at the prevailing market prices
not to exceed $5.0 million in the aggregate. During fiscal 1999, the Company
repurchased 202,900 Class A Common Stock shares at prices ranging from $12.56 to
$15.13, for a total of $3.0 million.
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.
YEAR 2000
The Company's State of Readiness
Many computer systems and other equipment with embedded chips or
processors use only two digits to represent the year and may be unable to
process accurately certain data before, during or after the Year 2000.
Consequently, business and governmental entities are at risk for possible
miscalculations or systems failures causing disruptions in their business
operation. Furthermore, the Year 2000 is a leap year, which may present
additional issues for computer systems and other equipment with embedded chips
or processors.
Year 2000 issues may affect the Company's internal systems, including
information technology ("IT") and non-IT systems. The Company assessed the
readiness of its systems for handling the Year 2000. The Company has developed
and is implementing a process to replace all of its material IT systems with a
new IT system. The Company believes that the new IT system and the computer
hardware used to operate the system will be Year 2000 compliant and that partial
implementation of the new IT system will be completed by the end of calendar
year 1999. In conjunction with such partial implementation of the new IT system,
the Company has begun to modify its existing IT systems to avoid a material
impact on the Company's ability to conduct business. Accordingly, the Company
believes that partial implementation of the new IT system, together with the
modifications of the Company's current IT systems, will allow the Company to
operate on and after Year 2000 without a material adverse effect on the
Company's financial condition and results of operations.
Based on information currently available, the Company believes that it
does not have any material-specific dependencies on its non-IT systems (devices
that have imbedded microprocessors). Accordingly, the Company believes that the
Year 2000 poses no material risk to the Company's non-IT systems. The Company
contacted its material clients and vendors to determine whether such clients'
and vendors' operations and the products and services they provide are Year 2000
compliant and has evaluated their progress toward Year 2000 compliance. There
can be no assurance that the Company's material clients, vendors or other third
parties will not suffer a Year 2000 business disruption. Such failures could
have a material adverse affect on the Company's financial condition and results
of operations.
6
<PAGE> 7
The Costs to Address the Company's Year 2000 Issues
The Company's new IT system is being implemented for strategic business
reasons unrelated to Year 2000 issues and the implementation schedule was not
accelerated due to Year 2000 issues. The Company is in the process of modifying
the Company's existing IT systems to avoid a material impact on the Company's
ability to conduct business by using such IT systems on and after Year 2000.
Currently, the Company estimates that the total expected costs relating to this
effort will be $200,000.
The Risks to the Company of Year 2000 Issues
Although unclear at this time, exposure to Year 2000 risks are unlikely
to have a material effect on the Company's results of operations, liquidity and
financial condition. The Company anticipates that partial implementation of the
new IT system, which is believed to be Year 2000 compliant, together with the
modification of the Company's current IT systems, will enable the Company to
operate on and after Year 2000 without a material adverse effect on the
Company's financial condition and results of operations. The Company believes
that its most reasonably likely worst case Year 2000 scenario is that certain
functions of its new IT system are not implemented on time and the Company's
efforts to make Year 2000 modifications to the existing IT systems fail. Such a
scenario could disrupt the Company's business and, therefore, could have a
material adverse effect on the financial condition and results of operations.
Additionally, if any third parties that provide goods or services that are
critical to the Company's business fail to appropriately address their Year 2000
issues, there could be a material adverse effect on the Company's financial
condition and results of operations.
The Company's Contingency Plans
The Company continues to modify existing IT systems, which will enable
the Company to use such systems without a material adverse effect on the
Company's financial condition and results of operations before, on and after
Year 2000. The likely impact of Year 2000 failure on such existing IT systems
would be in "from-to" reporting and date printing which the Company believes it
can correct without material loss in business operation or function. The Company
has developed a strategy, including using certain available resources and hiring
additional personnel, in formulating its contingency plans for failure of the
existing IT systems. Additionally, the Company has identified and contacted its
franchisees, licensees, and material vendors and clients and has formulated a
system to understand such material third parties' ability to continue providing
services and products after the Year 2000, including formulating contingency
plans, where appropriate. However, the Company can neither predict nor assure
the successful outcome of such third parties' remediation efforts.
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 been historically strong as a result of manufacturing
and retail emphasis on holiday sales. The second fiscal quarter, from January
through March, historically shows little to no growth 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.
INFLATION
The effects of inflation on the Company's operations were not
significant during the periods presented in the consolidated financial
statements.
7
<PAGE> 8
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Since July 11, 1996, the Company's Class A Common Stock has been traded
on the Nasdaq National Market under the symbol "REMX." Prior to July 11, 1996,
the Company's stock was not publicly traded. The following table sets forth the
high and low sales prices for the Class A common Stock for fiscal 1999 and
fiscal 1998:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
----------------------------------------------------------
DECEMBER 27, MARCH 28, JUNE 27, OCTOBER 3,
1998 1999 1999 1999
------------ --------- -------- ----------
<S> <C> <C> <C> <C>
High .......................... $22.13 $18.75 $15.00 $19.50
Low............................ $11.13 $12.00 $ 9.81 $13.00
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 28, MARCH 29, JUNE 28, SEPTEMBER 27,
1997 1998 1998 1998
------------ --------- ------- -------------
<S> <C> <C> <C> <C>
High .......................... $28.13 $32.63 $36.25 $29.25
Low............................ $20.00 $18.75 $23.69 $17.50
</TABLE>
As of December 15, 1999, there were an estimated 1,900 shareholders of
record of the Company's Class A Common Stock and ten shareholders of record of
the Company's Class B Common Stock.
