-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DlC4lLS3o2swNBlB5xvd4dIASk99AZlX+JcaY4+kavLcE+7+BnMbrZL0gIgXTnB+ Srtafv6wK/FUnLdyJMj2uA== 0000892569-98-001365.txt : 19980513 0000892569-98-001365.hdr.sgml : 19980513 ACCESSION NUMBER: 0000892569-98-001365 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980329 FILED AS OF DATE: 19980512 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: REMEDYTEMP INC CENTRAL INDEX KEY: 0001013467 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-HELP SUPPLY SERVICES [7363] IRS NUMBER: 952890471 STATE OF INCORPORATION: CA FISCAL YEAR END: 0929 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-20831 FILM NUMBER: 98616960 BUSINESS ADDRESS: STREET 1: 32122 CAMINO CAPISTRANO CITY: SAN JUAN CAPISTRANO STATE: CA ZIP: 92675 BUSINESS PHONE: 7146611211 MAIL ADDRESS: STREET 1: 32122 CAMINO CAPISTRANO STREET 2: 32122 CAMINO CAPISTRANO CITY: SAN JUAN CAPISTRANO STATE: CA ZIP: 92675 10-Q 1 FORM 10-Q FOR THE PERIOD ENDED MARCH 29, 1998 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------- FORM 10-Q --------- [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 29, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 0-5260 REMEDYTEMP, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) CALIFORNIA 95-2890471 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER) 32122 CAMINO CAPISTRANO SAN JUAN CAPISTRANO, CALIFORNIA 92675 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (949) 661-1211 ------------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] As of May 1, 1998 there were 6,912,601 shares of Class A Common Stock and 2,075,039 shares of Class B Common Stock outstanding. ================================================================================ 2 REMEDYTEMP, INC. INDEX
PAGE NO. -------- PART I--FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheet as of March 29, 1998 and September 28, 1997 ..................... 2 Consolidated Statement of Income for the three fiscal months and six fiscal months ended March 29, 1998 and March 30, 1997 ........................................................ 3 Consolidated Statement of Cash Flows for the six fiscal months ended March 29, 1998 and March 30, 1997 ........................................................................... 4 Notes to Consolidated Financial Statements ................................................. 5 Item 2. Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations ................................................................................ 7 Item 3. Quantitative and Qualitative Disclosure About Market Risk ............................. * PART II--OTHER INFORMATION Item 1. Legal Proceedings ..................................................................... * Item 2. Changes In Securities and Use of Proceeds ............................................. * Item 3. Defaults Upon Senior Securities ....................................................... * Item 4. Submission of Matters to a Vote of Security Holders ................................... 10 Item 5. Other Information ..................................................................... * Item 6. Exhibits and Reports on Form 8-K ...................................................... 11 SIGNATURES ......................................................................................... 12
* No information provided due to inapplicability of item. 1 3 PART I--FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEET (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) ASSETS
MARCH 29, SEPTEMBER 28, 1998 1997 ------- ------- Current assets: Cash and cash equivalents ................................................... $ 4,067 $ 5,128 Accounts receivable, net of allowance for doubtful accounts of $2,748 and $2,612................................................................. 57,681 55,751 Prepaid expenses and other current assets ................................... 2,349 1,987 Deferred income taxes ....................................................... 832 349 ------- ------- Total current assets .................................................. 64,929 63,215 Fixed assets, net of accumulated depreciation of $11,835 and $10,583 ....... 9,728 7,184 Other assets .................................................................. 2,716 2,502 Goodwill, net of accumulated amortization of $76 and $20 ...................... 1,863 905 ------- ------- $79,236 $73,806 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable ........................................................... $ 4,349 $ 4,082 Accrued workers' compensation .............................................. 5,020 2,905 Accrued payroll, benefits and related costs ................................ 11,020 11,489 Accrued licensees' share of gross profit ................................... 2,601 2,225 Other accrued expenses ..................................................... 846 1,148 Income taxes payable ....................................................... -- 1,783 Current portion of capitalized lease obligation ............................ 369 453 ------- ------- Total current liabilities ............................................ 24,205 24,085 Deferred income taxes ........................................................ 879 2,379 Capitalized lease obligation ................................................. 176 281 ------- ------- 25,260 26,745 ------- ------- Commitments and contingent liabilities Shareholders' equity: Preferred Stock, $.01 par value; authorized 5,000 shares; none outstanding Class A Common Stock, $.01 par value; authorized 50,000 shares; 6,689 and 5,930 issued and outstanding at March 29, 1998 and September 28, 1997, respectively ..................................... 67 60 Class B Non-Voting Common Stock, $.01 par value; authorized 4,530 shares; 2,270 and 2,997 issued and outstanding at March 29, 1998 and September 28, 1997, respectively ....................................................... 23 30 Additional paid-in capital ................................................... 33,676 33,262 Retained earnings ............................................................ 20,210 13,709 ------- ------- Total shareholders' equity ................................................... 53,976 47,061 ------- ------- $79,236 $73,806 ======= =======
See accompanying notes to consolidated financial statements. 2 4 REMEDYTEMP, INC. CONSOLIDATED STATEMENT OF INCOME (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED SIX MONTHS ENDED -------------------------- -------------------------- MARCH 29, MARCH 30, MARCH 29, MARCH 30, 1998 1997 1998 1997 -------- -------- -------- -------- Direct sales ............................. $ 68,479 $ 52,645 $137,910 $107,108 Licensed sales ........................... 40,327 30,144 81,266 59,480 Franchise royalties ...................... 714 751 1,489 1,515 Initial license and franchise fees ....... 87 47 87 47 -------- -------- -------- -------- Total revenues ..................... 109,607 83,587 220,752 168,150 Cost of direct sales ..................... 53,903 41,263 108,546 83,694 Cost of licensed sales ................... 30,138 22,439 60,795 44,321 Licensees' share of gross profit ......... 6,937 5,289 13,873 10,304 Selling and administrative expenses ...... 13,233 10,907 25,867 21,577 Depreciation and amortization ............ 673 612 1,333 1,222 -------- -------- -------- -------- Income from operations ............. 4,723 3,077 10,338 7,032 Other income: Interest income, net ................... 36 101 84 224 Other, net ............................. 345 309 691 602 -------- -------- -------- -------- Income before provision for income taxes 5,104 3,487 11,113 7,858 Provision for income taxes ............... 2,118 1,447 4,612 3,261 -------- -------- -------- -------- Net income ............................... $ 2,986 $ 2,040 $ 6,501 $ 4,597 ======== ======== ======== ======== Net income per share, basic (Note 2) ..... $ 0.33 $ 0.23 $ 0.73 $ 0.52 ======== ======== ======== ======== Weighted-average number of shares ........ 8,949 8,888 8,942 8,888 ======== ======== ======== ======== Net income per share, diluted (Note 2) .. $ 0.32 $ 0.23 $ 0.70 $ 0.51 ======== ======== ======== ======== Weighted-average number of shares ........ 9,275 9,005 9,245 9,014 ======== ======== ======== ========
See accompanying notes to consolidated financial statements. 3 5 REMEDYTEMP, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (AMOUNTS IN THOUSANDS)
