<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 28, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________ TO ________.
COMMISSION FILE NUMBER 0-5260
REMEDYTEMP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 95-2890471
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
101 ENTERPRISE
ALISO VIEJO, CALIFORNIA 92656
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (949) 425-7600
----------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /
As of May 10, 1999 there were 7,021,800 shares of Class A Common Stock and
1,803,539 shares of Class B Common Stock outstanding.
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REMEDYTEMP, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet as of March 28, 1999 and September 27, 1998...................... 3
Consolidated Statement of Income for the three fiscal months and six fiscal months ended
March 28, 1999 and March 29, 1998 ........................................................ 4
Consolidated Statement of Cash Flows for the six fiscal months ended March 28, 1999
and March 29, 1998........................................................................ 5
Notes to Consolidated Financial Statements.................................................. 6
Item 2. Management's Discussion and Analysis of Consolidated Financial Condition and Results of
Operations.................................................................................. 8
Item 3. Quantitative and Qualitative Disclosure About Market Risk................................... *
PART II--OTHER INFORMATION
Item 1. Legal Proceedings........................................................................... *
Item 2. Changes In Securities and Use of Proceeds................................................... *
Item 3. Defaults Upon Senior Securities............................................................. *
Item 4. Submission of Matters to a Vote of Security Holders......................................... 13
Item 5. Other Information........................................................................... *
Item 6. Exhibits and Reports on Form 8-K............................................................ 14
SIGNATURES................................................................................................ 15
</TABLE>
* No information provided due to inapplicability of item.
2
<PAGE> 3
REMEDYTEMP, INC.
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ASSETS
MARCH 28, SEPTEMBER 27,
1999 1998
------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents ............................................... $ 1,845 $ 450
Accounts receivable, net of allowance for doubtful accounts of $2,476
and $2,647, respectively .............................................. 63,334 63,660
Prepaid expenses and other current assets ............................... 3,062 3,401
Deferred income taxes ................................................... 3,735 2,235
------------- -------------
Total current assets ............................................. 71,976 69,746
Fixed assets, net of accumulated depreciation of $13,877 and $12,560,
respectively ............................................................ 17,781 15,184
Other assets, net .......................................................... 2,514 2,567
Deferred income taxes ...................................................... 501 501
Goodwill, net of accumulated amortization of $229 and $152, respectively ... 1,710 1,787
------------- -------------
$ 94,482 $ 89,785
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................................ $ 3,939 $ 3,033
Accrued workers' compensation (Note 6) .................................. 6,893 5,535
Accrued payroll, benefits and related costs ............................. 10,915 13,604
Accrued licensees' share of gross profit ................................ 3,836 3,194
Other accrued expenses .................................................. 918 865
Income taxes payable .................................................... 1,288 809
Capitalized lease obligation ............................................ 164 308
------------- -------------
Total current liabilities ........................................ 27,953 27,348
------------- -------------
Commitments and contingent liabilities
Shareholders' equity:
Preferred Stock, $.01 par value; authorized 5,000 shares; none outstanding
Class A Common Stock, $.01 par value; authorized 50,000 shares;
7,010 and 7,206 issued and outstanding at March 28, 1999 and September
27, 1998, respectively ................................................ 70 72
Class B Non-Voting Common Stock, $.01 par value; authorized 4,530
shares; 1,806 issued and outstanding at March 28, 1999 and
September 27, 1998..................................................... 18 18
Additional paid-in capital ................................................. 31,929 34,732
Retained earnings .......................................................... 34,512 27,615
------------- -------------
Total shareholders' equity ................................................. 66,529 62,437
------------- -------------
$ 94,482 $ 89,785
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
REMEDYTEMP, INC.
CONSOLIDATED STATEMENT OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
----------------------------- ----------------------------
MARCH 28, MARCH 29, MARCH 28, MARCH 29,
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Direct sales ........................... $ 62,731 $ 68,479 $ 129,169 $ 137,910
Licensed sales ......................... 51,180 40,327 103,874 81,266
Franchise royalties .................... 631 714 1,291 1,489
Initial license and franchise fees ..... 51 87 85 87
--------- --------- --------- ---------
Total revenues .................. 114,593 109,607 234,419 220,752
Cost of direct sales ................... 50,035 53,903 101,695 108,546
Cost of licensed sales ................. 37,975 30,138 77,121 60,795
Licensees' share of gross profit ....... 8,973 6,937 18,114 13,873
Selling and administrative expenses .... 11,895 13,233 25,070 25,867
Depreciation and amortization .......... 895 673 1,690 1,333
--------- --------- --------- ---------
Income from operations .......... 4,820 4,723 10,729 10,338
Other income:
Interest (expense) income, net ....... (13) 36 10 84
Other, net ........................... 265 345 475 691
--------- --------- --------- ---------
Income before provision for income taxes 5,072 5,104 11,214 11,113
Provision for income taxes ............. 1,861 2,118 4,317 4,612
--------- --------- --------- ---------
Net income ............................. $ 3,211 $ 2,986 $ 6,897 $ 6,501
========= ========= ========= =========
Net income per share, basic (Note 2) ... $ 0.36 $ 0.33 $ 0.78 $ 0.73
========= ========= ========= =========
Weighted-average number of shares ...... 8,821 8,949 8,894 8,942
========= ========= ========= =========
Net income per share, diluted (Note 2) . $ 0.36 $ 0.32 $ 0.77 $ 0.70
========= ========= ========= =========
Weighted-average number of shares ...... 8,908 9,275 8,980 9,245
========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
REMEDYTEMP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
---------------------------
Cash flows provided by (used in) operating activities: MARCH 28, MARCH 29,
1999 1998
--------- ---------
<S> <C> <C>
Net income ............................................................ $ 6,897 $ 6,501
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization ..................................... 1,690 1,333
Provision for losses on accounts receivable ....................... 80 742
Deferred taxes .................................................... (1,500) (1,500)
Changes in assets and liabilities:
Accounts receivable ............................................. 246 (2,672)
Prepaid expenses and other current assets ....................... 339 (362)
Other assets .................................................... 53 (214)
Accounts payable ................................................ 906 267
Accrued workers' compensation ................................... 1,358 2,115
Accrued payroll, benefits and related costs ..................... (2,689) (469)
Accrued licensees' share of gross profit ........................ 642 376
Other accrued expenses .......................................... 53 (302)
Income taxes payable ............................................ 479 (2,266)
--------- ---------
Net cash provided by operating activities ............................. 8,554 3,549
--------- ---------
Cash flows used in investing activities:
Purchase of fixed assets .............................................. (4,210) (3,821)
Purchase of franchises, net of assets acquired ........................ -- (1,014)
--------- ---------
Net cash used in investing activities ................................. (4,210) (4,835)
--------- ---------
Cash flows (used in) provided by financing activities:
Borrowings under line of credit agreement ............................. 5,000 1,000
Repayments under line of credit agreement ............................. (5,000) (1,000)
Repayments under capital lease obligation ............................. (144) (189)
Proceeds from stock option activity ................................... 8 265
Purchase of Company Common Stock ...................................... (2,957) --
Proceeds from Employee Stock Purchase Plan activity ................... 144 149
--------- ---------
Net cash (used in) provided by financing activities ................... (2,949) 225
--------- ---------
Net increase (decrease) in cash and cash equivalents .................... 1,395 (1,061)
Cash and cash equivalents at beginning of period ........................ 450 5,128
--------- ---------
Cash and cash equivalents at end of period .............................. $ 1,845 $ 4,067
========= =========
Other cash flow information:
Cash paid during the period for interest .............................. $ 84 $ 56
Cash paid during the period for income taxes .......................... $ 5,338 $ 8,378
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
REMEDYTEMP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of
RemedyTemp, Inc. (the "Company") including its wholly-owned subsidiary, Remedy
Insurance Group, LTD ("RIG"). All significant intercompany transactions and
balances have been eliminated.
The accompanying consolidated balance sheet at March 28, 1999, and the
consolidated statements of income and of cash flows for the six fiscal months
ended March 28, 1999 are unaudited. These statements have been prepared on the
same basis as the Company's audited consolidated financial statements and in the
opinion of management reflect all adjustments, which are only of a normal
recurring nature, necessary for a fair presentation of the consolidated
financial position and results of operations for such periods. These unaudited
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements included in the Company's Form 10-K as filed
with the Securities and Exchange Commission on December 23, 1998.
2. EARNINGS PER SHARE DISCLOSURE
Earnings per share is calculated as follows:
<TABLE>
<CAPTION>
THREE FISCAL MONTHS ENDED
-------------------------------------------------------------------------------------------
MARCH 28, 1999 MARCH 29, 1998
-------------------------------------------- --------------------------------------------
INCOME SHARES PER-SHARE INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNTS (NUMERATOR) (DENOMINATOR) AMOUNTS
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS
Income available to common
shareholders ................. $ 3,211 8,821 $ 0.36 $ 2,986 8,949 $ 0.33
============ ============
EFFECT OF DILUTIVE SECURITIES
Stock options ................ $ -- 87 $ -- 326
------------ ------------ ------------ ------------
DILUTED EPS
Income available to common
shareholders plus assumed
conversions................... $ 3,211 8,908 $ 0.36 $ 2,986 9,275 $ 0.32
============ ============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
SIX FISCAL MONTHS ENDED
-------------------------------------------------------------------------------------------
MARCH 28, 1999 MARCH 29, 1998
-------------------------------------------- --------------------------------------------
INCOME SHARES PER-SHARE INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNTS (NUMERATOR) (DENOMINATOR) AMOUNTS
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS
Income available to common
shareholders ................ $ 6,897 8,894 $ 0.78 $ 6,501 8,942 $ 0.73
============ ============
EFFECT OF DILUTIVE SECURITIES
Stock options ............... $ -- 86 $ -- 303
------------ ------------ ------------ ------------
DILUTED EPS
Income available to common
shareholders plus assumed
conversions ................. $ 6,897 8,980 $ 0.77 $ 6,501 9,245 $ 0.70
============ ============ ============ ============ ============ ============
</TABLE>
6
<PAGE> 7
REMEDYTEMP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
3. STOCK OPTIONS
Under the terms of the Company's 1996 Stock Incentive Plan, as amended,
on February 17, 1999, upon their reelection to the Board of Directors, the
Company granted options to purchase 5 shares of Class A Common Stock to each of
its five non-employee directors at $17.50 per share, for a total of 25 shares.
This plan is "non-compensatory" under APB No. 25, and accordingly, no
compensation expense was recorded in connection with these grants.
4. 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 the aggregate. During the six fiscal months ended March
28, 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.
5. REPURCHASE OF LICENSED OFFICES
During March 1999, the Company acquired two licensed offices in
Stockbridge and Atlanta, Georgia. Results of operations for the acquired
licensed offices are recorded in accordance with the Company's licensed revenue
recognition policy until the acquisition date. Subsequent to the acquisition
date, the direct office revenue recognition policy is utilized. These
acquisitions were accounted for under the purchase method of accounting. The
purchase prices are contingent upon a percentage of gross margin and will be
allocated to goodwill as earned. Goodwill will be amortized over a twenty-year
life. The Company is contemplating the continued selective repurchase of
licensed and franchised offices in certain territories with the intent of
expanding the Company's market presence in such regions.
