-----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, I4l83qL4HXRPhrLAcahq0bXlGoOTB2VtVul7WasJn2YOfRbhXEuSWNGp3Q3byQAj T255yjpZ4Mn03eBe0uDnow== 0000892569-99-002104.txt : 19990810 0000892569-99-002104.hdr.sgml : 19990810 ACCESSION NUMBER: 0000892569-99-002104 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990627 FILED AS OF DATE: 19990809 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: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-20831 FILM NUMBER: 99680530 BUSINESS ADDRESS: STREET 1: 101 ENTERPRISE CITY: SLISO VIEJO STATE: CA ZIP: 92656 BUSINESS PHONE: 9494257600 MAIL ADDRESS: STREET 1: 101 ENTERPRISE CITY: ALISO VIEJO STATE: CA ZIP: 92656 10-Q 1 FORM 10-Q FOR QUARTER ENDED JUNE 27, 1999 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 June 27, 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 August 9, 1999 there were 7,045,574 shares of Class A Common Stock and 1,803,539 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 June 27, 1999 and September 27, 1998.............. 3 Consolidated Statement of Income for the three fiscal months and nine fiscal months ended June 27, 1999 and June 28, 1998 ........................ 4 Consolidated Statement of Cash Flows for the nine fiscal months ended June 27, 1999 and June 28, 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............................... * Item 5. Other Information................................................................. * Item 6. Exhibits and Reports on Form 8-K.................................................. 14 SIGNATURES......................................................................................... 15
- --------------- * No information provided due to inapplicability of item. 2 3 REMEDYTEMP, INC. PART I--FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEET (amounts in thousands, except per share amounts) ASSETS
June 27, September 27, 1999 1998 --------- ------------- Current assets: Cash and cash equivalents......................................... $ 2,628 $ 450 Accounts receivable, net of allowance for doubtful accounts of $2,655 and $2,647, respectively ............................. 69,256 63,660 Prepaid expenses and other current assets (Note 4)................ 11,689 3,401 Deferred income taxes ............................................ 2,486 2,235 -------- -------- Total current assets ...................................... 86,059 69,746 Fixed assets, net of accumulated depreciation of $14,683 and $12,560, respectively............................................. 17,828 15,184 Other assets, net.................................................... 2,462 2,567 Deferred income taxes................................................ 501 501 Goodwill, net of accumulated amortization of $268 and $152, respectively....................................................... 1,730 1,787 -------- -------- $108,580 $ 89,785 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable.................................................. $ 2,430 $ 3,033 Accrued workers' compensation (Note 4)............................ 549 5,535 Accrued payroll, benefits and related costs....................... 11,120 13,604 Accrued licensees' share of gross profit.......................... 3,535 3,194 Line of credit.................................................... 18,750 -- Other accrued expenses............................................ 923 865 Income taxes payable.............................................. 568 809 Capitalized lease obligation...................................... 114 308 -------- -------- Total current liabilities.................................. 37,989 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; 7,022 and 7,206 issued and outstanding at June 27, 1999 and September 27, 1998, respectively................................ 70 72 Class B Non-Voting Common Stock, $.01 par value; authorized 4,530 shares; 1,804 issued and outstanding at June 27, 1999 and September 27, 1998.......................................... 18 18 Additional paid-in capital........................................... 32,034 34,732 Retained earnings.................................................... 38,469 27,615 -------- -------- Total shareholders' equity........................................... 70,591 62,437 -------- -------- $108,580 $ 89,785 ======== ========
See accompanying notes to consolidated financial statements. 3 4 REMEDYTEMP, INC. CONSOLIDATED STATEMENT OF INCOME (amounts in thousands, except per share amounts)
Three Months Ended Nine Months Ended ------------------------- ------------------------- June 27, June 28, June 27, June 28, 1999 1998 1999 1998 --------- --------- --------- --------- Direct sales ........................... $ 70,415 $ 68,709 $ 199,584 $ 206,619 Licensed sales ......................... 57,678 43,938 161,552 125,204 Franchise royalties .................... 683 691 1,974 2,180 Initial license and franchise fees ..... 39 50 124 137 --------- --------- --------- --------- Total revenues .................. 128,815 113,388 363,234 334,140 Cost of direct sales ................... 55,774 53,390 157,469 161,936 Cost of licensed sales ................. 43,012 32,556 120,133 93,351 Licensees' share of gross profit ....... 9,983 7,771 28,097 21,644 Selling and administrative expenses .... 12,687 13,251 37,757 39,118 Depreciation and amortization .......... 949 683 2,639 2,016 --------- --------- --------- --------- Income from operations .......... 6,410 5,737 17,139 16,075 Other income: Interest (expense) income, net ....... (182) 139 (172) 223 Other, net ........................... 206 175 681 866 --------- --------- --------- --------- Income before provision for income taxes 6,434 6,051 17,648 17,164 Provision for income taxes ............. 2,477 2,511 6,794 7,123 --------- --------- --------- --------- Net income ............................. $ 3,957 $ 3,540 $ 10,854 $ 10,041 ========= ========= ========= ========= Net income per share, basic (Note 2) ... $ 0.45 $ 0.39 $ 1.22 $ 1.12 ========= ========= ========= ========= Weighted-average number of shares ...... 8,825 8,984 8,871 8,954 ========= ========= ========= ========= Net income per share, diluted (Note 2) . $ 0.45 $ 0.38 $ 1.22 $ 1.08 ========= ========= ========= ========= Weighted-average number of shares ...... 8,838 9,412 8,923 9,297 ========= ========= ========= =========