Except for the S corporation distributions prior to the Offering and
the declared dividend to the Company's pre-Offering shareholders as discussed in
Note 5 to the Consolidated Financial Statements, the Company has not paid cash
dividends on its Class A or Class B Common Stock and does not anticipate that it
will do so in the foreseeable future. The present policy of the Company is to
retain earnings for use in its operations and the expansion of its business.
8
<PAGE> 9
REMEDYTEMP, INC.
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
OCTOBER 3, SEPTEMBER 27,
1999 1998
---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents ....................................... $ 7,887 $ 450
Accounts receivable, net of allowance for doubtful accounts
of $2,038 and $2,647, respectively ............................ 76,304 63,660
Prepaid expenses and other current assets ....................... 3,986 3,401
Prepaid workers' compensation insurance (Note 1) ................ 4,476 --
Deferred income taxes (Note 4) .................................. 581 2,235
-------- --------
Total current assets ..................................... 93,234 69,746
Fixed assets, net (Note 2) ......................................... 18,204 15,184
Other assets, net .................................................. 2,655 2,567
Deferred income taxes (Note 4) ..................................... 924 501
Goodwill, net of accumulated amortization of $296 and $152,
respectively (Note 6) ............................................ 1,704 1,787
-------- --------
$116,721 $ 89,785
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................................ $ 2,909 $ 3,033
Accrued workers' compensation (Note 1) .......................... 1,074 5,535
Accrued payroll, benefits and related costs ..................... 13,141 13,604
Accrued licensees' share of gross profit ........................ 4,857 3,194
Line of credit (Note 3) ......................................... 17,500 --
Other accrued expenses .......................................... 1,784 1,173
Income taxes payable (Note 4) ................................... -- 809
-------- --------
Total current liabilities ................................ 41,265 27,348
-------- --------
Commitments and contingent liabilities (Note 7)
Shareholders' equity:
Preferred Stock, $.01 par value; authorized 5,000 shares;
none outstanding ............................................... -- --
Class A Common Stock, $.01 par value; authorized 50,000 shares;
7,055 and 7,206 issued and outstanding at October 3, 1999
and September 27, 1998, respectively ........................... 71 72
Class B Non-Voting Common Stock, $.01 par value; authorized 4,530;
1,804 and 1,806 issued and outstanding at October 3, 1999 and
September 27, 1998, respectively
18 18
Additional paid-in capital ...................................... 32,531 34,732
Retained earnings ............................................... 42,836 27,615
-------- --------
Total shareholders' equity ........................... 75,456 62,437
-------- --------
Total liabilities and shareholders' equity ........... $116,721 $ 89,785
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
9
<PAGE> 10
REMEDYTEMP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
OCTOBER 3, SEPTEMBER 27, SEPTEMBER 28,
1999 1998 1997
---------- ------------- -----------
<S> <C> <C> <C>
Direct sales ............................. $ 279,206 $ 274,577 $ 221,679
Licensed sales ........................... 231,481 173,764 135,532
Franchise royalties ...................... 2,689 2,812 2,948
Initial license and franchise fees ....... 160 191 187
--------- --------- ---------
Total revenues .................... 513,536 451,344 360,346
Cost of direct sales ..................... 220,947 214,870 173,148
Cost of licensed sales ................... 172,817 129,219 101,327
Licensees' share of gross profit ......... 39,614 30,138 22,970
Selling and administrative expenses ...... 52,403 52,577 44,647
Depreciation and amortization ............ 3,696 2,723 2,501
--------- --------- ---------
Income from operations ....... 24,059 21,817 15,753
--------- --------- ---------
Other income and expense:
Interest (expense) income, net ......... (251) 263 480
Other, net ............................. 941 1,097 1,191
--------- --------- ---------
Income before provision for income taxes . 24,749 23,177 17,424
Provision for income taxes (Note 4) ...... 9,528 9,271 7,231
--------- --------- ---------
Net income ............................... $ 15,221 $ 13,906 $ 10,193
========= ========= =========
Net income per share, basic (Note 9) ..... $ 1.72 $ 1.55 $ 1.15
========= ========= =========
Weighted-average number of shares, basic . 8,864 8,966 8,896
========= ========= =========
Net income per share, diluted (Note 9) ... $ 1.71 $ 1.50 $ 1.13
========= ========= =========
Weighted-average number of shares, diluted 8,923 9,297 9,042
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
10
<PAGE> 11
REMEDYTEMP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON STOCK COMMON STOCK ADDITIONAL
------------------ ------------------- PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS TOTAL
------ ------ ------ ------ ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at September 29, 1996.......... 5,830 $58 3,058 $31 $32,671 $ 3,516 $36,276
Activity of Employee Stock Purchase
Plan............................. 12 163 163
Stock option activity............... 27 1 428 429
Conversion upon transfer to
non-affiliates................... 61 1 (61) (1)
Net income........................... 10,193 10,193
----- --- ------ --- ------- ------- -------
Balance at September 28, 1997.......... 5,930 60 2,997 30 33,262 13,709 47,061
Activity of Employee Stock Purchase
Plan............................. 19 313 313
Stock option activity............... 66 857 857
Conversion upon transfer to
non-affiliates................... 1,191 12 (1,191) (12)
Tax benefits from option activity... 300 300
Net income........................... 13,906 13,906
----- --- ------ --- ------- ------- -------
Balance at September 27, 1998.......... 7,206 72 1,806 18 34,732 27,615 62,437
Activity of Employee Stock Purchase