6. SUBSEQUENT EVENTS
a) LINE OF CREDIT RENEWAL
On March 31, 1999, the Company renewed its revolving line of credit
agreement with Bank of America with renegotiated terms, 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. The Company
borrowed $18,750 under this agreement during April in connection with the
workers' compensation reinsurance contract discussed below.
b) WORKERS' COMPENSATION REINSURANCE
Effective April 1, 1999, the Company entered into a reinsurance
contract with Reliance National Insurance Company ("Reliance") whereby Reliance
assumed the Company's existing self-insurance 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 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 of $18,873 to Reliance on April 16, 1999. If the ultimate
aggregate losses exceed current projections, the reinsurance contract includes a
provision for additional payments up to $700.
7
<PAGE> 8
REMEDYTEMP, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
In addition to historical information, management's discussion and
analysis includes certain forward-looking statements, including, 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 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 those 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.
RESULTS OF OPERATIONS
For the Three Fiscal Months Ended March 28, 1999 Compared to the Three Fiscal
Months Ended March 29, 1998
Total revenues increased 4.5% or $5.0 million to $114.6 million for the
three fiscal months ended March 28, 1999 from $109.6 million for the three
fiscal months ended March 29, 1998. Direct revenues decreased 8.4% to $62.7
million from $68.5 million, while licensed revenues increased 26.9% to $51.2
million from $40.3 million for the three fiscal months ended March 28, 1999 and
March 29, 1998, respectively. During the fiscal year ended September 27, 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 7.5% and total Company
revenue increased 15.2% for the three fiscal months ended March 28, 1999
compared to the same period in the previous year. The expansion of business at
existing licensed offices as well as the opening of 15 new licensed offices
since the prior period account for the increase in licensed revenue. The
Company's management expects licensed revenue to continue to out-pace direct
revenue growth in the foreseeable future, due to projected office openings and
the average age of franchise offices being less than that of direct offices. The
Company's future revenue increases depend significantly on the Company's ability
to continue to attract new clients, retain existing clients, open new offices
and manage newly opened offices to maturity.
Total cost of direct and licensed sales, which consists of wages and
other expenses related to the temporary associates, increased 4.7% or $4.0
million to $88.0 million for the three fiscal months ended March 28, 1999 from
$84.0 million for the three fiscal months ended March 29, 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 76.8% for the three fiscal
months ended March 28, 1999 compared to 76.7% for the three fiscal months ended
March 29, 1998. 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 generally 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 sales. Licensees' share of gross profit increased 29.3% or $2.1
million to $9.0 million for the three fiscal months ended March 28, 1999 from
$6.9 million for the three fiscal months ended March 29, 1998 due to increased
billings at existing licensed offices and to the opening of 15 new offices.
Licensees' share of gross profit as a percentage of total revenues increased to
7.8% for the three fiscal months ended March 28, 1999 from 6.3% for the three
fiscal months ended March 29, 1998 due to increased licensed revenue as a
percentage of total revenue, as discussed above. Licensees' share of gross
profit as a percentage of licensed gross profit remained relatively constant.
8
<PAGE> 9
REMEDYTEMP, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Selling, general and administrative expenses, including depreciation
and amortization, decreased 8.0% or $1.1 million to $12.8 million for the three
fiscal months ended March 28, 1999 from $13.9 million for the three fiscal
months ended March 29, 1998. Selling, general and administrative expenses as a
percentage of total revenues decreased to 11.2% for the three fiscal months
ended March 28, 1999 from 12.7% for the three fiscal months ended March 29,
1998. Bad debt expense decreased $542.5 for the three fiscal months ended March
28, 1999 as compared to the three fiscal months ended March 29, 1998 due to
successful collection and recovery efforts resulting in lower writeoffs and
required reserves. Also, profit sharing and bonus expense decreased to $481.7
for the three fiscal months ended March 28, 1999 compared to $1,233.5 for the
three fiscal months ended March 29, 1998. 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 2.1% or $0.1 million to $4.8 million
for the three fiscal months ended March 28, 1999 from $4.7 million for the three
fiscal months ended March 29, 1998 due to the factors described above. Income
from operations as a percentage of revenues was 4.2% for the three fiscal months
ended March 28, 1999 compared to 4.3% for the three fiscal months ended March
29, 1998.
Net income increased 7.5% or $0.2 million to $3.2 million for the
three fiscal months ended March 28, 1999 from $3.0 million for the three fiscal
months ended March 29, 1998 due to the factors described above. Net income was
also favorably affected by a decrease in the Company's effective tax rate. The
lower rate reflects the expected tax savings from Work Opportunity Credits. As a
percentage of total revenues, net income was 2.8% in the three fiscal months
ended March 28, 1999 compared to 2.7% in the three fiscal months ended March 29,
1998. All revenues and results have been internally generated by the Company.
For the Six Fiscal Months Ended March 28, 1999 Compared to the Six Fiscal Months
Ended March 29, 1998
Total revenues increased 6.2% or $13.6 million to $234.4 million for
the six fiscal months ended March 28, 1999 from $220.8 million for the six
fiscal months ended March 29, 1998. Direct revenues decreased 6.3% to $129.2
million from $137.9 million, while licensed revenues increased 27.8% to $103.9
million from $81.3 million for the six fiscal months ended March 28, 1999 and
March 29, 1998, respectively. As of December 1998, the Company discontinued
providing service to a high volume, low gross margin client for various reasons,
including the Company's strategic emphasis on maintaining acceptable gross
margin levels on all client accounts. Excluding this client, revenues at the
direct offices increased 8.2% and total Company revenue increased 16.0% for the
six fiscal months ended March 28, 1999 compared to the same period in the
previous year. The expansion of business at existing licensed offices as well as
the opening of 15 new licensed offices since the prior period account for the
increase in licensed revenue. The Company's management expects licensed revenue
to continue to out-pace direct revenue growth in the foreseeable future, due to
projected office openings and the average age of franchise offices being less
than that of direct offices. The Company's future revenue increases depend
significantly on the Company's ability to continue to attract new clients,
retain existing clients, open new offices and manage newly opened offices to
maturity.
Total cost of direct and licensed sales, which consists of wages and
other expenses related to the temporary associates, increased 5.6% or $9.5
million to $178.8 million for the six fiscal months ended March 28, 1999 from
$169.3 million for the six fiscal months ended March 29, 1998, due to increased
revenues as discussed above. Total cost of direct and licensed sales as a
percentage of revenues was 76.3% for the six fiscal months ended March 28, 1999
compared to 76.7% for the six fiscal months ended March 29, 1998. Many factors,
including increased wage costs or other employment expenses, could adversely
affect the Company's cost of direct and licensed sales.
9
<PAGE> 10
REMEDYTEMP, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Licensees' share of gross profit increased 30.6% or $4.2 million to
$18.1 million for the six fiscal months ended March 28, 1999 from $13.9 million
for the six fiscal months ended March 29, 1998 due to increased billings at
existing licensed offices and to the opening of 15 new offices. Licensees' share
of gross profit as a percentage of total revenues increased to 7.7% for the six
fiscal months ended March 28, 1999 from 6.3% for the six fiscal months ended
March 29, 1998 due to increased licensed revenue as a percentage of total
revenue, as discussed above. Licensees' share of gross profit as a percentage of
licensed gross profit remained relatively constant.
Selling, general and administrative expenses, including depreciation
and amortization, decreased 1.6% or $0.4 million to $26.8 million for the six
fiscal months ended March 28, 1999 from $27.2 million for the six fiscal months
ended March 29, 1998. Selling, general and administrative expenses as a
percentage of total revenues decreased to 11.4% for the six fiscal months ended
March 28, 1999 from 12.3% for the six fiscal months ended March 29, 1998. Bad
debt expense decreased $662.7 for the six fiscal months ended March 28, 1999 as
compared to the six fiscal months ended March 29, 1998 due to successful
collection and recovery efforts resulting in lower writeoffs and required
reserves. Also, profit sharing and bonus expense decreased to $2,181.6 for the
six fiscal months ended March 28, 1999 compared to $2,831.8 for the six fiscal
months ended March 29, 1998. 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 the use of 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 3.8% or $0.4 million to $10.7 million
for the six fiscal months ended March 28, 1999 from $10.3 million for the six
fiscal months ended March 29, 1998 due to the factors described above. Income
from operations as a percentage of revenues was 4.6% for the six fiscal months
ended March 28, 1999 compared to 4.7% for the six fiscal months ended March 29,
1998.
Net income increased 6.1% or $0.4 million to $6.9 million for the six
fiscal months ended March 28, 1999 from $6.5 million for the six fiscal months
ended March 29, 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 Credits. As a
percentage of total revenues, net income remained constant at 2.9% for both the
six fiscal months ended March 28, 1999 and the six fiscal months ended March 29,
1998. All revenues and results have been internally generated by the Company.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities was $8.6 million for the six
fiscal months ended March 28, 1999 and $3.5 million for the six fiscal months
ended March 29, 1998. Cash provided by operating activities was primarily
impacted by improved accounts receivable collection efforts, as discussed above.
Cash used for purchases of fixed assets was $4.2 million for the six
fiscal months ended March 28, 1999, and $3.8 million for the six fiscal months
ended March 29, 1998. The increase in fiscal 1999 primarily resulted from
expenditures associated with leasehold improvements at direct offices and the
Company's new management information system. Upgrades of computers and hardwarwe
to support the new system began in early calendar year 1999, while
implementation of the related software is scheduled to begin in the third fiscal
quarter of 1999. During the next twelve months, the Company anticipates capital
expenditures associated with direct office openings, and further investments in
the Company's computer-based technologies to approximate $5.0 million.
10
<PAGE> 11
REMEDYTEMP, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Prior to April 1, 1999, the Company's workers' compensation risk was
self-insured in California and in most other states in which the Company does
business. Effective April 1, 1999, the Company entered into a reinsurance
contract with Reliance National Insurance Company, whereby the insurance company
assumed the Company's existing self-insured workers' compensation liability for
claims incurred during the period July 22, 1997 through March 31, 1999.
Additionally, the Company purchased a guaranteed cost insurance policy to cover
workers' compensation claims for the period April 1, 1999 to March 31, 2000. The
total cost to the Company for both the reinsurance contract and the guaranteed
cost policy was $18.9 million. See further discussion in Note 6 to the
Consolidated Financial Statements.
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 principal use of the line of credit has
been to finance receivables and to provide a letter of credit required in
connection with the Company's workers' compensation self-insurance program. The
Company had no balance outstanding under its line of credit and $6.7 million in
undrawn letters of credit as of March 28, 1999. The outstanding letters of
credit will be canceled in conjunction with the reinsurance contract, as
discussed above and in Note 6 to the Consolidated Financial Statements. The
Company borrowed $18.8 million under this line of credit agreement in connection
with the workers' compensation transactions discussed above. 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 requirements.
Additionally, RIG has a letter of credit agreement with Bank of Bermuda
(New York) Limited in the amount of $80,000. The letter of credit is unsecured,
expires on July 22, 1999 and was required in connection with the Company's
workers' compensation self-insurance program. This letter of credit will also be
canceled in conjunction with the workers' compensation reinsurance contract as
discussed above.