See accompanying notes to consolidated financial statements. 4 5 REMEDYTEMP, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (amounts in thousands)
Nine Months Ended ----------------------- June 27, June 28, 1999 1998 -------- -------- Cash flows provided by (used in) operating activities: Net income ........................................ $ 10,854 $ 10,041 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ................. 2,639 2,016 Provision for losses on accounts receivable ... 416 1,004 Deferred taxes ................................ (251) (2,250) Changes in assets and liabilities: Accounts receivable ......................... (6,012) (1,539) Prepaid expenses and other current assets ... 104 (457) Prepaid workers' compensation ............... (8,392) -- Other assets ................................ 105 24 Accounts payable ............................ (603) (1,539) Accrued workers' compensation ............... (4,986) 2,210 Accrued payroll, benefits and related costs . (2,484) 125 Accrued licensees' share of gross profit .... 341 606 Other accrued expenses ...................... 58 (64) Income taxes payable ........................ (241) (1,783) -------- -------- Net cash (used in) provided by operating activities (8,452) 8,394 -------- -------- Cash flows used in investing activities: Purchase of fixed assets .......................... (5,167) (7,454) Purchase of franchises, net of assets acquired .... (59) (1,014) -------- -------- Net cash used in investing activities ............. (5,226) (8,468) -------- -------- Cash flows provided by financing activities: Borrowings under line of credit agreement ......... 23,750 1,000 Repayments under line of credit agreement ......... (5,000) (1,000) Repayments under capital lease obligation ......... (194) (306) Proceeds from stock option activity ............... 23 646 Purchase of Company Common Stock .................. (2,957) -- Proceeds from Employee Stock Purchase Plan activity 234 313 -------- -------- Net cash provided by financing activities ......... 15,856 653 -------- -------- Net increase in cash and cash equivalents ........... 2,178 579 Cash and cash equivalents at beginning of period .... 450 5,128 -------- -------- Cash and cash equivalents at end of period .......... $ 2,628 $ 5,707 ======== ======== Other cash flow information: Cash paid during the period for interest .......... $ 272 $ 68 Cash paid during the period for income taxes ...... $ 7,286 $ 11,161
See accompanying notes to consolidated financial statements. 5 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 June 27, 1999, and the consolidated statements of income and of cash flows for the nine fiscal months ended June 27, 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:
Three Fiscal Months Ended ----------------------------------------------------------------------------------------- June 27, 1999 June 28, 1998 ---------------------------------------------- ---------------------------------------- Income Shares Per-Share Income Shares Per-Share (Numerator) (Denominator) Amounts (Numerator) (Denominator) Amounts ----------- ------------- --------- ----------- ------------- --------- BASIC EPS Income available to common shareholders.................. $3,957 8,825 $ 0.45 $3,540 8,984 $ 0.39 ====== ====== EFFECT OF DILUTIVE SECURITIES Stock options................. $ -- 13 $ -- 428 ------ ----- ------ ----- DILUTED EPS Income available to common shareholders plus assumed conversions................... $3,957 8,838 $ 0.45 $3,540 9,412 $ 0.38 ====== ===== ======= ====== ===== ======
Nine Fiscal Months Ended ---------------------------------------------------------------------------------------- June 27, 1999 June 28, 1998 ---------------------------------------------- --------------------------------------- Income Shares Per-Share Income Shares Per-Share (Numerator) (Denominator) Amounts (Numerator) (Denominator) Amounts ----------- ------------- --------- ----------- ------------- --------- BASIC EPS Income available to common shareholders.................. $10,854 8,871 $ 1.22 $10,041 8,954 $1.12 ======= ===== EFFECT OF DILUTIVE SECURITIES Stock options................. $ -- 52 $ -- 343 ------- ----- ------- ----- DILUTED EPS Income available to common shareholders plus assumed conversions................... $10,854 8,923 $ 1.22 $10,041 9,297 $1.08 ======= ===== ======= ======= ===== =====
6 7 REMEDYTEMP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands, except per share amounts) 3. 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. 4. 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 remaining deductible liability for all open claims incurred during the period July 22, 1997 to March 31, 1999. Additionally, the Company entered into a one-year fully insured workers' compensation program with Reliance. This program has a fixed cost for payroll up to $295,000 and for payroll exceeding $295,000, the premium is at a lesser rate than the base rate. The Company paid the aggregate cost of both the reinsurance contract and the one-year premium, a total of $18,873, to Reliance on April 16, 1999. If the ultimate aggregate losses exceed current projections, the reinsurance contract includes a provision for additional payments up to $700. 