Plan............................. 26 1 333 334
Stock option activity............... 24 355 355
Repurchase of common stock.......... (203) (2) (2,955) (2,957)
Conversion upon transfer to
non-affiliates................... 2 (2)
Tax benefits from option activity... 66 66
Net income........................... 15,221 15,221
----- --- ------ --- ------- ------- -------
Balance at October 3, 1999............. 7,055 $71 1,804 $18 $32,531 $42,836 $75,456
===== === ====== === ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
11
<PAGE> 12
REMEDYTEMP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
OCTOBER 3, SEPTEMBER 27, SEPTEMBER 28,
1999 1998 1997
---------- ------------- -------------
<S> <C> <C> <C>
Cash flows (used in) provided by operating activities:
Net income ............................................... $ 15,221 $ 13,906 $ 10,193
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization ........................ 3,696 2,723 2,501
Provision for losses on accounts receivable .......... 413 1,519 1,276
Deferred taxes ....................................... 967 (4,546) (4,938)
Changes in assets and liabilities:
Accounts receivable ................................ (13,057) (9,428) (14,690)
Prepaid expenses and other current assets .......... (585) (1,414) 354
Prepaid workers' compensation insurance ............ (4,476) -- --
Other assets ....................................... (88) (65) (776)
Accounts payable ................................... (124) (1,049) 3,149
Accrued workers' compensation ...................... (4,461) 2,630 2,355
Accrued payroll, benefits and related costs ........ (463) 2,115 1,433
Accrued licensees' share of gross profit ........... 1,663 969 837
Other accrued expenses ............................. 856 (283) (563)
Income taxes payable ............................... (479) (894) 616
-------- -------- --------
Net cash (used in) provided by operating activities ...... (917) 6,183 1,747
-------- -------- --------
Cash flows used in investing activities:
Purchase of fixed assets ................................. (6,573) (10,591) (4,138)
Purchase of franchises, net of assets acquired ........... (60) (1,014) (925)
Sale of investments ...................................... -- -- 1,016
-------- -------- --------
Net cash used in investing activities .................... (6,633) (11,605) (4,047)
-------- -------- --------
Cash flows provided by (used in) financing activities:
Borrowings under line of credit agreement ................ 23,750 1,000 100
Repayments under line of credit agreement ................ (6,250) (1,000) (100)
Repayments under capital lease obligation ................ (245) (426) (416)
Proceeds from stock option activity ...................... 355 857 429
Repurchase of Company Common Stock ....................... (2,957) -- --
Proceeds from Employee Stock Purchase Plan activity ...... 334 313 163
Distributions to pre-Offering shareholders ............... -- -- (3,707)
-------- -------- --------
Net cash provided by (used in) financing activities ...... 14,987 744 (3,531)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents ....... 7,437 (4,678) (5,831)
Cash and cash equivalents at beginning of period ........... 450 5,128 10,959
-------- -------- --------
Cash and cash equivalents at end of period ................. $ 7,887 $ 450 $ 5,128
======== ======== ========
Other cash flow information:
Cash paid during the period for interest ................. $ 555 $ 98 $ 110
Cash paid during the period for income taxes ............. $ 9,768 $ 15,011 $ 9,981
Non-cash financing activities:
Utilization of tax benefit from disqualifying dispositions $ (330) $ (80) $ --
Tax benefit from disqualifying dispositions recorded into
additional paid-in capital ............................. $ 66 $ 300 $ --
</TABLE>
See accompanying notes to consolidated financial statements.
12
<PAGE> 13
REMEDYTEMP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The consolidated financial statements include the accounts of
RemedyTemp, Inc and its wholly-owned subsidiaries, (collectively, the
"Company"). All significant intercompany transactions and balances have been
eliminated.
Description of business
The Company's principal business is providing temporary personnel to
industrial, service and e-commerce companies, professional organizations and
governmental agencies nationwide.
The Company has two classes of Common Stock outstanding: Class A Common
Stock, which has all voting and other rights normally associated with Common
Stock; and Class B Common Stock, which is identical to the Class A Common Stock
in all respects except that the Class B Common Stock has no voting rights except
with respect to certain amendments of the Company's Amended and Restated
Articles of Incorporation, certain mergers and as otherwise required by law. The
Class B Common Stock automatically converts into Class A Common Stock on a
share-for-share basis upon the earlier of (i) certain transfers to
non-affiliates, (ii) the death or legal incapacity of Robert E. McDonough, Sr.
or (iii) the tenth anniversary of the completion of the Company's initial public
offering on July 16, 1996.
Summary of significant accounting policies
Fiscal year
The Company's fiscal year includes 52 or 53 weeks, ending on the Sunday
closest to September 30. Fiscal year 1999 consisted of 53 weeks, and fiscal
years 1998 and 1997 consisted of 52 weeks.
Revenue recognition
Revenue from the sale of services is recognized at the time the service
is performed. A portion of the Company's revenue is derived from affiliate
operations which consist of franchised and licensed operations.
Under the Company's franchised operations, the franchisee has the
direct contractual relationship with the customers, holds title to the related
customer receivables and is the legal employer of the temporary employees.
Accordingly, sales and cost of sales generated by the franchised operations are
not included in the Company's consolidated financial statements. Fees are paid
to the Company based upon a percentage of the gross sales generated by the
franchised operation and such fees are recorded by the Company as "Franchise
royalties."
