SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended October 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from ........... to ...........
Commission file number 1-10245
RCM TECHNOLOGIES, INC.
Exact name of registrant as specified in its charter
Nevada 95-1480559
State of incorporation IRS Employer Identification No.
2500 McClellan Avenue, Suite 350, Pennsauken, New Jersey 08109-4613
address of principal executive offices
Registrant's telephone number, including area code: (609) 486-1777
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.05
Class C Warrants
(Title of Class)
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 the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of Common Stock held by non-affiliates of
the Registrant on January 7, 1997 was approximately $25,616,637 based upon the
closing price of the Common Stock on such date on the NASDAQ SmallCap Market of
$9.00. The information provided shall in no way be construed as an admission
that any person whose holdings are excluded from the figure is an affiliate or
that any person whose holdings are included is not an affiliate and any such
admission is hereby disclaimed. The information provided is included solely for
record keeping purposes of the Securities and Exchange Commission.
The number of shares of Registrant's Common Stock (par value five cents
per share) outstanding as of January 7, 1997: 4,815,676.
Documents Incorporated by Reference
Portions of the Registrant's Annual Report to Stockholders for the
fiscal year ended October 31, 1996, filed as Exhibit 13 hereto ("1996 Annual
Report"), are incorporated by reference herein into Items 5,6,7 and 8 in Part
II.
Portions of the Proxy Statement for the Registrant's 1997 Annual
Meeting of Stockholders ("1997 Proxy Statement") are incorporated by reference
into Items 10,11,12 and 13 in Part III. If the 1997 Proxy Statement is not filed
by February 28, 1997, an amendment to this 1996 Annual Report setting forth this
information will be duly filed with the Securities and Exchange Commission.
1
<PAGE>
PART I
Cautionary Statement for Purposes of the "Safe Harbor" of the Private Securities
Litigation Reform Act of 1995
When used in this Annual Report on Form 10-K and in other public statements
by the Company and Company officers, the words "may," "will," "expect,"
"anticipate," "continue," "estimate," "project," "intend," and similar
expressions are intended to identify forward-looking statements regarding
events and financial trends which may affect the Company's future operating
results and financial position. Such statements are subject to risks and
uncertainties that could cause the Company's actual results and financial
position to differ materially. Such factors include, among others: (i) the
sensitivity of the Company's business to unemployment and general economic
conditions associated with the placement of temporary staffing; (ii) the
Company's ability to continue to attract, train and retain personnel who
possess skills in the areas necessary to meet the staffing requirements of
its clients; (iii) the Company's ability to identify appropriate
acquisition candidates, complete acquisitions on satisfactory terms, or
successfully integrate acquired businesses, which acquisitions may involve
special risks, including risks associated with unanticipated problems,
liabilities and contingencies, diversion of management attention and
possible adverse effects on earnings resulting from increased goodwill
amortization, increased interests costs and the issuance of additional
securities; (iv) the potential adverse effect a decrease in the trading
price of the Company's Common Stock would have upon the Company's ability
to continue acquisitions of businesses through the issuance of its
securities and the dilutive effect of such issuances on the Company, and
upon the likelihood of conversion of outstanding options, warrants and
other convertible securities; (v) the Company's ability to obtain financing
on satisfactory terms and the degree to which the company is leveraged,
including the extent to which currently outstanding options, warrants and
other convertible securities are exercised; (vi) the reliance of the
Company upon the continued service of its executive officers; (vii) the
Company's ability to remain competitive in national, regional and local
markets in an industry which is highly competitive with limited barriers to
entry, including remaining competitive in light of pricing issues which
could adversely affect earnings and the operations of the Company; (viii)
the Company's ability to retain several of its key clients which account
for a significant portion of the Company's revenue, which a loss or a
material reduction in the revenue generated from such clients could have a
material adverse effect on the Company's business; (ix) the Company's
ability to maintain at a minimum its unemployment insurance premiums and
workers compensation which it provides for its temporary employees; (x) the
risk of claims associated providing temporary staffing services, including
discrimination and harassment, violation of wage and hourly requirements,
misuse of client proprietary information, misappropriation of funds, other
criminal activity or tort and other similar claims; (xi) the Company's
ability to store, retrieve, process and manage significant amounts of
information, and periodically expand and upgrade its information processing
capabilities; (xii) the Company's ability to remain in compliance with
numerous federal and state wage and hour laws and regulations; and (xiii)
other economic, competitive and governmental factors affecting the
Company's operations, market, products and services. Additional factors are
described in the Company's other public reports and registration statements
filed with the Securities and Exchange Commission. Readers are cautioned
not to place undue reliance on these forward-looking statements, which
speak only as of the date made. The Company undertakes no obligation to
publicly release the results of any revision of these forward-looking
statements to reflect these ends or circumstances after the date they are
made or to reflect the occurrence of unanticipated events.
Item 1. Business
General
The Company, through its wholly-owned operating subsidiaries, is a
nationwide provider of temporary and contract personnel to businesses,
professional and service organizations, manufacturers and public utilities.
Through its four primary operating groups, the Company principally focuses
its staffing services in the following sectors: Professional Engineering
and Technical, Information Technology, Specialty Health Care and General
Staff Support Sectors. The Company provides its services to national,
regional and local clients through 29 branch offices in 11 states (as of
October 31, 1996).
2
<PAGE>
Item 1. Business - (Continued)
To respond to fragmentation of the industry and in order to better serve
the needs of larger national and regional accounts, since 1994 one of the
Company's principal business strategies was to achieve growth through
expansion and acquisition. Towards that end, since 1994 the Company has
successfully completed the acquisition of five (5) companies (3 of which
were acquired during 1996) in the staffing services industry, each with
long standing operating histories and well established management
infrastructures. In addition, the Company continues to identify and engage
in discussions with possible acquisition candidates.
The acquisitions which occurred in 1996, which are described below (See
"Business Strategy"), have been accounted for as purchases and,
accordingly, the results of operations of the acquired companies have been
included in the consolidated results of operations of the Company from the
date of acquisition.
Business Strategy
The Company's business strategy relies upon implementation of the following
four guidelines:
o Growth Through Expansion and Acquisition
The Company believes that the temporary staffing industry is highly
fragmented and experiencing a trend towards consolidation primarily due to
the increasing demand by large companies for centralized staffing services.
To respond to these developments, the Company has adopted a long-term
business strategy to increase its profitability through expansion of its
existing operations and acquisitions of businesses that are strategically
located or positioned to diversify the Company's customer base and
geographical accessibility. The Company continues to carefully identify
acquisition candidates that meet specified criteria that management
believes will meet certain financial performance goals when integrated into
the Company's proven operating model. The Company has recently completed
the following acquisitions:
On March 11, 1996, the Company acquired all of the outstanding shares of
The Consortium, a specialty provider of information technology and health
care personnel servicing private sector and government clients in the
greater metropolitan New York region. During its last fiscal year prior to
the acquisition, The Consortium generated revenues of $26 million. The
consideration paid to the former shareholders of The Consortium consisted
of 1.3 million restricted shares of its common stock, valued at $5,000,000,
(based upon the average closing price of the Company's common stock for the
20 trading days immediately preceding the closing date) in exchange for all
of the outstanding capital stock of The Consortium. The cost in excess of
net assets acquired of $4,940,700 is included in the Company's Consolidated
Balance Sheet as "Intangible Assets" and is being amortized over a 40 year
period. The Company has agreed to file a shelf registration statement with
the Securities and Exchange Commission by February 15, 1997, permitting the
sale of $600,000 in value of securities during the period April 1997
through March 1998. Thereafter, the remainder of these shares are subject
to significant restrictions on resale through March 11, 1999.
On May 1, 1996, the Company acquired The Consortium of Maryland, Inc.
("Consort MD"), a specialty provider of information technology personnel
services to major U.S. Corporations in the greater metropolitan Washington,
D.C. region. Consort MD was not related or affiliated with The Consortium.
During its last fiscal year, Consort MD generated revenues of approximately
$6 million. The acquisition was completed through a merger transaction (the
"Merger") pursuant to which Consort MD was merged with and into a newly
created subsidiary of the Company, which then concurrently changed its name
to "The Consortium of Maryland, Inc." The Merger consideration paid to the
former shareholder of Consort MD at the closing consisted of $621,500 cash
and 34,327 restricted shares of the Company's common stock valued at
$377,597 (based upon the average closing bid price of the Company's common
stock for the 20 trading days immediately preceding the closing date).
Additional merger consideration will be paid to the former shareholder of
Consort MD consisting of additional shares of stock having a value equal to
the tangible net worth of Consort MD as of the Merger date, which
approximates $250,000. The Company has agreed to file a registration
statement with the Securities and Exchange Commission by May 1, 1998
permitting these sale of the restricted shares.
3
<PAGE>
Item 1. Business - (Continued)
On September 13, 1996, the Company acquired all the assets and assumed the
liabilities of Performance Staffing, Inc. ("PSI"). PSI is a specialty
provider of general support staffing services. The consideration paid to
the former shareholders of PSI consisted of 2,500 shares of restricted
shares of the Company's common stock valued at $21,000. There is contingent
consideration of $10,000 which is payable upon the collection of not less
than 93% of all of the outstanding accounts receivables billed by PSI prior
to acquisition by the Company. During its last fiscal year prior to the
acquisition, PSI generated revenues of $2.5 million.
On January 7, 1997, the Company purchased Programming Alternatives of
Minnesota, Inc. ("PAMI"), a privately-held, specialty provider of
information technology consultants, particularly those with high demand
client-server skills. The purchase price was $4,500,000 plus $1,625,000 of
contingent consideration in the form of a three year promissory note
payable upon the attainment of certain earnings targets at the end of each
twelve month period following the closing, for a period of three years. Any
additional consideration paid will be recorded as additional purchase
price. Based upon current monthly revenue figures provided by management of
PAMI, the revenues for the year ended December 31, 1996 are estimated to be
approximately $10 million.
o Concentration on Sectors Producing Higher Margins
The Company's strategy is to focus on the development of higher margin
sectors of the business, a departure from the historic origins of the
staffing industry in low margin clerical personnel. The Company intends to
implement this strategy in several ways. First, the Company has expanded
its range of services, in part through acquisitions, to include higher
margin specialty services such as information technology, health care
services and professional engineering services. The Company intends to
continue to develop its capability to provide qualified employees to the
information technology sector, one of the fastest growing segments of the
temporary staffing industry. Second, the Company has continued its efforts
to market temporary staffing services to higher margin accounts. The
Company had de-emphasized marketing to accounts where competitive pricing
makes margins unacceptable or to accounts where workers' compensation costs
adversely affect profitability.
o Emphasis upon Service and Value
The Company focuses on providing service and value to its customers. The
Company's staff employees seek to establish and maintain long-term
relationships with customers by developing knowledge of customers'
businesses, responding promptly to customer orders and monitoring job
performance and customer satisfaction. The Company has implemented this
strategy by targeting customer accounts where service and quality are
perceived to be as important as pricing of services, which allows the
Company to be more selective and to provide higher quality staffing while
maintaining desired profit margins.
o Provide Entrepreneurial Offices with Strong Central Support
The Company's offices are supported by strong central functions at
corporate headquarters that include marketing, recruiting and retention
programs, workers' compensation and other insurance services, training,
accounts payable, purchasing, credit, collection, system and its software
that provides information on customer requirements, available applicants,
temporary staffing employees on assignment and other information which
facilitates efficient response to customer job orders.
The Company has established budgets and quality performance standards which
are utilized at all offices. A substantial portion of region, area,
district and office manager compensation is incentive-based and focused on
meeting budgets and quality standards. Managers are also given considerable
discretion to respond to specific customer requirements.
4
<PAGE>
Item 1. Business - (Continued)
Operation-Service Groupings
The Company's business is generally conducted through four operating
groups. The Professional Engineering & Technical Group provides personnel
to perform engineering, design, drafting or other functions either at the
site of the client or, less frequently, at its own facilities. This group
generated approximately 46%, 55% and 49% of the revenues for the fiscal
years ended October 31, 1996, 1995 and 1994, respectively.
The Information Technology Group ("IT") is a provider of computer related,
information technology consulting services. The IT Group generated
approximately 19% of the Company's revenues for the fiscal year ended
October 31, 1996. On an annualized basis the IT Group would have
contributed approximately 30% of revenues for the fiscal year ended October
31, 1996.
The General Staff Support Group, which provides office, clerical and light
industrial personnel, provided 29%, 45% and 51% of the revenues for the
Company's fiscal years ended October 31, 1996, 1995, and 1994,
respectively.
The Specialty Health Group, which is a full service provider of skilled
health care professionals, provided 6% of the revenues for the fiscal year
ended October 31, 1996. Prior to 1996, this was not a material segment of
the Company's business.
The Company's revenues, exclusive of fees earned from the permanent
placement of personnel, are based upon the number of hours worked by
personnel assigned to a client for either a designated or an indefinite
term of engagement. The rates per hour differ among the categories of
personnel and are affected by the prevailing direct labor rates in the area
of assignment. Billings by the Company are usually on a weekly basis, with
invoices payable within thirty days of the date of the invoice.
Engagements of personnel vary in duration. The average length of engagement
for a project is nine months, and assignments of individuals have ranged
from four months to more than three years. Clients typically invite several
companies to bid on requests for proposals and sometimes grant contracts to
more than one company to provide personnel for the same project. Contracts
with certain clients prohibit the Company and the client from hiring the
employees of the other during the contract period and for a specified time
thereafter.
Management believes that there are a sufficient number of engineering,
technical, professional and other personnel available to the Company to
satisfy the requirements of its principal clients. The number and type of
personnel available to the Company are affected by many factors including,
general economic conditions, and have fluctuated widely from time to time.
Overview-The Temporary Staffing Industry
The temporary staffing industry has grown rapidly in recent years as
companies have utilized temporary employees to control personnel costs and
to meet specialized or fluctuating personnel needs. Historically, the
demand for temporary staffing services has been driven primarily by a need
to temporarily replace full-time employees due to illness, vacation or
termination. More recently, competitive pressures have forced businesses to
focus on reducing costs, including converting fixed, permanent labor costs
to variable or flexible costs.
The effective use of temporary staffing employees enables businesses to
staff their organizations with a core level of regular employees and
augment their work force as needed. By utilizing temporary staffing
employees, businesses avoid the management and administrative costs
incurred in hiring, training and terminating regular employees. A business
pays only for the actual hours worked by temporary staffing employees and
may terminate their services upon completion of the assignment without the
adverse effects of layoffs. An ancillary benefit, particularly for smaller
businesses, is that the usage of temporary staffing employees shifts
employment costs and risks (e.g., workers' compensation and unemployment
insurance) to the temporary staffing company, which can spread the costs
and risks over a larger pool of employees.
5
<PAGE>
Item 1. Business - (Continued)
The range of temporary staffing services has expanded substantially since
the early days of the industry. Technological advances, as well as changing
attitudes towards workforce management, have resulted in a proliferation of
new temporary staffing positions in such challenging areas as engineering,
health care, information technology and other specialized industry
segments. Furthermore, businesses have begun using temporary staffing
employees to reduce administrative overhead by outsourcing operations that
were formerly core business functions. In particular, information
technology staffing services, one of the Company's primary operating
groups, has become one of the fastest growing sectors of the temporary
staffing industry. Over the last decade, the increased use of technology
has led to dramatic rise in demand for technical project support, software
development, and other computer-related services.
The Company believes that the temporary staffing industry is highly
fragmented and is currently experiencing a trend toward consolidation
primarily due to the increasing demand by large companies for centralized
staffing services and the difficulties faced by many smaller staffing
companies in today's staffing market. The growth of national and regional
accounts resulting from the centralization of staffing decisions by
national and larger regional companies has increased the importance of
staffing companies being able to offer a wide range of services over a
broad geographic area. In addition, many smaller staffing companies are
experiencing increased difficulties due to factors such as significant
working capital requirements, limited management resources, and an
increasingly competitive environment.
Customers and Marketing
The Company derives its revenues from a well diversified customer base,
including a number of Fortune 500 companies, as well as small to medium
sized retail, manufacturing and service businesses and governmental units.
During fiscal 1996, the Company had one major customer that accounted for
approximately 12.7% of revenues.
This is comparable to fiscal 1995, when the Company had one customer that
accounted for approximately 12.3% of revenues. During fiscal 1996 and 1995,
no other customers accounted for over 10% of the Company's revenues.
The Company has developed a sales and marketing strategy which focuses on
both national and local accounts and is implemented through its branch
locations. Local accounts are targeted by account managers at the branch
offices permitting the Company to capitalize on the local expertise and
established relationships of its branch office employees. Such accounts are
solicited through personal sales presentations, telephone marketing, direct
mail solicitation, referrals from clients, and advertising in a variety of
local and national media. These advertisements appear in the Yellow Pages,
newspapers, and trade publications. Local employees are encouraged to be
active in civic organizations and industry trade groups to facilitate the
development of new customer relationships. The Company's national sales and
marketing effort is coordinated by management at the corporate level. This
enables the Company to develop a consistent, focused strategy to pursue
national account opportunities. This strategy allows the Company to
capitalize on the desire of national clients to work with a limited number
of preferred vendors for their staffing requirements.
Reliance on Key Personnel
The Company is highly dependent on its senior management. The Company
believes that its continued success will depend to a significant extent upon the
efforts and abilities of its President and Chief Executive Officer, Leon Kopyt,
and certain other executives, including executives of its acquired subsidiaries.
Mr. Kopyt and certain of these officers have entered into employment agreements
with the Company. See "Item 11. Executive Compensation - Executive Employment
Agreements."
Competition
The temporary services industry is fragmented and highly competitive, with
limited barriers to entry. Within local markets, smaller firms actively
compete with the Company for business, and in most of these markets, no
single company has a dominant share of the market. The Company also
competes with larger full-service and specialized competitors in national,
regional and local markets, which have significantly greater marketing,
financial and other resources than the Company. The Company believes that
the primary competitive factors in obtaining and retaining
6
<PAGE>
Item 1. Business - (Continued)
clients are the ability to provide a wide range of staffing services, to
service an expansive geographic area, an understanding of clients' specific
job requirements, the ability to provide personnel with the appropriate
skills in a timely manner, the monitoring of quality of job performance,
and the pricing of services. The Company believes its strong emphasis on
providing responsive and advanced quality service and improved value to its
customers and it's staffing employees are important competitive advantages.
Employees
As of October 31, 1996, the Company employed on its permanent staff 165
persons, including licensed professional engineers who, from time to time,
participate in engineering and design projects undertaken by the Company.
During the twelve months ended October 31, 1996, approximately 550
engineering and technical personnel and 450 Information Technology
personnel were employed by the Company to work on client projects for
various periods. The Company has also employed approximately 7,000
temporary personnel during the year. None of the Company's employees,
including its temporary employees, are represented by a collective
bargaining agreement. The Company considers its relationship with its
employees to be good.
Item 2. Properties
The Company presently operates 29 offices in 11 states including 6 in
California, 3 in Michigan, 4 in Connecticut, 2 in New York, 3 in
Pennsylvania, 1 in South Carolina, 4 in New Jersey, 3 in Kentucky, 1 in
Indiana, 1 in Maryland and 1 in Georgia. Each of the offices operates as an
independent profit center with each manager having overall responsibility
for sales and marketing, recruiting and retention of temporary staffing
employees and customer relations. A branch office staff typically consists
of the manager and up to four regular staff personnel who market to the
Company's customers, process applicants, match customer needs with
available temporary staffing employees and monitor staffing employee
performance. Where possible, the offices are grouped around a hub office in
a key metropolitan center supervised by an area or district manager
The Company maintains its principal executive offices in Pennsauken, New
Jersey. The Company anticipates that it will not experience difficulties in
renewing any of its current leases upon their expiration or obtaining
different space on comparable terms if such leases cannot be renewed.
Item 3. Legal Proceedings
From time to time, disagreements with individual employees and
disagreements as to the interpretation, effect or nature of individual
agreements arise in the ordinary course of business and may result in legal
proceedings being commenced against the Company. The Company is not
currently involved in any litigation or proceedings which are material,
either individually or in the aggregate, and, to the Company's knowledge,
no other legal proceedings of a material nature involving the Company are
currently contemplated by any individuals, entities or governmental
authorities.
The principal risks that the Company insures against are workers'
compensation, personal injury, property damage, professional malpractice,
errors and omissions, and fidelity losses. The Company maintains insurance
in such amounts and with such coverages and deductibles as management
believes are reasonable and prudent.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to the vote of security holders during the
fourth quarter ended October 31, 1996.
7
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Information concerning the market and price history of the Company's Common
Stock is incorporated herein by reference to the 1996 Annual Report or in
an Amendment to this Report to be filed with the Securities and Exchange
Commission.
Item 6. Selected Financial Data
Selected financial data for the Company is incorporated herein by
reference to the 1996 Annual Report or in an Amendment to this
Report to be filed with the Securities and Exchange Commission.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
A discussion of the Company's financial condition and results of operations
is incorporated herein by reference to the Company's 1996 Annual Report or
in an Amendment to this Report to be filed with the Securities and Exchange
Commission.
Item 8. Financial Statements and Supplemental Data
Financial Statements of the Company for the fiscal year ended October 31,
1996, and specific supplementary financial information are incorporated
herein by reference to the 1996 Annual Report or in an Amendment to this
Report to be filed with the Securities and Exchange Commission.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
8
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
Information with regard to this item is incorporated by reference to the
definitive 1997 Proxy Statement under the caption "ELECTION OF DIRECTORS"
and "OTHER INFORMATION - Executive Officers of the Registrant," or in an
Amendment to this Report to be filed with the Securities and Exchange
Commission.
Item 11. Executive Compensation
Information with regard to this item is incorporated herein by reference to
the definitive 1997 Proxy Statement under the caption "ADDITIONAL
INFORMATION - Management Compensation," or in an Amendment to this Report
to be filed with the Securities and Exchange Commission.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information with regard to this item is incorporated herein by reference to
the definitive 1997 Proxy Statement under the caption "PRINCIPAL
STOCKHOLDERS," or in an Amendment to this Report to be filed with the
Securities and Exchange Commission.
Item 13. Certain Relationships and Related Transactions
Informaiton with regard to this item is incorporated herein by reference to the
definitive 1997 Proxy Statement under the caption "ADDITIONAL INFORMATION
Certain Transactions," or in an Amendment to this Report to be filed with the
Securities and Exchange Commission.
9
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. and 2. Financial Statement Schedules -- included in the 1997 Annual
Report filed as exhibit 13 hereto and incorporated herein by reference in Item
8.
(b) Reports on Form 8-K
None
(c) Exhibits
(3)(a) Articles of Incorporation, as amended, incorporated by reference
to Exhibit 3(a) of the Registrant's Form 10-K dated October 31,
1994, filed with the Commission on January 4, 1995 (Commission
File No. 1- 10245).
(3)(b) Bylaws, as amended on February 22, 1996.
(4)(a) Warrant Agreement dated September 1, 1989, with respect to Class C
Warrants between the Registrant and American Stock Transfer and
Trust Company; incorporated by reference to Exhibit 4 (b) of the
Registrant's Form S-1 Registration Statement dated July 25, 1989,
as amended August 16, 1989 and May 14, 1990 (Commission File No.
33-30109).
(4)(b) Rights Agreement dated as of March 14, 1996, between RCM
Technologies, Inc. and American Stock Transfer & Trust Company, as
Rights Agent; incorporated by reference to Exhibit 4 of the
Registrant's Current Report on Form 8-K dated March 19, 1996.
10
<PAGE>
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K -
(Continued)
* (10)(a) Amended and Restated Loan and Security Agreement dated
August 30, 1995 as amended on December 19, 1996 between, the
Registrant, Intertec Design, Inc., Cataract, Inc., The Consortium
and The Consortium of Maryland, Inc. and Mellon Bank, N.A.
(10)(c) RCM Technologies, Inc. 1986 Incentive Stock Option Plan;
incorporated by reference to Exhibit 10(d) of the Registrant's
Annual Report on Form 10-K dated October 31, 1986, filed with the
Commission on February 13, 1987 (Commission File No. 1-10245).
(10)(d) RCM Technologies, Inc. 1992 Incentive Stock Option Plan;
incorporated by reference to Exhibit A of the Registrant's Proxy
Statement dated April 23, 1992, filed with the Commission on March
9, 1992 (Commission File No. 1-10245).
(10)(e) RCM Technologies, Inc. 1994 Nonemployee Director Stock Option
Plan; incorporated by reference to Exhibit A of the Registrant's
Proxy Statement dated May 19, 1994, filed with the Commission on
June 22, 1994 (Commission File No. 33-80590).
* (10)(f) Amended and restated Termination Benefits Agreement dated
November 30, 1996 between the Registrant and Leon Kopyt.
* (10)(g) Amended and restated Employment Agreement dated November 30, 1996
between the Registrant, Intertec Design, Inc. and Leon Kopyt.
* (10)(l) RCM Technologies, Inc. 1996 Executive Stock Option Plan dated
August 15, 1996.
* (10)(m) Stock Option Agreement dated November 30, 1996 between the
Registrant and Leon Kopyt.
(10)(n) Merger Agreement among RCM Technologies, Inc., CI Acquisition
Corp. and Cataract, Inc. dated July 31, 1995; incorporated
by reference to Exhibit(c)(1) of the Registrant's Current
Report on Form 8-K dated August 30, 1995 ("Cataract 8-K").
(10)(o) Registration Rights Agreement dated August 30, 1995; incorporated
by reference to Exhibit (c)(2) of the Cataract 8-K.
(10)(p) Voting Trust Agreement dated August 30, 1995; incorporated by
reference to Exhibit (c)(3) of the Cataract 8-K.
(10)(q) Stock Pledge Agreement dated August 30, 1995; incorporated by
reference to Exhibit (c)(5) of the Cataract 8-K.
(10)(r) Stock Purchase Agreement among RCM Technologies, Inc., The
Consortium and The Shareholders of The Consortium dated as of
March 1, 1996; incorporated by reference to Exhibit (c)(1) of the
Registrant's Current Report on Form 8-K dated March 19, 1996
("Consortium 8-K").
(10)(s) Registration Rights Agreement dated March 11, 1996; incorporated
by reference to Exhibit (c)(2) of the Consortium 8-K.
(10)(t) Escrow Agreement dated March 11, 1996;incorporated by reference to
Exhibit (c)(3) of the Consortium 8-K.
(10)(u) Standstill and Shareholders Agreement dated March 11, 1996;
incorporated by reference to Exhibit (c)(5) of the Consortium 8-K.
(10)(v) Blaire Employment Agreement dated March 11, 1996; incorporated by
reference to Exhibit (c)(6) of the Consortium 8-K.
(10)(w) Meyers Employment Agreement dated March 11, 1996; incorporated by
reference to Exhibit (c)(7) of the Consortium 8-K.
(10)(x) Subscription Agreement dated January 12, 1996; incorporated by
reference to Exhibit (a)(10) of the Registrant's Quarterly Report
on form 10-Q for the quarterly period ended January 31, 1996
("January 10-Q")
(10)(y) Registration Rights Agreement dated February 5, 1996; incorporated
by reference to Exhibit (a)(10.1) of the January 10-Q.