In connection with the Company's initial public offering (the
"Offering") in July 1996, the Company terminated its S corporation status and,
as a result, was required to change its overall method of accounting for tax
reporting purposes from the cash method to the accrual method, resulting in a
one-time net charge to earnings in the fourth quarter of fiscal 1996 of
approximately $7.8 million. The Internal Revenue Code allows the Company to
recognize the effects of this termination in its tax returns over a four-year
period. This resulted in additional quarterly installments of $750,000 in the
first and second fiscal quarters of 1999 and 1998, respectively.
The Company is contemplating certain strategic acquisitions. Such
acquisitions may have an impact on liquidity depending on the size of the
acquisition.
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 the aggregate. During the six fiscal months ended March
28, 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.
The Company believes that its current and expected levels of working
capital and line of credit are adequate to support present operations and to
fund future growth and business opportunities.
11
<PAGE> 12
REMEDYTEMP, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
YEAR 2000 COMPLIANCE
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 is in the process
of assessing the readiness of its systems for handling the Year 2000. The
Company is currently developing and 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 is
in the process of contacting its clients and material suppliers of products and
services to determine whether the suppliers' operations and the products and
services they provide are Year 2000 compliant, and will evaluate their progress
toward Year 2000 compliance. There can be no assurance that the Company's
material suppliers, 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
implementing a contingency plan effort to modify 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, the Company believes that its 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 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. 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.
12
<PAGE> 13
REMEDYTEMP, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
The Company's Contingency Plans
The Company continues to modify existing IT systems, which will allow
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
continues to evaluate strategies, including the use of certain available
resources, in formulating its contingency plans for failure of the existing IT
systems. Additionally, the Company is in the process of identifying and
contacting its material vendors and clients and will formulate 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 historically been strong as a result of manufacturing
and retail emphasis on holiday sales. The second fiscal quarter historically
shows little to no growth, and in some years a decline, in comparable revenues
from the first fiscal quarter. Revenue growth has historically accelerated in
each of the third and fourth fiscal quarters as manufacturers, retailers and
service businesses increase their level of business activity.
PART II--OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On February 17, 1999, the Company held its Annual Meeting of
Shareholders ("the Annual Meeting"). The Company's shareholders voted in favor
of the two matters voted upon at the Annual Meeting according to the following
vote tabulation:
Proposal One: Election of Directors.
<TABLE>
<CAPTION>
Abstentions and Broker
For Withhold Non-Votes
--- -------- ----------------------
<S> <C> <C> <C>
William D. Cvengros 5,942,526 8,410 1,111,588
James L. Doti 5,942,526 8,410 1,111,588
Robert A. Elliott 5,942,526 8,410 1,111,588
J. Michael Hagan 5,942,526 8,410 1,111,588
Robert E. McDonough, Sr. 5,942,326 8,610 1,111,588
Paul W. Mikos 5,942,526 8,410 1,111,588
John B. Zaepfel 5,942,526 8,410 1,111,588
</TABLE>
Proposal Two: Ratification and approval of amendment to the Stock Incentive Plan
increasing the number of shares authorized for issuance thereunder by 575,000
shares.
For: 4,625,797
Against: 521,972
Votes Abstaining: 10,563
Broker Non-Votes: 1,904,192
13
<PAGE> 14
REMEDYTEMP, INC.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Set forth below is a list of the exhibits included as part of this
Quarterly Report:
Number
Exhibit Description
- ------- -----------
3.1 Amended and Restated Articles of Incorporation of the Company (a)
3.2 Amended and Restated Bylaws of the Company (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 (i)
10.3 R. Emmett McDonough Employment Agreement (a)
10.4 Allocation Agreement with R. Emmett McDonough and Related Trusts
(a)
10.5 Registration Rights Agreement with R. Emmett McDonough and Related
Trusts (a)
10.6 Letter regarding terms of employment and potential severance of
Alan M. Purdy (a)
10.7 Deferred Compensation Agreement for Alan M. Purdy (a)
10.8 Letter regarding potential severance of Jeffrey A. Elias (a)
10.9 Form of Indemnification Agreement (a)
10.11 RemedyTemp, Inc. Amended and Restated 1996 Stock Incentive Plan
10.12 RemedyTemp, Inc. 1996 Employee Stock Purchase Plan (a)
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/search2000(TM) (h)
10.26 Credit Agreement among Bank of America National Trust and Savings
Association and RemedyTemp, Inc., effective March 31, 1999.
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. Exhibit 10.21 is superseded by the new agreement,
effective March 31, 1999. See Exhibit 10.26
(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 27, 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
March 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.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed in the fiscal quarter ended March
1999.
14
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
REMEDYTEMP, INC.
May 10, 1999 /s/ PAUL W. MIKOS
Paul W. Mikos, President and Chief
Executive Officer
May 10, 1999 /s/ ALAN M. PURDY
Senior Vice President and Chief Financial
Officer (Principal Financial and Accounting
Officer)
15
<PAGE> 16
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 (i)
10.3 R. Emmett McDonough Employment Agreement (a)
10.4 Allocation Agreement with R. Emmett McDonough and Related Trusts
(a)
10.5 Registration Rights Agreement with R. Emmett McDonough and Related
Trusts (a)
10.6 Letter regarding terms of employment and potential severance of
Alan M. Purdy (a)
10.7 Deferred Compensation Agreement for Alan M. Purdy (a)
10.8 Letter regarding potential severance of Jeffrey A. Elias (a)
10.9 Form of Indemnification Agreement (a)
10.11 RemedyTemp, Inc. Amended and Restated 1996 Stock Incentive Plan
10.12 RemedyTemp, Inc. 1996 Employee Stock Purchase Plan (a)
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., effective March 31, 1999.
27.1 Financial Data Schedule
16
<PAGE> 17
(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. Exhibit 10.21 is superseded by the new agreement,
effective March 31, 1999. See Exhibit 10.26.
(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 27, 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
March 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.
17
<PAGE> 1
EXHIBIT 10.11
1996 STOCK INCENTIVE PLAN
(AMENDED AND RESTATED EFFECTIVE AS OF FEBRUARY 17, 1999 UPON SHAREHOLDER
APPROVAL OF 575,000 SHARE RESERVE INCREASE)
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 officers or key employees,
consultants, and advisors of the Company (as determined by the Committee) other
than Non-employee Directors.
(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.
<PAGE> 2
(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.
(o) "NON-EMPLOYEE DIRECTOR'S OPTION" means a Stock Option granted to a
Non-employee Director pursuant to Article IV of the Plan.
2
<PAGE> 3
(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.
(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.
3
<PAGE> 4
(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.
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 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.
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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.
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
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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.
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
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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.
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
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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, 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
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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 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.
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(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).
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.
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(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.
(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.
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(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.
(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.
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(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.
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
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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.
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
14
<PAGE> 15
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 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.
15
<PAGE> 16
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 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
16
<PAGE> 17
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 10.26
================================================================================
BUSINESS LOAN AGREEMENT
by and between
REMEDYTEMP, INC
and
BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION
Dated as of ____________________
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. FACILITY NO. 1: LINE OF CREDIT AMOUNT AND TERMS............ 1
1.1 Line of Credit Amount............................. 1
1.2 Availability Period............................... 1
1.3 Interest Rate..................................... 1
1.4 Repayment Terms................................... 3
1.5 Optional Interest Rates........................... 3
1.6 Offshore Rate..................................... 3
1.7 LIBOR Rate........................................ 4
1.8 Letters of Credit................................. 6
2. FACILITY NO. 2: TERM LOAN FACILITY AMOUNT AND TERMS........ 7
2.1 Amount and Terms.................................. 7
2.2 Interest Rate..................................... 7
2.3 Repayment Terms................................... 7
2.4 Mandatory Prepayment; Early Termination........... 8
2.5 Optional Interest Rates........................... 8
2.6 Offshore Rate..................................... 8
2.7 LIBOR Rate........................................ 9
3. DISBURSEMENTS, PAYMENTS AND COST........................... 11
3.1 Requests for Credit............................... 11
3.2 Disbursements and Payments........................ 11
3.3 Telephone Authorization........................... 11
3.4 Direct Debit...................................... 12
3.5 Banking Days...................................... 12
3.6 Taxes............................................. 12
3.7 Additional Costs.................................. 12
3.8 Interest Calculation.............................. 12
3.9 Interest on Late Payments......................... 12
3.10 Default Rate...................................... 13
4. CONDITIONS................................................. 13
4.1 Conditions to First Extension of Credit........... 13
5. REPRESENTATIONS AND WARRANTIES............................. 13
5.1 Organization of Borrower.......................... 13
5.2 Authorization..................................... 13
5.3 Enforceable Agreement............................. 13
5.4 Good Standing..................................... 13
5.5 No Conflicts...................................... 13
5.6 Financial Information............................. 13
5.7 Lawsuits.......................................... 14
5.8 Permits, Franchises............................... 14
5.9 Other Obligations................................. 14
</TABLE>
(i)
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
5.10 Income Tax Matters..................................... 14
5.11 No Event of Default.................................... 14
5.12 ERISA Plans............................................ 14
5.13 Location of Borrower................................... 15
5.14 Year 2000 Compliance................................... 15
6. COVENANTS....................................................... 15
6.1 Use of Proceeds........................................ 15
6.2 Financial Information.................................. 15
6.3 Current Ratio.......................................... 16
6.4 Total Liabilities to EBITDA Ratio...................... 16
6.5 Fixed Charge Coverage Ratio............................ 17
6.6 Other Debts............................................ 17
6.7 Other Liens............................................ 17
6.8 Debt Reduction Requirement............................. 17
6.9 Notices to Bank........................................ 18
6.10 Books and Records...................................... 18
6.11 Audits................................................. 18
6.12 Compliance with Laws................................... 18
6.13 Preservation of Rights................................. 18
6.14 Maintenance of Properties.............................. 18
6.15 Cooperation............................................ 18
6.16 General Business Insurance............................. 18
6.17 Additional Negative Covenants.......................... 18
6.18 ERISA Plans............................................ 21
6.19 Bank as Principal Depository........................... 21
7. DEFAULT......................................................... 21
7.1 Failure to Pay......................................... 21
7.2 False Information...................................... 21
7.3 Bankruptcy............................................. 21
7.4 Receivers.............................................. 21
7.5 Judgments.............................................. 21
7.6 Government Action...................................... 21
7.7 Material Adverse Change................................ 22
7.8 Cross-default.......................................... 22
7.9 Other Bank Agreements.................................. 22
7.10 ERISA Plans............................................ 22
7.11 Other Breach Under Agreement........................... 22
8. ENFORCING THIS AGREEMENT; MISCELLANEOUS......................... 22
8.1 GAAP................................................... 22
8.2 California Law......................................... 22
8.3 Successors and Assigns................................. 22
8.4 Arbitration............................................ 22
8.5 Severability; Waivers.................................. 24
8.6 Administration Costs................................... 24
</TABLE>
(ii)
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
8.7 Attorneys' Fees..................................... 24
8.8 One Agreement....................................... 24
8.9 Notices............................................. 25
8.10 Headings............................................ 25
8.11 Counterparts........................................ 25
8.12 Prior Agreement Superseded.......................... 25
</TABLE>
(iii)
<PAGE> 5
BUSINESS LOAN AGREEMENT
This Agreement dated as of ____________, 1999, is between Bank of
America National Trust and Savings Association (the "Bank") and RemedyTemp, Inc.
(the "Borrower").