Revenues generated by licensed operations and the related costs of
services are included in the Company's consolidated financial statements and are
reported as "Licensed sales" and "Cost of licensed sales," respectively. The
Company has the direct contractual relationship with the customer, holds title
to the related customer receivables and is the legal employer of the temporary
employees. The risks associated with the licensed operations remain with the
Company. "Licensee" refers to the Company's affiliates in their role as
independent contractors and limited agents of the Company in recruiting job
applicants, soliciting job orders, filling those orders and handling collection
matters upon request. The licensee acts as a limited agent for the Company to
market the Company's services within the licensee's territory. The net
distribution paid to the licensee for the services rendered is based on a
percentage of the gross profit generated by the Licensee's operation and is
reflected as "Licensees' share of gross profit" in the consolidated statements
of income.
Both franchisees and licensees pay an initial fee for their affiliation
with the Company. This fee is recognized as revenue when substantially all of
the initial services required of the Company have been performed, and is
reported by the Company as "Initial license and franchise fees."
13
<PAGE> 14
REMEDYTEMP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Concentrations of credit risk
The Company's financial instruments that potentially subject the
Company to concentrations of credit risk consist principally of trade
receivables. However, concentrations of credit risk are limited due to the large
number of customers comprising the Company's customer base and their dispersion
across different business and geographic areas. Furthermore, the Company
routinely assesses the financial strength of its customers and maintains
reserves for potential credit losses. Such losses have been within management's
expectations.
Use of estimates in the preparation of consolidated financial statements
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those
estimates.
Fair value of financial instruments
The carrying amounts of cash, accounts receivable, accounts payable and
all other accrued expenses approximate fair value because of the short maturity
of these items. The Company's investments in equity securities are carried at
fair value based upon available market information. The carrying amount of debt
issued under the line of credit agreement approximates fair value at the stated
interest rate, which approximates the current market rate.
Cash and cash equivalents
For purposes of financial reporting, cash equivalents represent highly
liquid short-term investments with original maturities of less than 90 days.
Investments
The Company accounts for its investments in accordance with SFAS No.
115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS
No. 115"). The majority of the Company's investment portfolio consists of
investments related to the Company's deferred compensation program (Note 8).
These investments are classified as trading under the provisions of SFAS No. 115
and are therefore reported at fair value in the accompanying balance sheets.
Both realized and unrealized gains and losses are recorded in other income or
expense and generally offset the change in the deferred compensation liability
which is also included in other income or expense. Investments totaling $1,321
and $239 at October 3, 1999 and September 27, 1998, respectively, are included
in Prepaid expenses and other current assets in the accompanying balance sheets.
14
<PAGE> 15
REMEDYTEMP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Fixed assets
Fixed assets are stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of the related assets, which are three to five years for furniture
and fixtures and computer equipment, excluding computer server costs, which are
seven years. Major improvements to leased office space are capitalized and
amortized over the shorter of their useful lives or the term of the lease.
The Company currently capitalizes the costs of purchased internal-use
software as well as internal and external software development costs related to
its new management information system. These capitalized costs are included in
fixed assets and are amortized over their estimated useful life, not to exceed
seven years.
In March of 1998, the American Institute of Certified Public
Accountants issued Statement of Position 98-1 ("SOP 98-1"), "Accounting for the
costs of computer software developed or obtained for internal use" which the
Company will be required to adopt beginning in fiscal 2000. Management is
currently assessing the impact of SOP 98-1 but does not anticipate the adoption
will have a significant impact on the Company's current capitalization
practices.
Goodwill
Goodwill consists of the excess of purchase price over the fair value
of net assets of businesses acquired and is amortized on a straight-line basis
over 20 years. The Company regularly reviews the individual components of the
balance and recognizes any decline in value on a current basis.
Workers' compensation
From July 22, 1997 through March 31, 1999, Remedy Insurance Group, LTD.
("RIG"), a wholly-owned subsidiary, provided direct and licensed offices with an
insured workers' compensation program. RIG, an offshore insurance captive
domiciled in Bermuda, was incorporated and funded with an amount of $600 of
restricted cash which is classified on the consolidated balance sheets as other
assets. The Company utilized Lindsey Morden, a national Third Party
Administrator to administer claims nationally, and Reliance National Indemnity
Company to provide stop-loss insurance coverage. The Company's deductible under
the insurance program was $250 per individual claim. The stop-loss coverage in
effect paid individual claims costs exceeding $250 and aggregate claims greater
than $7,500 for the twelve months ended July 1998, and $7,000 for the nine
months ended March 1999.
Effective April 1, 1999, the Company entered into a reinsurance
contract with Reliance National Insurance Company ("Reliance") whereby Reliance
assumed the Company's remaining deductible liability for all open claims
incurred during the period July 22, 1997 to March 31, 1999. Additionally, the
Company entered into a one-year fully insured workers' compensation program with
Reliance. This program has a fixed cost for payroll up to $295,000 (the Base
Rate) and for payroll exceeding $295,000, the premium is at a lesser rate than
the Base Rate. The Company paid the aggregate cost of both the reinsurance
contract and the one-year premium, a total of $18,873, to Reliance on April 16,
1999. As of October 3, 1999, the remaining balance of $4,476 is included in
Prepaid expenses and other assets on the consolidated balance sheets. The
reinsurance contract included a provision for additional payments up to $700 in
the event that ultimate losses exceed the projected losses as of April 1, 1999.
At fiscal year end, the Company provided for the additional $700 due to current
loss projections.
Other income
Other income consists primarily of fees collected from customers on
past due accounts receivable balances in the amounts of $1,029, $1,091 and
$1,411, for the fiscal years ended October 3, 1999, September 27, 1998 and
September 28, 1997, respectively.