(10)(z) Merger Agreement among RCM Technologies, Inc., sort Acquisition
Corp., the Consortium of Maryland, Inc. and Peter Kaminsky dated
April 23, 1996; incorporated by reference to Exhibit (2) of the
Registrant's Quarterly Report on Form 10-Q for the quarterly
period ended April 30, 1996 ("April 10-Q")
(10)(aa) Registration Rights Agreement dated May 2, 1996; incorporated by
reference to Exhibit (10.1) of the April 10-Q.
(10)(ab) Escrow Agreement dated May 2, 1996; incorporated by reference to
Exhibit (10.2) of the April 10-Q.
(10)(ac) Standstill and Shareholders Agreement dated May 2, 1996;
incorporated by reference to Exhibit (10.3) of the April 10-Q.
(10)(ad) Kaminsky Employment Agreement dated May 2, 1996; incorporated by
reference to Exhibit (10.4) of the April 10-Q.
11
<PAGE>
(11)Computation of Earnings Per Share.
(13)Annual Report to Stockholders for the fiscal year ended October 31, 1996.
(21)Subsidiaries of the Registrant.
(23a) Consent of Independent Certified Public Accountants
(27)Financial Data Schedule.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
RCM Technologies, Inc.
(Registrant)
Date: January 14, 1997 By:/s/ Leon Kopyt
Leon Kopyt
Chairman, President, Chief Executive Officer
and Director
Date: January 14, 1997 By:/s/ Stanton Remer
Stanton Remer
Chief Financial Officer, Treasurer,
Secretary and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Date: January 14, 1997 By: /s/ Leon Kopyt
Leon Kopyt
Chairman, President, Chief Executive Officer
and Director
Date: January 14, 1997 By: /s/ Barry S. Meyers
Barry S. Meyers
Executive Vice President, Chief Operating
Officer and Director
Date: January 14, 1997 By: /s/ Martin Blaire
Martin Blaire
Executive Vice President and Director
Date: January 14, 1997 By:/s/ Stanton Remer
Stanton Remer
Chief Financial Officer, Treasurer,
Secretary and Director
Date: January 14, 1997 By: /s/ Norman S. Berson
Norman S. Berson Director
Date: January 14, 1997 By: /s/ Robert B. Kerr
Robert B. Kerr
Director
Date: January 14, 1997 By: /s/ Woodrow B. Moats, Jr.
Woodrow B. Moats, Jr.
Director
13
<PAGE>
EXHIBIT INDEX
(10)(a) Amended and Restated Loan and Security Agreement dated August 30,
1995 as amended on December 19, 1996 between, the Registrant,
Intertec Design, Inc., Cataract, Inc., The Consortium and The
Consortium of Maryland, Inc. and Mellon Bank, N.A.
(10)(f) Amended and restated Termination Benefits Agreement dated November
30, 1996 between the Registrant and Leon Kopyt.
(10)(g) Amended and restated Employment Agreement dated November 30, 1996
between the Registrant, Intertec Design, Inc. and Leon Kopyt.
(10)(l) RCM Technologies, Inc. 1996 Executive Stock Option Plan dated
August 15, 1996.
(10)(m) Stock Option Agreement dated November 30, 1996 between the
Registrant and Leon Kopyt.
(11) Computation of Earnings Per Share.
(13)
Annual Report to Stockholders for the fiscal year ended October 31,
1996.
(21) Subsidiaries
(23)(a) Consent of Independent Certified Public Accountants.
(27) Financial Data Schedule
<PAGE>
FOURTH AMENDMENT AND MODIFICATION TO AMENDED AND
RESTATED LOAN AGREEMENT
THIS FOURTH AMENDMENT AND MODIFICATION TO AMENDED AND RESTATED LOAN
AGREEMENT ("Amendment") is made effective as the 19th day of December, 1996, by
and among INTERTEC DESIGN, INC. ("Intertec"), CATARACT, INC., formerly known as
CI Acquisition Corp. ("CI"), THE CONSORTIUM ("Consortium"), THE CONSORTIUM OF
MARYLAND, INC., a Pennsylvania corporation, formerly known as Sort Acquisition
Corp. ("Consortium-MD") and MELLON BANK, N.A. ("Bank"). Intertec, CI, Consortium
and Consortium-MD are sometimes hereinafter collectively or individually
referred to as "Borrowers" or "Borrower", respectively.
BACKGROUND
A. Intertec, CI, Consortium, Consortium-MD and Bank have previously entered into
a certain Amended and Restated Loan and Security Agreement dated August 31,
1995, as amended by amendments dated March 13, 1996 and May 29,1996 (the "Loan
Agreement") pursuant to which Bank agreed, subject to the terms and conditions
stated therein, to extend to Intertec, CI, Consortium and Consortium-MD a line
of credit up to the maximum principal amount of Ten Million Dollars
($10,000,000.00).
B. Intertec, CI, Consortium and Consortium-MD have requested that Bank further
amend the Loan Agreement, which Bank is willing to do on the terms set forth in
this Amendment.
NOW, THEREFORE, intending to be legally bound hereby, the parties hereto agree
as follows:
1. LINE OF CREDIT. Section 1.1 of the Loan Agreement is amended to read, in
its entirety, as follows:
"1.1 Line of Credit. (a) Bank will establish for Borrowers for and during the
period from the date hereof and until June 30, 1999 (the "Contract Period"),
subject to the terms and conditions hereof, a revolving demand line of credit
(the "Line") pursuant to which Bank will from time to time make loans or other
extensions of credit to Borrowers in an aggregate amount not exceeding at any
time the lesser of: (i) an amount up to eighty- five percent (85%) of the amount
of Borrowers' Eligible Receivables, or (ii) Twenty Million Dollars
($20,000,000.00). Bank, at its sole discretion, may require that certain
reserves be established against certain Eligible Receivables from time to time.
-1-
<PAGE>
Within the limitations set forth above, Borrowers may borrow, repay and reborrow
under the Line. The Line shall be subject to all terms and conditions set forth
in all of the Loan Documents (as hereafter defined) which terms and conditions
are incorporated herein. Borrowers' obligation to repay the loans and extensions
of credit under the Line shall be evidenced by Borrowers' amended and restated
promissory note (the "Note") in the face amount of Twenty Million Dollars
($20,000,000.00), which shall be in the form attached hereto as Exhibit "A",
with the blanks appropriately filled in. The Line shall be subject to review and
renewal, at the sole discretion of Bank.
The obligation of Borrowers to repay advances under the Prior Amended and
Restated Loan Agreement previously evidenced by a certain promissory note from
(i) Intertec payable to the order of Bank dated June 30, 1993 in the original
face amount of Two Million Five Hundred Thousand Dollars ($2,500,000.00), (ii)
Borrowers payable to the order of Bank dated August 31, 1995 in the original
face amount of Six Million Dollars ($6,000,000.00), and (iii) Borrowers payable
to the order of Bank dated May 29, 1996 in the original face amount of Ten
Million Dollars ($10,000,000.00) (collectively, the "Prior Notes") remains
outstanding as of the date hereof and such advances shall continue to be secured
by the Collateral and the Loan Documents. The Note (1) supersedes the Prior
Notes; (2) re-evidences the Indebtedness previously evidenced by the Prior
Notes; (3) is given in substitution of, and not in payment of, the Prior Notes;
and (4) is in no way intended to constitute a novation of the Prior Notes. It
will be noted on the Prior Notes that the Prior Notes have been superseded by
the Note.
(b) In addition to the sums available to Borrowers under the formula set
forth in Section 1.1(a) above and subject to the terms and conditions set forth
below, for the period through and including December 19, 1997 only, provided
that no Event of Default or event which with the giving of notice or the passage
of time or both would constitute an Event of Default shall have occurred,
Borrowers may borrow on a non-revolving basis an aggregate amount not to exceed
Four Hundred Fifty Thousand Dollars ($450,000.00) (the "Permitted Out-of-Formula
Facility"). The outstanding principal balance under the Line, including the
aggregate principal balance of all advances under the Permitted
-2-
<PAGE>
Out-of-Formula Facility, shall at no time exceed Twenty Million Dollars
($20,000,000.00).
Advances under the Permitted Out-of-Formula Facility will be made only
during the Initial Period. All advances under the Permitted Out-of-Formula
Facility shall be repaid in full in six (6) equal and consecutive monthly
installments, commencing on the first day following the expiration of the
Initial Period and continuing on the same day of each of the next five (5)
consecutive months.
As used herein, the term "Initial Period" shall mean the period commencing
on the date of the first advance under the Permitted Out-of-Formula Facility and
ending on the thirtieth (30th) day thereafter."
2. INTEREST RATE. Section 2.1 of the Loan Agreement is amended to read, in
its entirety, as follows:
"2.1 (a) Interest Rate Options on the Line. Provided that no Event of Default
shall have occurred, interest on the unpaid principal balance of the Line will
accrue from the date of advance until final payment thereof, at a rate or rates
selected by Borrowers from one of the two (2) interest rate options set forth
below, subject to the restrictions and in accordance with the procedures set
forth in this Agreement:
(i) Prime Rate (such rate to change automatically with any change in the
Prime Rate); or (ii) LIBOR Rate.
(b) Request for Prime Rate. If the Borrowers desire that the Prime Rate
shall apply to all or part of the principal balance under the Line, Borrowers
shall give Bank a Prime Rate Notification. Upon delivery by Borrowers to Bank of
a Prime Rate Notification, the principal balance under the Line identified in
such Prime Rate Notification shall accrue interest at the Prime Rate as follows:
(i) with respect to the principal amount of any new advance under the Line, from
the date of such advance until the effective date of another interest rate
chosen for such amount in accordance with the terms of this Agreement; and/or
(ii) with respect to the principal amount of any portion of the Line
-3-
<PAGE>
outstanding and accruing interest at the LIBOR Rate at the time of the
Prime Rate Notification related to such principal amount, from the expiration of
the then current Rate Period related to such principal amount until the
effective date of another interest rate option chosen for such amount in
accordance with the terms of this Agreement.
(c) Request for LIBOR Rate. If the Borrowers desire that all or part of the
principal balance under the Line accrue interest at the LIBOR Rate, Borrowers
shall give Bank a LIBOR Rate Notification. Upon delivery by Borrowers to Bank of
a LIBOR Rate Notification, that portion of the principal balance outstanding
under the Line identified in such LIBOR Rate Notification shall accrue interest
at the LIBOR Rate as follows: (i) with respect to the principal amount of any
new advance under the Line, from the date of such advance until the end of the
Rate Period specified in such LIBOR Rate Notification; and/or (ii) with respect
to the principal amount of any portion of the Line outstanding and accruing
interest at another LIBOR Rate at the time of the LIBOR Rate Notification
related to such principal amount, from the expiration of the then current Rate
Period related to such principal amount until the end of the Rate Period
specified in such LIBOR Rate Notification; and/or (iii) with respect to all or
any portion of the principal amount of the Line outstanding and earning interest
at the Prime Rate at the time of such LIBOR Rate Notification, from the date set
forth in such LIBOR Rate Notification until the end of the Rate Period specified
in such LIBOR Rate Notification.
(d) Certain Provisions Concerning Line Interest Rates. Borrowers understand
and agree that: (i) subject to the provisions of this Agreement, the interest
rates set forth in Section 2.1(a) above may apply simultaneously to different
portions of the outstanding principal of the Line, (ii) the LIBOR Rate may apply
simultaneously to various portions of the outstanding principal of the Line for
various Rate Periods, (iii) the LIBOR Rate applicable to any portion of the
outstanding principal of the Line may be different from the LIBOR Rate
applicable to any other portion of the outstanding principal of the Line, (iv)
Bank shall have the right to terminate any Rate Period and the interest rate
applicable thereto, prior to the maturity of such Rate Period, if Bank
determines in good faith (which determination shall be conclusive) that
continuance of such interest rate has been made
-4-
<PAGE>
unlawful by any law, statute, rule or regulation to which Bank may be subject,
in which event the principal amount to which such terminated Rate Period relates
shall thereafter earn interest at the Prime Rate, (v) advances under the Line
accruing interest at the LIBOR Rate must be in increments of at least One
Hundred Thousand Dollars ($100,000.00), and (vi) no more than four (4) advances
under the Line accruing interest at the LIBOR Rate may be outstanding at any one
time.
(e) Prime Rate Fall Back For the Line. After expiration of any Rate Period,
any principal portion of the Line corresponding to such Rate Period which has
not been converted or renewed in accordance with the terms of this Agreement
shall accrue interest automatically at the Prime Rate from the date of
expiration of such Rate Period until paid in full, unless and until the Borrower
requests a conversion to the LIBOR Rate in accordance with the terms of this
Agreement.
(f) Interest on Permitted Out-of-Formula Facility. Interest on the unpaid
principal balance of all advances under the Permitted Out-of-Formula Facility
will accrue from the date of advance until final payment thereof, at a per annum
rate equal to the Prime Rate of Bank in effect from time to time (such rate to
change automatically with any change in the Prime Rate)."
3. PAYMENTS AND FEES. Section 3 of the Loan Agreement is amended as
follows:
(a) By amending Sections 3.4, 3.5 and 3.6 to read as
follows: "3.4 Usage Fee. So long as the Line is outstanding and has not
been terminated, and the Bank Indebtedness has not been satisfied in full,
Borrowers shall unconditionally pay to Bank a fee equal to one quarter of one
percent (.25%) per annum of the daily unused portion of the Line (which shall be
calculated as the difference between Twenty Million Dollars ($20,000,000.00) or
such greater amount if the maximum committed amount of the Line is ever
increased), minus the outstanding principal balance of advances under the Line
at the close of business on the date such calculation is made, which fee shall
be computed on a monthly basis in arrears and shall be due and payable on the
first day of
-5-
<PAGE>
each month commencing on the first day of the first full month after the
date hereof."
"3.5 Collateral Management Fee. So long as the Line has not been terminated
pursuant to the terms hereof, and the Bank Indebtedness has not been satisfied
in full, Borrowers shall unconditionally pay to Bank a nonrefundable annual
Collateral Management Fee of Fifteen Thousand Dollars ($15,000.00). If any Bank
Indebtedness continues outstanding after the expiration of the Contract Period,
such fee shall be as Bank may require but in no event will such fee be less than
Fifteen Thousand Dollars ($15,000.00) per annum. All such fees shall be paid
annually in advance on July 1st of each year."
"3.6 Termination of Line and Termination Fee. Borrowers may terminate the
Line prior to the expiration of the Contract Period, only upon sixty (60) days
written notice to Bank. In the event that (a) the Line is terminated by
Borrowers for any reason, including, without limitation, repayment or
refinancing of the Line with another lender, or (b) Borrowers' default under the
Line and the Line is terminated, Borrowers shall pay the Bank a termination fee
calculated as follows:
(i) Two percent (2%) of the maximum amount available under the Line if such
termination occurs at any time prior to June 30, 1997; (ii) One and one-half
percent (1.5%) of the maximum amount available under the Line if such
termination occurs on or after June 30, 1997 but prior to June 30, 1998; and
(iii) One percent (1%) of the maximum amount available under the Line if such
termination occurs on or after June 30, 1998."
(b) By adding the following new sections: "3.12 Minimum Borrowing Fee. In
any month during the term of the Contract Period for which the average
outstanding principal balance under the Line is less than Two Million Dollars
($2,000,000.00), Borrowers shall pay to Bank a fee as calculated by Bank equal
to the difference between the interest which (a)
-6-
<PAGE>
actually accrued during such month on the outstanding principal balance of
the Line, and (b) would have accrued during such month assuming that the average
outstanding principal balance under the Line for such month was Two Million
Dollars ($2,000,000.00). Such fee shall be due and payable on the first day of
each month as calculated for the last preceding month and Bank is hereby
authorized to deduct such fee on such date from any account of any Borrower
maintained with Bank."
"3.13 Indemnity for LIBOR Portion. Borrowers shall indemnify Bank against
any loss or expense (including loss of margin) which Bank has sustained or
incurred as a consequence of (a) payment, prepayment or conversion of any LIBOR
Rate Portion on a day other than the last day of the corresponding Rate Period
(whether or not any such payment is pursuant to demand by Bank and whether or
nor any such payment, prepayment or conversion is consented to by Bank, unless
Bank shall have expressly waived such indemnity in writing); or (b) attempt by
Borrowers to revoke in whole or in part any irrevocable LIBOR Rate Notification
pursuant to this Agreement.
If Bank sustains any such loss, it shall from time to time notify Borrowers
of the amount determined in good faith by Bank (which determination shall be
conclusive) to be necessary to indemnify Bank for such loss or expense. Such
amount shall be due and payable by Borrower on demand and Bank is hereby
authorized to deduct any such amount from any account of any Borrower maintained
with Bank."
4. ADDITIONAL FACILITY FEE. In consideration of Bank entering into this
Amendment, Borrowers shall pay to Bank a fee in the amount of Sixty Thousand
Dollars ($60,000.00). Such fee shall be payable (a) Thirty Thousand Dollars
($30,000.00) contemporaneously with the execution hereof, and (b) Thirty
Thousand Dollars ($30,000.00) on May ____, 1997. Bank is authorized to deduct
such payments when due from any account of any Borrower maintained with Bank.
5. FINANCIAL COVENANTS. Sections 7.1, 7.2, 7.3, 7.4, 7.5 7.6, 7.7 and 7.8
are amended to read, in their entirety, as follows:
"7.1 Net Income. Borrowers will have Net Income determined on a combined
basis in accordance with GAAP of not less than (a) Two Hundred Fifty Thousand
Dollars ($250,000.00) for the twelve (12) month period ending October 31, 1995;
(b) Five Hundred
-7-
<PAGE>
Thousand Dollars ($500,000.00) for the twelve (12) month period ending
October 31, 1996; (c) One Million Four Hundred Thousand Dollars ($1,400,000.00)
for the twelve (12) month period ending October 31, 1997, unless prior to the
end of such fiscal year, Borrowers have not acquired PAMI (as defined below), in
which event the minimum Net Income for the twelve (12) month period ending
October 31, 1997 shall be One Million Two Hundred Thousand Dollars
($1,200,000.00); and (d) One Million Five Hundred Thousand Dollars
($1,500,000.00) for each twelve (12) month period ending thereafter."
"7.2 Effective Net Worth. Borrowers shall maintain Effective Net Worth
determined on a combined basis of not less than (a) Three Million Three Hundred
Ninety-Six Thousand Dollars ($3,396,000.00) as of November 1, 1994 and at all
times thereafter until October 30, 1995; (b) Three Million Six Hundred Fifty
Thousand Dollars ($3,650,000.00) as of October 31, 1995 and at all times
thereafter until October 30, 1996; (c) Four Million One Hundred Fifty Thousand
Dollars ($4,150,000.00) as of October 31, 1996 and at all times thereafter until
October 30, 1997; (d) Three Million Four Hundred Forty-Nine Thousand Dollars
($3,449,000.00) as of October 31, 1997 and at all times thereafter until October
30, 1998; and (e) Five Million Four Hundred Forty-Nine Thousand Dollars
($5,449,000.00) as of October 31, 1998 and at all times thereafter.
Notwithstanding the foregoing, upon consummation of the acquisition by
Borrowers of Programming Alternatives of Minnesota, Inc. ("PAMI"), the Effective
Net Worth covenant shall be as follows for the applicable periods:
(a) Two Million Three Hundred Twenty-Nine Thousand Dollars ($2,329,000.00)
as of January 31, 1997 and at all times thereafter until April 29, 1997; (b) Two
Million Eight Hundred Fifty-Three Thousand Dollars ($2,853,000.00) as of April
30, 1997 and at all times thereafter until July 30, 1997; and (c) Three Million
Three Hundred Thirty-Four Thousand Dollars ($3,334,000.00) as of July 31, 1997
and at all times thereafter until October 30, 1997. After October 30, 1997, the
Effective Net Worth covenant shall be as provided for above."
"7.3 Working Capital. Borrowers will maintain Working Capital determined on
a combined basis in accordance with GAAP
-8-
<PAGE>
of not less than (a) Three Million Fifty Thousand Dollars ($3,050,000.00)
as of October 31, 1994 and at all times thereafter until October 30, 1995; (b)
Three Million Two Hundred Thousand Dollars ($3,200,000.00) as of October 31,
1995 and at all times thereafter until October 30, 1996; (c) Three Million Seven
Hundred Thousand Dollars ($3,700,000.00) as of October 31, 1996 and at all times
thereafter until October 30, 1997; (d) Three Million Dollars ($3,000,000.00) as
of October 31, 1997 and at all times thereafter until October 30, 1998; and (d)
Three Million Three Hundred Thousand Dollars ($3,300,000.00) as of October 31,
1998 and at all times thereafter."
Notwithstanding the foregoing, upon consummation of the acquisition by
Borrowers of PAMI, the Working Capital covenant shall be as follows for the
applicable periods:
(a) Two Million One Hundred Thousand Dollars ($2,100,000.00) as of January
31, 1997 and at all times thereafter until April 29, 1997; (b) Two Million Five
Hundred Thousand Dollars ($2,500,000.00) as of April 30, 1997 and at all times
thereafter until July 30, 1997; and (c) Two Million Seven Hundred Thousand
Dollars ($2,700,000.00) as of July 31, 1997 and at all times thereafter until
October 30, 1997. After October 30, 1997, the Working Capital covenant shall be
as provided for above.
"7.4 Senior Indebtedness to Effective Net Worth Ratio. Borrowers will
maintain a ratio of Senior Indebtedness to Effective Net Worth determined on a
combined basis in accordance with GAAP of not more than (a) 1.7 to 1.0 as of the
date hereof and at all times thereafter until October 30, 1997; (b) 3.5 to 1.0
as of October 31, 1997 and at all times thereafter until October 30, 1998; and
(c) 3.0 to 1.0 as of October 31, 1998 and at all times thereafter.
Notwithstanding the foregoing, upon consummation of the acquisition by
Borrowers of PAMI, the Senior Indebtedness to Effective Net Worth ratio shall be
as follows for the applicable periods:
(a) 4.70 to 1.0 as of January 31, 1997 and at all times thereafter until
April 29, 1997; (b) 4.25 to 1.0 as of April 30, 1997 and at all times thereafter
until July 30, 1997; and (c) 3.5 to 1.0 as of July 31, 1997 and at all times
thereafter until October 30, 1997.
-9-
<PAGE>
After October 30, 1997, the Senior Indebtedness to Effective Net Worth
ratio shall be as provided for above."
"7.5 Capital Expenditures. Borrowers will not cause, suffer or permit
Borrowers' aggregate annual Capital Expenditures to exceed (a) One Hundred
Thousand Dollars ($100,000.00) for any fiscal year through and including
Borrowers' fiscal year ending October 31, 1996; and (b) One Hundred Fifty
Thousand Dollars ($150,000.00) for any fiscal year thereafter."
"7.6 Current Ratio. Borrowers will maintain a ratio of Current Assets to
Current Liabilities determined on a combined basis in accordance with GAAP of
not less than (a) 1.35 to 1.0 as of the date hereof and at all times thereafter
until October 30, 1996; (b) 1.6 to 1.0 as of October 31, 1996 and at all times
thereafter until October 30, 1997; (c) 1.10 to 1.0 as of October 31, 1997 and at
all times thereafter until October 30, 1998; and (d) 1.25 to 1.0 as of October
31, 1998 and at all times thereafter."
Notwithstanding the foregoing, upon consummation of the acquisition by
Borrowers of PAMI, the Current Ratio covenant shall be as follows for the
applicable periods:
(a) 1.10 to 1.0 as of January 31, 1997 and at all times thereafter until
April 29, 1997; (b) 1.15 to 1.0 as of April 30, 1997 and at all times thereafter
until July 30, 1997; and (c) 1.20 to 1.0 as of July 31, 1997 and at all times
thereafter until October 30, 1997. After October 30, 1997, the Current Ratio
covenant shall be as provided for above.
"7.7 Consolidated Working Capital. Borrowers and the Guarantor will
maintain Working Capital determined on a consolidated basis in accordance with
GAAP of not less than (a) Three Million Fifty Thousand Dollars ($3,050,000.00)
as of October 31, 1994 and at all times thereafter until October 30, 1995; (b)
Three Million Two Hundred Thousand Dollars ($3,200,000.00) as of October 31,
1995 and at all times thereafter until October 30, 1996; (c) Three Million Seven
Hundred Thousand Dollars ($3,700,000.00) as of October 31, 1996 and at all times
thereafter until October 30, 1997; (d) Three Million Dollars ($3,000,000.00) as
of October 31, 1997 and at all times thereafter until October 30, 1998; and (e)
Three Million Three
-10-
<PAGE>
Hundred Thousand Dollars ($3,300,000.00) as of October 31, 1998 and at all
times thereafter."
Notwithstanding the foregoing, upon consummation of the acquisition by
Borrowers of PAMI, the Consolidated Working Capital covenant shall be as follows
for the applicable periods:
(a) Two Million One Hundred Thousand Dollars ($2,100,000.00) as of January
31, 1997 and at all times thereafter until April 29, 1997; (b) Two Million Five
Hundred Thousand Dollars ($2,500,000.00) as of April 30, 1997 and at all times
thereafter until July 30, 1997; and (c) Two Million Seven Hundred Thousand
Dollars ($2,700,000.00) as of July 31, 1997 and at all times thereafter until
October 30, 1997. After October 30, 1997, the Consolidated Working Capital
covenant shall be as provided for above.
"7.8 Consolidated Tangible Net Worth. Borrowers and the Guarantor will
maintain Tangible Net Worth determined on a consolidated basis in accordance
with GAAP of not less than (a) Three Million Three Hundred Ninety-Six Thousand
Dollars ($3,396,000.00) as of November 1, 1994 and at all times thereafter until
October 30, 1995; (b) Three Million Six Hundred Fifty Thousand Dollars
($3,650,000.00) as of October 31, 1995 and at all times thereafter until October
30, 1996; (c) Four Million One Hundred Fifty Thousand Dollars ($4,150,000.00) as
of October 31, 1996 and at all times thereafter until October 30, 1997; (g)
Three Million Four Hundred Forty-Nine Thousand Dollars ($3,449,000.00) as of
October 31, 1997 and at all times thereafter until October 30, 1998; and (h)
Five Million Four Hundred Forty-Nine Thousand Dollars ($5,449,000.00) as of
October 31, 1998 and at all times thereafter.
Notwithstanding the foregoing, upon consummation of the acquisition by
Borrowers of PAMI, the Consolidated Tangible Net Worth covenant shall be as
follows for the applicable periods:
(a) Two Million Three Hundred Twenty-Nine Thousand Dollars ($2,329,000.00)
as of January 31, 1997 and at all times thereafter until April 29, 1997; (b) Two
Million Eight Hundred Fifty-Three Thousand Dollars ($2,853,000.00) as of April
30, 1997 and at all times thereafter until July 30, 1997; and (c) Three Million
Three Hundred Thirty-Four Thousand Dollars ($3,334,000.00) as of July
-11-
<PAGE>
31, 1997 and at all times thereafter until October 30, 1997. After October
30, 1997, the Consolidated Tangible Net Worth covenant shall be as provided for
above."