SIX MONTHS ENDED --------------------------- Cash flows (used in) provided by operating activities: MARCH 29, MARCH 30, 1998 1997 -------- -------- Net income ............................................... $ 6,501 $ 4,597 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ........................ 1,333 1,222 Provision for losses on accounts receivable .......... 742 510 Deferred taxes ....................................... (1,500) (1,500) Changes in assets and liabilities: Accounts receivable ................................ (2,672) (3,147) Prepaid expenses and other current assets .......... (362) (528) Other assets ....................................... (214) (66) Accounts payable ................................... 267 1,269 Accrued workers' compensation ...................... 2,115 1,170 Accrued payroll, benefits and related costs ........ (469) (260) Accrued licensees' share of gross profit ........... 376 281 Other accrued expenses ............................. (302) (180) Income taxes payable ............................... (2,266) (1,167) -------- -------- Net cash (used in) provided by operating activities ...... 3,549 2,201 -------- -------- Cash flows (used in) provided by investing activities: Purchase of fixed assets ................................. (3,821) (1,503) Purchase of franchise offices, net of assets acquired .... (1,014) -- Sale of investments ...................................... -- 1,016 -------- -------- Net cash used in investing activities .................... (4,835) (487) -------- -------- Cash flows (used in) provided by financing activities: Borrowings under line of credit agreement ................ 1,000 100 Repayments under line of credit agreement ................ (1,000) (100) Repayments under capital lease obligation ................ (189) (204) Proceeds from stock option activity ...................... 265 -- Proceeds from Employee Stock Purchase Plan activity ...... 149 -- Distributions to pre-offering shareholders ............... -- (2,632) -------- -------- Net cash provided by (used in) financing activities ...... 225 (2,836) -------- -------- Net decrease in cash and cash equivalents ................. (1,061) (1,122) Cash and cash equivalents at beginning of period .......... 5,128 10,959 -------- -------- Cash and cash equivalents at end of period ................ $ 4,067 $ 9,837 ======== ======== Other cash flow information: Cash paid during the period for interest ................. $ 56 $ 70 Cash paid during the period for income taxes ............. $ 8,378 $ 6,809
4 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 29, 1998, and the consolidated statements of income and of cash flows for the six fiscal months ended March 29, 1998 and March 30, 1997, are unaudited. These statements have been prepared on the same basis as the Company's audited consolidated financial statements and in the opinion of management reflect all adjustments, which are only of a normal recurring nature, necessary for a fair presentation of the consolidated financial position and results of operations for such periods. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company's Form 10-K as filed with the Securities and Exchange Commission on December 23, 1997. Certain reclassifications, which have no effect on retained earnings, have been made to conform the fiscal 1997 information to the fiscal 1998 presentation. 2. EARNINGS PER SHARE DISCLOSURE During the first fiscal quarter of 1998, the Company adopted Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS No. 128") which became effective for financial statements issued for periods ending after December 15, 1997. SFAS No. 128 replaces the previous presentation of earnings per share on the Statement of Income with a dual presentation of Basic Earnings Per Share ("Basic EPS") and Diluted Earnings Per Share ("Diluted EPS"). Basic EPS excludes dilution and is computed by dividing net income by the weighted- average number of common shares outstanding during the period. Diluted EPS reflects the potential dilution that could occur if stock options and other commitments to issue common stock were exercised, resulting in the issuance of common stock that then shared in the earnings of the Company. As required by SFAS 128, all prior period EPS data has been restated to conform with the provisions of this statement. Basic and Diluted EPS under SFAS No. 128 do not differ materially from Primary Earnings Per Share as previously presented. The following table sets forth the computation of Basic and Diluted EPS under SFAS 128:
THREE FISCAL MONTHS ENDED ----------------------------------------------------------------------------------------- MARCH 29, 1998 MARCH 30, 1997 ----------------------------------------- ------------------------------------------- INCOME SHARES PER-SHARE INCOME SHARES PER-SHARE (NUMERATOR) (DENOMINATOR) AMOUNTS (NUMERATOR) (DENOMINATOR) AMOUNTS ----------- ------------- ------- ----------- ------------- ------- BASIC EPS Income available to common shareholders .... $2,986 8,949 $ 0.33 $2,040 8,888 $ 0.23 ======== ======== EFFECT OF DILUTIVE SECURITIES Stock Options .......... $ -- 326 $ -- 117 ------ ------ ------ ------ DILUTED EPS Income available to common shareholders plus assumed conversions .... $2,986 9,275 $ 0.32 $2,040 9,005 $ 0.23 ====== ====== ======== ====== ====== ========
5 7 REMEDYTEMP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 2. EARNINGS PER SHARE DISCLOSURE (CONTINUED)
SIX FISCAL MONTHS ENDED ------------------------------------------------------------------------------------------ MARCH 29, 1998 MARCH 30, 1997 ------------------------------------------ ------------------------------------------- INCOME SHARES PER-SHARE INCOME SHARES PER-SHARE (NUMERATOR) (DENOMINATOR) AMOUNTS (NUMERATOR) (DENOMINATOR) AMOUNTS ----------- ------------- ------- ----------- ------------- ------- BASIC EPS Income available to common shareholders .... $6,501 8,942 $ 0.73 $4,597 8,888 $ 0.52 ======== ======== EFFECT OF DILUTIVE SECURITIES Stock Options .......... $ -- 303 $ -- 126 ------ ----- ------ ----- DILUTED EPS Income available to common shareholders plus assumed conversions .... $6,501 9,245 $ 0.70 $4,597 9,014 $ 0.51 ====== ===== ======== ====== ===== ========
3. STOCK OPTIONS In accordance with the terms of the Company's 1996 Stock Incentive Plan, as amended, on January 7, 1998, the Company granted options to purchase 50 shares of Class A Common Stock to two of its executive officers at $21.63, the average stock price of the Class A Common Stock on such grant date. Additionally, on February 18, 1998, upon their re-election to the Board of Directors, the Company granted options to purchase 5 shares of Class A Common Stock to each of its four non-employee directors at $24.75 per share, for a total of 20 shares. On March 16, 1998 the Company granted options to purchase 20 shares of Class A Common Stock to certain of its employees at $26.19 per share, the average stock price of the Class A Common Stock on such grant date. Finally, on March 16, 1998 the Company granted to its newly elected non-employee director an option to purchase 10 shares of Class A Common Stock at $26.19 per share. This plan is "non-compensatory" under APB No. 25, and accordingly, no compensation expense was recorded in connection with these grants. 