15
<PAGE> 16
REMEDYTEMP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Income taxes
The Company records income taxes in accordance with the provisions of
Statement of Financial Accounting Standards No. 109 ("SFAS No. 109"),
"Accounting for Income Taxes." SFAS No. 109 is an asset and liability approach
that requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been recognized in the
Company's consolidated financial statements or tax returns. In estimating future
tax consequences, SFAS No. 109 generally considers all expected future events
including enactments of changes in the tax law or rates.
Accounting for stock-based compensation
The Company accounts for its stock compensation plans under Accounting
Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees" and
related interpretations. The disclosures required under Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
No.123") have been included in Note 9.
Reclassifications
Certain reclassifications have been made to conform the fiscal year
1998 information to the fiscal year 1999 presentation.
2. FIXED ASSETS
<TABLE>
<CAPTION>
OCTOBER 3, SEPTEMBER 27,
1999 1998
---------- -------------
<S> <C> <C>
Computer equipment and software..... $16,263 $ 10,502
Furniture and fixtures.............. 4,385 6,429
Leasehold improvements.............. 3,221 3,638
Construction in progress............ 4,176 7,175
------- --------
28,045 27,744
Less accumulated depreciation....... (9,841) (12,560)
------- --------
$18,204 $ 15,184
======= ========
</TABLE>
Construction in progress primarily relates to expenditures for the
Company's development and implementation of a new Company-wide management
information system.
3. LINE OF CREDIT
On March 31, 1999, the Company renewed its revolving line of credit
agreement with Bank of America, providing for aggregate borrowings and letters
of credit of $40,000. Interest on outstanding borrowings is payable monthly. The
interest rate is the bank's reference rate minus up to 0.25%, based upon certain
financial covenants or, at the Company's discretion, LIBOR plus a range of 1.0%
to 1.375%, based upon the financial covenants. The line of credit is unsecured
and expires on February 28, 2002.
At October 3, 1999 and September 27, 1998 the Company had $17,500 and
$0, respectively, outstanding under its line of credit agreement. The Company
had outstanding undrawn letters of credit of $0 and $6,700 at October 3, 1999
and September 27, 1998, respectively. Under the provisions of the line of credit
agreement, the Company must maintain certain financial ratios and comply with
certain restrictive covenants. The Company was in compliance with these
requirements for the fiscal years ended October 3, 1999 and September 27, 1998,
respectively.
16
<PAGE> 17
REMEDYTEMP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
4. INCOME TAXES
The Company's provision for income taxes for the three fiscal years
ended October 3, 1999 consists of the following:
<TABLE>
<CAPTION>
OCTOBER 3, SEPTEMBER 27, SEPTEMBER 28,
1999 1998 1997
---------- ------------- -------------
<S> <C> <C> <C>
Current tax expense:
Federal............................................ $6,628 $11,042 $ 9,983
State.............................................. 1,933 2,775 2,186
------ ------- -------
Total current......................... 8,561 13,817 12,169
------ ------- -------
Deferred tax expense:
Federal............................................ 867 (3,960) (4,375)
State.............................................. 100 (586) (563)
------ ------- -------
Total deferred............................ 967 (4,546) (4,938)
------ ------- -------
Total provision for income taxes.......... $9,528 $ 9,271 $ 7,231
====== ======= =======
</TABLE>
The composition of the deferred tax assets (liabilities) at October 3,
1999 and September 27, 1998 is listed below.
<TABLE>
<CAPTION>
OCTOBER 3, SEPTEMBER 27,
1999 1998
---------- -------------
<S> <C> <C>
Reserves and accrued liabilities.......................... $ 2,956 $ 5,521
Depreciation ............................................. 568 501
------- -------
Gross deferred tax assets.................... 3,524 6,022
------- -------
Prepaid expenses.......................................... (2,019) (302)
S corporation cash basis accounting adjustment............ -- (2,984)
------- -------
Gross deferred tax liabilities............... (2,019) (3,286)
------- -------
Net deferred tax assets................................... $ 1,505 $ 2,736
======= =======
</TABLE>
The provision for income taxes differs from the amount of income tax
determined by applying the applicable U.S. statutory income tax rates to income
before taxes as a result of the following differences:
<TABLE>
<CAPTION>
OCTOBER 3, SEPTEMBER 27, SEPTEMBER 28,
1999 1998 1997
---------- ------------- -------------
<S> <C> <C> <C>
Federal tax computed at statutory rate........... 35.0% 35.0% 35.0%
State taxes, net of federal benefit.............. 5.5% 5.3% 5.5%
Federal tax credits.............................. (2.1)% (1.0)% (0.6)%
Other............................................ 0.1% 0.7% 1.6%
---- ---- ----
Total provision for income taxes................. 38.5% 40.0% 41.5%
===== ===== =====
</TABLE>
17
<PAGE> 18
REMEDYTEMP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
5. RELATED PARTY TRANSACTIONS
Prior to the completion of the Company's initial public offering (the
"Offering") in July 1996, the Company's Board of Directors declared a
distribution of $4,952 to be paid to the Company's pre-Offering shareholders
representing the estimated income tax obligations of the pre-Offering
shareholders on undistributed S corporation earnings from October 2, 1995
through July 9, 1996, the date immediately preceding the termination of the S
corporation status. The distribution, net of advances for the quarterly
estimated tax payments of the pre-Offering shareholders, was paid in fiscal
1997.
Prior to July, 1997, the Company leased its corporate facility from the
largest shareholder and Chairman of the Company, Robert E. McDonough, Sr. The
lease provided for the payment of property taxes, insurance and certain other
operating expenses applicable to the leased property by the lessee. In September
1996, the lease expired and the lease term became month-to-month through July
1997. Rent expense paid to Mr. McDonough under this lease totaled $238 for the
year ended September 28, 1997, the last year of this arrangement.