6. DEFINITIONS. Section 14 of the Loan Agreement is amended to add the
following defined terms:
"Applicable Margin" shall mean initially two hundred twenty-five (225)
basis points. Provided that no Event of Default or event which with the giving
of notice or the passage of time or both would become an Event of Default shall
have occurred, and further provided that Borrowers meet the financial covenant
and minimum availability requirements as set forth below, the Applicable Margin
shall reduce to (a) two hundred (200) basis points as of the date which is ten
(10) days after the receipt by Bank of Borrowers' annual audited financial
statements for Borrowers' fiscal year ending October 31, 1997 and shall remain
at such amount until the change provided for in (b) below, and (b) one hundred
seventy-five (175) basis points as of the date which is ten (10) days after
receipt by Bank of Borrowers' annual audited financial statements for Borrowers'
fiscal year ending October 31, 1998 and shall remain at such amount thereafter.
Borrowers' compliance with the financial covenants set forth below shall be
determined based on Borrowers' annual audited financial statements delivered to
Bank pursuant to Section 8.1 above. Senior Indebtedness Minimum Availability to
Effective Net Cash Flow For Advances Worth Ratio Coverage Ratio Under the Line
Not greater than Not less than $1,000,000 for the
3.0 to 1.0 for 2.0 to 1.0 for the 30-day period through
the 12-month period 12-month period and including the date on
through and includ- through and includ- which Bank receives Borrowers'
ing October 31, ing October 31, annual financial statements for
1997 and October 1997 and October October 31, 1997 and October 31,
31, 1998, respect- 31, 1998, 1998, respectively
ively respectively
"Good Business Day" means any day when banks in Pennsylvania
and London, England are open for business.
-12-
<PAGE>
"Cash Flow Coverage Ratio" shall mean the ratio of (a) the sum of
Borrowers' consolidated Net Income, plus depreciation and amortization, less
Capital Expenditures and long-term debt repayments to (b) the sum of unfunded
Capital Expenditures, plus long-term debt repayments.
"LIBOR Rate" for any day for any proposed or existing LIBOR Rate Portion of
the Line corresponding to a Rate Period shall mean the rate per annum determined
by Bank to be the rate per annum obtained by dividing (the resulting quotient to
be rounded upward to the nearest 1/100 of 1%) (a) the rate of interest (which
shall be the same for each day in such Rate Period) estimated in good faith by
Bank in accordance with its usual procedures (which determination shall be
conclusive) to be the average of the rates per annum for deposits in United
States dollars offered to major money center banks in the London interbank
market at approximately 11:00 a.m., London time, two Good Business Days prior to
the first day of such Rate Period for delivery on the first day of such Rate
Period in amounts comparable to such LIBOR Rate Portion (or, if there are no
such comparable amounts actively traded, the smallest amounts actively traded)
and having maturities comparable to such Rate Period by (b) a number equal to
1.00 minus the LIBOR Rate Reserve Percentage for such day, and then adding to
such rate the Applicable Margin.
"LIBOR Rate Notification" means an irrevocable written notice requesting
the LIBOR Rate which must be provided to Bank prior to 2:00 p.m. Philadelphia
time on a Business Day which is at least two (2) Good Business Days prior to the
date on which such rate is requested to take effect, specifying:
(a) The principal amount which is to accrue interest at such rate; (b) The
date on which such rate is to take effect; and (c) Whether such principal
amount is a new advance, a conversion from
another interest rate, a renewal of another interest rate or a combination
thereof.
"LIBOR Rate Portion" shall mean at any time the part, including the whole,
of the unpaid principal amount of the Line bearing interest at such time at the
LIBOR Rate.
-13-
<PAGE>
"LIBOR Rate Reserve Percentage" for any day shall mean the percentage
(rounded upward to the nearest 1/100 of 1%), as determined in good faith by Bank
(which determination shall be conclusive) as representing for such day the
maximum effective reserve requirement (including without limitation
supplemental, marginal and emergency requirements) for member banks of the
Federal Reserve System with respect to eurocurrency funding (currently referred
to as "Eurocurrency liabilities") of any maturity. Each LIBOR Rate shall be
adjusted automatically as of the effective date of any change in the LIBOR Rate
Reserve Percentage.
"Prime Rate Notification" means an irrevocable written notice requesting
the Prime Rate which must be provided to Bank prior to 2:00 p.m. Philadelphia
time on the Business Day on which such rate is requested to take effect,
specifying:
(a) The principal amount which is to accrue interest at such rate; (b) The
date on which such rate is to take effect; and (c) Whether such principal
amount is a new advance, a conversion from
another interest rate option or a combination thereof.
"Prime Rate Portion" shall mean at any time the part, including the whole,
of the unpaid principal amount of the Line bearing interest at such time at the
Prime Rate.
"Rate Period" shall mean for any portion of the Line for which the
Borrowers elect the LIBOR Rate, the period of time for which such rate shall
apply to such principal portions. The Rate Period for the LIBOR Rate shall be
for periods of thirty (30), sixty (60) or ninety (90) days.
7. AMENDED AND RESTATED NOTE. Contemporaneously with its execution hereof,
the Borrowers shall execute and deliver to Bank an Amended and Restated Note
(the "Amended and Restated Note") in the form attached hereto as Exhibit "A",
evidencing the Borrowers' obligation to repay the Line. Hereafter, all
references in the Loan Agreement or any of the other Loan Documents to the
"Note" shall be deemed to be references to the Amended and Restated Note. The
indebtedness, if any, evidenced by any prior Notes remains outstanding as of the
date hereof. The Borrowers and Guarantor acknowledge and agree that the Amended
and Restated Note merely re-evidences the indebtedness evidenced by any prior
Notes increasing the face amount thereof and is given in substitution and not in
payment of such prior Notes.
-14-
<PAGE>
8. SUBORDINATION AGREEMENTS. Borrowers and Guarantor have executed and
delivered to Bank various Subordination Agreements in Bank's favor. Borrowers
and Guarantor acknowledge and agree that the term "Senior Debt" as used in such
Subordination Agreements shall include the Line as increased by this Amendment.
9. CONTRIBUTION AGREEMENT. Borrowers have executed a certain Third Amended
and Restated Contribution Agreement. Borrowers acknowledge and agree that the
term "Bank Indebtedness" as used in the Third Amended and Restated Contribution
Agreement shall include the Line as increased by this Amendment.
10. FURTHER AGREEMENTS AND REPRESENTATIONS. Borrowers and Guarantor do
hereby:
(a) ratify, confirm and acknowledge that, as amended hereby, the Loan
Agreement, the Note and all other Loan Documents, as such term is defined in the
Loan Agreement, are valid, binding and in full force and effect;
(b) covenant and agree to perform all obligations of Borrowers and
Guarantor contained herein, in the Loan Agreement and in the other Loan
Documents, as amended hereby;
(c) acknowledge and agree that as of the date hereof, Borrowers and
Guarantor have no defense, set-off, counterclaim or challenge against the
payment of any sums owing under the Bank Indebtedness or the enforcement of any
of the terms of the Loan Agreement, or any of the other Loan Documents, as
amended;
(d) represent and warrant that no Event of Default, as defined in the Loan
Agreement, as amended, exists or will exist upon the delivery of notice, passage
of time or both;
(e) acknowledge and agree that nothing contained herein and no actions
taken pursuant to the terms hereof is intended to constitute a novation of the
Loan Agreement or any of the other Loan Documents, and does not constitute a
release, termination or waiver of any of the liens, security interests, rights
or remedies granted to the Bank therein, which liens, security interests, rights
and remedies are hereby ratified, confirmed, extended and continued as security
for the Bank Indebtedness as amended hereby; and
(f) acknowledge and agree that Borrowers' and Guarantor's failure to comply
with or perform any of its covenants, agreements or obligations contained in
this Amendment shall constitute an Event of Default under the Loan Agreement and
each of the Loan Documents as amended.
11. ADDITIONAL DOCUMENTS; FURTHER ASSURANCES. Borrowers and Guarantor
further covenant and agree to execute and deliver to the Bank, or to cause to be
executed and delivered to the Bank, at the sole cost and expense of Borrowers
and Guarantor, from time to time, any and all other documents, agreements,
statements, certificates and information as Bank shall reasonably request to
evidence or effect the terms of the Loan Agreement, as amended, or any of the
other Loan Documents, as amended, or to enforce or
-15-
<PAGE>
protect Bank's interest in all collateral. All such documents, agreements,
statements, certificates and information shall be in form and content acceptable
to Bank in its sole discretion.
12. FEES, COSTS, EXPENSES AND EXPENDITURES. Borrowers and Guarantor agree
to pay all of Bank's expenses in connection with the review, preparation,
negotiation, documentation and closing of this Amendment and the consummation of
the transactions contemplated hereunder, including, without limitation, fees,
disbursements, expenses and disbursements of counsel retained by Bank and all
fees related to filings, recording of documents and searches, whether or not the
transactions contemplated hereunder are consummated.
13. AMENDED AND RESTATED NOTE. Contemporaneously with its execution hereof,
the Borrowers shall execute and deliver to Bank an Amended and Restated Note
(the "Amended and Restated Note") in the form attached hereto as Exhibit "A",
evidencing the Borrowers' obligation to repay the Line. Hereafter, all
references in the Loan Agreement or any of the other Loan Documents to the
"Note" shall be deemed to be references to the Amended and Restated Note. The
indebtedness, if any, evidenced by the prior Note remains outstanding as of the
date hereof. The borrowers acknowledge and agree that the Amended and Restated
Note merely re-evidences the indebtedness evidenced by the prior Note while
adding Consortium as a co-maker and is given in substitution and not in payment
of such prior Note.
14. INTERRELATEDNESS OF BORROWERS. The business operations of each Borrower
are interrelated and complement one another, and such entities have a common
business purpose. To permit their uninterrupted and continuous operations, such
entities now require and will from time to time hereafter require funds and
credit accommodations for general business purposes. The proceeds of advances
under the Line and other credit facilities extended under the Loan Agreement
will directly or indirectly benefit each Borrower, severally and jointly,
regardless of which Borrower requests or receives part or all of the proceeds of
such advances.
15. JOINT AND SEVERAL LIABILITY. The obligations of each Borrower under the
Loan Agreement and the Loan Documents shall be joint and several.
16. CONFIRMATION OF COLLATERAL. Borrowers and Guarantor hereby confirm,
acknowledge and agree that none of the collateral securing any obligations of
Borrowers or Guarantor to Bank shall be impaired by anything contained in this
Amendment, and such collateral shall continue to secure all of the obligations
of Borrowers and Guarantor to Bank under the Loan Agreement and the Loan
Documents.
17. NO WAIVER. Nothing herein shall constitute a waiver by Bank of
Borrowers' or Guarantor's compliance with the terms of the Loan Agreement or the
Loan Documents nor any of Bank's rights in connection therewith, nor shall
anything contained herein constitute an agreement by Bank to enter into any
further agreements with Borrowers or Guarantor.
18. INCONSISTENCIES. To the extent of any inconsistency between the terms
and conditions of this Amendment and the terms and conditions of the Loan
Agreement or the Loan Documents, the terms and conditions of this Amendment
shall prevail. All terms and conditions
-16-
<PAGE>
of the Loan Agreement and Loan Documents not inconsistent herewith shall
remain in full force and effect and are hereby ratified and confirmed by
Borrowers.
19. CONSTRUCTION. Any capitalized terms used in this Amendment not
otherwise defined shall have the meaning as set forth in the Loan Agreement, as
amended. All references to the Loan Agreement therein or in any of the other
Loan Documents shall be deemed to be a reference to the Loan Agreement as
amended hereby.
20. BINDING EFFECT. This Amendment shall be binding upon and inure to the
benefit of the parties hereto and their successors and assigns.
21. GOVERNING LAW. This Amendment shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania.
22. HEADINGS. The headings of the Articles, Sections, paragraphs and
clauses of this Amendment are inserted for convenience only and shall not be
deemed to constitute a part of this Amendment.
23. WAIVER OF RIGHT TO TRIAL BY JURY. BORROWERS, GUARANTOR AND BANK
WAIVE ANY RIGHT TO TRIAL BY JURY ON ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION
(a) ARISING UNDER ANY OF THE LOAN DOCUMENTS OR (b) IN ANY WAY CONNECTED WITH OR
RELATED OR INCIDENTAL TO THE DEALINGS OF BORROWERS, GUARANTOR OR BANK WITH
RESPECT TO ANY OF THE LOAN DOCUMENTS OR THE TRANSACTIONS RELATED HERETO OR
THERETO, IN EACH CASE WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
BORROWERS, GUARANTOR AND BANK AGREE AND CONSENT THAT ANY SUCH CLAIM, DEMAND,
ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND
THAT ANY PARTY TO THIS AMENDMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF
THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF BORROWERS,
GUARANTOR AND BANK TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. BORROWERS AND
GUARANTOR ACKNOWLEDGE THAT THEY HAVE HAD THE OPPORTUNITY TO CONSULT WITH COUNSEL
REGARDING THIS SECTION, THAT THEY FULLY UNDERSTAND ITS TERMS, CONTENT AND
EFFECT, AND THAT THEY VOLUNTARILY AND KNOWINGLY AGREE TO THE TERMS OF THIS
SECTION.
-17-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed effective as of the day and year first above written.
INTERTEC DESIGN, INC.
By:
Leon Kopyt, President
(CORPORATE SEAL)
Attest:
Stanton Remer, Secretary
CATARACT, INC., formerly known as CI
Acquisition Corp.
By:
Leon Kopyt, President
(CORPORATE SEAL)
Attest:
Stanton Remer, Secretary
THE CONSORTIUM
By:
Leon Kopyt, President
(CORPORATE SEAL)
Attest:
Stanton Remer, Secretary
THE CONSORTIUM OF MARYLAND, INC.
By:
Leon Kopyt, President
(CORPORATE SEAL)
Attest:
Stanton Remer, Secretary
MELLON BANK, N.A.
By:
Name/Title:
-18-
<PAGE>
The undersigned, intending to be legally bound, hereby join in the
representations and warranties and consent to and agree to be bound by the
terms, conditions and covenants applicable to the undersigned as set forth in
the foregoing Amendment.
RCM TECHNOLOGIES, INC.
By:
Leon Kopyt, President
[CORPORATE SEAL]
Attest:
Stanton Remer, Secretary
-19-
<PAGE>
AMENDED AND RESTATED
TERMINATION BENEFITS AGREEMENT
AMENDED AND RESTATED TERMINATION BENEFITS AGREEMENT made this ____ day of
________________________, effective as of December 30, 1993 (the 'Effective
Date'), by and between RCM TECHNOLOGIES, INC., a Nevada corporation (the
"Company") and LEON KOPYT (the "Executive").
RECITALS
A. The Executive has for several year served the Company as a key executive
officer and has helped guide the Company through many problems.
B. The Executive has been successful in converting a loss of $1 million for
the fiscal year ended 10/31/91 into a net profit of $1 million for the fiscal
year ended 10/31/93. He has negotiated a line of credit for the Company with
Mellon Bank on favorable term and has arranged for acquisitions of companies to
strengthen the company's competitive position.
C. The Executive is expected to continue to make a major contribution to
the profitability, growth and financial strength of the Company.
D. The Company considers the continued services of the Executive to be in
the best interest of the Company and its shareholders and desires to assure the
continued service of the Executive on behalf of the Company on an objective and
impartial basis and without distraction or conflict of interest in the event of
an attempt to obtain control of the Company.
E. The Executive is willing to remain in the employ of the Company upon the
understanding that the Company will provide income security upon the terms and
subject to the conditions contained herein if the Executive's employment is
terminated voluntarily for good reason following a change in control of the
Company or involuntarily by the Company without "Good and Sufficient Cause" (as
hereafter defined).
NOW, THEREFORE, in consideration of the mutual promises herein contained
and intending to be legally bound hereby, the parties agree as follows:
1. Simultaneously with a "Change in Control of the Company", as that term
is defined herein (a "Change in Control"), the term of any Employment Agreement
then in force between the Company and the Executive (the "Employment
Agreement"), without any further action on the part of either party, shall be
deemed to have been extended for a term of five (5) years, commencing with the
date of the Change In Control, on the same terms and conditions as existed
immediately prior to the Change in Control (the "Extended Term").
2. During the Extended Term, the Executive may terminate his employment at
any time for "good reason". As used herein, the term "good reason" shall mean:
<PAGE>
(i) A failure by the Company to comply with any material provision of the
Employment Agreement, which failure has not been cured within ten (10) days
after notice of noncompliance has been given by Executive to the Company; (ii)
Without Executive's written consent, the assignment to Executive of any
duties inconsistent with Executive's duties, responsibilities and status
with the Company immediately prior to the change in control;
(iii) Any change in (a) Executive's reporting responsibilities, title or
office in effect immediately prior to the change in control of the Company, or
(b) a change in geographic location of where Executive's position is based in
excess of twenty (20) miles or required travel in excess of Executive's present
business travel schedule;
(iv) Any removal from or any failure to reelect Executive to any positions
held by him immediately prior to the change in control except in connection with
a termination of employment for just cause, disability, death or retirement;
(v) Any reduction by the Company in Executive's annual salary in effect
immediately prior to a change in control or as the same may be increased from
time to time;
(vi) Failure by the Company to continue in effect any bonus, benefit or
compensation plan, life insurance plan, health and accident plan or disability
plan in which Executive is participating at the time of a change in control of
the Company or the taking of any action by the Company which would adversely
effect the Company's participation in or materially reduce Executive's benefits
under any such plan;
(vii) Any purported termination of Executive's employment which is not
effected pursuant to a notice of termination satisfying the requirements of
paragraph 4 hereof; or
(viii) Any change in corporate strategy, direction of the Company's
business, management, operating personnel, composition of the Board of
Directors, competitive posture, or standing in the industry, any one or more of
which in the absolute discretion of Executive render Executive's continued
employment by the Company inconsistent with Executive's employment goals and
objectives.
3. For purposes of this Agreement, a "Change in Control" shall be
determined in the reasonable discretion of Executive in the manner established
at Paragraph 7 hereafter. A Change in Control shall mean a change in control of
a nature that would be required to be reported in response to item 6(e) of
Schedule 14A of Regulation 14A, as in effect on the date hereof, promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act");
provided that, without limitation, such a Change in Control shall be deemed to
have occurred if:
(a) Any "Person" or "group of Persons" (as such terms are defined
hereafter), except for any employee benefit plan of the Company or any
subsidiary of the Company, or any
<PAGE>
entity holding voting securities of the Company for or pursuant to the
terms of any such plan (a "Benefit Plan" or the "Benefit Plans"), is or becomes
the "beneficial owner" (as such term is defined hereafter), directly or
indirectly, of securities of the Company representing 20% or more of the
combined voting power of the Company's then outstanding securities; (b) There
occurs a contested proxy solicitation of the Company's shareholders
that results in the contesting party obtaining the ability to vote
securities representing 20% or more of the combined voting power of the
Company's then outstanding securities;
(c) There occurs a sale, exchange, transfer or other disposition of
substantially all of the assets of the Company to another entity, except to an
entity controlled directly or indirectly by the Company, or a merger,
consolidation or other reorganization of the Company in which the Company is not
the surviving entity, or a plan of liquidation or dissolution of the Company
other than pursuant to bankruptcy or insolvency laws is adopted;
(d) During any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors of the Company cease
for any reason to constitute at least a majority thereof unless the election, or
the nomination for election by the Company's shareholders, of each new director
was approved by a vote of at least two-thirds of the directors (inclusive of
Executive) then still in office who were directors at the beginning of the
period; or
(e) If Executive no longer continues to serve as the Chairman of the
Company's Board of Directors (unless at his own election) during any period in
which Executive remains employed by the Company or within three (3) years
thereafter if Executive's employment was terminated for other than 'good and
sufficient cause', as such term is defined within Executive's Employment
Agreement (hereinafter 'Good and Sufficient Cause').
Notwithstanding the foregoing, a Change in Control shall not be deemed to
have occurred for purposes of this Agreement: (i) if a "Person" acquires or
becomes the beneficial owner of securities representing 20% or more of the
combined voting power of the Company's then outstanding securities pursuant to a
private placement transaction or underwritten public offering of the Company's
Common Stock where such issuance of securities by the Company is approved by a
vote of at least two-thirds of the directors and by written consent of the
Executive, outside of his capacity as a director; (ii) if a transaction
identified in subparagraph 3(c) above occurs and is approved by a vote of at
least two-thirds of the directors and by the written consent of the Executive
outside of his capacity as a director; (iii) in the event of a sale, exchange,
transfer or other disposition of substantially all of the assets of the Company
to, or a merger, consolidation or other reorganization involving the Company
and, the Executive, alone or with other officers of the Corporation, or any
entity in which the Executive (alone or with other officers) has, directly or
indirectly, at least a 25% equity or ownership interest; or (iv) in a
transaction which includes the Executive as a principal and control person and
is otherwise commonly referred to as a "management leveraged buy-out". For the
purposes of subparagraph 3(a), a "Person" shall not be deemed the beneficial
owner of securities representing 20% or more of the combined voting
<PAGE>
power of the Company's then outstanding securities if that "Person" is an
underwriter who has acquired shares for resale in connection with an
underwritten public offering of such shares.
Subparagraph 3(a) above to the contrary notwithstanding, a Change in
Control shall not be deemed to have occurred if a Person becomes the beneficial
owner, directly or indirectly, of securities of the Company representing 20% or
more of the combined voting power of the Company's then outstanding securities
solely as the result of an acquisition by the Company or any subsidiary of the
Company of voting securities of the Company which, by reducing the number of
shares outstanding, increases the proportionate number of shares beneficially
owned by such person to 20% or more of the combined voting power of the
Company's then outstanding securities, provided, however, that if a Person
becomes the beneficial owner of 20% or more of the combined voting power of the
Company's then outstanding securities by reason of shares purchased by the
Company or any subsidiary of the Company and shall, after such share purchases
by the Company or a subsidiary of the Company, become the beneficial owner,
directly or indirectly, of any additional voting securities of the Company, then
a Change in Control shall be deemed to have occurred with respect to such Person
under subparagraph 3(a) above. Notwithstanding the foregoing, in no event shall
a Change in Control be deemed to occur under subparagraph 3(a) above with
respect to the Benefit Plans.
For the purposes of this paragraph 3, the terms "Person," "group of
Persons", "beneficial owner" and "beneficial ownership" shall have the meanings
ascribed thereto under Sections 13(d) and 14(d) and Rule 13d promulgated under
the Securities Exchange Act.
4. Any termination of Executive's employment by the Company or by Executive
shall be communicated by written notice of termination to the other party. For
purposes of this Agreement, a "notice of termination" shall mean a dated notice
which shall (i) indicate the specific termination provision in the Employment
Agreement relied upon; (ii) set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of Executive's
employment under the provision so indicated; (iii) specify a date of
termination, which shall be not less than thirty nor more than ninety (90) days
after such notice of termination. In the case of termination by the Company of
Executive's employment for "Good and Sufficient Cause" pursuant to paragraph 4
of the Employment Agreement, the notice of termination may specify a date of
termination as of the date such notice of termination is given and (iv) notice
of termination shall be given in the manner specified in Section 14 of the
Employment Agreement.
5. If during the Extended Term following a Change in Control Executive
terminates his Employment for good reason as described in subparagraphs (i) to
(viii) of paragraph 2 hereof, or if Executive is terminated by the Company for
other than "Good and Sufficient Cause", then, in lieu of any further salary
payments to Executive for periods subsequent to the date of termination:
(a) The Company shall pay as a liquidated amount to Executive within ninety
(90) days of such termination, a lump sum cash payment which is equal to the
remainder of any further salary and ascertainable bonus payments that would have
become due to Executive during
<PAGE>
the remainder of the Extended Term; calculating the amount of such salary
based upon the Executive's current gross salary (for federal income tax
purposes) and ascertainable bonus based upon the bonus that was received by
Executive during the Company's most recently completed fiscal year;
(b) Any stock options to acquire the Company's stock held by Executive
which were not fully exercisable shall immediately become fully exercisable by
Executive and the option exercise price for such options shall be deemed to be
one cent ($0.01) per share, notwithstanding any provision of any option
agreement to the contrary;
(c) The Company shall continue to pay or make available to Executive for a
period of two (2) years after the date of termination, all Company benefits
including all health, disability and life insurance plans provided by or through
the Company, including those provided in the Employment Agreement;
(d) If Executive is terminated by the Company for other than "Good and
Sufficient Cause", the "Non-Disclosure/Non-Competition" restrictions contained
within paragraph 8 of the Employment Agreement and the "Remedies" associated
therewith contained within paragraph 9 of the Employment Agreement shall be null
and void and unenforceable and inapplicable as to the Executive; and
(e) The Company, within ninety (90) days of Executive's date of
termination, shall (i) pay to Executive an additional amount sufficient to
satisfy all of Executive's current or prospective liability to any taxing
authority for excise taxes, penalties or any other taxes assessed in excess of
normal income taxes imposed on salaries, incurred by reason of the payments made
to Executive under this Agreement and (ii) cause the Company's independent
auditors to determine, within ninety (90) days, the amount to be paid to
Executive pursuant to subparagraph 5(a) and this subparagraph 5(e) above,
providing a copy to Executive of the auditors' detailed determination.
6. The Executive shall not be required to mitigate the amount of any
payment provided for under this Agreement by asking for other employment and
none of these payments may be reduced by any future salary that Executive may
earn.
7. A Change in Control shall be determined within the reasonable discretion
of the Executive who shall within 90 days of such determination provide written
notice (the "Notice") to the Company identifying the Change in Control, and, if
possible, providing reference to the Item or Items constituting the Change in
Control identified in subparagraphs 3(a)-3(e) above. The Company shall have 15
days in which to respond in writing. This response shall indicate whether or not
the Company adopts or disputes the conclusions set forth within the Notice, and
if the Company disputes the Notice, the Company's response shall indicate with
specificity the basis and grounds for such objection. In the absence of a timely
response, the Company shall be deemed to have adopted the conclusions set forth
within the Notice. The conclusions of the Executive set forth within the Notice
shall be deemed conclusive evidence of a Change in
<PAGE>
Control. The Company shall bear the burden of proof of establishing that a
Change in Control has not occurred.