6 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS In addition to historical information, management's discussion and analysis includes certain forward-looking statements, including those related to the Company's growth and strategies, regarding events and financial trends that may affect the Company's future operating results and financial position. The Company's actual results and financial position could differ materially from those anticipated in the forward-looking statements as a result of competition, the availability of sufficient personnel, and other risks and uncertainties as described in detail under the "Risk Factors" section and elsewhere in the Company's Form 10-K as filed with the SEC on December 23, 1997. RESULTS OF OPERATIONS For the Three Fiscal Months Ended March 29, 1998 Compared to the Three Fiscal Months Ended March 30, 1997 Total revenues increased 31.1% or $26.0 million to $109.6 million for the three fiscal months ended March 29, 1998 from $83.6 million for the three fiscal months ended March 30, 1997, due primarily to volume increases attributable to increased billings at existing offices, expansion of services and the opening of 44 new offices since the prior period. Future revenue increases depend to a significant extent on the Company's ability to continue to open new offices and manage newly opened offices to maturity. Total cost of direct and licensed sales, which consists of wages and other expenses related to the temporary associates, increased 31.9% or $20.3 million to $84.0 million for the three fiscal months ended March 29, 1998 from $63.7 million for the three fiscal months ended March 30, 1997, due to increased revenues as discussed above. Total cost of direct and licensed sales as a percentage of revenues was 76.7% for the three fiscal months ended March 29, 1998 compared to 76.2% for the three fiscal months ended March 30, 1997. This increase was due largely to the expansion of revenue growth from one high volume, lower gross margin client. The Company's cost of licensed sales as a percentage of licensed sales remained relatively stable. Licensees' share of gross profit represents the net payments to licensees based upon a percentage of gross profit generated by the licensed operation. The percentage of gross profit earned by the licensee generally is based on the number of hours billed. Pursuant to terms of the franchise agreement for licensed offices, the Company's share of gross profit cannot be less than 7.5% of the licensed operation sales, with the exception of national accounts on which the Company's fee is reduced to compensate for lower gross margins. Licensees' share of gross profit increased 31.2% or $1.6 million to $6.9 million for the three fiscal months ended March 29, 1998 from $5.3 million for the three fiscal months ended March 30, 1997. Licensees' share of gross profit as a percentage of total revenues remained relatively stable. Licensees' share of gross profit as a percentage of licensed revenue decreased to 17.2% for the three fiscal months ended March 29, 1998 from 17.5% for the three fiscal months ended March 30, 1997 due to a reduction in the gross margin percentage earned by some of the larger licensed offices, resulting in Remedy being paid 7.5% of the licensed office sales, which is more than the usual rate of 30% of licensed gross margin. Selling, general and administrative expenses (including depreciation and amortization) increased 20.7% or $2.4 million to $13.9 million for the three fiscal months ended March 29, 1998 from $11.5 million for the three fiscal months ended March 30, 1997. Selling, general and administrative expenses as a percentage of total revenues decreased to 12.7% for the three fiscal months ended March 29, 1998 from 13.8% for the three fiscal months ended March 30, 1997. The Company has controlled growth in selling, general and administrative expenses by tightening cost controls through budgetary analysis and implementing more stringent hiring and compensation guidelines. There can be no assurance that selling, general and administrative expenses will not increase in the future, both in absolute terms and as a percentage of total revenues, and increases in these expenses could adversely affect the Company's profitability. Income from operations increased 53.5% or $1.6 million to $4.7 million for the three fiscal months ended March 29, 1998 from $3.1 million for the three fiscal months ended March 30, 1997 due to the factors described above. Income from operations as a percentage of revenues increased to 4.3% for the three fiscal months ended March 29, 1998 from 3.7% for the three fiscal months ended March 30, 1997. 7 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Income before income taxes increased 46.4% or $1.6 million to $5.1 million for the three fiscal months ended March 29, 1998 from $3.5 million for the three fiscal months ended March 30, 1997 due to the factors described above. As a percentage of total revenues, income before income taxes increased to 4.7% in the three fiscal months ended March 29, 1998 from 4.2% in the three fiscal months ended March 30, 1997. For the Six Fiscal Months Ended March 29, 1998 Compared to the Six Fiscal Months Ended March 30, 1997 Total revenues increased 31.3% or $52.6 million to $220.8 million for the six fiscal months ended March 29, 1998 from $168.2 million for the six fiscal months ended March 30, 1997, due primarily to volume increases attributable to increased billings at existing offices, expansion of services and the opening of 44 new offices since the prior period. Future revenue increases depend to a significant extent on the Company's ability to continue to open new offices and manage newly opened offices to maturity. Total cost of direct and licensed sales, which consists of wages and other expenses related to the temporary associates, increased 32.3% or $41.3 million to $169.3 million for the six fiscal months ended March 29, 1998 from $128.0 million for the six fiscal months ended March 30, 1997, due to increased revenues as discussed above. Total cost of direct and licensed sales as a percentage of revenues was 76.7% for the six fiscal months ended March 29, 1998 compared to 76.1% for the six fiscal months ended March 30, 1997. This increase was due largely to the expansion of revenue growth from one high volume, lower gross margin client. The Company's cost of licensed sales as a percentage of licensed sales remained relatively stable. Licensees' share of gross profit represents the net payments to licensees based upon a percentage of gross profit generated by the licensed operation. The percentage of gross profit earned by the licensee generally is based on the number of hours billed. Pursuant to terms of the franchise agreement for licensed offices, the Company's share of gross profit cannot be less than 7.5% of the licensed operation sales, with the exception of national accounts on which the Company's fee is reduced to compensate for lower gross margins. Licensees' share of gross profit increased 34.6% or $3.6 million to $13.9 million for the six fiscal months ended March 29, 1998 from $10.3 million for the six fiscal months ended March 30, 1997. Licensees' share of gross profit as a percentage of total revenues remained relatively stable. Licensees' share of gross profit as a percentage of licensed revenue decreased to 17.1% for the six fiscal months ended March 29, 1998 from 17.3% for the six fiscal months ended March 30, 1997 due to a reduction in the gross margin percentage earned by some of the larger licensed offices, resulting in Remedy being paid 7.5% of the licensed office sales, which is more than the usual rate of 30% of licensed gross margin. Selling, general and administrative expenses (including depreciation and amortization) increased 19.3% or $4.4 million to $27.2 million for the six fiscal months ended March 29, 1998 from $22.8 million for the six fiscal months ended March 30, 1997. Selling, general and administrative expenses as a percentage of total revenues decreased to 12.3% for the six fiscal months ended March 29, 1998 from 13.6% for the six fiscal months ended March 30, 1997. The Company has controlled growth in selling, general and administrative expenses by tightening cost controls through budgetary analysis and implementing more stringent hiring and compensation guidelines. There can be no assurance that selling, general and administrative expenses will not increase in the future, both in absolute terms and as a percentage of total revenues, and increases in these expenses could adversely affect the Company's profitability. Income from operations increased 47.0% or $3.3 million to $10.3 million for the six fiscal months ended March 29, 1998 from $7.0 million for the six fiscal months ended March 30, 1997 due to the factors described above. Income from operations as a percentage of revenues increased to 4.7% for the six fiscal months ended March 29, 1998 from 4.2% for the six fiscal months ended March 30, 1997. Income before income taxes increased 41.4% or $3.3 million to $11.1 million for the six fiscal months ended March 29, 1998 from $7.9 million for the six fiscal months ended March 30, 1997 due to the factors described above. As a percentage of total revenues, income before income taxes increased to 5.0% in the six fiscal months ended March 29, 1998 from 4.7% in the six fiscal months ended March 30, 1997. 