1. FACILITY NO. 1: LINE OF CREDIT AMOUNT AND TERMS
1.1 Line of Credit Amount.
(a) During the availability period described below, the Bank
will provide a line of credit ("Facility No. 1") to the Borrower.
Subject to subparagraph (c) below, the amount of the line of credit (the
"Facility No. 1 Commitment") is Forty Million Dollars ($40,000,000).
(b) This is a revolving line of credit with a within line
facility for letters of credit. During the availability period, the
Borrower may repay principal amounts and reborrow them.
(c) The Borrower agrees not to permit the outstanding principal
balance of the line of credit plus the outstanding amounts of any
letters of credit, including amounts drawn on letters of credit and not
yet reimbursed, and the outstanding principal balance of the Facility
No. 2 Commitment (as defined below), to exceed the Facility No. 1
Commitment.
1.2 Availability Period. The line of credit is available between the
date of this Agreement and February 28, 2002 (the "Facility No. 1 Expiration
Date") unless the Borrower is in default.
1.3 Interest Rate.
(a) Unless the Borrower elects an optional interest rate as
described below, the interest rate is the Bank's Reference Rate plus the
Applicable Amount (defined in subparagraph (c) below).
(b) The Reference Rate is the rate of interest publicly
announced from time to time by the Bank in San Francisco, California, as
its Reference Rate. The Reference Rate is set by the Bank based on
various factors, including the Bank's costs and desired return, general
economic conditions and other factors, and is used as a reference point
for pricing some loans. The Bank may price loans to its customers at,
above, or below the Reference Rate. Any change in the Reference Rate
shall take effect at the opening of business on the day specified in the
public announcement of a change in the Bank's Reference Rate.
(c) "Applicable Amount" means, for any Pricing Period, the per
annum amounts set forth below under Applicable Amount opposite the
applicable Pricing Level:
-1-
<PAGE> 6
<TABLE>
<CAPTION>
=============================================================================
Applicable Amount
(in basis points per annum)
Pricing Level -----------------------------------------------------------
Offshore Rate + and Standby Letters
Reference Rate + LIBOR Rate + of Credit
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
1 -25 100 90
- -----------------------------------------------------------------------------
2 -12.5 125 90
- -----------------------------------------------------------------------------
3 0 137.5 95
=============================================================================
</TABLE>
"Pricing Level" means, for each period, the pricing
level set forth below opposite the Total Liabilities to EBITDA
ratio, achieved by the Borrower as of the end of the fiscal
quarter immediately preceding the first day of that Pricing
Period:
Pricing Level Total Liabilities/EBITDA Ratio
------------- -------------------------------
1 less than or equal to 1.75 to 1.00
2 greater than 1.75 to 1.00 but
less than or equal to 2.50 to 1.00
3 greater than 2.50 to 1.00
For purposes of determining the Pricing Level, the Total Liabilities to
EBITDA ratio shall be calculated for each Pricing Period using (i)
EBITDA for the fiscal quarter immediately preceding the first day of
the relevant Pricing Period and each of the three immediately preceding
fiscal quarters, and (ii) the Total Liabilities as of the end of that
fiscal quarter.
"Pricing Period" means (a) the period commencing on the
date of execution of this Agreement and ending on the first
Pricing Level Change Date to occur thereafter and (b) each
subsequent period commencing on each Pricing Level Change Date
and ending the day prior to the next Pricing Level Change Date.
"Pricing Level Change Date" means, with respect to any
change in the Pricing Level which results in a change in the
Applicable Amount, (5) business days after the date upon which
the Borrower delivers a compliance certificate to the Bank as
required under Paragraph 7.2(e) below reflecting such changed
Pricing Level; provided, however, that if the compliance
certificate is not delivered by 30 days after the date required
by Paragraph 7.2(e) for the delivery of a compliance
certificate, then, subject to the other provisions of this
Agreement, commencing on the date such compliance certificate
was required until such compliance certificate is delivered, the
Applicable Amount shall be based on the next higher level than
the one previously in effect, and from and after the date such
compliance certificate is thereafter received, the Applicable
Amount shall be as determined from such compliance certificate.
-2-
<PAGE> 7
"Total Liabilities" means the sum of all liabilities on
the Borrower's balance sheet.
"EBITDA" means the sum of net income before taxes, plus
interest expense, plus depreciation and amortization, plus funds
generated from the employee stock purchase plan and any stock
option activity not to exceed $2,000,000 on an annual basis.
1.4 Repayment Terms.
(a) The Borrower will pay interest on April 30, 1999, and then
monthly thereafter until payment in full of any principal outstandings
under this line of credit.
(b) The Borrower will repay in full all principal and any unpaid
interest or other charges outstanding under this line of credit no later
than the Facility No. 1 Expiration Date.
(c) Any amount bearing interest at an optional interest rate (as
described below) may be repaid at the end of the applicable interest
period, which shall be no later than the Facility No. 1 Expiration Date.
1.5 Optional Interest Rates. Instead of the interest rate based on the
Bank's Reference Rate, the Borrower may elect to have all or portions of the
line of credit (during the availability period) bear interest at the rate(s)
described below during an interest period agreed to by the Bank and the
Borrower. Each interest rate is a rate per year. Interest will be paid on the
last day of each interest period, and on the first day of each month during the
interest period. At the end of any interest period, the interest rate will
revert to the rate based on the Reference Rate, unless the Borrower has
designated another interest rate for the portion.
1.6 Offshore Rate. The Borrower may elect to have all or potions of the
principal balance of the line of credit bear interest at the Offshore Rate plus
the Applicable Amount. Designation of an Offshore Rate portion is subject to the
following requirements:
(a) The interest period during which the Offshore Rate will be
in effect will be no shorter than 30 days and no longer than one year.
The last day of the interest period will be determined by the Bank using
the practices of the offshore dollar inter-bank market.
(b) Each Offshore Rate portion will be for an amount not less
than Five Hundred Thousand Dollars ($500,000).
(c) The "Offshore Rate" means the interest rate determined by
the following formula, rounded upward to the nearest 1/100 of one
percent. (All amounts in the calculation will be determined by the Bank
as of the first day of the interest period.)
Offshore Rate = Grand Cayman Rate
---------------------------
(1.00 - Reserve Percentage)
Where,
(i) "Grand Cayman Rate" means the interest rate (rounded
upward to the nearest 1/16th of one percent) at which the Bank's
Grand Cayman Branch,
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<PAGE> 8
Grand Cayman, British West Indies, would offer U.S. dollar
deposits for the applicable interest period to other major banks
in the offshore dollar inter-bank markets.
(ii) "Reserve Percentage" means the total of the maximum
reserve percentages for determining the reserves to be
maintained by member banks of the Federal Reserve System for
Eurocurrency Liabilities, as defined in the Federal Reserve
Board Regulation D, rounded upward to the nearest 1/100 of one
percent. The percentage will be expressed as a decimal, and will
include, but not be limited to, marginal, emergency,
supplemental, special, and other reserve percentages.
(d) The Borrower may not elect an Offshore Rate with respect to
any portion of the principal balance of the line of credit which is
scheduled to be repaid before the last day of the applicable interest
period.
(e) Any portion of the principal balance of the line of credit
already bearing interest at the Offshore Rate will not be converted to a
different rate during its interest period.
(f) Each prepayment of an Offshore Rate Portion, whether
voluntary, by reason of acceleration or otherwise, will be accompanied
by the amount of accrued interest on the amount prepaid, and a
prepayment fee equal to the amount (if any) by which:
(i) the additional interest which would have been
payable on the amount prepaid had it not been paid until the
last day of the interest period, exceeds
(ii) the interest which would have been recoverable by
the Bank by placing the amount prepaid on deposit in the
offshore dollar market for a period starting in the date on
which it was prepaid and ending on the last day of the interest
period for such portion.
(g) The Bank will have no obligation to accept an election for
an Offshore Rate portion if any of the following described events has
occurred and is continuing:
(i) Dollar deposits in the principal amount, and for
periods equal to the interest period, of an Offshore Rate
portion are not available in the offshore dollar inter-bank
market; or
(ii) the Offshore Rate does not accurately reflect the
cost of an Offshore Rate portion.
1.7 LIBOR Rate. The Borrower may elect to have all or potions of the
principal balance of the line of credit bear interest at the LIBOR Rate plus the
Applicable Amount. Designation of an LIBOR Rate portion is subject to the
following requirements:
(a) The interest period during which the LIBOR Rate will be in
effect will be one, two, three, four, six, or twelve months. The first
day of the interest period must be a day other than a Saturday or a
Sunday on which the Bank is open for business in California, New York
and London and dealing in offshore dollars (a "LIBOR Banking
-4-
<PAGE> 9
Day"). The last day of the interest period and the actual number of days
during the interest period will be determined by the Bank using the
practices of the London inter-bank market.
(b) Each LIBOR Rate portion will be for an amount not less than
(i) Five Hundred Thousand Dollars ($500,000) if the interest period is
one month and (ii) Two Hundred Fifty Thousand Dollars ($250,000) if the
interest period is two months or longer.
(c) The "LIBOR Rate" means the interest rate determined by the
following formula, rounded upward to the nearest 1/100 of one percent.
(All amounts in the calculation will be determined by the Bank as of the
first day of the interest period.)
LIBOR Rate = London Inter-Bank Offered Rate
------------------------------
(1.00 - Reserve Percentage)
Where,
(i) "London Inter-Bank Offered Rate" means the average
per annum interest rate at which U.S. dollar deposits would be
offered for the applicable interest period by major banks in the
London inter-bank market, as shown on the Telerate Page 3750 (or
such other page as may replace it) at approximately 11:00 a.m.
London time two (2) London Banking Days before the commencement
of the interest period. If such rate does not appear on the
Telerate Page 3750 (or such other page that may replace it), the
rate for that interest period will be determined by such
alternate method as reasonably selected by Bank. A "London
Banking Day" is a day on which the Bank's London Branch is open
for business and dealing in offshore dollars.
(ii) "Reserve Percentage" means the total of the maximum
reserve percentages for determining the reserves to be
maintained by member banks of the Federal Reserve System for
Eurocurrency Liabilities, as defined in Federal Reserve Board
Regulation D, rounded upward to the nearest 1/100 of one
percent. The percentage will be expressed as a decimal, and will
include, but not be limited to, marginal, emergency,
supplemental, special, and other reserve percentages.
(d) The Borrower shall irrevocably request a LIBOR Rate Portion
no later than 12:00 noon San Francisco time on the LIBOR Banking Day
preceding the day on which the London Inter-Bank Offered Rate will be
set, as specified above.
(e) The Borrower may not elect a LIBOR Rate with respect to any
principal amount which is scheduled to be repaid before the last day of
the applicable interest period.
(f) Any portion of the principal balance already bearing
interest at the LIBOR Rate will not be converted to a different rate
during its interest period.
(g) Each prepayment of a LIBOR Rate Portion, whether voluntary,
by reason of acceleration or otherwise, will be accompanied by the
amount of accrued interest on the amount prepaid and a prepayment fee as
described below. A "prepayment" is a payment of an amount on a date
earlier than the scheduled payment date for such
-5-
<PAGE> 10
amount as required by this Agreement. The prepayment fee shall be equal
to the amount (if any) by which:
(i) the additional interest which would have been
payable during the interest period on the amount prepaid had it
not been prepaid, exceeds
(ii) the interest which would have been recoverable by
the Bank by placing the amount prepaid on deposit in the
domestic certificate of deposit market, the eurodollar deposit
market, or other appropriate money market selected by the Bank,
for a period starting on the date on which it was prepaid and
ending on the last day of the interest period for such portion
(or the scheduled payment date for the amount prepaid, if
earlier).