8. The Executive is aware that upon Notice of the occurrence of a Change in
Control, the Board of Directors or a shareholder of the Company may then cause
or attempt to cause the Company to refuse to comply with its obligations under
this Agreement, or may cause or attempt to cause the Company to institute, or
may institute litigation seeking to have this Agreement declared unenforceable,
or may take or attempt to take other action to deny Executive the benefits
intended under this Agreement. In these circumstances, the purpose of this
Agreement could be frustrated. It is the intent of the Company that Executive
not be required to incur the expenses associated with the enforcement of any
rights under this Agreement by litigation or other legal action, nor be bound to
negotiate any settlement of any rights hereunder, because the cost and expense
of such legal action or settlement would substantially detract from the benefits
intended to be extended to Executive hereunder. Accordingly, if following a
Notice relative to a Change in Control it should appear to Executive that the
Company has failed to comply with any of its obligations under this Agreement or
in the event that the Company or any other person takes any action to declare
this Agreement void or unenforceable, or institutes any litigation or other
legal action designed to deny, diminish or to recover from Executive the
benefits intended to be provided to Executive hereunder, and Executive has
complied with all obligations under this Agreement, then the Company irrevocably
authorizes Executive from time to time to retain counsel of Executive's choice,
at the expense of the Company as provided in this paragraph 8, to represent
Executive in connection with the initiation or defense of any litigation or
other legal action, whether such action is by or against the Company or any
director, officer, shareholder, or other person affiliated with the Company, in
any jurisdiction. Notwithstanding any existing or prior attorney-client
relationship between the Company and such counsel, the Company irrevocably
consents to Executive entering into an attorney-client relationship with such
counsel, and in that connection the Company and Executive agree that a
confidential relationship shall exist between Executive and such counsel. The
reasonable fees and expenses of counsel selected from time to time by Executive
as hereinabove provided shall be paid in advance or reimbursed to Executive, at
the election of the Executive, by the Company on a regular, periodic basis upon
presentation by Executive of a statement or statements or customary retainer
letter prepared by such counsel in accordance with its customary practices, up
to a maximum aggregate amount of $500,000. Any legal expenses incurred by the
Company by reason of any dispute between the parties as to enforceability of or
the terms contained in this Agreement, notwithstanding the outcome of any such
dispute, shall be the sole responsibility of the Company, and the Company shall
not take any action to seek reimbursement from Executive for such expense.
9. This Agreement is the entire agreement between the parties concerning
the subject matter hereof and supersedes all prior or contemporaneous
negotiations or understandings relating hereto, including a Termination Benefits
Agreement dated December 30, 1993, and a First Amendment to Termination Benefits
Agreement dated March 1, 1996. This Agreement may be altered or amended only by
a writing signed by the parties hereto.
<PAGE>
10. This Agreement shall be construed in accordance with the laws of
Pennsylvania and shall be binding upon and inure to the benefit of the parties
hereto, their heirs, administrators, successors and assigns.
IN WITNESS WHEREOF, the parties hereto have executed this amendment the day
and
year first above written.
RCM TECHNOLOGIES, INC.
BY:________________________________
ATTEST:___________________________
___________________________________
LEON KOPYT
APPROVED:
__________________________________
WOODROW B. MOATS, JR.
Chairman Compensation Committee
<PAGE>
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
AMENDED AND RESTATED EMPLOYMENT AGREEMENT entered into on November 30,
1996, by and between RCM TECHNOLOGIES, INC., a Nevada corporation, INTERTEC
DESIGN, INC. a New York corporation and CATARACT, INC., a Pennsylvania
corporation, (hereafter collectively "Employer") and LEON KOPYT (hereafter
"Employee ).
In consideration of the mutual promises herein contained and intending to
be legally bound hereby, the parties agree as follows:
EMPLOYMENT; TERM, COMPENSATION:
1. Commencing March 1, 1996, Employer hereby employs Employee for a three
(3) year term ending February 28, 1999. The prior sentence notwithstanding,
commencing on February 28, 1997 and each February 28th thereafter the term of
this Agreement shall automatically be extended for one (1) additional year
beyond the then existing term, each such term conditioned only upon Employee's
completion of the prior one year term without death, disability and without
being terminated "for good and sufficient cause" as set forth in paragraph 4
hereof. Employee's compensation and benefits for each calendar year shall be as
determined by the Compensation Committee of the Board of Directors of the
Employer (or by such committee of the Board to which such a determination may
have been delegated); provided, always that such compensation and benefits shall
never be less than Employee's Initial Compensation and Benefits as set forth in
this Agreement and on Exhibit 'A' hereto.
DUTIES:
2. Employee shall devote his full time, attention and best efforts to his
duties as President and Chief Executive Officer. Employee shall at all times
discharge his duties in consultation with and under the supervision of the Board
of Directors of the Employer.
VACATIONS:
3. (a) Employee shall receive four (4) weeks of paid vacation in each
calendar year. Vacation pay shall be cumulative and to the extent not taken
shall be compensated; provided, however, that in no event and at no time shall
Employee be entitled to cumulate in excess of eight (8) weeks of unused vacation
pay from prior calendar years.
HOLIDAYS:
(b) Employee shall be entitled to those holidays allowed for by Company
policy.
<PAGE>
ILLNESS:
(c) If Employee is prevented from performing his duties by reason of
illness or incapacity for an aggregate of ninety (90) days in any year of this
Agreement, Employer shall not be obligated to pay Employee compensation for any
period of absence in excess of the aggregate of ninety (90) days in any year.
Sick pay shall be non-cumulative and, to the extent not used, shall not be
compensated.
DISABILITY:
(d) If Employee is prevented from performing his duties by reason of
verifiable physical or mental illness or incapacity for the continuous period of
ninety (90) days, then Employer, in addition to the remedy provided for in
subparagraph (c) hereof, may on thirty (30) days prior notice, terminate
Employee's employment. Employer shall include Employee in at least such
disability insurance coverage as Employer presently provides Employee.
TERMINATION:
4. (a) Notwithstanding any other provision hereof, the employment of the
Employee shall terminate immediately upon the death of Employee or Employee's
discharge by employer upon "good and sufficient cause" as defined below.
In the event of the Employee's death while employed by the Employer,
Employer will pay Employee's named beneficiary, or if there be none then living,
to his estate, Employee's base salary at the date of his death for a period of
six (6) months after the date of death, payable weekly.
(b) "Good and sufficient cause" shall mean:
(i) A 'material breach' of this Agreement by Employee which is not cured
within 15 days of written notice thereof. A 'material breach' shall be defined
as: (a) the unwillingness or failure of Employee to discharge his duties
hereunder within fifteen (15) days of written notice specifying such events; and
(b) the continued refusal to follow the directives of the Board which are
consistent with Employee's duties and responsibilities as designated by the
Board, within fifteen (15) days of written notice to that effect from the
Employer unless the failure to follow such directives were either (x) based upon
the advice of counsel or (y) based upon the Employee's judgment in good faith
that such directives would not be in the best interests of the Employer or its
stockholders.
(ii) Any action or series of actions undertaken by Employee in his capacity
as an Employee of the Company that results in the commission by Employee of a
felony for which he is convicted by a court of competent jurisdiction; or
(iii) The finding by a court of competent jurisdiction that Employee
perpetrated a dishonest act or common law fraud against the Employer or any
affiliate thereof.
<PAGE>
(c) If Employee is terminated for "good and sufficient cause", then
Employer shall provide Employee, upon termination a written explanation for such
termination, identifying such "good and sufficient cause."
(d) If Employee is terminated without "good and sufficient cause", then in
lieu of any further salary payments to Employee for periods subsequent to the
date of termination:
(i) the Company shall pay as a liquidated amount to Employee within 30 days
of such termination, a lump sum cash payment which is equal to the total of any
further salary and bonus payments that would have become due to Employee had he
remained employed by Employer for a period of three (3) years following the date
of termination; calculating the amount of such salary based upon the Employee's
current gross salary (for federal income tax purposes) and bonus based upon the
bonus that was received by Employee during Employer's most recently completed
fiscal year;
(ii) any stock options to acquire the Company's stock held by Employee
which were not fully exercisable shall become immediately fully exercisable by
Employee notwithstanding any provision of any option agreement to the contrary;
(iii) the Company shall continue to pay or make available to Employee for a
period of two (2) year after the date of termination, all Employee benefits
including all health, disability and life insurance plans provided by or through
the Employer, including those otherwise provided in this Employment Agreement
upon the date of termination; and
(iv) the "Non-Disclosure/Non-Competition" restrictions contained within
paragraph 8 of this Employment Agreement and the "Remedies" associated therewith
contained within paragraph 9 of this Agreement shall be null and void and
unenforceable and inapplicable as to the Employee.
(e) the Employee shall not be required to mitigate that amount of any
payment provided for under subparagraph 4(d) by asking for any other employment
and none of these payments may be reduced by any future salary that Employee may
earn from third parties.
BUSINESS EXPENSES:
5. During the period in which Employee is employed by Employer, Employer
agrees to pay all reasonable expenses incurred by Employee in furtherance of the
business of Employer including travel and entertainment expense. Employer agrees
to reimburse Employee for any such expenses upon submission by him of a
statement itemizing such expenses.
AUTO EXPENSES:
<PAGE>
throughout the remainder of the term of this Agreement, Employer agrees to
continue such payments, however, subject to reasonable increases at the request
of Employee which shall not exceed 10% per annual period. Also during the term
of this Agreement, Employer shall pay all other reasonable expenses incurred by
Employee in the operation and maintenance of the automobile.
MEDICAL INSURANCE:
7. During the period in which Employee is employed by Employer, Employer
shall reimburse Employee for the medical insurance premium and/or include
Employee and his family in the medical insurance coverage provided for executive
level employees of Employer.
8. NON-DISCLOSURE/NON-COMPETITION:
(a) Employee will not, during or at any time after the termination of this
Agreement, without authorization of Employer, disclose to, or make use for
himself or for any person, corporation, or other entity, any trade secret or
other confidential information concerning the business, clients, methods,
operations, financing or services of employer. Trade secrets and confidential
information shall mean information disclosed to Employee or known by him as a
consequence of his employment by Employer, whether or not pursuant to this
Agreement, and not generally known to the industry. Without limiting the
generality of the foregoing, trades secrets and confidential information shall
include market analysis and market expansion plans of Employer and all technical
information relating to products or systems developed by Employer and all
planned product or system improvements or changes to the extent not generally
known to the industry. It shall not be a breach of this Section 8 if Employee
discloses information that is already generally known to the public, or if
Employee is required to disclose such information by law or court order.
(b) Employee agrees that he will not, directly or indirectly, during the
term of this Agreement and for a period of one (1) year thereafter. within the
geographic areas in which Employer conducts its operations upon the termination
of his employment, engage in the business of placement of technical or temporary
personnel, whether as an employee, owner, partner, agent director, officer or
shareholder and, without limiting the generality of the foregoing, do any of the
following:
(i) Solicit, divert, accept business from or otherwise take away any client
of Employer who is or was client during the term of the Agreement, including all
clients directly or indirectly produced or generated by Employee;
(ii) Solicit, induce or contract with any of the Employer's employees to
leave Employer or to work for Employee or any company with which Employee is
connected; or
(iii) Solicit, divert or take away any of Employer's sources of business.
<PAGE>
(c) Notwithstanding the provisions contained in this Section 8, Employee
shall have the right to beneficially own no more than five percent (5%) of the
stock of a public company which is a competitor of the Employer.
REMEDIES:
9. Employer agrees that a violation of any of the provisions of paragraph 8
hereof will cause irreparable damage to Employer the exact amount of which it
will be possible to ascertain and, for that reason, Employee agrees that
Employer shall be entitled to injunctive relief restraining any violation of
paragraph 8 hereby by Employee and any person, firm or corporation associated
with him, such right to be cumulative and in addition to all other remedies
available to Employer by reason of such violation.
LIFE INSURANCE:
10. During the term of this Agreement. Employer shall take out and pay the
premium on a policy of term life insurance in the amount not less than
$200,000.00 insuring the life of Employee and payable one-half to such
beneficiary as he shall designate and one-half to Employer.
APPROVAL:
11. This Agreement shall be effective upon its approval by the Chairman of
Employer's Compensation Committee and upon its execution by the parties hereto.
ARBITRATION:
12. Except for matters arising under paragraphs 8 and 9, hereof any
controversy, claim or dispute arising out of or relating to this Agreement,
shall be submitted to arbitration in the City of Philadelphia, Commonwealth of
Pennsylvania, in accordance with the rules of the American Arbitration
Association. The expenses of the arbitration shall be paid equally by Employer
and Employee. Any judgment upon the award made and rendered by the arbitration
may be entered in a Court of competent jurisdiction.
CHOICE OF LAW:
13. This Agreement shall be governed by the law of the Commonwealth of
Pennsylvania without regard to conflict of law principles.
NOTICES:
14. Any notice required or permitted to be given under this Agreement shall
be sufficient if in writing, and if sent by certified mail, return receipt
requested, as follows:
<PAGE>
IF TO EMPLOYEE:
Leon Kopyt
447 Waring Street
Philadelphia, PA 19116
IF TO EMPLOYER:
RCM Technologies, Inc.
P.O. Box 8525
Cherry Hill, NJ 08002
BINDING EFFECT:
15. The terms of this Agreement shall be binding upon and inure to the
benefit of the parties hereto, and their respective personal representatives,
successors and assigns.
INTEGRATION-AMENDMENT:
16. This Agreement contains the entire agreement between the parties
hereto, with respect to the transactions contemplated herein and supersedes all
previous representations, negotiations, commitments and writings with respect
thereto. No amendment or alteration of the terms of this Agreement shall be
valid unless made in writing and signed by all of the parties hereto. This
Agreement supersedes the Employment Agreements between the parties hereto dated
April 15, 1994 and March 1, 1996.
<PAGE>
(This Space Left Blank Intentionally)
<PAGE>
IN WITNESS WHEREOF, the parties have executed this agreement as of the day
and year first above written.
RCM TECHNOLOGIES, INC.
BY:________________________________
ATTEST:___________________________
INTERTEC DESIGN, INC.
BY:________________________________
ATTEST:___________________________
CATARACT, INC.
BY:________________________________
ATTEST:___________________________
___________________________________
LEON KOPYT
APPROVED:
___________________________________
WOODROW B. MOATS, JR.,
CHAIRMAN
COMPENSATION COMMITTEE
<PAGE>
EXHIBIT 'A'
SCHEDULE OF INITIAL COMPENSATION
Initial Salary: $300,000.00 annually, payable in equal weekly installments
Initial Bonus:
On amounts of up to $750,000.00 of operating profits - 3%(*)
On amounts over $750,000.00 and up to $1,500,000.00 of operating profit -
2%(*)
On all amount over $1,500,000.00 of operating profit - 1%(*)
____________________________________________________________________________
(*) Bonus shall be based on Employer's operating profits on a consolidated
basis before state and federal income taxes for the fiscal year ending within
each calendar year during the term of this Agreement. Any such bonus shall be
payable within sixty (60) days following the close of Employer's fiscal year.
APPROVED:
__________________________________
Woodrow B. Moats, Jr., Chairman
Compensation Committee
<PAGE>
RCM TECHNOLOGIES, INC.
1996 EXECUTIVE STOCK PLAN
Effective Date: August 15, 1996
<PAGE>
RCM TECHNOLOGIES, INC.
1996 EXECUTIVE STOCK PLAN
ARTICLE I
DEFINITIONS
1.1 Affiliate means any corporation which, with the Company,
would be included in a "controlled group of corporations" as such term is
defined in Section 1563 of the Code.
1.2 Agreement means a written agreement (including any
amendment or supplement thereto) between the Company and a Participant
specifying the terms and conditions of an Option or Right granted or Award made
to such Participant.
1.3 Award means an Award of restricted Common Stock pursuant to the
provisions of Section 8.1 hereof.
1.4 Board means the Board of Directors of the Company.
1.5 Code means the Internal Revenue Code of 1986, and any amendments
thereto.
1.6 Committee means the Compensation Committee appointed by
the Board which shall consist solely of two or more "non-employee directors" as
defined in Rule 16b- 3(b)(3)(i) of the Exchange Act.
1.7 Common Stock means the common stock of the Company.
1.8 Company means RCM Technologies, Inc.
1.9 Disabled means a Participant is permanently and totally disabled within
the meaning of Section 22(e)(3) of the Code. "Disability" means the condition
which renders the Participant Disabled.
1.9
<PAGE>
Effective Date means August 15, 1996.
1.11 Exchange Act means the Securities Exchange Act of 1934, as amended.
1.12 Fair Market Value as of any day means the average of the highest price
and lowest price per share at which the stock is sold on the National
Association of Securities Dealers Automated Quotation System on such day or, in
the absence of any reported sale on such day, the first preceding day on which
there were such sales.
1.13 Option means a stock option that entitles the holder to
purchase from the Company a stated number of shares of Common Stock at the price
set forth in an Agreement.
1.14 Participant means an individual, who satisfies the
requirements of Article IV and who is selected by the Committee to receive an
Option, Right or Award.
1.15 Plan means the RCM Technologies, Inc. 1996 Executive Stock Plan.
1.16 Retirement means the voluntary termination of employment with the
Company by a Participant subsequent to the Participant's completion of at least
five years of employment with the Company and attainment of age 55, or otherwise
with the express consent of the Board.
1.17 Right means a stock appreciation right granted under the
Plan pursuant to the provisions of Section 7.1 hereof.
ARTICLE II
PURPOSES
The purpose of the Plan is to advance the interests of the Company and its
shareholders by affording to key management employees of the Company and its
Affiliates and members of the Board of Directors of the Company and its
Affiliates an opportunity to acquire or increase their proprietary interest in
the Company by the grant to such individuals of Options, Rights or
- 2 -
<PAGE>
Awards under the terms set forth herein. By thus encouraging such individuals to
become owners of Company shares, the Company seeks to motivate, retain and
attract those highly competent individuals upon whose judgment, initiative,
leadership and continued efforts the success of the Company in large measure
depends. ARTICLE III ADMINISTRATION The Plan shall be administered by the
Committee. The Committee (or the Board, in accordance with Section 4.1 below)
shall have authority to grant Options and Rights or make Awards upon such terms
(not inconsistent with the provisions of this Plan) as the Committee (or the
Board, as applicable) may consider appropriate. Such terms may include
conditions (in addition to those contained in this Plan) on the exercisability
of all or any part of an Option, Right or Award. Notwithstanding any such
conditions, the Committee may, in its discretion, accelerate the time at which
any Option, Right or Award may be exercised. In addition, the Committee shall
have complete authority to interpret all provisions of this Plan, to prescribe
the form of Agreements, to adopt, amend and rescind rules and regulations
pertaining to the administration of the Plan and to make all other
determinations necessary or advisable for the administration of this Plan. The
express grant in the Plan of any specific power to the Committee shall not be
construed as limiting any power or authority of the Committee. Any decision
made, or action taken, by the Committee or in connection with the administration
of this Plan shall be final and conclusive. No member of the Committee shall be
liable for any act done in good faith with respect to this Plan or any Agreement
or Option. All expenses of administering this Plan shall be borne by the
Company.
- 3 -
<PAGE>
ARTICLE IV
ELIGIBILITY
4.1 General. Any officer or other key management employee of
the Company or an Affiliate or member of the Board of Directors of the Company
or an Affiliate, shall be eligible to participate in the Plan. The Committee may
grant Options, Rights or Awards or any combination thereof to any eligible
individual in accordance with such determination as the Committee from time to
time in its sole discretion shall make; provided, however, that any such grant
to a member of the Committee shall be made by the Board and not by the
Committee.
4.2 Grants. The Committee (or the Board, as applicable) will
designate individuals to whom Options, Rights or Awards are to be granted and
will specify the number of shares of Common Stock subject to each grant. All
Options, Rights or Awards granted under this Plan shall be evidenced by
Agreements which shall be subject to applicable provisions of this Plan and to
such other provisions as the Committee may adopt. By way of example and not of
limitation, the Agreement evidencing an Option, Right or Award granted under
this Plan may include provisions accelerating the term, terminating the Option,
Right or Award upon the occurrence of certain events, a requirement that the
Common Stock acquired upon the exercise of the Option, Right or Award be held
under voting trust agreements and provisions regarding the repurchase or call of
such shares at a defined purchase price upon the occurrence of certain events.
ARTICLE V SHARES OF STOCK SUBJECT TO THE PLAN Subject to adjustment pursuant to
the provisions of Sections 6.9 and 10.1 hereafter, the number of shares of
Common Stock which may be issued and sold or otherwise granted
- 4 -
<PAGE>
hereunder shall not exceed 750,000 provided, however that in the absence of
Board approval no more than 250,000 shares may be subject to Awards of
restricted stock hereunder. Such shares may be either authorized or unissued
shares or shares issued and thereafter acquired by the Company. If an Option or
Right is terminated for any reason other than its exercise, or if restricted
stock is repurchased or otherwise re-acquired by the Company, the number of
shares of Common Stock allocated to the Option, Right or Award or portion
thereof may be reallocated to other Options, Rights or Awards to be granted
under this Plan. ARTICLE VI OPTIONS
6.1 Exercise Price. Unless otherwise provided in the Agreement, the price
per share for Common Stock purchased on the exercise of an Option shall be the
Fair Market Value
of the Common Stock on the date of grant.
6.2 Maximum Exercise Period. The maximum period in which an
Option may be exercised shall be determined by the Committee on the date of
grant, but in no event shall such period exceed ten (10) years from the date of
grant of the Option.
6.3 Nontransferability. Any Option granted under this Plan
shall be nontransferable except by will or by the laws of descent and
distribution. During the lifetime of the Participant to whom the Option is
granted, the Option may be exercised only by the Participant. No right or
interest of a Participant in any Option shall be liable for, or subject to, any
lien, obligation, or liability of such Participant.
6.4 Vesting and Exercise. Subject to the provisions of this Article VI,
Article IX and Article X, Options shall vest and may be exercised by the
Participant as determined by
- 5 -
<PAGE>
the Committee. An Option granted under this Plan may be exercised with respect
to any number of whole shares less than the full number for which the Option
could be exercised. A partial exercise of an Option shall not affect the right
to exercise the Option from time to time in accordance with this Plan and the
applicable Agreement with respect to the shares that remain subject to the
Option.
6.5 Vesting Following Termination of Employment, Retirement,
Disability, Death or a Change in Control of the Company. Subject to the
provisions of this Article VI, Article IX and Article X, and except as may
otherwise be provided in the Agreement, the exercise of Options shall be subject
to the following limitations and/or conditions:
(a) Upon the termination of the Participant's employment with the Company
or an Affiliate, the vested portion of the Option shall be exercisable only
during the ninety day period following the date on which the Participant's
employment terminates; provided, however, that if the Company notifies the
Participant in writing that the termination of the Participant's employment is
for "Cause", then the vested portion of the Option may only be exercised on or
before the date that the Participant's employment terminates. Thereafter, all
unexercised Options shall be cancelled.
(b) In the event the Participant ceases to be employed by the Company and
its Affiliates on account of the Participant's Retirement, the Participant's
rights to exercise the Option shall become fully vested (to the extent they are
not otherwise fully vested) and the Participant may only exercise the Option at
any time within one year next following his Retirement, for the number of shares
he was entitled to purchase as of the effective date of his Retirement.
Thereafter, all unexercised Options shall be cancelled.
- 6 -
<PAGE>
If the Participant becomes Disabled during his employment with
the Company or an Affiliate, the Participant's rights to exercise the Option
shall become fully vested (to the extent they are not otherwise fully vested),
and the Participant may only exercise the Option within one year of the date
that he ceased to be employed by the Company and its Affiliates on account of
such Disability. Thereafter, all unexercised Options shall be cancelled.
(d) In the event the Participant dies (i) while employed by the Company or
an Affiliate, (ii) following his Retirement and prior to the expiration of the
Participant's rights under paragraph (b) of this Section 6.5, or (iii) following
his termination of employment on account of Disability and prior to the
expiration of the Participant's rights under paragraph (c) of this Section 6.5,
the Participant's rights to exercise the Option shall become fully vested (to
the extent they are not otherwise fully vested) and the Option may only be
exercised by the Participant's estate, or the person or persons to whom his
rights under the Option shall pass by will or the laws of descent and
distribution, within one year of the Participant's death or during the remainder
of the period in which the Participant could have exercised this Option under
paragraph (b) or (c) of this Section 6.5, as applicable, whichever is shorter.
Thereafter, all unexercised Options shall be cancelled.
6.6 Payment. Unless otherwise provided by the Agreement,
payment of the Option price shall be made in cash, cash equivalent or promissory
note acceptable to the Committee. If the Agreement provides, payment of all or
part of the Option price may be made by surrendering shares of Common Stock to
the Company. If Common Stock is used to pay all or part of the Option price, the
shares surrendered must have a Fair Market Value (determined as of the day
preceding the date of the exercise) that is not less than such price or part
thereof.
6.6
- 7 -
<PAGE>
Rights as Shareholder. No Participant shall have any rights as a
shareholder with respect to shares of Common Stock subject to his Option until
the Option price is paid in accordance with Section 6.6 hereof and the full
amount of all withholding or other employment taxes applicable to the taxable
income of such Participant resulting from the exercise of his Option is paid, in
such manner as the Committee may provide.
6.8 Repurchase of Option Shares. To the extent provided by the
Committee with respect to any Option grant, the Agreement shall provide that
upon termination of employment of the Participant by the Company or its
Affiliates for any reason other than death, Retirement or Disability as
determined by the Committee, if the Company (or its successor or assignee) so
elects and notifies the Participant in writing within 90 days of such
termination (the "Notice of Repurchase"), all shares of Common Stock acquired by
a Participant at any time upon the exercise of an Option and held by the
Participant at the time of such termination or at any time thereafter shall be
sold by the Participant and repurchased by the Company within 90 days of such
Notice of Repurchase for the lower of the price per share which the Participant
paid upon acquisition of such shares or the Fair Market Value of such shares as
of the effective date of such repurchase, and the Participant shall forthwith
surrender and deliver to the Company the legended certificates evidencing such
shares.
6.9 Adjustment upon Changes in Common Stock.
(a) Reorganization, Merger or Sale of Assets. If at any time while an
Option, or any portion thereof, is outstanding and unexpired there shall be (i)
a reorganization (other than a combination, reclassification, exchange or
subdivision of shares otherwise provided for herein), (ii) a merger or
consolidation of the Company with or into another corporation in which the
Company is not the surviving entity, or a merger in which the Company is the
- 8 -
<PAGE>
surviving entity but the shares of the Company's capital stock outstanding
immediately prior to the merger are converted by virtue of the merger into other
property, whether in the form of securities, cash or otherwise, or (iii) a sale
or transfer of substantially all of the Company's properties and assets as, or
substantially as, an entirety to any other person, then, as a part of such
reorganization, merger, consolidation, sale or transfer, subject to the
provisions of Section 10.2 hereafter, lawful provision shall be made so that the
holder of an Option then outstanding shall upon such reorganization, merger,
consolidation, sale or transfer, have the right thereafter by exercising such
Option to purchase the kind and number of shares of Common Stock or other
securities or property (including cash) otherwise receivable upon such
reorganization, merger, consolidation or sale or transfer, by a holder of the
number of shares of Common Stock that might have been purchased upon exercise of
such Option immediately prior to such reorganization, merger, consolidation or
sale or transfer. The foregoing provisions of this Subsection 6.9(i) shall
similarly apply to successive reorganizations, consolidations, mergers, sales
and transfers and to the stock or securities of any other corporation that are
at the time receivable upon the exercise of an Option. If the per-share
consideration payable to the Participant hereof for shares in connection with
any such transaction is in a form other than cash or marketable securities, then
the value of such consideration shall be determined in good faith by the
Committee. In all events, appropriate adjustment (as determined in good faith by
the Committee) shall be made in the application of the provisions of an Option
with respect to the rights and interests of the Participant after the
transaction, to the end that the provisions of an Option shall be applicable
after that event, as near as reasonably may be, in relation to any shares or
other property deliverable after that event upon exercise of an Option.