8 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) LIQUIDITY AND CAPITAL RESOURCES Cash provided by operating activities was $3.5 million for the six fiscal months ended March 29, 1998 and $2.2 million for the six fiscal months ended March 30, 1997. Cash provided by operating activities was significantly impacted by changes in working capital primarily resulting from a substantial increase in business volumes. Cash used for purchases of fixed assets was $3.8 million for the six fiscal months ended March 29, 1998, and $1.5 million for the six fiscal months ended March 30, 1997. The increase in fiscal 1998 primarily resulted from expenditures associated with the Company's management information system. Implementation of this system is expected to begin in mid-fiscal 1998. During the next 12 months the Company anticipates capital expenditures associated with direct office openings, new corporate headquarters and further investments in the Company's computer-based technologies to approximate $5.6 million. Prior to the Company's initial public offering (the "Offering") on July 11, 1996, the Company declared distributions to its pre-Offering shareholders. In accordance with the declaration, distributions of $2.6 million were paid to the pre-Offering shareholders during six fiscal months ended March 30, 1997. In connection with the Offering, the Company terminated its S corporation status and, as a result, was required to change its overall method of accounting for tax reporting purposes from the cash method to the accrual method, resulting in a one-time charge to earnings in the fourth quarter of fiscal 1996 of approximately $7.8 million. The Internal Revenue Code allows the Company to recognize the effects of this termination in its tax returns over a four-year period. This resulted in additional quarterly installments of $750,000 in the first and second quarters of fiscal 1998 and 1997, respectively. The Company has a revolving line of credit agreement with Bank of America providing for aggregate borrowings and letters of credit of $30.0 million. Interest on outstanding borrowings is payable monthly at the bank's reference rate or, at the Company's discretion, LIBOR plus 1.5%. The line of credit is unsecured and expires on February 28, 1999. The principal use of the line of credit has been to finance receivables, to provide a letter of credit required in connection with the Company's workers' compensation self-insurance program and to finance prior S corporation distributions made to pre-Offering shareholders. The Company had no balance outstanding under its line of credit and $2.7 million in undrawn letters of credit as of March 29, 1998. The bank agreement governing the line of credit requires the Company to maintain certain financial ratios and comply with certain restrictive covenants. Additionally, RIG has a letter of credit agreement with Bank of Bermuda (New York) Limited in the amount of $80,000. The letter of credit is unsecured, expires on July 22, 1998 and is required in connection with the Company's workers' compensation self-insurance program. The Company believes that its levels of working capital and line of credit are adequate to support present operations and to fund future growth and business opportunities. 9 11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) YEAR 2000 COMPLIANCE In July 1996, the FASB Emerging Issues Task Force ("EITF") issued EITF No. 96-14, "Accounting for the Costs Associated with Modifying Computer Software for the Year 2000," in which it reached a consensus that external and internal costs specifically associated with modifying internal-use software for the year 2000 should be charged to expense as incurred. The Company is exposed to minimal risk since the new management information system, which is Year 2000 compliant, is expected to be operational prior to January 1999. All other systems have been evaluated and pose no risk to the Company. No significant incremental costs are expected to be incurred in connection with this issue. 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. 10 12 REMEDYTEMP, INC. PART II--OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On February 18, 1998, the Company held its Annual Meeting of Shareholders ("the Annual Meeting"). The Company's shareholders voted in favor of each of the four matters voted upon at the Annual Meeting according to the following vote tabulation: Proposal One: Amendment of Bylaws to provide for a flexible Board of Directors and to eliminate classification of the Board of Directors For: 4,148,577 Against: 12,010 Votes Abstaining: 1,700 Broker Non-Votes: 532,796
Proposal Two: Election of Directors.
Abstentions and For Against Broker Non-Votes --- ------- ---------------- William D. Cvengros 4,692,483 2,600 - James L. Doti 4,692,483 2,600 - Robert A. Elliott 4,692,483 2,600 - Robert E. McDonough, Sr. 4,692,483 2,600 - Paul W. Mikos 4,692,483 2,600 - Susan McDonough Mikos 4,692,483 2,600 - John B. Zaepfel 4,692,483 2,600 -
Proposal Three: Ratification and approval of amendment to the Stock Incentive Plan increasing the number of shares authorized for issuance thereunder by 325,000 shares For: 2,891,855 Against: 1,267,920 Votes Abstaining: 2,512 Broker Non-Votes: 532,796
Proposal Four: Ratification and approval of option grant to Chief Operating Officer to purchase up to 125,000 shares of Class A Common Stock of the Company For: 4,143,611 Against: 16,814 Votes Abstaining: 1,862 Broker Non-Votes: 532,796
11 13 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Set forth below is a list of the exhibits included as part of this Quarterly Report:
Number Exhibit Description ------- ----------- 3.1 Amended and Restated Articles of Incorporation of the Company (a) 3.2 Amended and Restated Bylaws of the Company (a) 4.1 Specimen Stock Certificate (a) 4.2 Shareholder Rights Agreement (a) 10.1 Robert E. McDonough, Sr. Amended and Restated Employment Agreement (a) 10.2 Paul W. Mikos Employment Agreement (a) 10.3 R. Emmett McDonough Employment Agreement (a) 10.4 Allocation Agreement with R. Emmett McDonough and Related Trusts (a) 10.5 Registration Rights Agreement with R. Emmett McDonough and Related Trusts (a) 10.6 Letter regarding terms of employment and potential severance of Alan M. Purdy (a) 10.7 Deferred Compensation Agreement for Alan M. Purdy (a) 10.8 Letter regarding potential severance of Jeffrey A. Elias (a) 10.9 Form of Indemnification Agreement (a) 10.10 Lease Agreement between RemedyTemp, Inc. and Robert E. McDonough, Sr. (b) 10.11 RemedyTemp, Inc. 1996 Stock Incentive Plan (a) 10.12 RemedyTemp, Inc. 1996 Employee Stock Purchase Plan (a) 10.13 Form of Franchising Agreement for Licensed Offices (a) 10.14 Form of Franchising Agreement for Franchised Offices (a) 10.15 Form of Licensing Agreement for IntelliSearch(R)(a) 10.16 Credit Agreement among Bank of America National Trust and Savings Association, Union Bank and RemedyTemp, Inc. as amended (f) 10.17 Paul W. Mikos Promissory Note (a) 10.18 Additional Deferred Compensation Agreement for Alan M. Purdy (c) 10.19 Lease Agreement between RemedyTemp, Inc. and Parker-Summit, LLC (d) 10.20 Lease Agreement between RemedyTemp, Inc. and Mitchell Land & Improvement Company (e) 10.21 Credit Agreement among Bank of America National Trust and Savings Association and RemedyTemp, Inc. (g) 10.22 RemedyTemp, Inc. Deferred Compensation Plan (g) 10.23 Greg Palmer Employment Agreement (h) 10.24 1998 RemedyTemp, Inc. Deferred Compensation and Stock Ownership Plan for Outside Directors 27.1 Financial Data Schedule
