As filed with the Securities and Exchange Commission, via EDGAR
on March 21, 1997
Registration No. 333 -_________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
--------------------
RCM TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
Nevada 7363 95-1480559
------ -------- ----------
<S> <C> <C>
(State or other jurisdiction of (Primary Standard Classification Code (I.R.S. Employer Identification No.)
incorporation or organization) Number)
2500 McClellan Avenue
Suite 350
Pennsauken, New Jersey 08109-4613
</TABLE>
---------------------------------------------------------------
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive
office and principal place of business)
Mr. Leon Kopyt
2500 McClellan Avenue
Suite 350
Pennsauken, New Jersey 08109-4613
(609) 486-1777
---------------------------------------------------------------
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
with a copy to:
<TABLE>
<S> <C>
Stephen M. Cohen, Esquire Mark K. Kessler, Esquire
Buchanan Ingersoll Professional Corporation Wolf, Block, Schorr and Solis-Cohen
Eleven Penn Center, 14th Floor Twelfth Floor Packard Building
1835 Market Street S.E. Corner 15th & Chestnut Streets
Philadelphia, PA 19103 Philadelphia, PA 19102
(215) 665-3873 (215) 977-2576
</TABLE>
--------------------
Approximate date of proposed sale to the public: As soon as practicable
following effectiveness of this Registration Statement.
--------------------
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box: [ ]
<PAGE>
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement in the same offering: [ ] ____________________
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering: [ ]____________________
If delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box: [ ]
------------------------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
================================================================================
Title of
Each Class
Of Securities Amount Proposed Proposed
To Be To Be Maximum Offering Maximum Aggregate Amount of
Registered Registered(1) Price Per Share(2) Offering Price Registration Fee(3)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock $.05 par value 2,875,000 $8.38 $24,092,500 $7,300
============================================================================================================================
</TABLE>
(1) Includes 375,000 shares to cover over-allotments, if any.
(2) Reflects the last reported sales price of the Company's Common Stock on The
Nasdaq SmallCap Market on March 18, 1997.
(3) Estimated pursuant to Rule 457(c) for the purpose of calculating the
registration fee.
<PAGE>
RCM TECHNOLOGIES, INC.
----------------------
CROSS REFERENCE SHEET
---------------------
<TABLE>
<CAPTION>
Registration Statement Item Number and Caption Location in Prospectus or Page
- ---------------------------------------------- ------------------------------
<S> <C> <C>
1. Forepart of the Registration Statement and Outside Front Cover Forepart of the Registration Statement; Outside
Page of Prospectus................................................ Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of Prospectus.......... Inside Front and Outside Back Cover Pages of
Prospectus
3. Summary Information, Risk Factors and Ratio of Earnings to Fixed Prospectus Summary; Risk Factors; Summary
Charges........................................................... Financial Information
4. Use of Proceeds.................................................. Prospectus Summary; Use of Proceeds
5. Determination of Offering Price.................................. Cover Page of Prospectus; Underwriting
6. Dilution......................................................... Not Applicable
7. Selling Security Holders......................................... Principal and Selling Stockholders
8. Plan of Distribution............................................. Cover Page of Prospectus; Underwriting; Risk
Factors
9. Description of Securities to be Registered....................... Outside Front Cover Page of Prospectus;
Prospectus Summary; Description of Securities;
Underwriting
10. Interest of Named Experts and Counsel............................ Legal Matters; Experts
11. Description of Business.......................................... Business
12. Description of Property.......................................... Business
13. Legal Proceedings................................................ Business
14. Certain Market Information....................................... Price Range of Common Stock and Dividend
Policy; Description of Securities
15. Financial Statements............................................. Financial Statements
16. Selected Financial Data.......................................... Selected Financial Data
17. Supplementary Financial Data..................................... Not Applicable
18. Management's Discussion and Analysis of Financial Condition and Management's Discussion and Analysis of
Results of Operations............................................. Financial Condition and Results of Operations
19. Disagreements with Accountants................................... Not Applicable
20. Directors and Executive Officers................................. Management
21. Executive Compensation........................................... Management
22. Security Ownership of Certain Beneficial Owners and Management... Principal and Selling Stockholders
23. Certain Relationships and Related Transactions................... Certain Relationships and Related Transactions
24. Statement as to Indemnification.................................. Part II; Item 14 - Indemnification of Directors
and Officers
</TABLE>
<PAGE>
SUBJECT TO COMPLETION, DATED MARCH __, 1997
2,500,000 Shares
RCM TECHNOLOGIES, INC.
Common Stock
----------------------
Of the 2,500,000 shares of Common Stock being offered hereby (the "Offering"),
2,323,187 are being sold by RCM Technologies, Inc. (the "Company") and 176,813
are being sold by certain stockholders of the Company (the "Selling
Stockholders"). The Company will not receive any of the proceeds from the sale
of shares by the Selling Stockholders. See "Principal and Selling
Stockholders."
The Company's Common Stock is included on The Nasdaq SmallCap Market under the
symbol "RCMT." Application has been made for quotation of the Common Stock on
the Nasdaq National Market under the symbol "RCMT." On March __, 1997, the last
reported sales price of the Common Stock was $_____ per share. See "Price Range
of Common Stock and Dividend Policy."
--------------------------
Prospective investors should carefully consider the "Risk Factors"
beginning on page 7.
--------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
=======================================================================================================================
Underwriting Proceeds to
Price to Discounts and Proceeds to Selling
Public Commissions(1) Company(2) Stockholders
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share $ $ $ $
- -----------------------------------------------------------------------------------------------------------------------
Total(3) $ $ $ $
=======================================================================================================================
</TABLE>
(1) The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of
1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated to be $400,000.
(3) The Company has granted to the Underwriters an option, exercisable for 30
days from the date of the Offering, to purchase up to 375,000 shares of
Common Stock, solely to cover over-allotments, if any. If the Underwriters
exercise this option in full, the Price to Public will total $______, the
Underwriting Discounts and Commissions will total $________, and the
Proceeds to Company will total $_______. See "Underwriting."
-----------------------
The shares of Common Stock are offered by the several Underwriters, subject to
receipt and acceptance by them and subject to their right to reject any order in
whole or in part. It is expected that delivery of the certificates representing
such shares will be made at the offices of Janney Montgomery Scott Inc.,
Philadelphia, Pennsylvania, on or about _________, 1997.
-----------------------
JANNEY MONTGOMERY SCOTT INC. LEGG MASON WOOD WALKER
INCORPORATED
The date of this Prospectus is ________, 1997
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING, MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK. SUCH
TRANSACTIONS MAY INCLUDE THE PURCHASE OF SHARES OF THE COMMON STOCK PRIOR TO THE
PRICING OF THE OFFERING FOR THE PURPOSE OF MAINTAINING THE PRICE OF THE COMMON
STOCK, THE PURCHASE OF COMMON STOCK FOLLOWING THE PRICING OF THE OFFERING TO
COVER A SYNDICATE SHORT POSITION IN THE COMMON STOCK OR FOR THE PURPOSE OF
MAINTAINING THE PRICE OF THE COMMON STOCK, AND THE IMPOSITION OF PENALTY BIDS.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS MAY ENGAGE IN PASSIVE
MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ SMALLCAP MARKET IN
ACCORDANCE WITH RULE 103 OF REGULATION M UNDER THE SECURITIES EXCHANGE ACT OF
1934 (THE "EXCHANGE ACT"). SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the detailed
information and financial statements (including the notes thereto) appearing
elsewhere in this Prospectus. Unless otherwise indicated, all information in
this Prospectus assumes that the Underwriters' over-allotment option will not be
exercised. Investors should carefully consider the information set forth under
the caption "Risk Factors." Unless the context otherwise requires, the "Company"
or "RCM" refers to RCM Technologies, Inc. and its wholly owned subsidiaries.
References to fiscal years are to the respective fiscal years of the Company
which end October 31.
The Company
The Company is a multi-regional provider of specialty professional
staffing services through its 30 branch offices located in 12 states. The
Company provides contract and temporary personnel in the information technology,
professional engineering and technical, specialty healthcare and general support
sectors of the staffing industry to a diversified base of national, regional and
local customers. During fiscal 1996, the Company provided an average of 2,600
contract and temporary staffing employees on a daily basis to approximately 700
customers, including a number of Fortune 500 companies, governmental units and
public utilities, as well as small to medium-size retail, manufacturing,
professional and service organizations. Customers include Air Products &
Chemicals, AT&T, Consolidated Edison, Deloitte & Touche, Mt. Sinai Hospital,
Northeast Utilities, Sandoz Pharmaceuticals, Sears and United Technologies.
In fiscal 1995, the Company implemented an aggressive growth strategy
based on management's belief in the expanding market demand and the competitive
advantages offered by the Company's blend of specialized professional services.
A key element of this strategy is to identify acquisition candidates within
specialty professional service sectors which offer higher margins and greater
growth potential than traditional staffing services. Since the beginning of
fiscal 1995, the Company has achieved significant revenue growth primarily
through the acquisition of six staffing companies with combined revenues of
approximately $67.7 million in their respective fiscal years prior to the
acquisition. These acquisitions shifted the Company's business toward the higher
margin information technology and specialty healthcare sectors. During this
time, the Company also elected to discontinue providing certain lower margin
general support services. General support services, which from fiscal 1992 to
1994 accounted for approximately 51.0% of the Company's revenues, decreased as a
percentage of the Company's revenues to 20.5% during the three months ended
January 31, 1997. Correspondingly, revenues from the Company's specialty
professional services accounted for 79.5% of the Company's revenues during the
three months ended January 31, 1997. Prior to implementation of its growth
strategy, in fiscal 1994 the Company's revenues and operating income were $29.2
million and $1.6 million, respectively. In fiscal 1996, on a pro forma basis
which gives effect to the acquisitions as if they had occurred on November 1,
1995, the Company's revenues and operating income increased to $84.7 million and
$4.7 million, respectively.
According to the National Association of Temporary Staffing Services,
from 1991 to 1995, the U.S. market for temporary staffing services grew at a
compound annual rate of
3
<PAGE>
approximately 18.0%. Industry revenues during this period increased from
approximately $21.5 billion to approximately $45.1 billion. While the staffing
industry has grown rapidly in recent years, in 1996 temporary employment
represented only 2.2% of the average daily employment of the total U.S.
workforce and industry sources anticipate it will increase to 4.0% by the year
2000. The increase in historic and anticipated industry revenues reflects a
growing acceptance of contract and temporary work assignments among employers
and employees. The Company believes that the demand for specialty staffing
services will increase at a faster rate than the staffing industry as a whole,
as companies continue to use skilled specialty personnel to provide rapid
responses to complex technological challenges without incurring the fixed
overhead costs associated with permanent employees.
The Company's objective is to become a leading provider of specialty
professional staffing services in selected regional markets throughout the
United States. Management has designed the Company's blend of service offerings,
particularly within the information technology and niche professional
engineering sectors, to meet the staffing requirements of many medium and large
corporations. The Company intends to expand internally and to make acquisitions
both in its existing markets and in markets that are determined by management to
have strong growth and specialty staffing requirements. Additionally, the
Company believes it can maximize the benefits of its acquisitions by rapidly
integrating the general and administrative functions of the acquired companies,
fostering a decentralized entrepreneurial environment and by focusing on the
relationships with both its customers and personnel. Service to the general
support sector, while not intended as a primary focus of the Company's
operations, is expected to continue to supplement the Company's specialty
professional services and provide diversification to the Company's customer base
and geographic presence.
The executive offices of the Company are located at 2500 McClellan
Avenue, Suite 350, Pennsauken, New Jersey 08109, and its telephone number is
(609) 486-1777.
4
<PAGE>
The Offering
<TABLE>
Common Stock offered:
<S> <C>
By the Company................................................ 2,323,187 shares
By the Selling Stockholders................................... 176,813 shares
Total......................................................... 2,500,000 shares
Common Stock to be outstanding after the Offering.................. 7,138,863 shares(1)
Use of Proceeds.................................................... For repayment of bank debt, working capital
and general corporate purposes, primarily to
finance future acquisitions. See "Use of
Proceeds."
Nasdaq Symbol..................................................... RCMT
</TABLE>
- ----------------
(1) Does not include an aggregate of 1,490,000 shares of Common Stock reserved
for issuance under the Company's stock option plans. As of March 17, 1997,
options to acquire 714,400 shares of Common Stock at exercise prices
ranging from $1.09 to $8.13 were outstanding, including options to acquire
262,000 shares which were not exercisable as of the date of this
Prospectus. Also does not include 157,342 shares of Common Stock issuable
upon the exercise of Class C Warrants of the Company at an exercise price
of $15.00 per share. See "Management - Stock Option Plans" and "Description
of Securities - Class C Warrants."
<PAGE>
Summary Consolidated Financial Data
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended October 31, Three Months Ended January 31,
----------------------------------------------------
1994 1995 1996 1996 1997
---- ---- ---------------------- ---------------------- --------------------
Actual Pro Forma(1) Actual Pro Forma(1) Actual Pro Forma(1)
------ ------------ ------ ------------ ------ ------------
Statement of Income Data:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $29,239 $26,916 $61,039 $84,665 $9,777 $19,072 $21,151 $21,151
Gross profit 5,375 4,537 12,259 19,147 1,791 4,141 5,100 5,100
Operating income 1,608 857 3,015 4,715 592 943 1,355 1,355
Net income $1,426 $849 $2,368 $3,688 $502 $737 $781 $757
===== ===== ===== ===== ===== ===== ===== =====
Net income per share $0.49 $0.28 $0.55 $0.67 $0.15 $0.14 $0.16 $0.13
===== ===== ===== ===== ===== ===== ===== =====
Supplemental pro forma
net income per share (2) $0.18 $0.38 $0.48 $0.10 $0.10 $0.15 $0.13
===== ===== ===== ===== ===== ===== =====
Weighted average number
of shares outstanding 2,930 3,008 4,321 5,514 3,277 5,319 4,971 5,660
</TABLE>
<TABLE>
<CAPTION>
October 31, 1996 January 31, 1997
---------------- ----------------------------------------
Actual As Adjusted (3)
------ ---------------
Balance Sheet Data:
<S> <C> <C> <C>
Cash and cash equivalents $6 $125 $12,832
Working capital, exclusive of 9,518 9,919 22,626
notes - payable bank
Total assets 24,407 30,191 42,898
Notes payable - bank 2,746 7,000 2,000
Shareholders' equity 16,220 17,001 34,708
</TABLE>
- ---------------------
(1) Assumes that the acquisitions of Consortium, Consort MD, PSI and PAMI
occurred on November 1, 1995 and gives effect to the reduction of certain
redundant operating costs and expenses, excess salaries and non-recurring
costs that were identified at the time of the acquisitions. Also gives
effect to: (i) the elimination of interest expense associated with the
acquisition related debt assumed to be repaid with offering proceeds; and
(ii) the issuance of 705,116 shares of Common Stock (at an assumed offering
price of $8.38 per share) which, net of estimated underwriting commissions
and offering expenses payable by the Company, would be sufficient to repay
the acquisition related indebtedness as set forth in "Use of Proceeds."
(2) Assumes an effective tax rate of 42%. The Company's effective tax rates for
the years ended October 31, 1995 and 1996 and the three months ended
January 31, 1996 were 10%, 16% and 10%, respectively, due to the
utilization of net operating loss carryforwards.
(3) Gives effect to the sale of 2,323,187 shares of Common Stock (at an assumed
offering price of $8.38 per share) offered by the Company hereby and the
application of the net proceeds therefrom as set forth in "Use of
Proceeds."
6
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock offered by this Prospectus
involves a high degree of risk. Prospective purchasers of the shares of Common
Stock offered hereby should carefully review the following risk factors as well
as the other information set forth in this Prospectus.
This Prospectus contains forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995. Pro forma information
contained within this Prospectus, to the extent it is predictive of financial
condition and results of operations that would have occurred on the basis of
certain stated assumptions, may also be characterized as forward-looking
statements. Although forward-looking statements are based on assumptions made,
and information believed, by management to be reasonable, no assurance can be
given that such statements will prove to be correct. Such statements are subject
to certain risks, uncertainties and assumptions. Should one or more of these
risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those anticipated, estimated,
projected or expected. Such risks and uncertainties are described under the
headings "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business" and in the risk factors set forth below.
Ability to Achieve and Manage Growth
The Company has experienced significant growth since the beginning of
fiscal 1995, principally through acquisitions. Continued growth could place
additional demands on its administrative, operational and financial resources.
The Company's ability to achieve and manage its growth will depend on a number
of factors, including the availability of working capital to support such
growth, existing and emerging competition, the Company's ability to maintain
sufficient profit margins and the strength of demand for contract and temporary
personnel in the sectors in which the Company operates. There can be no
assurance that the Company will be able to continue to achieve or manage such
growth effectively and the failure to do so could have a material adverse effect
on the Company's business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business - Business Strategy."
Risks Associated with Future Acquisitions
A primary element of the Company's growth strategy is to pursue
strategic acquisitions that expand or complement the Company's business. The
Company regularly reviews various strategic acquisition opportunities and
periodically engages in discussions regarding possible acquisitions. As a
result, negotiations may occur from time to time as appropriate opportunities
arise. There can be no assurance that the Company will be able to identify
additional acquisition candidates on terms favorable to the Company or in a
timely manner, enter into acceptable agreements or close any such transactions,
and any failure to do so could have a material adverse effect on the Company's
ability to sustain its growth. In addition, the Company will compete for
acquisitions with other companies. Increased competition for such acquisition
candidates could have the effect of increasing the cost of pursuing this growth
strategy or could reduce the number
7
<PAGE>
of attractive candidates to be acquired. Future acquisitions could divert
management's attention from the daily operations of the Company and require
additional management, operational and financial resources. Moreover, there is
no assurance that the Company will be able to successfully integrate
acquisitions into its business or operate such acquisitions at expected levels
of revenue or profitability. Acquisitions may also have an adverse short-term
effect on the Company's operating results, dependence on retaining key
personnel, amortization of acquired intangible assets and risks associated with
unanticipated problems, liabilities or contingencies. See "Acquisition Program."
The Company may require additional debt or equity financing for future
acquisitions, which may not be available at all, or on terms favorable to the
Company. To the extent the Company uses shares of Common Stock for all or a
portion of the consideration to be paid in future acquisitions, dilution may be
experienced by existing stockholders, including the purchasers of Common Stock
in this Offering. If the Company does not have cash resources sufficient for
such purpose or is not able to use its Common Stock as consideration for
acquisitions, its growth through acquisitions could be limited. See "Acquisition
Program" and "Management's Discussion and Analysis of Financial Condition and
Results of Operation - Liquidity and Capital Resources."
Dependence on Key Customers and Geographic Concentration
Although the Company provides services to a large number of customers,
approximately 24.6% and 21.6% of the Company's revenues in fiscal 1996 and the
three months ended January 31, 1997, respectively, were derived from the
Company's top five revenue producing customers, with one customer accounting for
approximately 12.0% of the Company's revenues in each period. Similarly, a
substantial portion of the Company's revenues are currently derived from
services provided to customers in the Northeast, Midwest and California regions
of the United States. The loss of, or a reduction in, business from any major
customers or a deterioration of general economic conditions in these regions
could adversely affect the Company. See "Business - Customers and Marketing."
Dependence on Availability of Qualified Personnel
The Company depends on its ability to attract, train and retain
qualified personnel who possess the skills and experience necessary to meet the
staffing requirements of its customers. Competition for the services of
personnel within all of its professional specialty groups is intense.
Competition for information technology personnel is particularly intense and
demand for their services has, to date, substantially exceeded their supply. The
Company expects such competition to continue. Factors influencing such
competition include compensation, benefits, growth opportunities, relationships
with other specialty staffing companies and full-time employment opportunities.
There can be no assurance that qualified personnel will continue to be available
to the Company in sufficient numbers and on terms of employment acceptable to
the Company. The inability to attract and retain qualified personnel in
sufficient numbers, or to upgrade its base of qualified personnel to keep pace
with changing customer needs and emerging technologies, could have a material
adverse affect on the Company's business, financial condition and results of
operations. See "Business - Operations."
8
<PAGE>
Reliance on Key Personnel
The Company is highly dependent upon the continued services and
experience of its senior members of management, including Leon Kopyt, Chairman
and Chief Executive Officer. The loss of the services of Mr. Kopyt or other
senior members of management could have a material adverse effect on the
Company's business. The Company has employment agreements with Mr. Kopyt and
other senior members of management. See "Management - Executive Compensation."
Potential Claims Relating to Former Operation of California Facility
For several years prior to 1977, the Company operated a facility
located in Fontana, California (the "Facility") at which it processed certain
materials to recover aluminum. The property on which the Facility was located
(the "Property") was owned by Robert Sackett, a principal shareholder and chief
executive officer of the Company at that time. In 1977, the Company sold certain
assets of the Facility to a company (the "Purchaser") that continued the
processing operations until 1982. As part of the 1977 transaction, the Purchaser
granted a license to the Company to store an existing aluminum oxide stockpile
(the "Stockpile") at the Facility, and the Purchaser had the right to purchase
from the Company material from the Stockpile. Mr. Sackett sold the Property to
the Purchaser in 1985. In 1986 and 1994, the California Regional Water Quality
Control Board ("California WQCB") issued Cleanup and Abatement Orders ("Orders")
to the Purchaser, Mr. Sackett and the Company alleging the degradation of, and
requiring its investigation and mitigation of, groundwater quality due to
discharges from materials stored at the Facility, including the Stockpile.
Although the Company did not respond to the Orders, the Purchaser has advised
the Company that, through January 1994, it incurred costs of approximately $5.6
million principally to remove the Stockpile from the Facility and, in addition
to any costs, if any, incurred since January 1994, it may incur additional costs
of approximately $1.0 million to settle all liability in this matter to the
California WQCB.
The Company has received from the Purchaser a request for contribution
in an unspecified amount to recover a portion of its costs. In this regard, the
Purchaser has threatened the Company with litigation under both the Federal
Superfund law and California law. Based upon the Company's evaluation of this
matter, which included a review of an environmental study performed for the
Company before the 1977 transaction and studies performed for the Purchaser
after the 1977 transaction, the Company believes that, among other things: the
Facility was in material compliance with all applicable environmental laws,
regulations and other requirements prior to and at the time of the 1977
transaction; any violations of applicable environmental laws, regulations or
other requirements at the Facility after the 1977 transaction, including any
relating to the Stockpile, were caused by or were the responsibility of the
Purchaser and others; the contaminants alleged to have been released from the
Facility and impacted groundwater do not support a Federal Superfund claim; and
some of the actions taken and costs incurred by the Purchaser may not have been
necessary or required to comply with the Orders. There can be no assurance that
the Company will not incur material expense in connection with any claims
brought by the Purchaser or the California WQCB or that the Company will not
ultimately be found responsible for certain of the costs incurred by the
Purchaser in an amount that may be material to the Company. Management intends
to vigorously defend any such claims, if and when they may arise. To the extent
that the Company experiences a material loss as a result of the environmental
9
<PAGE>
matters described above, the Company may be subject to additional claims for
damages which could have an adverse effect on the Company's financial condition.
Fluctuations in Quarterly Operating Results
The Company has experienced, and is expected to continue experiencing,
quarterly variations in revenues and operating income as a result of many
factors, including the timing of assignments from customers, future
acquisitions, hiring of personnel and additional selling, general and
administrative expenses incurred to support new business as well as changes in
the Company's revenue mix. In connection with certain engineering projects, the
Company could incur costs in periods prior to recognizing revenues under those
contracts. In addition, the Company must plan its operating expenditures based
on revenue forecasts, and a revenue shortfall below such forecast in any quarter
would likely adversely affect the Company's operating results for the quarter.
While the effects of seasonality of the Company's business have been obscured by
its growth through acquisitions, the Company usually experiences lower revenues
in its first fiscal quarter due to the slowdown in business associated with the
holiday season.
Increased Costs of Employment
The Company is required to pay unemployment insurance premiums and
workers' compensation benefits for its contract and temporary employees.
Unemployment insurance premiums are set annually by the states in which
employees perform services and could increase periodically. There can be no
assurance that the Company will be able to increase the fees charged to its
customers in a timely manner and by an amount sufficient to cover increased
unemployment insurance premiums. Workers' compensation costs have increased as
various states in which the Company conducts operations have raised benefit
levels and liberalized allowable claims. The Company maintains workers'
compensation insurance for its employees under an insured program in its areas
of operation. There can be no assurance that the Company's actual workers'
compensation obligations will not exceed the amount of its insured coverage or
that the Company will be able to increase the fees charged to its customers
sufficiently to offset increased employment costs.
Liability for Employee Actions
Providers of contract and temporary staffing services generally place
their employees in the workplace of other businesses. The risk of employee
misconduct is attendant to the Company's business. These risks could include
claims relating to errors and omissions, misuse of proprietary information,
misappropriation of funds, discrimination and harassment, theft of customer
property, other criminal activity or torts and other claims. While the Company
has not historically experienced any material claims of these types, and has
insurance covering certain of these risks, there can be no assurance that the
Company will not experience such claims, incur costs in connection with such
risks in the future, that insurance coverage will continue to be available or
that it will be adequate to cover such liabilities.
10
<PAGE>
Risks Related to Tax Status of Independent Contractors
Generally, the Company treats its technical personnel as employees for
federal and state tax purposes and pays all requisite Social Security taxes
(FICA), payroll taxes, unemployment taxes, workers' compensation insurance
premiums and other employee taxes and similar costs. In certain cases, however,
technical personnel desire to be treated as independent contractors for federal
and state tax purposes with respect to their assignments. In such cases, and if
appropriate, the individual is treated as an independent contractor for tax
purposes. Of the technical personnel, historically, less than 5% were treated as
independent contractors for federal and state tax purposes. The Company believes
that it is in material compliance with all applicable tax regulations concerning
the classification of its technical personnel, and has not, to date, been the
subject of any attempt by any federal or state authority to reclassify any of
the personnel it has treated as independent contractors. There can be no
assurance, however, that federal and state taxing authorities will not challenge
the Company's classification of technical personnel as independent contractors
in the future. If successful, such a challenge could result in the imposition of
additional taxes, interest and penalties, the amount of which could have a
material adverse effect on the Company's financial condition.
Risk of Government Regulations and Legislative Proposals
The Company's costs of operations could increase if there are any
material changes in government regulations. Recent federal and state legislative
proposals have included provisions seeking to extend health insurance benefits
to employees who do not currently receive such benefits. As a result of the wide
variety of national and state proposals currently under consideration, the
impact of such proposals cannot be predicted. There can be no assurance that the
Company will be able to increase the fees charged to its customers in a timely
manner and sufficient amount to cover increased costs related to any new
benefits that may be extended to temporary employees as a result of such
legislation or regulations. It is not possible to predict whether any other
legislation or regulations affecting the Company's operations will be proposed
or enacted at the federal or state level; however, no assurances can be given
that if enacted, such legislation or regulations would not have a material
adverse effect on the Company.
Competitive Market
The temporary staffing industry is highly competitive, with limited
barriers to entry. The Company competes for customers in the geographic regions
in which it operates with national, regional and local, full service and
specialized staffing providers. Certain of the Company's competitors have
greater marketing, financial and other resources, and more established
operations, than the Company. As a result, they may be better able to respond or
adapt to new or emerging technologies and changes in customer requirements or to
devote greater resources to the development, marketing and sales of their
services than the Company. The Company expects that the level of competition
will remain high in the future, which could limit the Company's ability to
maintain its market share or maintain gross margins in the geographic regions or
industry sectors in which it operates, either of which could have a material
adverse affect on the Company's business, financial condition and results of
operations. See "Business - Competition."
11
<PAGE>
General Economic Risks
Demand for professional staffing services is significantly affected by
the general level of economic activity. When economic activity slows, customers
may delay or cancel plans that involve the hiring of permanent or contract
technical personnel. The Company is unable to predict the level of economic
activity at any particular time, and fluctuations in the general economy could
adversely affect the Company's business, operating results and financial
condition.
Discretion in Use of Proceeds
The Company intends to use approximately $5.0 million of the net
proceeds from this Offering (assuming a public offering price of $8.38 per
share) to repay certain outstanding indebtedness and intends to use the
approximately $12.7 million in remaining net proceeds (approximately $15.7
million if the Underwriters' over-allotment is exercised) for general corporate
purposes, primarily to finance future acquisitions. The Company currently has no
understandings, commitments or agreements with respect to any material
acquisitions; however, as a result of the Company's process of regularly
reviewing acquisition prospects, negotiations may occur from time to time if
appropriate opportunities arise. Consequently, there can be no assurance as to
when or how the remaining net proceeds from the Offering will be used. If the
Company is unable to promptly utilize such proceeds in connection with
acquisitions, or to otherwise use such proceeds in the growth of its business,
the returns realized from temporarily investing such proceeds may be
substantially less than the returns which could be realized if such proceeds
were successfully invested in the business. See "Use of Proceeds."
Control by Existing Management
Following the completion of this Offering, officers and directors of
the Company will have voting rights over approximately 24.7% of the then
outstanding shares of Common Stock (23.5% if the Underwriters' over-allotment
option is exercised) and may be able to exercise effective control over most
matters requiring approval of the Company's stockholders, including the election
of the Company's directors. See "Principal and Selling Stockholders" and
"Description of Securities."
Volatility of Stock Price
The market price of the Company's Common Stock has recently experienced
volatility, with prices as high as $15.00 on May 24, 1996 and as low as $7.00 on
August 2, 1996. In the future, the market price of the Common Stock could
fluctuate substantially due to a variety of factors, including quarterly
operating results of the Company or other companies in the same or similar
industry, changes in general conditions in the economy, the financial markets or
the staffing services industry, natural disasters or other developments
affecting the Company or its competitors.
12
<PAGE>
Shares Eligible for Future Sale; Registration Rights
The market price of the Common Stock could be adversely affected by the
sale of substantial amounts of Common Stock in the public market following this
Offering. Of the 7,138,863 shares of Common Stock that will be outstanding
following the Offering, 1,748,950 shares of Common Stock are considered
"restricted securities" for the purpose of Rule 144 under the Securities Act of
1933, as amended (the "Securities Act") and may only be sold if they are
registered under the Securities Act or if an exemption from such registration is
available. All of the Company's directors and executive officers and Limeport
Investments, LLC have agreed not to sell, otherwise dispose of, or pledge any
shares of the Common Stock for 180 days after the date of this Prospectus (the
"Lock-Up Period") without the prior written consent of Janney Montgomery Scott
Inc. The Lock-Up Period will not apply to the Common Stock offered by Limeport
Investments, LLC as a Selling Stockholder. See "Principal and Selling
Stockholders" and "Shares Eligible for Future Sale."
Following expiration of the Lock-Up Period, 174,111 of the restricted
securities will be eligible for public resale either in accordance with Rule 144
under the Securities Act or by operation of the applicable registration rights
agreements between the holders of such restricted securities and the Company. Of
the remaining restricted securities, 1,262,528 may not be sold until April 30,
1998 and 312,311 shares may not be sold until August 30, 1998, each pursuant to
certain registration rights arrangements with the Company.
Sales of additional shares in the public market could also occur upon
the exercise of existing stock options and Class C Warrants. The sales could
take place prior to the expiration of the Lock-Up Period.
The Company is unable to predict the effect, if any, that future sales
of shares, or the availability of shares for future sale, will have on the
market price for the Common Stock prevailing from time to time. Sales of
substantial amounts of Common Stock, or the perception that such influx of
shares into the market could occur, could adversely affect the market price for
the Common Stock and could impair the Company's future ability to obtain capital
through offerings of equity securities.
Effect of Certain Anti-Takeover Provisions
Certain provisions of the Company's Articles of Incorporation, as
amended (the "Articles of Incorporation"), Amended and Restated Bylaws (the
"Bylaws"), the Nevada General Corporation Law, the Company's Stockholder Rights
Plan (the "Rights Plan") and the Second Amended and Restated Termination
Benefits Agreement between the Company and its Chief Executive Officer (the
"Benefits Agreement") could delay or frustrate the removal of incumbent
directors and could make difficult a change in control transaction including a
merger, tender offer or proxy contest involving the Company, even if such events
could be viewed as beneficial by the Company's stockholders. For example, the
Articles of Incorporation provide for a classified Board of Directors and deny
the right of stockholders to amend the Bylaws without the consent of the Board
and require advance notice of stockholder nominations of directors. The Company
is also subject to provisions of the Nevada General Corporation Law that
prohibit a publicly held
13
<PAGE>
Nevada corporation from engaging in a broad range of business combinations with
a person who, together with affiliates and associates, owns 10% or more of the
corporation's outstanding voting shares (an "interested stockholder") for three
years after the person became an interested stockholder, unless the business
combination is approved in a prescribed manner. In addition, the Rights Plan
provides for substantial dilution of an "acquiring person" as defined therein in
the event a person or group of persons acquires beneficial ownership of 15% or
more of the outstanding Common Stock of the Company or in the event of a merger
or sale of assets which is not approved by the "continuing directors," of the
Company as defined in the Rights Plan. Furthermore, in the event of a "change in
control" (as defined in the Benefits Agreement) which results in the termination
of the Chief Executive Officer, the Company would be required to make
substantial payments and, in certain circumstances, reduce the exercise price of
options issued to the Chief Executive Officer. See "Management - Change in
Control Arrangements" and "Description of Securities - Provisions Having a
Possible Anti-Takeover Effect."
14
<PAGE>
ACQUISITION PROGRAM
Since the beginning of fiscal 1995, the Company has completed the
acquisition of six staffing companies with combined revenues of approximately
$67.7 million in their respective fiscal years prior to the acquisition. These
acquisitions shifted the Company's business from general support to the
specialty professional service sectors, such as information technology,
professional engineering and specialty healthcare services. These acquisitions
also increased the Company's geographic presence in the Northeast and Midwest
regions of the United States, thereby allowing the Company to more effectively
provide services to large regional and national accounts.
Key elements of the Company's growth strategy are to continue to pursue
strategic acquisitions in selected geographic regions and in the specialty
professional service sectors. These acquisitions may serve to strengthen the
Company's presence in existing markets, introduce the Company to new regions
with strong growth opportunities, or add new specialty staffing services. The
Company regularly reviews various strategic acquisition opportunities and
periodically engages in discussions regarding such acquisitions. While the
number, timing, size and terms of such acquisitions may vary, management has
developed the following general guidelines to identify potential acquisitions:
o Regional businesses with revenues of $25.0 million or less.
o Businesses with profitable operations and experienced management
personnel.
o Sellers who are willing to accept a significant portion of the
acquisition price in the form of multi-tiered earnouts based on
meeting certain growth and profitability targets.
Management believes that, in addition to its growth strategy and
acquisition guidelines, the following factors distinguish the Company from
competitive bidders when pursuing acquisitions: (i) the opportunity of the
target management to be key contributors and participants in the growth of a
medium-sized public company; (ii) the rapid integration of general and
administrative functions to allow a greater focus upon sales and marketing
efforts; (iii) operational autonomy which fosters a desirable entrepreneurial
environment; and (iv) the use of substantial performance-based financial
incentives.
The following information provides a summary of the acquisitions
completed by the Company since the beginning of fiscal 1995.
Great Lakes Design, Inc. ("Great Lakes"). In December 1994, the Company
acquired the operating assets of Great Lakes for $200,000 in the form of a
$150,000 note payable over a period of two years, $50,000 in cash and certain
earnout provisions. Great Lakes generated revenues of approximately $3.2 million
during its fiscal year ended December 31, 1994. Through this transaction, the
Company acquired two branch offices which provide engineering and technical
staffing services.
15
<PAGE>
Cataract, Inc. ("Cataract"). In August 1995, the Company acquired all
of the outstanding stock of Cataract for $2.0 million cash and 312,311
restricted shares of the Company's Common Stock. The restricted shares have been
pledged to the Company for a period of three years to secure certain levels of
sales revenues that have been warranted by the former Cataract shareholders.
Cataract generated revenues of approximately $20.5 million during its fiscal
year ended December 31, 1994. Through this transaction, the Company acquired
five branch offices which provide engineering staffing services.