7 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 Year 2000 issues, changes in general or local economic conditions, the availability of sufficient personnel, the Company's ability to attract and retain clients and franchisees/licensees and other factors described in the Company's filings with the Securities and Exchange Commission regarding risks affecting the Company's financial conditions and results of operations. The Company does not undertake to publicly update or revise its forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized. RESULTS OF OPERATIONS For the Three Fiscal Months Ended June 27, 1999 Compared to the Three Fiscal Months Ended June 28, 1998 Total revenues increased 13.6% or $15.4 million to $128.8 million for the three fiscal months ended June 27, 1999 from $113.4 million for the three fiscal months ended June 28, 1998. Direct revenues increased 2.5% to $70.4 million from $68.7 million, while licensed revenues increased 31.3% to $57.7 million from $43.9 million for the three fiscal months ended June 27, 1999 and June 28, 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 15.3% and total Company revenue increased 21.8% for the three fiscal months ended June 27, 1999 compared to the same period in the previous year. The expansion of business at existing licensed offices as well as the opening of 12 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 14.9% or $12.8 million to $98.8 million for the three fiscal months ended June 27, 1999 from $85.9 million for the three fiscal months ended June 28, 1998. Such increase was primarily due to increased revenues as discussed above. Total cost of direct and licensed sales as a percentage of revenues was 76.7% for the three fiscal months ended June 27, 1999 compared to 75.8% for the three fiscal months ended June 28, 1998. The increase is due in part to a shift in the mix of business to an increased percentage of Light Industrial and Technical business, which tends to have lower gross margins and an increase in workers' compensation rates. See further discussion of workers' compensation in the Liquidity section. 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's sales. Licensees' share of gross profit increased 28.5% or $2.2 million to $10.0 million for the three fiscal months ended June 27, 1999 from $7.8 million for the three fiscal months ended June 28, 1998 due to increased billings at existing licensed offices and to the opening of 12 new offices. Licensees' share of gross profit as a percentage of total revenues increased to 7.7% for the three fiscal months ended June 27, 1999 from 6.9% for the three fiscal months ended June 28, 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 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 2.1% or $0.3 million to $13.6 million for the three fiscal months ended June 27, 1999 from $13.9 million for the three fiscal months ended June 28, 1998. Selling, general and administrative expenses as a percentage of total revenues decreased to 10.6% for the three fiscal months ended June 27, 1999 from 12.3% for the three fiscal months ended June 28, 1998. This reduction was due in part to a decrease in profit sharing and bonus expense to $709.8 for the three fiscal months ended June 27, 1999 compared to $1,514.7 for the three fiscal months ended June 28, 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 11.7% or $0.7 million to $6.4 million for the three fiscal months ended June 27, 1999 from $5.7 million for the three fiscal months ended June 28, 1998 due to the factors described above. Income from operations as a percentage of revenues was 5.0% for the three fiscal months ended June 27, 1999 compared to 5.1% for the three fiscal months ended June 28, 1998. Net income increased 11.8% or $0.4 million to $4.0 million for the three fiscal months ended June 27, 1999 from $3.5 million for the three fiscal months ended June 28, 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 remained constant at 3.1% for the three fiscal months ended June 27, 1999 and the three fiscal months ended June 28, 1998. All revenues and results have been internally generated by the Company. For the Nine Fiscal Months Ended June 27, 1999 Compared to the Nine Fiscal Months Ended June 28, 1998 Total revenues increased 8.7% or $29.1 million to $363.2 million for the nine fiscal months ended June 27, 1999 from $334.1 million for the nine fiscal months ended June 28, 1998. Direct revenues decreased 3.4% to $199.6 million from $206.6 million, while licensed revenues increased 29.0% to $161.6 million from $125.2 million for the nine fiscal months ended June 27, 1999 and June 28, 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 11.9% and total Company revenue increased 18.7% for the nine fiscal months ended June 27, 1999 compared to the same period in the previous year. The increase in licensed revenue is due to the expansion of business at existing licensed offices as well as the opening of 12 new licensed offices since the prior period. 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 8.7% or $22.3 million to $277.6 million for the nine fiscal months ended June 27, 1999 from $255.3 million for the nine fiscal months ended June 28, 1998, due to increased revenues as discussed above. Total cost of direct and licensed sales as a percentage of revenues was 76.4% for the nine fiscal months ended June 27, 1999 and the nine fiscal months ended June 28, 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 increased 29.8% or $6.5 million to $28.1 million for the nine fiscal months ended June 27, 1999 from $21.6 million for the nine fiscal months ended June 28, 1998 due to increased billings at existing licensed offices and to the opening of 12 new offices. Licensees' share of gross profit as a percentage of total revenues increased to 7.7% for the nine fiscal months ended June 27, 1999 from 6.5% for the nine fiscal months ended June 28, 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. 