(a)
- 9 -
<PAGE>
Reclassification. If the Company, at any time while an Option or
any portion thereof, remains outstanding and unexpired, by reclassification of
securities or otherwise, shall change any of the securities as to which purchase
rights under such Option shall thereafter represent the right to acquire such
number and kind of securities as would have been issuable as the result of such
change with respect to the securities that were subject to the purchase rights
under such Option immediately prior to such reclassification or other change and
the exercise price therefore (if applicable) shall be appropriately adjusted,
all subject to further adjustment as provided in this Section 6.9.
(c) Split, Subdivision or Combination of Shares. If the Company at any time
while an Option or any portion thereof, remains outstanding and unexpired shall
split, subdivide or combine the securities as to which purchase rights under
such Option exist, into a different number of securities of the same class, the
exercise price (if applicable) and the number of shares issuable upon exercise
of such Option shall be proportionately adjusted.
(d) Adjustments for Dividends in Stock or Other Securities or Property. If
while an Option or any portion hereof, remains outstanding and unexpired the
holders of the securities as to which purchase rights under such Option exist at
the time shall have received, or, on or after the record date fixed for the
determination of eligible shareholders, shall have become entitled to receive,
without payment therefor, other or additional stock or other securities or
property (other than cash) of the Company by way of dividend, then and in each
case, such Option shall represent the right to acquire, in addition to the
number of shares of the security receivable upon exercise of such Option and
without payment of any additional consideration therefor, the amount of such
other or additional stock or other securities or property (other than cash) of
the Company that such holder would hold on the date of such
- 10 -
<PAGE>
exercise had it been the holder of record of the security receivable upon
exercise of such Option on the date hereof and had thereafter, during the period
from the date hereof to and including the date of such exercise, retained such
shares and/or all other additional stock, other securities or property available
by such Option, Right or Award as aforesaid during such period.
ARTICLE VII
RIGHTS
7.1 Exercise Price. Unless otherwise provided in the Agreement, the price
per share for Common Stock associated with each Right shall be the Fair Market
Value of the Common Stock on the date of grant.
7.2 Maximum Exercise Period. The maximum period in which a
Right may be exercised shall be determined by the Committee on the date of
grant, but in no event shall such period exceed ten (10) years from the date of
grant of the Right.
7.3 Nontransferability. Any Right granted under this Plan
shall be nontransferable except by will or by the laws of descent and
distribution. During the lifetime of the Participant to whom the Right is
granted, the Right may be exercised only by the Participant. No right or
interest of a Participant in any Right shall be liable for, or subject to, any
lien, obligation, or liability of such Participant.
7.4 Manner of Exercise. Subject to the provisions of Articles
VII and X, a Right may be exercised in whole at any time or in part from time to
time at such times and in compliance with such requirements as the Committee
shall determine. A Right granted under this Plan may be exercised with respect
to any number of whole shares less than the full number for which the Right
could be exercised. A partial exercise of a Right shall not affect the right to
- 11 -
<PAGE>
exercise the Right from time to time in accordance with this Plan and the
applicable Agreement with respect to the option shares that remain subject to
the Right.
7.5 Appreciation Available. Each Right shall entitle a
Participant to the amount of appreciation equal to (i) the excess of the Fair
Market Value of a share of Common Stock on the exercise date over (ii) the
exercise price of the Right. The total appreciation available to a Participant
from any exercise of Rights shall be equal to the number of Rights being
exercised, multiplied by the amount of appreciation per Right determined under
the preceding sentence.
7.6 Payment of Appreciation. In the discretion of the
Committee, the total appreciation available to a Participant from an exercise of
Rights may be paid to the Participant either in Common Stock or in cash. If paid
in cash, the amount thereof shall be the amount of appreciation determined under
Section 7.5 above. If paid in Common Stock, the number of shares of Common Stock
that shall be issued pursuant to the exercise of Rights shall be determined by
dividing the amount of appreciation determined under Section 7.5 above by the
Fair Market Value of a share of Common Stock on the exercise date of the Rights;
provided, however, that no fractional shares shall be issued upon the exercise
of Rights. No such payments of cash or Common Stock shall be made until the full
amount of all withholding or other employment taxes applicable to the taxable
income of such Participant resulting from the exercise of his Right is paid, in
such manner as the Committee may provide.
7.7 Rights Tandem To Options. In the discretion of the
Committee, Rights may be granted in conjunction with the grant of Options; such
Rights may be in tandem with such Options. Unless otherwise provided in the
Agreement all such Rights shall be subject to the vesting and exercise
limitations applicable to such Options.
7.7
- 12 -
<PAGE>
Rights as Shareholder. No Participant shall have any rights as a
shareholder with respect to the appreciation being paid in the form of Common
Stock pursuant to Section 7.6 above until the withholding and other employment
tax obligations referred to therein are satisfied.
ARTICLE VIII
AWARDS
8.1 General. Each Award granted hereunder must be granted
within ten years from the effective date of the Plan and shall be evidenced by a
written Restricted Stock Purchase Agreement dated as of the date of the Award,
which Agreement shall set forth such terms and conditions as may be determined
by the Committee consistent with the Plan, including but not limited to the
restrictions set forth in Section 8.3 hereof, and which Agreement shall
constitute the entire agreement between the Company and the Participant with
respect to such Award and the Common Stock subject thereto.
No rights of the Participant under an Award or a Restricted
Stock Purchase Agreement shall be transferable other than by will or the laws of
descent and distribution, and such rights shall be exercisable during the
Participant's lifetime only by him.
8.2 Stock Purchase Price. The per share purchase price of the
Common Stock subject to each Award shall be determined by the Committee on the
date of grant, and the aggregate purchase price of the Common Stock must unless
otherwise agreed by the Committee be paid in full to the Company at its
principal office within thirty (30) days after the date of the Award. Payment
for the shares subject to each Award shall be made in cash, or in the discretion
of the Committee, cash equivalent or promissory note acceptable to the
Committee.
8.2
- 13 -
<PAGE>
Repurchase of Shares. Upon termination of employment of the Participant
by the Company or its Affiliates for any reason other than death, Retirement or
Disability as determined by the Committee, if the Company (or its successor or
assignee) so elects and upon delivery of a Notice of Termination within 90 days
of such termination, all such shares of Common Stock awarded to the Participant
and held as of the date of such termination shall be sold and repurchased by the
Company within 90 days of such Notice of Repurchase for the lower of the price
per share which the Participant paid upon acquisition of such shares or the Fair
Market Value of such shares as of the effective date of such repurchase, and the
Participant shall forthwith surrender and deliver to the Company the legended
certificates evidencing such shares.
8.4 Rights as Shareholder. Subject to the provisions of
Section 8.3 hereof, upon payment by the Participant of the purchase price of
restricted Common Stock as set forth in Section 8.2 hereof, and the payment of
withholding and other employment tax obligations the Participant shall have all
the rights of a shareholder with respect to such shares of Common Stock,
including the right to vote the shares and receive all dividends and other
distributions paid or made with respect thereof. ARTICLE IX COMPLIANCE WITH LAW
AND APPROVAL OF REGULATORY BODIES It is intended that the Options, Rights and
Awards granted hereunder shall be exempt from Section 16(b) of the Exchange Act.
Whenever possible, each provision of this Plan or each Agreement shall be
interpreted in such a manner as to cause such Option, Right or Award to be so
exempt from Section 16(b) of the Exchange Act. If a provision of this Plan or
the Agreement shall cause such Option, Right or Award not to be exempt under
Section 16(b) of the Exchange Act, such provision at the discretion of the
Committee shall be deemed ineffective to the extent it
- 14 -
<PAGE>
shall cause such failure to be exempt without invalidating the remainder of such
provision, the Plan or the Agreement. The Options granted hereunder are not
"incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1986. No Option or Right shall be exercisable, no Common Stock
shall be issued, no certificates for shares of Common Stock shall be delivered,
no restricted stock exchanged and no payment shall be made under this Plan
except in compliance with all applicable federal and state laws and regulations
(including, without limitation, withholding tax requirements), any listing
agreement to which the Company is a party, and the rules of all domestic stock
exchanges on which the Company's shares may be listed. The Company shall have
the right to rely on an opinion of its counsel as to such compliance. Any share
certificate issued to evidence Common Stock for which an Option or Right is
exercised may bear such legends and statements as the Committee may deem
advisable to assure compliance with federal and state laws and regulations. No
Option or Right shall be exercisable, no Common Stock shall be issued, no
certificate for shares shall be delivered, no restricted stock exchanged and no
payment shall be made under this Plan until the Company has obtained such
consent or approval as the Committee may deem advisable from regulatory bodies
having jurisdiction over such matters. ARTICLE X GENERAL PROVISIONS
10.1 Capital Adjustments.
(a) The maximum number of shares as to which Options, Rights or Awards may
be granted under this Plan shall be proportionately adjusted, and the terms of
outstanding Options, Rights or Awards shall be adjusted, as the Committee shall
determine to be equitably required, in the event that the Company effects one or
more stock dividends, stock
- 15 -
<PAGE>
split-ups or reverse stock splits, recapitalization, combinations,
reclassifications, subdivisions, consolidations of shares or like change in the
capital structure of the Company. Any determination made under this Article X by
the Committee shall be final and conclusive.
(b) The issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, for cash or property,
or for labor or services, either upon direct sale or upon the exercise of rights
or warrants to subscribe therefor, or upon conversion of shares or obligations
of the Company convertible into such shares or other securities, shall not
affect, and no adjustment by reason thereof shall be made with respect to,
outstanding awards of Options or Rights.
(c) The Committee may grant Options, Rights or Awards in substitution for
stock awards, stock options, stock appreciation rights, or similar awards in
connection with a transaction described in Sub-section 10.1(a). Notwithstanding
any provision of the Plan (other than the limitation of Article V), the terms of
such substituted Option grant shall be as the Committee, in its discretion,
determines is appropriate; provided, however, that no such action by the
Committee shall deprive any person, without such person's consent, of any rights
previously granted pursuant to the Plan.
10.2 Termination of Options and Rights. The Committee, in its
sole discretion, may terminate all or less than all of the outstanding Options
and Rights in the event of the liquidation of the Company or in the event that
the Company is party to a corporate transaction described in Section 6.9. In the
event of such termination, the Committee shall give each Participant written
notice of the termination and a period of fourteen days in which to exercise his
Options and Rights, to the extent they are otherwise exercisable. The Committee,
in its sole
- 16 -
<PAGE>
discretion, may accelerate the exercisability of an Option or Right to allow for
its exercise during such fourteen day period.
10.3 Restrictions on Sale or Other Transfer. Each share of
Common Stock purchased pursuant to each Restricted Stock Purchase Agreement or
issued upon exercise of an Option or a Right shall be subject to the following
restrictions:
(a) Stock certificates evidencing such shares shall be issued in the sole
name of the Participant and delivered to him, and each such certificate shall
bear the following legend:
(i) "THE SHARES OF RCM TECHNOLOGIES, INC.
COMMON STOCK EVIDENCED BY THIS
CERTIFICATE ARE SUBJECT TO REPURCHASE BY
RCM TECHNOLOGIES, INC., AND SUCH SHARES
MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED EXCEPT PURSUANT TO THE
PROVISIONS OF THE RESTRICTED STOCK
PURCHASE AGREEMENT BY AND BETWEEN RCM
TECHNOLOGIES, INC. AND THE REGISTERED
OWNER OF SUCH SHARES."
(ii) "THE SHARES OF RCM TECHNOLOGIES, INC.
COMMON STOCK EVIDENCED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY
NOT BE SOLD, TRANSFERRED, ASSIGNED OR
HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT
COVERING SUCH SECURITIES, THE SALE IS MADE
IN ACCORDANCE WITH RULE 144 OR RULE 701
UNDER THE ACT, OR THE COMPANY RECEIVES AN
OPINION OF COUNSEL FOR THE HOLDER OF THESE
SECURITIES REASONABLY SATISFACTORY TO THE
COMPANY, STATING THAT SUCH SALE, TRANSFER,
ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM
THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF SUCH ACT."
- 17 -
<PAGE>
No such share of Common Stock may be sold, transferred, or
otherwise alienated or hypothecated so long as the certificate evidencing such
share bears the legend provided for in paragraph (a)(i) of this Section 10.3.
10.4 Lapse of Restrictions.
(a) Upon termination of employment of the Participant by the Company or its
Affiliates by reason of, but only by reason of, death, Retirement or Disability
as determined by the Committee, the lapse of the repurchase provisions of this
Plan or any Agreement, and, upon surrender and presentation to the Company of
the legended certificates evidencing such shares of Common Stock, the Company
shall cause new certificates evidencing such shares to be issued and delivered
to the Participant or his legal representative, free from the legends provided
for in paragraph (a)(i) of Section 10.3 hereof.
(b) The foregoing notwithstanding, no stock certificate shall be delivered
to the Participant or his legal representative as hereinabove provided unless
and until the Participant or his legal representative shall have paid to the
Company in cash or otherwise as the Committee may provide the full amount of all
withholding or other employment taxes applicable to the taxable income of such
Participant resulting form the lapse of such restrictions.
10.5 Effect on Employment, Etc. Neither the adoption of this Plan, its
operation, nor any documents describing or referring to this Plan (or any part
thereof) shall confer upon any individual any right to continue in the employ or
service of the Company or an Affiliate or in any way affect any right and power
of the Company or an Affiliate to terminate the employment or service of any
person at any time with or without assigning a reason therefor.
10.6 Other Compensation Plans. The adoption of the Plan shall not affect
any other stock option or incentive or other compensation plans in effect for
the Company or any
- 18 -
<PAGE>
Affiliate, nor shall the Plan preclude the Company or any Affiliate from
establishing any other forms of incentive or other compensation for employees of
the Company or any Affiliate.
10.7 Unfunded Plan. The Plan, insofar as it provides for
grants, shall be unfunded, and the Company shall not be required to segregate
any assets that may at any time be represented by grants under this Plan. Any
liability of the Company to any person with respect to any grant under this Plan
shall be based solely upon any contractual obligation that may be created
pursuant to this Plan. No such obligation of the Company shall be deemed to be
secured by any pledge of, or other encumbrance on, any property of the Company.
10.8 Rules of Construction. Headings are given to the articles
and sections of this Plan solely as a convenience to facilitate reference. The
reference to any statute, regulation, or other provision of law shall be
construed to refer to any amendment to or successor of such provision of law.
10.9 Governing Law. This Plan and each Agreement shall be governed by the
laws of the Commonwealth of Pennsylvania. ARTICLE XI
AMENDMENT
The Board may amend or terminate this Plan from time to time; provided, however,
that no amendment shall, without a Participant's consent, adversely affect any
rights of such Participant under any Option , Right or Award that is outstanding
at the time such amendment is made.
- 19 -
<PAGE>
ARTICLE XII
DURATION OF PLAN
No Option, Right or Award may be granted under this Plan after January 1, 2006.
Options, Rights and Awards granted before that date shall remain valid in
accordance with their terms. ARTICLE XIII EFFECTIVE DATE OF PLAN Options, Rights
and Awards may be granted under this Plan upon its adoption by the Board.
Approved and Adopted this 15th day of August, 1996.
RCM TECHNOLOGIES, INC.
BY:_________________________
Executive Officer
Ratified By:
-----------------------------
Woodrow B. Moats, Jr.
Chairman of the Compensation Committee
- 20 -
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS.
THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF REGISTRATION, OR THE AVAILABILITY OF EXEMPTION FROM REGISTRATION,
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, BASED ON AN OPINION LETTER OF
COUNSEL SATISFACTORY TO THE COMPANY OR A NO-ACTION LETTER FROM THE SECURITIES
AND EXCHANGE COMMISSION."
OPTION TO PURCHASE COMMON STOCK
OF
RCM TECHNOLOGIES, INC.
Void after November 21, 2006
This certifies that, for value received, Leon Kopyt ("Holder"), is
entitled, subject to the terms set forth below, to purchase from RCM
TECHNOLOGIES, INC. (the "Company"), a Nevada corporation, 500,000 shares of the
Common Stock of the Company (the "Shares"), commencing on the date hereof (the
"Option Issue Date"), upon presentation of the Notice of Exercise attached
hereto duly executed, and simultaneous payment therefor in lawful money of the
United States, or as otherwise provided for herein, at the Exercise Price and
subject to the other conditions set forth in Section 2 below. The number,
character and Exercise Price of the Shares are subject to adjustment as provided
been granted pursuant to the terms of the RCM Technologies, Inc. 1996 Executive
Stock Plan (the "Plan"), and the terms of the Options granted hereunder are
subject to the terms of the Plan unless otherwise granted hereunder.
1. Term of Option. Subject to compliance with the vesting provisions
identified at Paragraph 2.3 hereafter, this Option shall be exercisable, in
whole or in part, during the term commencing on the Option Issue Date and ending
at 5:00 p.m. Eastern Standard Time, on November 21, 2006 (the 'Option
Termination Date), and shall be void thereafter.
2. Exercise Price, Number of Shares and Vesting Provisions.
2.1 Exercise Price. The Exercise Price at which this Option may be
exercised shall be $7.125 per share of Common Stock, as adjusted pursuant to
Section 11 hereof.
2.2 Number of Shares. The number of shares of the Company's Common Stock,
$.01 par value per share ('Common Stock') which may be purchased pursuant to
this Option shall be 500,000 shares, as adjusted pursuant to Section 11 hereof.
2.3 Vesting. The Options granted hereunder shall vest in accordance with
the following schedule:
(i) 125,000 Options shall vest on the Option Issue Date; (ii) 125,000
additional Options shall vest on February 28, 1997, provided
Holder remains continuously employed by the Company from the Option Issue Date
through February 28, 1997;
<PAGE>
(iii) 125,000 additional Options shall vest on February 28, 1998, provided
Holder remains continuously employed by the Company from the Option Issue Date
through February 28, 1998; and
(iv) 125,000 additional Options shall vest on February 28, 1999, provided
Holder remains continuously employed by the Company from the Option Issue Date
through February 28, 1999.
2.4 Partial Vesting
Notwithstanding the provisions of Paragraph 2.3 hereof:
(i) the Options identified at subparagraph 2.3(iii) shall vest on the
earlier of (x) February 28, 1998, or (y) once the "market capitalization" of the
Company has been equal to or greater than $60 million for a period of thirty
(30) consecutive trading days; and
(ii) the Options identified at paragraph 2.3(iv) shall vest on the earlier
of (x) February 28, 1999; or (y) once the "market capitalization" of the Company
has been equal to or greater than $75 million for a period of thirty (30)
consecutive trading days.
For purposes of this Paragraph 2.4, the term "trading day" shall mean any
day on which the New York Stock Exchange is open for trading, and the term
"market capitalization" shall be defined as the product of the "market value"
(as such term is defined in the immediately following two sentences) of the
Company's Common Stock and the number of shares of Common Stock outstanding as
determined on each of the trading days. If the Company's Common Stock is traded
in the over-the-counter market and not on any national securities exchange nor
in the NASDAQ Reporting System, the market value shall be the average of the
mean between the last bid and ask prices per share, as reported by the National
Quotation Bureau, Inc., or an equivalent generally accepted reporting service,
or if not so reported, the average of the closing bid and asked prices for a
share as furnished to the Company by any member of the National Association of
Securities Dealers, Inc., selected by the Company for that purpose. If the
Company's Common Stock is traded on a national securities exchange or in the
NASDAQ Reporting System, the market value for each of the trading days shall be
the closing sale prices at which a share of the Company's Common Stock traded
for each of the trading days.
2.5 Immediate Vesting. Notwithstanding the provisions of Paragraphs 2.3 and
2.4 hereof, all of the Options shall immediately vest and become immediately
exercisable by Holder:
(i) If a "Change in Control" of the Company occurs;
(ii) If during the term hereof, Holder is terminated from the employ of the
Company for any reason whatsoever other than for "good and sufficient cause"; or
2
<PAGE>
(iii) If during the term hereof, Holder is terminated from the employ of
the Company by reason of his death or disability within the meaning of Section
22(e) of the Internal Revenue Code of 1986, as amended (the "Code").
The term "Change in Control" (hereafter a "Change in Control") shall have
the meaning ascribed thereto in the Amended and Restated Termination Benefits
Agreement between the Company and the Holder dated November 30, 1996, the
'(hereafter 'good and sufficient cause')shall have the meaning ascribed thereto
in the Amended and Restated Employment Agreement between the Company and the
Holder dated November 30, 1996 (the 'Employment Agreement').
2.6. Termination of the Option.
(i) Death or Disability. If the Holder ceases to be an employee of the
Company by reason of the death or disability of the Holder within the meaning of
Section 22(e) of the Code, the Option, to the extent vested and unexercised by
the Holder may be exercised by the Holder (or the Holder's legal representative)
at any time prior to the earlier of: (a) five (5) years from the date on which
the Holder's employment by the Company is terminated; or (ii) the Option
Termination Date.
(ii) Voluntary Resignation. If the Holder ceases to be an employee of the
Company by reason of his voluntary resignation, the Option, to the extent
unexercised and exercisable by the Holder on the date of such resignation, may
be exercised by the Holder (or the Holder's legal representative) at any time
prior to the expiration of one hundred and eighty (180) days from the date on
which the Holder ceased to be employed by the Company, but in any event no later
than the Option Termination Date.
(iii) Termination for Cause. If the Holder's employment is terminated for
Good and Sufficient Cause, the Option, to the extent unexercised and exercisable
by the Holder on the date of such termination, may be exercised prior to the
expiration of ninety (90) days from the date in which the Holder's employment by
the Company is terminated and thereafter shall be canceled.
(iv) Termination by virtue of a Change in Control or for other than Good
and Sufficient Cause. The Option Termination Date and other conditions
associated with the exercise of this Option shall not be effected upon a
termination of Holder's employment by the Company if such termination was (a)
subsequent to a Change in Control; or (b) for other than Good and Sufficient
Cause.
3. Exercise of Option.
3.1 Payment of Exercise Price. The Exercise Price shall either be payable
in cash or by bank or certified check; or by cashless exercise through the
delivery by the Holder to the Company of shares of the Company's Common Stock
for which Holder is the record and beneficial owner, or a withholding by the
Company of shares of Common Stock that Holder is otherwise
3
<PAGE>
entitled to receive upon exercise of the Option or by any combination
thereof. If shares of common stock of the Company are tendered or withheld as
payment of the Exercise Price, the value of such shares shall be their 'market
value' as of the trading date immediately preceding the date of exercise. The
'market value' shall be:
(a) If the Company's common stock is traded in the over-the-counter market
and not on any national securities exchange nor in the NASDAQ Reporting System,
the market value shall be the average of the mean between the last bid and ask
prices per share, as reported by the National Quotation Bureau, Inc., or an
equivalent generally accepted reporting service, or if not so reported, the
average of the closing bid and asked prices for a share as furnished to the
Company by any member of the National Association of Securities Dealers, Inc.,
selected by the Company for that purpose.
(b) If the Company's common stock is traded on a national securities
exchange or in the NASDAQ Reporting System, the market value shall be either (i)
the simple average of the high and low prices at which a share of the Company's
common stock traded, as quoted on the NASDAQ-NMS or its other principal
exchange, or (ii) the price of the last sale of a share of common stock as
similarly quoted, whichever is higher, and rounding out such figure to the next
higher multiple of 12.5 cents (unless the figure is already a multiple of 12.5
cents).
If such tender would result in an issuance of a whole number of shares and
a fractional share of Common Stock, the value of such fractional share shall be
paid to the Company in cash or by check by the Holder.
3.2 Exercise of Option.
(a) The purchase rights represented by this Option are exercisable by the
Holder in whole or in part, at any time, or from time to time, by the surrender
of this Option and the Notice of Exercise annexed hereto duly completed and
executed on behalf of the Holder, at the office of the Company (or such other
office or agency of the Company as it may designate by notice in writing to the
Holder at the address of the Holder appearing on the books of the Company).
(b) This Option shall be deemed to have been exercised immediately prior to
the close of business on the date of its surrender for exercise as provided
above, and the person entitled to receive the shares of Common Stock issuable
upon such exercise shall be treated for all purposes as the holder of record of
such shares as of the close of business on such date. As promptly as practicable
on or after such date and in any event within ten (10) days thereafter, the
Company at its expense shall issue and deliver to the person or persons entitled
to receive the same a certificate or certificates for the number of shares
issuable upon such exercise. In the event that this Option is exercised in part,
the Company at its expense will execute and deliver a new Option of like tenor
exercisable for the number of shares for which this Option may then be
exercised.
4
<PAGE>
4. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this Option.
In lieu of any fractional share to which the Holder would otherwise be entitled,
the Company shall make a cash payment equal to the Exercise Price multiplied by
such fraction.
5. Replacement of Option. On receipt of evidence reasonably satisfactory to
the Company of the loss, theft, destruction or mutilation of this Option and, in
the case of loss, theft or destruction, on delivery of an indemnity agreement
reasonably satisfactory in form and substance to the Company or, in the case of
mutilation, on surrender and cancellation of this Option, the Company at its
expense shall execute and deliver, in lieu of this Option, a new Option of like
tenor and amount.
6. Rights of Stockholder. Except as otherwise contemplated herein, the
Holder shall not be entitled to vote or receive dividends or be deemed the
holder of Common Stock or any other securities of the Company that may at any
time be issuable on the exercise hereof for any purpose, nor shall anything
contained herein be construed to confer upon the Holder, as such, any of the
rights of a stockholder of the Company or any right to vote for the election of
directors or upon any matter submitted to stockholders at any meeting thereof,
or to give or withhold consent to any corporate action (whether upon any
recapitalization, issuance of stock, reclassification of stock, change of par
value, or change of stock to no par value, consolidation, merger, conveyance or
otherwise) or to receive notice of meetings, or to receive dividends or
subscription rights or otherwise until the Option shall have been exercised as
provided herein.
7. Transfer of Option.
7.1. Non-Transferability. Prior to vesting in accordance with paragraph 2
herein, the Option shall not be assigned, transferred, pledged or hypothecated
in any way, nor subject to execution, attachment or similar process, otherwise
than by will or by the laws of descent and distribution. To the extent the
Options have vested, transfers thereof which comply with the remaining
provisions of this paragraph 7 may be undertaken upon the prior written consent
of the Company, which consent shall not be unreasonably withheld. Any attempted
assignment, transfer, pledge, hypothecation or other disposition of the Option
contrary to the provisions hereof, and the levy of an execution, attachment, or
similar process upon the Option, shall be null and void and without effect.
7.2. Exchange of Option Upon a Transfer. On surrender of this Option for
exchange, properly endorsed, the Company at its expense shall issue to or on the
order of the Holder a new Option or Options of like tenor, in the name of the
Holder or as the Holder (on payment by the Holder of any applicable transfer
taxes) may direct, of the number of shares issuable upon exercise hereof.