(a) Incorporated by reference to the exhibit of same number to the Registrant's Registration Statement on Form S-1 (Reg. No. 333-4276), as amended. (b) Incorporated by reference to the exhibit of same number to the Registrant's Registration Statement on Form S-1 (Reg. No. 333-4276), as amended. This agreement was terminated July 15, 1997. (c) Incorporated by reference to the exhibit of same number to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended December 29, 1996. (d) Incorporated by reference to the exhibit of same number to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended March 30, 1997. (e) Incorporated by reference to the exhibit of same number to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended June 29, 1997. (f) Incorporated by reference to the exhibit of same number to the Registrant's Registration Statement on Form S-1 (Reg. No. 333-4276), as amended. This agreement was terminated August 24, 1997. (g) Incorporated by reference to the exhibit of same number to the Registrant's Annual Report on Form 10-K for the yearly period ended September 28, 1997. (h) Incorporated by reference to the exhibit of same number to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended December 28, 1997. (b) Reports on Form 8-K. No reports on Form 8-K were filed in the fiscal quarter ended March 29, 1998. 12 14 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 11, 1998 /s/ PAUL W. MIKOS Paul W. Mikos, President and Chief Executive Officer May 11, 1998 /s/ ALAN M. PURDY Senior Vice President and Chief Financial Officer (Principal Financial Officer) 13 15 EXHIBIT INDEX
NUMBER EXHIBIT DESCRIPTION - ------- ----------- 3.1 Amended and Restated Articles of Incorporation of the Company (a) 3.2 Amended and Restated Bylaws of the Company (a) 4.1 Specimen Stock Certificate (a) 4.2 Shareholder Rights Agreement (a) 10.1 Robert E. McDonough, Sr. Amended and Restated Employment Agreement (a) 10.2 Paul W. Mikos Employment Agreement (a) 10.3 R. Emmett McDonough Employment Agreement (a) 10.4 Allocation Agreement with R. Emmett McDonough and Related Trusts (a) 10.5 Registration Rights Agreement with R. Emmett McDonough and Related Trusts (a) 10.6 Letter regarding terms of employment and potential severance of Alan M. Purdy (a) 10.7 Deferred Compensation Agreement for Alan M. Purdy (a) 10.8 Letter regarding potential severance of Jeffrey A. Elias (a) 10.9 Form of Indemnification Agreement (a) 10.10 Lease Agreement between RemedyTemp, Inc. and Robert E. McDonough, Sr. (b) 10.11 RemedyTemp, Inc. 1996 Stock Incentive Plan (a) 10.12 RemedyTemp, Inc. 1996 Employee Stock Purchase Plan (a) 10.13 Form of Franchising Agreement for Licensed Offices (a) 10.14 Form of Franchising Agreement for Franchised Offices (a) 10.15 Form of Licensing Agreement for IntelliSearch(R)(a) 10.16 Credit Agreement among Bank of America National Trust and Savings Association, Union Bank and RemedyTemp, Inc. as amended (f) 10.17 Paul W. Mikos Promissory Note (a) 10.18 Additional Deferred Compensation Agreement for Alan M. Purdy (c) 10.19 Lease Agreement between RemedyTemp, Inc. and Parker-Summit, LLC (d) 10.20 Lease Agreement between RemedyTemp, Inc. and Mitchell Land & Improvement Company (e) 10.21 Credit Agreement among Bank of America National Trust and Savings Association and RemedyTemp, Inc. (g) 10.22 RemedyTemp, Inc. Deferred Compensation Plan (g) 10.23 Greg Palmer Employment Agreement 10.24 1998 RemedyTemp, Inc. Deferred Compensation and Stock Ownership Plan for Outside Directors 27.1 Financial Data Schedule
14 16 (a) Incorporated by reference to the exhibit of same number to the Registrant's Registration Statement on Form S-1 (Reg. No. 333-4276), as amended. (b) Incorporated by reference to the exhibit of same number to the Registrant's Registration Statement on Form S-1 (Reg. No. 333-4276), as amended. This agreement was terminated July 15, 1997. (c) Incorporated by reference to the exhibit of same number to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended December 29, 1996. (d) Incorporated by reference to the exhibit of same number to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended March 30, 1997. (e) Incorporated by reference to the exhibit of same number to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended June 29, 1997. (f) Incorporated by reference to the exhibit of same number to the Registrant's Registration Statement on Form S-1 (Reg. No. 333-4276), as amended. This agreement was terminated August 24, 1997. (g) Incorporated by reference to the exhibit of same number to the Registrant's Annual Report on Form 10-K for the yearly period ended September 28, 1997. (h) Incorporated by reference to the exhibit of same number to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended December 28, 1997. 15 EX-10.24 2 DEFERRED COMPENSATION & STOCK OWNERSHIP PLAN 1 EXHIBIT 10.24 1998 REMEDYTEMP, INC. DEFERRED COMPENSATION AND STOCK OWNERSHIP PLAN FOR OUTSIDE DIRECTORS (EFFECTIVE AS OF MARCH 16, 1998) 2 TABLE OF CONTENTS ----------------- 1998 REMEDYTEMP, INC. DEFERRED COMPENSATION AND STOCK OWNERSHIP PLAN FOR OUTSIDE DIRECTORS (EFFECTIVE AS OF MARCH 16, 1998)
PAGE ---- Article 1. Establishment and Purpose 1 Article 2. Administration 1 Article 3. Participation in the Plan 2 Article 4. Stock Subject to the Plan 2 Article 5. Retainer Fees in the Form of Stock 3 Article 6. Deferral 4 Article 7. Deferred Compensation Accounts 5 Article 8. Rights of Participants 6 Article 9. Securities Laws 6 Article 10. Withholding Taxes 7 Article 11. Amendment and Termination of the Plan 7 Article 12. Effective Date and Duration of the Plan 7 Article 13. Miscellaneous 7 DEFERRAL DISTRIBUTION ELECTION FORM ATTACHED DESIGNATION OF BENEFICIARY FORM ATTACHED
3 1998 REMEDYTEMP, INC. DEFERRED COMPENSATION AND STOCK OWNERSHIP PLAN FOR OUTSIDE DIRECTORS (EFFECTIVE AS OF MARCH 16, 1998) ARTICLE 1. ESTABLISHMENT AND PURPOSE. 1.1 ESTABLISHMENT. RemedyTemp, Inc., a California corporation (the "Company"), hereby establishes, effective as of March 16, 1998 (the "EFFECTIVE DATE"), a director pay and deferred compensation plan, which shall be known as the "1998 RemedyTemp, Inc. Deferred Compensation and Stock Ownership Plan for Outside Directors (the "PLAN"), for present and future members of the board of directors of the Company (the "BOARD") who are not employees or officers of the Company. 1.2 PURPOSE. The purposes of the Plan are (i) to provide members of the Board who are not employees or officers of the Company with the opportunity to receive all of their Retainer Fees (as defined below) in the form of the Company's Class A Common Stock, par value $.01 per share ("STOCK") on a deferral basis, subject to the terms of the Plan and (ii) to advance the interests of the Company and its shareholders by increasing the Stock ownership of the Company's non-employee directors thereby aligning their interests more closely with the interests of the Company's other shareholders. By adopting the Plan, the Company desires to enhance its ability to attract and retain members of the Board ("Directors") of outstanding competence. ARTICLE 2. ADMINISTRATION. 2.1 AUTHORITY OF THE BOARD. The Plan shall be administered by the full Board, and to the extent permissible under Section 16 of the Securities Exchange Act of 1934, as amended, the Board may delegate ministerial duties to the Chief Human Resources Officer or any other executive or executives of the Company. The Board shall have the power to construe the Plan, to resolve all questions arising under the Plan, to adopt and amend such rules and regulations for the administration of the Plan as it may deem desirable, and otherwise to carry out the terms of the Plan. Neither the Board nor any officer or employee thereof shall be liable for any action or determination taken or made under the Plan in good faith. Notwithstanding the foregoing, the Board shall have no authority or discretion as to the persons who will receive Stock granted pursuant to the Plan, the number of shares of Stock to be issued under the Plan, the time at which such grants are made, the number of shares of Stock to be granted at any particular time, or any other matters that are specifically governed by the provisions of the Plan. 2.2 DECISIONS BINDING. The determinations, interpretations, and other actions of the Board of or under the Plan or with respect to any Stock granted pursuant to the Plan shall be final and binding for all purposes and on all persons. 2.3 ARBITRATION. Any individual making a claim for benefits under this Plan may contest the Board's decision to deny such claim or appeal therefrom only by submitting the matter to binding arbitration before a single arbitrator. Any arbitration shall be held in Orange County, California, unless otherwise agreed to by the Board. The arbitration shall be conducted pursuant to the Commercial Arbitration Rules of the American Arbitration Association. 1 4 The arbitrator's authority shall be limited to the affirmation or reversal of the Board's denial of the claim or appeal, and the arbitrator shall have no power to alter, add to, or subtract from any provision of this Plan. Each party shall bear its own attorney's fees and costs of arbitration. Judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. 