The Consortium ("Consortium"). In March 1996, the Company acquired all
of the outstanding stock of Consortium for 1.3 million restricted shares of the
Company's Common Stock. Consortium generated revenues of approximately $26.0
million during its fiscal year ended December 31, 1995. Through this
transaction, the Company acquired five branch offices which provide information
technology, specialty healthcare and general support staffing services. In
addition, the two principal shareholders of Consortium joined the Company's
senior management.
The Consortium of Maryland, Inc. ("Consort MD"). In May 1996, the
Company acquired all of the outstanding stock of Consort MD for $621,500 cash
and 34,327 restricted shares of the Company's Common Stock, plus additional
shares of restricted stock having a value equal to approximately $250,000, based
upon a post-closing verification of financial data warranted at closing. Consort
MD generated revenues of approximately $6.0 million during its fiscal year ended
December 31, 1995. Through this transaction, the Company acquired one branch
office which provides information technology staffing services. In addition, the
sole shareholder of Consort MD joined the Company's senior management.
Performance Staffing, Inc. ("PSI"). In September 1996, the Company
acquired the operating assets of PSI for 2,500 restricted shares of the
Company's Common Stock, and in connection therewith, assumed approximately
$110,000 of PSI's debt. PSI generated revenues of approximately $2.0 million
during its fiscal year ended December 31, 1995. Through this transaction, the
Company acquired three branch offices which provide engineering and general
support staffing services.
Programming Alternatives of Minnesota, Inc. ("PAMI"). Effective as of
November 4, 1996, the Company acquired all of the outstanding stock of PAMI for
approximately $4.5 million cash plus $1.6 million of consideration in the form
of a three year promissory note payable upon attaining certain earnings targets
within the three-year period. The Company also agreed to pay additional
consideration to the former PAMI shareholder in the event that during the
three-year period the performance of PAMI exceeds the established earnings
targets. PAMI generated revenues of approximately $10.0 million during its
fiscal year ended December 31, 1996. Through this transaction, the Company
acquired one branch office which provides information technology staffing
services.
16
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the 2,323,187 shares of Common Stock
offered hereby by the Company are estimated to be approximately $17.7 million
($20.7 million in the event the Underwriters' over-allotment option is
exercised) assuming a public offering price of $8.38 per share and after
deducting estimated underwriting discounts and commissions and Offering
expenses. The Company will not receive any proceeds from the sale of Common
Stock by the Selling Stockholders.
Approximately $5.0 million of the net proceeds will be used to repay
outstanding debt under the Company's Revolving Credit Facility which was
obtained for working capital purposes and acquisition financing. The Revolving
Credit Facility provides a revolving line of credit which permits borrowings of
up to $20.0 million at an interest rate equal to LIBOR plus 2.25% and expires on
June 30, 1999. Borrowings under the Revolving Credit Facility have been used to
fund certain of the Company's acquisitions. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources."
The Company intends to use the remaining net proceeds of approximately
$12.7 million (approximately $15.7 million if the Underwriters' over-allotment
is exercised) for working capital and other general corporate purposes,
primarily to finance future acquisitions. The Company currently has no
understandings, commitments or agreements with respect to any material
acquisitions; however, as a result of the Company's process of regularly
reviewing acquisition prospects, negotiations may occur from time to time if
appropriate opportunities arise. Pending the uses described above, the Company
intends to invest its net proceeds in short-term, investment-grade securities.
17
<PAGE>
PRICE RANGE OF COMMON STOCK
AND DIVIDEND POLICY
The Common Stock is traded on The Nasdaq SmallCap Market under the
symbol "RCMT." Application has been made for quotation on the Nasdaq National
Market under the same symbol. The following table sets forth high and low sales
prices by fiscal quarters for the periods indicated, as reported by the National
Association of Securities Dealers, Inc.
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
Fiscal 1997
-----------
First Quarter $10.38 $7.00
Second Quarter (through March 18, 1997) 9.63 8.25
On March 18, 1997 the last reported sales price of the Common Stock on
The Nasdaq SmallCap Market was $8.38 per share.
As of March 18, 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.
The Company has never declared or paid a cash dividend on its Common
Stock and does not anticipate paying any cash dividends in the foreseeable
future. 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.
Any future payment of dividends will be at the discretion of the Board of
Directors and will depend upon, among other things, the Company's earnings,
financial condition, capital requirements, level of indebtedness, contractual
restrictions and other factors that the Board of Directors deems relevant. The
Revolving Credit Facility prohibits the payment of dividends or distributions on
account of the capital stock without the prior consent of Mellon Bank, N.A.
18
<PAGE>
CAPITALIZATION
The following table sets forth the note payable under the Company's
Revolving Credit Facility and the consolidated capitalization of the Company at
January 31, 1997 on an actual basis and as adjusted, as of such date, to give
effect to the sale by the Company of 2,323,187 shares of Common Stock at an
assumed offering price of $8.38 per share, and the application of the net
proceeds therefrom as set forth in "Use of Proceeds." This table should be
reviewed in conjunction with the Company's historical and pro forma financial
statements and related notes appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
January 31, 1997
--------------------------------
Actual As Adjusted
------ -----------
(in thousands)
<S> <C> <C>
Cash and equivalents $ 125 $12,832
======= =======
Notes payable - bank (1) $ 7,000 $ 2,000
======= =======
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; 4,815,676 shares
issued, actual and 7,138,863 shares issued, as adjusted 244 360
Additional paid-in capital 17,161 34,752
Treasury stock, at cost 62,800 shares (63) (63)
Accumulated deficit (341) (341)
-- --
Total shareholders' equity 17,001 34,708
------- -------
Total capitalization $17,001 $35,351
======= =======
</TABLE>
- --------------------
(1) Classified within the Company's Consolidated Financial Statements as a
current liability.
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data for, and as of the end of,
each of the years in the four year period ended October 31, 1996 are derived
from the consolidated financial statements of the Company which have been
audited by Grant Thornton LLP, independent auditors. The selected consolidated
financial data for, and as of the end of, the year ended October 31, 1992 are
derived from the consolidated financial statements of the Company which have
been audited by Morris J. Cohen & Co., independent auditors. The selected
consolidated financial data for the three months ended January 31, 1996 and 1997
are derived from the unaudited consolidated financial statements of the Company,
which in the opinion of management include all adjustments (consisting of only
normal recurring adjustments) necessary to present fairly the results of
operations and financial position for such periods. The results of operations
for the three months ended January 31, 1997 are not necessarily indicative of
the results of operations to be expected for the year. The pro forma
consolidated financial data presented below gives effect to all business
acquired by the Company through January 31, 1997 as if these acquisitions were
consummated as of November 1, 1995. 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 presented or
that might be attained in the future. The following data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the actual and pro forma consolidated financial
statements of the Company included elsewhere in this Prospectus.
20
<PAGE>
<TABLE>
<CAPTION>
Year Ended October 31,
----------------------------------------------------------------
1996
----------------------
Pro
1992 1993 1994 1995 Actual Forma(1)
---- ---- ---- ---- ------ --------
(In thousands, except share and per share data)
Statement of Income Data:
<S> <C> <C> <C> <C> <C> <C>
Revenues $26,864 $28,633 $29,239 $26,916 $61,039 $84,665
Cost of services 22,858 24,387 23,864 22,379 48,780 65,518
------- ------- ------- ------- ------- -------
Gross profit 4,006 4,246 5,375 4,537 12,259 19,147
Operating costs and expenses:
Selling, general and
administrative 3,697 3,281 3,674 3,550 8,914 13,957
Depreciation and amortization 125 113 93 130 330 475
------- ------- ------- ------- ------- -------
Operating income 184 852 1,608 857 3,015 4,715
Other income (expense) (29) (41) 5 86 (194) (190)
------- ------- ------- ------- ------- -------
Income before income taxes 155 811 1,613 943 2,821 4,525
Income taxes 63 78 187 94 453 837
------- ------- ------- ------- ------- -------
Income from continuing
operations 92 733 1,426 849 2,368 3,688
Loss from discontinued
operations (1,029) -- -- -- -- --
------- ------- ------- ------- ------- -------
Net income (loss) ($937) $ 733 $ 1,426 $ 849 $ 2,368 $ 3,688
======= ======= ======= ======= ======== =======
Income (loss) per share ($0.33) $ 0.28 $ 0.49 $ 0.28 $ 0.55 $ 0.67
======= ======= ======= ======= ======== =======
Supplemental pro forma net
income per share(2) $ 0.18 $ 0.38 $ 0.48
======= ======== =======
Weighted average shares
outstanding 2,867,913 2,578,411 2,930,276 3,007,969 4,320,571 5,513,968
</TABLE>
Three Months Ended January 31,
---------------------------------
1996 1997
---------------------- ------------------
Pro Pro
Actual Forma(1) Actual Forma(1)
------ -------- ------ -------
Statement of Income Data:
Revenues $9,777 $19,072 $21,151 $21,151
Cost of services 7,986 14,931 16,051 16,051
------ ------- ------- -------
Gross profit 1,791 4,141 5,100 5,100
Operating costs and expenses:
Selling, general and
administrative 1,144 3,079 3,626 3,626
Depreciation and amortization 55 119 119 119
------ ------- ------- -------
Operating income 592 943 1,355 1,355
Other income (expense) (31) (31) (85) (50)
------ ------- ------- -------
Income before income taxes 561 912 1,270 1,305
Income taxes 59 175 489 548
------ ------- ------- -------
Income from continuing
operations 502 737 781 757
Loss from discontinued
operations -- -- --
Net income (loss) $ 502 $ 737 $ 781 $ 757
====== ======= ======= =======
Income (loss) per share $ 0.15 $ 0.14 $ 0.16 $ 0.13
====== ======= ======= =======
Supplemental pro forma net
income per share(2) $ 0.10 $ 0.10 $ 0.15 $ 0.13
====== ======= ======= =======
Weighted average shares
outstanding 3,276,627 5,318,570 4,970,620 5,660,220
<TABLE>
<CAPTION>
October 31, January 31, 1997
------------------------------------------------------------ ----------------------------
1992 1993 1994 1995 1996 Actual As Adjusted(3)
---- ---- ---- ---- ---- ------ --------------
(In thousands)
Balance Sheet Data:
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 473 $ 914 $2,534 $ 298 $ 6 $ 125 $12,832
Working capital, exclusive of notes
payable - bank 3,592 3,741 5,201 4,242 9,518 9,919 22,626
Total assets 5,097 5,334 6,666 10,302 24,407 30,191 42,898
Long-term debt 129 74 35 -- -- -- --
Shareholders' equity 3,294 4,046 5,477 7,527 16,220 17,001 34,708
</TABLE>
(1) Assumes that the acquisitions of Consortium, Consort MD, PSI and PAMI
occurred on November 1, 1995 and gives effect to the reduction of certain
redundant operating costs and expenses, excess salaries and non-recurring
costs that were identified at the time of the acquisitions. Also gives
effect to: (i) the elimination of interest expense associated with the
acquisition related debt assumed to be repaid with offering proceeds; and
(ii) the issuance of 705,116 shares of Common Stock (at an assumed offering
price of $8.38 per share) which, net of estimated underwriting commissions
and offering expenses payable by the Company, would be sufficient to repay
the acquisition related indebtedness as set forth in "Use of Proceeds." See
Note 1 to Financial Statements for three months ended January 31, 1997 pro
forma data.
(2) Assumes an effective tax rate of 42%. The Company's effective tax rates for
the years ended October 31, 1995 and 1996 and the three months ended
January 31, 1996 were 10%, 16% and 10%, respectively, due to the
utilization of net operating loss carryforwards.
(3) Gives effect to the sale of 2,323,187 shares of Common Stock (at an assumed
offering price of $8.38 per share) offered by the Company hereby and the
application of the net proceeds therefrom as set forth in "Use of
Proceeds."
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The Company provides contract and temporary personnel in the
information technology, professional engineering and technical, specialty
healthcare and general support sectors of the staffing industry to a diversified
base of national, regional and local customers. The Company's business and
strategy have changed dramatically since its inception in 1971. Through 1981,
the Company's business focused on the development of environmental technologies
and the operation of related environmental businesses. In 1981, the Company
diversified its operations through the acquisition of Intertec Design, Inc., a
staffing company that provided technical, clerical and light industrial
personnel. In fiscal 1992 current management chose to discontinue its
environmental business and from 1992 through 1994, repositioned its core
staffing business to improve profitability and to take advantage of
consolidating market dynamics.
Significant revenue growth began in fiscal 1995 as the Company
implemented a growth strategy that resulted in the acquisition of six businesses
in the staffing industry. These acquisitions shifted the Company's business
toward the higher margin information technology and specialty healthcare
sectors. During this time, the Company also elected to discontinue providing
certain lower margin general support services. General support services, which
from fiscal 1992 to 1994 accounted for approximately 51.0% of the Company's
revenues, decreased as a percentage of the Company's revenues to 20.5% during
the three months ended January 31, 1997. Correspondingly, revenues from the
Company's specialty professional services accounted for 79.5% of the Company's
revenues during the three months ended January 31, 1997. Prior to implementation
of its growth strategy, in fiscal 1994 the Company's revenues and operating
income were $29.2 million and $1.6 million, respectively. In fiscal 1996, on a
pro forma basis giving effect to the acquisitions as if they had occurred on
November 1, 1995, the Company's revenues and operating income increased to $84.7
million and $4.7 million, respectively.
The Company realizes revenues from the placement of contract and
temporary staffing personnel. These services are provided to the customer on a
time and material basis at hourly rates that are established for each of the
Company's staffing personnel, based upon their skill level, experience and type
of work performed. Billable hourly rates range from an average of approximately
$55 - $75 within the information technology group, $30 - $60 in the professional
engineering group, $35 - $65 within the specialty healthcare group and $8 - $15
in the Company's general support group. Approximately 90.0% of the Company's
revenues are currently realized on the basis of agreed upon hourly billing
rates. In some instances, billing rates can be adjusted based upon increases in
workers' compensation, taxes and other agreed upon costs. The remaining 10.0% of
the Company's business is presently derived from consulting projects. In view of
the diversification of the Company's service offerings, and by drawing upon the
skills developed within the Company's engineering and technical group,
management intends to develop project management skills within its information
technology and other groups and believes that an additional percentage of its
business may be derived in the future from larger-scale consulting projects.
22
<PAGE>
Approximately 40.0% of the Company's services are provided under
contract. The remainder are provided under purchase orders. Contracts are
utilized on certain of the more complex assignments where the engagements are
for longer terms or where precise documentation of the nature and scope of the
assignment is necessary. Contracts, although they normally relate to longer-term
and more complex engagements, generally do not obligate the customer to purchase
a minimum level of services and are generally terminable by the customer on 60 -
90 days notice. The average length of engagement varies from three months to one
year within the information technology and engineering sectors, three months to
six months within the specialty healthcare sector and one week to three weeks
within the general support sector. Approximately 70.0% of the Company's services
are billed to customers on a weekly basis. The remainder are billed on a
bi-weekly and monthly basis based upon the type of project and arrangement with
the customer. Revenues are recognized when the services are provided.
Costs of services consist primarily of salaries and compensation
related expenses for billable staffing personnel, including payroll taxes,
employee benefits, worker's compensation and other insurance. Principally all of
the billable personnel are treated by the Company as employees, although
approximately 5.0% of information technology personnel are treated as
independent contractors. Selling, general and administrative expenses consist
primarily of salaries and benefits of personnel responsible for operating
activities and include corporate overhead expenses. Corporate overhead expenses
relate to salaries and benefits of personnel responsible for corporate
activities, including the Company's acquisition program and corporate marketing,
administrative and reporting responsibilities. The Company records these
expenses when incurred. Depreciation relates primarily to the fixed assets of
the Company. Amortization relates principally to the goodwill resulting from the
Company's acquisitions. These acquisitions have been accounted for under the
purchase method of accounting for financial reporting purposes and have created
goodwill estimated at $14.0 million which is being amortized over a 40 year
period currently resulting in amortization expense aggregating approximately
$350,000 annually.
The Company's net income for each of the three fiscal years in the
period ended October 31, 1996, has been determined after giving effect to the
utilization of a net operating loss carryforward. This effectively reduced
federal tax accruals to a minimal amount during those periods and subjected the
Company to composite tax rates of between 9.9% and 16.1%, principally as a
result of state income taxes. Through the three months ended January 31, 1997,
the Company had utilized principally all of its net operating loss carryforward
and, accordingly, expects that for the foreseeable future its net income will be
subject to full federal and state rates of taxation.
23
<PAGE>
Results of Operations
The following table sets forth certain income statement data on an
historical and pro forma basis as a percentage of revenue:
<TABLE>
<CAPTION>
Percentage of Revenues
---------------------------------------------------------------------------------------------
Year ended October 31, Three Months Ended January 31,
------------------------------------------------- --------------------------------------
1994 1995 1996 1996 1997
---- ---- --------------------------- ------------------------ ----------------------
Actual Pro Forma(1) Actual Pro Forma(1) Actual Pro Forma(1)
------ ------------ ------ ------------ ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100%
Cost of services 81.6 83.1 79.9 77.4 81.7 78.3 75.9 75.9
----- ----- ----- ----- ----- ----- ----- ----
Gross profit 18.4 16.9 20.1 22.6 18.3 21.7 24.1 24.1
Operating costs and
expenses
Selling, general
and administrative 12.6 13.2 14.6 16.5 11.7 16.1 17.1 17.1
Depreciation
and amortization 0.3 0.5 0.5 0.6 0.6 0.6 0.6 0.6
----- ----- ----- ----- ----- ----- ----- ----
Operating income 5.5 3.2 4.9 5.5 6.0 4.9 6.4 6.4
Other income (expense) 0.0 0.3 (0.3) (0.2) (0.3) (0.2) (0.4) (0.2)
----- ----- ----- ----- ----- ----- ----- ----
Income before income
taxes 5.5 3.5 4.6 5.3 5.7 4.7 6.0 6.2
Income taxes 0.6 0.3 0.7 1.0 0.6 0.9 2.3 2.6
----- ----- ----- ----- ----- ----- ----- ----
Net income 4.9% 3.2% 3.9% 4.3% 5.1% 3.8% 3.7% 3.6%
===== ===== ===== ===== ===== ===== ===== ====
</TABLE>
- ---------------------
(1) Assumes that the acquisitions of Consortium, Consort MD, PSI and PAMI
occurred on November 1, 1995 and gives effect to the reduction of certain
redundant operating costs and expenses, excess salaries and non-recurring
costs that were identified at the time of the acquisitions. Also gives
effect to: (i) the elimination of interest expense associated with the
acquisition related debt assumed to be repaid with offering proceeds; and
(ii) the issuance of 705,116 shares of Common Stock (at an assumed offering
price of $8.38 per share) which, net of estimated underwriting commissions
and offering expenses payable by the Company, would be sufficient to repay
the acquisition related indebtedness as set forth in "Use of Proceeds."
The following charts set forth the components of revenues of the
Company for the periods presented:
[In the printed version of the prospectus two pie charts appear here
reflecting the following data]
Fiscal 1994 First Quarter Fiscal 1997
----------- -------------------------
51% Professional Engineering 40.5% Information Technology
& Technical 33.5% Professional Engineering
49% General Staffing & Technical
20.0% General Support
6.0% Specialty Healthcare
24
<PAGE>
Pro Forma Compared to Actual Results of Operations
Since the beginning of fiscal 1995, the Company has acquired six
staffing companies with combined revenues of approximately $67.7 million in
their respective fiscal years prior to the acquisition. All of these
acquisitions have been accounted for using the purchase method of accounting,
and, accordingly, the Company's statements of income include the operating
results of the acquired businesses from the dates of acquisition. The Company's
historical consolidated operating results have been significantly affected by
the number, timing and size of these acquisitions. Accordingly, pro forma
financial data are provided within this Prospectus for a more meaningful
representation of the Company's operating results.
Pro forma financial data has been prepared and included herein to give
effect to the acquisitions of Consortium, Consort MD, PSI and PAMI as if they
occurred on November 1, 1995. Pro forma adjustments have been made to reflect
the elimination of certain expenses that were identified at the time of these
acquisitions, including excess salaries, and operating and administrative
expenses and personnel. The pro forma financial data are not necessarily
indicative of results of operations that would have occurred had these
acquisitions been consummated as of the beginning of the periods presented or
that might be attained in the future.
Three Months Ended January 31, 1997 Compared to Three Months Ended
January 31, 1996
Revenues. Revenues increased 116.0%, or $11.4 million, for the three
months ended January 31, 1997 as compared to the comparable prior year period.
Of this increase, approximately $9.3 million was attributable to revenue growth
through acquisitions that occurred after the first quarter of fiscal 1996 and
approximately $2.1 million was from internal growth. Internal growth was
experienced in the information technology and healthcare sectors and was offset
by discontinued business in the general support sector due to unacceptable
margins and workers' compensation rates.
Cost of Services. Cost of services increased 101.0%, or $8.1 million,
for the three months ended January 31, 1997 as compared to the equivalent prior
year period. This increase was primarily due to increased salaries and
compensation associated with the increased revenues experienced during this
period. Cost of services as a percentage of revenues decreased to 75.9% for the
three months ended January 31, 1997 from 81.7% for the comparable prior year
period. This decline was primarily due to a greater percentage of the Company's
revenues being derived from specialty staffing services.
Selling, General and Administrative. Selling, general and
administrative expenses increased 217.0%, or $2.5 million, for the three months
ended January 31, 1997 as compared to the comparable prior year period. This
increase resulted from the change in the mix of the business during the three
months ended January 31, 1997, which required higher marketing, sales,
recruiting and administrative expenses than the comparable prior year period.
Selling, general and administrative expenses as a percentage of revenues
increased to 17.1% for the three months ended January 31, 1997 from 11.7% in the
comparable prior year period, primarily attributable to the increased sales,
recruiting and administrative expenses necessary to support the Company's
25
<PAGE>
continued growth within the information technology sector. Corporate overhead
expenses as a percentage of revenues decreased to 2.1% for the three months
ended January 31, 1997 from 3.4% for the three months ended January 31, 1996 as
these costs were spread over a larger revenue base.
Depreciation and Amortization. Depreciation and amortization increased
116.0%, or $63,700, for the three months ended January 31, 1997 as compared to
the comparable prior year period. This increase was primarily due to the
amortization of intangible assets incurred in connection with the acquisitions
that occurred after the first quarter of fiscal 1996.
Other Income (Expense). Other income (expense) consists primarily of
interest expense which increased 262.0%, or $65,300, for the three months ended
January 31, 1997 as compared to the comparable prior year period. This increase
was due to the increased borrowings necessary to provide the funds required for
certain of the Company's acquisitions as well as to refinance the working
capital debt of some of the acquired companies.
Income Tax. Income tax expense increased 733.0%, or $430,000, for the
three months ended January 31, 1997 as compared to the comparable prior year
period. This increase was due to an increase in the effective tax rate from
10.5% to 38.5% and increased levels of net income. The increase in the effective
tax rate was primarily due to the utilization of principally all of the
remaining net operating loss carryforward which offset net income in prior
periods.
Year Ended October 31, 1996 Compared to Year Ended October 31, 1995
Revenues. Revenues increased 126.8%, or $34.1 million, in fiscal 1996
as compared to fiscal 1995. Of this increase, approximately $32.4 million was
attributable to revenue growth through acquisitions and approximately $1.7
million was from internal growth. Internal growth was experienced in the
information technology and healthcare sectors and was offset by discontinued
business in the general support sector due to unacceptable margins and workers'
compensation rates.
Cost of Services. Cost of services increased 118.0%, or $26.4 million,
in fiscal 1996 as compared to fiscal 1995. This increase was primarily due to
increased salaries and compensation associated with the increased revenues
experienced during this period. Cost of services as a percentage of revenues
decreased to 79.9% for fiscal 1996 from 83.1% for fiscal 1995. This decline was
primarily attributable to a greater percentage of the Company's revenues being
derived from specialty staffing services.
Selling, General and Administrative. Selling, general and
administrative expenses increased 151.0%, or $5.4 million, in fiscal 1996 as
compared to fiscal 1995. This increase resulted from the change in the mix of
the business during fiscal 1996, which required higher marketing, sales,
recruiting and administrative expenses than in fiscal 1995. Selling, general and
administrative expenses as a percentage of revenues increased to 14.6% during
fiscal 1996 as compared to 13.2% for fiscal 1995. This increase was primarily
attributable to higher marketing, sales, recruiting and administrative expenses
necessary to support continued growth within the information technology sector.
Corporate overhead expenses as a percentage of revenues
26
<PAGE>
decreased to 2.5% of revenues in fiscal 1996 from 4.6% of revenues in fiscal
1995, as these costs were spread over a larger revenue base.
Depreciation and Amortization. Depreciation and amortization increased
153.0%, or $199,000, in fiscal 1996 as compared to fiscal 1995. This increase
was primarily due to the amortization of intangible assets incurred in
connection with the acquisitions that occurred or were fully realized during
fiscal 1996.
Other Income (Expense). Other income (expense) consists primarily of
interest income (expense) which changed by $268,000, from $104,000 in fiscal
1995 to ($164,000) in fiscal 1996. This increase was attributable to increased
borrowings necessary to provide the funds required for the acquisitions during
fiscal 1996.
Income Tax. Income tax expense increased 385.0%, or $360,000, in fiscal
1996 as compared to fiscal 1995. This increase was primarily due to the higher
level of profitability for fiscal 1996. The effective tax rates experienced by
the Company in fiscal 1996 and fiscal 1995 were 16.1% and 9.9%, respectively.
During each of these periods, the Company utilized a net operating loss
carryforward to offset current income.
Year Ended October 31, 1995 Compared to Year Ended October 31, 1994
Revenue. The Company's revenues decreased 7.9%, or $2.3 million, in
fiscal 1995 as compared to fiscal 1994. This resulted principally from a
reduction of services provided to two major customers who reduced their overall
staffing requirements during the year. This was partially offset by an increase
in revenues from two acquisitions that were completed during fiscal 1995.
Cost of Services. Cost of services decreased 6.2%, or $1.5 million, in
fiscal 1995 as compared to fiscal 1994. This decrease was due to the decline in
services provided to the two previously mentioned major customers. Cost of
services as a percentage of revenues increased to 83.1% for fiscal 1995 from
81.6% for fiscal 1994.
Selling, General and Administrative. Selling, general and
administrative expenses decreased 3.4%, or $124,000, in fiscal 1995 as compared
to fiscal 1994. This decrease was primarily attributable to a reduction in
overhead expenses implemented with the decrease in business from the Company's
two major customers. Selling, general and administrative expenses as a
percentage of revenues increased to 13.2% for fiscal 1995 as compared to 12.6%
for fiscal 1994, as reductions in overhead were less than the overall reduction
in revenues.
Depreciation and Amortization. Depreciation and amortization increased
40.0%, or $37,256, in fiscal 1995 as compared to fiscal 1994. This resulted
principally from amortization of intangible assets attributable to the business
acquisitions completed in fiscal 1995.
Other Income (Expense). Other income (expense) increased during fiscal
1995 by $85,000 as compared to fiscal 1994 due to an increase in interest income
from temporary cash balances.
27
<PAGE>
Income Tax. Income tax expense decreased 50.0%, or $94,000, in fiscal
1995 as compared to fiscal 1994. This decrease was primarily due to the lower
level of profitability for fiscal 1995.
Seasonality and Quarterly Results of Operations
The following table presents certain unaudited quarterly statements of
operations data for each of the Company's last nine fiscal quarters. In the
opinion of the Company's management, this quarterly information has been
prepared on the same basis as the audited financial statements appearing
elsewhere in this prospectus and includes all adjustments (consisting only of
normal recurring adjustments) necessary to fairly present the unaudited
quarterly results set forth herein. The Company's quarterly results may be
subject to fluctuation, thus, the operating results for any quarter are not
necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------------------------------------------------------------
Jan. 31 Apr. 30 July 31 Oct. 31 Jan. 31 Apr. 30 July 31 Oct. 31 Jan. 31
1995 1995 1995 1995 1996 1996 1996 1996 1997
---- ---- ---- ---- ---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $6,693 $6,280 $5,015 $8,928 $9,777 $13,785 $17,378 $20,099 $21,151
Cost of services 5,542 5,125 4,121 7,591 7,986 11,312 13,579 15,903 16,051
------ ------ ------ ------ ------ ------- ------- ------- -------
Gross profit 1,151 1,155 894 1,337 1,791 2,473 3,799 4,196 5,100
Operating costs and
expenses
Selling, general
and administrative 884 855 800 1,011 1,144 1,932 2,826 3,012 3,626
Depreciation
and amortization 29 37 34 30 55 80 101 94 119
------ ------ ------ ------ ------ ------- ------- ------- -------
Operating income 238 263 60 296 592 461 872 1,090 1,355
Other income (expense) 18 42 31 (5) (31) (26) (85) (52) (85)
------ ------ ------ ------ ------ ------- ------- ------- -------
Income before income
taxes 256 305 91 291 561 435 787 1,038 1,270
Income taxes 27 27 21 19 59 48 102 244 489
------ ------ ------ ------ ------ ------- ------- ------- -------
Net income $ 229 $ 278 $ 70 $ 272 $ 502 $ 387 $ 685 $ 794 $ 781
====== ====== ====== ====== ====== ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------------------------------------------------------------
Jan. 31 Apr. 30 July 31 Oct. 31 Jan. 31 Apr. 30 July 31 Oct. 31 Jan. 31
1995 1995 1995 1995 1996 1996 1996 1996 1997
---- ---- ---- ---- ---- ---- ---- ---- ----
(As a percentage of revenues)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of services 82.8 81.6 82.2 85.0 81.7 82.1 78.1 79.1 75.9
----- ----- ----- ----- ----- ----- ----- ----- -----
Gross profit 17.2 18.4 17.8 15.0 18.3 17.9 21.9 20.9 24.1
Operating costs and
expenses
Selling, general
and administrative 13.2 13.6 16.0 11.3 11.7 14.0 16.3 15.0 17.1
Depreciation
and amortization 0.4 0.6 0.7 0.3 0.6 0.6 0.6 0.5 0.6
----- ----- ----- ----- ----- ----- ----- ----- -----
Operating income 3.6 4.2 1.2 3.3 6.1 3.3 5.0 5.4 6.4
Other income (expense) 0.3 0.7 0.6 (0.1) (0.3) (0.2) (0.5) (0.3) (0.4)
----- ----- ----- ----- ----- ----- ----- ----- -----
Income before income
taxes 3.9 4.9 1.8 3.2 5.8 3.1 4.5 5.1 6.0
Income taxes 0.5 0.4 0.4 0.2 0.6 0.3 0.6 1.2 2.3
----- ----- ----- ----- ----- ----- ----- ----- -----
Net income 3.4% 4.5% 1.4% 3.0% 5.2% 2.8% 3.9% 3.9% 3.7%
===== ===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
28
<PAGE>
The Company could experience quarterly variations in revenues and
operating income as a result of many factors, including the timing of
assignments from customers, the timing of future acquisitions, the timing of the
hiring of personnel, the timing of additional selling, general and
administrative expenses incurred to support new business and changes in the
Company's revenue mix. In connection with certain engineering projects, the
Company could incur costs in periods prior to recognizing revenues under those
contracts. In addition, the Company must plan its operating expenditures based
on revenue forecasts, and a revenue shortfall below such forecast in any quarter
would likely adversely affect the Company's operating results for the quarter.
While the effects of seasonality of the Company's business have been obscured by
its rapid growth, the Company usually experiences lower revenues in its first
fiscal quarter due to the slowdown in business associated with the holiday
season.
Liquidity and Capital Resources
Operating activities provided $1.1 million of cash for the three months
ended January 31, 1997 and used $1.9 million of cash during fiscal 1996. The
change was primarily attributable to an increase in accounts receivable which
was offset by increased levels of profitability, depreciation and amortization
associated with the acquisitions. Operating activities provided $1.1 million in
cash during fiscal 1995. The cash generated was largely the result of net
income, adjusted for non-cash expenses and management of working capital
components.
Investing activities utilized $5.2 million, $1.2 million and $2.4
million in the three months ended January 31, 1997 and fiscal years 1996 and
1995, respectively. In January 1997, the Company purchased PAMI for $4.5 million
in cash and a three year contingent promissory note. In addition, the
acquisition of PAMI required the use of $660,000 in working capital funds.
During fiscal 1996, the Company purchased three staffing companies which
required the use of $1.0 million of cash. During fiscal 1995, the Company
purchased two staffing companies which required the use of $2.3 million in cash.
These acquisitions collectively resulted in goodwill of approximately $14.0
million which is being amortized at approximately $350,000 per year.
Financing activities provided $4.2 million and $2.8 million in cash for
the three months ended January 31, 1997 and fiscal 1996, respectively. Cash was
primarily provided under the Company's Revolving Credit Facility. In addition,
during fiscal 1996, the Company secured $1.0 million through a private placement
of its Common Stock. Financing activities used $916,084 in cash during fiscal
1995, primarily due to the repayment of long term debt of an acquired company.
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 of up to $20.0 million (the "Revolving Credit Facility") which
expires on June 30, 1999. The Revolving Credit Facility is collateralized by
accounts receivable, contract rights and furniture and fixtures together with
unlimited guarantees from the Company. The Revolving Credit Facility requires
the Company and its subsidiaries 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 and
29
<PAGE>
January 31, 1997, the Company and its subsidiaries were in compliance with all
financial covenants contained within the Revolving Credit Facility.
Advances under the Revolving Credit Facility are to be used to meet
cash flow requirements for the subsidiaries as well as operating expenses for
the Company. 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 intends to utilize approximately $5.0 million of the net
proceeds from this Offering to pay down the Revolving Credit Facility which had
a balance of approximately $7.0 million as of January 31, 1997, although the
Company does intend to draw on this line as needed in the future.
The Company anticipates that its primary uses of capital in future
periods will be for acquisitions and the funding of increases in accounts
receivables. The Company believes that the net proceeds from this Offering and
borrowings under the Revolving Credit Facility and any net cash flow from
operations will be sufficient to meet the Company's capital needs for at least
the next twelve months.
For several years prior to 1977, the Company operated a Facility
located in Fontana, California at which it processed certain materials to
recover aluminum. The Property on which the Facility was located was owned by
Robert Sackett, a principal shareholder and chief executive officer of the
Company at that time. In 1977, the Company sold certain assets of the Facility
to the Purchaser that continued the processing operations until 1982. As part of
the 1977 transaction, the Purchaser granted a license to the Company to store an
existing aluminum oxide stockpile (the "Stockpile") at the Facility, and the
Purchaser had the right to purchase from the Company material from the
Stockpile. Mr. Sackett sold the Property to the Purchaser in 1985. In 1986 and
1994, the California Regional Water Quality Control Board ("California WQCB")
issued Cleanup and Abatement Orders ("Orders") to the Purchaser, Mr. Sackett and
the Company alleging the degradation of, and requiring its investigation and
mitigation of, groundwater quality due to discharges from materials stored at
the Facility, including the Stockpile. Although the Company did not respond to
the Orders, the Purchaser has advised the Company that, through January 1994, it
incurred costs of approximately $5.6 million principally to remove the Stockpile
from the Facility and, in addition to any costs, if any, incurred since January
1994, it may incur additional costs of approximately $1.0 million to settle all
liability in this matter to the California WQCB.
The Company has received from the Purchaser a request for contribution
in an unspecified amount to recover a portion of its costs. In this regard, the
Purchaser has threatened the Company with litigation under both the Federal
Superfund law and California law. Based upon the Company's evaluation of this
matter, which included a review of an environmental study performed for the
Company before the 1977 transaction and studies performed for the Purchaser
after the 1977 transaction, the Company believes that, among other things: the
Facility was in material compliance with all applicable environmental laws,
regulations and other requirements prior to and at the time of the 1977
transaction; any violations of applicable environmental laws, regulations or
other requirements at the Facility after the 1977 transaction, including any
relating to the Stockpile, were caused by or the responsibility of the Purchaser
and others; the contaminants alleged to have been released from the Facility and
impacted groundwater likely do
30
<PAGE>
not support a Federal Superfund claim; and some of the actions taken and costs
incurred by the Purchaser may not have been necessary or required to comply with
the Orders. The Company could incur material expense and liabilities in
connection with any claims brought by the Purchaser or the California WQCB.