7.3. Compliance with Securities Laws; Restrictions on Transfers.
(a) The Holder of this Option, by acceptance hereof, acknowledges that this
Option and the Shares to be issued upon exercise hereof are being acquired
solely for the
5
<PAGE>
Holder's own account and not as a nominee for any other party, and for
investment (unless such shares are subject to resale pursuant to an effective
prospectus), and that the Holder will not offer, sell or otherwise dispose of
this Option or any Shares to be issued upon exercise hereof except under
circumstances that will not result in a violation of applicable federal and
state securities laws. Upon exercise of this Option, the Holder shall, if
requested by the Company, confirm in writing, in a form satisfactory to the
Company, that the shares of Common Stock so purchased are being acquired solely
for the Holder's own account and not as a nominee for any other party, for
investment (unless such shares are subject to resale pursuant to an effective
prospectus), and not with a view toward distribution or resale.
(b) Neither this Option nor any share of Common Stock issued upon exercise
of this Option may be offered for sale or sold, or otherwise transferred or sold
in any transaction which would constitute a sale thereof within the meaning of
the Securities Act of 1933, as amended (the '1933 Act'), unless (i) such
security has been registered for sale under the 1933 Act and registered or
qualified under applicable state securities laws relating to the offer an sale
of securities, or (ii) exemptions from the registration requirements of the 1933
Act and the registration or qualification requirements of all such state
securities laws are available and the Company shall have received an opinion of
counsel satisfactory to the Company that the proposed sale or other disposition
of such securities may be effected without registration under the 1933 Act and
would not result in any violation of any applicable state securities laws
relating to the registration or qualification of securities for sale, such
counsel and such opinion to be satisfactory to the Company. (c) All Shares
issued upon exercise hereof shall be stamped or imprinted with a legend in
substantially the following form (in addition to any legend required by state
securities laws).
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY APPLICABLE
STATE SECURITIES LAWS. THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION, OR THE AVAILABILITY OF
EXEMPTION FROM REGISTRATION, UNDER THE SECURITIES ACT OF 1933, AS AMENDED, BASED
ON AN OPINION LETTER OF COUNSEL SATISFACTORY TO THE COMPANY OR A NO-ACTION
LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION."
(d) Holder recognizes that investing in the Option and the Common Stock
involves a high degree of risk, and Holder is in a financial position to hold
the Option and the Common Stock indefinitely and is able to bear the economic
risk and withstand a complete loss of its investment in the Option and the
Common Stock. The Holder is a sophisticated investor and is capable of
evaluating the merits and risks of investing in the Company. The Holder has had
an opportunity to discuss the Company's business, management and financial
affairs with the Company's management, has been given full and complete access
to information concerning the Company, and has utilized such access to its
satisfaction for the purpose of obtaining information or verifying information
and has had the opportunity to inspect the Company's operation. Holder has had
the opportunity to ask questions of, and receive answers from the management of
the Company
6
<PAGE>
(and any person acting on its behalf) concerning the Option and the Common
Stock and the agreements and transactions contemplated hereby, and to obtain any
additional information as Holder may have requested in making its investment
decision.
(e) Holder acknowledges and represents: (i) that he has been afforded the
opportunity to review and is familiar with the quarterly, annual and periodic
reports of the Company and has based his decision to invest solely on the
information contained therein and has not been furnished with any other
literature, prospectus or other information except as included in such reports;
(ii) he is at least 21 years of age; (iii) he has adequate means of providing
for his current needs and personal contingencies; (iv) he has no need for
liquidity for his investment in the Option or Common Stock; (v) he maintains his
domicile and is not a transient or temporary resident at the address on the
books and records of the Company; (vi) all of his investments and commitments to
non-liquid assets and similar investments are, after his acquisition of the
Option and Common Stock, will be reasonable in relation to his net worth and
current needs; (vii) he understands that no federal or state agency has approved
or disapproved the Option or Common Stock or made any finding or determination
as to the fairness of the Option and Common Stock for investment; and (viii) he
recognizes that the Common Stock is presently eligible for trading on The NASDAQ
Stock Market, however, that the Company has made no representations, warranties,
or assurances as to the future trading value of the Common Stock, whether a
public market will continue to exist for the resale of the Common Stock, or
whether the Common Stock can be sold at a price reflective of past trading
history at any time in the future.
8. Reservation and Issuance of Stock.
(a) The Company covenants that during the term that this Option is
exercisable, the Company will reserve from its authorized and unissued Common
Stock a sufficient number of shares to provide for the issuance of the shares
upon the exercise of this Option, and from time to time will take all steps
necessary to amend its Certificate of Incorporation to provide sufficient
reserves of shares of Common Stock issuable upon the exercise of the Option.
(b) The Company further covenants that all shares of Common Stock issuable
upon the due exercise of this Option will be free and clear from all taxes or
liens, charges and security interests created by the Company with respect to the
issuance thereof, however, the Company shall not be obligated or liable for the
payment of any taxes, liens or charges of Holder, or any other party
contemplated by paragraph 7, incurred in connection with the issuance of this
Option or the Common Stock upon the due exercise of this Option. The Company
agrees that its issuance of this Option shall constitute full authority to its
officers who are charged with the duty of executing stock certificates to
execute and issue the necessary certificates for the shares of Common Stock upon
the exercise of this Option. The Common Stock issuable upon the due exercise of
this Option, will, upon issuance in accordance with the terms hereof, be duly
authorized, validly issued, fully paid and non-assessable.
9. Notices.
7
<PAGE>
(a) Whenever the Exercise Price or number of shares purchasable hereunder
shall be adjusted pursuant to Section 11 hereof, the Company shall issue a
certificate signed by its Chief Financial Officer setting forth, in reasonable
detail, the event requiring the adjustment, the amount of the adjustment, the
method by which such adjustment was calculated, and the Exercise Price and
number of shares purchasable hereunder after giving effect to such adjustment,
and shall cause a copy of such certificate to be mailed (by first-class mail,
postage prepaid) to the Holder of this Option.
(b) All notices, advices and communications under this Option shall be
deemed to have been given, (i) in the case of personal delivery, on the date of
such delivery and (ii) in the case of mailing, on the third business day
following the date of such mailing, addressed as follows:
8
<PAGE>
9
<PAGE>
If to the Company:
RCM Technologies, Inc.
2500 McClellan Avenue
Suite 3500
Pennsauken, NJ 08109
Attention: Chairman of the Compensation Committee
With a Copy to:
Stephen M. Cohen, Esquire
Buchanan Ingersoll Professional Corporation
1200 Two Logan Square
18th and Arch Streets
Philadelphia, PA 19103-2771
and to the Holder:
at the address of the Holder appearing on the books
of the Company or the Company's transfer agent, if
any.
Either of the Company or the Holder may from time to time change the
address to which notices to it are to be mailed hereunder by notice in
accordance with the provisions of this Paragraph 9.
10. Amendments.
(a) Any term of this Option may be amended with the written consent of the
Company and the Holder. Any amendment effected in accordance with this Section
10 shall be binding upon the Holder, each future holder and the Company.
(b) No waivers of, or exceptions to, any term, condition or provision of
this Option, in any one or more instances, shall be deemed to be, or construed
as, a further or continuing waiver of any such term, condition or provision.
11. Adjustments. The number of Shares of Common Stock purchasable hereunder
and the Exercise Price is subject to adjustment from time to time upon the
occurrence of those events, and in the manner established in subsection 6.9 of
Article VI and in Article X of the Plan.
12. Status of the Option.
12.1 Subject to the Plan. The Option is issued under the Plan and is to be
subject to the terms of the Plan unless otherwise provided for herein.
10
<PAGE>
12.2 Treatment Under Relevant Tax and Securities Laws. This Option is
intended to be a nonqualified stock option and shall not be treated as an
incentive stock option as described in Section 422 of the Code. It is intended,
however, that this Option shall be exempt from the provisions of Section 16(a)
of the Securities Exchange Act of 1934, as amended.
13. Severability. Whenever possible, each provision of this Option shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Option is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
the validity, legality or enforceability of any other provision of this Option
in such jurisdiction or affect the validity, legality or enforceability of any
provision in any other jurisdiction, but this Option shall be reformed,
construed and enforced in such jurisdiction as if such invalid, illegal or
unenforceable provision had never been contained herein.
14. Governing Law. The corporate law of the State of Nevada shall govern
all issues and questions concerning the relative rights of the Company and its
stockholders. All other questions concerning the construction, validity,
interpretation and enforceability of this Option and the exhibits and schedules
hereto shall be governed by, and construed in accordance with, the laws of the
State of Nevada, without giving effect to any choice of law or conflict of law
rules or provisions that would cause the application of the laws of any
jurisdiction other than the State of Nevada.
15. Jurisdiction. The Holder and the Company agree to submit to personal
jurisdiction and to waive any objection as to venue in the federal or state
courts in the City of Philadelphia, Pennsylvania. Service of process on the
Company or the Holder in any action arising out of or relating to this Option
shall be effective if mailed to such party at the address listed in Section 9
hereof.
16. Arbitration. If a dispute arises as to interpretation of this Option,
it shall be decided finally by three arbitrators in an arbitration proceeding
conforming to the Rules of the American Arbitration Association applicable to
commercial arbitration. The arbitrators shall be appointed as follows: one by
the Company, one by the Holder and the third by the said two arbitrators, or, if
they cannot agree, then the third arbitrator shall be appointed by the American
Arbitration Association. The third arbitrator shall be chairman of the panel and
shall be impartial. The arbitration shall take place in the City of
Philadelphia, Pennsylvania. The decision of a majority of the Arbitrators shall
be conclusively binding upon the parties and final, and such decision shall be
enforceable as a judgment in any court of competent jurisdiction. Each party
shall pay the fees and expenses of the arbitrator appointed by it, its counsel
and its witnesses. The parties shall share equally the fees and expenses of the
impartial arbitrator.
17. Corporate Power; Authorization; Enforceable Obligations. The execution,
delivery and performance by the Company of this Agreement: (i) are within the
Company's corporate power; (ii) have been duly authorized by all necessary or
proper corporate action; (iii) are
11
<PAGE>
not in contravention of the Company's certificate of incorporation or
by-laws; (iv) will not violate in any material respect, any law or regulation,
including any and all Federal and state securities laws, or any order or decree
of any court or governmental instrumentality; and (v) will not, in any material
respect, conflict with or result in the breach or termination of, or constitute
a default under any agreement or other material instrument to which the Company
is a party or by which the Company is bound.
18. Successors and Assigns. This Option shall inure to the benefit of and
be binding on the respective successors, assigns and legal representatives of
the Holder and the Company.
IN WITNESS WHEREOF, the Company has caused this Option to be executed by
its officers thereunto duly authorized.
Dated: November 30, 1996
HOLDER
--------------------------------
Leon Kopyt
RCM TECHNOLOGIES, INC.
BY:______________________________
Executive Officer
Acknowledged and Ratified
BY:______________________________
Chairman of the
Compensation Committee
12
<PAGE>
13
<PAGE>
NOTICE OF EXERCISE
TO: [_____________________________]
(1) The undersigned hereby elects to purchase _______ shares of Common
Stock of [___________________________] pursuant to the terms of the attached
Option, and tenders herewith payment of the purchase price for such shares in
full.
(2) In exercising this Option, the undersigned hereby confirms and
acknowledges that the shares of Common Stock to be issued upon conversion
thereof are being acquired solely for the account of the undersigned and not as
a nominee for any other party, and for investment (unless such shares are
subject to resale pursuant to an effective prospectus), and that the undersigned
will not offer, sell or otherwise dispose of any such shares of Common Stock
except under circumstances that will not result in a violation of the Securities
Act of 1933, as amended, or any state securities laws.
(3) Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below:
-----------------------------------
(Name)
-----------------------------------
(Name)
- -------------------------- -----------------------------------
(Date) (Signature)
14
<PAGE>
EXHIBIT 11
RCM TECHNOLOGIES, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
Years Ended October 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1996 1995 1994
Income
Income applicable to common stock $2,367,939 $ 849,105 $1,426,005
Shares
Weighted average number of common
shares outstanding 4,247,907 14,669,093 14,375,386
Common stock equivalents 72,664 370,754 275,995
Total 4,320,571 15,039,847 14,651,381
Primary income per share $.55 $.06 $.10
Fully diluted earnings per share $.55 $.06 $.10
</TABLE>
EXHIBIT 13
ANNUAL REPORT TO SECURITY HOLDERS
[Inside Front Cover]
RCM TECHNOLOGIES, INC.
Professional Staffing Specialists
RCM Technologies, Inc. is a publicly traded corporation listed on the
NASDAQ exchange (RCMT), with corporate headquarters in Pennsauken, New Jersey.
Operating through three wholly-owned subsidiaries -- Cataract, Inc.; Consortium,
Inc.; and Intertec Design, Inc. -- RCM is a full-service, national, outsource
provider of contract, temporary and full-time personnel. Emphasis is on
providing specialized professional staff in engineering, information technology
and healthcare functions. RCM and its subsidiary companies serve [more than 700]
clients through 29 branch offices in 11 states.
<PAGE>
PRESIDENT'S LETTER
Dear Shareholders, Clients, Colleagues and Friends:
I am pleased to report that RCM Technologies, Inc. registered
outstanding performance in 1996. The company grew dramatically in size and
geographic scope, and 1996 was a record year in terms of revenues and earnings.
Earnings per share rose 96%, from $.28 in 1995 to $.55 in 1996, on revenue
growth of 127%, from $26.9 million in 1995 to $61.0 million in 1996.
In addition to corporate growth in revenue and earnings, RCM also
achieved significant advances in market capitalization. RCM's stock price
increased 178% to $9.56 per share by fiscal year end, compared to $3.34 at year
end 1995. In brief, 1996 has been an exceptional year for RCM and its
stockholders.
Further, 1996 was a year of dramatic strategic transformation for RCM.
The company's overall size was increased to compete more effectively for larger
clients. Also, the company's traditional base of expertise in professional
engineering and technical personnel was broadened to include specialties in
information technology and healthcare personnel. Both transformations,
accomplished primarily by means of strategic acquisitions, greatly enhance our
company's national market presence and our depth of experienced management.
The 1996 acquisition of Consortium, Inc., a strong regional provider of
specialty staffing, establishes RCM in the two fast-emerging professional arenas
of information technology and healthcare staffing. The 1995 acquisition of
Cataract, Inc. expanded the company's existing strength in the engineering,
technical, scientific and public utilities fields.
To maximize growth, profitability and consistent high earnings under a
variety of market conditions, RCM emphasizes the acquisition of entities in
fields with rapidly accelerating personnel needs and most favorable profit
margins. Consortium and Cataract fit these criteria and fulfill our goal of
focusing ever more prominently on areas of specialty professional staffing.
We see our role in the industry as that of efficient consolidator.
Since many staffing organizations are small and privately held, there are
abundant potential candidates for acquisition. In the coming year, we intend to
continue the company's expansion through strategic acquisitions.
With growth and results come recognition. Our success has produced
increased visibility for RCM among various investment communities.
The outlook for RCM Technologies, Inc. is exciting. We anticipate
another rewarding year, and we expect that RCM's growth in per share earnings
will be recognized by the public marketplace.
With thanks to our talented management team and to the invaluable
contributions of our highly skilled employees throughout the nation, I look
forward confidently to another record year.
Sincerely,
LEON KOPYT
Chairman of the Board, President and Chief Executive Officer.
<PAGE>
RCM IN BRIEF
Balanced organization.
RCM is the parent company for three wholly-owned subsidiaries, as shown
here.
[INSERT ORGANIZATION CHART.]
Founded in 1968, Intertec Design, Inc. is headquartered in Cherry Hill,
NJ. Intertec has approximately 1,500 employees under contract, primarily in the
field of professional engineering and scientific support services. Consortium,
Inc., founded in 1975, provides approximately 800 employees to organizations in
information technology, healthcare and general office administration. Cataract,
Inc., founded in 1976, has approximately 150 employees under contract daily,
primarily in the fields of professional engineering and technical and scientific
support services.
About 80 percent of RCM's revenue is derived from professional
specialty staffing and 20 percent from general administrative and clerical
personnel. Emphasis will continue to be on professional and technical specialty
segments.
[INSERT REVENUE PIE CHART.]
Diversified Staffing Specialists
The combined RCM companies provide 2,450 full-time and part-time, on
and off-site contract employees annually to clients through 29 offices
nationwide, with greatest concentration in the eastern and far western regions
of the nation. Staffing disciplines include:
1.Professional engineers, designers, drafters, CAD/CAM and technical staff.
2.Computer consultants, analysts and technicians, including
communications, software and network services.
3.Speech, occupational and physical therapists and relief nurses.
4.General office, clerical, administrative and light industrial personnel.
Lower Overhead; Dedicated Client Service.
RCM's corporate management and administrative infrastructure are
streamlined to accelerate the smooth integration of acquired companies and to
maintain a competitive cost structure. Fully automated, centralized corporate
support services help achieve economies of scale while leaving branch offices
free to deliver highly responsive and individualized service to clients.
Increased Visibility Spurs Investor Interest.
As the investment community identifies an emerging high-growth company
that excels, this generally leads to higher stock value for shareholders and
additional leverage for the company to finance future growth. RCM has received
noteworthy positive coverage this year from securities' analysts and
institutional research firms. The attention of independent analysts has helped
raise RCM's profile among investors, lenders and potential acquisition targets.
<PAGE>
INDUSTRY OVERVIEW
Downsizing creates unparalleled opportunity.
In the wake of downsizing and the accompanying reduction of internal
operations to core elements, more and more U.S. companies are relying on
staffing providers and outsourcers like RCM Technologies to fill their needs for
specialized professionals for short or long-term assignments. The advantages of
outsourcing and contract employment have become quickly and irrefutably evident
to the lean companies of the '90s, and all indications are that the trend will
not only continue but also intensify.
Delivering flexibility now and for the future.
Companies today want to concentrate on their core businesses -- not on
the intricacies of human resource functions. RCM delivers highly qualified
employees where, when and for how long they are needed -- with contracts
customized to meet each client's precise requirements. The client company can
easily expand or contract its workforce without assuming long-term commitment or
responsibility for regulatory compliance and other employer details. RCM
performs human resource functions for clients, including continuing education
and upgrading of workers' professional skills as technology continues to
transform the workplace.
Emerging markets -- "knowledge jobs" and specialists.
Every industry feels the impact of changing technology. On-staff
specialists are needed to keep up with advances, whether in CAD/CAM applications
at engineering firms or for updating computerized patient charts in
state-of-the-art hospitals. Information technology is a science that barely
existed ten years ago; now most corporations need these knowledge workers to
stay current.
RCM meets clients' demands for high-caliber, experienced, trained
professionals and technicians in fast- growing specialties, whether the client
needs them full time for years or on demand for short-term projects.
<PAGE>
CAPTURING OUR MARKET
Building Long-term Relationships.
Success in the staffing industry is an ongoing process based on
long-time partnering with clients. In RCM's almost 30 years of operation through
our Intertec unit, we have established enduring relationships of mutual trust in
which clients rely on RCM to fill contingent needs and to act in their best
interests as a surrogate human resource department. Dozens of high-profile
national clients have chosen RCM as a provider for more than ten years,
including these:
AT & T Dow Chemical USA Paramount Pictures
Amtrak Dow Corning Corp. Price Waterhouse
Astra Merck Ethan Allen Public Service Electric & Gas
Bayer Corp. First Chicago Reynolds Metals Co.
Bell Atlantic General Electric Sandoz Pharmaceuticals
Boeing Goya Foods Sears
Brunswick Corp. Guess ?, Inc. Showtime Networks, Inc.
Chesebrough Pond's USA Hemlock Semiconductor Steelcase, Inc.
Citibank MCI Swiss Bank
City of Los Angeles, CA Mellon Bank The Chase Manhattan Bank
City of Pasadena, CA Mercedes Benz Tennessee Valley Authority
Consolidated Edison Merrill Lynch United Parcel
Coopers & Lybrand Northeast Utilities United Technologies, Inc.
Deloitte & Touche PECO Energy Westinghouse
Providing Exceptional Value Added:
"Enabling" Our Clients' Success
RCM's outstanding client retention record attests to the company's
ability to respond appropriately, responsibly and quickly to client needs. This
includes the ability to anticipate what new employment sectors will be most
necessary and valuable for our clients' future success in meeting the demands of
their workplace, business climate and competitive environment.
RCM recruits and cultivates superbly qualified employees and keeps them
constantly challenged and consistently competent to meet technology's latest
advances and clients' evolving needs. The educational edge is kept sharp by
on-site training at RCM and through RCM's affiliations with educational
institutions.
Reducing employment complexity for clients.
RCM relieves the client's burden of the human resource function. RCM
manages the administrative and regulatory compliance complexities involved in
being an employer -- even developing incentive plans, professional career
tracks, and promotional opportunities to keep workers interested, motivated and
aimed at continual improvement.
Projects for clients can be performed on-site at RCM facilities, saving
overhead for clients and ensuring total confidentiality of projects. RCM can
also provide engineers and other professionals with established clearance at the
U.S. Defense Department's "Secret" level.
<PAGE>
FUTURE PROSPECTS
The transformation of RCM Technologies, Inc. continues with an
aggressive acquisition strategy, seeking staffing companies with strong regional
presence and significant revenues and client bases. Emphasis is on identifying
management talent and strategic business development opportunities in
high-margin specialist professional sectors with diverse geographic coverage and
intrinsic cultural diversity.
At RCM, members of our outsourcing workforce are flexible,
professional, mobile, cross-trained, entrepreneurial and performance-oriented.
We consistently and completely equip our clients to meet the specialized
manpower challenges of lean organizations. Looking ahead, we see that the
continuing downsizing of U.S. corporations provides the most conducive
opportunity for RCM's continuing rise to the top of the field.
The Source of Capable, Qualified, Specialized
Professional Staff As Needed: RCM.
XXX
<PAGE>
The Company's Common Stock is traded on the NASDAQ Small Cap Market under the
NASDAQ Symbol RCMT. The following table sets forth high and low bid prices by
calendar quarters for the periods indicated, as reported by the National
Association of Securities Dealers, Inc. Bid quotations represent prices between
dealers; they do not include retail markups, markdowns or other fees or
commissions and do not necessarily represent actual transactions.
<TABLE>
<CAPTION>
Common Stock
<S> <C> <C>
Fiscal 1995 High Low
First Quarter 3.75 2.97
Second Quarter 3.90 3.28
Third Quarter 3.44 2.50
Fourth Quarter 4.06 2.97
Fiscal 1996
First Quarter 6.25 2.66
Second Quarter 13.25 4.22
Third Quarter 15.38 5.75
Fourth Quarter 12.88 7.00
</TABLE>
Holders
As of January 7, 1997, the approximate number of holders of record of the
Company's Common Stock was 1,858. Based upon the requests for proxy
information in connection with the Company's most recent Annual Meeting of
Stockholders, the Company believes the number of beneficial owners of its
Common Stock exceeds 4,800.
Dividends
The Company has never declared or paid a cash dividend on its Common Stock.
It is the current policy of the Company's Board of Directors to retain all
earnings to finance the development and expansion of the Company's
business. The Company's Revolving Credit Facility prohibits the payment of
dividends or the making of distributions on account of the capital stock
without the consent of Mellon Bank, N.A.
Shares Eligible for Future Sale
As of January 7, 1997, the Company has 4,815,676 shares of Common Stock
outstanding. Of these shares, a total of approximately 2,889,913 are freely
tradeable without restriction or further registration under the Securities
Act. The remaining 1,928,263 shares of Common Stock outstanding are
"Restricted Securities" as that term is defined in Rule 144 under the
Securities Act, of which approximately 1,847,763 are held by "Affiliates"
(as defined in the Securities Act) of the Company.
The Restricted Securities are subject to all of the limitations on resale
imposed by Rule 144. In general, under Rule 144 as currently in effect, any
affiliate of the Company or any person (or persons whose shares are
aggregated in accordance with the Rule) who has beneficially owned
Restricted Securities for at least two years would be entitled to sell,
within any three-month period, a number of shares that does not exceed the
greater of 1.0% of the outstanding shares of Common Stock and the reported
average weekly trading volume in the over-the-counter market for the four
weeks preceding the sale. Sales under Rule 144 are also subject to certain
manner of sale restrictions and notice requirements and to the availability
of current public information concerning the Company. Persons who have not
been affiliates of the Company for at least three months and who have held
their shares for more than three years are entitled to sell Restricted
Securities without regard to the volume, manner of sale, notice and public
information requirements of Rule 144.
<PAGE>
Shares Eligible for Future Sale - (Continued)
Sales of Restricted Securities, may, however, occur prior to the expiration
of the holding period under Rule 144 by virtue of registration rights
granted by the Company in connection with the recent acquisitions of
Cataract, The Consortium, Consort MD, as well as the recent placement to
Limeport Investments, LLC, a principal stockholder. Pursuant to these
registration rights, the Company has agreed to file a registration
statement with the Securities and Exchange Commission for the purpose of
permitting open market or private resales of shares of Common Stock held by
such stockholders on the following basis:
Amount of Shares Date of Registration
276,625 shares February 15, 1997
1,300,000 shares February 15, 1997
36,827 shares May 1, 1998
312,311 shares August 30, 1998
<PAGE>
SELECTED FINANCIAL DATA
The selected historical consolidated financial data was derived from the
Company's Consolidated Financial Statements The selected historical consolidated
financial data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Consolidated
Financial Statements of the Company, and notes thereto, included elsewhere
herein. The pro forma consolidated financial data give effect to all businesses
acquired by the Company through October 31, 1996, as if such acquisitions were
consummated as of the beginning of the period. The pro forma results of
operations are not necessarily indicative of the results that would have
occurred had the acquisitions been consummated as of the beginning of the period
or that might be attained in the future.
<TABLE>
<CAPTION>
Historical
Year Ended October 31,
Pro Forma
<S> <C> <C> <C> <C> <C> <C>
1996 1996 1995 1994 1993 1992
Income Statement
Revenues $75,075,000 $61,039,173 $26,915,737 $29,238,995 $28,633,408 $26,864,305
Income
from continuing
operations $ 2,764,000 $ 2,367,939 $ 849,105 $ 1,426,005 $ 733,025 $ 91,879
Loss from
discontinued
operations ($ 1,029,186)
Net income (loss) $ 2,764,000 $ 2,367,939 $ 849,105 $ 1,426,005 $ 733,025 ($ 937,307)
Earnings (Loss) per Share
Income
from continuing
operations $.57 $.55 $.28 $.49 $.25 $.03
Loss from
discontinued operations ($.36)
Total primary (1) $.57 $.55 $.28 $.49 $.25 ($.33)
Fully diluted $.57 $.55 $.28 $.49 $.25 ($.33)
Balance Sheet
Working capital $ 6,771,434 $ 3,327,904 $5,200,609 $3,736,073 $ 2,942,756
Total assets $ 24,406,620 $ 10,301,555 $6,546,839 $5,333,939 $ 5,096,528
Long term debt $ 562,312 $ 35,496 $ 74,397 $ 128,600
Total liabilities $ 8,186,510 $ 2,774,970 $1,069,359 $1,287,932 $ 1,802,140
Shareholders' equity $16,220,110 $ 7,526,585 $5,477,480 $4,046,007 $ 3,294,338
(1) Based on average number of common stock outstanding during the years
ended October 31, 1996, 1995, 1994, 1993 and 1992 of 4,320,571, 3,007,969,
2,930,276, 2,878,411 and 2,867,913, respectively (net of treasury stock).