9 10 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 1.8% or $0.7 million to $40.4 million for the nine fiscal months ended June 27, 1999 from $41.1 million for the nine fiscal months ended June 28, 1998. Selling, general and administrative expenses as a percentage of total revenues decreased to 11.1% for the nine fiscal months ended June 27, 1999 from 12.3% for the nine fiscal months ended June 28, 1998. Bad debt expense decreased $588.0 for the nine fiscal months ended June 27, 1999 as compared to the nine fiscal months ended June 28, 1998 due to successful collection and recovery efforts resulting in lower writeoffs and required reserves. Also, profit sharing and bonus expense decreased to $2,891.4 for the nine fiscal months ended June 27, 1999 compared to $4,346.5 for the nine fiscal months ended June 28, 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 6.6% or $1.1 million to $17.1 million for the nine fiscal months ended June 27, 1999 from $16.1 million for the nine fiscal months ended June 28, 1998 due to the factors described above. Income from operations as a percentage of revenues was 4.7% for the nine fiscal months ended June 27, 1999 compared to 4.8% for the nine fiscal months ended June 28, 1998. Net income increased 8.1% or $0.8 million to $10.9 million for the nine fiscal months ended June 27, 1999 from $10.0 million for the nine fiscal months ended June 28, 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 3.0% for both the nine fiscal months ended June 27, 1999 and the nine fiscal months ended June 28, 1998. All revenues and results have been internally generated by the Company. Liquidity and Capital Resources Cash used in operating activities was $8.5 million for the nine fiscal months ended June 27, 1999 compared with cash provided by operating activities of $8.4 million for the nine fiscal months ended June 28, 1998. Cash was impacted primarily by transactions related to the workers' compensation policy in fiscal 1999, as discussed below. Effective April 1, 1999, the Company entered into a reinsurance contract with Reliance National Insurance Company ("Reliance") whereby Reliance assumed the Company's remaining deductible liability for all open claims incurred during the period July 22, 1997 to March 31, 1999. Additionally, the Company entered into a one-year fully insured workers' compensation program with Reliance. This program has a fixed cost for payroll up to $295.0 million and for payroll exceeding $295.0 million, the premium is at a lesser rate than the base rate. The Company paid the aggregate cost of both the reinsurance contract and the one-year premium, a total of $18.9 million, to Reliance on April 16, 1999. If the ultimate aggregate losses exceed current projections, the reinsurance contract includes a provision for additional payments up to $700,000. The Company has a revolving line of credit agreement with Bank of America providing for aggregate borrowings and letters of credit of $40.0 million. Interest on outstanding borrowings is payable monthly. The interest rate is the bank's reference rate minus up to 0.25%, based upon certain financial covenants or, at the Company's discretion, LIBOR plus a range of 1.0% to 1.375%, based upon financial covenants. The line of credit is unsecured and expires on February 28, 2002. The Company had $18.8 million outstanding under its line of credit and $40,000 in undrawn letters of credit as of June 27, 1999. The agreement governing the line of credit requires the Company to maintain certain financial ratios and comply with certain restrictive covenants. The Company is in compliance with these requirements. Cash used for purchases of fixed assets was $5.2 million for the nine fiscal months ended June 27, 1999, and $7.5 million for the nine fiscal months ended June 28, 1998. The expenditures in fiscal 1999 primarily were associated with leasehold improvements at direct offices and the Company's new management information system. Upgrades of computers and hardware to support the new system began in early calendar year 1999, and implementation of the related software began in the third fiscal quarter of 1999. During the next twelve months, the Company anticipates capital 10 11 REMEDYTEMP, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) expenditures associated with direct office openings and further investments in the Company's computer-based technologies to approximate $5.0 million. 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 each of the three fiscal quarters of 1999 and 1998, respectively. 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 nine fiscal months ended June 27, 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 is contemplating certain strategic acquisitions. Such acquisitions may have an impact on liquidity depending on the size of the acquisition. 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. 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. 11 12 REMEDYTEMP, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) 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. 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 franchisees, licensees, and the Company's material vendors and clients and has formulated a system to understand such material third parties' ability to continue providing services and products after the Year 2000, including formulating contingency plans, where appropriate. However, the Company can neither predict nor assure the successful outcome of such third parties' remediation efforts. SEASONALITY The Company's quarterly operating results are affected by the number of billing days in the quarter and the seasonality of its clients' businesses. The first fiscal quarter has 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. 12 13 REMEDYTEMP, INC. PART II--OTHER INFORMATION 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 10.3 R. Emmett McDonough Employment Agreement (a) 10.4 Allocation Agreement with R. Emmett McDonough and Related Trusts (a) 10.5 Registration Rights Agreement with R. Emmett McDonough and Related Trusts (a) 10.6 Alan M. Purdy Change in Control Severance Agreement 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(j) 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/search2000TM (h) 10.26 Credit Agreement among Bank of America National Trust and Savings Association and RemedyTemp, Inc. (j) 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. This agreement was terminated March 31, 1999 (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 June 28, 1998. (h) Incorporated by reference to the exhibit of same number to the Registrant's Annual Report on Form 10-K for the yearly period ended September 27, 1998. (i) Incorporated by reference to the exhibit of same number to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended December 27,1998. (j) Incorporated by reference to the exhibit of same number to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended March 28,1999. (b) Reports on Form 8-K. No reports on Form 8-K were filed in the fiscal quarter ended March 1999. 