Management intends to vigorously defend any such claims, if and when they arise.
To the extent the Company experiences a material loss as a result of the
environmental matters described above, the Company may be subject to additional
claims for damages.
Impact of Inflation
The effects of inflation on the Company's operations were not
significant during the periods presented.
Recently Issued Accounting 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.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, Earnings per Share ("Statement 128"). Statement
128 requires the presentation of basic earnings per share and, if applicable,
diluted earnings per share, instead of primary and fully diluted earnings per
share required under Accounting Principles Board Opinion No. 15. See Note 1 to
Notes to Consolidated Financial Statements for the effect of Statement 128 on
earnings per share for the year ended October 31, 1996 and the three months
ended January 31, 1997.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 129, Disclosure of Information About Capital Structure
("Statement 129"). Management believes that the Company is in compliance with
the provisions of Statement 129.
31
<PAGE>
BUSINESS
Introduction
The Company is a multi-regional provider of specialty staffing services
through its 30 branch offices located in 12 states. Through its primary
operating groups, the Company provides contract and temporary personnel in the
information technology, professional engineering and technical, specialty
healthcare and general support sectors of the staffing industry to a diversified
base of national, regional and local customers. During its fiscal year ended
October 31, 1996, the Company provided an average of 2,600 contract and
temporary staffing employees on a daily basis to approximately 700 customers,
including a number of Fortune 500 companies, governmental units and public
utilities, as well as small to medium-size retail, manufacturing, professional
and service organizations.
From its inception, the Company focused on the development of
environmental technologies and the operation of related environmental
businesses. In 1981, the Company diversified through the acquisition of Intertec
Design, Inc., a staffing company that provided technical, clerical and light
industrial personnel. In fiscal 1992 current management chose to discontinue its
environmental business and from 1992 through 1994, repositioned its core
staffing business to improve profitability and to take advantage of changing
market dynamics.
Industry Overview
Competitive pressures are causing businesses to examine all aspects of
their cost structure and the use of contract and temporary staffing employees
has become widely accepted as a valuable tool for managing personnel costs and
for meeting specialized or fluctuating employment requirements. The growth in
the use of temporary staffing services has been driven by three fundamental
shifts in the U.S. economy over the last decade. In the late 1980s and early
1990s, many U.S. corporations made large reductions in their workforces and
reorganized their operations to meet global competition. This action resulted in
a large unemployed and skilled labor force that became willing to relocate and
accept new working standards. In addition, government regulations have
significantly increased the employment costs incurred by employers. The cost to
screen, hire, train and provide benefits to employees combined with heightened
scrutiny upon employee/employer behavior has increased the costs to employers.
Also, competitive market dynamics and the significant rate of change in
information technology has put a strain on businesses to improve productivity
through the use of current networking and information processing technologies.
In response, many companies are looking outside of their organizations to
temporarily utilize individuals with the requisite specialized technical skills
through temporary or project oriented assignments.
According to the National Association of Temporary Staffing Services
("NATSS"), from 1991 to 1995, the U.S. market for temporary staffing services
grew at a compound annual rate of approximately 18.0%. Industry revenue
increased during this period from approximately $21.5 billion to approximately
$45.1 billion. While the staffing industry has grown rapidly in recent years, in
1996, temporary employment represented only 2.2% of the average daily employment
of the total U.S. workforce, and it is anticipated to grow to 4.0% by the year
2000.
32
<PAGE>
The increase in industry revenues also reflects a growing acceptance
of temporary work assignments among employers and employees. Studies show that
more than 90% of all U.S. businesses have used some form of temporary staffing
services. In addition, employees who once viewed temporary staffing assignments
as employment of last resort, are beginning to enjoy the benefits of flexible
work hours, access to varied and challenging work assignments and the absence of
administrative responsibilities typically associated with permanent employment
positions.
The range and duration of services provided on a temporary basis has
expanded substantially. Companies now use skilled specialty personnel for
varying lengths of time to respond to increasingly complex technological
challenges without incurring the fixed overhead costs associated with permanent
employees. This trend has led to the rapid growth of several specialty staffing
sectors. According to Staffing Industry Reports, information technology is the
fastest growing sector within the temporary staffing industry. Revenues within
the information technology sector are estimated to have grown from $5.7 billion
in 1993 to $9.2 billion in 1995, and were projected to grow to $11.4 billion in
1996, a 26.0% compound annual growth rate. Similarly, revenues within the
professional/specialty sector, which includes professional engineering, are
estimated to have grown from $2.4 billion in 1993 to $4.0 billion in 1995, and
were projected to grow to $4.8 billion in 1996, also a 26.0% compound annual
growth rate.
The temporary staffing industry is highly fragmented, with over 7,000
companies in the United States. The industry is currently experiencing a trend
toward consolidation primarily due to the increasing demand by large companies
to reduce the number of their vendors and the resulting demand for staffing
companies to offer a wide range of services over a broad geographic area.
Currently, however, the demand for employees skilled in new technologies exceeds
the supply of qualified personnel. As employers find it more difficult to locate
full time candidates with special skills, they increasingly turn to temporary
staffing companies to fill these needs. The Company believes these industry
conditions are making it more difficult for small staffing companies to compete
due to limited recruiting and placement capabilities, limited working capital
and limited management resources. These factors are expected to accelerate the
industry's consolidation trend.
Business Strategy
The Company's objective is to be a leading provider of specialty
professional staffing services in selected regions throughout the United States.
The Company has developed an interrelated growth and operating strategy to
achieve this objective. Key elements of its growth and operating strategy are as
follows:
Growth Strategy
Strengthen Market Presence in Selected Regions Throughout the Country.
The Company intends to develop a strong market presence in the regions it serves
and in other regions with strong growth characteristics. The Company believes
that it competes most often against local staffing companies which have limited
services, resources and capabilities. The Company intends to utilize its
diversity of service offerings, management resources, as well as acquisition,
recruiting
33
<PAGE>
and placement capabilities to distinguish itself from its competition and to
achieve significant customer penetration and retention.
Focus on Specialty Professional Staffing Services. The Company intends
to focus on providing specialty professional staffing services, primarily in the
information technology, engineering and specialty healthcare sectors. Demand
continues to expand for professional staffing services, reflecting changing
attitudes toward workforce management and the proliferation of technical skills
required by businesses, industry and the healthcare system. The Company believes
that such services provide higher growth rates and profit margins, and tend to
be less cyclical than traditional contract and temporary staffing services.
Additionally, the Company intends to blend the project design and management
capabilities of its professional engineering personnel with the skills of its
information technology personnel to solicit larger scale consulting projects.
Acquisitions. The Company has acquired six specialty professional
staffing companies since the beginning of fiscal 1995 and intends to continue to
pursue an aggressive acquisition program to strengthen its presence in its
existing markets, expand into new geographic regions or offer new specialty
professional staffing services. In targeting acquisitions, the Company focuses
on regional companies with revenues of $25.0 million or less, a history of
profitable operations, and a strong entrepreneurial management team. The Company
generally structures payment of a significant portion of the acquisition price
in the form of multi-tiered earnouts based on growth and profitability.
Focus on Internal Growth. The Company believes it has substantial
opportunities to increase revenues and profitability from its operations. The
Company intends to continually refine its mix of service offerings to promote
internal growth by increasing sales to existing customers, developing new
customers and providing additional staffing services. Internal growth, which is
a key element in the Company's acquisition criteria, is also promoted by
integrating the administrative functions of acquired companies to permit
management to focus on increasing sales and profitability. The Company increased
revenues in its information technology, professional engineering and specialty
healthcare staffing areas by 17.4% in fiscal 1996 compared to fiscal 1995, on a
pro forma basis giving effect to the Company's acquisitions as if they had
occurred as of November 1, 1994.
Operating Strategy
Rapidly Integrate Acquisitions. The Company believes that it can
increase its operational efficiencies by integrating the general and
administrative functions at the corporate level and by reducing or eliminating
any redundant functions and facilities at the acquired companies. Management's
policy is to perform this integration within three months of an acquisition in
order to quickly realize potential savings and synergies, efficiently control
and monitor its operations and to allow acquired companies to focus exclusively
on growing their sales and operations.
Foster a Decentralized Entrepreneurial Environment. A key element of
the Company's acquisition criteria is an experienced and entrepreneurial
management team. The Company intends to foster this entrepreneurial atmosphere
by continuing to build on the local names,
34
<PAGE>
reputations and client familiarity of the acquired companies and by sharing
their operating policies, procedures and expertise with other branch locations
to develop new ideas to best serve the prospects of the Company. The Company
believes an entrepreneurial business atmosphere allows its branch offices to
quickly and creatively respond to local market demands and enhances the
Company's ability to motivate, attract and retain managers to maximize growth
and profitability.
Develop and Maintain Strong Customer Relationships. The Company seeks
to develop and maintain strong interactive customer relationships by
anticipating and focusing on its customers' needs. The Company believes that
by partnering with its customers to design flexible staffing programs that can
be expanded, contracted or redirected into other specialty areas, it can
continually generate new opportunities to service their staffing requirements.
Attract and Retain High Quality Contract and Temporary Personnel. The
Company believes that one of the primary factors in its success has been its
ability to attract and retain qualified contract and temporary personnel. The
Company continually seeks to attract and retain such personnel by: (i) providing
stimulating and challenging work assignments; (ii) offering competitive wages;
(iii) effectively communicating with its candidates; (iv) providing training to
maintain and upgrade skills; and (v) aligning the needs of its customers with
the appropriately skilled personnel.
Operations
Through its primary operating groups, the Company provides specialty
staffing services in the following industry sectors: Information Technology,
Professional Engineering and Technical, Specialty Healthcare and General
Support.
Information Technology
The Information Technology group provides staffing and consulting
services in the areas of client server hardware and operating systems, PC
applications and support, database management, network communications, mainframe
and midrange hardware and software, and technical support. The scope of services
offered includes networking and facilities management and communication
equipment service and maintenance, which rely upon varied technical disciplines,
such as: UNIX, MS Windows, Solaris, Windows 95, Novell, Netware, Sybase,
Informix, Lotus Notes, Clipper, Visual Basic, Visual C+, Cobol II, CICS and
Fortran.
Typical engagements focus on specific areas of knowledge or are
utilized to supplement the customer's staffing requirements. These engagements
average in duration from three to 12 months. The following are examples of the
types of services that have been provided by the Company's Information
Technology group.
The Company provided 15 to 20 programming consultants to a
multi-national bank holding company to write custom software
for a variety of business analysis and programming
applications. These programs are being developed to conform to
a
35
<PAGE>
number of different platforms and environments such as IBM
Mainframe, UNIX, AS400, OS2 and Novell.
The Company provided 20 to 25 consultants to a national
communications conglomerate to evaluate the viability and
advisability of downsizing the application to the
client/server platform. The engagement entailed analyzing the
system against requirements, surveying system users to assess
satisfaction, assessing the system's suitability for
client/server implementation, and preliminary evaluation of
off-the-shelf systems.
The Company provided six to ten consultants to an
international pharmaceutical corporation to assist it in the
implementation of a process by which a standard is proposed,
evaluated, tested, accepted and retired. As part of the
methodology, a range of corporate applications have been
identified and benchmarked for use in the test and acceptance
process.
Professional Engineering and Technical
The Professional Engineering and Technical group provides personnel to
perform project engineering, design, drafting or other technical services either
at the site of the customer or, less frequently, at the Company's own
facilities. Representative services include: electrical engineering design;
system engineering design and analysis; mechanical engineering design;
procurement engineering; civil structural engineering design; computer aided
design; environmental engineering; and code compliance. The Professional
Engineering and Technical group has also developed an expertise in providing
engineering, design and technical services to many customers in the nuclear
power, fossil fuel and electric utility industries.
The Professional Engineering and Technical group's project managers and
operations support personnel work as a team and typically provide a detailed
scope of work analysis, time and material assessment and monitor and control
projects on a turnkey basis. The engagements of the Professional Engineering and
Technical group generally vary in duration from three to 12 months. The
following are examples of the types of services that have been provided by the
Company's Professional Engineering and Technical group.
The Company provided approximately 115 engineering consultants
to a large regional utility to implement an action plan
designed to return its electrical generating units back to
service. The ultimate goal of the plan is to provide
reasonable assurance that the future operation of each unit
will be conducted in accordance with operating license,
technical specifications and updated safety analysis reports.
The Company has been providing these services to this customer
for more than ten years.
The Company provided ten consultants to an international
aircraft manufacturing company to incorporate manual and CAD
corrections or revisions for drawings, as well as new design,
at a fixed price for military and commercial aircraft both
in-house
36
<PAGE>
and at client site. The Company has been providing these
services to this customer for more than ten years.
The Company provided 30 consultants to an international
chemical company for engineering and technical, construction
management, administration and lab support. The Company has
been providing these services to this customer for more than
ten years.
Specialty Healthcare
The Specialty Healthcare group provides skilled healthcare
professionals, primarily physical therapists, occupational therapists, speech
language pathologists, nursing staff relief personnel and nurses aides. The
Specialty Healthcare group consists of the medical rehabilitation therapy
division and the nursing division, each with typical engagements ranging three
to six months and on a day to day shift basis, respectively. All therapy and
nursing personnel provided by the Company are licensed professionals. Of the
total revenues for the Specialty Healthcare group, 85% is derived from the
provision of medical rehabilitation therapy services and 15% from nursing
services. Contract and permanent placement services are also provided for each
of the divisions.
The medical rehabilitation therapy division provides physical,
occupational and speech therapy services to hospitals, nursing homes,
pre-schools, sports medicine facilities and private practices. These services
include: in-patient, out-patient, sub-acute and acute care, rehabilitation,
geriatric, pediatric and adult day care. The nursing division consists of a
managed care and a critical care unit. The managed care unit provides permanent
placement services of registered nurses, nurse practitioners, utilization review
nurses and other managed care professionals. The critical care unit provides
emergency room and medical/surgical nurses for staff relief.
The following are examples of the types of services provided by the
Specialty Healthcare group.
The Company provided 15 to 20 registered nurses to a large
northern New Jersey hospital on a supplemental staffing basis
for various shifts and days during the year to work in either
the emergency room, intensive care units or radiology
departments.
The Company provided approximately ten to 12 speech language
pathologists for the board of education for a major
metropolitan city pursuant to a multi-year contract to conduct
speech and language evaluations.
General Support
The General Support group provides contract and temporary services, as
well as permanent placement services, for full time and part time personnel in a
variety of disciplines, including office, clerical, data entry, secretarial,
accounting, light industrial, shipping and receiving and general warehouse.
37
<PAGE>
Contract and temporary assignments range in length from less than one
day to several weeks or months. The General Support group has been awarded
multi-year contracts by such companies including AT&T, First National Bank of
Chicago, Mellon Bank and Sears.
Recruiting and Training
The Company devotes a significant amount of time and resources in
locating, training and retaining its personnel. The full-time recruiters utilize
the Company's proprietary UNIX network database system for the sectors in which
they operate. The databases are cross-referenced by skill to match potential
candidates with the specific requirements of the customer.
The individuals in the databases are identified through numerous
activities including: sourcing; networking; referrals; internet; job fairs;
newspaper and trade journal advertising; attendance at industry shows and
presentations. The Company is capable of developing a background profile on any
personnel candidate and routinely performs verification of education and
employment, as well as personal and professional reference checks. The
assessment of a potential candidate is performed and documented by in-house
personnel who have knowledge of the Company's contractual obligations and the
methods of developing and handling this type of personnel information. The
screening and selection process employed by the Company provides the basis for
qualifying candidates for assignments.
As potential candidates are identified, each individual participates in
an extensive qualification process. An in-house interview of the candidate is
typically conducted by both the recruiting and sales staff and candidates are
evaluated and qualified by a member of the Company's technical staff. Upon
placement with the appropriate customer, the employee is continually monitored
and supervised to ensure competent, timely and professional performance. Regular
on-site visits by the Company's representatives are made and the employees and
their supervisors are contacted. Employees complete weekly status reports which
are signed by their supervisor. Employees report regularly on the status of
their projects in order to identify and eliminate potential problems and issues
which may arise. Exit interviews are conducted upon completion of an assignment
and the customer is invited to confirm that all parties are satisfied with the
work completed. The Company also offers educational programs to upgrade the
skills of its personnel, particularly within its Information Technology group.
38
<PAGE>
Branch Offices
The Company offers its services through 30 branch offices located in 12
states as follows:
<TABLE>
<CAPTION>
Number of
State Offices Services Provided
- ------ ------- -----------------
<S> <C> <C>
Connecticut 4 Engineering and Technical; General Support
New York 2 Information Technology; Engineering and
Technical; Healthcare
New Jersey 4 Information Technology; Engineering and
Technical; Healthcare; General Support
Pennsylvania 3 Engineering and Technical; General Support
Maryland 1 Information Technology
Kentucky 3 Engineering and Technical; General Support
Indiana 1 General Support
South Carolina 1 Engineering and Technical
Georgia 1 Engineering and Technical
Minnesota 1 Information Technology
Michigan 3 Engineering and Technical
California 6 General Support
</TABLE>
The branch offices operate within guidelines established by management
of the Company as independent profit centers with responsibility for sales and
marketing, recruitment and retention of temporary staffing personnel and
customer relations. Branch managers operate with a significant degree of
autonomy and are compensated based upon performance. The compensation system is
designed to motivate the managers to maximize the Company's growth and
profitability. Depending on the size of the region in which a branch office is
located, a regional or general manager may have oversight responsibilities for
two or more branch offices.
The Company supports the operation of its branch offices by providing
payroll, billing and collection, purchasing, cash management, internal audit and
other administrative support services. These services may also include
coordination of marketing and sales efforts to certain national and
multi-regional accounts, recruitment, training and deployment of temporary
personnel.
Customers and Marketing
The Company derives its revenues from a diversified customer base,
including a number of Fortune 500 companies, governmental units and public
utilities, as well as small to medium-size retail, manufacturing, professional
and service organizations. Northeast Utilities accounted for 12.0% of the
Company's revenues for the three months ended January 31, 1997 and 12.7% of the
Company's revenues during fiscal 1996. No other single customer accounted for
10.0% or more
39
<PAGE>
of the Company's revenues during these periods. The Company's largest five and
ten customers accounted for approximately 25.0% and 31.0%, respectively, of the
Company's revenues during fiscal 1996.
Selected Customers:
Air Products & Chemicals Mellon Bank
Amtrak Mercedes Benz
AT&T Merrill Lynch
Bell Atlantic Mt. Sinai Hospital
Beth Israel Medical Center Paramount Pictures
Boeing PECO Energy
Chase Manhattan Bank Sandoz Pharmaceuticals
Consolidated Edison Sears
Coopers & Lybrand Showtime Networks
Deloitte & Touche Terrence Cardinal Cooke Healthcare Center
Hackensack Medical Center United Technologies
MCI Westinghouse
Sales and marketing efforts are conducted at the local and regional
level through the Company's network of branch offices. The Company emphasizes
long-term personal relationships with customers which are developed through
regular assessment of customer requirements and proactive monitoring of
personnel performance. Branch managers make regular sales visits to existing and
prospective customers. New customers are obtained through active sales programs
and referrals. The Company encourages branch managers to participate in national
and regional trade associations, local chambers of commerce and other civic
associations. Local employees are encouraged to be active in civic organizations
and industry trade groups to facilitate the development of new customer
relationships.
Sales and marketing efforts directed toward multi-regional or national
accounts are coordinated by the Company's corporate staff. The Company's
information system contains data regarding all of its customers, including the
services and personnel provided to such customers. Accordingly, support in
identifying cross-selling opportunities for certain larger and national accounts
can be provided at the corporate level. By acting as a coordinator of all the
branch offices, the Company assists the branch offices in providing service to
customers, developing a strategy to pursue national account opportunities and
responding to the trend of national companies to work with a limited number of
preferred vendors for their staffing requirements.
Information Systems
The Company's internal information system is linked to a majority of
the Company's offices. This system supports Company-wide operations such as
payroll, billing, accounting and sales and management reports. Additionally,
each of the four service groups has separate databases to permit efficient
tracking of available personnel on a local basis. These databases facilitate
efficient matching of customers' requirements with available temporary staffing
personnel. All of the offices and associated personnel acquired by the Company
are integrated
40
<PAGE>
into the Company's internal information system and the personnel databases are
updated accordingly. The internal information system has the capacity to service
the Company's anticipated growth without significant capital expenditures for
the foreseeable future.
Competition
The staffing industry is highly competitive and fragmented, consisting
of more than 7,000 businesses. There are limited barriers to entry and new
competitors frequently enter the market. The Company encounters competition from
large international, national and regional companies, but, its principal
competitors are generally local, independent staffing companies that are located
in the Company's various regional markets.
The Company competes for qualified temporary staffing employees and for
customers who require the services of such employees. The principal competitive
factors in attracting and retaining qualified temporary staffing employees are
competitive salaries and benefits, quality and frequency of assignments and
responsiveness to employee needs. The principal competitive factors in obtaining
customers are providing comprehensive staffing solutions to customer
requirements, the timely availability of qualified temporary staffing employees,
the ability to match customer requirements with available temporary staffing
employees, competitive pricing of services and satisfying work production
requirements. The Company believes its long-term customer relationships and
strong emphasis on providing service and value to its customers and temporary
staffing employees are important competitive advantages.
Additionally, the Company competes for suitable acquisition candidates.
Management believes that, in addition to its growth strategy and acquisition
guidelines, the following factors distinguish it from competitive bidders when
pursuing acquisitions: (i) the opportunity of the acquiree management to be key
contributors and participants in the growth of a medium-sized public company;
(ii) the rapid integration of general and administrative functions to allow a
greater focus upon sales and marketing efforts; (iii) operational autonomy which
fosters a desirable entrepreneurial environment; and (iv) the use of substantial
performance-based financial incentives.
Employees
As of October 31, 1997, the Company employed on its permanent staff 165
persons, including 31 administrative and clerical support staff, 38 regional
managers and recruiters, 47 sales and marketing personnel, 24 information
technology personnel, 25 engineers (who participate in engineering and design
projects undertaken by the Company) and seven executive level management
personnel. During the twelve months ended October 31, 1996, approximately 550
engineering and technical personnel, 450 information technology personnel and
100 health care personnel were employed by the Company to work on customer
projects for various periods. The average number of personnel employed on daily
assignments is approximately 2,600 temporary personnel. 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.
41
<PAGE>
Facilities
Presently, the Company provides temporary staffing services through 30
offices in 12 states. These offices typically consist of 1,500 to 2,500 square
feet and are leased by the Company for terms of one to three years. Offices in
larger or smaller markets may vary in size from the typical office. The Company
does not expect that maintaining or finding suitable lease space at reasonable
rates in its markets or in areas where the Company contemplates expansion will
be difficult.
The Company's executive and administrative offices are located at 2500
McClellan Avenue, Suite 350, Pennsauken, New Jersey 08109-4613. These premises
consist of approximately 8,800 square feet and are leased at a rate of $11.00
per square foot per month for a term ending on January 31, 1998.
Legal Proceedings
The Company is not a party to any material legal proceedings. The
Company has been named in Orders relating to the storage of certain materials at
a former Company facility located in Fontana, California. For additional
information with regard to this matter, see "Risk Factors - Potential Claims
Relating to Former Operation of California Facility."
MANAGEMENT
Directors and Executive Officers
Certain information concerning the directors and executive officers of
the Company is set forth below:
<TABLE>
<CAPTION>
Name Age Office
---- --- ------
<S> <C> <C> <C>
Leon Kopyt(1) 50 Chairman, Chief Executive Officer, President and Director
Barry S. Meyers(1) 56 Chief Operating Officer, Executive Vice President and
Director
Martin Blaire(1) 55 Executive Vice President and Director
Stanton Remer(1) 45 Chief Financial Officer, Treasurer, Secretary and Director
Peter R. Kaminsky 57 Senior Vice President
Norman S. Berson(2) 70 Director
Robert B. Kerr(2)(3) 54 Director
Woodrow B. Moats, Jr.(3) 64 Director
</TABLE>
42
<PAGE>
- ---------------
(1) Member of the Executive Committee
(2) Member of the Audit Committee
(3) Member of the Compensation Committee
Leon Kopyt was appointed President and Chief Executive Officer on
January 23, 1992 and from May 1, 1990 to that date served as Chief Operating
Officer of the Company. Additionally, Mr. Kopyt served as Chief Financial
Officer and Treasurer of the Company from 1992 to 1994. Mr. Kopyt's prior
experience includes serving as President and Chief Executive Officer of Socimi
International, a European transportation and defense products manufacturing
company from 1981 to 1990. Mr. Kopyt holds a B.S. degree in Electrical
Engineering from Drexel University. Mr. Kopyt has been a director of the Company
since 1991 and Chairman of the Board since 1992.
Barry S. Meyers was appointed the Chief Operating Officer in March
1996. Previously, he was a co-founder of The Consortium and served as its
President since its inception in 1975. Mr. Meyers' prior experience includes
serving as New York branch manager for Informatics Data Services, regional
director of sales and systems with ITT Data Services and serving as a
communications consultant with AT&T. Mr. Meyers holds a B.A. in Psychology from
Hunter College. Mr. Meyers has been a director of the Company since 1996.
Martin Blaire was appointed an Executive Vice President in March 1996.
Previously, he was a co-founder of The Consortium and served as its Executive
Vice President, Secretary and Treasurer since its inception in 1975. Mr.
Blaire's prior experience includes serving as a branch manager for Stromberg
Datagraphix, a General Dynamics subsidiary and serving as district sales manager
for ITT Data Services. Mr. Blaire holds a B.B.A. in Accounting from the
University of Miami, Florida. Mr. Blaire has been a director of the Company
since 1996.
Stanton Remer was appointed Chief Financial Officer and Treasurer in
May 1994. Mr. Remer's prior experience includes serving as an audit manager of a
local accounting firm in 1993, serving as Chief Financial Officer of Sterling
Supply Corporation from 1991 to 1992 and serving as managing partner of a
regional accounting firm from 1983 to 1991. Mr. Remer is a Certified Public
Accountant and holds a M.B.A. in Finance from Temple University and a B.S. in
Textile Science from the Philadelphia College of Textiles & Science. Mr. Remer
has been a director of the Company since 1992.
Peter R. Kaminsky was appointed Senior Vice President in May 1996. Mr.
Kaminsky was the founder of Consort MD. Mr. Kaminsky's prior experience includes
serving as Assistant to the President of a subsidiary of the Equitable Life
Assurance Society from 1965 to 1974, where his responsibilities included
management recruitment, acquisitions, marketing literature development and
public relations. Mr. Kaminsky holds a B.S. in Science from American University.
Norman S. Berson has been a shareholder in the law firm of Fineman &
Bach, P.C., of Philadelphia, Pennsylvania, and its predecessors since 1981. The
Company has retained Fineman
43
<PAGE>
& Bach, P.C. to represent it on various legal matters. From 1967 to 1982,
Mr. Berson was a member of the House of Representatives of the Commonwealth of
Pennsylvania. Mr. Berson has been a director of the Company since 1987.
Robert B. Kerr is founder and partner of Everingham & Kerr, Inc., a
merger and acquisition consulting firm located in Haddon Heights, New Jersey,
which provides professional intermediary services and other consulting services
to small and middle market manufacturing, distribution and service businesses.
Mr. Kerr's prior experience includes serving as Vice President-Sales, for
Shieldalloy Corporation, a specialty metals producer, from 1974 to 1987. Mr.
Kerr holds a B.S. in Mechanical Engineering, a B.A. in Arts and Sciences from
Pennsylvania State University and an M.B.A. in Management from Wayne State
University. Mr. Kerr has been a director of the Company since 1994.
Woodrow B. Moats, Jr. is President of W. B. Moats & Associates, Berwyn,
Pennsylvania, a marketing communications organization specializing in
business-to-business marketing. Mr. Moats' prior experience includes serving as
Senior Vice President - Corporate Marketing and Public Relations of National
Railway Utilization Corporation from 1975 to 1980. Mr. Moats is a graduate of
the University of Miami, Florida, as a marketing major specializing in
advertising. Mr. Moats has been a director since 1994.
Board Of Directors
The Board of Directors is divided into three classes with respect to
term of office, with each class to include one-third of the whole number of the
Board of Directors or as near thereto as possible. The term of office of Class A
Directors (Norman S. Berson and Barry S. Meyers), Class B Directors (Robert B.
Kerr and Woodrow B. Moats, Jr.) and Class C Directors (Martin Blaire, Leon Kopyt
and Stanton Remer) expires as of the date of the 1997, 1998 and 1999 annual
meetings of the stockholders, respectively. At each annual meeting of the
stockholders, that number of directors whose terms shall then expire shall be
elected to serve for a term of three years and until their successors shall be
duly elected and qualified.
The Board of Directors has established an Executive Committee, an Audit
Committee and a Compensation Committee. The Executive Committee has been
delegated all of the powers of the Board of Directors and is responsible for the
operation of the Company between formal meetings of the Board of Directors. The
Audit Committee is responsible for reviewing the Company's financial and
accounting practices and controls and making recommendations concerning the
engagement of independent auditors. The Compensation Committee is responsible
for determining the compensation of the officers and employees of the Company
and administering the Company's plans. See "Stock Option Plans."
Director Compensation
Members of the Board of Directors who are nonsalaried receive $750 for
each Directors Meeting they attend and $300 for each special committee meeting,
except for Mr. Berson who does not receive fees for meetings of the directors or
committee meetings.
44
<PAGE>
Executive Compensation
The following table sets forth certain information with respect to
compensation awarded to, earned by or paid to the Chief Executive Officer of the
Company and the four other most highly compensated executive officers of the
Company who were serving at the end of the fiscal year ended October 31, 1996
(collectively, the "Named Executive Officers") for all services rendered in all
capacities to the Company and its subsidiaries.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
------------------- ----------------------
Awards Payouts
------ -------
Securities
Name and Underlying All Other
Principal Position Year Salary Bonus Options/SARs Compensation(1)
- ------------------ ---- ------ ----- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Leon Kopyt 1996 $291,923 $50,900 11,720(2) $12,068
President and Chief 1995 $249,161 $26,300 40,300 $11,062
Executive Officer 1994 $209,955 $40,500 30,000 $ 9,262
Barry S. Meyers 1996 $159,351(3) -- -- $ 9,047
Executive Vice
President
Stanton Remer 1996 $120,000 -- -- $ 2,544
Chief Financial Officer 1995 $100,000 -- 10,000 $ 2,345
1994 $ 80,000 -- 10,000 $ 2,334
Martin Blaire 1996 $159,351(2) -- -- $ 8,468
Executive Vice
President
Peter R. Kaminsky 1996 $100,000(2) -- -- $ 5,000
Senior Vice
President
</TABLE>
- ---------------------------------
(1) Represents premiums paid by the Company for life and disability insurance.
(2) Does not include options to purchase 500,000 shares under the Company's
1996 Executive Stock Plan granted on November 21, 1996, subsequent to
fiscal 1996. See "Option/SAR Grants in Last Fiscal Year."
(3) Reflects compensation for partial year employment.
45
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation
Individual Grants for Option Term
------------------------------------- -----------------------
Number of % of Total
Securities Options/SARs Exercise
Underlying Granted to or
Option/SARs Employees in Base Price Expiration
Name Granted(1) Fiscal Year ($/Sh) Date 5% 10%
- ---- ---------- ----------- ------ ---- -- ---
<S> <C> <C> <C> <C> <C> <C>
Leon Kopyt 11,720(2) 37.7% $5.00 3/1/06 $36,853 $93,393
</TABLE>
OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of
Securities
Underlying
Unexercised Value of Unexercised
Options/SARs In-the-Money
at FY-End Options/SARs at
Shares Shares FY-End ($)
Acquired on Exercisable/ Exercisable/
Name Exercise Value Realized($) Unexercisable Unexercisable
- ---- -------- ----------------- ------------- -------------
<S> <C> <C> <C> <C>
Leon Kopyt 0 0 92,300/ $658,128/
11,720(2) $ 53,443
Stanton Remer 0 0 30,000/ $ 99,225
</TABLE>
0
- ------------------------
(1) Options are exercisable beginning one year after the date of the grant.
Shares received upon exercise of the options may not be sold for at least
one year after the date of exercise.
(2) Does not include options to purchase 500,000 shares under the Company's
1996 Executive Stock Plan granted on November 21, 1996. These options are
subject to exercise for a period of ten years upon payment of an exercise
price of $7.125 per share, which reflects the market value of the Common
Stock on the date of grant. Options to purchase 250,000 shares are vested
while the remaining options are subject to vesting: (i) 50.0% on the
earlier of February 28, 1998 or once the market capitalization of the
Company equals or exceeds $60 million for a period of thirty consecutive
trading days; and (ii) the remaining 50.0% on the earlier of February 28,
1999 or once the market capitalization of the Company equals or exceeds $75
million for a period of 30 consecutive trading days. Immediate vesting of
all of the options occurs, however, if a change in control of the Company
occurs (as defined under the Benefits Agreement), or if during the term,
Mr. Kopyt's employment is terminated for other than good and sufficient
cause. The potential realizable value at assumed annual rates of stock
price appreciation of 5.0% and 10.0% during the term of these options, is
$2,240,437 and $5,677,708, respectively. The value of the in-the-money
unexercised options (assuming 100% vesting) as of March 18, 1997, is
$627,500. If Mr. Kopyt's total compensation (including compensation from
the exercise of these options) exceeds $1.0 million in any fiscal year, the
income from exercise of these options, to the extent it exceeds $1.0
million, would not be deductible to the Company for tax purposes under
Section 162(m) of the Code.
46
<PAGE>
Executive Employment Agreements
The Company has employment agreements with each of Messrs. Kopyt,
Meyers, Blaire and Kaminsky which provide each executive officer with an annual
base salary of $300,000, $240,000, $240,000 and $200,000, respectively, vacation
time and other standard benefits. The employment agreements of Messrs. Meyers
and Blaire have terms of two years which commenced in March 1996, and Mr.
Kaminsky's employment agreement has a term of two years which commenced in May
1996. Mr. Kopyt's agreement provides for a term of three years which commenced
in March 1996, with an automatic extension for additional periods of one year.
Each of the employment agreements are terminable upon the death of the executive
officer or if the executive officer is discharged for cause. The employment
agreements also include non-disclosure/non-competition provisions governing the
conduct of the executive officer during and after employment.
In addition to base salary, certain of the employment agreements
provide for additional payments. Messrs. Blaire and Meyers' employment
agreements provide that each is to receive severance payments upon the earlier
of the expiration of their employment term or the date they are otherwise
terminated without good and sufficient cause. In such an event, the individual
shall be entitled to continue to receive a salary at the level of his existing
salary for a period of one year. Additionally, under Mr. Kopyt's employment
agreement, he is to receive a bonus based on the consolidated operating profits
before taxes of the Company for each fiscal year as follows: (i) up to $750,000
- - 3% bonus; (ii) over $750,000 and up to $1,500,000 - 2% bonus; (iii) in excess
of $1,500,000 - 1% bonus. Mr. Kopyt earned a bonus of $50,900 during fiscal
1996.
Change in Control Arrangements
In December 1993, the Company entered into a Termination Benefits
Agreement with Mr. Kopyt that was subsequently amended and restated as of March
18, 1997 (the "Benefits Agreement"). Pursuant to the Benefits Agreement,
following a Change in Control (as defined therein) the remaining term of Mr.
Kopyt's employment is extended for five years (the "Extended Term"). If Mr.