(h) The Bank will have no obligation to accept an election for a
LIBOR Rate Portion if any of the following described events has occurred
and is continuing:
(i) Dollar deposits in the principal amount, and for
periods equal to the interest period, of a LIBOR Rate portion
are not available in the London inter-bank market; or
(ii) the LIBOR Rate does not accurately reflect the cost
of a LIBOR Rate portion.
1.8 Letters of Credit. This line of credit may be used for financing:
standby letters of credit with a maximum maturity of no more than one (1) year
from the date of issuance. Each standby letter of credit may include a provision
providing that the maturity date may be automatically extended each year for an
additional year unless the Bank gives written notice of non-renewal within sixty
(60) days of the maturity date. Notwithstanding the foregoing, each letter will
have a final maturity which does not extend beyond the Facility No. 1 Expiration
Date. The amount of the letters of credit outstanding at any one time,
(including amounts drawn on letters of credit and not yet reimbursed) may not
exceed Ten Million Dollars ($10,000,000). The following letters of credit are
outstanding from the Bank for the account of the Borrower:
Letter of Credit Number Amount
----------------------- ------
250089 $ 150,000
3007706 $6,550,000
As of the date of this Agreement, this letter of credit shall be deemed to be
outstanding under this Agreement, and shall be subject to all the terms and
conditions stated in this Agreement.
The Borrower agrees:
(a) any sum drawn under a letter of credit may, at the option of
the Bank, be added to the principal amount outstanding under this
Agreement. The amount will bear interest and be due as described
elsewhere in this Agreement.
(b) if there is a default under this Agreement, to immediately
prepay and make the Bank whole for any outstanding letters of credit.
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<PAGE> 11
(c) the issuance of any letter of credit and any amendment to a
letter of credit is subject to the Bank's written approval and must be
in form and content satisfactory to the Bank and in favor of a
beneficiary acceptable to the Bank.
(d) to sign the Bank's form Application and Agreement for
Standby Letter of Credit.
(e) to pay any issuance and/or other fees that the Bank notifies
the Borrower will be charged for issuing and processing letters of
credit for the Borrower.
(f) to allow the Bank to automatically charge its checking
account for applicable fees, discounts, and other charges.
(g) to pay the Bank a non-refundable fee equal to the Applicable
Amount per annum of the outstanding undrawn amount of each standby
letter of credit, payable quarterly in advance, calculated on the basis
of the face amount outstanding on the day the fee is calculated. If
there is a default under this Agreement, at the Bank's option, the
amount of the fee shall be increased to the Applicable Amount plus two
(2.0) percent per annum, effective starting on the day the Bank provides
notice of the increase to the Borrower.
2. FACILITY NO. 2: TERM LOAN FACILITY AMOUNT AND TERMS
2.1 Amount and Terms.
(a) During the availability period, the Borrower may request
Term Loans from the Bank in a total principal amount not to exceed
Twenty Five Million Dollars ($25,000,000) (the "Facility No. 2
Commitment").
(b) The availability period is from the date of this Agreement
through February 28, 2002 (the "Facility No. 2 Expiration Date"), unless
the Borrower is in default.
(c) Each Term Loan made by the Bank under this facility (the
"Facility No. 2") will reduce the amount of the Facility No. 1
Commitment available for extensions of credit other than Term Loans.
"Term Loan" means a term loan under this facility used to finance an
Acceptable Acquisition (as defined in Paragraph 7.17(c) below).
2.2 Interest Rate. Unless the Borrower elects an optional interest rate
as described below, the interest rate is the Bank's Reference Rate plus the
Applicable Amount.
2.3 Repayment Terms.
(a) The Borrower will pay all accrued but unpaid interest on
each Term Loan on the first day of the first month after the funding of
the Term Loan, and then monthly thereafter until payment in full of the
principal of the Term Loan.
(b) The Borrower will repay the principal amount of each Term
Loan in up to 60 successive approximately equal monthly installments
starting on the first day of the sixth (6th) month after the date on
which each such loan is made.
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(c) The Borrower may prepay the loan in full or in part at any
time. The prepayment will be applied to the most remote payment of
principal due under this Agreement.
2.4 Mandatory Prepayment; Early Termination. Anything herein to the
contrary notwithstanding, if Facility No. 1, as now in effect or as hereafter
renewed, amended or restated, terminates for any reason, including, without
limitation, termination at the request of the Borrower, termination resulting
from failure by the Bank to renew Facility No. 1 beyond any availability period
applicable thereto, or termination as otherwise provided or permitted under this
Agreement, the entire principal balance of each Term Loan outstanding under this
Facility No. 2, together with all accrued interest thereon, shall be due and
payable on the effective date of such termination.
2.5 Optional Interest Rates. Instead of the interest rate based on the
Bank's Reference Rate plus the Applicable Amount, the Borrower may elect to have
all or portions of the Term Loans bear interest at the rate(s) described below
during an interest period agreed to by the Bank and the Borrower. Each interest
rate is a rate per year. Interest will be paid on the last day of each interest
period, and on the first day of each month during the interest period. At the
end of any interest period, the interest rate will revert to the rate based on
the Reference Rate, unless the Borrower has designated another interest rate for
the portion.
2.6 Offshore Rate. The Borrower may elect to have all or portions of the
principal balance of the Term Loans bear interest at the Offshore Rate plus the
Applicable Amount. Designation of an Offshore Rate portion is subject to the
following requirements:
(a) The interest period during which the Offshore Rate will be
in effect will be no shorter than 30 days and no longer than one year.
The last day of the interest period will be determined by the Bank using
the practices of the offshore dollar inter-bank market.
(b) Each Offshore Rate portion will be for an amount not less
than Five Hundred Thousand Dollars ($500,000).
(c) The "Offshore Rate" means the interest rate determined by
the following formula, rounded upward to the nearest 1/100 of one
percent. (All amounts in the calculation will be determined by the Bank
as of the first day of the interest period.)
Offshore Rate = Grand Cayman Rate
---------------------------
(1.00 - Reserve Percentage)
Where,
(i) "Grand Cayman Rate" means the interest rate (rounded
upward to the nearest 1/16th of one percent) at which the Bank's
Grand Cayman Branch, Grand Cayman, British West Indies, would
offer U.S. dollar deposits for the applicable interest period to
other major banks in the offshore dollar inter-bank markets.
(ii) "Reserve Percentage" means the total of the maximum
reserve percentages for determining the reserves to be
maintained by member banks of the Federal Reserve System for
Eurocurrency Liabilities, as defined in the Federal Reserve
Board Regulation D, rounded upward to the nearest 1/100 of one
percent. The percentage will be expressed as a decimal, and will
include,
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<PAGE> 13
but not be limited to, marginal, emergency, supplemental,
special, and other reserve percentages.
(d) The Borrower may not elect an Offshore Rate with respect to
any portion of the principal balance of the line of credit which is
scheduled to be repaid before the last day of the applicable interest
period.
(e) Any portion of the principal balance of the line of credit
already bearing interest at the Offshore Rate will not be converted to a
different rate during its interest period.
(f) Each prepayment of an Offshore Rate Portion, whether
voluntary, by reason of acceleration or otherwise, will be accompanied
by the amount of accrued interest on the amount prepaid, and a
prepayment fee equal to the amount (if any) by which:
(i) the additional interest which would have been
payable on the amount prepaid had it not been paid until the
last day of the interest period, exceeds
(ii) the interest which would have been recoverable by
the Bank by placing the amount prepaid on deposit in the
offshore dollar market for a period starting in the date on
which it was prepaid and ending on the last day of the interest
period for such portion.
(g) The Bank will have no obligation to accept an election for
an Offshore Rate portion if any of the following described events has
occurred and is continuing:
(i) Dollar deposits in the principal amount, and for
periods equal to the interest period, of an Offshore Rate
portion are not available in the offshore dollar inter-bank
market; or
(ii) the Offshore Rate does not accurately reflect the
cost of an Offshore Rate portion.
2.7 LIBOR Rate. The Borrower may elect to have all or potions of the
principal balance of the Term Loans bear interest at the LIBOR Rate plus the
Applicable Amount. Designation of an LIBOR Rate portion is subject to the
following requirements:
(a) The interest period during which the LIBOR Rate will be in
effect will be one, two, three, four, or six months. The first day of
the interest period must be a day other than a Saturday or a Sunday on
which the Bank is open for business in California, New York and London
and dealing in offshore dollars (a "LIBOR Banking Day"). The last day of
the interest period and the actual number of days during the interest
period will be determined by the Bank using the practices of the London
inter-bank market.
(b) Each LIBOR Rate portion will be for an amount not less than
(i) Five Hundred Thousand Dollars ($500,000) if the interest period is
one month and (ii) Two Hundred Fifty Thousand Dollars ($250,000) if the
interest period is two months or longer.
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<PAGE> 14
(c) The "LIBOR Rate" means the interest rate determined by the
following formula, rounded upward to the nearest 1/100 of one percent.
(All amounts in the calculation will be determined by the Bank as of the
first day of the interest period.)
LIBOR Rate = London Inter-Bank Offered Rate
------------------------------
(1.00 - Reserve Percentage)
Where,
(i) "London Inter-Bank Offered Rate" means the average
per annum interest rate at which U.S. dollar deposits would be
offered for the applicable interest period by major banks in the
London inter-bank market, as shown on the Telerate Page 3750 (or
such other page as may replace it) at approximately 11:00 a.m.
London time two (2) London Banking Days before the commencement
of the interest period. If such rate does not appear on the
Telerate Page 3750 (or such other page that may replace it), the
rate for that interest period will be determined by such
alternate method as reasonably selected by Bank. A "London
Banking Day" is a day on which the Bank's London Branch is open
for business and dealing in offshore dollars.
(ii) "Reserve Percentage" means the total of the maximum
reserve percentages for determining the reserves to be
maintained by member banks of the Federal Reserve System for
Eurocurrency Liabilities, as defined in Federal Reserve Board
Regulation D, rounded upward to the nearest 1/100 of one
percent. The percentage will be expressed as a decimal, and will
include, but not be limited to, marginal, emergency,
supplemental, special, and other reserve percentages.
(d) The Borrower shall irrevocably request a LIBOR Rate Portion
no later than 12:00 noon San Francisco time on the LIBOR Banking Day
preceding the day on which the London Inter-Bank Offered Rate will be
set, as specified above.
(e) The Borrower may not elect a LIBOR Rate with respect to any
principal amount which is scheduled to be repaid before the last day of
the applicable interest period.
(f) Any portion of the principal balance already bearing
interest at the LIBOR Rate will not be converted to a different rate
during its interest period.
(g) Each prepayment of a LIBOR Rate Portion, whether voluntary,
by reason of acceleration or otherwise, will be accompanied by the
amount of accrued interest on the amount prepaid and a prepayment fee as
described below. A "prepayment" is a payment of an amount on a date
earlier than the scheduled payment date for such amount as required by
this Agreement. The prepayment fee shall be equal to the amount (if any)
by which:
(i) the additional interest which would have been
payable during the interest period on the amount prepaid had it
not been prepaid, exceeds
(ii) the interest which would have been recoverable by
the Bank by placing the amount prepaid on deposit in the
domestic certificate of deposit market, the eurodollar deposit
market, or other appropriate money market
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<PAGE> 15
selected by the Bank, for a period starting on the date on which
it was prepaid and ending on the last day of the interest period
for such portion (or the scheduled payment date for the amount
prepaid, if earlier).