13 14 REMEDYTEMP, INC. 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. August 9, 1999 /s/ PAUL W. MIKOS ------------------------------------- Paul W. Mikos, President and Chief Executive Officer August 9, 1999 /s/ ALAN M. PURDY ------------------------------------- Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 14 15 REMEDYTEMP, INC. 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 10.3 R. Emmett McDonough Employment Agreement (a) 10.4 Allocation Agreement with R. Emmett McDonough and Related Trusts (a) 10.5 Registration Rights Agreement with R. Emmett McDonough and Related Trusts (a) 10.6 Alan M. Purdy Change in Control Severance Agreement 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(j) 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/search2000TM (h) 10.26 Credit Agreement among Bank of America National Trust and Savings Association and RemedyTemp, Inc. (j) 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. This agreement was terminated March 31, 1999 (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 June 28, 1998. (h) Incorporated by reference to the exhibit of same number to the Registrant's Annual Report on Form 10-K for the yearly period ended September 27, 1998. (i) Incorporated by reference to the exhibit of same number to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended December 27,1998. (j) Incorporated by reference to the exhibit of same number to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended March 28,1999. EX-10.2 2 PAUL W. MIKOS EMPLOYMENT AGREEMENT 1 EXHIBIT 10.2 EMPLOYMENT AGREEMENT This Employment Agreement ("Agreement") is entered into effective May 2, 1999 by and between REMEDYTEMP, INC., a California corporation (the "Company"), and Paul W. Mikos, an individual person ("Mikos"), (collectively referred to herein as the "Parties"). WHEREAS, the Company desires to maintain the benefits of having Mikos continue to serve as its President and Chief Executive Officer and Mikos desires to be employed by the Company as President and Chief Executive Officer. NOW, THEREFORE, in consideration of the foregoing promises and mutual covenants, the Parties hereby agree to the following terms and conditions under which Mikos will serve as the Company's Chief Executive Officer and President: 1. EMPLOYMENT SERVICES AND DUTIES The Company shall employ and retain the services of Mikos as its President and Chief Executive Officer, and Mikos hereby agrees to be employed by the Company as its President and Chief Executive Officer. Mikos's duties and obligations as President and Chief Executive Officer shall be to perform such duties and services as the Company's board of directors (the "Board") may from time to time, assign, either directly or by delegated authority, including, but not limited to implementing the policies and strategies determined by the Board. Mikos agrees to perform his duties faithfully, to the best of his ability and in the best interests of the Company, to preserve and protect the confidential information of the Company, and to perform both his regular duties and other strategic projects as requested by the Board. As President and Chief Executive Officer, Mikos shall report directly to the Board. 2. TERM OF EMPLOYMENT Subject to the terms and conditions of this Agreement, the Company shall employ, and Mikos shall serve as President and Chief Executive Officer of the Company for three (3) years commencing on May 2, 1999 and ending on May 1, 2002 (the "Employment Period"). 3. COMPENSATION TERMS The Company shall compensate Mikos for his services rendered as President and Chief Executive Officer under this Agreement as follows: (a) Mikos shall receive a base salary set annually by the Leadership Development and Compensation Committee of the Board (the "Compensation Committee"), as adjusted according to market conditions; provided, however that Mikos's annual base salary shall not be less than $450,000 per year, payable semi-monthly. In addition, Mikos shall be entitled to earn an annual performance bonus in an amount to be determined by the Compensation Committee based on Mikos's satisfaction of certain 2 performance goals set annually by the Compensation Committee. The amount of the annual bonus paid to Mikos shall not exceed 100% of his base salary in any particular year; provided however, that the Compensation Committee, in its sole discretion, may provide to Mikos an annual bonus in excess of 100% of his base salary to compensate him for extraordinary performance in a particular year. (b) During the Employment Period, Mikos shall be entitled to and shall receive the same employee benefits package that Mikos received as an executive officer of the Company immediately prior to the date of this Agreement, including, without limitation, all health, life and disability insurance and all policies or agreements providing for indemnification. 