Kopyt's employment is terminated thereafter by the Company other than for cause,
or by Mr. Kopyt for good reason (including, among other things, a material
change in Mr. Kopyt's salary, title, reporting responsibilities or a change in
office location which requires Mr. Kopyt to relocate): the Company is obligated
to pay Mr. Kopyt a lump sum equal to his salary and bonus for the remainder of
the Extended Term; the exercise price of the options to purchase 500,000 shares
granted to Mr. Kopyt under the 1996 Executive Stock Plan will be reduced to 50%
of the average market price of the Common Stock for the 60 days prior to the
date of termination if the resulting exercise price is less than the original
exercise price of $7.125 per
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<PAGE>
share; and the Company shall be obligated to pay to Mr. Kopyt the amount of any
excise tax associated with the benefits provided to Mr. Kopyt under the Benefits
Agreement. If such a termination had taken place as of March 18, 1997, Mr. Kopyt
would have been entitled to cash payments of approximately $2.2 million
(representing salary and excise tax payments), and the equity in Mr. Kopyt's
options would have increased by approximately $1.5 million.
Profit Sharing Plan
The Company maintains 401(k) plans as of October 31, 1996 for the
benefit of eligible employees. The plan is a profit-sharing plan, including a
cash or deferred arrangement pursuant to Section 401(k) of the Internal Revenue
Code of 1986, as amended (the "Code"), sponsored by the Company to provide
eligible employees an opportunity to defer compensation and have such deferred
amounts contributed to the 401(k) plan on a pre-tax basis, subject to certain
limitations. The Company may, at the discretion of the Board of Directors, make
contributions of cash to match deferrals of compensation by participants.
The Company made no contributions of cash to the 401(k) plans to match
deferrals of compensation by participants in the fiscal years ending October 31,
1996, 1995, or 1994. Amounts contributed to the 401(k) Plans by executive
officers during the fiscal years ended October 31, 1996, 1995 and 1994 were
$13,380, $11,035, and $0, respectively. The amounts contributed by all employee
participants, excluding officers, during the period November 1, 1993 to October
31, 1996 totaled $798,436.
Stock Option Plans
The Company currently has options outstanding under four stock option
plans: (i) the 1986 Incentive Stock Option Plan (the "1986 Plan"); (ii) the 1992
Incentive Stock Option Plan (the "1992 Plan"); (iii) the 1994 Non-Employee
Directors Stock Option Plan (the "1994 Plan"); and (iv) the 1996 Executive Stock
Plan (the "Executive Stock Plan") (collectively, the "Plans"). The Plans are
administered by the Compensation Committee of the Board of Directors.
Under the 1986 Plan, an aggregate of 60,000 shares was reserved for
issuance upon the exercise of options granted to officers, directors and key
employees of the Company and its subsidiaries. All of the options have been
granted at exercise prices ranging from $1.25 to $2.66. No shares remain
available for issuance.
Under the 1992 Plan, an aggregate of 100,000 shares of Common Stock
were reserved for issuance upon the exercise of options granted to officers,
directors and key employees of the Company and its subsidiaries. Options to
purchase 99,700 shares of Common Stock have been granted at exercise prices
ranging from $1.09 to $8.13. Under the 1992 Plan, 300 shares remain available
for issuance. The 1992 Plan will terminate in 2002, unless terminated at an
earlier date by the Board of Directors.
Under the 1994 Plan, an aggregate of 80,000 shares of common stock were
reserved for issuance upon the exercise of options granted to non-employee
directors of the Company. Options to purchase 70,000 shares of Common Stock have
been granted at exercise prices
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ranging from $3.44 to $5.00. Under the 1994 Plan, 10,000 shares remain available
for issuance. The exercise of such options is contingent upon service as a
director for one year, and the options are terminated upon the date the optionee
ceases to be a director. The 1994 Plan terminates in 2004, unless terminated at
an earlier date by the Board of Directors.
Each of the 1986 and 1992 Plans provides for the issuance of incentive
stock options, intended to qualify as such under Section 422A of the Code. All
options granted under the Plans have terms which do not exceed ten years and are
subject to exercise prices which are not less than 100% of the fair market value
of the shares to the time of grant.
Under the Executive Stock Plan, an aggregate of 1,250,000 shares of
Common Stock was reserved for issuance upon the exercise of options granted to
key management employees and directors of the Company and its subsidiaries, of
which 750,000 shares remain available for issuance. This plan provides for the
grant of incentive stock options, non-qualified stock options, stock
appreciation rights and awards of restricted common stock.
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PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of March 17, 1997 and is
adjusted to reflect the sale of the shares of Common Stock offered hereby by:
(i) each person known by the Company to beneficially own 5% or more of the
Company's outstanding Common Stock; (ii) each of the Company's directors;
(iii) each of the Named Executive Officers; (iv) the Selling Stockholders; and
(v) all directors and executive officers of the Company as a group. Except as
otherwise indicated, each person set forth below has sole voting and investment
power on the shares reported.
<TABLE>
<CAPTION>
Shares Beneficially Shares to be
Owned Prior to Beneficially Owned
Offering After Offering
--------------------------- --------------------------
Shares
Number Being Number
Name and Address(2) of Shares(1) Percent Offered of Shares Percent
- ------------------- ------------ -------- ------- --------- -------
<S> <C> <C> <C> <C> <C>
Leon Kopyt(3) 880,745 16.3% 0 742,432 9.5%
Barry S. Meyers 607,468 12.6% 0 607,468 8.5%
Martin Blaire 607,468 12.6% 36,000 571,468 8.0%
Stanton Remer(4) 34,000 * 0 34,000 *
Peter R. Kaminsky 54,327 1.1% 0 54,327 *
Norman S. Berson(5) 20,000 * 0 20,000 *
Robert B. Kerr(6) 14,000 * 0 14,000 *
Woodrow B. Moats, Jr.(6) 14,000 * 0 14,000 *
Limeport Investments, LLC(7) 276,625 5.7% 138,313 138,312 1.9%
c/o Acquest International
1760 Market Street, 12th Floor
Philadelphia, PA 19103
Mr. and Mrs. Philip J. Hempleman 472,500 9.8% 0 472,500 6.6%
& Sanford B. Prater
c/o Ardsley Advisory Partners
646 Steamboat Road
Greenwich, CT 06830
J. Dennis Bodemann 1,500 * 1,500 0 0
5619 Oldham Ct.
Louisville, KY 40291
Harry R. Nelson 1,000 * 1,000 0 0
2100 Gardner Lane
Suite 216
Louisville, KY 40205
All Directors and Officers
as a group (8 persons) 2,232,008 40.6% 36,000 2,057,695 26.3%
</TABLE>
- --------------------
* Represents less than one percent of the Company's outstanding Common
Stock.
(1) The securities "beneficially owned" by an individual are determined in
accordance with the definition of "beneficial ownership" set forth in
the regulations promulgated under the Exchange Act, and, accordingly,
may include securities owned by or for, among others, the spouse and/or
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<PAGE>
minor children of an individual and any other relative who has the same
home as such individual, as well as other securities as to which the
individual has or shares voting or investment power or which each
person has the right to acquire within 60 days after the date of this
Prospectus through the exercise of options, or otherwise. Beneficial
ownership may be disclaimed as to certain of the securities. This table
has been prepared based on 4,815,676 shares of Common Stock outstanding
as of March 17, 1997.
(2) The address of all directors and officers is c/o RCM Technologies,
Inc., 2500 McClellan Avenue, Suite 350, Pennsauken, New Jersey 08109.
(3) Includes vested options to purchase 250,000 shares under the Company's
1996 Executive Stock Plan and vested options to purchase 104,010 shares
under the Company's other option plans. Also includes options to
purchase 250,000 shares under the Company's 1996 Executive Stock Plan
which vest when the Company's market capitalization achieves certain
levels; and 276,625 shares held by Limeport Investments, LLC
("Limeport") over which Mr. Kopyt has voting power with regard to the
election of directors of the Company. Limeport is a Selling Stockholder
in this Prospectus.
(4) Includes vested options to purchase 30,000 shares under the Company's
outstanding stock option plans and includes 4,000 shares of Common
Stock issuable upon exercise of the Class C Common Stock Warrants.
(5) Includes vested options to purchase 20,000 shares under the Company's
outstanding stock option plans.
(6) Includes vested options to purchase 14,000 shares under the Company's
outstanding stock option plans. Does not include options to purchase
6,000 shares which are not presently exercisable.
(7) Limeport has granted voting rights over these shares to Leon Kopyt
with respect to the election of directors. On all other matters, voting
rights have been retained by Limeport Investments, LLC.
Certain Voting Arrangements
On February 5, 1996, the Company issued and sold 276,625 shares of
Common Stock to Limeport in a private placement transaction. In conjunction with
this transaction, Limeport granted Mr. Kopyt an irrevocable proxy entitling him
to vote such shares solely in connection with the election of directors of the
Company, at any regular or special meeting of the stockholders.
Effective August 31, 1995, the Company completed the acquisition of
Cataract, pursuant to a Merger Agreement dated July 31, 1995 (the "Cataract
Merger Agreement"). Pursuant to the terms of the Cataract Merger Agreement, the
former Cataract shareholders pledged until November 30, 1998, approximately
312,311 shares of the Company's common stock ("Cataract Shares") they received
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<PAGE>
as part of the merger consideration, in order to guarantee certain performance
criteria of Cataract established in the Cataract Merger Agreement. Following the
expiration of the pledge period, the Cataract 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 Company. Notwithstanding the above, one-third of
the Cataract Shares shall be released from trust commencing August 31, 2000, and
thereafter an additional one-third of the Cataract Shares shall be released from
trust upon each of August 31, 2001 and August 31, 2002. During the period in
which the Cataract Shares are subject to pledge and the voting trust, the
Cataract Shares are to be voted by the Company's Board of Directors on behalf of
the former shareholders of Cataract.
Effective March 11, 1996 the Company completed the acquisition of
Consortium pursuant to a Stock Purchase Agreement dated March 1, 1996 (the
"Consortium Purchase Agreement"). Pursuant to the terms of the Consortium
Purchase Agreement, the former Consortium shareholders, which include Messrs.
Blaire and Meyers, directors and officers of the Company, agreed, among other
things, to vote the approximately 1,300,000 shares received by them in the
aggregate, under the Consortium Purchase Agreement ("Consortium Shares") in
connection with the election of directors of the Company for all of the
individuals nominated by a majority of the Board of Directors of the Company
and, unless the Company otherwise consents in writing, on all other matters to
be voted on by the stockholders of the Company, in accordance with the
recommendation of the majority of the Board of Directors; provided that the
Consortium Shares may be voted as such holders determine in their sole
discretion on any "Significant Event." The term "Significant Event" means any:
(i) sale of substantially all of the assets of the Company; (ii) acquisition of
the Company by a third party through a merger transaction in which the Company
is the target company; or (iii) transaction or series of related transactions
which results in the issuance and/or sale by the Company of more than 20% of the
outstanding capitalization on a fully diluted basis, if on a pro forma basis,
the proportionate net stockholders' equity of the former Consortium shareholders
after such proposed transaction would be diluted. These provisions shall remain
in effect until the earlier of: (i) the date upon which Mr. Leon Kopyt no longer
serves as an officer of the Company; or (ii) six months following the date upon
which both Messrs. Blaire and Meyers cease to be employees of the Company (the
"Termination Date"), provided, however, that the Termination Date shall be
deemed to occur on any such earlier date that the employment of both of Messrs.
Blaire and Meyers is terminated without cause.
Additionally, the Company has agreed to: (i) continue to nominate
Messrs. Blaire and Meyers to the Board of Directors; and (ii) cause Messrs.
Blaire and Meyers to be appointed to the Executive Committee of the Board of
Directors, for so long as: (A) the former Consortium shareholders, in the
aggregate, continue to own, directly or beneficially, 50% or more of the
Consortium Shares (as adjusted by any stock splits, recapitalization or other
adjustments to the capital stock of the Company), and (B) either of Messrs.
Blaire or Meyers remain as a management level employee of the Company; provided,
however, that: (x) in the event only one of Messrs. Blaire or Meyers is a
management level employee, then only that individual shall be entitled to the
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<PAGE>
rights set forth in clauses (i) and (ii) hereof; and (y) the provisions of
clause (B) above shall not be effective to abrogate the Company's obligations in
clauses (i) and (ii) above if the employment of either or both of Messrs. Blaire
and Meyers is terminated by the Company without cause; in which case the Company
shall remain obligated to undertake those actions identified in clauses (i) and
(ii) hereof for the remaining period of any employment agreements pursuant to
which Messrs. Blaire or Meyers were employed upon such termination.
Effective May 2, 1996, the Company completed the acquisition of Consort
MD pursuant to a Merger Agreement dated April 23, 1996 (the "Consort MD Merger
Agreement"). Pursuant to the terms of the Consort MD Merger Agreement, Peter
Kaminsky, the former sole shareholder of Consort MD and an executive officer of
the Company, agreed, among other things, to vote the 34,327 shares received by
him in connection with all matters to be voted on by the stockholders of the
Company, in accordance with the recommendation of the majority of the Board of
Directors. These provisions shall remain in effect until the earlier of: (i) May
2, 1998; or (ii) the termination of Mr. Kaminsky's employment agreement with the
Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Berson, a director of the Company, is a shareholder in the law firm
of Fineman & Bach, P.C., which serves as counsel to the Company. The Company
paid legal fees of $65,887 during the fiscal year 1996 to Fineman & Bach, P.C.
The Company has adopted a policy which requires that all transactions
with affiliates of the Company be approved by a majority of the non-management
directors of the Company and be on terms no less favorable to the Company that
can be obtained from unaffiliated persons. There have been no transactions in
excess of $60,000 with affiliates during the fiscal year ended October 31, 1996,
1995 or 1994, except as set forth above.
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<PAGE>
DESCRIPTION OF SECURITIES
Common Stock
The Company is authorized to issue 40,000,000 shares of Common Stock,
$0.05 par value per share, of which 4,815,676 are outstanding as of March 17,
1997. The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by stockholders. Subject to preferences that may be
applicable to any then outstanding Preferred Stock, the holders of Common Stock
are entitled, among other things: (i) to share ratably in dividends if, when and
as declared by the Board of Directors out of funds legally available therefor;
and (ii) in the event of liquidation, dissolution or winding-up of the Company,
to share ratably in the distribution of assets legally available therefor, after
payment of debts and expenses. The holders of Common Stock do not have
cumulative voting rights in the election of directors and have no preemptive
rights to subscribe for additional shares of capital stock of the Company. All
current outstanding shares of the Common Stock are, and the shares offered
hereby, when sold in the manner contemplated by this Prospectus will be fully
paid and nonassessable. The rights, preferences and privileges of holders of
Common Stock are subject to the terms of any series of Preferred Stock which the
Company may issue in the future.
Preferred Stock
The Company may issue up to 5,000,000 shares of Preferred Stock from
time to time as authorized by its Board of Directors in any one or more classes
or series. Subject to the provisions of the Company's Articles of Incorporation
and limitations prescribed by law, the Board of Directors is expressly
authorized to adopt resolutions to issue the shares, to fix the number of
shares, to change the number of shares constituting any series, and to provide
for or change the voting powers, designations, preferences and relative,
participating, optional or other special rights, qualifications, limitations or
restrictions thereof, including dividend rights (including whether dividends are
cumulative), dividend rates, terms of redemption (including sinking fund
provisions), redemption prices, conversion rights and liquidation preferences of
the shares constituting any class or series of the Preferred Stock, in each case
without any further action or vote by the stockholders. The Company has no
current plans to issue any shares of Preferred Stock.
Class C Warrants
There are presently 786,709 Class C Warrants outstanding. The Class C
Warrants were issued pursuant to the terms of a Warrant Agreement between the
Company and American Stock Transfer & Trust Company (the "Warrant Agent"). As
adjusted by subsequent recapitalizations of the Company, each five Class C
Warrants entitle the registered holder thereof to purchase one share of Common
Stock at an exercise price of $15.00 per share. The Class C Warrants were
initially scheduled to expire on January 31, 1990, however, the expiration date
has been extended by the Company's Board of Directors to December 31, 1997. The
exercise price and number of shares issuable upon exercise of the Class C
Warrants is subject to adjustment in the event of a recapitalization, stock
dividend, stock split or merger. The Class C Warrants can be exercised by
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<PAGE>
surrendering to the Warrant Agent a Class C Warrant Certificate signed by the
holder thereof or his duly authorized agent with the form of election to
purchase on the reverse side of the certificate completed and signed.
Surrendered Warrant Certificates must be accompanied by payment in full of the
aggregate exercise price for the Class C Warrants to be exercised, which payment
may be in the form of cash or certified check.
The Company has reserved out of its authorized but unissued shares a
sufficient number of shares for issuance upon exercise, if at all, of the Class
C Warrants. Upon issuance, the shares of Common Stock issuable upon exercise of
the Class C Warrants will be fully paid, legally issued and non-assessable.
Exercise of the Class C Warrants is not presently possible, since the exercise
thereof is not covered by a current prospectus. Management is uncertain, in view
of the exercise price of such Warrants in relation to the current trading value
of the Company's Common Stock, that the exercise of Class C Warrants will be
facilitated prior to the expiration of such Warrants on April 1, 1997.
Provisions Having a Possible Anti-Takeover Effect
Nevada General Corporation Law
Nevada's "Combinations with Interested Stockholders" statute, which
applies to a Nevada corporation having at least 200 stockholders, and
which, unless the Articles of Incorporation provide otherwise has a class of
voting shares registered under the Exchange Act, prohibits an "interested
stockholder" from entering into a "combination" with the corporation, unless
certain conditions are met. A "combination" includes (a) any merger with an
interested stockholder, (b) any consolidation, sale, lease, exchange, mortgage,
pledge, transfer or other disposition of assets, in one transaction or a series
of transactions, to an interested stockholder, having: (i) an aggregate market
value equal to 5% or more of the aggregate market value of the corporation's
assets; (ii) an aggregate market value equal to 5% or more of the aggregate
market value of all outstanding shares of the corporation; or (iii) representing
10% or more of the earning power or net income of the corporation, or (c) any
issuance or transfer of shares of the corporation or its subsidiaries to an
interested stockholder having an aggregate market value equal to 5% or more of
the aggregate market value of all the outstanding shares of the corporation. An
"interested stockholder" is a person who, together with affiliates and
associates, beneficially owns (or within the prior three years, did beneficially
own) 10% or more of the corporation's voting stock. A stockholder who owned 10%
or more of the corporation's stock on January 1, 1991 is not an interested
stockholder.
A corporation to which the statute applies may not engage in a
"combination" with the interested stockholder within three years after it
acquired its shares, unless the combination or the interested stockholder's
acquisition of the shares making the stockholder an interested stockholder was
approved by the board of directors before the interested stockholder acquired
such shares. If this prior approval is not obtained, then after the three-year
period expires, the combination may be consummated either by the approval of the
board of directors and a majority of the voting power held by disinterested
stockholders at a meeting called after expiration of the three-year period, or
if the consideration to be paid by the interested stockholder is at least equal
to the higher of: (i) the highest price per share paid by the interested
stockholder within the three years immediately preceding the date of the
announcement of the combination or in the transaction in which it became an
interested stockholder, whichever is higher, plus interest as provided in the
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<PAGE>
statute; and (ii) the market value per common share on the date of announcement
of the combination or the date the interested stockholder acquired the shares,
whichever is higher; or (iii) if higher, plus interest as provided in the
statute.
Nevada's "Acquisition of Controlling Interest" statute prohibits a
person or group owning or offering to acquire voting shares of a corporation,
under certain circumstances, from voting shares of a target corporation's stock
after crossing certain threshold ownership percentages, unless such
corporation's Articles or Bylaws are amended to make the statute inapplicable to
the acquisition or unless the acquiror obtains the approval of the target
corporation's disinterested stockholders. The statute specifies three
thresholds: at least one-fifth but less than one-third, at least one-third but
less than a majority, and a majority or more, of the outstanding voting power.
Once an acquiror crosses one of the above thresholds, shares which it acquired
in the transaction taking it over the threshold or within ninety days become
"Control Shares" which are deprived of the right to vote until a majority of the
disinterested stockholders restore that right. If an acquiror does not make
certain timely demands on the target corporation or if the stockholders fail to
restore voting rights to the acquiror, then the corporation may, if so provided
in its Articles of Incorporation or Bylaws, call certain of the acquiror's
shares for redemption. The Company's Articles of Incorporation and Bylaws do not
currently permit it to call an acquiror's shares for redemption under these
circumstances. The Acquisition of Controlling Interest statute also provides
that in the event the stockholders restore full voting rights to a holder of
Control Shares which owns a majority of the voting stock, then all other
stockholders who do not vote in favor of restoring voting rights to the Control
Shares may demand payment for the "fair value" of their shares (which is
generally equal to the highest price paid in the transaction subjecting the
stockholder to the statute). The Acquisition of Controlling Interest statute
only applies to a Nevada corporation with at least 200 stockholders, including
at least 100 record stockholders who are Nevada residents, and which does
business directly or indirectly in Nevada. As of the date of this Prospectus,
the Company does not have 100 record stockholders in Nevada and does not conduct
business in Nevada, although there can be no assurance that in the future the
Acquisition of Controlling Interest statute will not be applicable to the
Company.
The provisions described above, together with classified Board of
Directors, other provisions of the Articles of Incorporation described below,
the ability of the Board of Directors to issue Preferred Stock as described
under "Preferred Stock," and the Rights Plan may have the effect of delaying or
deterring a change in the control or management of the Company.
Articles of Incorporation
Classified Board of Directors. The Board of Directors is elected in
staggered terms, allowing each member to serve for three years, generally with
one-third of the directors to be elected each year. The classification system of
electing directors may discourage a third party from making a tender offer or
otherwise attempting to obtain control of the Company and may maintain the
incumbency of the Board of Directors, as it generally makes it more difficult
for stockholders to replace a majority of the Board of Directors.
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Undesignated Preferred Stock. One of the effects of undesignated
Preferred Stock may be to enable the Board of Directors to render more difficult
or to discourage an attempt to obtain control of the Company by means of a
tender offer, proxy contest, merger or otherwise, and thereby to protect the
continuity of the Company's management. The issuance of shares of the Preferred
Stock pursuant to the Board of Directors' authority described above may
adversely affect the rights of the holders of Common Stock. For example,
Preferred Stock issued by the Company may rank prior to the Common Stock as to
dividend rights, liquidation preference or both, may have full or limited voting
rights and may be convertible into shares of Common Stock. Accordingly, the
issuance of shares of Preferred Stock may discourage bids for the Common Stock
or may otherwise adversely affect the market price of the Common Stock.
Restrictions on Amendments to the Bylaws. The Articles of Incorporation
provide that any amendment to the Bylaws proposed by shareholders must comply
with the requirements for amendments to the Articles of Incorporation, including
the requirement that such amendment be approved by the Board of Directors. This
provision would make it difficult for a stockholder to avoid certain
anti-takeover provisions of the Bylaws by amending the Bylaws.
By-Laws
The Amended and Restated Bylaws (the "Bylaws") restrict the ability of
a stockholder to nominate a candidate for director at meeting of stockholders
unless notice of the nomination, along with specified information, is received
by the Company at least 150 days prior to date of the meeting. The Bylaws also
provide that in the event of a "change in control" of the Company, vacancies in
the Board of Directors may only be filled by the directors who were the
directors prior to the change of control. A "change in control" is defined as 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 promulgated under the Exchange
Act. Such a change in control shall be deemed to have occurred if (a) any
"person" as such term is used in Sections 13(d) and 14(d) of the Exchange Act,
other than the Company or any "person" who is a director or officer of the
Company, is or becomes the "beneficial owner" as defined in Rule 13d-3 under the
Exchange Act, directly or indirectly, of securities of the Company representing
20% or more of the combined voting power of the Company's then outstanding
securities, or (b) during any twelve month period individuals who at the
beginning of such period constitute the Board of directors of the Company cease,
for any reason, to constitute at least a majority, unless the election of each
direction who was not a director at the beginning of the period has been
approved in advance by directors representing at least two-thirds of the
directors then in office who were directors at the beginning of the period.
Rights Plan
On March 14, 1996, the Board of Directors of the Company declared a
dividend of one common stock purchase right (the "Right") for each outstanding
share of Common Stock of the Company to stockholders of record as of the close
of business on April 1, 1996 (the "Record Date") and authorized the issuance of
one Right with respect to each share of Common Stock that shall become
outstanding between the Record Date and the earliest of the Distribution Date,
the Redemption Date or the Expiration Date (as such terms are defined below);
provided, however, that Rights may be issued with respect to shares of Common
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Stock that become outstanding after the Distribution Date and prior to the
earlier of the Redemption Date or the Expiration Date under certain
circumstances. Except as described below, each Right, when exercisable, entitles
the registered holder to purchase from the Company one additional share of
Common Stock, at a price of $3.00 per share (the "Purchase Price") subject to
adjustment. The Rights were issued pursuant to a Rights Agreement dated as of
March 14, 1996 between the Company and American Stock Transfer & Trust Company,
as Rights Agent (the "Rights Agreement").
Initially, the Rights will be evidenced by the certificates for Common
Stock of the Company registered in the names of the holders thereof and not by
separate rights certificates. Subject to certain exceptions, until the earlier
of (i) such time as the Company learns that a person, alone or together with all
affiliates and associates ("Acquiring Person") has acquired the beneficial
ownership of 15% or more of the Common Stock than outstanding; or (ii) the close
of business on such date, if any, as may be designated by the Board of Directors
of the Company following the commencement of, or first public disclosure of an
intent to commence, a tender or exchange offer by any person for outstanding
Common Stock if, upon consummation of such tender or exchange offer, such person
would be the beneficial owner of 15% or more of the outstanding Common Stock
(the close of business on the earlier of such dates being the "Distribution
Date"), no separate rights certificates will be distributed and the Rights,
including the right to receive rights certificates, will be transferable only in
connection with the transfer of Common Stock. As soon as practicable following
the Distribution Date, separate certificates evidencing the Rights ("Rights
Certificate") will be mailed to the holders of record of the Common Stock as of
the Distribution Date and, thereafter, the Rights will be evidenced solely by
such Rights Certificates.
The Rights Agreement provides that, until the earliest of the
Distribution Date, the close of business on October 31, 2005 (the "Expiration
Date") or any day set by the Board of Directors of the Company for the
redemption of all then outstanding Rights (the "Redemption Date"), the Rights
shall be evidenced by the certificates representing the common stock and will be
transferred with the common stock.
At any time prior to the earlier of (i) such time as a person becomes
an Acquiring Person and (ii) the Expiration Date, the Board of Directors of the
Company may order the redemption of all, but not fewer than all, the then
outstanding Rights at a price of $.01 per Right or at a price adjusted by the
Board of Directors of the Company in accordance with the Rights Agreement (the
"Redemption Price") which may, at the option of the Company, be paid in cash or
common stock or other securities of the Company deemed by the Board of Directors
of the Company, in its sole discretion, to be at least equivalent in value to
the Redemption Price. Immediately upon the Board of Directors of the Company
ordering redemption of the Rights, the Rights will terminate and the only Right
thereafter of the holder of the Right shall be to receive the Redemption Price.
Until a Right is exercised, the holder thereof shall not be deemed for
any purpose the holder of the Common Stock, or of any other securities of the
Company which may at any time be issuable upon the exercise of the Rights, and
will have no rights as a stockholder of the Company, including, without
limitation, the right to vote or receive dividends.
58
<PAGE>
The Rights will cause substantial dilution to a person or group that
attempts to acquire the Company without conditioning the offer on the Rights
being redeemed or a substantial number of Rights being acquired, and under
certain circumstances the Rights beneficially owned by such a person or group
may become void. The Rights should not interfere with any merger or other
business combination approved by the Board of Directors of the Company because,
if the Rights would become exercisable as a result of such merger or other
business combination, the Board of Directors may, at its option, prior to the
time that any person becoming an Acquiring Person, redeem all, but not less than
all, of the then outstanding Rights at the Redemption Price.
The foregoing provisions of the Rights Plan could delay or frustrate
the removal of incumbent directors or the assumption of control by the holder of
a large block of Common Stock even if such removal or assumption would be
beneficial, in the short-term, to stockholders of the Company. The provisions
could discourage or make more difficult a merger, tender offer or proxy contest
even if such event would be favorable to the interests of stockholders.
Indemnification and Directors' and Officers' Insurance
The Company's Articles of Incorporation and Bylaws, taken in
conjunction, provide that the Company shall, to the full extent permitted
by the Nevada General Corporation Law, indemnify all persons whom it has the
power to indemnify pursuant thereto, including officers and directors of the
Company. In addition, the Articles of Incorporation authorize the Company to
maintain insurance to cover such liabilities. The Company recently purchased
Directors' and Officers' Liability Insurance to protect directors and officers
of the Company from any liability asserted against them for acts taken or
omissions occurring in their capacities as such. The Company policy has an
aggregate liability limit of $2,000,000, at an annual cost of $45,250. The
Company is not required to maintain such insurance and there can be no assurance
that the Company will continue to maintain such insurance or coverage in such
amounts.
Transfer Agent
The Transfer Agent for the Common Stock is American Stock Transfer &
Trust Company.
59
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have 7,138,863
shares of Common Stock outstanding. Of these shares, a total of approximately
5,389,913 shares will be tradable without restriction or further registration
under the Securities Act. The remaining 1,748,950 shares of Common Stock are
considered "restricted securities" for the purpose of Rule 144 under the
Securities Act and may only be sold if they are registered under the Securities
Act or if an exemption from such registration is available. All of the Company's
directors and executive officers, and Limeport, have agreed not to sell,
otherwise dispose of, or pledge any shares of the Common Stock for 180 days
after the date of this Prospectus (the "Lock-Up Period") without the prior
written consent of Janney Montgomery Scott Inc. The Lock-Up Period will not
apply to the Common Stock offered by Limeport as a Selling Stockholder.
In general, under Rule 144, as it will be in effect as of April 29,
1997, any affiliate of the Company or any person (or persons whose shares are
aggregated) who has beneficially owned restricted securities for at least one
year, but less than 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 Common Stock for the four calendar weeks preceding the sale. Sales
under Rule 144 are also subject to certain requirements relating to manner of
sale, notice and 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 two years are entitled to
sell restricted securities under Rule 144(k) without regard to the volume,
manner of sale, notice and public information requirements of Rule 144.
Following expiration of the Lock-Up Period, 174,111 of the restricted
securities will be eligible for public resale either in accordance with Rule 144
or by operation of the applicable registration rights agreements between the
holder of such restricted securities and the Company. Of the remaining
restricted securities, 1,262,528 may not be sold until April 30, 1998, and
312,311 shares may not be sold until August 30, 1998, each pursuant to certain
registration rights arrangements with the Company.
Sales of additional shares in the public market could also occur upon
the exercise of existing stock options and Class C Warrants. The sales could
take place prior to the expiration of the Lock-Up Period.
The Company is unable to predict the effect, if any, that future sales
of shares, or the availability of shares for future sale, will have on the
market price for the Common Stock prevailing from time to time. Sales of
substantial amounts of Common Stock, or the perception that such influx of
shares into the market could occur, could adversely affect the market price for
the Common Stock and could impair the Company's future ability to obtain capital
through offerings of equity securities.
60
<PAGE>
Registration Rights
The Company has granted certain registration rights to the holders of
1,925,763 shares of Common Stock. 276,625 of these shares were issued in a
private placement transaction in February 1996 to Limeport (the "Limeport
Shares"), 1,300,000 Shares were issued in connection with the acquisition of
Consortium in March 1996 (the "Consortium Shares"), and 2,500 shares were issued
in connection with the acquisition of PSI in September 1996 (the "PSI Shares").
138,313 of the Limeport Shares, 36,000 of the Consortium Shares and all of the
PSI Shares have been included for sale within this Prospectus. Pursuant to these
rights, the Company has agreed to use its best efforts to, on or before 120 days
after the date of this Prospectus file with the Commission a registration
statement permitting the resale of the remainder of the Limeport Shares and the
Consortium Shares no sooner than 180 days after the date of this Prospectus. The
holders of the remaining Consortium Shares, however, have agreed to certain
limitations upon the resale of these shares as follows: (i) through March 11,
1998, resale shall be limited to only those shares with an aggregate value of
$300,000; (ii) from March 11, 1998 to March 11, 1999, resales shall be limited
to that number of shares that could have been sold during this period under Rule
144 (as that Rule was in effect as of the closing of such transaction in March
1996); however, no greater than 50,000 shares per week per holder; and (iii)
after March 11, 1999, resales are unlimited.
The Company has also granted registration rights effective March 2,
1998 covering the resale of the 34,327 shares issued in connection with the
acquisition of Consort MD and commencing August 30, 1998, covering the resale
of up to 312,311 shares of Common Stock issued in connection with the
acquisition of Cataract in August 1995.
Lock-Up Agreement
The Company and all of the executive officers, directors and Limeport,
upon consummation of this Offering, have agreed with the Underwriters not to
sell, otherwise dispose of or pledge any shares of Common Stock for a period of
180 days after the date of this Prospectus without the prior written consent of
Janney Montgomery Scott Inc.
61
<PAGE>
UNDERWRITING
The Underwriters named below, acting through their Representatives,
Janney Montgomery Scott Inc. and Legg Mason Wood Walker, Incorporated (the
"Representatives") have severally agreed, subject to the terms and conditions of
the Underwriting Agreement, to purchase a total of 2,323,187 shares of Common
Stock from the Company and 176,813 shares of Common Stock from the Selling
Stockholders. The number of shares of Common Stock that each Underwriter has
agreed to purchase is set forth opposite its name below. The Underwriters are
committed to purchase all of such shares if any are purchased. Under certain
circumstances the commitments of non-defaulting Underwriters may be increased.
The names of the several Underwriters and the respective number of shares to be
purchased by each of them are as follows:
Number
Underwriter of Shares
----------- ---------
Janney Montgomery Scott Inc..............................
-----------
Legg Mason Wood Walker Incorporated......................
-----------
TOTAL................................................ 2,500,000
===========
The Underwriters propose to offer the shares of Common Stock to the
public initially at the offering price per share set forth on the cover page of
this Prospectus and to certain dealers at such price less a concession not in
excess of $____ per share, and the Underwriters may allow, and such dealers may
reallow, a concession not in excess of $___ per share on sales to other dealers.
After the commencement of the public offering of the shares of Common Stock, the
offering price and concession may be changed.
The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities which may be incurred in
connection with the Offering, including liabilities under the Securities Act.
The Company has granted an option to the Underwriters, exercisable
during the 30-day period after the date of this Prospectus, to purchase up to an
aggregate of 375,000 shares of Common Stock from the Company at the same price
per share as the public offering price. The Underwriters may exercise such
option only to cover over-allotments in the sale of the shares of Common Stock
62
<PAGE>
that the Underwriters have agreed to purchase. To the extent the Underwriters
exercise this option, each of the Underwriters has a firm commitment, subject to
certain conditions, to purchase the same percentage of the option shares as the
number of shares to be purchased and offered by that Underwriter as shown in the
above table bears to the 2,500,000 shares of Common Stock initially offered
hereby.
All of the directors and executive officers of the Company, and
Limeport have agreed with the Representatives not to sell or dispose of any
shares owned by them without the consent of the Representatives for a period of
180 days after the date of this Prospectus. See "Shares Eligible for Future
Sale."
In connection with this Offering, certain Underwriters may engage in
passive market making transactions in the Common Stock on The Nasdaq SmallCap
Market in accordance with Regulation M under the Securities Exchange Act of
1934, as amended, during the two business day period before the commencement of
offers of sales of the Common Stock. Passive market makers must comply with
applicable volume and price limitations and must be identified as such. In
general, a passive market maker must display its bid at a price not in excess of
the highest independent bid for such security; if all independent bids are
lowered below the passive market maker's bid, however, such bid must then be
lowered when certain purchase limits are exceeded.
Until the distribution of the Common Stock is completed, rules of the
Commission may limit the ability of the Underwriters and certain Selling
Stockholders, if any, to bid for and purchase the Common Stock. As an exception
to these rules, the Representatives are permitted to engage in certain
transactions that stabilize the price of the Common Stock. Such transactions may
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of the Common Stock.