(h) The Bank will have no obligation to accept an election for a
LIBOR Rate Portion if any of the following described events has occurred
and is continuing:
(i) Dollar deposits in the principal amount, and for
periods equal to the interest period, of a LIBOR Rate portion
are not available in the London inter-bank market; or
(ii) the LIBOR Rate does not accurately reflect the cost
of a LIBOR Rate portion.
3. DISBURSEMENTS, PAYMENTS AND COSTS
3.1 Requests for Credit. Each request for an extension of credit will
be made in writing in a manner acceptable to the Bank, or by another means
acceptable to the Bank.
3.2 Disbursements and Payments. Each disbursement by the Bank and each
payment by the Borrower will be:
(a) made at the Bank's branch (or other location) selected by
the Bank from time to time;
(b) made for the account of the Bank's branch selected by the
Bank from time to time;
(c) made in immediately available funds, or such other type of
funds selected by the Bank;
(d) evidenced by records kept by the Bank. In addition, the Bank
may, at its discretion, require the Borrower to sign one or more
promissory notes.
3.3 Telephone Authorization.
(a) The Bank may honor telephone instructions for advances or
repayments or for the designation of optional interest rates given by
any one of the individuals authorized to sign loan agreements on behalf
of the Borrower, or any other individual designated by any one of such
authorized signers.
(b) Advances will be deposited in and repayments will be
withdrawn from the Borrower's account number 14969-01000, or such other
of the Borrower's accounts with the Bank as designated in writing by the
Borrower.
(c) The Borrower indemnifies and excuses the Bank (including its
officers, employees, and agents) from all liability, loss, and costs in
connection with any act resulting from telephone instructions it
reasonably believes are made by any individual authorized by the
Borrower to give such instructions. This indemnity and excuse will
survive this Agreement.
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<PAGE> 16
3.4 Direct Debit.
(a) The Borrower agrees that interest and principal payments and
any fees will be deducted automatically on the due date from checking
account number 14969-01000, or such other of the Borrower's accounts
with the Bank as designated in writing by the Borrower.
(b) The Bank will debit the account on the dates the payments
become due. If a due date does not fall on a banking day, the Bank will
debit the account on the first banking day following the due date.
(c) The Borrower will maintain sufficient funds in the account
on the dates the Bank enters debits authorized by this Agreement. If
there are insufficient funds in the account on the date the Bank enters
any debit authorized by this Agreement, the debit will be reversed.
3.5 Banking Days. Unless otherwise provided in this Agreement, a
banking day is a day other than a Saturday or a Sunday on which the Bank is open
for business in California. For amounts bearing interest at an offshore rate (if
any), a banking day is a day other than a Saturday or a Sunday on which the Bank
is open for business in California and dealing in offshore dollars. All payments
and disbursements which would be due on a day which is not a banking day will be
due on the next banking day. All payments received on a day which is not a
banking day will be applied to the credit on the next banking day.
3.6 Taxes. The Borrower will not deduct any taxes from any payments it
makes to the Bank. If any government authority imposes any taxes on any payments
made by the Borrower, the Borrower will pay the taxes and will also pay to the
Bank, at the time interest is paid, any additional amount which the Bank
specifies as necessary to preserve the after-tax yield the Bank would have
received if such taxes had not been imposed. Upon request by the Bank, the
Borrower will confirm that it has paid the taxes by giving the Bank official tax
receipts (or notarized copies) within 30 days after the due date. However, the
Borrower will not pay the Bank's net income taxes.
3.7 Additional Costs. The Borrower will pay the Bank, on demand, for
the Bank's costs or losses arising from any statute or regulation, or any
request or requirement of a regulatory agency which is applicable to all
national banks or a class of all national banks. The costs and losses will be
allocated to the loan in a manner determined by the Bank, using any reasonable
method. The costs include the following:
(a) any reserve or deposit requirements; and
(b) any capital requirements relating to the Bank's assets and
commitments for credit.
3.8 Interest Calculation. Except as otherwise stated in this Agreement,
all interest and fees, if any, will be computed on the basis of a 360-day year
and the actual number of days elapsed. This results in more interest or a higher
fee than if a 365-day year is used.
3.9 Interest on Late Payments. At the Bank's sole option in each
instance, any amount not paid when due under this Agreement (including interest)
shall bear interest from the due date at the Bank's Reference Rate
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<PAGE> 17
3.10 Default Rate. Upon the occurrence and during the continuation of
any default under this Agreement, advances under this Agreement will at the
option of the Bank bear interest at a rate per annum which is two (2.00)
percentage points higher than the rate of interest otherwise provided under this
Agreement. This will not constitute a waiver of any default.
4. CONDITIONS
4.1 Conditions to First Extension of Credit. The Bank must receive the
following items, in form and content acceptable to the Bank, before it is
required to extend any credit to the Borrower under this Agreement:
(a) Authorizations. Evidence that the execution, delivery and
performance by the Borrower and any guarantor of this Agreement and any
instrument or agreement required under this Agreement have been duly
authorized.
(b) Any other items that the Bank reasonably requires.
5. REPRESENTATIONS AND WARRANTIES
When the Borrower signs this Agreement, and until the Bank is repaid in
full, the Borrower makes the following representations and warranties. Each
request for an extension of credit constitutes a renewed representation:
5.1 Organization of Borrower. The Borrower is a corporation duly formed
and existing under the laws of the state where organized.
5.2 Authorization. This Agreement, and any instrument or agreement
required hereunder, are within the Borrower's powers, have been duly authorized,
and do not conflict with any of its organizational papers.
5.3 Enforceable Agreement. This Agreement is a legal, valid and binding
agreement of the Borrower, enforceable against the Borrower in accordance with
its terms, and any instrument or agreement required hereunder, when executed and
delivered, will be similarly legal, valid, binding and enforceable.
5.4 Good Standing. In each state in which the Borrower does business,
it is properly licensed, in good standing, and, where required, in compliance
with fictitious name statutes.
5.5 No Conflicts. This Agreement does not conflict with any law,
agreement, or obligation by which the Borrower is bound.
5.6 Financial Information. All financial and other information that has
been or will be supplied to the Bank:
(a) sufficiently complete to give the Bank accurate knowledge of
the Borrower's (and any guarantor's) financial condition.
(b) in form and content required by the Bank.
(c) in compliance with all government regulations that apply.
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<PAGE> 18
5.7 Lawsuits. There is no lawsuit, tax claim or other dispute pending
or threatened against the Borrower which, if lost, would impair the Borrower's
financial condition or ability to repay the loan, except as have been disclosed
in writing to the Bank.
5.8 Permits, Franchises. The Borrower possesses all permits,
memberships, franchises, contracts and licenses required and all trademark
rights, trade name rights, patent rights and fictitious name rights necessary to
enable it to conduct the business in which it is now engaged.
5.9 Other Obligations. The Borrower is not in default on any obligation
for borrowed money, any purchase money obligation or any other material lease,
commitment, contract, instrument or obligation.
5.10 Income Tax Matters. The Borrower has no knowledge of any pending
assessments or adjustments of its income tax for any year.
5.11 No Event of Default. There is no event which is, or with notice or
lapse of time or both would be, a default under this Agreement.
5.12 ERISA Plans.
(a) Each Plan (other than a multiemployer plan) is in compliance
in all material respects with the applicable provisions of ERISA, the
Code and other federal or state law. Each Plan has received a favorable
determination letter from the IRS and to the best knowledge of the
Borrower, nothing has occurred which would cause the loss of such
qualification. The Borrower has fulfilled its obligations, if any, under
the minimum funding standards of ERISA and the Code with respect to each
Plan, and has not incurred any liability with respect to any Plan under
Title IV of ERISA.
(b) There are no claims, lawsuits or actions (including by any
governmental authority), and there has been no prohibited transaction or
violation of the fiduciary responsibility rules, with respect to any
Plan which has resulted or could reasonably be expected to result in a
material adverse effect.
(c) With respect to any Plan subject to Title IV of ERISA:
(i) No reportable event has occurred under Section
4043(c) of ERISA for which the PBGC requires 30-day notice.
(ii) No action by the Borrower or any ERISA Affiliate to
terminate or withdraw from any Plan has been taken and no notice
of intent to terminate a Plan has been filed under Section 4041
of ERISA.
(iii) No termination proceeding has been commenced with
respect to a Plan under Section 4042 of ERISA, and no event has
occurred or condition exists which might constitute grounds for
the commencement of such a proceeding.
(d) The following terms have the meanings indicated for purposes
of this Agreement:
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<PAGE> 19
(i) "Code" means the Internal Revenue Code of 1986, as
amended from time to time.
(ii) "ERISA" means the Employee Retirement Income
Security Act of 1974, as amended from time to time.
(iii) "ERISA Affiliate" means any trade or business
(whether or not incorporated) under common control with the
Borrower within the meaning of Section 414(b) or (c) of the
Code.
(iv) "PBGC" means the Pension Benefit Guaranty
Corporation.
(v) "Plan" means a pension, profit-sharing, or stock
bonus plan intended to qualify under Section 401(a) of the Code,
maintained or contributed to by the Borrower or any ERISA
Affiliate, including any multiemployer plan within the meaning
of Section 4001(a)(3) of ERISA.
5.13 Location of Borrower. The Borrower's place of business (or, if the
Borrower has more than one place of business, its chief executive office) is
located at the address listed under the Borrower's signature on this Agreement.
5.14 Year 2000 Compliance. The Borrower is assessing its systems and
equipment applications and is in the process of making inquiries of the
Borrower's key suppliers, vendors and customers with respect to the "year 2000
problem" (that is, the inability of computers, as well as embedded microchips in
non-computing devices, to properly perform date-sensitive functions with respect
to certain dates prior to and after December 31, 1999). Based on that on-going
assessment and inquiry, the Borrower does not believe the year 2000 problem,
including costs of remediation, will result in a material adverse change in the
Borrower's business condition (financial or otherwise), operations, properties
or prospects, or ability to repay the credit. The Borrower is in the process of
developing adequate contingency plans to provide for uninterrupted and
unimpaired business operation in the event of a failure of its own or a third
party's systems or equipment due to the year 2000 problem, including those of
vendors, customers, and suppliers, as well as a general failure of or
interruption in its communications and delivery infrastructure.
6. COVENANTS
The Borrower agrees, so long as credit is available under this Agreement
and until the Bank is repaid in full:
6.1 Use of Proceeds. To use the proceeds of Facility 1 only for general
business purposes; to use performance and financial standby letters of credit
for general business purposes and to support self-insured workers' compensation
program; and to use the proceeds of Facility No. 2 only to finance Acceptable
Acquisitions subject to the terms and conditions of this Agreement.
6.2 Financial Information. To provide the following financial
information and statements and such additional information as requested by the
Bank from time to time:
(a) Within 120 days of the Borrower's fiscal year end, the
Borrower's annual report to shareholders, which shall include financial
statements. These financial
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<PAGE> 20
statements must be audited (with an unqualified opinion) by a Certified
Public Accountant ("CPA") acceptable to the Bank.