2.4 INDEMNIFICATION. Each person who is or shall have been a member of the Board shall be indemnified and held harmless by the Company against and from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by him or her in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be a defendant, or in which he or she may be a party by reason of any act or omission by such Board member in his or her capacity as an administrator of the Plan, and against and from any and all amounts paid by him or her in settlement thereof, with the Company's approval, or paid by him or her in satisfaction of any judgment in any such action, suit, or proceeding against him or her, provided he or she shall give the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his or her own behalf. The foregoing right of indemnification shall not be exclusive of any other rights or indemnification to which such persons may be entitled under the Company's Articles of Incorporation or Bylaws, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless. ARTICLE 3. PARTICIPATION IN THE PLAN. Directors of the Company who are not employees or officers of the Company or any subsidiary of the Company ("ELIGIBLE DIRECTORS") shall participate in the Plan. Each Eligible Director shall, if required by the Company, enter into an agreement with the Company in such form as the Company shall determine consistent with the provisions of the Plan for purposes of implementing the Plan or effecting its purposes. In the event of any inconsistency between the provisions of the Plan and any such agreement, the provisions of the Plan shall govern. In the event an Eligible Director no longer meets the requirements for participation in the Plan, such Eligible Director shall become an inactive Eligible Director, retaining all the rights described under the Plan in Stock, until such time that the Eligible Director again becomes an active Eligible Director. ARTICLE 4. STOCK SUBJECT TO THE PLAN. 4.1 NUMBER OF SHARES. The shares that may be issued under the Plan shall be authorized and unissued shares of the Company's Stock. The maximum aggregate number of shares that may be issued under the Plan shall be twenty-five thousand (25,000), subject to adjustment upon changes in capitalization of the Company as provided in Article 4.2. The maximum aggregate number of shares issuable under the Plan may be increased from time to time by approval of the Board, and by the shareholders of the Company if shareholder approval is required pursuant to the applicable rules of any stock exchange, or, in the opinion of the Company's counsel, any other law or regulation binding upon the Company. 4.2 ADJUSTMENTS. If the Company shall at any time increase or decrease the number of its issued and outstanding shares of Stock (whether by reason of reorganization, merger, consolidation, recapitalization, stock dividend, stock split, combination of shares, exchange of shares, change in corporate structure, or otherwise), then the number of shares of Stock still available for issue hereunder shall be increased or decreased appropriately and proportionately. 2 5 ARTICLE 5. RETAINER FEES IN THE FORM OF STOCK. 5.1 PAYMENT IN STOCK. Subject to deferral pursuant to Article 6, all Eligible Directors shall receive Stock in lieu of his or her annual cash retainer fees (annual amount and pro-rata portions thereof for partial years of directorship are set by the Board) paid to such Directors for serving as a member of the Board ("RETAINER FEES") so long as this Plan is in effect, to the extent and subject to the terms and conditions set forth in this Article 5. All other fees received by Eligible Directors from the Company, including his or her fees normally paid to a Director on a per meeting basis for attending a meeting of the Board or a committee thereof ("MEETING FEES") shall be paid in cash and are not subject to the terms of this Plan. 5.2 STOCK PAYMENT PROCEDURES. 5.2.1 TIMING. Stock issuable to the Eligible Directors shall be issued no later than ten (10) business days following the annual meeting of the shareholders of the Company ("ANNUAL MEETING") beginning with the first Annual Meeting following the Effective Date, provided that the director remained an Eligible Director. Thereafter, stock issuable to the Eligible Directors shall be issued no later than ten (10) business days following each subsequent Annual Meeting, provided that the director remained an Eligible Director (the "ISSUE DATE"). 5.2.2 AMOUNT. For the year in which the Plan is implemented (the "FIRST YEAR"), the number of shares of Stock issuable to those persons that are Eligible Directors on the Effective Date shall be determined by dividing the Retainer Fee amount (pro-rated if applicable and less the portion of such Retainer Fee that has previously been paid in cash to such Eligible Directors as of the Effective Date) by the Fair Market Value (defined below) of the Stock on the Effective Date. For all persons becoming Eligible Directors after the Effective Date during the First Year, the number of shares of Stock issuable to such persons shall be determined by dividing the amount of the Retainer Fee (pro-rated if applicable) by the Fair Market Value of the Stock on the date that such persons become an Eligible Director. After the First Year, the number of shares of Stock issuable to those persons that are Eligible Directors shall be determined by dividing the Retainer Fee amount by the Fair Market Value of the Stock on the date the Eligible Director is elected, re-elected or appointed. 5.2.3 FRACTIONAL SHARES. No fractional shares shall be issued under the Plan. The portion of Retainer Fees that would be paid in Stock in any year but for the proscription on fractional shares shall be paid in cash to the Eligible Director (without interest) on the Issue Date. 5.2.4 FAIR MARKET VALUE. For the purposes of the Plan, the "FAIR MARKET VALUE" of the Stock as of any issuance or deferral date shall be the mean between the highest and lowest sales price of the Stock on the New York Stock Exchange (or another national stock exchange or the NASDAQ National Market System, if the Stock trades thereon but not on the NYSE) as of such date (or, if no such shares were traded on such date, as of the next preceding day on which there was such a trade, provided that the closing price on such preceding date is not less than 100% of the fair market value of the Stock, as determined in good faith by the Company, on the date of issuance). If at any time the Stock is no longer traded on a national stock exchange or the NASDAQ National Market System, the Fair Market Value of the Stock as of any issuance date shall be as determined by the Company in good faith in the exercise of its reasonable discretion. 5.3 RIGHTS OF THE ELIGIBLE DIRECTOR. Except for the terms and conditions set forth in this Plan, an Eligible Director paid Stock in lieu of all of the Retainer Fees in cash shall have all of the rights of a holder of the Stock, including the right to receive dividends paid on such 3 6 Stock and the right to vote the Stock at meetings of shareholders of the Company. Upon delivery, such Stock will be nonforfeitable. ARTICLE 6. DEFERRAL. 6.1 DEFERRAL OF RETAINER FEES. The receipt of all Stock in lieu of cash Retainer Fees payable during any year shall be automatically deferred. Such deferral shall automatically remain in effect for all periods the Eligible Director remains a Director. 6.2 PAYMENT FORM OF DEFERRED STOCK. Subject to Article 6.3, Eligible Directors shall be entitled to elect to receive distribution of all the deferred Stock at the end of the deferral period in a single lump distribution of Stock or by means of installments. All deferred Stock shall be paid in the same form. If no election is made, the Eligible Director will be paid in a single lump distribution of Stock as provided in Article 6.2.1. For all Eligible Directors as of the Effective Date, elections to receive the Stock in annual installments rather than in one lump distribution, shall be made by completing a "Deferral Distribution Election Form" within thirty (30) calendar days after the Effective Date. Otherwise, those persons becoming Eligible Directors after the Effective Date, shall complete a Deferral Distribution Election Form not later than thirty (30) calendar days upon becoming as Eligible Director under the Plan. 6.2.1 ONE LUMP DISTRIBUTION. Unless otherwise noted on a Deferral Distribution Election Form, all deferred shares of Stock shall be distributed in a single transaction made to the Eligible Director in January following the year in which he or she ceases to serve as a Director for any reason. 