If Underwriters create a short position in the Common Stock in
connection with the offering thereof (i.e., if they sell more shares of Common
Stock than are set forth on the cover page of the Prospectus), the
Representatives may reduce that short position by purchasing Common Stock in the
open market. The Representatives also may elect to reduce any short position by
exercising all or part of the over-allotment option described in the Prospectus.
The Representatives also may impose a penalty bid on certain
Underwriters and selling group members. This means that if the Representatives
purchase Common Stock in the open market to reduce the Underwriters' short
position or to stabilize the price of the Common Stock, they may reclaim the
amount of the selling concession from the Underwriters and selling group members
who sold those shares as part of this Offering.
In general, purchases of Common Stock for the purpose of stabilization
or to reduce a syndicate short position could cause the price of the Common
Stock to be higher than it might otherwise be in the absence of such purchases.
The imposition of a penalty bid might have an effect on the price of the Common
Stock to the extent that it were to discourage resales of the Common Stock by
purchasers in this Offering.
Neither the Company nor the Underwriters make any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Common Stock. In addition, neither
63
<PAGE>
the Company nor the Underwriters make any representation that the
Representatives will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
LEGAL MATTERS
The validity of the Common Stock offered hereby has been passed upon
for the Company by Buchanan Ingersoll Professional Corporation, Philadelphia,
Pennsylvania. As to matters of Nevada law, Buchanan Ingersoll Professional
Corporation has relied upon the opinion of Schreck Morris, Las Vegas, Nevada.
Certain legal matters in connection with this Offering will be passed upon for
the Underwriters by Wolf, Block, Schorr and Solis-Cohen, Philadelphia,
Pennsylvania.
EXPERTS
The financial statements as of October 31, 1996 and 1995 and for each
of the three years in the period ended October 31, 1996 included in this
Prospectus have been audited by Grant Thornton LLP, independent certified public
accountants, whose report thereon is included herein, in reliance of said firm
as experts in auditing and accounting.
AVAILABLE INFORMATION
The Company is subject to the informational and reporting requirements
of the Securities Exchange Act of 1934, as amended, and in accordance therewith
files reports, proxy statements and other information with the Commission. Such
reports, proxy statements and other information concerning the Company may be
inspected without charge, and copies of all or any part thereof may be obtained
from the Commission's principal office in Washington, D.C. at Room 1024, 450
Fifth Street N.W., Washington, D.C. 20549, and at the Commission's regional
offices at 7 World Trade Center, Suite 1300, New York, New York 10048, and at
Northwest Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such materials can be obtained upon written request addressed
to the Commission, Public Reference Section, 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates. In addition, the Commission maintains a Web
site at http://www.sec.gov containing reports, proxy and information statements
and other information regarding registrants that file electronically with the
Commission, including the Company.
The Company has filed with the Commission a Registration Statement on
Form S-1 under the Securities Act with respect to the shares of Common Stock
being offered by this Prospectus. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto, certain parts of which have been omitted as permitted by the
rules and regulations of the Commission. For further information with respect to
the Company and the shares of Common Stock offered hereby, reference is made to
the Registration Statement, including the exhibits and schedules thereto.
Statements contained in this Prospectus as to the contents of any contract or
other document referred to herein are not necessarily complete and, where such
contract or other document is an exhibit to the Registration Statement, each
such statement is qualified in all respects by the provisions of such exhibit,
to which reference is hereby made.
64
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page Reference
--------------
<S> <C>
Pro Forma Condensed Consolidated Financial Statements (Unaudited):
Pro Forma Condensed Consolidated Statement of Operations:
Year Ended October 31, 1996............................................................ F-1
Three Months Ended January 31, 1996.................................................... F-2
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements............... F-3
Consolidated Financial Statements:
Independent Auditors' Report............................................................... F-6
Consolidated Balance Sheets
October 31, 1995, 1996 and January 31, 1997 (Unaudited)................................ F-7
Consolidated Statements of Income
Years ended October 31, 1994, 1995 and 1996
and the three months ended January 31, 1996 and 1997 (Unaudited)....................... F-9
Consolidated Statements of Changes in Shareholders' Equity Years ended
October 31, 1994, 1995 and 1996
and the three months ended January 31, 1997 (Unaudited)................................ F-10
Consolidated Statements of Cash Flows
Years ended October 31, 1994, 1995 and 1996
and the three months ended January 31, 1996 and 1997 (Unaudited)....................... F-11
Notes to Consolidated Financial Statements................................................. F-13
Schedules ................................................................................. F-26
</TABLE>
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
YEAR ENDED OCTOBER 31, 1996
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Acquired
Historical Companies Adjustments Pro Forma
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues $61,039 $23,626 $84,665
------- ------- -------
Operating Expenses
Cost of services 48,780 16,738 65,518
Selling, General
and Administrative 8,914 5,363 (220) (a) 13,957
(100) (b)
Depreciation and amortization 330 15 130 (c) 475
Total operating expenses 58,024 22,116 79,950
------- ------- -------
Operating income 3,015 1,510 4,715
Other expense (194) 4 (d) (190)
------- -------
Income before taxes 2,821 1,510 4,525
Income taxes 453 384 (e) 837
------- ----- -------
Net Income $2,368 $1,510 ($190) $3,688
====== ====== ===== ======
Earnings per common share $0.55 $.067
===== =====
Weighted average number of
shares outstanding 4,320,571 5,513,968
========= =========
</TABLE>
See notes to pro forma condensed consolidated financial statement.
F-1
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED JANUARY 31, 1996
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Acquired
Historical Companies Adjustments Pro Forma
---------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues $9,777 $9,295 $19,072
------ ------ -------
Operating Expenses
Cost of services 7,989 6,945 14,931
Selling, General
and Administrative 1,144 2,230 (220) (a) 3,079
(75) (b)
Depreciation and amortization 55 31 33 (c) 119
Total operating expenses 9,185 9,206 18,129
------ ------ -------
Operating income 592 89 943
Other expense (31) (31)
------ ------ -------
Income before taxes 561 89 912
Income taxes 59 116 (e) 175
------ --- -------
Net Income $ 502 $ 89 $ 146 737
====== ====== ====== =======
Earnings per common share $ 0.15 $ 0.14
====== =======
Weighted average number of
shares outstanding 3,276,627 5,318,570
========= =========
</TABLE>
See notes to pro forma condensed consolidated financial statement.
F-2
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(1) Basis of Presentation
The accompanying unaudited pro forma condensed consolidated financial
statements (the "Pro Forma Financial Statements") are based on adjustments
to the historical consolidated financial statements of RCM Technologies,
Inc. ("RCM" or the "Company") to give effect to the acquisitions described
in Note 3 (the "Acquired Companies"). The pro forma condensed consolidated
statements of operations assume all acquisitions described in Note 3 were
consummated as of the November 1, 1995 (beginning of the fiscal year ended
October 31, 1996). The pro forma consolidated statements of income also
reflect the assumed issuance of 640,815 shares of Common Stock (at an
estimated public offering price of $9.25 per share) which, net of estimated
underwriting discounts and offering expenses payable by the Company, would
result in sufficient net proceeds to repay acquisition related debt. These
shares are assumed to have been issued and debt repaid, at the beginning of
the periods presented, and thus interest expense attributable to such debt
has been eliminated. The pro forma condensed consolidated statements of
operations are not necessarily indicative of results that would have
occurred had the acquisitions been consummated as of the beginning of the
periods presented or that might be attained in the future. Certain
information normally included in financial statements prepared in
accordance with generally accepted accounting principles has been condensed
or omitted pursuant to the rules and regulations of the Securities and
Exchange Commission. The Pro Forma Financial Statements should be read in
conjunction with the historical consolidated financial statements of RCM,
and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this Prospectus.
(2) Earnings Per Share
Pro forma earnings per share were computed by dividing net income
applicable to common stock by the average number of shares of common stock
and common stock equivalents outstanding during the period and the dilutive
effect of common stock issued in connection with the acquisition of the
Acquired Companies.
(3) Acquisitions
The Consortium ("Consortium"). In March 1996, the Company acquired all
of the outstanding stock of Consortium for 1.3 million restricted shares of the
Company's Common Stock. Consortium generated revenues of approximately $26.0
million during its fiscal year ended December 31, 1995. Through this
transaction, the Company acquired five branch offices which provide information
technology, healthcare and general support staffing services.
The Consortium of Maryland, Inc. ("Consort MD"). In May 1996, the
Company acquired all of the outstanding stock of Consort MD for $621,500 cash
F-3
<PAGE>
and 34,327 restricted shares of the Company's Common Stock, plus additional
acquisition consideration consisting of additional shares of restricted stock
having a value equal to approximately $250,000, based upon a post-closing
verification of financial data warranted at closing. Consort MD generated
revenues of approximately $6.0 million during its fiscal year ended December 31,
1995. Through this transaction, the Company acquired one branch office, which
provides information technology staffing services.
Performance Staffing, Inc. ("PSI"). In September 1996, the Company
acquired the operating assets of PSI for 2,500 restricted shares of the
Company's Common Stock, and in connection therewith, assumed approximately
$110,000 of PSI's debt. PSI generated revenues of approximately $2.0 million
during its fiscal year ended December 31, 1995. Through this transaction, the
Company acquired three branch offices which provide engineering and general
support staffing services.
Programming Alternatives of Minnesota, Inc. ("PAMI"). Effective as of
November 4, 1996, the Company acquired all of the outstanding stock of PAMI for
approximately $4.5 million cash plus $1.6 million of contingent consideration in
the form of a three year promissory note payable upon attaining certain earnings
targets within the three-year period. The Company also agreed to pay certain
bonus consideration to the former PAMI shareholder in the event that during the
three-year earn-out period, the performance of PAMI exceeds the established
earnings targets. PAMI generated revenues of approximately $10.0 million during
its fiscal year ended December 31, 1996. Through this transaction, the Company
acquired one branch office which provides information technology staffing
services.
(4) Adjustments to Historical Financial Statements
The following pro forma adjustments have been made to the historical statements
of operations as if all acquisitions described in Note 3 were consummated as of
the beginning of the periods presented:
(a) To reduce salaries for the difference between compensation of certain
sellers prior to consummation of the acquisitions and their
compensation following the acquisitions as stipulated in their
respective employment agreements with RCM.
(b) To reflect the elimination of redundant operating costs and non
recurring expenses that were immediately identifiable at the time of
the acquisitions.
(c) To reflect amortization of goodwill related to the purchase of the
Acquired Companies, which is being amortized on a straight-line basis
over 40 years.
(d) To reflect elimination of interest expense on the note payable assumed
to be repaid with the offering proceeds.
F-4
<PAGE>
(e) To reflect the change in income taxes related to pro forma adjustments,
and (ii) income taxes on Acquired Companies that were S corporations as
if they were C corporations for federal and state income tax purposes.
F-5
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
RCM Technologies, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of RCM
Technologies, Inc. (a Nevada corporation) and Subsidiaries 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 4, regarding the acquisition of
Programming Alternatives of Minnesota, Inc., as to which the date is
January 7, 1997)
F-6
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
October 31, January 31,
------------------ -----------
1995 1996 1997
---- ---- ----
(Unaudited)
Current assets
<S> <C> <C> <C>
Cash and cash equivalents........................................... $ 297,550 $ 5,989 $ 124,856
Accounts receivable, net of allowance for doubtful accounts
of $15,000 - 1995; $76,000 - 1996; $157,000 - 1997................ 5,133,662 13,985,445 14,749,871
Prepaid expenses and other current assets........................... 671,662 404,198 672,064
----------- ----------- -----------
Total current assets.............................................. 6,102,874 14,395,632 15,546,791
----------- ----------- -----------
Property and equipment, at cost
Equipment and leasehold improvements................................ 1,208,317 1,644,831 1,975,849
Less: accumulated depreciation and amortization..................... 763,966 1,142,740 1,199,043
----------- ----------- -----------
444,351 502,091 776,806
----------- ----------- -----------
Other assets
Deposits............................................................ 43,074 88,039 83,706
Intangible assets (net of accumulated amortization
of $73,492, $366,337 and $453,444 in 1995, 1996 and 1997,
respectively)..................................................... 3,711,256 9,420,858 13,783,573
----------- ----------- -----------
3,754,330 9,508,897 13,867,279
----------- ----------- -----------
Total assets.................................................. $10,301,555 $24,406,620 $30,190,876
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - CONTINUED
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
October 31, January 31,
---------------------- -----------
1995 1996 1997
---- ---- ----
(Unaudited)
Current liabilities
<S> <C> <C> <C>
Note payable - bank................................................. $ 914,435 $ 2,746,636 $ 7,000,000
Accounts payable and accrued expenses............................... 472,107 734,791 882,157
Accrued payroll..................................................... 1,182,934 2,789,725 2,949,932
Taxes other than income taxes....................................... 205,494 432,607 712,023
Income taxes payable................................................ 920,439 1,083,355
----------- ----------- ------------
Total current liabilities......................................... 2,774,970 7,624,198 12,627,467
----------- ----------- ------------
Income taxes payable................................................... 562,312 562,312
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;
3,255,024 shares issued in 1995 and 4,878,476 shares
issued in 1996 and 1997, respectively............................. 162,751 243,924 243,924
Additional paid-in capital.......................................... 10,916,692 17,161,105 17,161,105
Treasury stock, at cost 62,800 shares............................... ( 62,821) ( 62,821) ( 62,821)
Accumulated deficit................................................. ( 3,490,037) ( 1,122,098) ( 341,111)
----------- ----------- ------------
7,526,585 16,220,110 17,001,097
----------- ----------- ------------
Total liabilities and shareholders' equity.................... $10,301,555 $24,406,620 $30,190,876
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended
------------------
Years Ended October 31, January 31,
----------------------- -----------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues.................................... $29,238,995 $26,915,737 $61,039,173 $9,776,507 $21,150,721
----------- ----------- ----------- ---------- -----------
Operating costs and expenses
Cost of services......................... 23,863,889 22,378,817 48,779,886 7,985,878 16,051,317
Selling, general and administrative...... 3,674,102 3,549,810 8,914,102 1,144,116 3,625,653
Depreciation and amortization ........... 93,141 130,397 329,680 54,970 118,629
----------- ----------- ----------- ---------- -----------
27,631,132 26,059,024 58,023,668 9,184,964 19,795,599
----------- ----------- ----------- ---------- -----------
Operating income............................ 1,607,863 856,713 3,015,505 591,543 1,355,122
Other income (expense)
Interest expense......................... ( 34,196) ( 38,158) ( 163,811) ( 24,901) ( 90,189)
Other, net............................... 39,381 124,050 ( 30,216) ( 6,030) 5,388
----------- ----------- ----------- ---------- -----------
5,185 85,892 ( 194,027) ( 30,931) ( 84,801)
----------- ----------- ----------- ---------- -----------
Income before income taxes.................. 1,613,048 942,605 2,821,478 560,612 1,270,321
Income taxes................................ 187,043 93,500 453,539 58,749 489,334
----------- ----------- ----------- ---------- -----------
Net income.................................. $ 1,426,005 $ 849,105 $ 2,367,939 $ 501,863 $ 780,987
=========== =========== =========== ========== ===========
Net income per share........................ $.49 $.28 $.55 $.15 $.16
==== ==== ==== ==== ====
Weighted average number of
shares outstanding....................... 2,930,276 3,007,969 4,320,571 3,276,627 4,970,620
=========== =========== =========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED OCTOBER 31, 1994, 1995, 1996 AND
THREE MONTHS ENDED JANUARY 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
Common Stock Additional
------------------------ Paid-in Accumulated Treasury
Shares Amount Capital Deficit Stock
------ ------ ----------- ----------- ---------
<S> <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)
Net Income (Unaudited)......................... 780,987
---------- -------- ----------- ----------- --------
Balance, January 31, 1997 (Unaudited).......... 4,878,476 $243,924 $17,161,105 ($ 341,111) ($62,821)
========== ======== =========== =========== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-10
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
------------------
Years Ended October 31, January 31,
----------------------- -----------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
(Unaudited) (Unaudited)
Cash flows from operating activities:
<S> <C> <C> <C> <C> <C>
Net income .............................. $1,426,005 $ 849,105 $2,367,939 $501,863 $ 780,987
---------- ---------- ---------- -------- ----------
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization........ 93,141 130,397 329,680 54,970 118,629
Provision for losses on accounts
receivable......................... 5,000 61,000 81,000
Changes in assets and liabilities:
Accounts receivable................ 286,638 854,552 (8,522,460) 6,031 278,442
Prepaid expenses and other
current assets................... ( 11,443) ( 405,116) 267,464 ( 81,856) ( 246,776)
Accounts payable and
accrued expenses................. ( 3,807) ( 10,064) 262,684 (190,834) ( 76,269)
Accrued payroll.................... 36,325 ( 151,348) 1,606,791 (245,606) ( 215,376)
Billings in excess of costs and
estimated earnings............... ( 157,509) ( 148,229)
Taxes other than income taxes...... 1,827 ( 18,938) 227,113 283,621 227,921
Income taxes payable............... 1,482,751 58,749 162,914
---------- ---------- ---------- -------- ----------
Total Adjustments........................... 250,172 251,254 (4,284,977) (114,925) 330,485
---------- ---------- ---------- -------- ----------
Net cash provided by (used in)
operating activities..................... 1,676,177 1,100,359 (1,917,038) 386,938 1,111,472
---------- ---------- ---------- -------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-11
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
<TABLE>
<CAPTION>
Three Months Ended
------------------
Years Ended October 31, January 31,
----------------------- -----------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
(Unaudited) (Unaudited)
Cash flows from investing activities:
<S> <C> <C> <C> <C> <C>
Property and equipment acquired.......... ( 20,619) ( 68,189) ( 128,264) ( 29,049) ( 80,546)
(Increase) decrease in deposits.......... ( 557) ( 6,643) ( 44,965) ( 4,422) 4,333
Cash paid for acquisitions,
net of cash acquired ................. (2,345,966) (1,049,433) (5,012,394)
Increase in intangible assets............ ( 5,065) ( 137,272)
---------- ---------- ---------- -------- ----------
Net cash used in investing activities.. ( 21,176) (2,420,798) (1,222,662) ( 38,536) (5,225,879)
---------- ---------- ---------- -------- ----------
Cash flows from financing activities:
Net borrowing (repayments) under
short term debt arrangements......... ( 4,703) 176,278 1,832,201 ( 489,796) 4,253,364
Repayments of long term debt........... ( 35,228) (1,092,362) ( 28,890) ( 20,090)
Sale of common stock................... 1,000,000
Exercise of stock options.............. 5,468 15,938 438
---------- ---------- ---------- -------- ----------
Net cash provided by (used in)
financing activities................... ( 34,463) ( 916,084) 2,848,139 ( 518,248) 4,233,274
---------- ---------- ---------- -------- ----------
Net increase (decrease) in cash
and cash equivalents.................... 1,620,538 (2,236,523) ( 291,561) ( 169,846) 118,867
Cash and cash equivalents at
beginning of year........................ 913,535 2,534,073 297,550 297,550 5,989
---------- ---------- ---------- -------- ----------
Cash and cash equivalents at end of year.... $2,534,073 $ 297,550 $ 5,989 $ 127,704 $ 124,856
========== ========== ========== ========= ==========
Supplemental cash flow information:
Cash paid for:
Interest expense....................... $ 34,196 $ 36,738 $ 163,811 $ 24,901 $ 90,189
Income taxes........................... $ 123,049 $ 220,498 $ 726,332 $ 197,438
Acquisitions:
Fair value of assets acquired........ $5,218,694 $7,302,476 $5,641,380
Liabilities assumed.................. 2,872,728 6,253,043 628,986
---------- ---------- ----------
Cash paid, net of cash acquired...... $2,345,966 $1,049,433 $5,012,394
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-12
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts and Disclosures at and for the Three Months
Ended January 31, 1996 and 1997 Are Unaudited)
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.
Interim Unaudited Financial Information
The accompanying interim unaudited consolidated financial statements have
been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission (SEC). Certain information and footnote
disclosures which are normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed
or omitted pursuant to SEC rules and regulations, although management
believes that the disclosures are adequate to make the information presented
not misleading. The information reflects all normal and recurring adjustments
which, in the opinion of Management, are necessary for a fair presentation of
the financial position of the Company and its results of operations for the
interim periods set forth herein. The results for the three months ended
January 31, 1997 are not necessarily indicative of the results to be expected
for the full year.
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.
F-13
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts and Disclosures at and for the Three Months
Ended January 31, 1996 and 1997 Are Unaudited)
1. Summary of Significant Accounting Policies - (Continued)
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, 1994, 1995 and 1996 and for the
three months ended January 31, 1996 and 1997.
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.
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 periods. No further dilution
resulted from a computation of fully diluted earnings per share.
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 1994, 1995 and 1996 was $4,136; $48,928 and
$211,337, respectively. Amortization expense for the three months ended
January 31, 1996 and 1997 was $29,100 and $87,107, 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.
F-14
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts and Disclosures at and for the Three Months
Ended January 31, 1996 and 1997 Are Unaudited)
1. Summary of Significant Accounting Policies - (Continued)
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 and the Company does not anticipate that this statement will have a
material impact on the financial statements.
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.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128 ("Statement 128"), Earnings per Share. This
statement requires the presentation of basic earnings per share and, if
applicable, diluted earnings per share, instead of primary and fully diluted
earnings per share required under Accounting Principles Board Opinion No. 15.
("Opinion No. 15"). Had the principles of Statement 128 been applied for the
year ended October 31, 1996, and the three months ended January 31, 1997,
basic earning per share would have been $.56 and $.16, respectively, and
diluted earnings per share would have been $.55 and $.16, respectively.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 129 ("Statement 129"), Disclosure of Information
About Capital Structure. The Company does not anticipate that Statement 129
will have a material impact on the financial statements.
Supplemental Pro Forma Net Income and Net Income Per Share (Unaudited)
The Company's supplemental pro forma net income and net income per share for
the year ended October 31, 1996, and the three months ended January 31, 1997,
are $2,553,000 and $835,000 and $.54 and $.15, respectively.
The supplemental pro forma net income and net income per share reflect the
issuance of shares necessary to retire $2,747,000 and $5,000,000 of notes
payable at October 31, 1996, and January 31, 1997, respectively, and the
resulting increase in net income in the amount of $185,000 and $54,000 for
the year ended October 31, 1996, and the three months ended January 31, 1997,
respectively, as of the beginning of 1996. The calculation is based on the
weighted average shares outstanding used in the calculation of net income per
share, adjusted for the estimated shares that would be issued by the Company,
i.e. 401,837 and 689,600 shares for year ended October 31, 1996, and three
months ended January 31, 1997, respectively, at an estimated offering price
of $8.38 per share, to retire these obligations.
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.
F-15
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts and Disclosures at and for the Three Months
Ended January 31, 1996 and 1997 Are Unaudited)
2. Stock Split - (Continued)
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
Three Years Ended October 31, 1996
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 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.
F-16
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts and Disclosures at and for the Three Months
Ended January 31, 1996 and 1997 Are Unaudited)
4. Acquisitions - (Continued)
Three Years Ended October 31, 1996 - (Continued)
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 Company. 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 Company's Board of Directors on
behalf of the former shareholders of Cataract, Inc.
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."
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.
F-17
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts and Disclosures at and for the Three Months
Ended January 31, 1996 and 1997 Are Unaudited)
4. Acquisitions - (Continued)
Three Years Ended October 31, 1996 - (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.
Year Ended October 31,
----------------------
1995 1996
---- ----
Revenues................................ $77,883,000 $75,075,000
Net income.............................. $ 2,059,000 $ 2,764,000
Income per common share................. $.45 $.57
Three Months Ended January 31, 1997
On January 7, 1997, the Company acquired Programming Alternatives of
Minnesota, Inc. ("PAMI"), a Minneapolis, Minnesota-based specialty provider
of information technology personnel, particularly those with high demand
client-server skills. The acquisition was completed effective as of November
4, 1996 through a stock purchase transaction (the "Purchase") pursuant to
which PAMI became a wholly-owned subsidiary of the Company.
The Purchase consideration paid to the former shareholders of PAMI consisted
of $4,490,000 cash and a $1,625,000 three year promissory note payable
contingent upon PAMI achieving certain base levels of operating income for
each twelve month period following the Purchase, for a period of three years.
An additional earn-out payment, to be recorded as additional purchase price,
may be made to the former shareholders at the end of the third anniversary of
the Purchase to the extent that operating income exceeds these base levels.
The acquisition has been accounted for under the purchase method of
accounting. The cost in excess of net assets acquired of $4,483,331 is
included in the Company's Consolidated Balance Sheet as "Intangible Assets"
and is being amortized over a 40 year period.
The following unaudited results of operations have been prepared assuming the
acquisition had occurred at November 1, 1995. Those results are not
necessarily indicative of results of future operations nor of results that
would have occurred had the acquisition been consummated at November 1, 1995.
Three Months Ended
------------------
January 31,
-----------
1996
----
Revenues............................................ $19,072,000
Income before income taxes.......................... $ 1,244,000
Net income.......................................... $ 746,000
Income per common share............................. $.16
F-18
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts and Disclosures at and for the Three Months
Ended January 31, 1996 and 1997 Are Unaudited)
5. Property and Equipment
Property and equipment is comprised of the following:
<TABLE>
<CAPTION>
October 31, January 31,
------------------- -----------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Office equipment............................................... $1,017,197 $1,453,711 $1,784,729
Capitalized lease.............................................. 174,873 174,873 174,873
Leasehold improvements......................................... 16,247 16,247 16,247
---------- ---------- ----------
1,208,317 1,644,831 1,975,849
Less: accumulated depreciation and amortization................ 763,966 1,142,740 1,199,043
---------- ---------- ----------
$ 444,351 $ 502,091 $ 776,806
========== ========== ==========
</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, 1995 and 1996 was at the prime rate (effective rate of 8.75% and
8.25%, 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 weighted
average interest rate charged by the bank, under the amended and restated
agreement, based on the London Interbank Offered Rate ("LIBOR") plus 2.25%,
was 7.82% at January 31, 1997.
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.
F-19
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts and Disclosures at and for the Three Months
Ended January 31, 1996 and 1997 Are Unaudited)
8. Shareholders' Equity
Common shares reserved
Shares of unissued common stock were reserved for the following purposes:
<TABLE>
<CAPTION>
October 31, January 31,
-------------------- -----------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Exercise of warrants.............................................. 157,342 157,342 157,342
Exercise of options outstanding................................... 163,300 214,400 714,400
Future grants of options.......................................... 74,100 760,300 762,700
------- --------- ---------
Total ............................................................ 394,742 1,132,042 1,634,442
======= ========= =========
</TABLE>
Warrants
At October 31, 1995 and 1996, and January 31, 1997, 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.
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 1,250,000 (effective January 15,
1997) 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, of which
375,000 options are not presently exercisable.
F-20
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts and Disclosures at and for the Three Months
Ended January 31, 1996 and 1997 Are Unaudited)
8. Shareholders' Equity - (Continued)
Transactions related to all stock options are as follows:
<TABLE>
<CAPTION>
Year Ended Three Months Ended
---------- ------------------
October 31, January 31,
--------------------------------- -----------
1994 1995 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Outstanding options, beginning...................... 106,000 173,300 163,300 214,400
Granted............................................. 80,000 50,300 61,100 500,000
Forfeited........................................... ( 7,700) ( 60,300)
Exercised........................................... ( 5,000) ( 10,000)
-------- --------- -------- -------
Outstanding options, end of period.................. 173,300 163,300 214,400 714,400
======= ======= ======= =======
Exercisable options ................................ 93,300 87,000 141,300 266,300
======= ======= ======= =======
Option grant price per share........................ $1.09 $1.09 $1.09 $1.09
to $19.84 to $19.84 to $8.13 to $8.13
</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 and $2,950,000 as of
October 31, 1996 and January 31, 1997, respectively.
On March 18, 1997, the Company amended the Agreement whereby, following a
change in control, the remaining term of the President's employment is
extended for five years (the "Extended Term"). If the President's employment
is terminated thereafter by the Company for other than cause, or by the
President for good reason: the Company is obligated to pay the President an
amount equal to his salary and bonus for the remainder of the Extended Term;
the exercise price of 500,000 options granted to the President will be
reduced to 50% of the fair market value of the Common Stock on the date of
termination if the resulting exercise price is less than the original
exercise price of $7.125 per share; and the Company shall be obligated to pay
the President the amount of any excise taxes associated with the benefits
provided under this Agreement. If such termination had taken place on March
18, 1997, the President would have been entitled to a payment of
approximately $2,150,000 and the equity in the options would have increased
by approximately $1,500,000.
F-21
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts and Disclosures at and for the Three Months
Ended January 31, 1996 and 1997 Are Unaudited)
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:
Year ending October 31, Amount
----------------------- ------
1997.................................................. $583,800
1998.................................................. 420,100
1999.................................................. 264,300
2000.................................................. 213,900
2001.................................................. 188,400
Thereafter............................................ 1,023,000
----------
Total................................................. $2,693,500
==========
Rent expense for the years ended October 31, 1994, 1995 and 1996 was
$336,662, $354,267, and $498,042, respectively. Rent expense for the three
months ended January 31, 1996 and 1997 was $101,417 and $174,455,
respectively.
10. Major Customers
Sales to major clients for the years ended October 31, 1994, 1995 and 1996
were as follows:
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).
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, 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.
Sales to major clients for the three months ended January 31, 1996 and 1997
were as follows:
For the three months ended January 31, 1996, one client contributed
$1,114,000 or 11.4% of the total sales. Accounts receivable from the
client represented 2.1% of the total trade accounts receivable at
January 31, 1996.
For the three months ended January 31, 1997, one client contributed
$2,482,000 or 11.7% of the total sales. Accounts receivable from the
client represented 4.0% of the total trade accounts receivable at
January 31, 1997.
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.
F-22
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts and Disclosures at and for the Three Months
Ended January 31, 1996 and 1997 Are Unaudited)
12. Income Taxes
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
Three Months Ended
------------------
Years Ended October 31, January 31,
----------------------------- -----------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
Current
<S> <C> <C> <C> <C> <C>
Federal.............................. $ 27,000 $ 10,000 $ 48,000 $ 46,749 $357,911
State and local...................... 160,043 83,500 405,539 12,000 131,423
--------- --------- --------- -------- ---------
Total income tax expense - current..... $187,043 $ 93,500 $453,539 $ 58,749 $489,334
======== ======== ======== ======== ========
</TABLE>
The income tax provisions reconciled to the tax computed at the statutory
Federal rate was:
<TABLE>
<CAPTION>
Three Months Ended
------------------
Years Ended October 31, January 31,
------------------------------ -----------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Tax at statutory rate 34.0% 34.0% 34.0% 34.0% 34.0%
State income taxes, net of Federal
income tax benefit 6.5 5.8 9.4 1.4 6.8
Provision for doubtful accounts .1 .3
Net operating loss carry-overs (31.3) (32.3) (32.4) (24.9) (2.3)
Other, net 2.3 2.4 4.8
------ ------ ------ ----- -----
11.6% 9.9% 16.1% 10.5% 38.5%
===== ====== ===== ===== =====
</TABLE>
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
---------- ------------- -------
1997-2004............................. $ $53,100
2005.................................. 20,000
2007.................................. 300,000
---------- -------
Total................................. $ 300,000 $73,100
========= =======
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.
F-23
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts and Disclosures at and for the Three Months
Ended January 31, 1996 and 1997 Are Unaudited)
12. Income Taxes - (Continued)
Significant components of the Company's deferred tax assets at October 31,
1995 and 1996, and January 31, 1997, are as follows:
<TABLE>
<CAPTION>
October 31, January 31,
------------------ -----------
1995 1996 1997
---- ---- ----
Deferred tax assets due to:
<S> <C> <C> <C>
Net operating loss carry-over................................ $1,019,800 $102,000 $ 72,900
Tax credit carry-over........................................ 73,100 73,100 73,100
Depreciation of property and equipment....................... 23,200 20,000 20,000
Other........................................................ 46,887
---------- -------- ---------
1,162,987 195,100 166,000
Less: 100% valuation allowance.................................... 1,162,987 195,100 166,000
---------- -------- ---------
Total net deferred tax assets..................................... $ $ $
========== ========= =========
</TABLE>
The valuation allowance was decreased during 1995 and 1996 and 1997 by
$316,286, $967,887 and $29,100, respectively, due to the utilization of net
operating loss carry-overs and the reversal of temporary differences.
13. Selected Quarterly Financial Information (Unaudited)
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
=========== ========== ======== ====
</TABLE>
Year Ended October 31, 1996
<TABLE>
<CAPTION>
Gross Net Income
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>
* 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.
F-24
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts and Disclosures at and for the Three Months
Ended January 31, 1996 and 1997 Are Unaudited)
14. Other Income (Expense)
Included in Other Income (Expense) is Interest Income in the amount of
$57,810; $142,810 and $116, respectively for years ended October 31, 1994,
1995 and 1996.
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
and January 31, 1997.
16. Contingency
During the third quarter of 1996, 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.
F-25
<PAGE>
SCHEDULE I
RCM TECHNOLOGIES, INC. (PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEET
October 31, 1996 and 1995
ASSETS
<TABLE>
<CAPTION>
1995 1996
---- ----
Current assets
<S> <C> <C>
Cash $ 1,733 $ 8,586
Prepaid expenses and other assets 134,937 132,663
----------- -----------
Total current assets 136,670 141,249
----------- -----------
Other assets
Deposits 5,495 5,695
Long-term receivables from affiliates 8,188,366 16,073,166
----------- -----------
8,193,861 16,078,861
----------- -----------
Total assets $ 8,330,531 $16,220,110
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Share in deficiency in assets of subsidiaries 803,946
----------- -----------
Shareholders' equity
Common stock 813,756 243,924
Additional paid in capital 10,265,687 17,161,105
Accumulated deficit (3,490,037) ( 1,122,098)
----------- -----------
7,589,406 16,282,931
Less: treasury stock 62,821 62,821
----------- -----------
Total shareholders' equity 7,526,585 16,220,110
----------- -----------
Total liabilities and shareholders' equity $ 8,330,531 $16,220,110
=========== ===========
</TABLE>
The "Notes to Consolidated Financial Statements" of RCM Technologies, Inc. and
subsidiaries are an integral part of these statements.
F-26
<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>
1994 1995 1996
---- ---- ----
Operating expenses
<S> <C> <C> <C>
Administrative $ 116,418 $ 31,780 $ 139,280
---------- --------- ----------
Operating loss ( 116,418) ( 31,780) ( 139,280)
---------- --------- ----------
Miscellaneous expense ( 7,299) ( 3,678) ( 10,261)
---------- --------- ----------
( 7,299) ( 3,678) ( 10,261)
---------- --------- ----------
Loss before management fee income ( 123,717) ( 35,458) ( 149,541)
Management fee income 123,820 35,458 149,541
---------- --------- ----------
Income before income taxes 103
Income taxes 103
---------- --------- ----------
Income before income in subsidiaries
Equity in earnings in subsidiaries 1,426,005 849,105 2,367,939
---------- --------- ----------
Net income $1,426,005 $ 849,105 $2,367,939
========== ========= ==========
</TABLE>
The "Notes to Consolidated Financial Statements" of RCM Technologies, Inc. and
subsidiaries are an integral part of these statements.