(b) Within 90 days of the Borrower's fiscal year end, the
Borrower's Form 10-K Annual Report.
(c) Within 45 days of the period's end, the Borrower's Form 10-Q
Quarterly Report.
(d) Within 30 days after filing, any reports filed with the
Securities and Exchange Commission other than those described in
subparagraphs (b) through (d) above.
(e) Concurrently with the delivery of the Borrower's Form 10-K
Annual Report and Form 10-Q Quarterly Report, a compliance certificate
of the Borrower signed by the chief financial officer of the Borrower
setting forth (i) the information and computations (in sufficient
detail) to establish that the Borrower is in compliance with all
financial covenants at the end of the period covered by the financial
statements then being furnished and (ii) whether there existed as of the
date of such financial statements and whether there exists as of the
date of the certificate, any default under this Agreement and, if any
such default exists, specifying the nature thereof and the action the
Borrower is taking and proposes to take with respect thereto.
(f) Within 120 days of the Borrower's fiscal year end, the
Borrower's financial projections or budget by quarter for the following
fiscal year.
(g) Within 120 days of the Borrower's fiscal year end, a copy of
the Borrower's current insurance policy evidencing re-insurance coverage
of worker's compensation claims in excess of Two Hundred Fifty Thousand
Dollars ($250,000) per occurrence from an insurance company acceptable
to the Bank, and with an A.M. Best rating of not less than "A".
(h) Within 90 days of the Borrower's fiscal year end, a
company-prepared workers' compensation report stating, on a policy year
or fiscal year basis, gross wages, claims filed, claims experience, and
losses as a percentage of temporary employer payroll by policy year.
(i) Promptly upon request of the Bank, such other statements,
lists of property and accounts, budgets, forecasts or reports as to the
Borrower as the Bank may reasonably request.
6.3 Current Ratio. To maintain a ratio of current assets to current
liabilities, as of the end of each fiscal quarter, at least equal to 1.50:1.00.
For the purposes of this computation, all amounts outstanding under Facility No.
1, but excluding outstanding standby letters of credit and the long-term
portion, shall be considered current liabilities.
6.4 Total Liabilities to EBITDA Ratio. Not to permit the ratio of the
Borrower's Total Liabilities to EBITDA to exceed 3.00 to1.00. For purposes of
determining compliance with this financial covenant, the Total Liabilities to
EBITDA ratio shall be calculated at the end of each fiscal quarter using (i)
EBITDA for such quarter and each of the three immediately preceding fiscal
quarters, and (ii) Total Liabilities as of the end of such quarter.
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6.5 Fixed Charge Coverage Ratio. To maintain a Fixed Charge Coverage
Ratio of at least 1.50:1. This ratio will be calculated at the end of each
fiscal quarter, using the results of that quarter and each of the three
immediately preceding fiscal quarters.
"Fixed Charge Coverage Ratio" means, expressed as a ratio, the sum of
(without duplication) EBITDA, plus collections on loans to franchisees, minus
loans made to franchisees, minus non-financed capital expenditures, minus cash
taxes paid, excluding taxes paid in 1998 and 1999 related to conversion from "S"
to "C" corporation equaling the lesser of the actual amount of taxes paid or
$3,000,000 minus dividends paid, minus purchases of treasury stock, excluding
stock repurchases executed in the fiscal year beginning 1999 not to exceed an
aggregate amount of $5,000,000, minus non-financed Acquisitions, minus
non-financed repurchases of franchises and licenses, divided by the sum of
scheduled mandatory principal repayments of borrowed money, plus scheduled
mandatory payments under capital leases, plus 20% of all amounts outstanding
under Facility No. 1, excluding standby letters of credit, plus interest
expense. For purposes of this calculation, indebtedness outstanding during the
debt reduction period required under Paragraph 6.8 below shall be treated as if
it were being amortized over sixty (60) months.
6.6 Other Debts. Not to have outstanding or incur any direct debts or
lease obligations (other than those to the Bank), or become liable for the debts
of others, without the Bank's written consent. This does not prohibit:
(a) Acquiring goods, supplies, or merchandise on normal trade
credit.
(b) Endorsing negotiable instruments received in the usual
course of business.
(c) Obtaining surety bonds in the usual course of business.
(d) Obligations under operating leases.
(e) Additional debts for capitalized leases or purchase money
obligations which do not exceed Five Million Dollars ($5,000,000) in any
fiscal year or Ten Million Dollars ($10,000,000) between the date hereof
to the Facility No. 1 Expiration Date.
6.7 Other Liens. Not to create, assume, or allow any security interest
or lien (including judicial liens) on property the Borrower now or later owns,
except:
(a) Deeds of trust and security agreements in favor of the Bank.
(b) Liens for taxes not yet due.
(c) Additional liens which secure capitalized leases and
purchase money obligations permitted under Paragraph 6.6(d) above.
6.8 Debt Reduction Requirement. To reduce the amount of all advances
outstanding under Facility No. 1 to not more than Five Million Dollars
($5,000,000) for a period of at least 30 consecutive calendar days in each line
year. "Line-year" means the period between the date of this Agreement and
February 28, 2000, and each subsequent one-year period during the availability
period. For the purposes of this paragraph, "advances" does not include undrawn
amounts of outstanding letters of credit. For the purposes of this paragraph,
"advances" includes overdrafts in the Borrower's account.
-17-
<PAGE> 22
6.9 Notices to Bank. To promptly notify the Bank in writing of:
(a) any lawsuit over Five Hundred Thousand Dollars ($500,000)
against the Borrower (or any guarantor).
(b) any substantial dispute between the Borrower (or any
guarantor) and any government authority.
(c) any failure to comply with this Agreement.
(d) any material adverse change in the Borrower's (or any
guarantor's) financial condition or operations.
(e) any change in the Borrower's name, legal structure, place of
business, or chief executive office if the Borrower has more than one
place of business.
6.10 Books and Records. To maintain adequate books and records.
6.11 Audits. To allow the Bank and its agents to inspect the Borrower's
properties and examine, audit, and make copies of books and records at any
reasonable time. If any of the Borrower's properties, books or records are in
the possession of a third party, the Borrower authorizes that third party to
permit the Bank or its agents to have access to perform inspections or audits
and to respond to the Bank's requests for information concerning such
properties, books and records.
6.12 Compliance with Laws. To comply with the laws (including any
fictitious name statute), regulations, and orders of any government body with
authority over the Borrower's business.
6.13 Preservation of Rights. To maintain and preserve all rights,
privileges, and franchises the Borrower now has.
6.14 Maintenance of Properties. To make any repairs, renewals, or
replacements to keep the Borrower's properties in good working condition.
6.15 Cooperation. To take any action reasonably requested by the Bank
to carry out the intent of this Agreement.
6.16 General Business Insurance. To maintain and keep in force
insurance of the type usual for the business it is in and deliver to the Bank
upon the Bank's request a copy of each insurance policy, or, if permitted by the
Bank, a certificate of insurance listing all insurance in force.
6.17 Additional Negative Covenants. Not to, without the Bank's written
consent:
(a) engage in any business activities substantially different
from the Borrower's present business.
(b) liquidate or dissolve the Borrower's business.
-18-
<PAGE> 23
(c) lease, or dispose of all or a substantial part of the
Borrower's business or the Borrower's assets.
(d) sell or otherwise dispose of any assets for less than fair
market value, or enter into any sale and leaseback agreement covering
any of its fixed or capital assets.
(e) make any Acquisition; provided, however, that the Borrower
may make any Acceptable Acquisition.
"Acquisition" means any transaction or series of related transactions
for the purpose of or resulting, directly or indirectly, in (i) the
acquisition by the Borrower of all or substantially all of the assets of
a person or entity or of any business or division of a person or entity,
(ii) the acquisition by the Borrower of in excess of fifty percent (50%)
of the capital stock, partnership interests, membership interests or
equity of any person or entity, or otherwise causing any entity to
become a subsidiary of the borrower, or (iii) a merger or consolidation
or any other combination by the Borrower with another person or entity
(other than an entity that is a subsidiary of the Borrower) provided
that the Borrower or its subsidiary is the surviving entity. "Acceptable
Acquisition" means an Acquisition:
(i) If the total value of the consideration paid for all
Acquisitions made after the date of this Agreement will not
exceed Ten Million Dollars ($10,000,000), including the proposed
Acquisition:
(A) where the business being acquired is
substantially the same as the Borrower's present
business;
(B) which is undertaken in accordance with all
applicable requirements of law;
(C) where prior, effective written consent or
approval of such Acquisition has been given by the board
of directors or equivalent governing body of the
acquiree;
(D) a statement showing that, on a pro forma
consolidated basis immediately after the Acquisition,
the Borrower will be in full compliance with Paragraphs
6.6 and 6.7 of this Agreement (including a break-out of
the acquiree's funded and contingent debts assumed by
the Borrower in connection with any Acquisition);
(E) within 30 days after the closing of the
Acquisition, the Borrower has delivered to the Bank a
statement of sources and uses of funds;
(ii) If the total value of the consideration for the
Acquisition paid for all Acquisitions made after the date of
this Agreement, including the proposed Acquisition, equals or
exceeds Ten Million Dollars ($10,000,000):
(A) where the Borrower has complied with the
requirements of Subparagraphs (i) (A) through (i) (D)
above;
-19-
<PAGE> 24
(B) where the total value of the consideration
paid for all Acquisitions made after the date of this
Agreement, including the proposed Acquisition, does not
exceed Twenty Five Million Dollars ($25,000,000);
(C) where the Borrower has delivered to the Bank
at least 15 days prior to the Acquisition:
(1) a compliance certificate
showing, on a pro forma consolidated basis
for the Borrower and the acquiree,
compliance with Paragraphs 6.3, 6.4, and 6.5
of this Agreement for the most recently
ended fiscal quarter of the Borrower and the
underlying calculations showing such
compliance, including a break-out of the
acquiree's figures.
(2) financial statements of the
entity to be acquired, prepared by a
certified public accountant, for such
entity's last three fiscal years and the
latest interim fiscal period, all in form
and content acceptable to the Bank;
(3) evidence that, on a pro-forma
basis for the acquiree, the sum of the
EBITDA over the immediately preceding four
fiscal quarters of the acquiree plus any
non-recurring compensation of the owner(s)
of the acquiree is positive, validated by a
certified public accountant;
(4) a statement of sources and uses
of funds for such Acquisition;
(5) evidence that the Borrower will
have, on a one time basis, a Fixed Charge
Coverage Ratio not less than 1.50:1.00 on a
pro-forma consolidated basis after the
Acquisition, including any new debt service
and any loss (without adding profit)
incurred by the acquiree in its most
recently ended fiscal year or in its latest
four (4) fiscal quarters;
(6) evidence that any indebtedness
the of acquiree to be assumed by the
Borrower will be unsecured, except for
purchase money indebtedness secured by the
property purchased.
(7) if the Acquisition is in the
form of a stock purchase, at least 10 days
prior to the projected closing date of the
Acquisition, an opinion of the Borrower's
counsel, in form and content acceptable to
the Bank and covering such matters as the
Bank may request, including any trailing
liability issues.