</TABLE>
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Private Securities Litigation Reform Act Safe Harbor Statement
When used in or incorporated by reference into this Report, the words
"estimate," "project," "intend," "expect" and similar expressions are
intended to identify forward-looking statements regarding events and
financial trends which may affect the Company's future operating results
and financial position. Such statements are subject to risks and
uncertainties that could cause the Company's actual results and financial
position to differ materially. Such factors are described in summary within
the Company's Annual Report on Form 10-K for the year ended October 31,
1996.
Introduction
Through its wholly-owned subsidiaries, the Company offers a broad range of
staffing services through its four (4) primary operating groups:
Professional Engineering and Technical, Information Technology, Specialty
Health Care and General Staff Support. The Company provides services on a
national basis through 29 branch offices in 11 states to a well diversified
base of national, regional and local clients. To respond to fragmentation
of the industry and in order to better serve the needs of larger national
and regional accounts, since 1994 one of the Company's principal business
strategies was to achieve growth through expansion and acquisition. Towards
this end, since 1994, the Company has successfully completed the
acquisition of five (5) companies, each with long-standing operating
histories and well established management and infrastructures. In addition,
the Company continues to identify and engaged in discussions with possible
acquisition candidates.
The acquisitions have been accounted for using the purchase method of
accounting. Accordingly, the results of operations for each of the acquired
companies has only been included within the Company's consolidated results
of operations following the date of acquisition. On a proforma basis, had
the acquisitions completed during fiscal 1996 occurred on November 1, 1995,
the Company's revenues and net income during Fiscal 1996 would have been
approximately $75 million and $2.8 million, respectively.
Since 1994, the Company has experienced significant growth reflected in,
among other factors, the addition of 18 new offices and an increase in
gross revenues and net income from $29.2 million and $1.4 million to $61
million and $2.4 million, respectively
The Company has also adopted as one of its primary operating strategies a
shift towards higher margin more specialized services. The historical
origins of the temporary staffing industry in the low margin clerical labor
force have been replaced by higher margin technically challenging positions
involving the delivery of health care, engineering, computer and
information technology services.
Temporary personnel placed by the Company are generally employed by the
Company. Accordingly, the Company is responsible for employee workers'
compensation, unemployment compensation, insurance, Medicare and Social
Security Taxes and general payroll expenses. Generally, the Company bills
its clients for the hourly wages paid to its temporary employees plus a
negotiated markup. Depending on the arrangements negotiated with the
client, the markup may be fixed or may allow direct pass-through of
increases in expenses such as unemployment compensation insurance and
workers' compensation insurance. Because the Company generally pays its
temporary employees only for the hours they actually work, wages for the
Company's temporary personnel are a variable cost that increase or decrease
in proportion to revenue.
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
Introduction - (Continued)
The Company continues to direct its resources and streamline its operations
in response to changing economic conditions. The Company has developed an
operating model which consists of a strong balanced approach to management,
while maintaining an entrepreneurial spirit. Corporate management focuses
on the overall performance of the Company. It establishes and maintains
financial controls and provides financial data processing and
administrative assistance to all its operating offices. It develops the
business strategy, goals and general operating guidelines for the Company,
maintains strong relationships with the Company's principal customers, and
oversees local management of operations. The Company believes that its
performance-based compensation structure is a key factor to its success.
The present downsizing of U.S. Corporations is a "permanent phenomenon"
which management believes is essential in order to achieve productivity
improvements, payroll cost reduction and work force flexibility.
Results of Operations
<TABLE>
<CAPTION>
Years Ended October 31,
1996 1995 1994
<S> <C> <C> <C>
Revenues $61,039,173 $26,915,737 $29,238,995
Cost of Services $48,779,886 $22,378,817 $23,863,889
Selling, general and administrative $8,914,102 $3,549,810 $3,674,102
Depreciation and amortization $329,680 $130,397 $93,141
Interest expense $163,811 $38,158 $34,196
Income before income taxes $2,821,478 $942,605 $1,613,048
Income taxes $453,539 $93,500 $187,043
Net income $2,367,939 $849,105 $1,426,005
Earnings per share $.55 $.28 $.49
</TABLE>
Year Ended October 31, 1996 Compared to October 31, 1995
Summary. Revenues, gross profit, operating income and net income of the
Company for the 1996 period increased $34 million (127%), $7.7 million
(170%), $2.2 million (252%), and $1.5 million (179%), respectively,
compared with 1995. These improvements were primarily due to revenue growth
through acquisitions of Cataract, Inc. (August 30, 1995) and The Consortium
(March 11, 1996) and The Consortium of Maryland, Inc. (May 1, 1996) and
Performance Staffing, Inc. (September 13, 1996).
Corporate level expenses (included with selling, general and administrative
expenses) relating to salaries and benefits of personnel responsible for
corporate activities, including its acquisition program and certain
marketing, administrative and reporting responsibilities were 2.5% of
revenues in 1996 as compared to 4.6% of revenues in 1995. This was a 45.7%
decrease.
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
Results of Operations - Continued
Year Ended October 31, 1996 Compared to October 31, 1995
Results of operations for the year ended October 31, 1996 reflected a net
income of $2,368,000 ($.55 per share) as compared to $849,000 ($.28 per
share) for the year ended October 31, 1995. Net income has been calculated
after taking into account the effect of the available net operating loss
tax carryforward (NOL). Without giving effect to the NOL, the Company's
earnings per share, on a fully taxed basis, for the year ended October 31,
1996 and 1995 would have been $.38 and $.18, respectively.
Gross profit increased by $7.7 million to $12.3 million, or 170.2% for the
year ended October 31, 1996 compared to the year ended October 31, 1995.
Gross profit as a percentage of revenues was 20.1% for 1996 and 16.9% for
1995. The increased gross profit percentages resulted from higher gross
profit margins of the acquired businesses.
Cost of services increased by $26.4 million to $48.8 million or 118.0% for
the year ended October 31, 1996 compared to $22.4 million for the year
ended October 31, 1995. This increase resulted from increased sales in
1996. Cost of sales, as a percentage of net revenues, was 79.9% and 83.1%
for fiscal years ended October 31, 1996 and 1995, respectively. This
improvement resulted from higher gross profit margins of the acquired
businesses.
Selling, general and administrative expenses (SG&A) increased $5.4 million
to $8.9 million or 14.6% of revenues for the year ended October 31, 1996 as
compared to 13.2% of revenues for the year ended October 31, 1995. The
increased SG&A was principally attributable to the aforementioned
acquisitions. The increase in SG&A expenses primarily related to the
acquisitions and internal growth of the operating companies post
acquisition. The increase in SG&A as percentage of revenues (1.4%) resulted
from one time charges incurred in connection with the reverse stock split,
implementation of a shareholder rights plan and operational integration of
the acquired companies.
Depreciation and amortization increased by $199,000 to $330,000 for the
year ended October 31, 1996, compared to $130,000 for the year ended
October 31, 1995. This increase was attributable to the amortization of
intangible assets incurred with acquisitions. Intangible assets consisted
primarily of goodwill and are being amortized over a forty (40) year life.
Income tax expense increased by $360,000 to $454,000 for the year ended
October 31, 1996, compared to $93,500 for the year ended October 31, 1995.
This increase was attributable to the higher level of profitability for
1996.
Interest expense increased by $126,000 to $164,000 for the year ended
October 31, 1996, compared to $38,000 for the year ended October 31, 1995.
This increase was attributable to funds required for acquisitions as well
as the refinancing of acquired companies' working capital debt to more
favorable terms and conditions available under the Company's line of credit
facility.
Interest income and other consisted principally of interest income for the
year ended October 31, 1995. Interest income declined to $-0- for the year
ended October 31, 1996. This decline resulted from the increased working
capital requirements necessary to support $13,985,000 of accounts
receivable at October 31, 1996.
Results of Operations
Year Ended October 31, 1995 Compared to October 31, 1994
Summary. Revenues, gross profit, operating income and net income of the
Company of the 1995 period decreased $2.3 million (7.9%), $.8 million
(15.6%), $.8 million (46.7%) and $.6 million (40.5%), respectively,
compared with 1994.
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
Results of Operations - Continued
Year Ended October 31, 1995 Compared to October 31, 1994
The Company's net sales decreased $2. 3 million or 7.9% from 1994. This
results principally from a reduction of services provided to a major
customer who in turn has reduced its requirements for contract technical
workers. Sales to the major customer decreased by $4.5 million or 57.8%
from 1994. The reduction in sales to the major customer was partially
offset by sales generated from the 1995 acquisitions of Great Lakes Design,
Inc. and Cataract, Inc.
Cost of sales decreased $1.5 million or 6.2% from 1994. The gross profit
percentage for 1995 was 16.9% as compared to 18.4% for 1994. This was a
consequence of the reduction in higher gross profit sales mix which was
attributed to the decline in sales to the major customer.
Selling, general and administrative expenses decreased $124,000 or 3.4%
from 1994. This resulted from continuing efforts to streamline operating
expenses as well as efforts to increase productivity of administrative and
support activities.
Interest expense increased $4,000 or 11.6% from 1994. This resulted from
the use of the Company's credit facility in the two months following the
acquisition of Cataract, Inc.
Other, net, included under the caption Other Income (Expense) and
consisting principally of interest income, increased $85,000 or 215% from
1994 due to the short term placement of the Company's cash reserves prior
to the acquisition of Cataract, Inc.
Income tax expense decreased $94,000 as a result of the lower level of
pre-tax profit for the year ended October 31, 1995.
Seasonal Variations
The Company's quarterly operating results are affected primarily by the
number of billing days in the quarter and the seasonality of its customers'
businesses. The Company usually experiences higher revenues in its fourth
quarter due to increased economic activity and experiences lower revenues
in the first four months of the following year, showing gradual improvement
over the remainder of the year.
New Standards
In October 1995, the Financial Accounting Standards Board issued Statement
No. 123, Accounting for Stock-Based Compensation, which is effective
beginning in 1996. This statement encourages the fair value based method of
accounting for stock options and similar equity instruments granted to
employees. This method requires that the fair value of equity instruments
granted to employees be recorded as compensation expense. However, the
statement allows companies to continue to use the intrinsic value based
method which, in most cases, does not result in a charge to earnings. The
Company will not adopt the fair value based method of accounting for stock
options. However, if the fair value based method of accounting were applied
to grants of stock options in 1996, the effect would not be material.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of ("Statement 121"), which
requires companies to review long-lived assets and certain identifiable
intangibles to be held, used or disposed of, for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. The Company has adopted Statement 121, which had no
significant effect on the financial statements.
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
Liquidity and Capital Resources
During the year ended October 31, 1996, working capital increased
$3,444,000. This was due primarily to the increased levels of profitability
of the Company and the private placement of common stock for $1,000,000. At
October 31, 1996, the Company had outstanding borrowings under its credit
facility of $2,747,000 as compared to $914,000 as of October 31, 1995, an
increase of $1,833,000. The Company, at October 31, 1996, had $562,000 in
long term liabilities and had $6,991,000 of loan availability on its
$10,000,000 line of credit (increased to $20,000,000 on December 19, 1996).
During the year ended October 31, 1996, operating activities used
$1,917,000 of cash compared to cash provided by operating activities of
$1,100,000 during the equivalent period in 1995. The decrease of $3,017,000
was primarily attributable to an increase in accounts receivable and a
decrease in accounts payable which were offset by increased levels of
profitability, depreciation and amortization during that period compared to
the year ended October 31, 1995.
Cash used for investing activities totaled $1,223,000 for the year ended
October 31, 1996 compared to $2,421,000 during the equivalent period in
1995. The decrease was primarily attributable to the increased use of
common stock for acquisitions in fiscal year 1996 compared to the
equivalent period in 1995.
Cash provided by financing activities was $2,848,000 for the year ended
October 31, 1996 compared to a use of cash of $916,000 during the
equivalent period in 1995. The increase was attributable to the private
placement of common stock for $1,000,000 and the proceeds from short term
borrowings.
On December 19, 1996, the Company and its subsidiaries entered into an
amended and restated loan agreement with Mellon Bank, N.A. for providing a
credit facility up to $20,000,000. The agreement expires on June 30, 1999.
The credit facility is collateralized by accounts receivable, contract
rights and furniture and fixtures together with unlimited guarantees from
the Company. The credit facility requires the subsidiaries and the Company
to meet certain financial objectives and maintain certain financial
covenants with respect to net income, effective net worth, working capital,
senior indebtedness to effective net worth ratios, capital expenditures,
current assets to current liabilities ratios, consolidated working capital
and consolidated tangible net worth. At October 31, 1996, the Company and
its subsidiaries were in compliance with all financial objectives and
covenants contained in the amended and restated loan agreement.
Credit facility advances are to be used to meet cash flow requirements for
the subsidiaries as well as operating expenses for the Company. The Company
believes its present credit facility will sufficiently support its
operations and those of its subsidiaries. Borrowing under the credit
facility is based on 85% of accounts receivable on which not more than
ninety days have elapsed since the date of invoicing. The interest rate
charged by the bank, under the amended and restated agreement will be based
on the London Interbank Offered Rate ("LIBOR") plus 2.25%.
The Company's business strategy is to achieve growth both internally
through operations and externally through strategic acquisitions. The
Company's liquidity and capital resources may be affected in the future as
the Company continues to grow through implementation of this strategy which
may involve acquisitions facilitated through the use of cash and/or debt
and equity securities.
The Company does not currently have material commitments for capital
expenditures and does not anticipate entering into any such commitments
during the next twelve months. The Company continues to evaluate
acquisitions of various businesses which are complementary to its current
operations. The Company's current commitments consist primarily of lease
obligations for office space. The Company believes that its capital
resources are sufficient to meet its present obligations and those to be
incurred in the normal course of business for the next twelve months.
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
Liquidity and Capital Resources - (Continued)
During the third quarter, the Company received a request for contribution
in an unspecified amount from the purchaser of a property in 1977 on which
the Company had previously conducted the storage and handling of certain
aluminum recovery materials. The purchaser has suggested that, based upon
an order by the California Regional Water Quality Control Board, the
Company's handling and storage of certain materials on the site prior to
and after the sale may have contributed to environmental contamination of
the ground water on and around the site. Any such contamination was
discovered years after the sale.
Based upon the results of a preliminary examination of the matter, which
includes an environmental survey of the property conducted prior to the
time of the sale, the Company believes that the site in question complied
with all environmental rules and regulations at the time of the sale and
that any contamination was likely caused by the operation of the purchaser
thereafter.
The Company continues to examine this matter. Until full evaluation is
completed, any possible significance of this matter cannot be determined.
Impact of Inflation
The effects of inflation on the Company's operations were not significant
during the periods presented.
<PAGE>
Financial Data
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
FORM 10-K
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Page
Independent Auditors' Report F-2
Consolidated Balance Sheets, October 31, 1996 and 1995 F-3
Consolidated Statements of Income,
Years Ended October 31, 1996, 1995 and 1994 F-5
Consolidated Statements of Changes in Shareholders' Equity,
Years Ended October 31, 1996, 1995 and 1994 F-6
Consolidated Statements of Cash Flows,
Years Ended October 31, 1996, 1995 and 1994 F-7
Notes to Consolidated Financial Statements F-9
Schedules I and II F-20
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
RCM Technologies, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of RCM
Technologies, Inc. and Subsidiaries (a Nevada corporation) as of October 31,
1996 and 1995 and the related consolidated statements of income, changes in
shareholders' equity and cash flows for each of the three years in the period
ended October 31, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
RCM Technologies, Inc. and Subsidiaries as of October 31, 1996 and 1995 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended October 31, 1996 in conformity with generally
accepted accounting principles.
We have also audited Schedules I, and II of RCM Technologies, Inc. and
Subsidiaries as of and for each of the three years in the period ended October
31, 1996. In our opinion, these schedules present fairly, in all material
respects, the information required to be set forth therein.
/s/ Grant Thornton LLP
Grant Thornton LLP
Philadelphia, Pennsylvania
December 16, 1996
(Except for Note 6 as to which the date is December 19, 1996 and Note 17 as to
which the date is January 7, 1997)
F-2
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
October 31, 1996 and 1995
<TABLE>
<CAPTION>
ASSETS
1996 1995
Current assets
<S> <C> <C>
Cash and cash equivalents $ 5,989 $ 297,550
Accounts receivable, net of allowance for doubtful accounts
of $76,000 - 1996; $15,000 - 1995 13,985,445 5,133,662
Prepaid expenses and other current assets 404,198 671,662
------- -------
Total current assets 14,395,632 6,102,874
---------- ---------
Property and equipment, at cost
Equipment and leasehold improvements 1,644,831 1,208,317
Less: accumulated depreciation and amortization 1,142,740 763,966
--------- -------
502,091 444,351
------- -------
Other assets
Deposits 88,039 43,074
Intangible assets (net of accumulated amortization
of $366,337 and $73,492 in 1996 and 1995,
respectively) 9,420,858 3,711,256
--------- ---------
9,508,897 3,754,330
--------- ---------
Total assets $24,406,620 $10,301,555
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
F-3
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - CONTINUED
October 31, 1996 and 1995
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
1996 1995
Current liabilities
<S> <C> <C>
Note payable - bank $ 2,746,636 $ 914,435
Accounts payable and accrued expenses 734,791 472,107
Accrued payroll 2,789,725 1,182,934
Taxes other than income taxes 432,607 205,494
Income taxes payable 920,439
------- --------
Total current liabilities 7,624,198 2,774,970
--------- ---------
Income taxes payable 562,312
-------
Shareholders' equity
Preferred stock, $1.00 par value; 5,000,000 shares authorized;
no shares issued or outstanding
Common stock, $0.05 par value; 40,000,000 shares authorized; 4,878,476 and
3,255,024 shares issued in 1996 and
1995, respectively 243,924 162,751
Additional paid-in capital 17,161,105 10,916,692
Treasury stock, at cost 62,800 shares ( 62,821) ( 62,821)
Accumulated deficit ( 1,122,098) ( 3,490,037)
---------- ----------
16,220,110 7,526,585
---------- ---------
Total liabilities and shareholders' equity $24,406,620 $10,301,555
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
F-4
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended October 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues $61,039,173 $26,915,737 $29,238,995
----------- ----------- -----------
Operating Costs and Expenses
Cost of services 48,779,886 22,378,817 23,863,889
Selling, general and administrative 8,914,102 3,549,810 3,674,102
Depreciation and amortization 329,680 130,397 93,141
------- ------- ------
58,023,668 26,059,024 27,631,132
---------- ---------- ----------
Operating Income 3,015,505 856,713 1,607,863
--------- ------- ---------
Other Income (Expense)
Interest expense ( 163,811) ( 38,158) ( 34,196)
Other, net ( 30,216) 124,050 39,381
------ ------- ------
( 194,027) 85,892 5,185
------- ------ -----
Income Before Income Taxes 2,821,478 942,605 1,613,048
--------- ------- ---------
Income Taxes 453,539 93,500 187,043
------- ------ -------
Net Income $ 2,367,939 $ 849,105 $ 1,426,005
============ ============= ============
Net Income Per Share $.55 $.28 $.49
==== ==== ====
Weighted average number of
shares outstanding 4,320,571 3,007,969 2,930,276
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
F-5
<PAGE>
RCM TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED OCTOBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Accumulated Treasury
Shares Amount Capital Deficit Stock
------ ------ ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, October 31, 1993 2,937,713 146,885 9,727,090 ($5,765,147) ($62,821)
Exercise of stock options 5,000 250 5,218
Net income 1,426,005
--------- ------ -------- --------- ------
Balance, October 31, 1994 2,942,713 147,135 9,732,308 ( 4,339,142) ( 62,821)
Issuance of common stock
in connection with acquisitions 312,311 15,616 1,184,384
Net Income 849,105
-------- ------- --------- ------- ------
Balance, October 31, 1995 3,255,024 162,751 10,916,692 ( 3,490,037) ( 62,821)
Exercise of stock options 10,000 500 15,438
Issuance of common stock
in connection with acquisitions 1,336,827 66,841 5,242,807
Sale of common stock 276,625 13,832 986,168
Net Income 2,367,939
--------- ------- ---------- --------- ------
Balance, October 31, 1996 4,878,476 $243,924 $17,161,105 ($1,122,098) ($62,821)
========= ======== =========== =========== ========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
F-6
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended October 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
Cash flows from operating activities:
<S> <C> <C> <C>
Net income $2,367,939 $ 849,105 $1,426,005
---------- ----------- ----------
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 329,680 130,397 93,141
Provision for losses on accounts
receivable 61,000 5,000
Changes in assets and liabilities:
Accounts receivable ( 8,522,460) 854,552 286,638
Prepaid expenses and other
current assets 267,464 ( 405,116 ) ( 11,443 )
Accounts payable and accrued expenses 262,684 ( 10,064 ) ( 3,807 )
Accrued payroll 1,606,791 ( 151,348 ) 36,325
Billings in excess of costs and
estimated earnings ( 148,229 ) ( 157,509 )
Taxes other than income taxes 227,113 ( 18,938 ) 1,827
Income taxes payable 1,482,751
--------- ------ -----
( 4,284,977) 251,254 250,172
--------- ------- -------
Net cash provided by (used in) operating activities ( 1,917,038) 1,100,359 1,676,177
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these
financial statements.
F-7
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Years Ended October 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
Cash flows from investing activities:
<S> <C> <C> <C>
Property and equipment acquired ( 128,264) ( 68,189 ) ( 20,619 )
Increase in deposits ( 44,965) ( 6,643 ) ( 557 )
Cash paid for acquisitions,
net of cash acquired ( 1,049,433) ( 2,345,966 )
--------- --------- ------
Net cash used in investing activities ( 1,222,662) ( 2,420,798 ) ( 21,176 )
--------- --------- ------
Cash flows from financing activities:
Net borrowing (repayments) under
short term debt arrangements 1,832,201 176,278 ( 4,703 )
Repayments of long term debt ( 1,092,362 ) ( 35,228 )
Sale of common stock 1,000,000
Exercise of stock options 15,938 5,468
------ -----
Net cash provided by (used in) financing activities 2,848,139 ( 916,084 ) ( 34,463 )
--------- - ------- - ------
Net increase (decrease) in cash
and cash equivalents ( 291,561) ( 2,236,523 ) 1,620,538
Cash and cash equivalents at beginning of year 297,550 2,534,073 913,535
------- --------- -------
Cash and cash equivalents at end of year $ 5,989 $ 297,550 $2,534,073
============= =========== ==========
Supplemental cash flow information:
Cash paid for:
Interest expense $ 163,811 $ 36,738 $ 34,196
Income taxes $ 726,332 $ 220,498 $ 123,049
Acquisitions:
Fair value of assets acquired $7,302,476 $5,218,694
Liabilities assumed 6,253,043 2,872,728
--------- ---------
Cash paid, net of cash acquired $1,049,433 $2,345,966
========== ==========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
F-8
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1996, 1995 and 1994
1. Summary of Significant Accounting Policies
Business
RCM Technologies, Inc. (the "Company"), through its wholly-owned
subsidiaries, is a nationwide provider of temporary and contract personnel
to businesses, professional and service organizations, manufacturers and
public utilities. The Company principally focuses its staffing services in
the Professional Engineering and Technical, Information Technology, Health
Care and General Staff Support sectors.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated.
Property and Equipment
Depreciation of equipment is provided for in amounts sufficient to relate
the cost of depreciable assets to operations over their estimated useful
lives on the straight-line basis. Estimated useful lives range from three
to ten years. Leasehold improvements are amortized over the lives of the
respective leases or the service lives of the improvements, whichever is
shorter.
Income Taxes
The Company follows the liability method of accounting for income taxes.
Under this method, deferred income tax assets and liabilities are
determined based on differences between the financial statement and income
tax bases of assets and liabilities using enacted tax rates in effect for
the year in which the differences are expected to reverse. Valuation
allowances are established, when necessary, to reduce deferred tax assets
to the amount expected to be realized. Income tax expense is the tax
payable for the period and the change during the period in deferred tax
assets and liabilities.
Revenue Recognition
Revenue is recognized concurrently with the performance of services. When
the Company enters into long-term contracts for the supply of temporary
personnel, billings are rendered for employee hours worked according to
contractual billing rates. Billings in excess of costs and estimated
earnings on cost plus fixed fee contracts represents billings in excess of
revenue recognized. Labor and overhead costs, and earnings on contracts
with government contractors are subject to audit by the primary contractor
or a division of the United States government.
Profit Sharing Plan
The Company sponsors a defined contribution plan (401-K Plan).
Participation in the plan is available to all eligible employees as defined
in the plan. Company contributions to the plan are based on a percentage of
the employee's contributions to the plan subject to management's election
to make a contribution. There were no contributions charged to operations
by the Company for fiscal years ended October 31, 1996, 1995 and 1994.
Cash Equivalents
For purposes of presenting the consolidated statement of cash flows, the
Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
F-9
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1996, 1995 and 1994
1. Summary of Significant Accounting Policies - (Continued)
Earnings per Share
Earnings per share of common stock are based on the weighted average number
of shares of common stock and dilutive common share equivalents (which
arise from stock options) outstanding during the years. No further dilution
resulted from a computation of fully diluted earnings per share. The number
of shares used to compute earnings per share was 4,320,571; 3,007,969 and
2,930,276 for the years ended October 31, 1996, 1995, and 1994,
respectively.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Intangible Assets
Intangible assets primarily consist of goodwill associated with the
acquired businesses. Goodwill is amortized on a straight-line basis over 40
years. The carrying value of goodwill is reviewed if the facts and
circumstances suggest that it may be impaired. If this review indicates
that goodwill will not be recoverable, as determined based on the
undiscounted cash flows of the entity acquired over the remaining
amortization period, the Company's carrying value of the goodwill is
reduced by the estimated shortfall of cash flows.
Other intangible assets consist primarily of non-compete agreements, which
are amortized over the term of the respective agreements. Amortization
expense for fiscal years 1996, 1995 and 1994 was $211,337; $48,928 and
$4,136, respectively.
Fair Value of Financial Instruments
The carrying value of financial instruments approximates fair value. The
Company's financial instruments are accounts receivable, accounts payable
and long-term debt. The Company does not have any off-balance sheet
financial instruments or derivatives.
New Standards
In October 1995, the Financial Accounting Standards Board issued Statement
No. 123, Accounting for Stock- Based Compensation, which is effective
beginning in 1996. This statement encourages the fair value based method of
accounting for stock options and similar equity instruments granted to
employees. This method requires that the fair value of equity instruments
granted to employees be recorded as compensation expense. However, the
statement allows companies to continue to use the intrinsic value based
method which, in most cases, does not result in a charge to earnings. The
Company will not adopt the fair value based method of accounting for stock
options. However, if the fair value based method of accounting were applied
to grants of stock options in 1996, the effect would not be material.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of ("Statement 121"), which
requires companies to review long-lived assets and certain identifiable
intangibles to be held, used or disposed of, for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. The Company has adopted Statement 121, which had no
significant effect on the financial statements.