F-27
<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>
1994 1995 1996
---- ---- ----
Cash flows from operating activities:
<S> <C> <C> <C>
Net income $ 1,426,005 $ 849,105 $ 2,367,939
----------- ---------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Changes in operating assets and liabilities:
Prepaid expenses and other assets 530 ( 2,625) 2,274
Accounts payable and accrued expenses ( 4,681) ( 11,108)
Income taxes payable ( 1,800)
---------- ---------- -----------
( 5,951) ( 13,733) 2,274
---------- ---------- -----------
Net cash provided by operating activities 1,420,054 835,372 2,370,213
---------- ---------- -----------
Cash flows from investing activities:
Increase in deposits ( 95)
Share in deficiency in assets of
subsidiaries (1,426,005) ( 849,105) ( 2,367,939)
Decrease (increase) in long-term
receivables from subsidiaries 399 8,042 ( 1,011,359)
---------- ---------- -----------
Net cash used in
investing activities (1,425,701) ( 841,063) ( 3,379,298)
---------- ---------- -----------
Cash flows from financing activities:
Sale of common stock 1,000,000
Exercise of stock options 5,468 15,938
---------- ---------- -----------
Net cash provided by financing activities 5,468 1,015,938
---------- ---------- -----------
Net increase (decrease) in cash and equivalents ( 179) ( 5,691) 6,853
Cash and equivalents at beginning of year 7,603 7,424 1,733
---------- ---------- -----------
Cash and equivalents at end of year $ 7,424 $ 1,733 $ 8,586
=========== =========== ===========
</TABLE>
The "Notes to Consolidated Financial Statements" of RCM Technologies, Inc. and
subsidiaries are an integral part of these statements.
F-28
<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
<S> <C> <C> <C> <C>
Allowance for doubtful
accounts on trade
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-29
<PAGE>
RCM TECHNOLOGIES, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
Years Ended October 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
Income
<S> <C> <C> <C>
Income applicable to common stock $ 1,426,005 $ 849,105 $2,367,939
=========== =========== ==========
Shares
Weighted average number of common
shares outstanding 2,875,077 2,933,819 4,247,907
Common stock equivalents 55,199 74,150 72,664
----------- ----------- ---------
Total 2,930,276 3,007,969 4,320,571
=========== =========== ===========
Primary income per share $.49 $.28 $.55
==== ==== ====
Fully diluted earnings per share $.49 $.28 $.55
==== ==== ====
</TABLE>
F-30
<PAGE>
================================================================================
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in connection with the offering covered by this Prospectus, and, if
given or made, such information or representations must not be relied upon as
having been authorized by the Company, any of the Selling Stockholders or any of
the Underwriters. This Prospectus does not constitute an offer or the
solicitation of any offer to buy any securities other than the shares of Common
Stock, nor does it constitute an offer to sell or a solicitation of any offer to
buy the shares of Common Stock by anyone in any jurisdiction in which such offer
or solicitation is not authorized, or in which the person making such offer or
solicitation is not qualified to do so, or to any person to whom it is unlawful
to make such offer or solicitation. Neither the delivery of this Prospectus nor
any sale made hereunder shall, under any circumstances, create any implication
that there has been no change in the affairs of the Company since the date
hereof.
----------------------
TABLE OF CONTENTS
Page
----
Prospectus Summary...................................
Risk Factors.........................................
Acquisition Program..................................
Use of Proceeds......................................
Price Range of Common Stock and Dividend Policy......
Capitalization.......................................
Selected Consolidated Financial Data.................
Management's Discussion and Analysis of
Financial Condition and Results of Operations.....
Business.............................................
Management...........................................
Principal and Selling Stockholders...................
Certain Relationships and Related Transactions.......
Description of Securities............................
Shares Eligible for Future Sale......................
Underwriting.........................................
Legal Matters........................................
Experts..............................................
Additional Information...............................
Financial Statements.................................
================================================================================
================================================================================
2,500,000 Shares
[LOGO]
RCM TECHNOLOGIES, INC.
Common Stock
-------------------
P R O S P E C T U S
-------------------
JANNEY MONTGOMERY SCOTT INC.
LEGG MASON WOOD WALKER
INCORPORATED
____________, 1997
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following is a list of the estimated expenses to be incurred by the
Registrant in connection with the preparation and filing of this Registration
Statement.
SEC Registration Fee........................................ $ 7,300
Printing and Engraving...................................... 100,000
Accountants' Fees and Expenses.............................. 25,000
Blue Sky Filing Fees and Expenses........................... 20,000
NASD Filing Fee............................................. 2,909
Listing Fees................................................ 17,500
Legal Fees and Expenses..................................... 150,000
Other Offering Expenses..................................... 77,291
-------
TOTAL................................................ $400,000
========
Item 14. Indemnification of Directors and Officers
The Company's Articles of Incorporation and Bylaws, taken in
conjunction, provide that the Company shall, to the full extent permitted by the
Nevada General Corporation Law, indemnify all persons whom it has the power to
indemnify pursuant thereto, including officers and directors of the Company. In
addition, the Articles of Incorporation authorize the Company to maintain
insurance to cover such liabilities. The Company recently purchased Directors'
and Officers' Liability Insurance to protect directors and officers of the
Company from any liability asserted against them for acts taken or omissions
occurring in their capacities as such. The Company policy has an aggregate
liability limit of $2,000,000, at an annual cost of $45,250. The Company is not
required to maintain such insurance and there can be no assurance that the
Company will continue to maintain such insurance or coverage in such amounts.
Insofar as indemnification for liabilities under the Securities Act may
be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions or otherwise, the Company has been advised
that in the opinion of the Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Company of expenses incurred or paid by a director, officer
or controlling person of the Company in a successful defense of any action, suit
or proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Company will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issuer.
II-1
<PAGE>
Reference is made to Item 17 for the undertakings of the Registrant
with respect to indemnification of liabilities arising under the Securities Act.
Item 15. Recent Sales of Unregistered Securities
1. On August 30, 1995, the Company issued a total of 312,311 shares
of Common Stock, to the stockholders set forth in the table below as partial
consideration for the exchange of 100% of the stock of Cataract, Inc., a
Pennsylvania corporation.
Shares of
Name Common Stock
---- ------------
Joseph Marubbio.................................. 70,270
Paula Marubbio................................... 70,270
Robert L. and Marie A. Starer, as tenants by the
entireties..................................... 140,540
James R. and Sarah B. Affleck, Jr., as tenants by
the entireties................................. 31,231
The issuance of such shares was made in reliance on the
exemptions from registration requirements provided by Section 4(2) of the
Securities Act.
2. On February 5, 1996, the Company issued and sold 276,625 shares
of Common Stock to Limeport Investments, LLC for $1,000,000 in a private
placement transaction exempt from registration requirements under Section 4(2)
of the Securities Act.
3. On March 11, 1996, the Company issued a total of 1,300,000
shares of Common Stock to the stockholders set forth in the table below in
consideration for the exchange of 100% of the stock of The Consortium, a New
Jersey corporation.
Shares of
Name Common Stock
---- ------------
Martin Blaire.................................. 607,468
Barry S. Meyers................................ 607,468
Marie Wolfson.................................. 23,556
Howard Ross.................................... 55,084
Alexander C. Valcic............................ 6,424
The issuance of such shares was made in reliance on the
exemptions from registration requirements provided by Section 4(2) of the
Securities Act.
4. On May 2, 1996, the Company issued a total of 34,327 shares of
Common Stock to the stockholder set forth in the table below as partial
consideration for the exchange of 100% of the stock of The Consortium of
Maryland, Inc., a Maryland corporation.
II-2
<PAGE>
Shares of
Name Common Stock
---- ------------
Peter Kaminsky................................ 34,327
The issuance of such shares was made in reliance on the
exemptions from registration requirements provided by Section 4(2) of the
Securities Act.
5. On September 4, 1996, the Company issued a total of 2,500 shares of
Common Stock to stockholders set forth in the table below as partial
consideration for the exchange of the operating assets of Performance Staffing,
Inc., a Kentucky corporation.
Shares of
Name Common Stock
---- ------------
J. Dennis Bodemann............................ 1,500
Harry R. Nelson............................... 1,000
The issuance of such shares was made in reliance on the exemption
from registration requirements provided by Section 4(2) of the Securities Act.
II-3
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
Financial Statement Schedules
Page
Reference
---------
I. Condensed Financial Information of the Company..................... F-26
II. Valuation and Qualifying Accounts and Reserves..................... F-29
Exhibits
(1) Form of Underwriting Agreement. Filed herewith
(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; incorporated by
reference to Exhibit 3 of the Quarterly Report on Form 10-Q
dated January 31, 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.
(5) Opinion of Buchanan Ingersoll Professional Corporation. To be
provided by amendment.
(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.; incorporated by reference to Exhibit (10)(a) of the Annual
Report on Form 10-K dated October 31, 1996 ("1996 10-K").
(10)(b) 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).
II-4
<PAGE>
(10)(c) 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)(d) RCM Technologies, Inc. 1994 Non-employee 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)(e) RCM Technologies, Inc. 1996 Executive Stock Option Plan dated
August 15, 1996; incorporated by reference to Exhibit (10)(l) of
the 1996 10-K.
(10)(f) Stock Option Agreement dated November 30, 1996 between the
Registrant and Leon Kopyt; incorporated by reference to Exhibit
(10)(m) of the 1996 10-K.
(10)(g) Second Amended and restated Termination Benefits Agreement
dated March 18, 1997 between the Registrant and Leon Kopyt.
(10)(h) Amended and restated Employment Agreement dated November 30,
1996 between the Registrant, Intertec Design, Inc. and Leon
Kopyt; incorporated by reference to Exhibit (10)(g) of the 1996
10-K.
(10)(i) 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)(j) Registration Rights Agreement dated August 30, 1995;
incorporated by reference to Exhibit (c)(2) of the Cataract 8-K.
(10)(k) Voting Trust Agreement dated August 30, 1995; incorporated by
reference to Exhibit (c)(3) of the Cataract 8-K.
(10)(l) Stock Pledge Agreement dated August 30, 1995; incorporated by
reference to Exhibit (c)(5) of the Cataract 8-K.
(10)(m) 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)(n) Registration Rights Agreement dated March 11, 1996; incorporated
by reference to Exhibit (c)(2) of the Consortium 8-K.
(10)(o) Escrow Agreement dated March 11, 1996; incorporated by reference
to Exhibit (c)(3) of the Consortium 8-K.
II-5
<PAGE>
(10)(p) Standstill and Shareholders Agreement dated March 11, 1996;
incorporated by reference to Exhibit (c)(5) of the Consortium
8-K.
(10)(q) Blaire Employment Agreement dated March 11, 1996; incorporated
by reference to Exhibit (c)(6) of the Consortium 8-K.
(10)(r) Meyers Employment Agreement dated March 11, 1996; incorporated
by reference to Exhibit (c)(7) of the Consortium 8-K.
(10)(s) 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)(t) Registration Rights Agreement dated February 5, 1996;
incorporated by reference to Exhibit (a)(10.1) of the January
10-Q.
(10)(u) 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)(v) Registration Rights Agreement dated May 2, 1996; incorporated
by reference to Exhibit (10.1) of the April 10-Q.
(10)(w) Escrow Agreement dated May 2, 1996; incorporated by reference
to Exhibit (10.2) of the April 10-Q.
(10)(x) Standstill and Shareholders Agreement dated May 2, 1996;
incorporated by reference to Exhibit (10.3) of the April 10-Q.
(10)(y) Kaminsky Employment Agreement dated May 2, 1996; incorporated
by reference to Exhibit (10.4) of the April 10-Q.
(11) Computation of Earnings Per Share. Included within the Financial
Statements.
(21) Subsidiaries of the Registrant; incorporated by reference to
Exhibit 11 of the 1996 10-K.
(23)(a) Consent of Independent Certified Public Accountants.
(23)(b) Consent of Buchanan Ingersoll Professional Corporation. Included
within Exhibit 5 hereto.
II-6
<PAGE>
Item 17. Undertakings
1. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in a successful defense of any action, suit or
proceeding) is asserted by a director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
2. The undersigned Registrant hereby undertakes that:
(a) For purposes of determining any liability under the
Securities Act, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant under Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(b) For purposes determining any liability under the
Securities Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be as the initial bona fide offering thereof.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, hereunto duly authorized in the City of Pennsauken,
New Jersey on March 21, 1997.
RCM TECHNOLOGIES, INC.
By: /s/ Leon Kopyt
-----------------------------------
Leon Kopyt
President and Chief Executive
Officer
By: /s/ Stanton Remer
-----------------------------------
Stanton Remer
Treasurer, Secretary and Chief
Financial Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints LEON KOPYT his true and lawful
attorney-in-fact and agent with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities to sign any
or all amendments (including, without limitation, post-effective amendments) to
this Registration Statement and any related Registration Statements filed
pursuant to Rule 462(b) under the Securities Act of 1933 and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully for all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent or his substitute or
substitutes, may all that said attorney-in-fact and agent or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Leon Kopyt Chairman, Chief Executive March 20, 1997
- ------------------------------------- Officer, President and
Leon Kopyt Director (principal executive
officer)
/s/ Barry S. Meyers Chief Operating Officer, March 20, 1997
- ------------------------------------- Executive Vice President and
Barry S. Meyers Director
/s/ Martin Blaire Executive Vice President and March 20, 1997
- ------------------------------------- Director
Martin Blaire
/s/ Stanton Remer Chief Financial Officer, March 20, 1997
- ------------------------------------- Treasurer, Secretary and
Stanton Remer Director (principal financial
and accounting officer)
/s/ Norman S. Berson Director March 20, 1997
- -------------------------------------
Norman S. Berson
/s/ Robert B. Kerr Director March 20, 1997
- -------------------------------------
Robert B. Kerr
/s/ Woodrow B. Moats, Jr. Director March 20, 1997
- -------------------------------------
Woodrow B. Moats, Jr.
</TABLE>
2,500,000 Shares
RCM TECHNOLOGIES, INC.
Common Stock
UNDERWRITING AGREEMENT
Philadelphia, Pennsylvania
, 1997
-------------
JANNEY MONTGOMERY SCOTT INC.
LEGG MASON WOOD WALKER, INCORPORATED
As Representatives of the Several
Underwriters Named in Schedule I
Hereto
c/o Janney Montgomery Scott Inc.
1801 Market Street
Philadelphia, Pennsylvania 19103
Dear Ladies and Gentlemen:
RCM Technologies, Inc., a Nevada corporation (the "Company"), proposes
to sell to Janney Montgomery Scott, Inc. and Legg Mason Wood Walker,
Incorporated (the "Representatives") and the several other underwriters named in
Schedule I hereto (collectively with the Representatives, the "Underwriters")
176,813 shares of the Company's common stock, par value $.05 per share ("Common
Shares") and the selling shareholders of the Company named in Schedule II hereto
(collectively, the "Selling Shareholders") propose to sell severally to the
Underwriters an aggregate of 2,323,187 Common Shares. Such Common Shares to be
sold to the Underwriters by the Company and the Selling Shareholders are
hereinafter referred to as the "Firm Shares." The respective amounts of the Firm
Shares to be so purchased by the several Underwriters are set forth opposite
their names in Schedule I hereto. The Firm Shares shall be offered to the public
initially at a public offering price of $________ per Firm Share (the "Offering
Price").
In addition, in order to cover over-allotments in the sale of the Firm
Shares, the Underwriters may purchase for the Underwriters' own accounts,
ratably in proportion to the amounts set forth opposite their respective names
in Schedule I hereto, up to 375,000 additional Common Shares from the Company.
Such additional Common Shares are referred to herein as the "Optional Shares."
If any Optional Shares are purchased, the Optional Shares shall be purchased for
offering to the public at the Offering Price and in accordance with the terms
and
<PAGE>
conditions set forth herein. The Firm Shares and the Optional Shares are
referred to collectively herein as the "Shares."
The Company and the Selling Shareholders, intending to be legally
bound, hereby confirm their agreement with the Underwriters as follows:
1. Representations and Warranties
(a) Representatives and Warranties of the Company. The
Company, and each of the subsidiaries of the Company listed in Exhibit A hereto
(each a "Subsidiary" and collectively, the "Subsidiaries"), jointly and
severally represent and warrant to, and agree with, the several Underwriters
that:
(i) the Company has prepared, in conformity
with the requirements of the Securities Act of 1933, as amended (the "Act"), and
the rules and regulations (the "Regulations"), of the Securities and Exchange
Commission (the "SEC") under the Act in effect at all applicable times, and has
filed with the SEC a registration statement on Form S-1 (File No. 333- ) for the
purpose of registering the Shares under the Act. Copies of such registration
statement and any amendments thereto, and all forms of the related prospectus
contained therein, have been delivered to the Representatives. Any preliminary
prospectus included in such registration statement or filed with the SEC
pursuant to Rule 424(a) of the Regulations is hereinafter called a "Preliminary
Prospectus." The various parts of such registration statement, including all
exhibits thereto and the information (if any) contained in the form of final
prospectus filed with the SEC pursuant to Rule 424(b) of the Regulations and
deemed by virtue of Rule 430A(b) of the Regulations to be part of the
registration statement at the time it was declared effective, each as amended at
the time the registration statement became effective, are hereinafter
collectively called the "Registration Statement." The final prospectus in the
form included in the Registration Statement or first filed with the SEC pursuant
to Rule 424(b) of the Regulations and any amendments or supplements thereto is
hereinafter called the "Prospectus";
(ii) the Registration Statement has become effective
under the Act and the SEC has not issued any stop order suspending the
effectiveness of the Registration Statement or preventing or suspending the use
of the Preliminary Prospectus, nor has the SEC instituted or threatened to
institute proceedings with respect to such an order. No stop order suspending
the sale of the Shares in any jurisdiction designated by the Representatives as
provided for in Section 5(f) hereof has been issued, and no proceedings for that
purpose have been instituted or threatened. The Company has complied in all
material respects with all requests of the SEC, or requests of which the Company
has been advised of any state securities commission in a state designated by the
Representatives as provided for in Section 5(f) hereof, for additional
information to be included in the Registration Statement, any Preliminary
Prospectus or the Prospectus. Each Preliminary Prospectus conformed to all the
requirements of the Act and the Regulations as of its date in all material
respects and did not as of its date contain any untrue statement of material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein except the foregoing shall not apply to
statements in or omissions from any Preliminary Prospectus in reliance upon and
in conformity with information supplied to
-2-
<PAGE>
the Company in writing by or on behalf of any Underwriter through the
Representatives expressly for use therein. The Registration Statement, on the
date on which it is declared effective by the SEC (the "Effective Date") and
when any post-effective amendment thereof shall become effective, and the
Prospectus, at the time it is filed with the SEC pursuant to Rule 424(b) and on
the Closing Date (as defined in Section 3 hereof) and any Option Closing Date
(as defined in Section 4(b) hereof), will conform in all material respects to
all the requirements of the Act and the Regulations, and will not, on any of
such dates, include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, except that this representation and warranty does not
apply to statements in or omissions from the Registration Statement or the
Prospectus made in reliance upon and in conformity with information furnished to
the Company in writing by or on behalf of any Underwriter through the
Representatives expressly for use therein. The Company hereby acknowledges that
the two paragraphs appearing on the inside front cover of the Prospectus and the
allocation of Shares among the Underwriters, the dollar amounts of the
concessions in the paragraph that follows the tabular list of Underwriters and
the last five paragraphs appearing under the caption "Underwriting" constitute
the only statements in any Preliminary Prospectus, the Registration Statement or
the Prospectus made in reliance upon and in conformity with information
furnished by or on behalf of any Underwriter and that no statement was omitted
from any Preliminary Prospectus, the Registration Statement or the Prospectus in
reliance upon and in conformity with information furnished by or on behalf of
any Underwriter;
(iii) the Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Nevada,
with all necessary corporate power and authority, and all required licenses,
permits, clearances, certifications, registrations, approvals, consents and
franchises, to own or lease and operate its properties and to conduct its
business as described in the Prospectus, and to execute, deliver and perform
this Agreement; each of the Subsidiaries has been duly organized and is validly
existing as a corporation in good standing under the laws of the jurisdiction of
its incorporation, with all necessary corporate power and authority, and all
required licenses, permits, clearances, certifications, registrations,
approvals, consents and franchises, to own or lease and operate its properties
and to conduct its business as described in the Prospectus;
(iv) all of the outstanding shares of capital stock or
other evidence of ownership of each of the Subsidiaries have been duly
authorized and validly issued, are fully paid and nonassessable and are owned by
the Company free and clear of all liens, encumbrances and security interests;
and no options, warrants or other rights to purchase, agreements or other
obligations to issue or other rights to convert any obligations into shares of
capital stock or ownership interests in the Subsidiaries are outstanding;
(v) this Agreement has been duly authorized, executed
and delivered by the Company and each of the Subsidiaries and constitutes, with
respect to each, its legal, valid and binding obligation, enforceable against
the Company and each of the Subsidiaries in accordance with its terms, except as
such enforceability may be limited by equitable principles or by the application
of bankruptcy, insolvency or other similar laws relating to or affecting
creditor's rights generally, and except as rights to indemnity and contribution
hereunder may be limited by applicable securities laws;
-3-
<PAGE>
(vi) the execution, delivery and performance of this
Agreement by the Company and the Subsidiaries does not and will not, with or
without the giving of notice or the lapse of time, or both, (a) conflict with
any term or provision of the Company's or the Subsidiaries' Articles of
Incorporation or Bylaws (or any similar governing instruments); (b) result in a
breach of, constitute a default under, result in the termination or modification
of, result in the creation or imposition of any lien, security interest, charge
or encumbrance upon any of the assets of the Company or any Subsidiary, or
require any payment by the Company or any Subsidiary or impose any liability on
the Company or any Subsidiary pursuant to any contract, indenture, mortgage,
deed of trust, commitment or other agreement or instrument to which the Company
or any Subsidiary is a party or by which any of the Company's or the
Subsidiaries' assets are bound or affected; (c) violate any law, rule,
regulation, judgment, order or decree of any government or governmental agency,
instrumentality or court, domestic or foreign, having jurisdiction over the
Company or any Subsidiary or any of the Company's or the Subsidiaries'
properties or business; or (d) result in a breach, termination or lapse of the
Company's or the Subsidiaries' corporate power and authority to own or lease and
operate its assets and properties and conduct its business as described in the
Prospectus;
(vii) at the date or dates indicated in the Prospectus,
the Company had the duly authorized and outstanding capital stock set forth in
the Prospectus. On the Effective Date, the Closing Date and any Option Closing
Date, there will be no options or warrants for the purchase of, other
outstanding rights to purchase, agreements or obligations to issue or agreements
or other rights to convert or exchange any obligation or security into, capital
stock of the Company or securities convertible into or exchangeable for capital
stock of the Company, except as described in the Prospectus;
(viii) the authorized capital stock of the Company
conforms in all respects with the description thereof in the Prospectus;
(ix) the currently outstanding shares of the Company's
capital stock, including the shares to be purchased by the Underwriters from the
Selling Shareholders have been duly authorized and are validly issued, fully
paid and non-assessable; and none of such outstanding shares of the Company's
capital stock has been issued in violation of any preemptive rights of any
security holder of the Company. The holders of the outstanding shares of the
Company's capital stock are not subject to personal liability solely by reason
of being such holders. The offers and sales of the outstanding shares of the
Company's capital stock, whether described in the Registration Statement or
otherwise, were made in conformity with applicable federal and state securities
laws;
(x) when the Shares have been duly delivered against
payment therefor as contemplated by this Agreement, the Shares will be validly
issued, fully paid and non-assessable, and the holders thereof will not be
subject to personal liability solely by reason of being such holders. The
certificates representing the Shares are in proper legal form under, and conform
in all respects to the requirements of, the General Corporation Law of Nevada.
Neither the filing of the Registration Statement nor the offering or sale of
Shares as contemplated by this Agreement gives any security holder of the
Company any rights for or relating to the registration of any
-4-
<PAGE>
Common Shares or any other capital stock of the Company, except such as have
been satisfied or waived;
(xi) no consent, approval, authorization, order,
registration, license or permit of, or filing or registration with, any court,
government, governmental agency, instrumentality or other regulatory body or
official is required for the valid and legal execution, delivery and performance
by the Company and the Subsidiaries of this Agreement and the consummation of
the transactions contemplated hereby and described in the Prospectus, except
such as may be required for the registration of the Shares under the Act and the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and for
compliance with the applicable state securities or Blue Sky laws;
(xii) the Common Shares (including the Shares) have been
included in the Nasdaq Stock Market's National Market;
(xiii) the statements in the Registration Statement and
Prospectus, insofar as they are descriptions of or references to contracts,
agreements or other documents, are accurate in all material respects and present
or summarize fairly, in all material respects, the information required to be
disclosed under the Act and/or the Regulations, and there are no contracts,
agreements or other documents required to be described or referred to in the
Registration Statement or Prospectus or to be filed as exhibits to the
Registration Statement under the Act or the Regulations that have not been so
described, referred to or filed, as required;
(xiv) the consolidated financial statements of the
Company (including the notes thereto) filed as part of any Preliminary
Prospectus, the Prospectus and the Registration Statement present fairly, in all
material respects, the consolidated financial position of the Company as of the
respective dates thereof, the consolidated results of operations, consolidated
cash flows and consolidated shareholders' equity of the Company for the periods
indicated therein, all in conformity with generally accepted accounting
principles. The supporting notes and schedules included in the Registration
Statement fairly state in all material respects the information required to be
stated therein in relation to the financial statements taken as a whole. The
financial information included in the Prospectus under the caption "Prospectus
Summary" and "Selected Consolidated Financial Data" (including pro forma and pro
forma as adjusted financial information) presents fairly the information shown
therein and has been compiled on a basis consistent with that of the
consolidated financial statements of the Company included in the Registration
Statement; and the unaudited pro forma financial information included in the
Registration Statement complies as to form in all material respects with the
applicable accounting requirements of Rule 11-02 of Regulation S-X under the Act
and the pro forma adjustments have been properly applied to the historical
amounts in the compilation of this information;
(xv) since the respective dates as of which information
is given in the Registration Statement and the Prospectus, except as otherwise
expressly stated therein, there has not been (a) any material adverse change
(including, whether or not insured against, any material loss or damage to any
material assets), or development involving a prospective material adverse
change, in the general affairs, properties, assets, management, condition
(financial or otherwise),
-5-
<PAGE>
results of operations, shareholders' equity, business or prospects of the
Company or the Subsidiaries taken as a whole, (b) any material adverse change,
loss, reduction, termination or nonrenewal of any contract to which the Company
or any Subsidiary is a party, (c) any transaction entered into by the Company or
any Subsidiary not in the ordinary course of its business that is material to
the Company or such Subsidiary, (d) any dividend or distribution of any kind
declared, paid or made on its capital stock by the Company or any Subsidiary,
(e) any liabilities or other obligations, direct or indirect, incurred by the
Company or any Subsidiary that are material to the Company or such Subsidiary,
(f) any change in the capitalization or stock ownership of the Company or any
Subsidiary or (g) any change in the indebtedness of the Company or any
Subsidiary that is material to the Company or such Subsidiary. Neither the
Company nor any Subsidiary has any contingent liabilities or obligations that
are material to the Company or such Subsidiary and that are not disclosed in the
Prospectus;
(xvi) the Company has not distributed and will not
distribute any offering material in connection with the offering and sale of the
Shares other than the Registration Statement, a Preliminary Prospectus, the
Prospectus and other material, if any, to the extent permitted by the Act and
the Regulations. Neither the Company nor any of its officers, directors or
affiliates has taken nor shall the Company take any action designed to, or that
might be reasonably expected to cause or result in, stabilization or
manipulation of the price of the Common Shares to facilitate the sale of the
Shares;
(xvii) the Company and each Subsidiary has filed with the
appropriate federal, state and local governmental agencies, and all foreign
countries and political subdivisions thereof, all tax returns that are required
to be filed, or has duly obtained extensions of time for the filing thereof and
has paid all taxes shown on such returns or otherwise due and all assessments
received by it to the extent that the same have become due. Neither the Company
nor any Subsidiary has executed or filed with any taxing authority, foreign or
domestic, any agreement extending the period for assessment or collection of any
income or other tax and is not a party to any pending action or proceeding by
any foreign or domestic governmental agencies for the assessment or collection
of taxes, and no claims for assessment or collection of taxes have been asserted
against the Company or any Subsidiary that might materially adversely affect the
general affairs, assets, properties, condition (financial or otherwise), results
of operations, shareholders' equity, business or prospects of the Company or
such Subsidiary;
(xviii) Grant Thornton LLP, which has given its reports on
certain financial statements included as part of the Registration Statement, is
a firm of independent certified public accountants as required by the Act and
the Regulations;
(xix) neither the Company nor any Subsidiary is in
violation of or in default under any of the terms or provisions of (a) its
Articles or Certificate of Incorporation or Bylaws or similar governing
instruments, (b) any indenture, mortgage, deed of trust, contract, commitment or
other agreement or instrument to which it is a party or by which it or any of
its properties is bound or affected, (c) any law, rule, regulation, judgment,
order or decree of any government or governmental agency, instrumentality or
court, domestic or foreign, having jurisdiction over it or any of its properties
or business, or (d) any license, permit, certification, registration, approval,
consent or franchise referred to in Section l(a)(iii) hereof;
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(xx) except as disclosed in the Prospectus, there are
no claims, actions, suits, protests, proceedings, arbitrations, investigations
or inquiries pending before, or threatened or contemplated by, any governmental
agency, instrumentality, court or tribunal domestic or foreign, or before any
private arbitration tribunal, to which the Company or any Subsidiary is a party,
that could affect the validity of any of the outstanding Common Shares, or that,
if determined adversely to the Company or any Subsidiary, would, in any case or
in the aggregate, result in any material adverse change in the general affairs,
properties, condition (financial or otherwise), results of operations,
shareholders' equity, business or prospects of the Company or any Subsidiary
taken as a whole; nor, to the Company's knowledge, is there any reasonable basis
for any such claim, action, suit, protest, proceeding, arbitration,
investigation or inquiry. Other than as disclosed in the Prospectus, there are
no outstanding orders, judgments or decrees of any court, governmental agency,
instrumentality or other tribunal, enjoining the Company or any Subsidiary from,
or requiring the Company or any Subsidiary to take or refrain from taking, any
action, or to which the Company or any Subsidiary, their properties, assets or
business are bound or subject;
(xxi) the Company and each of the Subsidiaries owns, or
possesses adequate rights to use, all patents, patent applications, trademarks,
trade names, service marks, licenses, inventions, copyrights, know-how, trade
secrets, confidential information, processes, procedures and formulations and
other proprietary information necessary for, used in or proposed to be used in
the conduct of its business as described in the Prospectus (collectively, the
"Intellectual Property"). The Company and the Subsidiaries have not infringed
upon, are not infringing upon and have not received any notice of conflict with,
the asserted rights of others with respect to the Intellectual Property, and the
Company knows of no reasonable basis for any such infringement or conflict;
(xxii) the Company and each Subsidiary has good and
marketable title to all property described in the Prospectus as being owned by
it, free and clear of all liens, security interests, charges or encumbrances,
except such as are described or referred to in the Prospectus or such as do not
materially affect the value of such property and do not interfere in any
material respect with the use made, or proposed to be made, of such property by
the Company or Subsidiary. The Company and each Subsidiary has adequately
insured its property against loss or damage by fire or other casualty and
maintains, in amounts reasonably believed by it to be adequate, insurance
against such other risks as it deems appropriate. All real and personal property
leased by the Company or any Subsidiary, as described or referred to in the
Prospectus, is held by the Company or such Subsidiary under valid leases. The
executive offices and all other facilities of the Company, owned or operated by
the Company since the inception of its business (the "Premises"), and all
operations conducted thereon, are now and, since the Company or any Subsidiary
began to use such Premises, always have been and prior to when the Company or
the Subsidiaries began to use such Premises, always had been, in compliance with
all U.S. laws concerning or related to industrial hygiene and the protection of
health and the environment, including all federal, state and local statutes,
ordinances, regulations and rules (collectively, the "Governmental Laws"), other
than as disclosed in the Prospectus. Other than as disclosed in the Prospectus,
there are no conditions on, about, beneath or arising from the Premises that
might give rise to liability, the imposition of a statutory lien or require a
"Response," "Removal" or "Remedial Action," as defined herein, under any of the
Governmental Laws. Other than as
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disclosed in the Prospectus, neither the Company nor any Subsidiary has received
notice, and there is no claim, demand, investigation, regulatory action, suit or
other action instituted or threatened against the Company or any Subsidiary or
any portion of the Premises relating to any of the Governmental Laws. Other than
as disclosed in the Prospectus, neither the Company nor any Subsidiary has
received any notice of violation, citation, complaint, order, directive, request
for information or response thereto, notice letter, demand letter or compliance
schedule to or from any governmental or regulatory agency arising out of or in
connection with "hazardous substances" (as defined by applicable environmental
laws) on, about, beneath, arising from or generated at the Premises. As used in
this subsection, the terms "Response," "Removal" and "Remedial Action" shall
have the respective meanings assigned to such terms under Sections
101(23)-101(25) of the Comprehensive Environmental Response, Compensation and
Liability Act, as amended by the Superfund Amendments and Reauthorization Act,
42 U.S.C. 9601(23)-9601(25);
(xxiii) the Company and each Subsidiary maintains a system
of internal accounting controls sufficient to provide reasonable assurances
that: (a) transactions are executed in accordance with management's general or
specific authorization; (b) transactions are recorded as necessary in order to
permit preparation of financial statements in accordance with generally accepted
accounting principles and statutory accounting practices and to maintain
accountability for assets; (c) access to assets is permitted only in accordance
with management's general or specific authorization; and (d) the recorded
accountability for assets is compared with existing assets at reasonable
intervals and appropriate action is taken with respect to any differences;
(xxiv) each contract or other instrument (however
characterized or described) to which the Company or any Subsidiary is a party or
by which any of its properties or business is bound or affected and which is
material to the conduct of the Company's or any Subsidiary's business as
described in the Prospectus has been duly and validly executed by the Company or
such Subsidiary, and, to the knowledge of the Company, by the other parties
thereto. Each such contract or other instrument is in full force and effect and
is enforceable against the parties thereto in accordance with its terms, and the
Company or the Subsidiaries are not, and no other party is, in default
thereunder, and no event has occurred that, with the lapse of time or the giving
of notice, or both, would constitute a default under any such contract or other
instrument. All necessary consents under such contracts or other instruments to
disclosure in the Prospectus with respect thereto have been obtained;
(xxv) except for such plans as are disclosed in the
Prospectus, the Company and the Subsidiaries do not have any employee benefit
plan, profit sharing plan, employee pension benefit plan or employee welfare
benefit plan or deferred compensation arrangements ("Plans") that are subject to
the provisions of the Employee Retirement Income Security Act of 1974, as
amended, or the rules and regulations thereunder ("ERISA"). All Plans that are
subject to ERISA are in compliance with ERISA, in all material respects, and, to
the extent required by the Internal Revenue Code of 1986, as amended (the
"Code"), in compliance with the Code in all material respects. Neither the
Company nor any Subsidiary has had any employee pension benefit plan that is
subject to Part 3 of Subtitle B of Title I of ERISA or any defined benefit plan
or multi-employer plan. The Company has not maintained retired life and retired
health insurance plans that are employee welfare benefit plans providing for
continuing benefit or
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coverage for any employee or any beneficiary of any employee after such
employee's termination of employment, except as required by Section 4980B of the
Code. No fiduciary or other party in interest with respect to any of the Plans
has caused any of such Plans to engage in a prohibited transaction as defined in
Section 406 of ERISA. As used in this subsection, the terms "defined benefit
plan," "employee benefit plan," "employee pension benefit plan," "employee
welfare benefit plan," "fiduciary" and "multi-employer plan" shall have the
respective meanings assigned to such terms in Section 3 of ERISA;
(xxvi) no labor dispute exists with the employees of the
Company or any Subsidiary, and, to the best of the Company's knowledge, no such
labor dispute is threatened. The Company has no knowledge of any existing or
threatened labor disturbance by the employees of any of the principal customers
of the Company or the Subsidiaries that would materially adversely affect the
general affairs, properties, condition (financial or otherwise), results of
operations, shareholders' equity, business or prospects of the Company or the
Subsidiaries taken as a whole;
(xxvii) neither the Company nor any Subsidiary has
incurred any liability for any finder's fees or similar payments in connection
with the transactions contemplated herein;
(xxviii) the company and each Subsidiary currently intends
to conduct its affairs in such a manner as to ensure that it will not be an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended (the "1940 Act"), and the rules and regulations thereunder;
(xxix) no statement, representation, warranty or covenant
made by the Company or any Subsidiary in this Agreement or in any certificate or
document required by this Agreement to be delivered to the Representatives is,
was when made, or as of the Closing Date or any Option Closing Date will be,
inaccurate, untrue or incorrect in any material respect. No transaction has
occurred or is proposed between or among the Company and any of its officers,
directors or shareholders or any affiliate of any such officer, director or
shareholder that is required to be described in and is not described in the
Registration Statement and the Prospectus;
(xxx) none of the Company, any Subsidiary or any officer,
director, employee, agent or other person acting on behalf of the Company or
such Subsidiary, has, directly or indirectly, given or agreed to give any money,
property or similar benefit or consideration to any customer (including any
employee or agent of any customer) or official or employee of any agency or
instrumentality of any government (foreign or domestic) or political party or
candidate for office (foreign or domestic) or any other person who was, is or in
the future may be in a position to affect the general affairs, properties,
condition (financial or otherwise), results of operations, shareholders' equity,
business or prospects of the Company and the Subsidiaries or any actual or
proposed business transaction of the Company or the Subsidiaries that (a) could
subject the Company or such Subsidiary to any liability (including, but not
limited to the payment of monetary damages) or penalty in any civil, criminal or
governmental action or proceeding, or (b) violates any law, rule or regulation
to which the Company or the Subsidiaries are subject;
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(xxxi) neither the Company nor any Subsidiary has
declared, paid or accrued any dividends or distributions to shareholders, and
will not hereafter declare, pay or accrue any such dividends or distributions
prior to the Closing Date or the Option Closing Date; and
(xxxii) none of the shareholders of the Company is
affiliated with any member of the National Association of Securities Dealers,
Inc. (the "NASD").