(8) a statement disclosing the terms
and conditions of any contingent or other
off balance sheet obligations assumed in
connection with the Acquisition, including
any indemnities.
For purposes of this subparagraph (e), "consideration" paid for
an Acquisition means all value given, including cash, stock of the
Borrower, and all liabilities of the
-20-
<PAGE> 25
acquiree which are to be assumed by the Borrower, including all funded
debt and contingent liabilities but excluding normal trade debt and
accruals; provided, however, that "consideration" shall exclude
contractual "earn out" obligations based on future financial performance
benchmarks of the acquiree.
6.18 ERISA Plans. To give prompt written notice to the Bank of:
(a) The occurrence of any reportable event under Section 4043(c)
of ERISA for which the PBGC requires 30-day notice.
(b) Any action by the Borrower to terminate or withdraw from a
Plan or the filing of any notice of intent to terminate under Section
4041 of ERISA.
(c) Any notice of non-compliance made with respect to a Plan
under Section 4041(b) of ERISA.
(d) The commencement of any proceeding with respect to a Plan
under Section 4042 of ERISA.
6.19 Bank as Principal Depository. To maintain the Bank as its
principal depository bank, including for the maintenance of business, cash
management, operating and administrative deposit accounts.
7. DEFAULT
If any of the following events occurs, the Bank may do one or more of
the following: declare the Borrower in default, stop making any additional
credit available to the Borrower, and require the Borrower to repay its entire
debt immediately and without prior notice. If an event of default occurs under
the paragraph entitled "Bankruptcy," below, with respect to the Borrower, then
the entire debt outstanding under this Agreement will automatically be due
immediately.
7.1 Failure to Pay. The Borrower fails to make a payment under this
Agreement when due.
7.2 False Information. The Borrower has given the Bank false or
misleading information or representations.
7.3 Bankruptcy. The Borrower (or any guarantor) files a bankruptcy
petition, a bankruptcy petition is filed against the Borrower (or any guarantor)
or the Borrower (or any guarantor) makes a general assignment for the benefit of
creditors.
7.4 Receivers. A receiver or similar official is appointed for the
Borrower's (or any guarantor's) business, or the business is terminated.
7.5 Judgments. Any judgments or arbitration awards are entered against
the Borrower (or any guarantor), or the Borrower (or any guarantor) enters into
any settlement agreements with respect to any litigation or arbitration, in an
aggregate amount of Five Hundred Dollars ($500,000) or more in excess of any
insurance coverage.
7.6 Government Action. Any government authority takes action that the
Bank believes materially adversely affects the Borrower's (or any guarantor's)
financial condition or ability to repay.
-21-
<PAGE> 26
7.7 Material Adverse Change. A material adverse change occurs in the
Borrower's (or any guarantor's) financial condition, properties or prospects, or
ability to repay the credit.
7.8 Cross-default. Any default occurs under any agreement in connection
with any credit the Borrower (or any guarantor) has obtained from anyone else or
which the Borrower (or any guarantor) has guaranteed.
7.9 Other Bank Agreements. The Borrower (or any guarantor) fails to meet
the conditions of, or fails to perform any obligation under any other agreement
the Borrower (or any guarantor) has with the Bank or any affiliate of the Bank.
7.10 ERISA Plans. Any one or more of the following events occurs with
respect to a Plan of the Borrower subject to Title IV of ERISA, provided such
event or events could reasonably be expected, in the judgment of the Bank, to
subject the Borrower to any tax, penalty or liability (or any combination of the
foregoing) which, in the aggregate, could have a material adverse effect on the
financial condition of the Borrower:
(a) A reportable event shall occur under Section 4043(c) of
ERISA with respect to a Plan.
(b) Any Plan termination (or commencement of proceedings to
terminate a Plan) or the full or partial withdrawal from a Plan by the
Borrower or any ERISA Affiliate.
7.11 Other Breach Under Agreement. The Borrower fails to meet the
conditions of, or fails to perform any obligation under, any term of this
Agreement not specifically referred to in this Article.
8. ENFORCING THIS AGREEMENT; MISCELLANEOUS
8.1 GAAP. Except as otherwise stated in this Agreement, all financial
information provided to the Bank and all financial covenants will be made under
generally accepted accounting principles, consistently applied.
8.2 California Law. This Agreement is governed by California law.
8.3 Successors and Assigns. This Agreement is binding on the Borrower's
and the Bank's successors and assignees. The Borrower agrees that it may not
assign this Agreement without the Bank's prior consent. The Bank may sell
participations in or assign this loan, and may exchange financial information
about the Borrower with actual or potential participants or assignees. If a
participation is sold or the loan is assigned, the purchaser will have the right
of set-off against the Borrower.
8.4 Arbitration.
(a) This paragraph concerns the resolution of any
controversies or claims between the Borrower and the Bank, including
but not limited to those that arise from:
(i) This Agreement (including any renewals, extensions
or modifications of this Agreement);
-22-
<PAGE> 27
(ii) Any document, agreement or procedure related to or
delivered in connection with this Agreement;
(iii) Any violation of this Agreement; or
(iv) Any claims for damages resulting from any business
conducted between the Borrower and the Bank, including claims
for injury to persons, property or business interests (torts).
(b) At the request of the Borrower or the Bank, any such
controversies or claims will be settled by arbitration in accordance
with the United States Arbitration Act. The United States Arbitration
Act will apply even though this Agreement provides that it is governed
by California law.
(c) Arbitration proceedings will be administered by the American
Arbitration Association and will be subject to its commercial rules of
arbitration.
(d) For purposes of the application of the statute of
limitations, the filing of an arbitration pursuant to this paragraph is
the equivalent of the filing of a lawsuit, and any claim or controversy
which may be arbitrated under this paragraph is subject to any
applicable statute of limitations. The arbitrators will have the
authority to decide whether any such claim or controversy is barred by
the statute of limitations and, if so, to dismiss the arbitration on
that basis.
(e) If there is a dispute as to whether an issue is arbitrable,
the arbitrators will have the authority to resolve any such dispute.
(f) The decision that results from an arbitration proceeding may
be submitted to any authorized court of law to be confirmed and
enforced.
(g) The procedure described above will not apply if the
controversy or claim, at the time of the proposed submission to
arbitration, arises from or relates to an obligation to the Bank secured
by real property located in California. In this case, both the Borrower
and the Bank must consent to submission of the claim or controversy to
arbitration. If both parties do not consent to arbitration, the
controversy or claim will be settled as follows:
(i) The Borrower and the Bank will designate a referee
(or a panel of referees) selected under the auspices of the
American Arbitration Association in the same manner as
arbitrators are selected in Association-sponsored proceedings;
(ii) The designated referee (or the panel of referees)
will be appointed by a court as provided in California Code of
Civil Procedure Section 638 and the following related sections;
(iii) The referee (or the presiding referee of the
panel) will be an active attorney or a retired judge; and
(iv) The award that results from the decision of the
referee (or the panel) will be entered as a judgment in the
court that appointed the referee, in
-23-
<PAGE> 28
accordance with the provisions of California Code of Civil
Procedure Sections 644 and 645.
(h) This provision does not limit the right of the Borrower or
the Bank to:
(i) exercise self-help remedies such as setoff;
(ii) foreclose against or sell any real or personal
property collateral; or
(iii) act in a court of law, before, during or after the
arbitration proceeding to obtain:
(A) an interim remedy; and/or
(B) additional or supplementary remedies.
(i) The pursuit of or a successful action for interim,
additional or supplementary remedies, or the filing of a court action,
does not constitute a waiver of the right of the Borrower or the Bank,
including the suing party, to submit the controversy or claim to
arbitration if the other party contests the lawsuit. However, if the
controversy or claim arises from or relates to an obligation to the Bank
which is secured by real property located in California at the time of
the proposed submission to arbitration, this right is limited according
to the provision above requiring the consent of both the Borrower and
the Bank to seek resolution through arbitration.
(j) If the Bank forecloses against any real property securing
this Agreement, the Bank has the option to exercise the power of sale
under the deed of trust or mortgage, or to proceed by judicial
foreclosure.
8.5 Severability; Waivers. If any part of this Agreement is not
enforceable, the rest of the Agreement may be enforced. The Bank retains all
rights, even if it makes a loan after default. If the Bank waives a default, it
may enforce a later default. Any consent or waiver under this Agreement must be
in writing.
8.6 Administration Costs. The Borrower shall pay the Bank for all
reasonable costs incurred by the Bank in connection with administering this
Agreement.
8.7 Attorneys' Fees. The Borrower shall reimburse the Bank for any
reasonable costs and attorneys' fees incurred by the Bank in connection with the
enforcement or preservation of any rights or remedies under this Agreement and
any other documents executed in connection with this Agreement, and in
connection with any amendment, waiver, "workout" or restructuring under this
Agreement. In the event of a lawsuit or arbitration proceeding, the prevailing
party is entitled to recover costs and reasonable attorneys' fees incurred in
connection with the lawsuit or arbitration proceeding, as determined by the
court or arbitrator. In the event that any case is commenced by or against the
Borrower under the Bankruptcy Code (Title 11, United States Code) or any similar
or successor statute, the Bank is entitled to recover costs and reasonable
attorneys' fees incurred by the Bank related to the preservation, protection, or
enforcement of any rights of the Bank in such a case. As used in this paragraph,
"attorneys' fees" includes the allocated costs of the Bank's in-house counsel.
8.8 One Agreement. This Agreement and any related security or other
agreements required by this Agreement, collectively:
-24-
<PAGE> 29
(a) represent the sum of the understandings and agreements
between the Bank and the Borrower concerning this credit;
(b) replace any prior oral or written agreements between the
Bank and the Borrower concerning this credit; and
(c) are intended by the Bank and the Borrower as the final,
complete and exclusive statement of the terms agreed to by them.
In the event of any conflict between this Agreement and any other agreements
required by this Agreement, this Agreement will prevail.
8.9 Notices. All notices required under this Agreement shall be
personally delivered or sent by first class mail, postage prepaid, to the
addresses on the signature page of this Agreement, or to such other addresses as
the Bank and the Borrower may specify from time to time in writing.
8.10 Headings. Article and paragraph headings are for reference only
and shall not affect the interpretation or meaning of any provisions of this
Agreement.
8.11 Counterparts. This Agreement may be executed in as many
counterparts as necessary or convenient, and by the different parties on
separate counterparts each of which, when so executed, shall be deemed an
original but all such counterparts shall constitute but one and the same
agreement.
8.12 Prior Agreement Superseded. This Agreement supersedes the Business
Loan Agreement entered into as of August 25, 1997, between the Bank and the
Borrower, and any credit outstanding thereunder shall be deemed to be
outstanding under this Agreement.
-25-
<PAGE> 30
This Agreement is executed as of the date stated at the top of the
first page.
Bank of America National RemedyTemp, Inc.
Trust and Savings Association
/s/ T.A. Miles /s/ Alan M. Purdy
- ------------------------------ ---------------------------
By: T.A. Miles By: Alan M. Purdy
Title: Vice President Title: Senior Vice President
and Chief Financial
Officer
Address where notices to Address where notices to
the Bank are to be sent: the Borrower are to be sent:
Inland Empire Regional Commercial 101 Enterprise
Banking Office #1496 Aliso Viejo, CA 92656
3650 14th Street, Second floor
Riverside, CA 92501
-26-
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<PERIOD-END> MAR-28-1999
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