4. TERMINATION AND SEVERANCE PACKAGE The Board may terminate Mikos's employment with the Company, with or without cause, at any time upon notice to Mikos. Mikos may terminate his employment with the Company at any time upon notice to the Board. Upon the termination by the Company of Mikos's employment with the Company, the Company shall provide Mikos the following severance package; provided Mikos agrees to the following terms: (a) For a period of two (2) years after such termination, Mikos shall receive his annual base salary then in effect plus maximum annual bonus equal to 100% of Mikos's then annual base salary, payable semi-monthly (the "Severance Payments"); provided, however that the total amount of Severance Payments shall not exceed one dollar less than such amount that would constitute a "parachute payment" as defined in Section 280G under the Internal Revenue Code of 1986, as amended. (b) Upon termination by the Company of Mr. Mikos's employment for any reason other than "for cause" (defined below), all granted options shall vest automatically and shall remain exercisable for the balance of their term. (c) If the Company terminates Mr. Mikos "for cause," then all of the unexercised options, whether or not vested, shall expire and become unexercisable as of the date of such for cause termination. For purposes of this Agreement, termination for cause shall mean termination for one of the following reasons: personal dishonesty; willful misconduct; breach of fiduciary duty involving self-dealing or personal profit; intentional material failure to perform duties or abide by Company policies, in each case to the extent such duties or policies have been communicated to Mikos in writing or their existence is otherwise known to Mikos and Mikos has not cured such failure within a reasonable time after written notice of such failure is given; conviction, entry of a plea of guilty or nolo contendere in connection with any alleged violation, or any actual violation, of any law, rule, regulation (other than traffic violations or similar offenses) or any cease-and-desist or other court order; involvement in any legal proceeding which, in the opinion of legal counsel to the Company, would be required to be disclosed pursuant to rules and regulations of the Securities and Exchange Commission, other than proceedings under federal bankruptcy laws or state insolvency laws involving entities in which you have less than a fifty percent (50%) interest; any intentional material breach of this Agreement; non-prescription use of any 2 3 controlled substance or the use of alcohol or any other non-controlled substance which the Board reasonably determines renders you unfit to serve in your capacity as an officer of the Company; or any intentional act or omission which the Board reasonably determines has a material adverse effect on the public image, reputation or integrity of the Company. Termination for cause shall not include termination on account of job performance failing to meet criteria or expectations of the Board. (d) In consideration for the agreements set forth herein and the Severance Payments, Mikos shall, upon the termination of his employment, execute a release of the Company, the Board, and all officers, employees and agents of the Company from any and all claims, liabilities, actions, causes of action, obligations, costs, damages, losses and demands of every kind and nature whatsoever known or unknown, which arise out of, relate to or are in any manner whatsoever connected with any action, transaction, occurrence or event which has occurred prior to the date of the release and those which may arise out of or are in any manner whatsoever connected with or related to the termination of Mikos's employment with the Company. Such release shall include a waiver of all rights granted under Section 1542 of the California Civil Code which reads as follows: A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which, if known by him must have materially affected his settlement with the debtor. Cal. Civ. Code Section 1542. (e) In consideration of the agreements set forth herein and the Severance Payments, Mikos agrees that upon termination by the Company of his employment with the Company he shall resign as a director of the Board. 5. NONDISCLOSURE Mikos shall at all times keep confidential and maintain the confidentiality of all proprietary information, confidential information, and/or trade secrets of the Company, including but not limited to customer lists, the EDGE system, HPT, IntelliSearch, i/search 2000 and MAPS ("Proprietary Information"), and shall not, unless the Company's prior written consent is obtained, at any time after the date hereof, either directly or indirectly, use any Proprietary Information for his own benefit, or in competition with, or to the detriment of the Company, or divulge, disclose, or communicate any Proprietary Information to any person or entity in any manner whatsoever, except to employees or agents of the Company having a need to know such Proprietary Information, and only to the extent necessary to perform his responsibilities on behalf of the Company. In addition, for a period of two (2) years after the termination of his employment with the Company, Mikos shall not solicit employees or customers of the Company in any geographical location where the Company conducts business. 6. REGISTRATION EXPENSES To the extent that Mikos is permitted to sell stock in the Company owned by him individually or in a fiduciary capacity (collectively, the "Mikos Stock") in a public offering of stock by the Company, all expenses incurred in effecting any registration of such Mikos Stock, including, all registration and filing fees, printing expenses, expenses 3 4 of compliance with blue sky laws, fees and disbursements of counsel for the Company, expenses of any audits incidental to or required by any such registration, and expenses of all marketing and promotional efforts requested by the managing underwriter shall be borne by the Company; provided, however, that Mikos shall bear underwriting discounts and/or brokerage fees and commissions relating to the sale of the Mikos Stock. 7. SEVERABILITY The provisions of this Agreement are severable. If a court of competent jurisdiction determines that any one or more provisions of this Agreement is invalid, void or unenforceable, in whole or in part, it will be severed therefrom. The remaining provisions of this Agreement shall then continue in full force without being impaired or invalidated in any way. 8. MODIFICATION AND WAIVER No waiver or modification of this Agreement or any term hereof shall be binding unless it is in writing signed by the parties hereto. No failure to insist upon compliance with any term, provision or condition to this Agreement, whether by conduct or otherwise, in any one or more instances, shall be deemed to be or construed as a waiver of any such term, provision or condition or as a waiver of any other term, provision or condition of this Agreement. 