Any certificate signed by any officer of the Company or any
Subsidiary in such capacity and delivered to the Representatives or to counsel
for the Underwriters pursuant to this Agreement shall be deemed a representation
and warranty by the Company or such Subsidiary to the several Underwriters as to
the matters covered thereby.
(b) Representations and Warranties of the Selling
Shareholders. Each of the Selling Shareholders (except as expressly limited
below) represents and warrants to, and agrees with, the several Underwriters
that:
(i) such Selling Shareholder has duly
executed and delivered a power of attorney in the form contained in the Custody
Agreement (as defined below) appointing Leon Kopyt as such Selling Shareholder's
attorney-in-fact (the "Attorney-in-Fact"); the Attorney-in-Fact is authorized
to execute, deliver and perform this Agreement on behalf of such Selling
Shareholder, including, without limitation, the authority to determine the
purchase price to be paid to each such Selling Shareholder by the Underwriters
as set forth in Section 2 of this Agreement, and in connection therewith such
Selling Shareholder has duly executed and delivered a Power of Attorney and
Custody Agreement (the "Custody Agreement"), in the form heretofore delivered to
the Representatives, with American Stock Transfer & Trust Company as custodian
(the "Custodian"). Certificates in negotiable form representing the Shares to be
sold by such Selling Shareholder hereunder have been or will be deposited with
the Custodian pursuant to the Custody Agreement for the purpose of delivery
pursuant to this Agreement. Such Selling Shareholder agrees that the Shares
represented by the certificates which are either on deposit or which will be on
deposit with the Custodian are subject to the interests of the Underwriters
hereunder, that the arrangements made for such custody and the appointment of
the Attorney-in-Fact are to that extent irrevocable, and that the obligations of
such Selling Shareholder hereunder shall not be terminated except as provided in
this Agreement or the Custody Agreement, by any act of such Selling Shareholder,
by operation of law or otherwise, whether, in the case of an individual Selling
Shareholder, by the death or incapacity of such Selling Shareholder, or by the
occurrence of any other event. If any individual Selling Shareholder should die
or become incapacitated, or if any other event should occur, before the delivery
of the Shares to be sold by such Selling Shareholder hereunder, the certificates
for such Shares shall be delivered by the Custodian in accordance with the terms
and conditions of this Agreement and the Custody Agreement as if such death,
incapacity, or other event had not occurred, regardless of whether or not the
Custodian or Attorney-in-Fact shall have received notice thereof;
(ii) such Selling Shareholder has the full
right, power and authority to enter into this Agreement and the Custody
Agreement and to sell, transfer and deliver the Shares to be sold by such
Selling Shareholder hereunder, and this Agreement and the Custody
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Agreement have been duly authorized, executed and delivered by such Selling
Shareholder and constitute the legal, valid and binding obligations of such
Selling Shareholder enforceable in accordance with their respective terms. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby and by the Custody Agreement will not result in
a violation or breach by such Selling Shareholder of, or constitute a default by
such Selling Shareholder under, any indenture, mortgage, deed of trust, note,
bank loan or credit agreement or any other agreement or instrument to which such
Selling Shareholder is a party or by which such Selling Shareholder is bound,
any organizational document relating to such Selling Shareholder (including,
without limitation, any partnership agreement, articles of incorporation, or
bylaws), or any statute, judgment, decree, order, rule or regulation of any
court or governmental agency or body applicable to such Selling Shareholder;
(iii) all authorizations, approvals and
consents necessary for the execution and delivery by such Selling Shareholder of
the Custody Agreement, the execution and delivery by or on behalf of such
Selling Shareholder of this Agreement, and the sale and delivery of the Shares
to be sold by such Selling Shareholder hereunder (other than such
authorizations, approvals or consents as may be necessary under the state
securities or Blue Sky laws), have been obtained and are in full force and
effect;
(iv) such Selling Shareholder now is, and on
the Closing Date will be, the lawful owner of the Shares to be sold by such
Selling Shareholder pursuant to this Agreement. On the Closing Date, such
Selling Shareholder will have valid and marketable title to such Shares, free
and clear of all liens, encumbrances, security, interests or other restrictions
(other than those created under the Custody Agreement); and upon proper delivery
of and payment for such Shares as provided herein, the Underwriters will acquire
valid and marketable title thereto, free and clear of any pledge, lien, security
interest, encumbrance, claim or equitable interest, including any liability for
estate or inheritance taxes, or any liability to or claims of any creditor,
devisee, legatee or beneficiary of such Selling Shareholder;
(v) to the knowledge of such Selling
Shareholder, the representations and warranties of the Company contained in
Section l(a) hereof are true and correct; such Selling Shareholder has examined
the Registration Statement and the Prospectus and has no knowledge of any fact,
condition or information not disclosed therein which has adversely affected or
could adversely affect the general affairs, assets, properties, condition
(financial or otherwise), results of operations, shareholders' equity, business
or prospects of the Company or the Subsidiaries, taken as a whole; to the
knowledge of such Selling Shareholder after review of the Registration Statement
and Prospectus, neither the Registration Statement nor the Prospectus contains
any untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading; and such Selling Shareholder is not prompted to sell the Shares to
be sold by such Selling Shareholder hereunder by any information concerning the
Company or any Subsidiary which is not set forth in the Prospectus;
(vi) such Selling Shareholder has examined
the Registration Statement and the Prospectus and the information relating to
such Selling Shareholder set forth therein and, as to such information, neither
the Registration Statement nor the Prospectus
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<PAGE>
contains any untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading and
such Selling Shareholder hereby acknowledges that the two paragraphs appearing
on the inside front cover of the Prospectus and the allocation of Shares among
the Underwriters, the dollar amounts of the concessions in the paragraph that
follows the tabular list of Underwriters and the last five paragrphs appearing
under the caption "Underwriting" constitute the only statements in any
Preliminary Prospectus, the Registration Statement or the Propsectus made in
reliance upon and in conformity with information furnished by or on behalf of
any Underwriter and that no statement was omitted from any Preliminary
Prospectus, the Registration Statement or the Propsectus in reliance upon and
in conformity with information furnished by or on behalf of any Underwriter;
(vii) such Selling Shareholder will comply in
all respects with the lock-up agreement executed by such Selling Shareholder in
favor of Janney Montgomery Scott, Inc., as more fully described in Paragraph
5(k) below;
(viii) such Selling Shareholder has not
incurred any liability for any finder's fee or similar payments in connection
with the sale of such Selling Shareholder's Shares hereunder; and
(ix) such Selling Shareholder (A) has not
distributed and will not distribute any offering material in connection with the
offering and sale of the Shares other than the Registration Statement, a
Preliminary Prospectus, the Prospectus and other material, if any, permitted by
the Act and the Regulations, and (B) has not taken and will not take any action
designed to, or that might be reasonably expected to cause or result in,
stabilization or manipulation of the price of the Shares.
2. Purchase and Sale of Firm Shares. On the basis of the
representations, warranties, covenants and agreements contained herein, but
subject to the terms and conditions set forth herein, (a) the Company shall sell
to the several Underwriters at the Offering Price, less the Underwriting
Discounts and Commissions in the amount of $_____ per Share, the respective
amounts of the Firm Shares set forth opposite their names on Schedule I hereto,
and the Underwriters, severally and not jointly, shall purchase from the Company
on a firm commitment basis, at the Offering Price, less the Underwriting
Discounts and Commissions in the amount of $_____ per Share, the respective
amounts of the Firm Shares set forth opposite their names on Schedule I hereto;
and (b) the Selling Shareholders shall sell to the several Underwriters at the
Offering Price, less the Underwriting Discounts and Commissions in the amount of
$______ per Share, the respective amounts of the Firm Shares set forth opposite
their names on Schedule II hereto, and the Underwriters, severally and not
jointly, shall purchase from the Selling Shareholders on a firm commitment
basis, at the Offering Price, less the Underwriting Discounts and Commissions in
the amount of $_____ per Share, the portion of the total Firm Shares listed on
Schedule II hereto that bears the same ratio as the amounts that the Firm Shares
set forth opposite their names on Schedule I hereto bears to the total Firm
Shares listed on such schedule. In making this Agreement, each Underwriter is
contracting severally, and not jointly, and except as provided in Sections 4 and
11 hereof, the agreement of each Underwriter is to purchase only
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that number of shares specified with respect to that Underwriter in Schedule I
hereto. The Underwriters shall offer the Shares to the public as set forth in
the Prospectus.
3. Payment and Delivery. Payment for the Firm Shares shall be
made by certified or official bank check payable to the order of (i) the Company
with respect to the Firm Shares sold by it and (ii) the Custodian with respect
to the Firm Shares sold by the Selling Shareholders, in New York Clearing House
or similar next day funds, at the offices of Janney Montgomery Scott Inc., 1801
Market Street, Philadelphia, Pennsylvania, or such other place as shall be
agreed upon by the Company and the Representatives, or in immediately available
funds wired to such accounts as the Company or the Custodian may specify (with
all costs and expenses incurred by the Underwriters in connection with such
settlement in immediately available funds, including, but not limited to,
interest or cost of funds and expenses, to be borne pro rata by the Company and
the Selling Shareholders), against delivery of the Firm Shares to the
Representatives at the offices of Janney Montgomery Scott Inc., 1801 Market
Street, Philadelphia, Pennsylvania for the respective accounts of the
Underwriters. Such payment and delivery will be made at _____A.M., Philadelphia,
Pennsylvania time, on the third business day after the date of this Agreement or
at such other time and date no later than three business days thereafter as the
Representatives and the Company shall agree upon. Such time and date are
referred to herein as the "Closing Date." The certificates representing the Firm
Shares to be sold and delivered will be in such denominations and registered in
such names as the Representatives request not less than two full business days
prior to the Closing Date, and will be made available to the Representatives for
inspection, checking and packaging at the office of the Company's transfer agent
not less than one full business day prior to the Closing Date.
4. Option to Purchase Optional Shares.
(a) For the purposes of covering any over-allotments
in connection with the distribution and sale of the Firm Shares as contemplated
by the Prospectus, subject to the terms and conditions herein set forth, the
several Underwriters are hereby granted an option by the Company to purchase all
or any part of the Optional Shares (the "Over-allotment Option"). The purchase
price to be paid for the Optional Shares shall be the Offering Price less the
Underwriting Discounts and Commissions shown on the cover page of the
Prospectus. The Over-allotment Option granted hereby may be exercised by the
Representatives on behalf of the several Underwriters as to all or any part of
the Optional Shares at any time and from time to time within 30 days after the
date of the Prospectus. No Underwriter shall be under any obligation to purchase
any Optional Shares prior to an exercise of the Over-allotment Option.
(b) The Over-allotment Option granted hereby may
be exercised by the Representatives on behalf of the several Underwriters by
giving notice to the Company by a letter sent by registered or certified mail,
postage prepaid, telex, telegraph, telegram or facsimile (such notice to be
effective when received), addressed as provided in Section 13 hereof, setting
forth the number of Optional Shares to be purchased, the date and time for
delivery of and payment for the Optional Shares and stating that the Optional
Shares referred to therein are to be used for the purpose of covering
over-allotments in connection with the distribution and sale of the Firm Shares.
If such notice is given prior to the Closing Date, the date set forth therein
for such delivery and payment shall be the Closing Date. If such notice is given
on or after the Closing
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Date, the date set forth therein for such delivery and payment shall be a date
selected by the Representatives that is within three full business days after
the exercise of the Over-allotment Option. The date and time set forth in such a
notice is referred to herein as an "Option Closing Date," and a closing held
pursuant to such a notice is referred to herein as an "Option Closing." Upon
each exercise of the Over-allotment Option, and on the basis of the
representations, warranties, covenants and agreements herein contained, and
subject to the terms and conditions herein set forth, the several Underwriters
shall become severally, but not jointly, obligated to purchase from the Company
the number of Optional Shares specified in each notice of exercise of the
Over-allotment Option.
(c) The number of Optional Shares to be sold to each
Underwriter pursuant to each exercise of the Over-allotment Option shall be the
number set forth opposite their names on Schedule I hereto. Notwithstanding the
foregoing, the number of Optional Shares purchased and sold pursuant to each
exercise of the Over-allotment Option shall be subject to such adjustment as the
Representatives may approve to eliminate fractional shares and subject to the
provisions for the allocation of Optional Shares purchased for the purpose of
covering over-allotments set forth in the agreement entered into by and among
the Underwriters in connection herewith (the "Agreement Among Underwriters").
(d) Payment for the Optional Shares shall be made to
the Company by certified or official bank check payable to the order of the
Company in New York Clearing House or similar next day funds at the offices of
Janney Montgomery Scott Inc., 1801 Market Street, Philadelphia, Pennsylvania, or
such other place as shall be agreed upon by the Company and the Representatives,
or in immediately available funds wired to such account as the Company may
specify (with all costs and expenses incurred by the Underwriters in connection
with such settlement in immediately available funds, including, but not limited
to, interest or cost of funds and expenses, to be borne by the Company), against
delivery of the Optional Shares to the Representatives at the offices of Janney
Montgomery Scott Inc., 1801 Market Street, Philadelphia, Pennsylvania, for the
respective accounts of the Underwriters. The certificates representing the
Optional Shares to be issued and delivered will be in such denominations and
registered in such names as the Representatives request not less than two full
business days prior to the Option Closing Date, and will be made available to
the Representatives for inspection, checking and packaging at the office of the
Company's transfer agent not less than one full business day prior to the Option
Closing Date.
5. Certain Covenants and Agreements of the Company. The Company
covenants and agrees with the several Underwriters as follows:
(a) if Rule 430A of the Regulations is employed,
the Company will timely file the Prospectus pursuant to and in compliance with
Rule 424(b) of the Regulations and will advise the Representatives of the time
and manner of such filing;
(b) the Company will not file or publish any
amendment or supplement to the Registration Statement, any Preliminary
Prospectus or the Prospectus at any time before the completion of the
distribution of the Shares by the Underwriters that is not (i) in compliance
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with the Regulations and (ii) approved by the Representatives (such approval
not to be unreasonably withheld or delayed);
(c) the Company will advise the Representatives
immediately, and confirm such advice in writing, (i) when any post-effective
amendment to the Registration Statement is filed with the SEC, (ii) of the
receipt of any comments from the SEC concerning the Registration Statement,
(iii) when any post-effective amendment to the Registration Statement becomes
effective, or when any supplement to the Prospectus or any amended Prospectus
has been filed, (iv) of any request of the SEC for amendment or supplementation
of the Registration Statement or Prospectus or for additional information, (v)
during the period when the Prospectus is required to be delivered under the Act
and Regulations, of the happening of any event as a result of which the
Registration Statement or the Prospectus would include an untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein not misleading, (vi) during the period noted in (v) above, of the need
to amend the Registration Statement or supplement the Prospectus to comply with
the Act, (vii) of the issuance by the SEC of any stop order suspending the
effectiveness of the Registration Statement or of any order preventing or
suspending the use of any Preliminary Prospectus or the Prospectus, and (viii)
of the suspension of the qualification of any of the Shares for offering or sale
in any jurisdiction in which the Underwriters intend to make such offers or
sales, or of the initiation or threatening of any proceedings for any of such
purposes known to the Company. The Company will use its best efforts to prevent
the issuance of any such stop order or of any order preventing or suspending
such use and, if any such order is issued, to obtain as soon as possible the
lifting thereof;
(d) the Company has delivered to the Representatives,
without charge, copies of each Preliminary Prospectus. The Company will deliver
to the Representatives, without charge, from time to time during the period when
delivery of the Prospectus is required under the Act, such number of copies of
the Prospectus (as supplemented or amended) as the Representatives may
reasonably request. The Company hereby consents to the use of such copies of the
Preliminary Prospectus and the Prospectus for purposes permitted by the Act, the
Regulations and the securities or Blue Sky laws of the states in which the
Shares are offered by the several Underwriters and by all dealers to whom Shares
may be sold, both in connection with the offering and sale of the Shares and for
such period of time thereafter as the Prospectus is required by the Act to be
delivered in connection with sales by any Underwriter or dealer. The Company has
furnished or will furnish to the Representatives six original signed copies of
the Registration Statement as originally filed and of all amendments and
supplements thereto, whether filed before or after the Effective Date, six
copies of all exhibits filed therewith and six signed copies of all consents and
certificates of experts, and will deliver to the Representatives such number of
conformed copies of the Registration Statement, including financial statements
and exhibits, and all amendments thereto, as the Representatives may reasonably
request;
(e) the Company will comply with the Act, the
Regulations, the Exchange Act and the rules and regulations thereunder so as to
permit the continuance of sales of and dealings in the Shares for as long as may
be necessary to complete the distribution of the Shares as contemplated hereby;
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(f) the Company will furnish such information as may
be required and otherwise cooperate in the registration or qualification of the
Shares, or exemption therefrom, for offering and sale by the several
Underwriters and by dealers under the securities or Blue Sky laws of such
jurisdictions in which the Representatives determine to offer the Shares, after
consultation with the Company, and will file such consents to service of process
or other documents necessary or appropriate in order to effect such registration
or qualification; provided, however, that no such qualification shall be
required in any jurisdiction where, solely as a result thereof, the Company
would be subject to taxation or qualification as a foreign corporation doing
business in such jurisdiction where it is not now so qualified or to take any
action which would subject it to service of process in suits, other than those
arising out of the offering or sale of the Shares, in any jurisdiction where it
is not now so subject. The Company will, from time to time, prepare and file
such statements and reports as are or may be required to continue such
qualification in effect for so long a period as is required under the laws of
such jurisdictions for such offering and sale;
(g) subject to subsection 5(b) hereof, in case of
any event, at any time within the period during which, in the opinion of counsel
for the Underwriters, a prospectus is required to be delivered under the Act and
Regulations, as a result of which any Preliminary Prospectus or the Prospectus,
as then amended or supplemented, would contain an untrue statement of a material
fact, or omit to state any material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading, or, if it is necessary at any time to amend any Preliminary
Prospectus or the Prospectus to comply with the Act and Regulations or any
applicable securities or Blue Sky laws, the Company promptly will prepare and
file with the SEC, and any applicable state securities commission, an amendment,
supplement or document that will correct such statement or omission or effect
such compliance and will furnish to the several Underwriters such number of
copies of such amendment(s), supplement(s) or document(s) (in form and substance
satisfactory to the Representatives and counsel for the Underwriters) as the
Representatives may reasonably request. For purposes of this subsection (g), the
Company will provide such information to the Representatives, the Underwriters'
counsel and counsel to the Company as shall be necessary to enable such persons
to consult with the Company with respect to the need to amend or supplement the
Registration Statement, Preliminary Prospectus or Prospectus or file any
document, and shall furnish to the Representatives and the Underwriters' counsel
such further information as each may from time to time reasonably request;
(h) the Company will make generally available to its
security holders not later than 45 days after the end of the period covered
thereby, an earnings statement of the Company (which need not be audited unless
required by the Act or the Regulations) that shall comply with Section 11(a) of
the Act and cover a period of at least 12 consecutive months beginning not later
than the first day of the Company's fiscal quarter next following the Effective
Date;
(i) for a period of five years following the
Effective Date, the Company will furnish to the Representatives copies of all
materials furnished by the Company to its shareholders and all public reports
and all reports and financial statements furnished by the
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Company to the SEC pursuant to the Exchange Act or any rule or regulation of
the SEC thereunder;
(j) during the course of the distribution of the
Shares, the Company will not take, directly or indirectly, any action designed
to or that could reasonably be expected to cause or result in stabilization or
manipulation of the price of the Common Shares;
(k) the Company has caused each person listed on
Schedule IV hereto to execute an agreement (a "Lock-up Agreement"), which
Lock-up Agreement shall be in form and substance satisfactory to the
Representatives and the Underwriters' counsel providing that (i) for a period of
180 days after the Effective Date, they will not, without the prior written
consent of the Representatives, directly or indirectly offer to sell, sell,
contract to sell or otherwise transfer or dispose of any Common Shares, any
options or warrants to purchase Common Shares, or any securities convertible
into or exercisable for any Common Shares owned by them or with respect to which
they have the power of disposition and (ii) from the date of such Lock-up
Agreement for a period of 180 days after the Effective Date, they will not
exercise any demand, mandatory, piggyback, optional or any other registration
rights with respect to Common Shares. The Company has delivered such agreements
to the Representatives prior to the date of this Agreement. Appropriate stop
transfer instructions will be issued by the Company to the transfer agent for
the Common Shares;
(1) the Company will not engage in any transaction
with affiliates (as defined in the Regulations) without the prior approval of a
majority of the members of its Board of Directors who do not have an interest in
such transaction other than in their capacity as directors of the Company;
(m) for a period of 180 days after the Effective
Date, the Company will not, without the prior written consent of the
Representatives, offer, sell, contract to sell or otherwise dispose of any
Common Shares or any securities convertible into or exercisable for any Common
Shares or grant options to purchase any Common Shares other than options under
the 1986 Incentive Stock Option Plan, the 1992 Incentive Stock Option Plan, the
1994 Non-Employee Directors Stock Option Plan and the 1996 Executive Stock Plan
which are not exercisable within such 180-day period;
(n) the Company will cause the Common Shares
(including, without limitation, the Shares) to be included in the Nasdaq Stock
Market's National Market prior to the Closing Date; and
(o) the Company may extend the term of its Class C
Warrants to a date no later than December 31, 1997; provided, that the terms of
such Class C Warrants shall not, at any time, be amended further in any respect.
6. Payment of Fees and Expenses.
(a) Whether or not the transactions contemplated by
this Agreement are consummated and regardless of the reason this Agreement is
terminated, the Company will pay
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or cause to be paid, and bear or cause to be borne, all costs and expenses
incident to the performance of the obligations of the Company and the Selling
Shareholders under this Agreement, including: (i) the fees and expenses of the
accountants and counsel for the Company incurred in the preparation of the
Registration Statement and any post-effective amendments thereto (including
financial statements and exhibits), Preliminary Prospectuses and the Prospectus
and any amendments or supplements thereto; (ii) printing and mailing expenses
associated with the Registration Statement and any post-effective amendments
thereto, any Preliminary Prospectus, the Prospectus, this Agreement, the
Agreement Among Underwriters, the Underwriters' Questionnaire submitted to each
of the Underwriters by Janney Montgomery Scott Inc. in connection herewith, the
power of attorney executed by each of the Underwriters in favor of Janney
Montgomery Scott Inc. in connection herewith, the Selected Dealer Agreement and
related documents and the preliminary Blue Sky memorandum relating to the
offering prepared by Wolf, Block, Schorr and Solis-Cohen, counsel to the
Underwriters (collectively with any supplement thereto, the "Preliminary Blue
Sky Memorandum"); (iii) the costs (other than fees and expenses of the
Underwriters' counsel except in connection with Blue Sky and NASD filings or
exemptions as provided herein) incident to the authentication, issuance, sale
and delivery of the Shares to the Underwriters; (iv) the fees, expenses and all
other costs of qualifying the Shares for sale under the securities or Blue Sky
laws of those states in which the Shares are to be offered or sold, including,
without limitation, the fees and expenses of Underwriters' counsel and such
local counsel as may have been reasonably required and retained for such
purpose; (v) the fees, expenses and other costs of, or incident to, securing any
review or approvals by or from the NASD, including the reasonable fees and
expenses of the Underwriters' counsel; (vi) the filing fees of the SEC;
(vii) the cost of furnishing to the Underwriters copies of the Registration
Statement, each Preliminary Prospectus and the Prospectus as herein provided;
(viii) the Company's travel expenses in connection with meetings with the
brokerage community and institutional investors; (ix) the costs and expenses
associated with settlement in same day funds (including, but not limited to,
interest or cost of funds expenses), if desired by the Company; (x) any fees or
costs payable to the Nasdaq Stock Market as a result of the offering; (xi) the
cost of printing certificates for the Shares; (xii) the cost and charges of any
transfer agent; (xiii) the costs of advertising the offering, including, without
limitation, with respect to the placement of "tombstone" advertisements in
publications selected by the Representatives; and (xiv) all other costs and
expenses reasonably incident to the performance of the Company's and the Selling
Shareholders' obligations hereunder that are not otherwise specifically provided
for in this Section 6(a); provided, however, that, except as specifically set
forth in Section 6(c) hereof, (A) the Underwriters shall be responsible for
their out-of-pocket expenses, including those associated with meetings with the
brokerage community and institutional investors, other than the Company's travel
expenses, and the fees and expenses of their counsel for other than Blue Sky and
NASD filings or exemptions, and (B) the Selling Shareholders shall be
responsible for any transfer or income taxes assessed with respect to the Shares
sold by the Selling Shareholders and any fees and expenses of the Selling
Shareholders' counsel and such other expenses as are agreed to by the Company
and the Selling Shareholders or as may be required by law or regulation.
(b) The Company shall pay as due any state
registration, qualification, notice and filing fees and any accountable
out-of-pocket disbursements in connection with such registration, qualification
or filing in the states in which the Representatives determine to offer or sell
the Shares.
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<PAGE>
(c) In the event that the Representatives are willing
to proceed with the offering, the Company elects not to proceed with the
offering and, on or before ____________, 1997, the Company enters into an
agreement of sale, acquisition, merger, business combination or other material
event affecting the ownership of all or substantially all of its assets or
outstanding securities (each, a "Transaction") , then, with respect to any such
Transaction, the Company shall engage the Representatives as financial advisors
and investment bankers pursuant to an agreement containing customary terms and
provisions reasonably satisfactory to the Company and the Representatives. The
Representatives shall perform customary investment banking and financial
advisory services for the Company in analyzing, structuring, negotiating, and
effecting such Transaction and, in consideration therefor, in addition to its
expense obligations contained in this Section 6, the Company shall pay to the
Representatives a fee, in cash, of an amount equal to one and one-half percent
of all consideration (cash, securities, promises of performance, assumption,
payment or forgiveness of debt, or otherwise) paid with respect to the assets or
stock of the Company pursuant to such Transaction.
7. Conditions of Underwriters' Obligations. The obligation of
each Underwriter to purchase and pay for the Firm Shares that it has agreed to
purchase hereunder on the Closing Date, and to purchase and pay for any Optional
Shares as to which it exercises its right to purchase under Section 4 on an
Option Closing Date, is subject at the date hereof, the Closing Date and any
Option Closing Date to the continuing accuracy and fulfillment of the
representations and warranties of the Company and the Selling Shareholders to
the performance by the Company of its covenants and obligations hereunder, and
to the following additional conditions:
(a) if required by the Regulations, the Prospectus
shall have been filed with the SEC pursuant to Rule 424(b) of the Regulations
within the applicable time period prescribed for such filing by the Regulations;
on or prior to the Closing Date or any Option Closing Date, as the case may be,
no stop order or other order preventing or suspending the effectiveness of the
Registration Statement or the sale of any of the Shares shall have been issued
under the Act or any state securities law and no proceedings for that purpose
shall have been initiated or shall be pending or, to the Representatives'
knowledge or the knowledge of the Company, shall be contemplated by the SEC or
by any authority in any jurisdiction designated by the Representatives pursuant
to Section 5(f) hereof; and any request on the part of the SEC for additional
information shall have been complied with to the reasonable satisfaction of
counsel for the Underwriters;
(b) all corporate proceedings and other matters
incident to the authorization, form and validity of this Agreement, the Shares
and the form of the Registration Statement and the Prospectus, and all other
legal matters relating to this Agreement and the transactions contemplated
hereby, shall be satisfactory in all respects to counsel to the Underwriters;
the Company and the Selling Shareholders shall have furnished to such counsel
all documents and information that they may reasonably request to enable them to
pass upon such matters; and the Representatives shall have received from the
Underwriters' counsel, Wolf, Block, Schorr and Solis-Cohen, an opinion, dated as
of the Closing Date and any Option Closing Date, as the case may be, and
addressed to the Representatives individually and as the
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Representatives of the several Underwriters, which opinion shall be satisfactory
in all respects to the Representatives;
(c) the NASD shall have indicated that it has no
objection to the underwriting arrangements pertaining to the sale of any of the
Shares;
(d) the Representatives shall have received a copy
of an executed Lock-up Agreement from each person listed on Schedule IV hereto;
(e) the Representatives shall have received at or
prior to the Closing Date from the Underwriters' counsel a memorandum or
summary, in form and substance satisfactory to the Representatives, with respect
to the qualification for offering and sale by the Underwriters of the Shares
under the securities or Blue Sky laws of such jurisdictions designated by the
Representatives pursuant to Section 5(f) hereof;
(f) on the Closing Date and any Option Closing Date,
there shall have been delivered to the Representatives signed opinions of
Buchanan Ingersoll Professional Corporation, and _______________ counsel for the
Company and the Selling Shareholders, respectively, dated as of each such date
and addressed to the Representatives individually and as the Representatives of
the several Underwriters to the effect set forth in Exhibit B and Exhibit B-1
hereto, respectively, or as is otherwise reasonably satisfactory to the
Representatives;
(g) at the Closing Date and any Option Closing Date:
(i) the Registration Statement and any post-effective amendment thereto and the
Prospectus and any amendments or supplements thereto shall contain all
statements that are required to be stated therein in accordance with the Act and
the Regulations and in all material respects shall conform to the requirements
of the Act and the Regulations, and neither the Registration Statement nor any
post-effective amendment thereto nor the Prospectus and any amendments or
supplements thereto shall contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading; (ii) since the respective dates as
of which information is given in the Registration Statement and any
post-effective amendment thereto and the Prospectus and any amendments or
supplements thereto, there shall have been no material adverse change in the
properties, condition (financial or otherwise), results of operations,
shareholders' equity, business or management of the Company and the
Subsidiaries, taken as a whole, from that set forth therein, whether or not
arising in the ordinary course of business, other than as expressly referred to
in the Registration Statement or Prospectus; (iii) since the respective dates as
of which information is given in the Registration Statement and the Prospectus
or any amendment or supplement thereto, there shall have been no event or
transaction, contract or agreement entered into by the Company, other than in
the ordinary course of business and as set forth in the Registration Statement
or Prospectus, that has not been, but would be required to be, set forth in the
Registration Statement or Prospectus; (iv) since the respective dates as of
which information is given in the Registration Statement and any post-effective
amendment thereto and the Prospectus and any amendments or supplements thereto,
there shall have been no material adverse change, loss, reduction, termination
or non-renewal of any contract to which the Company or any Subsidiary is a
party; and (v) no action, suit or proceeding at law or in equity shall be
pending or threatened against the Company that
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<PAGE>
would be required to be set forth in the Prospectus, other than as set forth
therein, and no proceedings shall be pending or threatened against or directly
affecting the Company or any Subsidiary before or by any federal, state or other
commission, board or administrative agency wherein an unfavorable decision,
ruling or finding would materially adversely affect the properties, condition
(financial or otherwise), results of operations, shareholders' equity, or
business of the Company or the Subsidiaries other than as expressly set forth in
the Prospectus;
(h) the Representatives shall have received at the
Closing Date and any Option Closing Date certificates of the Chief Executive
Officer and the Chief Financial Officer of the Company dated as of the date of
the Closing Date or Option Closing Date, as the case may be, and addressed to
the Representatives, individually and as the Representatives of the several
Underwriters, to the effect that (i) the signers of the certificate have read
this Agreement and the representations and warranties of the Company in this
Agreement are true and correct in all material respects, as if made at and as of
the Closing Date or the Option Closing Date, as the case may be, and the Company
has complied in all material respects with all the agreements, fulfilled in all
material respects all the covenants and satisfied all the conditions on its part
to be performed, fulfilled or satisfied at or prior to the Closing Date or the
Option Closing Date, as the case may be, and (ii) the signers of the certificate
have examined the Registration Statement and the Prospectus and any amendments
or supplements thereto and that the conditions set forth in Section 7(g) of this
Agreement have been satisfied;
(i) the Representatives shall have received at the
Closing Date certificates of or on behalf of the Selling Shareholders dated as
of the date of the Closing Date and addressed to the Representatives,
individually and as the Representatives of the several Underwriters, to the
effect that (i) the Selling Shareholders have read this Agreement and the
representations and warranties of the Selling Shareholders in this Agreement are
true and correct in all material respects, as if made at and as of the Closing
Date and (ii) the Selling Shareholders have examined the Registration Statement
and the Prospectus and any amendments or supplements thereto and that the
conditions set forth in Section 7(g) of this Agreement have been satisfied;
(j) at the time this Agreement is executed and at the
Closing Date and any Option Closing Date the Representatives shall have received
a letter addressed to the Representatives individually and as the
Representatives of the several Underwriters, and in form and substance
satisfactory to the Representatives and to Grant Thornton LLP in all respects
(including the non-material nature of the changes or decreases, if any, referred
to in clause (iii) below) from Grant Thornton LLP dated as of the date of this
Agreement, the Closing Date or the Option Closing Date, as the case may be:
(i) confirming that they are independent certified
public accountants within the meaning of the Act and the Regulations and stating
that the section of the Registration Statement under the caption "Experts" is
correct insofar as it relates to them;
(ii) stating that, in their opinion, the consolidated
financial statements, schedules and notes of the Company and the Subsidiaries
audited by them and included in the
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<PAGE>
Registration Statement comply in form in all material respects with the
applicable accounting requirements of the Act and the Regulations;
(iii) stating that, on the basis of specified
procedures, which included the procedures specified by the American Institute of
Certified Public Accountants for a review of interim financial information, as
described in SAS No. 71, Interim Financial Information (with respect to the
latest unaudited consolidated financial statements of the Company included in
the Registration Statement), a reading of the latest available unaudited interim
consolidated financial statements of the Company (with an indication of the date
of the latest available unaudited interim financial statements), a reading of
the minutes of the meetings of the shareholders and the Boards of Directors of
the Company and the Subsidiaries, and audit and compensation committees of such
Boards, if any, and inquiries to certain officers and other employees of the
Company and the Subsidiaries responsible for financial and accounting matters,
nothing has come to their attention that caused them to believe that (A) the
unaudited consolidated financial statements of the Company included in the
Registration Statement, (1) do not comply as to form in all material respects
with the applicable accounting requirements of the Act and the Regulations, or
(2) any material modifications should be made to such unaudited financial
statements for them to be in conformity with generally accepted accounting
principles; (B) at the date of the latest available unaudited interim
consolidated financial statements of the Company and a specified date not more
than five business days prior to the date of such letter, there was any change
in the capital stock or debt of the Company or any decrease in net current
assets, total assets or shareholders' equity of the Company as compared with the
amounts shown in the _____________________________ consolidated balance sheet of
the Company included in the Registration Statement, or that for the periods from
________________ to the date of the latest available unaudited consolidated
financial statements of the Company and to a specified date not more than five
days prior to the date of the letter, there were any decreases, as compared to
the corresponding periods in the prior year, in net sales, or in total or per
share amounts of income before minority interest and change in accounting
principle or of net income, except in all instances for changes, decreases or
increases which the Registration Statement discloses have occurred or may occur
and except for such other changes, decreases or increases which the
Representatives shall in their sole discretion accept; or (C) the unaudited pro
forma financial statements included in the Registration Statement does not
comply as to form in all material respects with the applicable accounting
requirements of Rule 11-02 of Regulation S-X under the Act and that the pro
forma adjustments have not been properly applied to the historical amounts in
the compilation of those statements; and
(iv) stating that they have compared specific dollar
amounts, numbers of shares and other numerical data and financial information
set forth in the Registration Statement that have been specified by the
Representatives and that Grant Thornton LLP is willing to perform and report
upon prior to the date of this Agreement, to the extent that such information is
derived from the accounting records subject to the internal control structure,
policies and procedures of the Company's or the Subsidiaries' accounting
systems, or has been derived directly from such accounting records by analysis
or comparison or has been derived from other records and analysis maintained or
prepared by the Company or the Subsidiaries with the results obtained from the
application of readings, inquiries and other appropriate procedures (which
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procedures do not constitute an audit in accordance with generally accepted
auditing standards) set forth in the letter, and found them to be in agreement;
(k) there shall have been duly tendered to the
Representatives for the respective accounts of the Underwriters certificates
representing all of the Shares to be purchased by the Underwriters on the
Closing Date or any Option Closing Date, as the case may be;
(l) at the Closing Date and any Option Closing Date,
the Representatives shall have been furnished such additional documents,
information and certificates as they shall have reasonably requested;
(m) the Common Shares (including, without limitation,
the Shares) shall be included in the Nasdaq Stock Market's National Market;
(n) the issuance and sale of the Shares shall be
legally permitted under applicable Blue Sky or state securities laws so long as
such sales are made in accordance with the Preliminary Blue Sky Memorandum; and
(o) all corporate and other proceedings and other
matters incident to the authorization, form and validity of this Agreement and
the form of the Registration Statement and Prospectus and all other legal
matters related to this Agreement and the transactions contemplated hereby,
shall be satisfactory in all respects to counsel to the Underwriters. The
Company and the Selling Shareholders shall have furnished to such counsel all
documents and information that they shall have reasonably requested to enable
them to pass upon such matters.