F-10
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1996, 1995 and 1994
2. Stock Split
In April 1996, the Board of Directors, with stockholder approval, amended
the Company's Articles of Incorporation to effect a one-for-five reverse
split of common stock whereby each five shares of issued and outstanding
common stock were exchanged for one share of common stock. The amendment
had no effect on the number of authorized shares and the par value of the
common stock.
All references in the financial statements to weighted average number of
shares outstanding, earnings per share amounts and stock option data have
been restated to reflect the reverse split.
3. Sale of Common Stock
On February 5, 1996, the Company issued and sold 276,625 shares of common
stock to Limeport Investments, LLC in a Private Placement transaction for
$1,000,000 ($3.615 per share). The purchase price was based on a twenty
percent discount to the twenty day average closing price prior to the
purchase of the shares. The shares are restricted securities; however, the
Company has agreed to register such shares by filing a shelf registration
statement by February 15, 1997. The President of the Company, Leon Kopyt,
has been granted certain voting rights over these shares as long as they
remain owned by Limeport Investments, LLC.
4. Acquisitions
During the three year period ended October 31, 1996, the Company acquired
five businesses in the staffing services industry. These acquisitions,
which are described below, have been accounted for as purchases and,
accordingly, the results of operations of the acquired companies have been
included in the consolidated results of operations of the Company from the
dates of acquisition.
On March 11, 1996, the Company acquired all of the outstanding shares of
The Consortium, a specialty provider of information technology and health
care personnel servicing private sector and government clients in the
greater metropolitan New York region.
The consideration paid to the former shareholders of The Consortium
consisted of 1.3 million restricted shares of the Company's common stock,
valued at $5,000,000, in exchange for all of the outstanding capital stock
of The Consortium. The Company has agreed to file a shelf registration
statement by February 15, 1997, permitting the sale of $600,000 in value of
securities during the period April 1997 through March 1998. Thereafter, the
remainder of these shares are subject to significant restrictions on resale
through March 11, 1999. The cost in excess of net assets acquired of
$4,940,700 is included in the Company's Consolidated Balance Sheet as
"Intangible Assets" and is being amortized over a 40 year period.
On May 1, 1996, the Company acquired The Consortium of Maryland, Inc.
("Consort MD"), a specialty provider of information technology personnel
services to major U.S. Corporations in the greater metropolitan Washington,
D.C. region. Consort MD was not related or affiliated with The Consortium.
The acquisition was completed through a merger transaction (the "Merger")
pursuant to which Consort MD was merged with and into a newly- created
subsidiary of the Company, which then concurrently changed its name to "The
Consortium of Maryland, Inc."
F-11
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1996, 1995 and 1994
4. Acquisitions - (Continued)
The Merger consideration paid to the former shareholder of Consort MD at
the closing consisted of $621,500 cash and 34,327 restricted shares of the
Company's common stock valued at $377,597 . Additional merger
consideration, consisting of additional shares of stock having value equal
to tangible net worth of Consort MD as of the Merger date, will be paid in
the amount of approximately $250,000 to the former shareholder of Consort
MD. The Company has agreed to file a registration statement by May 1, 1998
permitting the sale of the restricted shares.
On September 13, 1996, the Company acquired all the assets and assumed all
of the liabilities of Performance Staffing, Inc. ("PSI"). The consideration
paid to the former shareholders of PSI consisted of 2,500 shares of
restricted shares of the Company's common stock valued at $21,000. There is
contingent consideration of $10,000, which is payable upon the collection
of not less than 93% of all of the outstanding accounts receivables billed
by PSI prior to acquisition by the Company.
On December 15, 1994, the Company purchased certain operating assets of
Great Lakes Design, Inc. for $200,000 in the form of a $150,000 note
payable and $50,000 in cash. In addition, the Company will share with the
seller a portion of the operating income of the Great Lakes Design
operating unit for a period of five years after acquisition. Costs in
excess of assets acquired of $52,800 are being amortized over a period of
forty years. A non-compete covenant of $107,100 is being amortized over a
five year period. The note payable is uncollateralized, bears interest at
8% per annum and is payable in quarterly installments of $20,490, including
interest, with a final maturity date of December 1, 1996.
On August 30, 1995, the Company acquired Cataract, Inc., a supplier of
management, engineering, design and technical services to the nuclear
power, fossil fuel, electric utilities and process industries. The
acquisition was completed through a merger transaction pursuant to which
Cataract, Inc. was merged with and into a newly-created subsidiary of the
Company, which then concurrently changed its name to "Cataract, Inc."
The consideration payable to the former shareholders of Cataract, Inc.
consisted of $2,000,000 cash and 312,311 restricted shares of the
Registrant's common stock (the "Shares"), valued at $1,200,000. The cost in
excess of net assets acquired was $3,385,966. The cost in excess of net
assets acquired is being amortized over a 40 year period. The shares issued
to the former Cataract, Inc. shareholders have been pledged to the Company
for a period of three years to secure the performance of certain conditions
subsequent to the merger relating to the achievement of certain levels of
sales revenues that have been warranted by the former Cataract, Inc.
shareholders.
Following the expiration of the pledge period, the Shares are to be placed
in a voting trust until the earlier of: (i) the public or private sale of
such Shares in open market transactions to unaffiliated third parties; or
(ii) the resignation or removal from office of Leon Kopyt, currently Chief
Executive Officer and President of the Registrant. Notwithstanding the
above, one-third of the Shares shall be released from trust commencing upon
the fifth anniversary of the closing, and thereafter an additional
one-third of the Shares shall be released from trust upon each of the sixth
and seventh annual anniversaries of the closing date.
During the period in which the Shares are subject to pledge and the voting
trust, the Shares are to be voted by the Registrant's Board of Directors on
behalf of the former shareholders of Cataract, Inc.
F-12
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1996, 1995 and 1994
4. Acquisitions - (Continued)
The following unaudited results of operations have been prepared assuming
the acquisitions had occurred as of the beginning of the periods presented.
Those results are not necessarily indicative of results of future
operations nor of results that would have occurred had the acquisitions
been consummated as of the beginning of the periods presented.
<TABLE>
<CAPTION>
Year Ended October 31,
1996 1995
---- ----
<S> <C> <C>
Revenues $75,075,000 $77,883,000
Net income $ 2,764,000 $ 2,059,000
Income per common share $.57 $.45
</TABLE>
5. Property and Equipment
<TABLE>
<CAPTION>
Property and equipment is comprised of the following:
October 31,
1996 1995
---- ----
<S> <C> <C>
Office equipment $1,453,711 $1,017,197
Capitalized lease 174,873 174,873
Leasehold improvements 16,247 16,247
------ ------
1,644,831 1,208,317
Less: accumulated depreciation and amortization 1,142,740 763,966
--------- -------
$ 502,091 $ 444,351
=========== ===========
</TABLE>
6. Note Payable - Bank
The note payable is the outstanding amount pursuant to a bank revolving
line of credit agreement expiring in 1998. Borrowing under the credit
facility is based on 85% of accounts receivable on which not more than
ninety days have elapsed since the date of invoicing. The credit facility
is collateralized by accounts receivable, contract rights and furniture and
fixtures with unlimited guarantees from the Company. The credit facility
requires the subsidiaries and the Company to meet certain objectives with
respect to financial ratios and earnings. The interest rate charged by the
bank at October 31, 1996 and 1995 was at the prime rate (effective rate of
8.25% and 8.75%, respectively). At October 31, 1996, there was $6,991,000
available under the credit facility.
On December 19, 1996, the Company and its subsidiaries entered into an
amended and restated agreement with Mellon Bank, N.A. for providing a
credit facility in the maximum amount of $20,000,000, increased from
$10,000,000 at October 31, 1996. The agreement expires on June 30, 1999.
The interest rate charged by the bank, under the amended and restated
agreement will be based on the London Interbank Offered Rate ("LIBOR") plus
2.25%.
F-13
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1996, 1995 and 1994
7. Shareholder Rights Plan
On March 14, 1996, the Board of Directors of the Company declared a
dividend of one Common Share Purchase Right ("Right") for each outstanding
share of common stock of the Company. Each Right entitles stockholders to
buy one share of common stock at an exercise price of $3.00. The Rights
will be exercisable only if a person or group acquires 15% or more of the
Company's common stock or announces a tender offer, the consummation of
which would result in ownership by a person or group of 15% or more of the
common stock. The Company will be entitled to redeem the Rights at one cent
per Right at any time before a 15% or greater position has been acquired.
The dividend distribution was made on April 1, 1996, to shareholders of
record at the close of the business on that date. The Rights expire April
1, 2006.
8. Shareholders' Equity
Common shares reserved
Shares of unissued common stock were reserved for the following purposes:
<TABLE>
<CAPTION>
October 31,
1996 1995
---- ----
<S> <C> <C>
Exercise of warrants 157,342 157,342
Exercise of options outstanding 214,400 163,300
Future grants of options 760,300 74,100
------- ------
Total 1,132,042 394,742
========= =======
</TABLE>
Warrants
At October 31, 1996 and 1995, the Company had 786,709 warrants outstanding
to purchase 157,342 shares of the Company's common stock. As a result of
the reverse stock split (see note 2) each warrant continues to have an
exercise price of $3.00 per share, but five warrants are needed to convert
to one share of common stock. The warrants expire on April 1, 1997 unless
otherwise extended by the Board of Directors.
Incentive Stock Option Plans
On February 27, 1986, the shareholders approved the RCM Technologies, Inc.
1986 Incentive Stock Option Plan ("1986 Plan") which authorizes the
issuance not later than October 30, 1995 of up to 60,000 shares of Common
Stock to officers, directors and key employees of the Company and its
subsidiaries.
On April 23, 1992, the shareholders approved the RCM Technologies, Inc.
1992 Incentive Stock Option Plan ("1992 Plan") which authorizes the
issuance not later than February 13, 2002 of up to 100,000 shares of Common
Stock to officers, directors and key employees of the Company and its
subsidiaries. The 1986 and 1992 Plans contain substantially the same terms.
Options under all plans are intended to be incentive stock options pursuant
to Section 422A of the Internal Revenue Code. The option terms for all
plans cannot exceed ten years and the exercise price cannot be less than
100% of the fair market value of the shares at the time of grant.
On May 19, 1994, the shareholders approved the RCM Technologies, Inc. 1994
Nonemployee Directors Stock Option Plan ("1994 Plan") as a means of
recruiting and retaining nonemployee directors of the Company. There are
80,000 shares of Common Stock reserved under the plan for issuance no later
than July 19, 2004. All director stock options are granted at fair market
value at the date of grant. The exercise of options granted is contingent
upon service as a director for a period of one year. If the optionee ceases
to be a director of the Company, any option granted shall terminate.
F-14
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1996, 1995 and 1994
8. Shareholders' Equity - (Continued)
Incentive Stock Option Plans - (Continued)
On August 15, 1996, the Board of Directors approved the RCM Technologies,
Inc. 1996 Executive Stock Plan ("1996 Plan") which authorizes the issuance
not later than August 15, 2006 of up to 750,000 shares of Common Stock to
officers and key employees of the Company and its subsidiaries. Effective
November 21, 1996, the Chief Executive Officer, Mr. Kopyt, was granted
500,000 options pursuant to the 1996 Plan.
Transactions related to all stock options are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Outstanding options at beginning of year 163,300 173,300 106,000
Granted 61,100 50,300 80,000
Forfeited ( 60,300) ( 7,700 )
Exercised ( 10,000) ( 5,000 )
------ -------- -----
Outstanding options at end of year 214,400 163,300 173,300
======= ======= =======
Exercisable options at October 31, 141,300 87,000 93,300
=== ======= ====== ======
Option grant price per share $1.09 $1.09 $1.09
to $8.13 to $19.84 to $19.84
</TABLE>
9. Commitments
Employment Contract and Termination Benefits Agreement
The Company has employment agreements with its President and certain senior
executives with a latest expiration date of February 28, 1999. The
agreement with the President provides for a bonus based on pre-tax
earnings. No maximum compensation limit exists. The aggregate commitment
for future salaries at October 31, 1996, excluding bonuses, was $1,660,000.
In addition, an option plan is available for all employees to receive stock
options resulting from recommendations by the Compensation Committee of the
Board of Directors.
The Company has a termination benefits agreement with the President which
grants him the right to receive up to 2.99 times the average aggregate
annual compensation as reported for federal income tax purposes for the
past five years plus continuation of certain benefits, and provides for the
surrender of stock options in exchange for the payment by the Company of
the difference between the option price and the share price on the date of
change of control (as defined) within a period of five years thereafter or
termination (as defined), which ever is higher. The maximum contingent
liability for salary and incentive compensation is approximately
$1,452,000.
F-15
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1996, 1995 and 1994
9. Commitments - (Continued)
Operating leases
The Company leases office facilities and various equipment under
noncancellable leases expiring at various dates through October 29, 2006.
Certain leases are subject to escalation clauses based upon changes in
various factors. The minimum future annual operating lease commitments for
leases with noncancellable terms in excess of one year, exclusive of
escalation, are as follows:
<TABLE>
<CAPTION>
Year ending October 31, Amount
----------------------- ------
<S> <C> <C>
1997 $583,800
1998 420,100
1999 264,300
2000 213,900
2001 188,400
Thereafter 1,023,000
---------
Total $2,693,500
==========
</TABLE>
Rent expense for the years ended October 31, 1996, 1995 and 1994 was
$498,042, $354,267, and $336,662, respectively.
10. Major Customers
Sales to major clients for the years ended October 31, 1996, 1995 and 1994
were as follows:
For the year ended October 31, 1996, one client contributed $7,776,000
or 12.7% of total sales. Accounts receivable from the client
represented 13.3% of the total trade accounts receivable at October 31,
1996.
For the year ended October 31, 1995, three clients contributed
$3,300,000, $2,061,000 and $1,347,000, respectively (an aggregate of
$6,708,000 or 24.9% of total sales). Accounts receivable from these
three clients represented 8.1% of the total trade accounts receivable
at October 31, 1995.
For the year ended October 31, 1994, three clients contributed
$7,811,000, $2,950,000 and $2,095,000, respectively (an aggregate of
$12,856,000 or 44.0% of total sales).
11. Related Party Transactions
A director of the Company is a shareholder in a law firm that rendered
various legal services to the Company. Fees paid to the law firm have not
been significant.
12. Income Taxes
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
Year ended October 31,
1996 1995 1994
---- ---- ----
Current
<S> <C> <C> <C>
Federal $ 48,000 $ 10,000 $ 27,000
State and local 405,539 83,500 160,043
------- ------ -------
Total income tax expense - current $453,539 $ 93,500 $187,043
======== ========= ========
F-16
</TABLE>
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1996, 1995 and 1994
12. Income Taxes - (Continued)
The income tax provisions reconciled to the tax computed at the statutory
Federal rate was:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Tax at statutory rate 34.0% 34.0% 34.0 %
State income taxes, net of Federal
income tax benefit 9.4 5.8 6.5
Provision for doubtful accounts .3 .1
Net operating loss carry-overs ( 32.4) ( 32.3) ( 31.3 )
Other, net 4.8 2.4 2.3
--- --- ---
16.1% 9.9% 11.6 %
==== === ====
</TABLE>
<TABLE>
<CAPTION>
At October 31, 1996, the net operating loss carry-overs available to offset
regular taxable income and tax credit carry-overs available to offset
regular or alternative minimum federal taxes are as follows:
Expiration Net Operating Tax
Date Loss Credits
---- ---- -------
<S> <C> <C> <C> <C>
1997-2004 $ $53,100
2005 20,000
2007 300,000
---- -------
Total $ 300,000 $73,100
========== =======
</TABLE>
Should there be a change in control as defined in the Internal Revenue
Code, utilization of such losses could be limited. Net operating losses for
alternative minimum tax purposes at October 31, 1996 are approximately
$270,000.
Significant components of the Company's deferred tax assets at October 31,
1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
Deferred tax assets due to:
<S> <C> <C>
Net operating loss carry-over $102,000 $1,019,800
Tax credit carry-over 73,100 73,100
Depreciation of property and equipment 20,000 23,200
Other 46,887
------- ---------
195,100 1,162,987
Less: 100% valuation allowance 195,100 1,162,987
------- ---------
Total net deferred tax assets $ $
======= ========
The valuation allowance was decreased during 1996 and 1995 by $967,887 and
$316,286, respectively, due to the utilization of net operating loss
carry-overs and the reversal of temporary differences.
</TABLE>
F-17
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1996, 1995 and 1994
13. Selected Quarterly Financial Information (Unaudited)
Year Ended October 31, 1996
<TABLE>
<CAPTION>
Sales Profit Net Income Per Share *
----- ------ ---------- -----------
<S> <C> <C> <C> <C> <C>
1st Quarter $ 9,776,507 $ 1,790,629 $ 501,863 $.15
2nd Quarter 13,785,626 2,473,426 386,736 .09
3rd Quarter 17,378,155 3,798,231 684,937 .14
4th Quarter 20,098,885 4,197,002 794,403 .16
- ---------- --------- ------- ---
Total $61,039,173 $12,259,288 $2,367,939 $.55
=========== =========== ========== ====
</TABLE>
Year Ended October 31, 1995
<TABLE>
<CAPTION>
Gross Net Income
Sales Profit Net Income Per Share *
----- ------ ---------- -----------
<S> <C> <C> <C> <C> <C>
1st Quarter $ 6,692,756 $1,150,362 $229,015 $.08
2nd Quarter 6,280,172 1,155,413 277,724 .05
3rd Quarter 5,015,376 894,096 69,716 .02
4th Quarter 8,927,433 1,337,049 272,650 .08
- --------- --------- ------- ---
Total $26,915,737 $4,536,920 $849,105 $.28
=========== ========== ======== ====
* Per share data is adjusted to reflect the one for five reverse stock split
(note 2). Total of quarterly amounts do not agree to the annual amount due to
separate quarterly calculations of weighted average shares outstanding.
</TABLE>
14. Other Income (Expense)
Included in Other Income (Expense) is Interest Income in the amount of
$116; $142,810 and $57,810, respectively for years ended October 31, 1996,
1995 and 1994.
15. Self-Funded Group Medical Insurance
Cataract, Inc. provides group medical insurance to its employees on a
self-funded basis up to $30,000 per insured individual to an annual
aggregate limitation of $242,000. Amounts in excess of these thresholds are
covered by insurance. Management believes that adequate reserves have been
recorded to cover claims incurred but not reported as of October 31, 1996.
F-18
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1995, 1994 and 1993
16. Contingency
During the third quarter, the Company received a request for contribution
in an unspecified amount from the purchaser of a property in 1977 on which
the Company had previously conducted the storage and handling of certain
aluminum recovery materials. The purchaser has suggested that, based upon
an order by the California Regional Water Quality Control Board, the
Company's handling and storage of certain materials on the site prior to
and after the sale may have contributed to environmental contamination of
the ground water on and around the site. Any such contamination was
discovered years after the sale.
Based upon the results of a preliminary examination of the matter, which
includes an environmental survey of the property conducted prior to the
time of the sale, the Company believes that the site in question complied
with all environmental rules and regulations at the time of the sale and
that any contamination was likely caused by the operation of the purchaser
thereafter.
The Company continues to examine this matter. Until full evaluation is
completed, any possible significance of this matter cannot be determined.
17. Subsequent Event (Unaudited)
On January 7, 1997 the Company purchased Programming Alternatives of
Minnesota, Inc. ("PAMI"), a privately-held, specialty provider of
information technology consultants, particularly those with high demand
client-server skills. The purchase price was $4,500,000 plus $1,625,000 of
contingent consideration in the form of a three year promissory note. The
agreement provides for additional purchase price consideration upon the
attainment of certain earnings targets at the end of each twelve month
period following the closing, for a period of three years. Any additional
consideration paid will be recorded as additional purchase price. Based
upon current monthly revenue figures provided by management of PAMI, the
revenues for the year ended December 31, 1996 are estimated to be
approximately $10 million.
F-19
<PAGE>
SCHEDULE I
RCM TECHNOLOGIES, INC. (PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEET
October 31, 1996 and 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
---- ----
Current assets
<S> <C> <C>
Cash $ 8,586 $ 1,733
Prepaid expenses and other assets 132,663 134,937
------- -------
Total current assets 141,249 136,670
------- -------
Other assets
Deposits 5,695 5,495
Long-term receivables from affiliates 16,073,166 8,188,366
---------- ---------
16,078,861 8,193,861
---------- ---------
Total assets $16,220,110 $8,330,531
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Share in deficiency in assets of subsidiaries __________ 803,946
-------
Shareholders' equity
Common stock 243,924 813,756
Additional paid in capital 17,161,105 10,265,687
Accumulated deficit ( 1,122,098) ( 3,490,037 )
--------- ---------
16,282,931 7,589,406
Less: treasury stock 62,821 62,821
------ ------
Total shareholders' equity 16,220,110 7,526,585
---------- ---------
Total liabilities and shareholders' equity $16,220,110 $8,330,531
=========== ==========
</TABLE>
The "Notes to Consolidated Financial Statements" of RCM Technologies, Inc. and
subsidiaries are an integral part of these statements.
F-20
<PAGE>
SCHEDULE I
RCM TECHNOLOGIES, INC. (PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENT OF OPERATIONS
Years Ended October 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
Operating expenses
<S> <C> <C> <C>
Administrative $ 139,280 $ 31,780 $ 116,418
----------- ------------ -----------
Operating loss ( 139,280) ( 31,780 ) ( 116,418 )
------- ------ -------
Miscellaneous expense ( 10,261) ( 3,678 ) ( 7,299 )
------ ----- -----
( 10,261) ( 3,678 ) ( 7,299 )
------ ----- -----
Loss before management fee income ( 149,541) ( 35,458 ) ( 123,717 )
Management fee income 149,541 35,458 123,820
------- ------ -------
Income before income taxes 103
Income taxes 103
---
Income before income in subsidiaries
Equity in earnings in subsidiaries 2,367,939 849,105 1,426,005
--------- ------- ---------
Net income $2,367,939 $ 849,105 $1,426,005
========== =========== ==========
</TABLE>
The "Notes to Consolidated Financial Statements" of RCM Technologies, Inc. and
subsidiaries are an integral part of these statements.
F-21
<PAGE>
SCHEDULE I
RCM TECHNOLOGIES, INC. (PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENT OF CASH FLOWS
Years Ended October 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
Cash flows from operating activities:
<S> <C> <C> <C>
Net income $2,367,939 $ 849,105 $1,426,005
---------- ----------- ----------
Adjustments to reconcile net income to
net cash provided by operating
activities:
Changes in operating assets and liabilities:
Prepaid expenses and other assets 2,274 ( 2,625 ) 530
Accounts payable and accrued expenses ( 11,108 ) ( 4,681 )
Income taxes payable ( 1,800 )
- -----
2,274 ( 13,733 ) ( 5,951 )
----- - ------ - -----
Net cash provided by operating activities 2,370,213 835,372 1,420,054
--------- ------- ---------
Cash flows from investing activities:
Increase in deposits ( 95 )
Share in deficiency in assets of
subsidiaries ( 2,367,939) ( 849,105 ) ( 1,426,005 )
Decrease (increase) in long-term
receivables from subsidiaries ( 1,025,065) 8,042 399
--------- ----- ---
Net cash used in
investing activities ( 3,393,004) ( 841,063 ) ( 1,425,701 )
--------- ------- ---------
Cash flows from financing activities:
Sale of common stock 1,000,000
Exercise of stock options 15,938 5,468
------ -----
Net cash provided by financing activities 1,015,938 5,468
--------- -----
Net decrease in cash and equivalents ( 6,853) ( 5,691 ) ( 179 )
Cash and equivalents at beginning of year 1,733 7,424 7,603
----- ----- -----
Cash and equivalents at end of year $ 8,586 $ 1,733 $ 7,424
============= =============== =============
</TABLE>
The "Notes to Consolidated Financial Statements" of RCM Technologies, Inc. and
subsidiaries are an integral part of these statements.
F-22
<PAGE>
SCHEDULE II
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Years Ended October 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Additions
---------
Balance at Charged to Charged to Balance at
Beginning Costs and Other End of
Description of Period Expenses Accounts Deduction Period
- ----------- --------- -------- -------- --------- ------
Year Ended October 31, 1996
- ---------------------------
Allowance for doubtful
accounts on trade
<S> <C> <C> <C> <C>
receivables $ 15,000 $ 15,320 $ 76,320 $ 76,000
Year Ended October 31, 1995
- ---------------------------
Allowance for doubtful
accounts on trade
receivables $ 15,000 $ 40,310 $ 40,310 $ 15,000
Year Ended October 31, 1994
- ---------------------------
Allowance for doubtful
accounts on trade
receivables $ 10,000 $ 92,707 $ 97,707 $ 15,000
</TABLE>
F-23
<PAGE>
EXHIBIT 21
SUBSIDIARIES
Intertec Design, Inc.
Cataract, Inc.
The Consortium
The Consortium of Maryland, Inc.
Programming Alternatives of Minnesota, Inc.
Consent of Independent Certified Public Accountants
Board of Directors
RCM Technologies, Inc.
We have issued our report dated December 16, 1996 accompanying the consolidated
financial statements and schedules included in the Annual Report of RCM
Technologies, Inc. and Subsidiaries on Form 10-K for the years ended October 31,
1996, 1995 and 1994. We hereby consent to the incorporation by reference of said
report in the Prospectus constituting part of the Registration Statement on
Forms S-8 (File No. 33-12405, effective March 24, 1987, File No. 33-12406,
effective March 24, 1987, File No. 33-61306, effective April 21, 1993, and File
No. 33-80590, effective June 22, 1994).
/s/ Grant Thornton LLP
Grant Thornton LLP
Philadelphia, Pennsylvania
December 16, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>I
THIS SCHEDULE SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS FOR THE YEAR ENDED OCTOBER 31, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH STATMENTS.
</LEGEND>
<CIK> 0000700841
<NAME> RCM TECHNOLOGIES, INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> OCT-31-1996
<EXCHANGE-RATE> 1.00
<CASH> 5,989
<SECURITIES> 0
<RECEIVABLES> 14,061,445
<ALLOWANCES> 76,000
<INVENTORY> 0
<CURRENT-ASSETS> 14,395,632
<PP&E> 1,644,831
<DEPRECIATION> 1,142,740
<TOTAL-ASSETS> 24,406,620
<CURRENT-LIABILITIES> 7,624,198
<BONDS> 0
0
0
<COMMON> 243,924
<OTHER-SE> 15,976,186
<TOTAL-LIABILITY-AND-EQUITY> 24,406,620
<SALES> 61,039,173
<TOTAL-REVENUES> 61,039,173
<CGS> 48,779,886
<TOTAL-COSTS> 58,023,668
<OTHER-EXPENSES> 30,216
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 163,811
<INCOME-PRETAX> 2,821,478
<INCOME-TAX> 453,539
<INCOME-CONTINUING> 2,367,939
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,367,939
<EPS-PRIMARY> .55
<EPS-DILUTED> .55
</TABLE>