9. NO ASSIGNMENT The parties acknowledge and agree that this Agreement is personal in nature and may not be assigned by Mikos. The Company may assign its rights, duties and obligations hereunder. 10. ENTIRE AGREEMENT This Agreement constitutes the entire understanding between the parties concerning the subject matter hereof. This Agreement supersedes all negotiations, prior discussions and preliminary agreements. This Agreement may not be amended except in a writing executed by the parties. 11. GOVERNING LAW This Agreement shall be governed by and construed in accordance with the laws of the State of California and the parties agree that the venue for the resolution of all disputes hereunder shall be in the appropriate courts in the County of Orange, California. 12. NOTICES All notices, requests, demands and other communication required or contemplated under this Agreement shall be in writing and shall be deemed to have been duly given when delivered personally or when enclosed in a properly sealed and addressed envelope, registered or certified, and deposited (postage prepaid) in a post office or branch post office regularly maintained by the United States Government. 4 5 Any notice given to the Company under the terms of this Agreement shall be addressed to the Company at the address of its principal place of business. Any notice to be given to Mikos shall be addressed to him at his home address last shown on the Company's records, or at such other address as either party may hereafter designate in writing to the other. IN WITNESS WHEREOF, the parties have duly executed this Agreement effective as of May 2, 1999. REMEDYTEMP, INC., a California Corporation By:___________________________ Name:_________________________ Its:__________________________ /s/ PAUL W. MIKOS ------------------------------ Paul W. Mikos 5 EX-10.6 3 ALAN PURDY CHANGE IN CONTROL SEVERANCE AGREEMENT 1 EXHIBIT 10.6 SEVERANCE AGREEMENT THIS SEVERANCE AGREEMENT (this "Agreement") is entered into effective as of June 1, 1999 (the "Effective Date") by and between RemedyTemp, Inc., a California corporation ("Remedy"), and Alan M. Purdy, an individual person ("Employee"). WHEREAS, Remedy desires to retain the services of Employee on an at-will basis, and Employee desires to remain an at-will employee of Remedy. WHEREAS, Remedy and Employee desire to enter into this Agreement providing for certain severance arrangements for the benefit of Employee. NOW THEREFORE, in consideration of the mutual covenants set forth herein, the parties hereto agree as follows: 1. CERTAIN DEFINITIONS. (a) Cause. For purposes hereof, the term "Cause" has the meaning set forth in Schedule 1 attached hereto. Any termination by Remedy of Employee's employment within 30 days after Remedy becoming aware of the occurrence of an event or circumstance constituting "Cause" will constitute termination for Cause; provided however, that such event constituting Cause must have occurred following a Change in Control (defined below). 2. SEVERANCE PAYMENTS. (a) Termination Upon a Change in Control. (i) If, within two (2) years of a Change in Control (as defined below), Employee's employment with Remedy is terminated by Remedy for any reason except for Cause, Employee shall receive a cash, lump-sum payment from Remedy, on the tenth (10th) business day following the date of termination of Employee's employment with Remedy, in an amount equal to two (2) times the then current annual total compensation (including salary and maximum bonus) of Employee (the "Severance Payment"). In such case of a Change in Control, provisions herein applicable to Remedy will apply to Remedy's successor. (ii) Notwithstanding anything in this Section 2 to the contrary, if the Severance Payment under Section 2(a)(i), either alone or together with other cash payments which Employee has the right to receive from Remedy, would constitute a "parachute payment" (as defined in Section 280G of the Internal Revenue Code of 1986, as amended (the "Code")), such Severance Payment shall be reduced to the maximum amount as will result in no portion of Severance Payment being a parachute payment (as defined in Section 280G of the Code). (iii) For purposes of this Agreement, a "Change in Control" shall be deemed to occur if any person, entity or group within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (excluding for this purpose Remedy or its subsidiaries, or any employee benefit plan of Remedy or its subsidiaries that 2 acquires beneficial ownership of voting securities of Remedy, or any underwriter or underwriting syndicate acquiring shares of Remedy' stock in connection with a public offering thereof) becomes the beneficial owner (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of fifty percent (50%) or more of either the then outstanding shares of Class A Common Stock of Remedy (the "COMMON STOCK") or the combined voting power of Remedy's then outstanding securities entitled to vote generally in the election of directors. (b) No Other Benefits. Except as set forth in Section 2, or as may be required by applicable law or separate written agreement between Remedy and Employee, Remedy shall have no obligations to pay any salary, bonus, accrued vacation or other amounts in connection with any termination of Employee's employment or attributable to the period after termination of Employee's employment. (c) In consideration for the agreements set forth herein and the Severance Payment, Employee shall, upon receiving the Severance Payment (if such event shall occur), execute a release of Remedy, its Board of Directors, and all officers, employees and agents of Remedy from any and all claims, liabilities, actions, causes of action, obligations, costs, damages, losses and demands of every kind and nature whatsoever known or unknown, which arise out of, relate to or are in any manner whatsoever connected with any action, transaction, occurrence or event which has occurred prior to the date of the release and those which may arise out of or are in any manner whatsoever connected with or related to the termination of Employee's employment with Remedy. Such release shall include a waiver of all rights granted under Section 1542 of the California Civil Code which reads as follows: A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which, if known by him must have materially affected his settlement with the debtor. Cal. Civ. Code Section 1542. 