All such opinions, certificates, letters and documents shall
be in compliance with the provisions hereof only if they are satisfactory in
form and substance to the Representatives and Underwriters' counsel. The Company
and the Selling Shareholders shall furnish the Representatives with such
conformed copies of such opinions, certificates, letters and other documents as
they shall reasonably request. If any condition to the Underwriters' obligations
hereunder to be fulfilled prior to or at the Closing Date or any Option Closing
Date, as the case may be, is not fulfilled, the Representatives may on behalf of
the several Underwriters, terminate this Agreement with respect to the Closing
Date or such Option Closing Date, as applicable, or, if it so elects, waive any
such conditions which have not been fulfilled or extend the time for their
fulfillment. Any such termination shall be without liability of the Underwriters
to the Company or the Selling Shareholders.
8. Indemnification and Contribution.
(a) The Company and each Selling Shareholder,
severally and jointly, shall indemnify and hold harmless each Underwriter and
each person, if any, who controls each Underwriter within the meaning of the
Act, against any and all loss, liability, claim, damage and expense whatsoever,
including, but not limited to, any and all reasonable expenses whatsoever
incurred in investigating, preparing or defending against any litigation,
commenced or threatened, or any claim whatsoever or in connection with any
investigation or inquiry of, or action or proceeding that may be brought
against, the respective indemnified parties, arising out
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of or based upon any breach of representations and warranties made by the
Company or any such Selling Shareholder in this Agreement and any untrue
statements or alleged untrue statements of a material fact contained in any
Preliminary Prospectus, the Registration Statement or the Prospectus, any
application or other document (in this Section 8 collectively called
"application") executed by the Company and based upon written information
furnished by or on behalf of the Company filed in any jurisdiction in order to
qualify all or any part of the Shares under the securities laws thereof or filed
with the SEC or the NASD, or the omission or alleged omission therefrom of a
material fact required to be stated therein or necessary to make the statements
therein not misleading; provided, however, that the foregoing indemnity:
(i) shall not, subject to the acknowledgment of the
Company in Section 1(a)(ii) hereof and the acknowledgment of the Selling
Shareholders in Section 1(b)(vi) hereof, apply in respect of any statement or
omission made in reliance upon and in conformity with written information
furnished to the Company by any Underwriter or through the Representatives
expressly for use in any Preliminary Prospectus, the Registration Statement or
Prospectus, or any amendment or supplement thereto, or in any application or in
any communication to the SEC, as the case may be; and
(ii) with respect to any Preliminary Prospectus,
shall not inure to the benefit of any Underwriter from whom the person asserting
any such losses, claims, damages, liabilities or expenses purchased the Shares
if, at or prior to the written confirmation of the sale of such Shares, a copy
of an amended Preliminary Prospectus or the Prospectus (or the Prospectus as
amended or supplemented) was delivered to such Underwriter but was not sent or
delivered to such person and the untrue statement or omission of a material fact
contained in such Preliminary Prospectus was corrected in the amended
Preliminary Prospectus or Prospectus (or the Prospectus as amended or
supplemented).
This indemnity agreement will be in addition to any
liability the Company and the Selling Shareholders may otherwise have.
(b) Each Underwriter, severally and not jointly,
shall indemnify and hold harmless the Company, each of the directors of the
Company, each of the officers of the Company who shall have signed the
Registration Statement, each Selling Shareholder, and each other person, if any,
who controls the Company or a Selling Shareholder within the meaning of the Act
to the same extent as the foregoing indemnities from the Company and the Selling
Shareholders to the several Underwriters, but only with respect to any loss,
liability, claim, damage or expense resulting from statements or omissions, or
alleged statements or omissions, if any, made in any Preliminary Prospectus,
Registration Statement or Prospectus or any amendment or supplement thereof or
any application in reliance upon and in conformity with written information
furnished to the Company by any Underwriter or through the Representatives with
respect to any Underwriter by or on behalf of such Underwriter expressly for use
in any Preliminary Prospectus, the Registration Statement or Prospectus or any
amendment or supplement thereof or any application, as the case may be. This
indemnity agreement will be in addition to any liability which such Underwriter
may otherwise have.
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<PAGE>
(c) If any action, inquiry, investigation or
proceeding is brought against any person in respect of which indemnity may be
sought pursuant to any of the two preceding paragraphs, such person (hereinafter
called the "indemnified party") shall, promptly after notification of, or
receipt of service of process for, such action, inquiry, investigation or
proceeding, notify in writing the party or parties against whom indemnification
is to be sought (hereinafter called the "indemnifying party") of the institution
of such action, inquiry, investigation or proceeding and the indemnifying party,
upon the request of the indemnified party, shall assume the defense of such
action, inquiry, investigation or proceeding, including the employment of
counsel (reasonably satisfactory to such indemnified party) and payment of
expenses. No indemnification provided for in this Section 8 shall be available
to any indemnified party who shall fail to give such notice if the indemnifying
party does not have knowledge of such action, inquiry, investigation or
proceeding, to the extent that such indemnifying party has been materially
prejudiced by the failure to give such notice, but the omission to so notify the
indemnifying party shall not relieve the indemnifying party otherwise than under
this Section 8. Such indemnified party or controlling person shall have the
right to employ its or their own counsel in any such case, but the fees and
expenses of such counsel shall be at the expense of such indemnified party
unless the employment of such counsel shall have been authorized in writing by
the indemnifying party in connection with the defense of such action. If such
indemnified party or parties shall have been advised by counsel that there may
be a conflict between the positions of the indemnifying party or parties and of
the indemnified party or parties or that there may be legal defenses available
to such indemnified party or parties different from or in addition to those
available to the indemnifying party or parties, the indemnified party or parties
shall be entitled to select counsel (such counsel, "Separate Counsel") to
conduct the defense to the extent determined by such counsel to be necessary to
protect the interests of the indemnified party or parties and the reasonable
fees and expenses of such Separate Counsel shall be borne by the indemnifying
party; provided, however, that if the indemnified parties engage more than one
Separate Counsel, then the indemnifying party's liability with respect to such
Separate Counsel shall be limited, in the aggregate, to an amount equal to the
highest amount of reasonable fees and expenses charged or incurred by a single
Separate Counsel, which amount shall be divided among the indemnified parties on
a pro rata basis in accordance with the relative amounts of reasonable fees and
expenses of their respective Separate Counsel. Expenses covered by the
indemnification in this Section 8 shall be paid by the indemnifying party as
they are incurred by the indemnified party. Anything in this Section 8 to the
contrary notwithstanding, the indemnifying party shall not be liable for any
settlement of any such claim effected without its written consent.
(d) Each Selling Shareholder's aggregate liability
under this Section 8 shall be limited to an amount equal to the net proceeds
(before deducting expenses) received by such Selling Shareholder from the sale
of such Selling Shareholder's Shares pursuant to this Agreement.
(e) If the indemnification provided for in this
Section 8 is unavailable to, or insufficient to hold harmless an indemnified
party under Sections 8(a) or (b) hereof in respect of any losses, liabilities,
claims, damages or expenses (or actions, inquiries, investigations or
proceedings in respect thereof) referred to therein, except by reason of the
provisos set forth in Section 8(a) hereof or the failure to give notice as
required in Section 8(c) hereof (provided that
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<PAGE>
the indemnifying party does not have knowledge of the action, inquiry,
investigation or proceeding and to the extent such party has been materially
prejudiced by the failure to give such notice), then each indemnifying party
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, liabilities, claims, damages or expenses (or actions,
inquiries, investigations or proceedings in respect thereof) in such proportion
as is appropriate to reflect the relative benefits received by the Company or
the Selling Shareholders on the one hand and the Underwriters on the other from
the offering of the Shares. If, however, the allocation provided by the
immediately preceding sentence is not permitted by applicable law, then each
indemnifying party shall contribute to such amount paid or payable by such
indemnified party in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the Company or each Selling
Shareholder on the one hand and the Underwriters on the other in connection with
the statements or omissions which resulted in such losses, liabilities, claims
or reasonable expenses (or actions, inquiries, investigations or proceedings in
respect thereof), as well as any other relevant equitable considerations. The
relative benefits received by the Company or each Selling Shareholder on the one
hand and the Underwriters on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company or each Selling Shareholder bears to the total
underwriting discounts and commissions received by the Underwriters, in each
case as set forth in the table on the cover page of the Prospectus. The relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
or a Selling Shareholder on the one hand or the Underwriters on the other hand
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
The Company, the Selling Shareholders and the Underwriters
agree that it would not be just and equitable if contributions pursuant to this
Section 8(e) were determined by pro rata allocation (even if the Selling
Shareholders or the Underwriters were treated as one entity for such purpose) or
by any other method of allocation that does not take account of the equitable
considerations referred to above in this Section 8(e). The amount paid or
payable by an indemnified party as a result of the losses, liabilities, claims,
damages or reasonable expenses (or actions, inquiries, investigations or
proceedings in respect thereof) referred to above in this Section 8(e) shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this Section 8(e), (i) the
provisions of the Agreement Among Underwriters shall govern contribution among
Underwriters, (ii) no Underwriter (except as provided in the Agreement Among
Underwriters) shall be required to contribute any amount in excess of the
underwriting discounts and commissions applicable to the Shares purchased by
such Underwriter, and (iii) no person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this Section 8(d) to
contribute are several in proportion to their individual underwriting
obligations and not joint.
9. Representations and Agreements to Survive Delivery. Except
as the context otherwise requires, all representations, warranties and
agreements contained in this Agreement shall be deemed to be representations,
warranties and agreements at the Closing Date
-26-
<PAGE>
and any Option Closing Date; and such representations, warranties and agreements
of the Underwriters, the Company and the Selling Shareholders, including,
without limitation, the indemnity and contribution agreements contained in
Section 8 hereof and the agreements contained in Sections 6, 9, 10 and 13
hereof, shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any Underwriter or any controlling person,
and shall survive delivery of the Shares and termination of this Agreement,
whether before or after the Closing Date or any Option Closing Date.
10. Effective Date of This Agreement and Termination Hereof.
(a) This Agreement shall become effective at
_______ A.M., Philadelphia, Pennsylvania time, on the first business day
following the Effective Date or at the time of the public offering by the
Underwriters of the Shares, whichever is earlier, except that the provisions of
Sections 6, 8, 9, 10 and 13 hereof shall be effective upon execution hereof. The
time of the public offering, for the purpose of this Section 10, shall mean the
time when any of the Shares are first released by the Underwriters for offering
by dealers. The Representatives may prevent the provisions of this Agreement
(other than those contained in Sections 6, 8, 9, 10 and 13 hereof) from becoming
effective without liability of any party to any other party, except as noted
below, by giving the notice indicated in Section 10(c) hereof before the time
the other provisions of this Agreement become effective.
(b) The Representatives shall have the right to
terminate this Agreement at any time prior to the Closing Date as provided in
Sections 7 and 11 hereof or if any of the following have occurred:
(i) since the respective dates as of which
information is given in the Registration Statement and the Prospectus, any
material adverse change or any development involving a prospective material
adverse change in or affecting the condition, financial or otherwise, of the
Company or its Subsidiaries, or the earnings, business affairs, management or
business prospects of the Company or its Subsidiaries, whether or not arising in
the ordinary course of business, that would, in the Representatives' reasonable
judgment, make the offering or delivery of the Shares impracticable;
(ii) any outbreak of hostilities or other national or
international calamity or crisis or change in economic, political or financial
market conditions if the effect on the financial markets of the United States of
such outbreak, calamity, crisis or change is material and adverse and would, in
the Representatives' reasonable judgment, make the offering or delivery of the
Shares impracticable;
(iii) suspension of trading generally in securities
on the New York Stock Exchange, the American Stock Exchange, the Nasdaq Stock
Market or the over-the-counter market or limitation on prices (other than
limitations on hours or numbers of days of trading) for securities or the
promulgation of any federal or state statute, regulation, rule or order of any
court or other governmental authority that in the Representatives' reasonable
opinion materially and adversely affects trading on such exchange or the
over-the-counter market;
-27-
<PAGE>
(iv) declaration of a banking moratorium by either
federal or Nevada state authorities;
(v) the taking of any action by any federal, state
or local government or agency in respect of its monetary or fiscal affairs that
in the Representatives' reasonable opinion has a material adverse effect on the
securities markets in the United States; or
(vi) trading in any securities of the Company shall
have been suspended or halted by the Nasdaq Stock Market or the SEC.
(c) If the Representatives elect to prevent this
Agreement from becoming effective or to terminate this Agreement as provided in
this Section 10, the Representatives shall notify the Company and the Selling
Shareholders thereof promptly by telephone, telex, telegraph, telegram or
facsimile, confirmed by letter.
11. Default by an Underwriter.
(a) If any Underwriter or Underwriters shall default
in its or their obligation to purchase Firm Shares or Optional Shares hereunder,
and if the Firm Shares or Optional Shares with respect to which such default
relates do not exceed the aggregate of 10% of the number of Firm Shares or
Optional Shares, as the case may be, that all Underwriters have agreed to
purchase hereunder, then such Firm Shares or Optional Shares to which the
default relates shall be purchased severally by the non-defaulting Underwriters
in proportion to their respective commitments hereunder.
(b) If such default relates to more than 10% of the
Firm Shares or Optional Shares, as the case may be, the Representatives may, in
their discretion, arrange for another party or parties (including a
non-defaulting Underwriter) to purchase such Firm Shares or Optional Shares to
which such default relates, on the terms contained herein. In the event that the
Representatives do not arrange for the purchase of the Firm Shares or Optional
Shares to which a default relates as provided in this Section 11, this Agreement
may be terminated by the Representatives or by the Company without liability on
the part of the several Underwriters (except as provided in Section 8 hereof) or
the Company (except as provided in Sections 6 and 8 hereof), but nothing herein
shall relieve a defaulting Underwriter of its liability, if any, to the other
several Underwriters and to the Company for damages occasioned by its default
hereunder.
(c) If the Firm Shares or Optional Shares to which
the default relates are to be purchased by the non-defaulting Underwriters, or
are to be purchased by another party or parties as aforesaid, the
Representatives or the Company shall have the right to postpone the Closing Date
or any Option Closing Date, as the case may be, for a reasonable period but not
in any event exceeding seven days, in order to effect whatever changes may
thereby be made necessary in the Registration Statement or the Prospectus or in
any other documents and arrangements, and the Company agrees to file promptly
any amendment to the Registration Statement or supplement to the Prospectus that
in the opinion of counsel for the Underwriters may thereby be made necessary.
The terms "Underwriters" and "Underwriter" as used in this Agreement shall
include any party substituted under this Section 11 with like effect as if it
had
-28-
<PAGE>
originally been a party to this Agreement with respect to such Firm Shares
and/or Optional Shares.
12. Notice. All communications hereunder, except as herein
otherwise specifically provided, shall be in writing and, if sent to any
Underwriter, shall be mailed, delivered, telexed, telegrammed, telegraphed or
telecopied and confirmed to such Underwriter, c/o Janney Montgomery Scott Inc.,
1801 Market Street, Philadelphia, Pennsylvania 19103, Attention: Mr. William L.
Rulon-Miller, with a copy to Wolf, Block, Schorr and Solis-Cohen, Twelfth Floor
Packard Building, S.E. Corner 15th and Chestnut Streets, Philadelphia,
Pennsylvania 19102-2678, Attention: Mark K. Kessler, Esquire; if sent to the
Company shall be mailed, delivered, telexed, telegrammed, telegraphed or
telecopied and confirmed to RCM Technologies, Inc., 2500 McClellan Avenue, Suite
350, Pennsauken, New Jersey, 08109-4613, Attention: Leon Kopyt, with a copy to
Buchanan Ingersoll Professional Corporation, Eleven Penn Center, 14th Floor,
1835 Market Street, Philadelphia, Pennsylvania, 19103, Attention: Stephen M.
Cohen, Esquire; if sent to the Selling Shareholders shall be mailed, delivered,
telegrammed, telegraphed or telecopied and confirmed to (a) Limeport
Investments, LLC c/o Acquest International, 1760 Market Street, 12th Floor,
Philadelphia, Pennsylvania 19103, (b) J. Dennis Bodemann, 5619 Oldham Court,
Lousiville, Kentucky 40291, or (c) Harry R. Nelson, 2100 Gardner Lane, Suite
216, Lousiville, Kentucky 40205, as applicable, with a copy to _______________
________________________________________.
13. Parties. This Agreement shall inure solely to the benefit
of, and shall be binding upon, the several Underwriters, the Company, the
Selling Shareholders and the controlling persons, directors and officers
thereof, and their respective successors, assigns, heirs and legal
representatives, and no other person shall have or be construed to have any
legal or equitable right, remedy or claim under or in respect of or by virtue of
this Agreement or any provision herein contained. The terms "successors" and
"assigns" shall not include any purchaser of the Shares merely because of such
purchase.
In all dealings with the Company and the Selling Shareholders
under this Agreement, the Representatives shall act on behalf of each of the
several Underwriters, and the Company and the Selling Shareholders shall be
entitled to act and rely upon any statement, request, notice or agreement made
or given by the Representatives jointly or by Janney Montgomery Scott Inc. on
behalf of the Representatives.
14. Definition of Business Day. For purposes of this Agreement,
"business day" means any day on which the Nasdaq National Market, or to the
extent that the Common Shares are included in the Nasdaq SmallCap Market, the
Nasdaq SmallCap Market, is opened for trading.
15. Counterparts. This Agreement may be executed in one or more
counterparts and all such counterparts will constitute one and the same
instrument.
16. Construction. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania
applicable to agreements made and performed entirely within such Commonwealth.
All references herein to the knowledge of the Company shall be deemed to include
the knowledge of each of the Subsidiaries.
-29-
<PAGE>
If the foregoing correctly sets forth your understanding of
our agreement, please sign and return to the Company the enclosed duplicate
hereof, whereupon it will become a binding agreement in accordance with its
terms.
Very truly yours,
RCM TECHNOLOGIES, INC.
By:
------------------------------------
Leon Kopyt
Chairman of the Board, Chief
Executive Officer and President
THE SELLING SHAREHOLDERS
By:
------------------------------------
Leon Kopyt
Attorney-in-fact acting on behalf of
each of the Selling Shareholders
named in Schedule II hereto.
The foregoing Agreement is hereby confirmed
and accepted as of the date first above written.
JANNEY MONTGOMERY SCOTT INC.
LEGG MASON WOOD WALKER, INCORPORATED
As Representatives of the Several Underwriters
named in Schedule I hereto
By: JANNEY MONTGOMERY SCOTT INC.
By:
--------------------------------------------
Authorized Representative
By: LEGG MASON WOOD WALKER, INCORPORATED
By:
--------------------------------------------
Authorized Representative
-30-
<PAGE>
JOINDER
Each of the subsidiaries, intending to be legally bound,
hereby joins this Agreement for purposes of Sections 1 and 9 hereof.
INTERTEC DESIGN, INC.
------------------------------------
By:
Title:
CATARACT, INC.
------------------------------------
By:
Title:
THE CONSORTIUM
------------------------------------
By:
Title:
THE CONSORTIUM OF MARYLAND, INC.
------------------------------------
By:
Title:
PROGRAMMING ALTERNATIVES OF
MINNESOTA, INC.
------------------------------------
By:
Title:
-31-
<PAGE>
SCHEDULE I
Schedule of Underwriters
<TABLE>
<CAPTION>
Number of Firm Number of
Shares to be Optional Shares
Underwriter Purchased to be Purchased
----------- ---------------- ---------------
<S> <C> <C>
Janney Montgomery Scott, Inc.,
Philadelphia, PA
Legg Mason Wood Walker, Incorporated
Baltimore, MD
--------- -------
TOTAL 2,500,000 375,000
</TABLE>
I-1
<PAGE>
SCHEDULE II
Schedule of Selling Shareholders
Number of Firm
Selling Shareholder Shares to be Sold
------------------- -----------------
Limeport Investments, LLC 138,313
J. Dennis Bodemann 1,500
Harry R. Nelson 2,500
Martin Blaire 36,000
II-1
<PAGE>
SCHEDULE III
Shareholder NASD Affiliations
III-1
<PAGE>
SCHEDULE IV
List of Persons Who Are to Deliver Lock-Up
Agreements Called for Under Sections 5(k) and 7(d)
RCM Technologies, Inc.
Limeport Investments, LLC
Leon Kopyt
Barry S. Meyers
Martin Blaire
Stanton Remer
Peter R. Kaminsky
Norman S. Berson
Robert B. Kerr
Woodrow B. Moats, Jr.
IV-1
<PAGE>
EXHIBIT A
Subsidiaries of the Company, Jurisdiction
of Incorporation and Percentage Ownership
Subsidiary Jurisdiction % Ownership
- ---------- ------------ -----------
Intertec Design, Inc. New York 100%
Cataract, Inc. Pennsylvania 100%
The Consortium New Jersey 100%
The Consortium of Maryland 100%
Maryland, Inc.
Programming Alternatives Minnesota 100%
of Minnesota, Inc.
A-1
<PAGE>
EXHIBIT B
Matters to be Covered in the Opinion of
Buchanan Ingersoll Professional Corporation
Counsel for the Company
(1) The Company is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation with full power and authority to conduct all of the activities
conducted by it, own or lease all of the assets owned or leased by it, and
conduct its business all as described in the Registration Statement and the
Prospectus; and is duly licensed or qualified to do business and in good
standing as a United States foreign corporation in all jurisdictions in which
the nature of the activities conducted by it and/or the character of the assets
owned and leased by it makes such qualification or license necessary; and the
Subsidiaries are all wholly owned subsidiaries of the Company.
(2) No authorization, approval, consent or license of any
governmental or regulatory body, except as may be required under the Act or the
blue sky laws of the various jurisdictions, is required in connection with the
(A) authorization, issuance, transfer, sale or delivery of the Shares to be sold
by the Company; (B) execution, delivery and performance of this Agreement by the
Company or (C) taking of any action contemplated in the Underwriting Agreement
or in the Registration Statement or the Prospectus, or if so required, all such
authorizations, approvals, consents and licenses, specifying the same, have been
obtained and are in full force and effect and have been disclosed to the
Representatives.
(3) The Company has authorized and outstanding capital stock,
stock options and other derivative securities as set forth in the Registration
Statement and the Prospectus. The outstanding shares of the Common Stock have
been, and all of the Shares will be, upon sale or issuance and payment therefor,
duly authorized, validly issued, fully paid and nonassessable, are not subject
to preemptive rights and have not been issued in violation of any statutory
preemptive rights or similar contractual rights. The holders of shares of the
Common Stock are not and will not be subject to personal liability solely by
reason of being such holders. The issue and sale of the Shares by the Company
have been duly and validly authorized. The Common Stock has been duly authorized
for quotation in the Nasdaq National Market. All issuances and repurchases of
securities by the Company were exempt from, or complied in all material respects
with, the provisions of all applicable federal and state securities laws
relating to the registration of securities and all state corporate laws.
(4) No holder of any securities of the Company has the right
to require registration of shares of the Common Stock or other securities of the
Company other than such rights as have been duly waived. The description of the
Common Stock and the Shares contained in the Registration Statement and the
Prospectus conforms to the rights set forth in the instruments defining the same
and is in conformity with the requirements of the Act and the Regulations.
(5) The Company is not an "investment company" as defined in
Section 3(a) of the Investment Company Act and, if the Company conducts its
business as set forth in the
B-1
<PAGE>
Registration Statement and the Prospectus, will not become an "investment
company" and will not be required to register under the Investment Company Act.
(6) The Company has full power and authority to enter into
this Agreement, and this Agreement has been duly authorized, executed and
delivered by the Company and constitutes a valid and binding obligation of the
Company enforceable in accordance with its terms, except insofar as rights to
indemnity or contribution may be limited by applicable law or equitable
principles, and except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium, arrangement or similar laws affecting
creditors' rights generally or by general equitable principles.
(7) Nothing has come to such counsel's attention to give such
counsel reason to believe that any of the representations and warranties of the
Company or the Selling Shareholders contained in this Agreement or in any
certificate or document contemplated under this Agreement to be delivered is not
true or correct or that any of the covenants and agreements contained in this
Agreement or in any such certificate or document to be performed on the part of
the Company or the Selling Shareholders or any of the respective conditions
contained in this Agreement or in any such certificate or document, or set forth
in the Registration Statement or the Prospectus, to be fulfilled or complied
with by the Company or the Selling Shareholders has not been or will not be duly
and timely performed, fulfilled or complied with in any material respect.
(8) The Registration Statement and the Prospectus, and each
amendment thereof or supplement thereto, comply as to form and substance with,
and are responsive in all material respects to, the requirements of the Act and
the Rules and Regulations (except that no opinion need be expressed as to
matters concerning financial statements and other financial data and related
notes, schedules and financial or statistical data contained in the Registration
Statement or the Prospectus).
(9) Such counsel has participated in the preparation of the
Registration Statement and the Prospectus and nothing has come to the attention
of such counsel to lead them to believe that, as of each of the Effective Date,
the Closing Date and any Option Closing Date, either the Registration Statement
or the Prospectus, or any amendment or supplement thereto, contained or contains
any untrue statement of a material fact or omitted or omits to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading (except
that no opinion need be expressed as to matters concerning financial statements
and other financial data and related notes, schedules and financial or
statistical data contained in the Registration Statement or the Prospectus).
(10) Such counsel has read all contracts specifically
enumerated in the Registration Statement and the Prospectus, and such contracts
are fairly summarized or described therein, conform in all material respects to
the descriptions thereof contained therein, and are filed as exhibits thereto,
if required, and there are no contracts or documents required to be so
summarized or disclosed or so filed which have not been so summarized or
disclosed or so filed.
B-2
<PAGE>
(11) The Registration Statement has become effective under the
Act, and (A) no stop order suspending the effectiveness of the Registration
Statement has been issued and (B) to the best of such counsel's knowledge, no
proceedings for that purpose have been instituted or are threatened, pending or
contemplated. The opinion delivered at the Closing Date shall state that all
filings required by Rule 424 and Rule 430A of the Rules and Regulations have
been made, to the extent that such rules are utilized.
(12) The execution and delivery of this Agreement by the
Company, the consummation by the Company of the transactions herein contemplated
and the compliance with the terms of this Agreement do not and will not conflict
with or result in a breach of any of the terms or provisions of or violate or
constitute a default under, the Articles of Incorporation or Bylaws of the
Company, or any indenture, mortgage or other agreement or instrument to which
the Company is a party or by which the Company or any of its properties is
bound, or any existing statute, rule or regulation, or any judgment, order or
decree of any government, governmental instrumentality or court, domestic or
foreign, having jurisdiction over the Company or any of its properties.
(13) There are no legal proceedings pending or, to the
knowledge of such counsel, threatened against the Company which are required to
be disclosed in the Registration Statement, except as described therein.
(14) Each Selling Shareholder has full power and authority to
enter into this Agreement and the Power of Attorney and Custody Agreement (the
"Custody Agreement"). All authorizations and consents necessary for the
execution and delivery of this Agreement and the Custody Agreement on behalf of
each Selling Shareholder have been given. The delivery of the Shares on behalf
of each Selling Shareholder pursuant to the terms of the Agreement and payment
therefor by the Underwriters will pass marketable title to the Shares to the
Underwriters and, to the best of such counsel's knowledge, will pass title to
the Shares free and clear of all liens, encumbrances and claims.
(15) Each of the Agreement and the Custody Agreement has been
duly authorized, executed and delivered by each Selling Shareholder, is a valid
and binding agreement of each Selling Shareholder and is enforceable against
each Selling Shareholder in accordance with the terms thereof except insofar as
rights to indemnity or contribution may be limited by applicable law or
equitable principles, and except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium, arrangement or similar laws affecting
creditors' rights generally or by general equitable principles.
(16) No consent, approval, authorization or order of, or any
filing or declaration with, any court or governmental agency or regulatory body,
except as may be required under the Act or the blue sky laws of the various
jurisdictions, is required in connection with the authorization, issuance,
transfer, sale or delivery of the Shares by or on behalf of each Selling
Shareholder, in connection with the execution, delivery and performance of the
Agreement and the Custody Agreement by each Selling Shareholder or in connection
with the taking by or on behalf of each Selling Shareholder of any action
contemplated thereby or, if so required, all such
B-3
<PAGE>
consents, approvals, authorizations and orders specifying the same have been
obtained and are in full force and effect, except such as have been obtained
under the Act or the Regulations.
(17) The execution and delivery of the Agreement and the
Custody Agreement by each Selling Shareholder, the consummation by each Selling
Shareholder of the transactions herein contemplated and the compliance by each
Selling Shareholder with the terms thereof do not and will not result in the
creation or imposition of any lien, charge or encumbrance upon any of the assets
of any Selling Shareholder pursuant to the terms or provisions of, or result in
a breach or violation of any of the terms or provisions of, or constitute a
default under or result in the acceleration of any obligation under, any
indenture, mortgage, deed of trust, voting trust agreement, loan agreement,
bond, debenture, note agreement or other evidence of indebtedness, lease,
contract or other agreement or instrument to which any Selling Shareholder is a
party or by which it or any of its properties is bound or affected, or any
statute, judgment, ruling, decree, order, rule or regulation of any court or
other governmental agency or body applicable to each Selling Shareholder.
(18) There are no transfer or similar taxes payable in
connection with the sale and delivery of the Shares by each Selling Shareholder
to the Underwriters, except as specified in such opinion.
In rendering such opinions, counsel for the Company may set forth that
as to certain matters of fact, such counsel is relying on one or more
certificates of public officials, governmental agencies or officers of the
Company. In addition, as to matters of law, counsel for the Company may rely as
to matters involving the application of laws other than the laws of the United
States, the laws of Pennsylvania, and jurisdictions in which they are admitted,
to the extent such counsel deems proper and to the extent specified in such
opinion, if at all, upon an opinion or opinions (in form and substance
satisfactory to the Underwriters' counsel) of other counsel reasonably
acceptable to the Underwriters' counsel, familiar with the applicable laws,
provided that such counsel for the Company also shall state in its opinion that
it believes that both the Underwriters and it are justified in relying upon such
opinions of such local counsel.
Unless the context clearly indicates otherwise, the term "Company" as
used in this Exhibit, shall include the Subsidiaries. The opinion of counsel for
the Company shall include a statement to the effect that it may be relied upon
by counsel for the Underwriters in their opinion delivered to the Underwriters.
B-4
SECONDED AMENDED AND RESTATED
TERMINATION BENEFITS AGREEMENT
------------------------------
SECOND AMENDED AND RESTATED TERMINATION BENEFITS AGREEMENT made this
18th day of March, 1997, 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 years 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 terms 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
defined in the Executive's Employment Agreement).
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:
1
<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 that would reasonably require a relocation of his
personal residence;
(iv) Any removal from or any failure to reelect Executive to
the highest ranking executive position in the Company except in connection with
a termination of employment for Good and Sufficient Cause, disability, death or
retirement or voluntary resignation or refusal to stand for re-election by
Executive;
(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; or
(vi) Any material reduction in the benefits provided to
Executive under 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.
3. For purposes of this Agreement, a "Change in Control" shall be
determined 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 Executive, any affiliate of Executive, or any
group of Persons of which Executive is a participant, any employee benefit plan
of the Company or any subsidiary of the Company, or any 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 with respect to the election of directors that results in
the contesting party electing one or more nominees to the Board of Directors;
(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; or
2
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(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.
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 inclusive of the Executive; (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 inclusive of the Executive;
(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 Company, 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 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.
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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 (vi) 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 thirty (30) 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 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) All options held by Executive, to the extent not vested
pursuant to the terms of any plan or agreement governing such option, shall
become fully vested and exercisable;
(c) The exercise price of the option to purchase 500,000
shares granted to Executive under the Company's 1996 Executive Stock Plan (the
"Options") shall be reset (if the resulting exercise price is lower than the
exercise price then in effect) to the lower of (x) the exercise price of the
Options; and (y) fifty (50%) percent of the market value of the Company's Common
Stock. For the purposes hereof, the term "market value of the Common Stock"
shall mean the simple average of the closing prices of the Company's Common
Stock on the principal exchange or quotation system upon which the Company's
Common Stock is regularly traded for the trading days during the sixty (60)
calendar days preceding the date the Executive terminates his employment for
good reason as described in subparagraphs (i) to (vi) of paragraph 2 hereof, or
the date Executive is terminated by the Company for other than "Good and
Sufficient Cause");
(d) 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,
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disability and life insurance plans provided by or through the Company,
including those provided in the Employment Agreement;
(e) 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
(f) The Company, within sixty (60) 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 all benefits
provided to Executive under this Agreement and (ii) cause the Company's
independent auditors to determine, within sixty (60) days, the amount to be paid
to Executive pursuant to subparagraph 5(a) and this subparagraph 5(f) 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(d) 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
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
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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, then the Company irrevocably authorizes
Executive 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, a First Amendment to Termination Benefits
Agreement dated March 1, 1996 and an Amended and Restated Termination Benefits
Agreement dated November 30 1996. This Agreement may be altered or amended only
by a writing signed by the parties hereto.
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.
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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
7
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated December 16, 1996 (except for Note 6 as to which
the date is December 19, 1996 and Note 4, regarding the acquisition of
Programming Alternatives of Minnesota, Inc., as to which the date is January 7,
1997), accompanying the consolidated financial statements and schedules of RCM
Technologies, Inc. (a Nevada corporation) and Subsidiaries contained in the
Registration Statement and Prospectus. We consent to the use of the
aforementioned report in the Registration Statement and Prospectus, and to the
use of our name as it appears under the caption "Experts."
GRANT THORNTON LLP
Philadelphia Pennsylvania
March 21, 1997