6.2.2 INSTALLMENT DISTRIBUTIONS. Eligible Directors may elect to receive the distribution of the deferred Stock in annual installments, with a minimum number of installments of two (2), and a maximum number of installments of ten (10) by completing a Deferral Distribution Election Form as provided in Article 6.2. The initial distribution shall be made in January following the year in which he or she ceases to serve as a Director for any reason. The remaining installment distributions shall be made in January of each year thereafter until the Eligible Director's entire deferred account has been distributed in full. The amount of each installment distribution shall be equal to the balance remaining in the Eligible Director's deferred account immediately prior to each such payment, multiplied by a fraction, the numerator of which is one (1), and the denominator of which is the number of installment payments remaining. Subject to the following rules, Eligible Directors shall be permitted to change the form of elected deferral distribution pursuant to this Article 6 from a single distribution to installment distributions ("Permitted Change"), but not form installment distribution to a single distribution. A Permitted Change shall be made by filing a revised election form on an Deferral Distribution Election Form as described in Article 6.2 herein, specifying the new form of distribution provided that: (1) An election to change the form of distribution must be made no later than December 31 at least one (1) full year prior to the distribution commencement date as described in Article 6.2 herein. If a new election is submitted after this date, the election shall be null and void, and the form of distribution shall be determined under the Eligible Director's original election; and (2) No further election to change a form of distribution shall be permitted with respect to Stock already subject to a revised election submitted pursuant to this Article 6. Notwithstanding anything to the contrary herein, the Board may elect at any time, in its sole and absolute discretion, to make distribution of the deferred Stock to the Eligible 4 7 Director in a single lump distribution, notwithstanding the Eligible Director's election to receive such Stock in the form of installments. 6.3 FINANCIAL HARDSHIP. The Board shall have the authority to alter the timing or manner of payment of deferred amounts in the event that the Eligible Director establishes, to the satisfaction of the Board, severe financial hardship. In such event, the Board may, in its sole discretion: (a) Authorize the cessation of deferrals by such Eligible Director under the Plan; or (b) Provide that all, or a portion, of the shares of Stock deferred shall immediately be paid in a lump sum cash payment. For purposes of this Article 6.3 "severe financial hardship" shall mean any financial hardship resulting from extraordinary and unforseeable circumstances arising as a result of one or more recent events beyond the control of the Eligible Director. In any event, payment may not be made to the extent such emergency is or may be relieved: (i) through reimbursement or compensation by insurance or otherwise; (ii) by liquidation of the Eligible Director's assets, to the extent the liquidation of such assets would not itself cause severe financial hardship; or (iii) by cessation of deferrals under the Plan. Withdrawals of amounts because of a severe financial hardship may only be permitted to the extent reasonably necessary to satisfy the hardship, plus to pay taxes on the withdrawal. Examples of what are not considered to be severe financial hardships include the need to send an Eligible Director's child to college or the desire to purchase a home. The Eligible Director's account will be credited with earnings in accordance with the Plan up to the date of distribution. The severity of the financial hardship shall be judged by the Board. The Board's decision with respect to the severity of financial hardship and the manner in which, if at all, the Eligible Director's future deferral opportunities shall be ceased, and/or the manner in which, if at all, the payment of deferred amounts to the Eligible Director shall be altered or modified, shall be final, conclusive, and not subject to appeal. 6.4 PLAN SHARES. All shares of Stock issued or issuable under the Plan shall be deducted from the shares available under the Plan at the time first issued and deferred, provided that shares deferred and not ultimately issued and delivered to the Eligible Director shall be returned to the pool of available shares under the Plan. ARTICLE 7. DEFERRED COMPENSATION ACCOUNTS. 7.1 ELIGIBLE DIRECTORS' ACCOUNTS. The Company shall establish and maintain an individual bookkeeping account for the deferrals of each Eligible Director under Article 6 herein. Each account shall be credited as of the date the amount deferred otherwise would have become due and payable to the Eligible Director and as provided in Article 7.2. Each Eligible Director's account shall be one hundred percent (100%) vested at all times. 7.2 DIVIDENDS ON DEFERRED STOCK. Any dividends paid on the deferred Stock, if any, shall be paid to the Eligible Director in Stock (without interest) not later than ten (10) days after the date such dividend payment on the Stock was made. 7.3 CHARGES AGAINST ACCOUNTS. There shall be charged against each Eligible Director's deferred account any distributions made to the Eligible Director or to his or her beneficiary. 7.4 DESIGNATION OF BENEFICIARY. Each Eligible Director shall designate a beneficiary or beneficiaries who, upon the Eligible Director's death, will receive the deferred Stock that otherwise would have been paid to the Eligible Director under the Plan. All 5 8 designations shall be signed by the Eligible Director, and shall be in such form as prescribed by the Board. Each designation shall be effective as of the date delivered to the Chief Human Resources Officer of the Company prior to the Eligible Director's death. In the event that all the beneficiaries named by an Eligible Director pursuant to this Article 7.4 predecease the Eligible Director, the deferred Stock that would have been paid to the Eligible Director or the Eligible Director's beneficiaries shall be paid to the Eligible Director's estate. In the event an Eligible Director does not designate a beneficiary, or for any reason such designation is ineffective, in whole or in part, the Stock that otherwise would have been paid to the Eligible Director or the Eligible Director's beneficiaries under the Plan shall be paid to the Eligible Director's estate. ARTICLE 8. RIGHTS OF PARTICIPANTS. 8.1 CONTRACTUAL OBLIGATION. The Plan shall create a contractual obligation on the part of the Company to make payments from the Eligible Directors' accounts when due. Payment of account balances shall be made out of the general funds of the Company. 8.2 UNSECURED INTEREST. No Eligible Director or party claiming an interest in deferred amounts of an Eligible Director shall have any interest whatsoever in any specific asset of the Company. To the extent that any party acquires a right to receive payments under the Plan, such right shall be equivalent to that of an unsecured general creditor of the Company. The Company shall have no duty to set aside or invest any amounts credited to Eligible Directors' account under the Plan. Nothing in this Plan shall create a trust of any kind or a fiduciary relationship between the Company and any Eligible Director. Nevertheless, the Company may establish one or more trusts, with such trustee as the Board may approve, for the purpose of providing for the payment of deferred amounts and earnings thereon. Such trust or trusts may be irrevocable, but the assets thereof shall be subject to the claims of the Company's general creditors in the event of the Company's bankruptcy or insolvency. To the extent any deferred amounts and earnings thereon under the Plan are actually paid from any such trust, the Company shall have no further obligation with respect thereto, but to the extent not so paid, such deferred amounts and earnings thereon shall remain the obligation of, and shall be paid by, the Company. 