6. REPURCHASE OF FRANCHISED AND LICENSED OFFICES
During fiscal 1999, the Company acquired two licensed offices in
Stockbridge and College Park, Georgia and during fiscal 1998, the Company
acquired two franchised offices in Orlando, Florida. During fiscal 1997, the
Company acquired three licensed offices at the following locations: (i) Grand
Rapids, Michigan, (ii) Worthington, Ohio, and (iii) Atlanta, Georgia, and one
franchised office located in Indianapolis, Indiana. Results of operations for
the acquired licensed and franchised offices are recorded in accordance with the
Company's related revenue recognition policy (Note 1) until the acquisition
date. Subsequent to the acquisition date, the direct office revenue recognition
policy is utilized. Had the results of operations for the franchised offices
been shown as of the beginning of the current and preceding fiscal years, the
consolidated financial information would not be significantly different. These
acquisitions were accounted for under the purchase method of accounting. The
combined purchase prices were allocated primarily to goodwill and are being
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.
Subsequent to October 3, 1999 the Company acquired six licensed offices
in the Reston and Richmond, Virginia areas.
7. COMMITMENTS AND CONTINGENT LIABILITIES
The Company leases its corporate facility, Company-owned offices and
certain equipment under operating leases. The leases typically require the
Company to pay taxes, insurance and certain other operating expenses applicable
to the leased property. Total rent expense was approximately $3,987, $2,867 and
$2,298 for the years ended October 3, 1999, September 27, 1998 and September 28,
1997, respectively. The Company no longer has any capital lease obligations.
Future minimum lease commitments under all noncancellable operating
leases as of October 3, 1999 are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
-----------
<S> <C>
2000...................................................... $ 4,034
2001...................................................... 3,459
2002...................................................... 2,957
2003...................................................... 1,611
2004...................................................... 373
-------
Total.............................................. $12,434
=======
</TABLE>
The Company is involved in various claims and legal actions arising in
the ordinary course of business. It is the opinion of management, upon the
advice of legal counsel, that the ultimate disposition of these matters will not
materially affect the Company's consolidated financial position, results of
operations or cash flows.
18
<PAGE> 19
REMEDYTEMP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
8. EMPLOYEE BENEFIT PLANS
401(k) Plan
The Company has an employee savings plan which permits participants to
make contributions by salary reduction pursuant to section 401(k) of the
Internal Revenue Code. The plan is open to qualified full-time and temporary
employees who earn less than $80 per year. The annual amount of employer
contributions to the plan is determined at the discretion of the Board of
Directors, subject to certain limitations. Eligible participants may make
voluntary contributions to the plan and become fully vested in the Company's
contributions over a five-year period. The Company has made no contributions
during the three fiscal years ended October 3, 1999.
Deferred Compensation Plan
The Company maintains a nonqualified deferred compensation plan (the
"Deferred Compensation Plan") for certain executives of the Company. Under the
Deferred Compensation Plan, eligible participants may defer receipt of up to
100% of their base compensation and bonuses on a pretax basis until specified
future dates, upon retirement or death. The deferred amounts are placed in trust
and invested by the Company. Participants recommend investment vehicles for the
funds, subject to approval by the trustees. The balance due each participant
increases or decreases as a result of the related investment gains and losses.
The trust and the investments therein are assets of the Company and the
employees are general creditors of the Company with respect to the benefits due.
For each of the three years ended October 3, 1999, the amounts charged to
expense relating to the Deferred Compensation Plan were $580, $349 and $0,
respectively. Included in Accrued payroll, benefits and related costs in the
accompanying consolidated balance sheets at October 3, 1999 and September 27,
1998 was $1,016 and $346, respectively, relating to this plan.
9. SHAREHOLDERS' EQUITY
Employee Stock Purchase Plan
In connection with the Offering, the Company implemented its 1996
Employee Stock Purchase Plan (the "Purchase Plan"). Under the terms of the
Purchase Plan, eligible employees may purchase shares of the Company's Common
Stock based on payroll deductions. A total of 250 shares were reserved for
issuance under the Purchase Plan. On August 16, 1999, the Purchase Plan was
amended to enable employees of the Company's subsidiaries to participate in the
Purchase Plan. The purchase price for shares granted is the lower of 85% of the
market price of the stock on the first or last day of each six month purchase
period. The Purchase Plan commenced on October 1, 1996. During fiscal 1999, 26
shares were purchased at prices between $10.20 and $18.06, during fiscal 1998,
19 shares were purchased at prices between $13.18 and $20.82 per share and
during fiscal 1997, 12 shares were purchased at a price of $13.18 per share.
19
<PAGE> 20
REMEDYTEMP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
9. SHAREHOLDERS' EQUITY (CONTINUED)
Stock Incentive Plan
In connection with the Offering, the Company implemented its 1996 Stock
Incentive Plan (the "Incentive Plan") for officers, directors and key employees
of the Company. A total of 900 shares were reserved for issuance under the
Incentive Plan. In February, 1998 and 1999, amendments to the Incentive Plan
were approved by votes of the Company's shareholders to reserve an additional
325 and 575 shares, respectively, for issuance under the Incentive Plan.
Accordingly, a total of 1,800 shares have been reserved for issuance under the
Incentive Plan. Options granted to employees of the Company typically may be
exercised within ten years from the grant date and are exercisable in
installments determined by the Leadership, Development and Compensation
Committee of the Board of Directors. Options granted to non-employee,
non-officer directors prior to the Offering were immediately exercisable.