3. MISCELLANEOUS. (a) Governing Law. This Agreement shall be interpreted under and governed by the laws of the State of California, excluding its rules on conflicts of law. (b) Arbitration. Any dispute regarding the application, interpretation or breach of this Agreement shall be resolved by final and binding arbitration before the American Arbitration Association ("AAA") in accordance with AAA's National Rules for the Resolution of Employment Disputes. Attorney's fees, costs and damages (where appropriate) shall be awarded to the prevailing party in any dispute, and any resolution, opinion or order of AAA may be entered as a judgment in a court of competent jurisdiction. (c) Modification and Waiver. No waiver or modification of this Agreement or any term hereof shall be binding unless it is in writing signed by the parties hereto. No failure to insist upon compliance with any term, provision or condition to this Agreement, whether by conduct or otherwise, in any one or more instances, shall be deemed to be or construed as a waiver of any such term, provision or condition or as a waiver of any other term, provision or condition of this Agreement. 2 3 (d) Entire Agreement. This Agreement constitute the entire agreement between the parties with respect to the subject matter hereof and supersede and replace all prior severance and/or employment agreements, if any, between the parties. No oral statements or prior written agreements with respect to the subject matter hereof which are not specifically incorporated herein shall be of any force or effect. (e) Severability. If any provisions hereof shall be held or construed to be illegal or invalid for any reason, such illegality or invalidity shall not affect the remaining provisions of this Agreement, but the same shall be construed and enforced just as though the illegal or invalid provisions had not been included herein. (f) Notices. Any notice, demand or other communication required, permitted or desired to be given hereunder shall be in writing and shall be deemed effectively given upon personal delivery, facsimile transmission (with confirmation of receipt), delivery by reputable overnight delivery service or five (5) days following deposit in the United States mail (if sent by certified or registered mail, postage prepaid, return receipt requested), in each case duly addressed to Remedy at its headquarters or to Employee at his or her address of record listed with Remedy. (g) Assignment. Employee's rights, duties and obligations under this Agreement may not be assigned by Employee. Remedy may assign its rights, duties and obligations under this Agreement to any affiliate of Remedy. (h) Headings. The section headings herein are intended for reference and shall not affect in any way the construction or interpretation of this Agreement. (i) Counterparts. This Agreement may be executed in counterparts, each of which shall be an original but all of which shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the date set forth above. "EMPLOYEE" Signature: ____________________________________________ Alan M. Purdy "REMEDY" RemedyTemp, Inc. By: _________________________________ Name: _______________________________ Title: ________________________________ 3 4 SCHEDULE 1 TO SEVERANCE AGREEMENT For purposes of this Agreement, termination for Cause shall mean termination for one of the following reasons: willful misconduct that the Board of Directors of Remedy (the "Board") determines has a material adverse effect on Remedy; breach of fiduciary duty involving self-dealing or personal profit; intentional material failure to perform duties or abide by Remedy policies, in each case to the extent such duties or policies have been communicated to Employee in writing or their existence is otherwise known to Employee and Employee has not cured such failure within a reasonable time after written notice of such failure is given; conviction, entry of a plea of guilty or nolo contendere in connection with any alleged violation, or any actual violation, of any law, rule, regulation (other than traffic violations or similar offenses) or any cease-and-desist or other court order that the Board determines has a material adverse effect on Remedy; involvement in any legal proceeding which, in the opinion of legal counsel to Remedy, would be required to be disclosed pursuant to rules and regulations of the Securities and Exchange Commission, other than proceedings under federal bankruptcy laws or state insolvency laws involving entities in which you have less than a fifty percent (50%) interest; non-prescription use of any controlled substance or the use of alcohol or any other non-controlled substance which Remedy's Board reasonably determines renders Employee unfit to serve in Employee's capacity as an officer of Remedy; or any intentional act or omission which the Board reasonably determines has a material adverse effect on the public image, reputation or integrity of Remedy. Termination for cause shall not include termination on account of job performance failing to meet criteria or expectations of the Board. EX-27.1 4 FINANCIAL DATA SCHEDULE
5 3-MOS OCT-03-1999 MAR-29-1999 JUN-27-1999 2,628 0 69,256 0 0 86,059 17,828 0 108,580 37,989 0 0 0 88 70,503 108,580 0 128,815 0 98,786 23,619 0 182 6,434 2,477 3,957 0 0 0 3,957 0.45 0.45
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