8.3 NO GUARANTEE OF PRINCIPAL OR EARNINGS. Nothing contained in the Plan shall constitute a guarantee by the Company or any other person or entity that the amounts deferred hereunder will increase or shall not decrease in value due to the investment of such amounts in Stock. The Stock may be a volatile investment and decreases in the value thereof may result in a loss of some or all of the principal amounts deferred hereunder. Thus, it is possible for the value of an Eligible Director's account to decrease as a result of its investment in Stock, if the value of the Stock decreases. ARTICLE 9. SECURITIES LAWS. 9.1 INVESTMENT REPRESENTATIONS. The Company may require any Eligible Director to whom an issuance of securities is made, or a deferred delivery obligation is undertaken, as a condition of receiving securities pursuant to such issuance or obligation, to give written assurances in substance and form satisfactory to the Company and its counsel to the effect that such person is acquiring the securities for his/her own account for investment and not with any present intention of selling or otherwise distributing the same in violation of applicable securities laws, and to such other effects as the Company deems necessary or appropriate to comply with Federal and applicable state securities laws. 9.2 LISTING, REGISTRATION, AND QUALIFICATION. Anything to the contrary herein notwithstanding, each issuance of securities shall be subject to the requirement that, if at 6 9 any time the Company or its counsel shall determine that the listing, registration, or qualification of the securities subject to such issuance upon any securities exchange or under any state or federal law, or the consent or approval of any governmental or regulatory body, is necessary or advisable as a condition of, or in connection with, such issuance of securities, such issuance shall not occur in whole or in part unless such listing, registration, qualification, consent, or approval shall have been effected or obtained on conditions acceptable to the Company. Nothing herein shall be deemed to require the Company to apply for or to obtain such listing, registration, or qualification. 9.3 RESTRICTIONS ON TRANSFER. The securities issued under the Plan shall be restricted by the Company as to transfer unless the grants are made under a registration statement that is effective under the Securities Act of 1933, as amended, or unless the Company receives an opinion of counsel satisfactory to the Company to the effect that registration under state or federal securities laws is not required with respect to such transfer. ARTICLE 10. WITHHOLDING TAXES. Whenever shares of Stock are to be issued under the Plan, the Company shall have the right prior to the delivery of any certificate or certificates for such shares to require the recipient to remit to the Company an amount sufficient to satisfy federal, state and local withholding tax requirements attributable to the issuance. In the absence of payment by a grantee to the Company of an amount sufficient to satisfy such withholding taxes, or an alternative arrangement with the grantee that is satisfactory to the Company, the Company may make such provisions as it deems appropriate for the withholding of any such taxes which the Company determines it is required to withhold. ARTICLE 11. AMENDMENT AND TERMINATION OF THE PLAN. The Board may suspend or terminate the Plan or any portion thereof at any time, and may amend the Plan from time-to-time in any respect the Board may deem to be in the best interests of the Company; provided, however, that no such amendment shall be effective without approval of the shareholders of the Company if shareholder approval of the amendment is then required pursuant to the applicable rules of any securities exchange, or, in the opinion of the Company's counsel, any other law or regulation binding on the Company. ARTICLE 12. EFFECTIVE DATE AND DURATION OF THE PLAN. The Plan shall become effective at the time that it is approved by the Board. The Plan shall terminate at 11:59 p.m. on December 31, 2008, unless sooner terminated or extended by action of the Board. Elections may be made under the Plan prior to its effectiveness, but no issuances under the Plan shall be made before its effectiveness or after its termination. ARTICLE 13. MISCELLANEOUS. 13.1 NOTICE. Unless otherwise prescribed by the Board, any notice or filing required or permitted to be given to the Company under the Plan shall be sufficient if in writing and hand delivered, or sent by registered or certified mail to the Chief Human Resources Officer of the Company. Notice to the Chief Human Resources Officer of the Company, if mailed, shall be addressed to the principal executive offices of the Company. Notice mailed to an Eligible Director shall be at such address as is given in the records of the Company. Notices shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification. 7 10 13.2 NO SHAREHOLDER RIGHTS CONFERRED. Nothing contained in the Plan or any agreement hereunder will confer upon any director any rights of a shareholder of the Company unless and until shares of Stock are issued to such Eligible Director upon the payment of Stock. 13.3 NO RIGHT TO STOCK. Nothing in the Plan shall be construed to give any Director of the Company any right to a grant of Stock under the Plan unless all conditions described within the Plan are met as determined in the sole discretion of the Board. 13.4 GRANTED SHARES HAVE SAME STATUS AS ISSUED SHARES. Any shares of Stock of the Company issued as a stock dividend, or as a result of stock splits, combinations, exchanges of shares, reorganizations, mergers, consolidations or otherwise with respect to shares of Stock granted pursuant to the Plan shall have the same status and be subject to the same restrictions as the shares granted. 13.5 SUCCESSORS. All obligations of the Company under the Plan shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company. 13.6 COSTS OF THE PLAN. All costs of implementing and administering the Plan shall be borne by the Company. 13.7 SEVERABILITY. In the event any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included. 13.8 APPLICABLE LAW. The Plan and all rights and obligations under the Plan shall be construed in accordance with and governed by the laws of the State of California, excluding its conflicts of laws principles. 13.9 NONTRANSFERABILITY. Eligible Director's rights to deferred amounts, contributions, and earnings accrued thereon under the Plan may not be sold, transferred, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution, nor shall the company make any payment under the Plan to any assignee or creditor of an Eligible Director or other person based upon community or other marital rights except in accordance with the terms of the Plan. 8 11 DEFERRAL DISTRIBUTION ELECTION FORM ----------------------------------- Deferral Distribution Election Form (due no later than thirty (30) days after becoming an Outside Director) ____ I elect to receive all my deferred Stock in accordance with Article 6 of the 1998 RemedyTemp, Inc. Deferred Compensation and Stock Ownership Plan for Outside Directors (the "Plan") in: ____ one lump distribution (may be changed to installment distributions pursuant to Article 6) ____ installments (irrevocable election). I wish to receive payment in ____ (2-10) installments. I understand and acknowledge that the above election form shall remain in effect for all periods in which I participate in the Plan until changed by me by filing a revised election form on a "Deferral Distribution Election Form" no later than December 31 at least one (1) full year prior to the distribution of deferred Stock. I understand and acknowledge that should any conflict arise between this election form and the Plan, the terms of the Plan shall govern. Signed: _______________________________ Printed Name: _________________________ Date: March 16, 1998 EX-27.1 3 FINANCIAL DATA SCHEDULE
5 3-MOS SEP-27-1998 DEC-29-1997 MAR-29-1998 4,067 0 57,681 0 0 64,929 9,728 0 79,236 24,205 0 0 0 90 53,886 79,236 0 109,607 0 84,041 20,843 0 0 5,104 2,118 2,986 0 0 0 2,986 .33 .32
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