Options granted to non-employee, non-officer directors subsequent to the
Offering are typically 50% exercisable immediately and 50% exercisable upon the
date of the next annual shareholders meeting. Grants for 262 shares at prices
between $14.75 and $19.06 per share were made during fiscal year 1999, grants
for 263 shares at prices between $17.93 and $29.00 per share were made during
fiscal year 1998 and grants for 280 shares at prices between $$15.31 and $19.25
were made during fiscal 1997.
Stock Ownership Plan for Outside Directors
Prior to March 16, 1998, non-employee directors received an annual cash
retainer of $18. Effective March 16, 1998, the Company implemented its
Non-Employee Director Compensation and Deferral Plan (the "Director Plan").
Under the Director Plan, non-employee, non-officer directors receive an annual
retainer in the form of shares of Common Stock with a total value of $20 on the
date of the director's election and/or subsequent reelection to the Board (the
"Director Shares"). The shares are earned ratably over the year and issued at
the end of the annual term. When issued, the Director Shares are held in trust,
on a deferred basis until a director is no longer a director of the Company.
Participation in the Director Plan is mandatory. In February 1999, a total of 4
shares were issued to the trust for services rendered. At October 3, 1999, an
additional 3 shares were earned and will be issued at the next annual meeting of
shareholders in February 2000. As the trust belongs to the Company, all shares
issued to the trust are treated as treasury stock for financial reporting
purposes. All shares issued and earned are included in the diluted weighted
shares outstanding in the earnings per share calculation.
Stock Repurchase
On October 2, 1998, the Board of Directors authorized the Company to
repurchase its outstanding Class A and/or Class B Common Stock in the open
market or in privately negotiated transactions at the prevailing market prices
not to exceed $5,000 in aggregate. During the fiscal year ended October 3, 1999,
the Company repurchased 202.9 Class A Common Stock shares at prices ranging from
$12.56 to $15.13 for a total of $2,957.
20
<PAGE> 21
REMEDYTEMP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
9. SHAREHOLDERS' EQUITY (CONTINUED)
Earnings per share calculation
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 Statements 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. As required by
SFAS 128, all prior period EPS data has been restated to conform with the
provisions of this statement. Basic and Diluted EPS under SFAS No. 128 do not
differ materially from Primary Earnings Per Share as previously presented. The
table below sets forth the computation of Basic and Diluted EPS under SFAS 128:
<TABLE>
<CAPTION>
OCTOBER 3, SEPTEMBER 27, SEPTEMBER 28,
1999 1998 1997
---------- ------------- -------------
<S> <C> <C> <C>
BASIC EPS
Income available to common shareholders.............. $15,221 $13,906 $10,193
Weighted-average number of shares, basic............. 8,864 8,966 8,896
BASIC EPS......................................... $ 1.72 $ 1.55 $ 1.15
======= ======= =======
DILUTED EPS
Income available to common shareholders.............. $15,221 $13,906 $10,193
Weighted-average number of shares, basic............. 8,864 8,966 8,896
Effect of dilutive securities:
Stock options..................................... 59 331 146
------- ------- -------
Weighted-average number of shares - assuming
dilution.......................................... 8,923 9,297 9,042
DILUTED EPS....................................... $ 1.71 $ 1.50 $ 1.13
======= ======= =======
</TABLE>
The Company has adopted the disclosure provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." Accordingly, no compensation cost has
been recognized for the stock and option plans. Had compensation cost for all
stock and option plans been determined based on the fair value at the grant date
of awards in fiscal 1999, 1998, and 1997 consistent with the provisions of SFAS
No. 123, the Company's net income and net income per share would have been
reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
October 3, September 27, September 28,
1999 1998 1997
---------- ------------- -------------
<S> <C> <C> <C>
Net income - as reported ............................ $15,221 $13,906 $10,193
Net income - pro forma .............................. $13,397 $12,355 $ 9,514
Basic earnings per share - as reported .............. $ 1.72 $ 1.55 $ 1.15
Basic earnings per share - pro forma ................ $ 1.51 $ 1.38 $ 1.07
Diluted earnings per share - as reported............. $ 1.71 $ 1.50 $ 1.13
Diluted earnings per share - pro forma .............. $ 1.50 $ 1.34 $ 1.05
</TABLE>
21
<PAGE> 22
REMEDYTEMP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
9. SHAREHOLDERS' EQUITY (CONTINUED)
The fair value of each option grant has been estimated on the date of
grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions for the grants in fiscal 1999, 1998 and 1997,
respectively: dividend yield of 0.0%, 0.0% and 0.0%; risk free interest rate of
4.54%, 5.81% and 6.48%; expected volatility of 37.0%, 31.0% and 30.0% and
expected lives of 3.7, 2.9 and 2.8 years. The weighted-average per share
estimated fair value at the date of grant for options granted during fiscal
1999, 1998 and 1997 was $5.26, $6.24 and $4.26, respectively.
The following table summarizes the activity relating to all stock and
option plans:
<TABLE>
<CAPTION>
Incentive Plan Purchase Options Outside
Options Plan Stock Incentive Plan
--------------------- ---------------------- ---------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------- --------- ------- --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Option outstanding September 29, 1996 439.4 $13.00 -- -- -- --
Options granted 280.0 $15.55 23.6 $13.18 -- --
Options canceled (21.4) $14.46 -- -- -- --
Options exercised (26.4) $13.00 (12.3) $13.18 -- --
------- ------ ----- ------ ----- ------
Options outstanding September 28, 1997 671.6 $14.04 11.3 $13.18 --
Options granted 262.8 $21.63 15.5 $19.49 125.0 $20.72
Options canceled (55.4) $14.95 -- -- -- --
Options exercised (65.6) $13.98 (18.8) $16.46 -- --
------- ------ ----- ------ ----- ------
Options outstanding September 27, 1998 813.4 $16.44 8.0 $18.06 125.0 $20.72
Options granted 262.0 $15.22 28.0 $10.34 -- --
Options canceled (43.3) $16.53 -- -- -- --
Options exercised (25.4) $13.91 (26.2) $12.75 -- --
------- ------ ----- ------ ----- ------
Options outstanding October 3, 1999 1,006.7 $16.18 9.8 $10.20 125.0 $20.72
======= ====== ===== ====== ===== ======
</TABLE>
The number of exercisable options outstanding for the fiscal years
ended 1999, 1998 and 1997 under the plans were 441.3, 241.6 and 114.5 shares,
respectively, at weighted-average prices of $16.37, $15.14 and $13.00 per share,
respectively. The following table summarizes information about stock options
outstanding at October 3, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options exercisable
-------------------------------------------------------- -------------------------
Weighted-
Average Weighted- Weighted-
Shares Remaining Average Shares Average
Exercise Price Outstanding Life Price Exercisable Price
-------------- ----------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$10.00-$13.00 310.1 6.6 years $12.91 179.6 $13.00
$13.01-$16.00 421.4 8.4 years $15.03 129.8 $15.31
$16.01-$20.00 76.0 8.8 years $18.34 19.8 $19.01
$20.01-$25.00 299.0 8.2 years $21.12 96.4 $21.89
$25.01-$30.00 35.0 8.5 years $26.59 15.7 $26.37
</TABLE>
22
<PAGE> 23
REMEDYTEMP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
10. UNAUDITED CONSOLIDATED QUARTERLY INFORMATION
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
----------------------------------------------------------
DECEMBER 27, MARCH 28, JUNE 27, OCTOBER 3,
1998 1999 1999 1999
------------ --------- -------- ----------
<S> <C> <C> <C> <C>
Total revenues ................................. $119,826 $114,593 $128,815 $150,302
Total cost of direct and licensed sales ........ $ 90,806 $ 88,010 $ 98,786 $116,162
Licensees' share of gross profit ............... $ 9,141 $ 8,973 $ 9,983 $ 11,517
Selling, general and administrative expenses ... $ 13,970 $ 12,790 $ 13,636 $ 15,703
Net income ..................................... $ 3,685 $ 3,211 $ 3,957 $ 4,368
Net income per share, basic .................... $ 0.41 $ 0.36 $ 0.45 $ 0.49
Net income per share, diluted .................. $ 0.41 $ 0.36 $ 0.45 $ 0.49
</TABLE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
------------------------------------------------------------
DECEMBER 28, MARCH 29, JUNE 28, SEPTEMBER 27,
1997 1998 1998 1998
------------ --------- -------- -------------
<S> <C> <C> <C> <C>
Total revenues ................................. $111,145 $109,607 $113,388 $117,204
Total cost of direct and licensed sales ........ $ 85,300 $ 84,041 $ 85,946 $ 88,802
Licensees' share of gross profit ............... $ 6,936 $ 6,937 $ 7,771 $ 8,494
Selling, general and administrative expenses.... $ 13,294 $ 13,906 $ 13,934 $ 14,166
Net income ..................................... $ 3,515 $ 2,986 $ 3,540 $ 3,865
Net income per share, basic .................... $ 0.39 $ 0.33 $ 0.39 $ 0.43
Net income per share, diluted .................. $ 0.38 $ 0.32 $ 0.38 $ 0.42
</TABLE>
23
<PAGE> 24
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of RemedyTemp, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, shareholders' equity and cash flows present
fairly, in all material respects, the financial position of RemedyTemp, Inc. and
its subsidiary (the "Company") at October 3, 1999, and September 27, 1998, and
the results of their operations and their cash flows for each of the three
fiscal years in the period ended October 3, 1999, in conformity with accounting
principles generally accepted in the United States. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PRICE WATERHOUSECOOPERS LLP
- -----------------------------------
PricewaterhouseCoopers LLP
Costa Mesa, California
November 12, 1999
24
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 333-11307, 333-11277, 333-47581, 333-55823 and
333-75611) of RemedyTemp, Inc. of our report dated November 12, 1999, which
appears in the Annual Report to Shareholders, which is incorporated in this
Annual Report on Form 10-K. We also consent to the incorporation by reference of
our report dated November 12, 1999 relating to the financial statement schedule,
which appears in this Form 10-K.
/s/ PRICEWATERHOUSECOOPERS LLP
- ------------------------------
PricewaterhouseCoopers LLP
Costa Mesa, California
December 27, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-03-1999
<PERIOD-START> SEP-28-1998
<PERIOD-END> OCT-03-1999
<CASH> 7,887
<SECURITIES> 0
<RECEIVABLES> 76,304
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 93,234
<PP&E> 18,204
<DEPRECIATION> 0
<TOTAL-ASSETS> 116,721
<CURRENT-LIABILITIES> 41,265
<BONDS> 0
0
0
<COMMON> 89
<OTHER-SE> 75,367
<TOTAL-LIABILITY-AND-EQUITY> 116,721
<SALES> 0
<TOTAL-REVENUES> 513,536
<CGS> 0
<TOTAL-COSTS> 393,764
<OTHER-EXPENSES> 95,713
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 251
<INCOME-PRETAX> 24,749
<INCOME-TAX> 9,528
<INCOME-CONTINUING> 15,221
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,221
<EPS-BASIC> 1.72
<EPS-DILUTED> 1.71
</TABLE>
